As filed with the Securities and Exchange Commission on November 25, 2015
Registration No. 333-206718
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Ceres, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Delaware |
|
100 |
|
33-0727287 |
(State or other jurisdiction of incorporation or organization) |
|
(Primary Standard Industrial Classification Code Number) |
|
(I.R.S. Employer Identification No.) |
1535 Rancho Conejo Boulevard
Thousand Oaks, CA 91320
(805) 376-6500
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Richard Hamilton
President and Chief Executive Officer
Ceres, Inc.
1535 Rancho Conejo Boulevard
Thousand Oaks, CA 91320
(805) 376-6500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Robert Evans III
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022-6069
Tel: (212) 848-4000
Fax: (212) 848-7179
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
Large accelerated filer o |
|
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
|
Smaller reporting company x |
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
Title of Each Class of Securities To Be Registered |
|
Proposed Maximum Aggregate Offering Price(1)(2)(3) |
|
Amount of Registration Fee |
Class A Units consisting of:
|
|
$ |
|
|
|
$ |
|
|
(i) Shares of Common Stock, par value $0.01 per share |
|
|
|
|
|
|
|
|
(ii) Warrants to purchase Common Stock(4) |
|
|
|
|
|
|
|
|
Class B Units consisting of:
|
|
|
|
|
|
|
|
|
(i) Shares of Series A-1 Convertible Preferred Stock, par value $0.01 per share |
|
|
|
|
|
|
|
|
(ii) Shares of Common Stock issuable on conversion of Series A-1 Convertible Preferred Stock(4)(5) |
|
|
|
|
|
|
|
|
(iii) Warrants to purchase Common Stock(4) |
|
|
|
|
|
|
|
|
Common Stock issuable upon exercise of warrants(5) |
|
$ |
|
|
|
$ |
|
|
Total |
|
$ |
32,000,000 |
|
|
$ |
3,222.40 |
(6) |
|
(1) |
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. |
|
(2) |
Includes the price of additional units, consisting of shares of Common Stock and warrants to purchase shares of Common Stock, that the underwriters have the option to purchase to cover over-allotments, if any. |
|
(3) |
Includes the price of shares of Common Stock issuable upon exercise of warrants at an exercise price of $ per share of Common Stock. |
|
(4) |
No fee pursuant to Rule 457(g) under the Securities Act of 1933. |
|
(5) |
Pursuant to Rule 416 under the Securities Act, includes an indeterminate number of additional shares of Common Stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions. |
|
(6) |
$1,394.40 paid at the time of original filing on September 1, 2015. |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF CONTENTS
The information in this prospectus is not complete and may be changed. We may not sell the securities pursuant to this prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
|
|
|
PRELIMINARY PROSPECTUS |
|
DATED NOVEMBER 25, 2015 |
2,545,000 Class A Units consisting of Common Stock and warrants and 9,000 Class B Units
consisting of shares of Series A-1 convertible preferred stock and warrants (and 17,799,280 shares
of Common Stock underlying shares of Series A-1 convertible preferred stock and warrants)
We are offering 2,545,000 Class A units, with each Class A Unit consisting of one share of our common stock, par value $0.01 per share (the Common Stock), and a warrant to purchase one share of our Common Stock (together with the shares of Common Stock underlying such warrants, the Class A Units) at a public offering price of $ per Class A Unit. Each warrant included in the Class A Units entitles its holder to purchase one share of Common Stock at an exercise price of $ .
We are also offering to those purchasers, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 9.99% of our outstanding Common Stock following the consummation of this offering, the opportunity to purchase, in lieu of the number of Class A Units that would result in ownership in excess of 9.99%, Class B Units. Each Class B Unit will consist of one share of Series A-1 Convertible Preferred Stock, par value $0.01 per share (the A-1 Preferred Stock), convertible into 847.460 shares of Common Stock and
warrants to purchase 847.460 shares of our Common Stock (together with the shares of Common Stock underlying such shares of A-1 Preferred Stock and such warrants, the Class B Units and, together with the Class A Units, the units) at a public offering price of $ per Class B Unit. Each warrant included in the Class B Units entitles the holder to purchase one share of Common Stock at an exercise price of $ .
The Class A Units and Class B Units will not be certificated and the shares of Common Stock, A-1 Preferred Stock and warrants comprising such units are immediately separable and will be issued separately in this offering.
The underwriters have the option to purchase up to (i) 1,525,821 additional shares of Common Stock, and/or (ii) additional warrants to purchase up to 1,525,821 additional shares of Common Stock solely to cover over-allotments, if any, at the price to the public less the underwriting discounts and commissions. The over-allotment option may be used to purchase shares of Common Stock, or warrants, or any combination thereof, as determined by the underwriters, but such purchases cannot exceed an aggregate of 15% of the number of shares of Common Stock (including the number of shares of Common Stock issuable upon conversion of
shares of A-1 Preferred Stock) and warrants sold in the primary offering. The over-allotment option is exercisable for 45 days from the date of this prospectus.
Our Common Stock is listed on the NASDAQ Capital Markets under the symbol CERE. The last reported sale price of our Common Stock on November 23, 2015 was $1.18 per share. We do not intend to apply for listing of the shares of A-1 Preferred Stock or the warrants on any securities exchange or other trading system. We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.
You should read this prospectus carefully before you invest.
See Risk Factors on page 10 of this prospectus to read about factors you should consider before buying units.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
Per Class A Unit |
|
Per Class B Unit |
|
Total |
Public offering price |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Underwriting discount(1)(2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Proceeds, before expenses, to Ceres |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
We have also agreed to issue warrants to the representative of the underwriters and to reimburse the representative for certain expenses. See Underwriting. |
|
(2) |
We have granted a 45 day option to the underwriters to purchase up to an additional 1,525,821 shares of Common Stock and/or warrants exercisable for up to an additional 1,525,821 shares of Common Stock (up to 15% of the shares plus the number of shares of Common Stock issuable upon conversion of shares of A-1 Preferred Stock and up to 15% of the warrants firmly committed in this offering) solely to cover over-allotments, if any. |
The underwriters expect to deliver the securities underlying the units against payment in New York, New York on , 2015.
LADENBURG THALMANN
The date of this prospectus is , 2015.
TABLE OF CONTENTS
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or in any related free writing prospectus filed by us with the Securities and Exchange Commission, or the SEC. We have not, and the underwriters and their affiliates have not, authorized anyone to provide you with any information or to make any representation not contained in this prospectus. We do not, and the underwriters and their affiliates do not, take any responsibility for, and can provide no assurance as to the reliability of, any information that others may provide to you. This prospectus is not an offer to sell or an offer to buy units in any
jurisdiction where offers and sales are not permitted. The information in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or any sale of units.
Neither we nor the underwriters have done anything that would permit a public offering of the units or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the units and the distribution of this prospectus outside of the United States.
Based on the Exchange Rate of the Central Bank of Brazil, on November 10, 2015, one Real was equivalent to 0.26 U.S. dollars.
i
TABLE OF CONTENTS
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, contained in this prospectus. You should carefully consider, among other things, the matters discussed in Risk Factors, before making an investment decision. You should also read and consider the information in the documents to which we have referred you in Where You Can Find Additional Information.
Unless otherwise indicated in this prospectus, Ceres, our company, the Company, we, us and our refer to Ceres, Inc. and our subsidiaries, Ceres Sementes do Brasil Ltda., Ceres Agrotechnologies Intl LLC and CS Semillas de México, S. de L. de C.V.
Business Overview
The Company
We are an agricultural biotechnology company that develops and markets seeds and traits to produce crops for feed, forages, sugar and other markets. We use a combination of advanced plant breeding, biotechnology and bioinformatics to develop seed products and biotechnology traits to address many of the current limitations and future challenges facing agriculture. These technology platforms, which can increase crop productivity, improve quality, reduce crop inputs and improve cultivation on marginal land, have broad application across multiple end markets, including food, feed, fiber and fuel.
Increased global prosperity is driving increasing agricultural demand. As human societies become wealthier, they typically increase meat and dairy consumption. As a result, demand for forage, feed and hay crops to feed meat and dairy cattle is expected to continue to increase. We believe that growers of forage crops, including vertically integrated businesses such as dairies, will need to seek improved sources of forage as well as utilize more marginal quality cropland, or cropland with limited water availability, to meet their feedstock requirements. To maximize milk and meat production, dairies and livestock producers
frequently supplement rations of grasses with other crops and nutritional sources. We believe that a single crop plant with improved forage quality can be a significant supplement to existing livestock feed rations. Using our technology platforms, we are developing forage and feed crops with a better balance of yield, energy and nutrition. In forage sorghum, we are taking advantage of the natural drought tolerance and lower fertilizer requirements of sorghum and combining it with biotech traits for enhanced biomass yield and quality. By utilizing our high biomass or quality traits, such as our high carbohydrate trait, we believe sorghum could potentially surpass silage corn in milk yield per acre, which is a key crop performance metric for dairies. We also believe there is an opportunity to utilize these traits in other forage crops, such as alfalfa and silage corn. Many of these traits have already been developed as part of our historical activities in bioenergy.
Our current commercial seed products have demonstrated a number of favorable attributes for forage feed, including high yields and lower water requirements, as well as competitive production costs relative to corn and certain hay crops. In addition our product development pipeline contains numerous traits and seed products that have demonstrated further yield improvements as well as enhanced energy content and nutrition. Following commercial field evaluations in 2014, we launched our U.S. forage sorghum business in 2015 and initiated multiple distribution arrangements with well-established providers of crop inputs and
services, including Helena Chemical Company, Wilbur-Ellis and 3rd Millennium Genetics. Distributors provide us with local market information, agronomy support and access to their customer base.
In addition to our forage sorghum opportunity, in certain crops, including corn, rice and sugar beet, we have out-licensed a portion of our traits and gene technology to existing market participants and continue to pursue opportunities to out-license these technologies, among other go-to-market strategies. We believe that the strength of our technology has been validated by our receipt of multiple competitive grants as well as collaborations with leading companies. We also have significant intellectual property rights to our technology platforms, traits and seed products.
Forage Sorghum Seed and Traits
In 2015, we expanded our sorghum offerings to include hybrids for use as livestock feed and forage. We are leveraging our core capabilities in plant transformation and biotech traits and combining them with
1
TABLE OF CONTENTS
proprietary forage sorghum hybrids and breeding lines. Our goal is to expand forage sorghum into a major feed crop with higher yield and nutritional quality. We believe that our opportunity is supported by the following capabilities and advantages:
|
|
Access to Leading Germplasm via Long-Term Relationship with Texas A&M University. Since 2007, we have acquired access to valuable sorghum parental lines (germplasm) through our strategic collaboration with Texas A&M University. We believe that this long-term relationship will continue to play a key role in developing new hybrids for the forage market similar to the advantages we received during our historical activities with similar types of sorghum. |
|
|
Multiple Distribution Arrangements. We have entered into several distribution agreements with well-established distributors of crop inputs and services in North America, including Helena Chemical Company, Wilbur-Ellis and 3rd Millennium Genetics. For the 2015 growing season underway in North America, we sold more than 4,000 acres of our Blade forage sorghum seed products for commercial evaluations, compared to approximately 3,000 acres previously estimated in July 2015 and 600 acres planted the previous season. We believe drought and water supply concerns in certain regions of the U.S. positively influenced customer decisions to plant our forage sorghum hybrids. As an outlet for previous generations of products in our portfolio, we also introduced generic seed for certain market segments. Plantings of generic seed are expected to cover several thousand additional acres. |
|
|
Favorable Performance Compared to Other Forage Sorghum and Silage Corn. Our current hybrids, which are traditionally bred and do not yet contain biotech traits, have performed well in numerous commercial and multi-hybrid field trials in the United States and have demonstrated a number of favorable attributes for forage feed, such as high yields and lower water requirements, as well as competitive production costs relative to corn and certain hay crops. For example, in two university-led evaluations, which included products from well-known seed companies, we achieved the highest milk production yield per acre, which is a key metric for dairy operations. For the 2015 growing season in North America, we are evaluating more than a dozen new hybrids that offer performance advantages such as higher yields and improved nutrition. |
|
|
Field Validated Biotech Traits and Non-Regulated Status. We have also advanced our biotech traits in sorghum for additional field evaluations in the United States. In a 2014 U.S. field evaluation, one of our leading biotech traits provided a greater than 20% biomass yield advantage in a commercial-type sorghum. In 2014, we also received confirmation from the USDA that our high biomass trait was not considered a regulated article under 7 CFR §340 of the USDAs mandate to regulate genetically engineered traits. This determination is likely to make it more cost-effective and timely for us to develop this trait in sorghum, and as a result, we believe we have a clear and near-term path forward to the commercialization of this trait. We are targeting commercial release as early as 2018. By utilizing our high biomass or quality traits, such as our high carbohydrate trait, which has been validated in the greenhouse, we
believe sorghum could potentially surpass silage corn in milk yield per acre, which is a key crop performance metric for dairies. |
Biotech Traits for Sugarcane and Other Crops
Our biotechnology traits include traits that increase biomass yields and provide greater yield stability and resilience to drought and other stress conditions. Our strategy is to focus on genes that have shown large, step increases in performance, and whose benefits are largely maintained across multiple species. Trait performance is evaluated in target crops, such as corn, rice and sugarcane, through multi-year field tests in various locations. To date, our field evaluations have largely confirmed earlier results obtained in greenhouse and laboratory settings.
We believe that a number of our biotech traits could provide significant benefits to sugarcane production, such as improved biomass yields and greater resilience to drought and other stress conditions. Biotech solutions are particularly attractive in sugarcane because improvements through plant breeding have been cumbersome and slow compared to other crops. In research-scale field evaluations completed in March 2015, our biotech traits demonstrated significant advantages in enhancing and protecting yields in commercial
2
TABLE OF CONTENTS
sugarcane varieties under tropical conditions in Latin America. Plantings for the next stage of field trials were completed in June 2015 ahead of our original schedule.
In two years of field evaluations in corn in China, our multi-gene biotech traits demonstrated significant yield advantages over controls in many of our research-scale field evaluations. We have expanded the scope of our trials, including evaluations of our traits in a more diverse set of corn breeding lines. Results of these evaluations are expected by January 2016. We believe that our results represent an important step forward in crop biotechnology. We have optimized the expression of our genes in a more precise and sophisticated manner than is usually the case. In addition, we believe that combining genes together, to
either create a stronger trait or combine complementary traits, provides the best approach to generate high impact advantages, such as increased grain yield or better drought tolerance.
We have also developed a new high-throughput, low-cost approach called iCODE, to rapidly create, evaluate and select optimal combinations of genes and their control components for next-generation biotechnology traits in crops. We believe that iCODE may have application in multiple row crops, including canola, corn, cotton, rice, sorghum, soybean and wheat. Due to the efficiency of the system, we believe that it can enable new kinds of discoveries and allow even smaller research programs to compete effectively against larger companies. In August 2015, we were awarded a U.S. patent covering our iCODE technology.
In the third quarter of fiscal year 2015, we entered into a multi-year collaboration with a leading agricultural producer to develop biotech traits for our collaborators crop in a defined geography. We expect the development and commercialization program will be fully funded by our collaboration partner, with payments to us expected to exceed $1.0 million by mid-2016. Under the agreement, we will also receive royalties for new cultivars commercialized under the collaboration. We are also exploring discussions with other agricultural companies to develop and commercialize our biotech traits in crops, such as corn and
sugarcane, for certain geographies. In October 2015, we entered into a multi-year collaboration with Forage Genetics International (FGI) to develop and commercialize improved alfalfa. We expect that FGI will begin evaluating alfalfa varieties with our traits by next year. Results from these trials will determine commercialization timelines.
Persephone Bioinformatics Software
We have developed proprietary bioinformatics software, known as Persephone, to deal with the massive amounts of data generated in plant genomics. In September 2015, we licensed Persephone to global seed developer, KWS SAAT SE. Bayer CropScience, Syngenta Biotechnology and HZPC Holland BV, all multi-national life sciences companies, have also licensed Persephone as their primary genome browser. The technology is also being evaluated by other companies and institutions in plant genomics. We also intend to expand into new markets, such as biomedical research and diagnostics, where genomic and genetic data is analyzed and viewed
in a similar manner to plant genomics.
Competitive Strengths
We believe that we possess a number of competitive strengths that position us to become a leading provider of seeds, traits and bioinformatics technologies, including:
Current Commercial Products with Multiple Advanced Products in Pipeline
Our current commercial products and product pipeline contain numerous traits and seed products with potential across multiple crops including sorghum, sugarcane and corn, among others. Moreover, we are focused on crops and traits outside the primary market areas of major international agrochemical and agricultural biotechnology corporations.
Leading Platform with Full Agricultural Biotech Seed Company Capabilities
We are an agricultural biotechnology company that uses biotechnology, advanced plant breeding and genomic technologies to create high value traits and seeds to produce agricultural crops. Our integrated technology platform delivers a combination of valuable genetic assets and competencies in genomics and gene mapping, biotechnology and bioinformatics. Our iCODE technology enables high throughput genetic testing that can speed up the trait development process. In addition to possessing the research and development capabilities necessary to generate new product candidates, we are vertically integrated, which gives us the ability
to bring agricultural biotechnology products to market in select crops.
3
TABLE OF CONTENTS
Extensive Intellectual Property Portfolio of High Value Traits and Germplasm
We have an extensive intellectual property portfolio of both field-validated high value traits and germplasm, which includes thousands of specimens and breeding lines, as well as multiple pools of regionally adapted germplasm spanning multiple climates. We have extensive filings around unique combinations of gene promotors and protein coding sequences. Having both germplasm and field-validated trait portfolios allows us to leverage the synergies created to facilitate innovation in a way that is not possible with germplasm or traits alone. In our focus geographies, we believe that we have a significant advantage over new
entrants who would need several generations of germplasm development and/or access to biotech traits to achieve performance equivalent to our current product portfolio and pipeline.
Multiple Out-Licensing Opportunities
Our biotech traits and core technology platforms provide multiple opportunities for exclusive or non-exclusive out-licensing, by crop and/or geography and market. Traits developed through biotechnology, also known as genetic engineering, can be added to multiple crops with similar effect in most cases. Our strategy is to focus on genes that have shown large, step increases in performance and whose benefits are largely maintained across multiple species.
Positioned to Capitalize on Growth of Large End Markets
Our biotechnology platform, which has proven to increase biomass productivity, raise quality, reduce crop inputs and improve cultivation on marginal land, has broad application across multiple end markets and crops.
Validated, Robust Bioinformatics Platform
We have established our Persephone bioinformatics software as a preeminent platform for storing, organizing, accessing and visualizing genetic information, and have displaced incumbent solutions at major life science companies. The software includes a number of proprietary data management optimizations to quickly access and visualize very large datasets. This speed enables more dynamic visualizations, intuitive discovery and greater insights into genetic information. We believe that our direct experience using Persephone internally and our ability to continually develop and launch new versions with additional features and
functions will enable us to further establish our market position in the plant sciences and expand into new markets, such as biomedical research and diagnostics.
Attractive Business Model
Seed businesses traditionally incur significant research and development expenditures and have long product development time lines, but benefit from a combination of high gross margins, low capital expenditure requirements and intellectual property protection. Once developed, seeds require little physical infrastructure or production cost to be replicated for sale. Seeds are typically priced, however, based on a share of the value created to the customer as opposed to their cost of production. In general, seed costs to growers are a relatively small percentage of their total production cost, but the performance of those seeds
is critical to the growers economics. We believe we can position our business to take advantage of low production costs relative to the high value of our products to our customers.
Management Team with Significant Industry Experience
Our management team includes leading scientists and industry experts who have extensive experience in the field of agricultural biotechnology and possess a deep understanding of a variety of agricultural and biotechnology businesses, including the seed industry.
Our Strategy
Our objective is to be a leading provider of seeds and traits to a variety of agricultural markets, including livestock feed and forage, sugar and other markets. In our realigned business, we plan to leverage many of the technology advances we achieved historically for bioenergy markets, including traits for increased biomass and improved digestibility. Key elements of our business strategy include:
|
|
Expand forage sorghums use into a major feed crop with greater yield and nutritional quality, increased value capture and expanded market potential; |
4
TABLE OF CONTENTS
|
|
Make use of the positive regulatory landscape to introduce biotech traits in our branded sorghum seed products, beginning in the U.S.; |
|
|
Pursue additional license and royalty-based collaborations with market leaders in multiple geographies to introduce our biotechnology traits to other forage crops and sugarcane; |
|
|
Continue to realign our business operations in Brazil toward sugarcane trait development and commercialization, and work with well-established local partners; and |
|
|
Increase the number of plant sciences customers utilizing our Persephone platform and expand into the biomedical fields, where genetic information is analyzed and viewed in a similar manner to plant genomics. |
Summary of Risk Factors
Our business is subject to a number of risks and uncertainties that you should understand before making an investment decision. For example, we have a history of net losses, we expect to continue to incur net losses and we may not achieve or maintain profitability. We also may not be able to continue as a going concern. Furthermore, our forage products are in the early stages of commercialization and we have generated limited revenue from seed sales. Substantially all of our revenue to date has been derived from collaborations and government grants. Over the next several years, we expect our revenue will shift from being
derived primarily from collaborations and government grants to product sales. As of August 31, 2015, we had an accumulated deficit of $332.1 million. We expect to incur additional losses for at least the next several years as we continue to move forward with our commercialization activities, invest in our research and development programs and develop new products. Additional risks are discussed more fully in the section entitled Risk Factors following this prospectus summary. These risks include, but are not limited to, the following:
|
|
We have a history of net losses; we expect to continue to incur net losses and we may not achieve or maintain profitability. |
|
|
We may not be able to continue as a going concern. |
|
|
We will require additional financing and may not be able to obtain such financing on favorable terms, if at all, which would force us to significantly curtail our operations. |
|
|
The realignment of our business announced on June 19, 2015 to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops may not deliver the expected results and we may not be able to execute on our new strategy. |
|
|
We are at the beginning stages of developing our brand awareness for our crops, and we have limited experience in marketing and selling our products and will need to expand our sales and marketing infrastructure. |
|
|
We have only completed a limited number of evaluations and commercial-scale production of our sorghum products in the U.S. forage market and, to the extent that our sorghum products do not result in expected yields, we may have difficulty commercializing our sorghum products. |
|
|
Our biotech products require a multi-year development process and are not yet available for commercial use. |
|
|
Our third-party distributors may not effectively market and sell our products. |
|
|
Our business will be adversely affected if the field trials being conducted by our collaborators or potential customers fail to perform as expected. |
|
|
Our product development efforts use complex integrated technology platforms and require substantial time and resources to develop and our efforts may not be successful or the rate of product improvement may be slower than expected. |
|
|
We face significant competition in all areas of our business, and if we do not compete effectively, our business will be harmed. We are relatively new to the forage sorghum seeds market and face competition from a number of well-established market participants. |
5
TABLE OF CONTENTS
|
|
Our software products are complex, which makes it difficult to innovate and avoid costs related to correction of program errors. |
|
|
A significant portion of our revenue to date is generated from government grants and continued availability of government grant funding is uncertain and contingent on compliance with the requirements of the grant. |
|
|
Compliance with applicable government regulations, particularly with respect to biotechnology products, is time-consuming and costly. |
|
|
The timely introduction of our traits in the United States for our sorghum and other crops relies on non-regulated status under certain USDA regulations. We may lose such non-regulated status in the U.S. or we may face other regulations that could limit or block the introduction of our traits developed through biotechnology or other similar technologies in the U.S. or other markets. |
|
|
The degree of public understanding and acceptance or perceived public acceptance of our biotechnology products can affect our sales and results of operations by affecting approvals, regulatory requirements and customer purchase decisions. |
|
|
Our inability to adequately protect our proprietary technologies and products could harm our competitive position. |
|
|
The value of our intellectual property could diminish due to technological developments or challenges by competitors, making our products less competitive. |
Corporate Information
We were incorporated in the State of Delaware in March 1996 under the name Ceres, Inc. Our corporate headquarters are located at 1535 Rancho Conejo Boulevard, Thousand Oaks, California 91320, and our telephone number is +1 (805) 376-6500. Our website address is www.ceres.net. The information contained on our website or that can be accessed through our website is not part of this prospectus and investors should not rely on any such information in deciding whether to purchase our Common Stock.
Our logos, Ceres®, Blade®, Skyscraper®, PersephoneTM and iCODETM and other trademarks or service marks of Ceres, Inc. appearing in this prospectus are the property of Ceres, Inc. This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other companies trade names, trademarks or service marks to imply relationships with, or endorsement or sponsorship of us by, these other companies.
6
TABLE OF CONTENTS
The Offering
Class A Units offered by us |
|
|
|
|
We are offering 2,545,000 Class A Units and Class B Units. Each Class A Unit consists of one share of Common Stock and a warrant to purchase one share of our Common Stock (together with the shares of Common Stock underlying such warrants). |
Public offering price per Class A Unit |
|
|
Class B Units offered by us |
|
|
|
|
We are also offering to those purchasers, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 9.99% of our outstanding Common Stock following the consummation of this offering, the opportunity to purchase, in lieu of the number of Class A Units that would result in ownership in excess of 9.99%, Class B Units. Each Class B Unit will consist of one share of A-1 Preferred Stock, par value $0.01 per share, convertible into 847.460 shares of Common Stock and warrants to purchase 847.460 shares of our Common Stock (together with the shares of Common Stock underlying such shares of A-1 Preferred Stock and such warrants). |
Public offering price per Class B Unit |
|
|
|
|
We have granted the underwriters an option to purchase up to 1,525,821 additional shares of Common Stock and/or warrants to purchase an additional 1,525,821 shares of Common Stock. This option is exercisable, in whole or in part, for a period of 45 days from the date of this prospectus. |
|
|
The warrants will be exercisable beginning on the closing date and expire on the five (5) year anniversary of the closing date at an initial exercise price per share equal to $ , subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Common Stock. |
Common stock outstanding prior to this offering |
|
|
|
|
8,830,700 shares, as of November 10, 2015 |
A-1 Preferred Stock outstanding prior to this offering |
|
|
Common stock to be outstanding after this offering |
|
|
A-1 Preferred Stock to be outstanding after this offering |
|
|
|
|
We expect to receive net proceeds from this offering of approximately $10.4 million, based on an assumed offering price of $1.18 per Class A Unit and $1,000 per Class B Unit and after deducting the underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds from this offering for general corporate purposes, including working capital. See Use of Proceeds. |
7
TABLE OF CONTENTS
Nasdaq Capital Market trading symbol |
|
|
No listing of A-1 Preferred Stock or warrants |
|
|
|
|
We do not intend to apply for listing of the shares of A-1 Preferred Stock or warrants on any securities exchange or other trading system. |
|
|
See Risk Factors on page 10 of this prospectus to read about factors you should consider before buying units. |
The number of shares of Common Stock that will be outstanding after this offering is based on 8,830,700 shares outstanding as of November 10, 2015, and excludes:
|
|
392,381 shares of Common Stock issuable upon exercise of options to purchase our Common Stock outstanding as of November 10, 2015 at a weighted average exercise price of $44.13 per share; |
|
|
2,678,930 shares of Common Stock issuable upon exercise of warrants to purchase our Common Stock outstanding as of November 10, 2015 at a weighted average exercise price of $11.79 per share; |
|
|
5,200 shares of Common Stock reserved as of November 10, 2015 for future issuance under our 2010 Stock Option/Stock Issuance Plan; |
|
|
147,639 shares of Common Stock reserved as of November 10, 2015 for future issuance under our Amended and Restated 2011 Equity Incentive Plan; |
|
|
7,627,140 shares of Common Stock that may be issued upon conversion of shares of A-1 Preferred Stock; |
|
|
10,172,140 shares of Common Stock underlying the warrants issuable to investors in connection with this offering; and |
|
|
203,442 shares of Common Stock underlying the warrants issuable to the representative (as defined below) in connection with this offering. See Underwriting Representatives Warrants. |
Except as otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.
8
TABLE OF CONTENTS
Summary Consolidated Financial Data
The summary data presented below for each of the years in the two-year period ended August 31, 2015, are derived from the consolidated financial statements of Ceres, Inc. and subsidiaries, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated financial statements as of August 31, 2015 and 2014, and for each of the years in the two-year period ended August 31, 2015, and the report thereon, are included elsewhere in this prospectus. You should read the summary of our consolidated financial data set forth below together with the more detailed information
contained in Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Consolidated Statement of Operations
|
|
|
(In thousands, except share and per share data) |
|
Revenues
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
434 |
|
|
$ |
146 |
|
Services |
|
|
2,286 |
|
|
|
2,258 |
|
Total revenue |
|
|
2,720 |
|
|
|
2,404 |
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
5,267 |
|
|
|
3,021 |
|
Research and development |
|
|
9,684 |
|
|
|
14,156 |
|
Selling, general and administrative |
|
|
15,946 |
|
|
|
14,484 |
|
Total cost and operating expenses |
|
|
30,897 |
|
|
|
31,661 |
|
Loss from operations |
|
|
(28,177 |
) |
|
|
(29,257 |
) |
Interest expense |
|
|
(30 |
) |
|
|
(68 |
) |
Interest income |
|
|
28 |
|
|
|
5 |
|
Other income |
|
|
24 |
|
|
|
|
|
Loss before income taxes |
|
|
(28,155 |
) |
|
|
(29,320 |
) |
Income tax (expense) benefit |
|
|
(1 |
) |
|
|
(1 |
) |
Net loss |
|
$ |
(28,156 |
) |
|
$ |
(29,321 |
) |
Basic and diluted net loss per share(1) |
|
$ |
(4.57 |
) |
|
$ |
(6.48 |
) |
Weighted average outstanding common shares used for net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic and diluted(1) |
|
|
6,166,006 |
|
|
|
4,525,745 |
|
|
(1) |
The basic and diluted loss per share are computed by dividing the net loss by the weighted average number of common shares outstanding during the period. As we have losses in all periods presented, all potentially dilutive common shares comprising of stock options, warrants, convertible notes and convertible preferred stock are anti dilutive. |
|
|
|
|
|
As of August 31, 2015 |
|
|
(In thousands) |
Consolidated Balance Sheet Data:
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,095 |
|
Total assets |
|
$ |
11,122 |
|
Total indebtedness (including short term indebtedness) |
|
$ |
18 |
|
Total stockholders equity |
|
$ |
4,213 |
|
9
TABLE OF CONTENTS
RISK FACTORS
Investing in the units involves a high degree of risk. You should carefully consider the risks and uncertainties set forth below, together with all of the other information set forth in this prospectus, before investing in the units. If any of these risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the price of our securities could decline, and you could lose part or all of your investment.
Risks Related to Our Business
We have a history of net losses; we expect to continue to incur net losses; we may not achieve or maintain profitability.
With the exception of the fiscal years ended December 31, 2003, 2005 and 2006, we have incurred net losses each fiscal year since our inception. As of August 31, 2015, we had an accumulated deficit of $332.1 million. We expect to incur additional losses for at least the next several years as we continue to move forward with our commercialization activities, invest in our research and development programs and develop new products. The extent of our future net losses will depend, in part, on our product sales growth and revenue from collaborations and government grants, and on the level of our operating expenses. To date,
substantially all of our revenue has been derived from collaboration agreements and government grants, and we have had very limited revenue from seed sales. Over the next several years, we expect our revenue will shift from being derived primarily from collaborations and government grants to product sales. However, this may take longer than expected due to the time it takes to evaluate our seeds in various markets. Our ability to generate future revenue will depend upon our ability to meet our obligations under our collaborations and government grants, to enter into new collaborations or out-licensing agreements and to successfully commercialize our products. Our success in generating revenue from product sales depends in large part on the success of our sorghum products in the United States, and in the future, on the adoption of our traits or genetic technologies, such as Persephone bioinformatics software and iCODE multi-gene trait development system. Even if we do achieve
profitability, we may not be able to sustain or increase our profitability.
We may not be able to continue as a going concern.
Our consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We expect to incur further losses in the operations of our business and have been dependent on funding our operations through the issuance and sale of equity securities. Our accumulated deficit as of August 31, 2015 was $332.1 million. Our cash and cash equivalents of $8.1 million as of August 31, 2015 is not sufficient to enable us to remain in business beyond January 2016 without raising further capital or
significantly curtailing our operations. These circumstances raise substantial doubt about our ability to continue as a going concern. As a result of this uncertainty and the substantial doubt about our ability to continue as a going concern as of August 31, 2015, our independent registered public accounting firm issued a report dated November 23, 2015 stating that the Company has incurred recurring losses and expects that the current level of cash and cash equivalents will only be sufficient to fund operations until January 2016 which raises substantial doubt about its ability to continue as a going concern. Investors in our securities should review carefully the report of our independent registered public accounting firm, which is included in this Annual Report on Form 10-K.
Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Therefore, you should not rely on our consolidated financial statements as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of liquidation.
We will require additional financing and may not be able to obtain such financing on favorable terms, if at all, which would force us to significantly curtail our operations.
We will continue to need capital to fund our research and development projects, to commercialize our products and to provide working capital to fund other aspects of our business. As of August 31, 2015, we had cash and cash equivalents of $8.1 million. We believe this will only be sufficient to fund our operations until
10
TABLE OF CONTENTS
January 2016. In order to fund our operations beyond that time, we will need to raise additional funds. We are evaluating opportunities to secure additional financing, including the issuance of equity or debt, sale or divesture of business units, and additional revenues from grants or collaborations. However there are no assurances that such opportunities will be available or available on terms that are acceptable to us. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. If we are able to raise debt financing, we may be subject to restrictive covenants that limit our
operating flexibility or require us to encumber our assets. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, develop and commercialize products or technologies, or otherwise respond to competitive pressures will be significantly limited. If this happens, we may be forced to obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, grant licenses to our technology and sell assets on terms that are not favorable to us or delay or terminate research and development programs or the commercialization of products or significantly curtail or cease our operations.
We have shifted our business focus and strategy from seeds for dedicated energy crops to seeds and traits for food and forage markets and other crops and we may not be successful in implementing this new strategy.
In 2014, we began realigning our business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. Previously, we prioritized our working capital in Brazil, where, since 2010 we were focused on the large-scale evaluation and adoption of our high biomass sorghum for power generation and sweet sorghum for ethanol production. Due in part to the economic challenges faced by the Brazilian ethanol industry, including low oil prices, the struggling Brazilian economy and unfavorable government policies in Brazil, in June 2015, we began restructuring our operations in Brazil to substantially
scale back those operations. We cannot assure you that as a new entrant to these markets, we will be successful in commercializing our products and services, recouping development and commercialization-related expenses, or competing against established market participants. If we are not able to bring our existing products or new products and services with significant commercial potential to market in a timely manner, we will not be successful in building a sustainable or profitable business.
The realignment of our business announced on June 19, 2015 to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops may not deliver the expected results.
On June 19, 2015, we announced the continued realignment of our business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, we undertook a restructuring of our Brazilian seed operations. The restructuring of our Brazilian seed operations, includes, among other actions, a workforce reduction that initially impacted 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. We estimated that we would incur charges of approximately $0.6 million over the five-month period
ending in October 2015 with respect to the initial workforce reductions in Brazil and the U.S., including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.5 million of one-time severance and other costs, all of which will be cash expenditures.
As of August 19, 2015, we had initiated a further workforce reduction that impacted an additional 19 positions in Brazil. We estimated that we would incur additional charges of approximately $0.8 million over the four month-period ending on December 31, 2015 with respect to the additional workforce reductions in Brazil, including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.7 million of one-time severance and other costs, all of which will be cash expenditures. We expect to save up to approximately $8.0 to $10.0 million in cash
in fiscal 2016 as a result of restructuring our operations as described above, which is higher than we originally estimated. The restructuring of our Brazilian seed operations is expected to be substantially completed by February 1, 2016. After full implementation of the restructuring plan, our Brazilian operations will be focused on sugarcane trait development activities for the Brazilian sugarcane market. There can be no assurance that we will achieve the cost savings we expect in fiscal 2016 after fully implementing the realignment plan.
11
TABLE OF CONTENTS
Our realignment plan and its implementation may interfere with our ability to achieve our business objectives, may be difficult to manage and may increase the likelihood of turnover of other key employees, all of which may have an adverse impact on our business. In addition, we cannot be sure that the realignment plan will be as successful in reducing our overall expenses as expected, that we will be successful in our new markets or that additional costs will not offset any cost reductions from our realignment plan. If our realignment plan does not achieve the expected results, our business and results of operations will be
adversely impacted.
Our forage products are in the early stages of commercialization and we have generated minimal sales from our products.
We have refocused our business on new market opportunities, including the forage feed markets and sugarcane markets, and our existing products for these markets are also still in the early stages of commercialization. Our efforts to commercialize our products may not be successful. Our seed product sales for the years ended August 31, 2015, August 31, 2014 and August 31, 2013 were minimal and were derived mainly from sales to third parties that were evaluating our products in the Brazilian market. We began selling seed in the Brazilian market in November 2011 and in the U.S. in 2009, and entered into the forage sorghum seeds
market in 2014. As of August 31, 2015, product sales, which include both seed sales and biomass sold under our various sales incentive and promotional programs, have been approximately $2.0 million in the aggregate since our inception.
One of our largest immediate commercial opportunities is the U.S. forage market. Since 2014, we have completed a limited number of commercial-scale evaluations of our sorghum products in the U.S. forage market with growers, dairies and livestock producers, and we have limited experience in the sorghum market. To the extent that our sorghum products do not result in expected yields, we may have difficulty convincing customers to purchase or trial our current and future sorghum products.
Even if we are successful in commercializing our biotechnology traits in sugarcane, the pace of adoption may be constrained by the relatively lower multiplication rates of vegetatively propagated crops like sugarcane compared to seeded crops like sorghum.
Sugarcane is a vegetatively propagated crop, meaning that commercial fields are planted with segments of living plant stalks rather than seeds. Sugarcane seed plantings are typically managed by mills and growers themselves in close proximity to their commercial fields. In a commercial setting, one acre of seed sugarcane can be used to plant up to approximately 10 acres of commercial sugarcane. For seeded crops, like sorghum, one acre of a seed production can plant up to 500 acres or more. While faster multiplication methods for sugarcane exist, they are significantly more costly than current methods.
While we believe the improved yields and other potential benefits of our traits will convince customers to employ these more costly methods, they may not be willing or able to do so, and our sales may grow more slowly than our expectations.
We are at the beginning stages of developing our brand awareness for our crops, and we have limited experience in marketing and selling our products and will need to expand our sales, marketing and distribution support capabilities.
We are in the beginning phases of building brand awareness for our crops. To date, we have had limited experience selling our products. In addition there is limited public data available regarding the sorghum market which makes it more difficult to direct and implement an effective sales and marketing strategy. We currently have limited resources to market and sell products and support our distributors on a commercial-scale across various geographic regions. As of November 10, 2015, we had approximately 2 employees in various sales, marketing and business development functions. Developing our sales and marketing support
capabilities and gaining the necessary expertise will require that we hire additional personnel, which could take longer than we expect and may require significant resources. We may be unable to grow our sales and marketing or business development capabilities to adequately cover the geographic regions where we see the most opportunity, which could slow the adoption of our products and the growth of product revenue.
12
TABLE OF CONTENTS
We license our biotechnology traits in certain crops to third parties, and are dependent on them to successfully reach development milestones, commercialize our traits and generate royalties.
In crops such as corn, rice and sugarcane, we have licensed or intend to license our biotechnology traits to third parties, including other agricultural biotechnology companies, mills, germplasm providers and growers. Once we provide a trait to our collaborators, they typically oversee the development and commercialization, and, if applicable, the deregulation of our trait in their products. In such crops, our ability to achieve milestone payments or generate royalties is not within our direct control. If our partners are delayed or not successful in introducing our traits to their products, conducting field trials,
deregulating or commercializing products containing traits, among other activities, we may not receive royalties or milestone payments as expected and our financial results could suffer.
Our biotech products require a multi-year development process and are not yet available for commercial use.
Our business strategy going forward includes the introduction of crops with genetically engineered, or biotech, traits. The commercial development of biotech traits in commercial crops is a multi-year process. Following transformation, when the selected gene is inserted in a target crop, the resulting plants are evaluated in the greenhouse for one to two years, and then in the field to confirm results for at least two to four years. Following field trials, specific gene-trait combinations are typically selected and, if required, submitted for regulatory approval, or deregulation, which has historically been a multi-year
process in the United States and other countries. By contrast, our existing commercial sorghum products have all been created through the use of conventional and marker-assisted breeding. As a result, even if these products are successfully sold and adopted by customers, they do not necessarily demonstrate our ability to successfully develop, market and sell biotechnology products. If we are not able to bring our existing products or new products with significant commercial potential to market in a timely manner, we will not be successful in building a sustainable or profitable business.
Environmental factors, including weather, moisture, and pest infestations, may negatively affect the crops grown from our seeds or our seed inventories.
The plants grown from our seeds are subject to the vagaries of the weather and the environment, either of which can reduce crop yields. Weather conditions and natural disasters, such as heavy rains, hurricanes, hail, floods, tornados, freezing conditions, drought, fire or other natural disasters, can affect the timing of planting or harvesting and the acreage planted, as well as yields. The effects of disease, pests, fungi, bacteria and insect infestations can also be unpredictable and devastating to crops, potentially rendering all or a substantial portion of the affected harvests unsuitable for use. In addition, our crops
and harvests may be adversely affected by climate change resulting from global warming, including changes in precipitation patterns and the increased frequency of extreme weather events. Each of these weather and environmental factors affects geographic regions differently. Should these or other environmental factors adversely affect the crops grown from our products, growers may be unable or unwilling to purchase our seeds or they may choose to purchase other seeds deemed better adapted to the particular climatic or environmental conditions they are facing.
The quality of our seed inventory could deteriorate due to a variety of factors, including the passage of time, temperature variations, moisture, insects, fungi, bacteria, disease or pests. If the quality of our seed inventory were to deteriorate below an acceptable level, the value of our seed inventory would decrease significantly and we might not be able to meet product demand. Should a substantial portion of our seed inventory be damaged by moisture, insects, fungi, bacteria, disease or pests, our business and financial condition could be materially and adversely harmed.
Our seed business is highly seasonal and subject to weather conditions and other factors beyond our control, which may cause our sales and operating results to fluctuate significantly.
The sale of seeds is dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both highly seasonal patterns and substantial fluctuations in quarterly sales and profitability. While forage sorghum seed sales for the 2015 growing season in the U.S. increased on a
13
TABLE OF CONTENTS
percentage basis, our product sales for the years ended August 31, 2015, August 31, 2014 and August 31, 2013 were minimal and, accordingly, we have not yet experienced the full nature or extent to which our business may be seasonal. As we increase our sales in our current markets, and as we expand into new markets in different geographies, it is possible that we may experience different seasonality patterns in our business. Weather conditions and natural disasters, such as heavy rains, hurricanes, hail, floods, tornadoes, freezing conditions, drought or fire, also affect decisions by our customers about the types and amounts of
seeds to plant and the timing of harvesting and planting such seeds. Disruptions that cause delays by our customers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results.
The cropland made available by our customers for sorghum production may be limited by the relative attractiveness of producing other crops.
The decision to devote land and resources to a particular crop is dependent on many factors, some of which are outside of our control. To the extent that our customers select other potentially more profitable crops over our products, the cropland available for our products within a given geography and the overall size of our market opportunity may be limited. For example, increases in the price of certain commodities, such as other crops, may encourage growers to dedicate more land to these crops instead of sorghum. In addition, our success is dependent, in part, on our gaining acreage from other forage crops like alfalfa and
silage corn.
Loss of or damage to our germplasm collection would significantly slow our product development efforts.
We have access to comprehensive collections of germplasm for sorghum, switchgrass and miscanthus, in part, through strategic collaborations with leading institutions. Germplasm comprises collections of genetic resources covering the diversity of a crop, the attributes of which are inherited from generation to generation. Germplasm is a key strategic asset since it forms the basis of plant breeding programs. To the extent that we lose access to these germplasm collections because of the termination or breach of our collaboration agreements, our product development capabilities could be negatively impacted. In addition, loss of
or damage to our germplasm collections would significantly impair our research and development activities. Although we restrict access to our germplasm at our research facilities to protect this valuable resource, we cannot guarantee that our efforts to protect our germplasm collection will be successful. The destruction or theft of a significant portion of our germplasm collection would adversely affect our business and results of operations.
The successful commercialization of our products depends on our ability to produce high quality seeds cost-effectively on a large scale.
The production of commercial-scale quantities of seeds requires the multiplication of the seeds through a succession of plantings and seed harvests, and if the product is a hybrid, it must be produced from parental lines, which are mated under controlled conditions. The cost-effective production of high quality, high-volume quantities of some of our products depends on our ability to scale our production processes to produce seeds in sufficient quantity to meet demand. We cannot assure you that our existing or future seed production techniques will enable us to meet our large-scale production goals cost-effectively for the
products in our pipeline. Even if we are successful in developing ways to increase seed yields and enhance seed quality, we may not be able to do so cost-effectively or on a timely basis, which could adversely affect our ability to achieve profitability. If we are unable to maintain or enhance the quality of our seeds as we increase our production capacity, including through the expected use of third parties, we may experience reductions in customer demand, higher costs and increased inventory write-offs.
We depend, in part, on third parties to produce our seeds.
We produce commercial seed either on leased land managed by us or with contract seed producers. Our primary production sites are located in the United States. We also multiply seeds in other countries in North and South America. In order to meet increased demand for our seeds, we will need to enter into additional land leases or arrangements with contract seed producers. If we need to engage contract seed producers, we may not be able to identify suitable producers in a specific region and if we do, we do not know whether they will have available capacity when we need their production services, that they will be willing to
dedicate a portion of their production capacity to our products or that we will be able to enter into
14
TABLE OF CONTENTS
an agreement with them on acceptable terms. If any contract seed producer that we engage fails to perform its obligations as expected or breaches or terminates their agreements with us, or if we are unable to secure the services of such third parties when and as needed, we may lose opportunities to generate revenue from product sales.
Our third-party distributors may not effectively market and sell our products.
We depend in part on third-party distributors for the marketing and selling of our seed products, yet we are unable to control their efforts completely. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the sale of our products. If our distributors fail to effectively market and sell our products, and in full compliance with applicable laws, our operating results and business may suffer.
Our business will be adversely affected if the field trials being conducted by our collaborators or potential customers fail to perform as expected.
We and our collaborators and potential customers are currently conducting field trials of our products in various geographies around the world. We have limited control over field trials that are conducted by third parties and are dependent on their ability to follow our suggested protocols. There are various reasons these trials may fail to succeed, including weather, disease or pests, planting our seeds too late in the growing seasons or the incorrect use of fertilizers, and we have in the past conducted trials that we believe failed to fully meet the expectations of our collaborators. Statements by our collaborators or
potential customers about negative field trial experiences could harm our reputation and the decision by these parties not to proceed with large-scale trials or seed purchases based on negative results could harm our business, revenue and profitability.
Our failure to accurately forecast demand for our seeds could result in an unexpected shortfall or surplus that could negatively affect our results of operations or our brand.
Because of the length of time it takes to produce commercial quantities of seeds, we must make seed production decisions well in advance of product bookings. For example, we must determine our expected demand for our sorghum varieties approximately six to twelve months in advance of delivery, on average, while our customers make seed purchase decisions sometimes as late as 30 days in advance of planting. Our ability to accurately forecast demand can be adversely affected by a number of factors outside of our control, including changes in market conditions, environmental factors, such as pests and diseases, and adverse weather
conditions. A shortfall in the supply of our products may reduce product sales revenue, damage our reputation in the market and adversely affect customer relationships. Any surplus in the amount of seed we have on hand, may negatively impact cash flows, reduce the quality of our inventory and ultimately result in write-offs of inventory. Any failure on our part to produce sufficient inventory or overproduction of a particular product could harm our business, results of operations and financial condition. Additionally, our customers may generally cancel an order or request a decrease in quantity at any time prior to delivery of the seed, which may lead to a surplus of our products. Even after delivery, a customer may occasionally return our seeds.
Our product development efforts use complex integrated technology platforms and require substantial time and resources to develop and our efforts may not be successful or the rate of product improvement may be slower than expected.
The development of successful agricultural products using complex technology discovery platforms such as ours requires significant levels of investment in research and development, including field testing, to demonstrate their effectiveness and can take several years or more. Our investment in research and development may not result in significant product revenues, particularly over the next several years. While we intend to spend significant amounts in research and development in the future to continue to improve the performance of our products and to develop new products, our investment in research and development may prove
to be insufficient, particularly as we reduce annual research and development expenditures compared to historical levels. This may result in delays in reaching our product development goals and lead to slower product introductions.
Development of new or improved agricultural products involves risks of failure inherent in the development of products based on innovative and complex technologies. These risks include the possibility that:
15
TABLE OF CONTENTS
|
|
our products will fail to perform as expected in the field or fail to perform consistently; |
|
|
our products will not receive necessary regulatory permits and governmental clearances in the markets in which we intend to sell them; |
|
|
our products will be viewed as too expensive by our potential customers compared to competitive products; |
|
|
our products will be difficult to produce on a large scale or will not be economical to grow; |
|
|
proprietary rights of third parties will prevent us, our collaborators, or our licensees from marketing our products; and |
|
|
third parties may develop superior or equivalent products. |
We face significant competition in all areas of our business, and if we do not compete effectively, our business will be harmed. We are relatively new to the forage sorghum seeds market and face existing competitors.
The seed, agricultural biotechnology and genomics industries are rapidly evolving and new competitors with competing technologies and products are regularly entering the market. We expect to compete with other providers of seed and vegetative propagation materials in the market for our crops as well as other developers of biotech traits, genetic technologies and bioinformatics software.
In the seed industry, our principal competitors include major international agrochemical and agricultural biotechnology corporations, such as Advanta India Limited, The Dow Chemical Company, Monsanto Company, Pioneer Hi Bred (DuPont), KWS Saat AG and Syngenta AG, all of which have substantially greater resources to dedicate to research and development, production, and marketing than we have and some of which are selling competitive products in our markets. We also face direct competition from other seed companies, such as Chromatin, Inc., S&W Seed Company and Winfield Solutions LLC, a subsidiary of Land O Lakes, as
well as biotechnology companies, and from academic and government research institutions. New competitors may emerge, including through consolidation within the seed industry. We are unable to predict what effect evolution of the industry may have on price, selling strategies, intellectual property or our competitive position.
We anticipate that as our seed products gain market acceptance, existing competitors may increase their focus and new competitors may be attracted to this opportunity in forage sorghum and produce their own sorghum seed varieties. Changes in technology and customer preferences may result in short product life cycles. To remain competitive, we will need to develop new products and enhance and improve our existing products in a timely manner. Our failure to maintain our competitive position could have a material adverse effect on our business and results of operations.
In the genomics and bioinformatics market, we face direct competition from academic and government-funded research institutions as well as commercial software developers. In addition, well established companies, such as Illumina, Inc., F. Hoffmann-La Roche Ltd. and Google Inc., may expand the scope of their current analytical software and services to include visualization and exploration functions and features similar to Persephone. We are unable to predict what effect evolution of these industries and potential new entrants may have on price, selling strategies, intellectual property or our competitive position.
A significant portion of our revenue to date is generated from our collaboration agreements and we must meet our obligations under these agreements in order to be entitled to the revenue streams from these agreements.
Historically, a significant portion of our revenue has been generated from payments to us under collaborative research agreements with third parties and we continue to opportunistically pursue new strategic collaborations. We are obligated under these agreements to perform research activities over a particular period of time. Certain of our agreements may entitle us to milestone payments in the event the specified milestone is met. If we fail to perform our obligations under these agreements or any new collaborative research agreements we may enter into in the future, our revenues may decrease, or our collaborative partners
may terminate or fail to renew the agreements. In addition, any of our collaborators may fail to perform their
16
TABLE OF CONTENTS
obligations as expected, which may hinder our research and development efforts. We and our collaborators may disagree as to which party had rights to intellectual property developed under the agreements. Disagreements with our collaborators could develop and any conflict with a collaborator may negatively affect our relationship with one or more existing collaborators or our ability to enter into future collaboration agreements.
Our results of operations will be affected by the level of royalty payments that we are required to pay to third parties.
We are a party to license agreements with third party collaborators that require us to remit royalty payments to these third parties if we incorporate their licensed intellectual property into our products. While we are currently working on developing numerous products that incorporate aspects of this intellectual property, we have to date only sold small amounts of such products. The amount of royalties that we could owe under these license agreements is a function of our sales and the applicable royalty rates depend on a number of factors, including the portion of our third-party collaborators intellectual property
that is present in our products.
Because of our historical limited sales volume, we have had little experience in calculating royalties under these license agreements and it is unclear exactly how much of this licensed intellectual property will be included in any final products we offer for commercial sale. As a result we cannot precisely predict the amount, if any, of royalties we will owe in the future. If, once we commence sales of these products, we determine that the products include more intellectual property of our third party collaborators than we had previously determined, or if our calculations of royalty payments are incorrect, we may owe more
royalties, which could negatively affect our results of operations. As our product sales increase, we may, from time-to-time, disagree with our third party collaborators as to the appropriate royalty rate and the resolution of such disputes may be costly and may consume managements time. Furthermore, we may enter into additional license agreements in the future, which may also include royalty payments.
We are also a party to license agreements pursuant to which we have received licenses on certain intellectual property related to biotechnology products. When we commence sales of our biotechnology products in the future, or grant licenses to third parties to commercialize such products, we will be required to remit royalty payments to the parties from whom we have licensed intellectual property that covers such products.
Our business is affected by changes in general economic conditions and a prolonged downturn could affect the demand for our products and our ability to fund our working capital.
Economic conditions in the United States, Brazil and Europe could adversely affect our efforts to achieve profitability. The purchasing decisions of growers, dairies, livestock producers, and other potential customers, and their ability to timely pay for our products, are impacted by their economic health. We have extended credit to our customers for our seed products or for certain planting and crop management services that we have provided from time to time and may continue to do so in the future. These credit practices may expose us to credit risk of growers, dairies, livestock producers, and other potential customers, and
combined with the seasonality of our sales, make us dependent on our ability to fund our working capital requirements through other means. If the economic health of our customers and potential customers deteriorates as a result of general economic trends, our business could be harmed.
Our activities are currently conducted at a limited number of locations, which makes us susceptible to damage or business disruptions caused by natural disasters.
Our headquarters and certain research and development operations are located at a single facility in Thousand Oaks, California, with additional breeding and agronomy trials situated in select locations across the world. Our primary seed production sites are located in the United States. We also multiply seeds in other countries in North and South America. Warehousing for forage sorghum seed storage is located primarily in Texas. We take precautions to safeguard our facilities, including insurance, health and safety protocols, and off-site storage of critical research results and computer data. However, a natural disaster, such
as a hurricane, fire, flood, tornado or earthquake, could cause substantial delays in our operations, damage or destroy our equipment, inventory or development projects, and cause us to incur additional expenses.
17
TABLE OF CONTENTS
We rely on the experience and expertise of our senior management team and other key personnel.
We depend on the experience and expertise of our senior management team and other key personnel, many of whom have been with our company for more than a decade. Our senior management team and key personnel bring extensive experience in a variety of agricultural and biotechnology businesses, including the seed industry. The loss or unavailability of key members of our senior management team or other key personnel could impact the execution of our business strategy and make it more difficult to maintain and expand our important relationships in the bioenergy industry. The replacement of key members of our senior management team
or other key personnel likely would involve significant time and costs.
Unexpected fluctuations in our quarterly operating results may cause our stock price to fluctuate widely.
Due in part to our significant research and development and production costs and general and administrative expenses, even a small decline in revenue could disproportionately affect our quarterly operating results and could cause such results to differ materially from expectations. If this occurs, we may fail to meet analyst and investor expectations, which could cause our stock price to decline. Other factors that could affect our quarterly operating results or cause them to differ materially from expectations include:
|
|
demand for and acceptance of our products; |
|
|
weather conditions or the occurrence of natural disasters; |
|
|
changes in government regulations and incentives; |
|
|
competitive pressures; and |
|
|
unanticipated delays or problems in the introduction of new products. |
We expect to derive a portion of our revenues from markets outside the United States, which will subject us to additional business risks.
Changes in exchange rates between the U.S. dollar and other currencies will result in increases or decreases in our costs and earnings, and also may affect the book value of our assets outside the United States. To date, most of our contracts have been entered into in the United States and accordingly have been denominated in U.S. dollars. Going forward we anticipate that our sales will be denominated in the local currency of the country in which the sale occurs. In addition, most of our operating expenses to date have been denominated in the currencies of the countries in which our operations are located, which have
historically been in the United States and Brazil. As a result, while our revenue and operating expenses are mostly hedged on a transactional basis, the translation of our operating results into U.S. dollars may be adversely impacted by strengthening U.S. currency.
In addition, international operations are subject to a number of other risks and uncertainties, including:
|
|
changes in political, social or economic conditions; |
|
|
tariffs, trade protection measures and trade agreements; |
|
|
import or export licensing requirements; |
|
|
changes in regulatory requirements; |
|
|
reduced protection for intellectual property rights in some countries; |
|
|
economic downturns, civil disturbances or political instability; |
|
|
difficulties and costs of staffing and managing international operations; |
|
|
fluctuations in currency exchange rights; |
|
|
potentially burdensome taxation. |
18
TABLE OF CONTENTS
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
As of August 31, 2015, we had approximately $273.9 million of federal, $196.8 million of state and $25.8 million of foreign net operating loss carryforwards, or collectively, NOLs, available to offset future taxable income, if any, which expire in varying amounts from 2018 through 2035 for federal tax purposes and from 2015 through 2035 for state tax purposes if unused. The carryforward period for the foreign net operating loss is indefinite. It is possible that we will not generate taxable income in time to use these NOLs before their expiration. In addition, under Section 382 of the Code (as defined below), a corporation
that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change federal NOLs to offset future taxable income. We have not completed a Section 382 analysis to determine if an ownership change has occurred or if one will occur as the result of this offering of units. Until such analysis is completed, we cannot be sure that the full amount of the existing federal NOLs will be available to us, even if we do generate taxable income before their expiration.
We use hazardous materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
Our research and development processes involve the controlled use of hazardous materials, including chemical and biological materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials. Our operations also produce hazardous waste. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. We may face liability for any injury or contamination that results from our use or the use by third parties of these materials, which depending on the severity of the injury or contamination could be
significant. In addition, compliance with applicable environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development or production efforts.
We may suffer liabilities relating to soil and/or groundwater contamination at current and former properties and at third-party sites to which we sent hazardous wastes for disposal.
We are exposed to environmental risks associated with the ownership and operation of real property and the disposal of hazardous wastes. Environmental laws can require current owners and operators of real property to remediate soil and groundwater contamination even if such contamination was caused by another party, such as a former owner or operator. These laws can also require companies to clean up real property that they formerly owned or operated if releases of hazardous materials or wastes occurred during the period of their ownership or operation. Moreover, in certain circumstances these laws require companies to clean
up third-party sites to which hazardous wastes were sent for disposal, notwithstanding that the original disposal activity accorded with all regulatory requirements. The discovery of previously unknown contamination at our current or former facilities, or at third-party sites to which we sent hazardous wastes for disposal, could require us to conduct or fund expensive cleanup efforts, which could materially and adversely affect our operating results.
We may be sued for product liability and if such lawsuits were determined adversely, we could be subject to substantial damages.
We may be held liable if any product we develop, or any product that uses or incorporates, any of our technologies, causes injury or is found otherwise unsuitable during product testing, production, marketing or sale. For example, the detection of unintended biotechnology material in pre-commercial seed, commercial seed varieties or the crops and products produced may result in the inability to market the crops grown, resulting in potential liability for us as the seed producer or technology provider. In the event this was to occur, we could be subject to claims by multiple parties based not only on the cost of our products
but also on their lost profits and business opportunities. In addition, the detection of unintended biotechnology material in our seeds or in the environment could result in governmental actions such as mandated crop destruction, product recalls or environmental cleanup or monitoring. Concerns about seed quality related to biotechnology could also lead to additional regulations being imposed on our business, such as regulations related to testing procedures, mandatory governmental reviews of biotechnology advances, or the integrity of the food supply chain from the farm to the finished product.
19
TABLE OF CONTENTS
We currently have limited product liability insurance coverage and additional insurance may be prohibitively expensive, or may not fully cover potential liabilities. If we are unable to obtain sufficient insurance coverage at an acceptable cost or otherwise or if the amount of any claim against us exceeds the coverage under our policy, we may face significant expenses.
Interruptions or delays in service from our third-party data center hosting facilities could impair the delivery of any cloud-based Persephone services and harm our business.
In addition to custom installations on customer-owned hardware, we may serve future Persephone software customers, in part, from cloud-based third-party data center hosting facilities. Any damage to, or failure of, our systems generally could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their service and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable.
Our software products are complex, which makes it difficult to innovate and avoid costs related to correction of program errors.
Despite testing by us, our software programs, like all software programs generally, may contain a number of undetected errors or bugs when we first introduce them or as new versions are released. We do not discover some errors until we have installed the product and our customers have used it. Errors may result in the delay or loss of revenues, diversion of software engineering resources, material non-monetary concessions, negative media attention, or increased service or warranty costs as a result of performance or warranty claims that could lead to customer dissatisfaction, resulting in litigation, damage to our
reputation, and impaired demand for our products. Correcting bugs may result in increased costs and reduced acceptance of our software products in the marketplace. Further, such errors could subject us to claims from our customers for significant damages, and we cannot assure you that courts would enforce the provisions in our customer agreements that limit our liability for damages.
Some of our products contain open source software which may pose particular risks to our proprietary software and products.
We use open source software in some of our products and expect to use open source software in the future. From time to time, we may face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation, could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we
can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if we do not address them effectively, could have a negative effect on our ability to develop and use our products that contain open source software. Additionally, compliance with open source licensing requirements is complex and challenging. Failure to comply with these requirements could have an adverse effect on our business and prospects.
The pricing for our products, including our sorghum products may be negatively affected by factors outside our control.
Our products are in the early stages of commercialization. We have based the pricing of our products on our assessment of the value that our products provide to the customer, rather than on the cost of production. In the future, we may include trait fees in our seed prices, but our potential customers may be unwilling to pay such fees. If our customers attribute a lower value to our products than we do, they may not be willing to pay the premium prices we expect to charge. Pricing levels may also be negatively affected if our products are unsuccessful in producing the yields we expect. In addition, if our competitors are able
to develop competitive products and offer them at lower prices, we may be forced to lower our prices.
20
TABLE OF CONTENTS
The customers we are targeting for forage sorghum products are generally large dairies and livestock producers with long operating histories. They will have significant leverage in negotiating commercial relationships with us. As a result, we do not know whether these pricing negotiations will result in adequate margins or accurately reflect our pricing strategies, which could have a material adverse effect on our results of operations.
A significant portion of our revenue to date is generated from government grants and continued availability of government grant funding is uncertain and contingent on compliance with the requirements of the grant.
Historically, a significant portion of our revenue has been generated from payments to us from government entities in the form of government grants whereby we are reimbursed for certain expenses incurred in connection with our research and development activities, subject to our compliance with the specific requirements of the applicable grant, including rigorous documentation requirements. To the extent that we do not comply with these requirements, our expenses incurred may not be reimbursed. Any of our existing grants or new grants that we may obtain in the future may be terminated or modified.
Our ability to obtain grants or incentives from government entities in the future is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs. The application process for these grants and other incentives is highly competitive. We may not be successful in obtaining any additional grants, loans or other incentives. Recent political focus on reducing spending at the U.S. federal and state levels may continue to reduce the scope and amount of funds dedicated to renewable energy products, if such funds will continue to be available at all. To the
extent that we are unsuccessful in being awarded any additional government grants in the future, we would lose a potential source of revenue.
Our government grants may subject us to government audits, which could expose us to penalties.
We may be subject to audits by government agencies as part of routine audits of our activities funded by our government grants. As part of an audit, these agencies may review our performance, cost structures and compliance with applicable laws, regulations and standards and the terms and conditions of the grant. If any of our costs are found to be allocated improperly, the costs may not be reimbursed and any costs already reimbursed for such contract may have to be refunded. Accordingly, an audit could result in a material adjustment to our results of operations and financial condition. Moreover, if an audit uncovers improper
or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions.
Risks Related to Regulatory Requirements
Compliance with applicable government regulations, particularly with respect to biotechnology products, is time-consuming and costly.
There are certain regulatory requirements affecting the field testing and commercialization of our biotechnology products in each of the markets in which we operate. In the United States, the USDA must review and deregulate many of our biotechnology products prior to commercial sale. The Biotechnology Regulatory Services, or BRS, within the USDAs Animal and Plant Health Inspection Service, or APHIS, has direct oversight of the field testing and deregulation of our regulated biotechnology products. The deregulation process for these biotechnology products is a costly, multi-year process, with no guarantee of success. The
length of the deregulation process varies based on a number of factors, including the extent of the supporting information required, the nature and extent of review by the USDA, including the type and scope of the environmental review conducted, and the number and types of public comments received. For example, after the initial filing of a petition for deregulation, the USDA may ask for additional data, including data on new areas of inquiry that might require us to conduct additional field tests or analyses, which may cause delays in the deregulation process. Deregulation of a product is not a guaranteed outcome. The USDA or other regulators may also impose costly monitoring requirements on the planting of our biotechnology products.
21
TABLE OF CONTENTS
In Brazil, the commercialization of biotechnology products is regulated by the National Technical Commission of Biosafety, Comissão Técnica Nacional de Biossegurança, or CTNBio under the Ministry of Science and Technology. The approval process involves data collection and analysis, environmental impact assessments and public hearings on certain products. We anticipate introducing biotechnology products, in sugarcane in Brazil in the future. At such time, we will be subject to the approval processes dictated by CTNBio.
Any delays in obtaining or failure to obtain deregulation or regulatory approval, as the case may be, for any of the biotechnology products in our pipeline could delay or prevent the commercialization of our products. Regulatory authorities can block the sale or import of our products or can impose conditions that delay production and sale of our products, or that make the sale of our products technically or commercially unfeasible.
Before the USDA will review and deregulate our biotechnology products subject to regulation, the USDA requires us to obtain permits to plant and test these products, and there are similar permitting requirements in other countries. In determining whether to grant a field test permit and what conditions to impose, regulators consider any significant impacts that field tests may have on the environment and on endangered or threatened species. In the United States, the permitting process for the initial field tests typically ranges from two to four months, but this time period can be significantly longer for novel products or
circumstances. There can be no assurance that we will not encounter material delays in the future as we test new biotechnology products. Field evaluations of our traits in rice have been affected by regulatory delays in India as well. If we are not able to obtain the necessary field test permits or if there are significant delays in the permitting process, the commercialization of our products may be delayed or prevented and our business and results of operations may be adversely affected. A prolonged delay in the regulatory process could adversely affect our ability to generate product revenues.
The timely introduction of our traits in the United States for our sorghum and other crops relies on non-regulated status under certain USDA regulations. We may lose such non-regulated status in the U.S. or we may face other regulations that could limit or block the introduction of our traits developed through biotechnology or other similar technologies in the U.S. or other markets.
In 2014, we received confirmation from the USDA that our high biomass trait in sorghum was not considered a regulated article under 7 CFR §340 of the USDAs mandate to regulate genetically engineered traits. This determination is likely to make it more cost-effective and timely for us to develop this trait in sorghum. We have since requested confirmation of non-regulated status for additional crops for certain of our biotech traits; however, these regulations and their interpretations are evolving and there is no guarantee that we will obtain non-regulated status in the U.S. for all products for which we apply or
that we will retain it for existing products, or that our third-party collaborators in certain other crops will utilize this option. In addition, the USDA could still regulate products under other regulatory sections, such as 7 CFR §360, which relates to weed control, if they determine there is a scientific basis to do so. Outside the U.S., our non-regulated traits will in many cases be regulated by other countries and require a multi-year deregulation process, which may limit or delay expansion our expansion to other markets. Other countries could also limit the use or importation of products directly or indirectly derived from our seeds grown in the U.S., for example, milk from cows that were fed non-regulated sorghum with our traits.
The degree of public understanding and acceptance or perceived public acceptance of our biotechnology products can affect our sales and results of operations by affecting approvals, regulatory requirements and customer purchase decisions.
Although all of our products go through rigorous testing, some opponents of our technology actively raise public concern about the potential for adverse effects of biotechnology products on human or animal health, other plants and the environment. Public concern can affect the timing of, and whether we are able to obtain, government approvals. Even after approvals are granted, or non-regulated status has been achieved, public concern may lead to increased regulation or legislation or litigation against government regulators concerning prior regulatory approvals, which could affect our sales and results of operations, and may
adversely affect sales of our products to growers for dairies and livestock producers, due to their concerns about available markets for the sale of crops derived from biotechnology. In addition, opponents of
22
TABLE OF CONTENTS
agricultural biotechnology have attacked farmers fields and facilities used by agricultural biotechnology companies, and may launch future attacks against farmers fields and our field testing sites and research, production, or other facilities, which could affect our sales and our costs.
Ethical, legal, environmental and social concerns about biotechnology products could limit or prevent the use of our products and technologies, which could negatively affect our ability to generate revenue.
Some of our products in development contain biotech traits. The commercial success of our products that contain biotech traits may be adversely affected by claims that biotechnology plant products are unsafe for consumption or use, pose risks of damage to the environment and create legal, social and ethical dilemmas. For example, some countries, primarily in the European Union, have instituted a de facto moratorium on the planting of some genetically engineered seeds. The import of products derived from genetically engineered seeds may also be regulated by the European Union. While our current sorghum products are not subject
to this restriction, we may in the future introduce biotech traits that may be subject to such regulation. If we are not able to overcome these concerns and comply with these regulations, our products that contain these traits may not achieve market acceptance and third parties may be unwilling to commercialize our biotech traits. Any of the risks discussed below could result in expenses, delays or other impediments to our development programs or the market acceptance and commercialization of our products that contain biotech traits. Our ability to develop and commercialize one or more of our technologies and products could be limited or prevented by the following factors:
|
|
Public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and biotechnology products, which could influence public acceptance of our technologies and products; |
|
|
Public attitudes regarding, and potential changes to laws governing, ownership of genetic material, which could weaken our intellectual property rights with respect to our genetic material and discourage collaborators from supporting, developing or commercializing our products and technologies; |
|
|
Governmental reaction to negative publicity concerning genetically engineered plants, which could result in greater government regulation of genetic research and derivative products; and |
|
|
Failure to maintain or secure consumer confidence in, or to maintain or receive governmental approvals for, our products. |
We cannot predict whether or when any jurisdiction will change its regulations with respect to biotechnology products. Problems with any product could lead to increased scrutiny or regulation for our products. Limitations on the development of biotechnology products could be imposed that could delay, prevent or make more costly the development of such products, which would negatively affect our ability to commercialize products using our traits.
Advocacy groups have engaged in publicity campaigns and filed lawsuits in various countries against companies and regulatory authorities, seeking to halt biotechnology approval activities or influence public opinion against genetically engineered products. On occasion, there has been vandalism and destruction of property of companies in the biotechnology industry.
Our non-biotechnology products, the products of third parties or the environment may be negatively affected by the unintended appearance of our transgenes.
The development and commercial success of our non-biotechnology products may be delayed or negatively affected because of adverse public perception or regulatory concerns about the safety of our products and the potential effects of these products on other plants, animals, human health and the environment. The potential for unintended but unavoidable trace amounts, sometimes called adventitious presence, of transgenes in conventional seed, or in the grain or products produced from conventional or organic crops, is another factor that could affect general public acceptance of these traits. For example, our current
sorghum and switchgrass products have been produced exclusively through conventional breeding and have not been genetically engineered by us. It is possible, however, that trace amounts of our transgenes are nevertheless in our conventional products. In addition, trace amounts of transgenes may unintentionally be
23
TABLE OF CONTENTS
found outside our containment area in the products of third parties, which may result in negative publicity and claims of liability brought by such third parties against us. Furthermore, in the event of an unintended dissemination of our genetically engineered materials to the environment, we could be subject to claims by multiple parties, including environmental advocacy groups, as well as governmental actions such as mandated crop destruction, product recalls or additional stewardship practices and environmental cleanup or monitoring.
Development and commercialization, if any, of our products may incur scrutiny under the Convention on Biological Diversity Treaty.
The Convention on Biological Diversity, or the Convention, is an international treaty that was adopted at the Earth Summit in Rio de Janeiro, Brazil in 1992. The treaty provides that if a company uses genetic resources, such as an indigenous plant, from a participating country to develop a product, then such company must obtain the prior informed consent of the participating country and owes fair and equitable compensation to such country. Although the United States is not a participating country, most countries where we currently obtain or may obtain germplasm in the future, have ratified the treaty and are currently
participants in the Convention. We may fall under scrutiny of the Convention with respect to the development or commercialization of any of our products derived from the germplasm originating from any of the countries that are participants in the Convention. There can be no assurances that the government of a participating country will not assert that it is entitled to fair and equitable compensation from us. Such compensation, if demanded, may make commercialization of our products not feasible.
Risks Related to our Intellectual Property
Our inability to adequately protect our proprietary technologies and products could harm our competitive position.
Our success depends in part on our ability to obtain patents and maintain adequate protection of our other intellectual property for our technologies and products in the United States and other countries. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights in these foreign countries. These problems can be caused by, for example, a lack of rules and methods for defending intellectual property rights. Many countries, including Brazil, do not allow patenting of
plants, whether genetically engineered or traditionally bred. Accordingly, our proprietary position for our products in countries such as Brazil relies to a large extent on Plant Variety Protection certificates. This type of protection is more limited than patents in the United States. As a result, Plant Variety Protection certificates may provide only a limited competitive advantage in the marketplace. In many countries, patentability criteria are generally more restrictive and our filings more limited than in the United States, weakening our prospects of obtaining an equal scope of corresponding patent protection. Because Brazil is one of our initial target markets for our sugarcane traits, the lack of more robust patent protection for plant varieties in that country could expose us to the risk of misappropriation of our intellectual property. In addition, the legal systems of certain other countries do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual property rights. Proceedings to enforce our patents and other proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to enforce our intellectual property rights in such countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop. Even if we enforce our rights aggressively, injunctions, fines and other penalties may be insufficient to deter violations of our intellectual property rights. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property.
24
TABLE OF CONTENTS
The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions. In many cases, we will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or Plant Variety Protection certificates. We will apply for patents covering both our technologies and products as we deem appropriate. However, we cannot assure you that any pending or future patent applications held by us will result in an issued patent, or that if patents are
issued to us, such patents will provide meaningful protection against competitors or against competitive technologies. Our existing patents and Plant Variety Protection certificates and any future patents or Plant Variety Protection certificates we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patented technologies. In addition, our patents may be challenged, invalidated or fail to provide us with any competitive advantages.
The value of our intellectual property could diminish due to technological developments or challenges by competitors, making our products less competitive.
Our intellectual property rights are important to the operation of our business and to our early mover advantage in crop biotechnology. We rely on a combination of patents, plant variety protection, plant breeders rights, copyrights, trademarks, trade secret laws, confidentiality provisions, and licensing arrangements to establish and protect our intellectual property. However, the importance of technology development and intellectual property protection in the agricultural industry increases the risk that technological advances by others could render our products less competitive. Our business could be negatively
affected by any of the following:
|
|
our issued patents, Plant Variety Protection certificates, plant breeders rights and trademark registrations may be successfully challenged by our competitors; |
|
|
our pending patent, Plant Variety Protection certificates, plant breeders rights and trademark registration applications may not be allowed or may be challenged successfully by our competitors; |
|
|
our products may inadvertently use the technology of others and, therefore, require us to obtain intellectual property licenses from other parties in order for us to sell our products; |
|
|
we may be unable to obtain intellectual property licenses that are necessary or useful to our business on favorable terms, or at all; |
|
|
new technology that is independently developed by others may supersede our technology and make our products less desirable or more costly in the marketplace; |
|
|
competitors may design around our patented technologies or may reverse engineer our trade secret technologies; |
|
|
the scope of our Plant Variety Protection certificates in many countries is narrow and subject to a breeders exemption, which allows breeders to use our varieties in a breeding program; as a result, these certificates may not provide a sustained competitive advantage in the marketplace; and |
|
|
we do not have any issued patents in Brazil and we may be unable to obtain meaningful patent protection in Brazil, further, the scope of any patents that might issue in where we intend to do business is uncertain and may not be sufficient to deter competition due to restrictions on plant claims under Brazilian patent laws and our limited filings in Brazil. |
While we have exclusive rights to certain proprietary lines of sorghum and certain other crops our collaborations with leading institutions, other parties may have access to certain lines of sorghum developed or released by such institutions, proprietary lines of such crops from other sources, and publicly available lines of such crops, from which they may develop products that compete with our products.
25
TABLE OF CONTENTS
Litigation or other proceedings or third party claims of infringement could require us to spend time and money and could severely disrupt our business.
Our commercial success depends on not infringing patents or proprietary rights of third parties, nor breaching any licenses or other agreements that we have entered into with regard to our technologies, products and business. The patent positions of biotechnology and seed companies involve complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. We cannot be sure that relevant patents have not been issued that could block our ability to obtain patents or to operate as we would like without infringing patents or
proprietary rights of other parties.
The biotechnology and seed industries have a history of litigation regarding patents and other intellectual property rights. Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage. We cannot assure you that we will not be sued by third parties for infringement of patents they may have relating to biotechnological traits or technologies in various crops.
Should any of our competitors have filed patent applications prior to March 16, 2013 or obtain patents based on patent applications filed before March 16, 2013 that claim inventions also claimed by us, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention and, thus, the right to a patent for these inventions in the United States. Such a proceeding could result in substantial cost to us even if the outcome is favorable. Even if successful on priority grounds, an interference proceeding may result in loss of claims based on patentability
grounds raised in the proceeding. If we become involved in litigation or interference or post-grant review proceedings declared by the U.S. Patent and Trademark Office to defend our intellectual property rights or as a result of alleged infringement of the rights of others, or oppositions or other intellectual property proceedings outside of the United States, we might have to spend significant amounts of money to resolve such matters. We are aware of a significant number of pending patent applications relating to biotechnological traits or technologies in various crops filed by third parties.
Even if we prevail, litigation, interference or post-grant review proceedings or opposition proceedings could result in significant legal fees and other expenses, could divert our management time and efforts and could severely disrupt our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete.
An adverse ruling arising out of any intellectual property dispute could undercut or minimize our intellectual property position. An adverse ruling that our operations violate a third partys intellectual property rights could also subject us to significant liability for damages, prevent us from using processes or products, or require us to license disputed rights from third parties. Claims of intellectual property infringement against us may require us to enter into costly royalty or license agreements, subject us to substantial damage claims or cause us to stop using such technology absent a license agreement. Although
patent and intellectual property disputes in the biotechnology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, necessary licenses may not be available to us on satisfactory terms, if at all.
Third parties may infringe on our intellectual property rights, and we may expend significant resources enforcing our rights or be competitively disadvantaged.
If we fail to protect our intellectual property rights from infringement by third parties, our competitive position could suffer, which could make it more difficult to grow our business. We may not be able to detect or prevent infringement of our intellectual property or may lose our competitive position in the market before we do so.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we also rely in part on trade secret protection for our confidential and proprietary information. For example, we consider our genetic transformation methods, markers for marker-assisted breeding and sequence databases as trade secrets.
26
TABLE OF CONTENTS
We have taken security measures to protect our trade secrets and proprietary information. These measures may not provide adequate protection for our trade secrets or other proprietary information. We also seek to protect our proprietary information by entering into confidentiality agreements with employees, with potential and actual collaborators and licensees and with consultants and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently
develop substantially equivalent proprietary information or techniques and trade secret laws do not allow us to protect against such independent development. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We have received funding from U.S. government agencies that is subject to federal regulation under the Bayh-Dole Act of 1980. Failure to comply with the requirements of the Bayh-Dole Act could negatively affect our intellectual property and have an adverse effect on our business and results of operations.
Some of our research and development activities have been funded by grants from U.S. government agencies. For example, a portion of our research and development used to develop our nitrogen use efficiency trait was funded by a U.S. Department of Energy ARPA-E grant. When new technologies are developed with U.S. government funding, the government obtains certain rights under the Bayh-Dole Act in any resulting patents and technical data, generally including, at a minimum, a nonexclusive, nontransferable license authorizing the government to practice or have practiced the invention or technical data for non-commercial purposes.
U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions will normally be subject to government license rights, periodic progress reporting, foreign manufacturing restrictions and march-in rights. March-in rights refer to the right of the U.S. government, under certain limited circumstances, to require us to grant a license, which may possibly be an exclusive license, to technology developed under a government grant to a responsible applicant, or, if we refuse, to grant such a license itself. March-in rights can be triggered if the government determines that we have failed to comply with the applicable rules and regulations related to U.S. government funded innovation, or if we have failed, within a reasonable time, to take effective steps to achieve practical application of a technology or, if action is necessary to alleviate health or safety needs, to meet requirements for public use specified by federal regulations or to give
preference to U.S. industry. The U.S. government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits and the U.S. government may acquire title in any country in which a patent application is not filed within specified time limits. Additionally, under the Bayh-Dole Act, a party which acquires an exclusive license for an invention that was partially funded by a federal research grant is subject to the following government rights: (x) products using the invention which are sold in the United States are to be manufactured substantially in the United States, unless a waiver is obtained; (y) the government may force the granting of a license to a third party who will make and sell the needed product if the licensee does not pursue reasonable commercialization of a needed product using the invention; and (z) the United States government may
use the invention for its own needs. Compliance with the requirements of the Bayh-Dole Act is complex and challenging. If we fail to comply with these guidelines or any other requirements under the Bayh-Dole Act, we may lose our exclusive rights to these products, and we may lose potential revenue derived from the sale of these products. We may also enter into collaborations with entities outside the United States that receive government funding or, in the future, we may apply for government funding from other countries. Regulations in these countries may provide for similar march-in rights. Any governments rights in our intellectual property may lessen its commercial value, which could adversely affect our business.
27
TABLE OF CONTENTS
Risks Related to this Offering and Ownership of our Securities
An investment in the units is extremely speculative and there can be no assurance of any return on any such investment.
An investment in the units is extremely speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in us, including the risk of losing their entire investment.
Market fluctuations due to risks our business faces, as well as general economic, political and market conditions, may negatively impact the market price of our Common Stock.
Our stock price has been in the past, and may continue to be subject to wide fluctuations in response to the risks our business faces including those contained in this prospectus, and others beyond our control, including:
|
|
actual or projected fluctuations in our financial condition and operating results; |
|
|
our cash and cash equivalents position; |
|
|
actual or projected changes in our growth rate relative to our competitors; |
|
|
actual or projected fluctuations in our competitors financial condition or operating results; |
|
|
actual cost savings realized from our restructuring plan and cost reduction initiatives; |
|
|
announcements of technological innovations by us, our collaborators or our competitors; |
|
|
announcements by us, our collaborators or competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
|
|
the entry into, modification or termination of collaborative arrangements; |
|
|
changes in our customer base; |
|
|
additions or departures of key management or other key personnel; |
|
|
competition from existing products or new products that may emerge; |
|
|
issuances of new or updated research reports by securities or industry analysts; |
|
|
fluctuations in the share prices of companies perceived by investors to be comparable to us; |
|
|
fluctuations in the size of our public float or trading volume; |
|
|
disputes or other developments related to proprietary rights, including patents, litigation matters, the countries in which we source our germplasm, and our ability to obtain patent protection for our technologies; |
|
|
disputes or other developments relating to genetically engineered products, including claims of adventitious presence or environmental harm; |
|
|
changes in existing laws, regulations and policies applicable to our business and products; |
|
|
announcements or the expectation of raising additional financing; |
|
|
sales of our Common Stock by us, our insiders or other stockholders; |
|
|
the status of our listing on the NASDAQ; |
|
|
general market conditions in our industry; and |
|
|
general economic conditions, affecting the U.S. and other markets in which we operate. |
The stock markets in general, and the small-cap biotech market, in particular, have experienced extreme volatility that have affected and continue to affect the trading prices of equity securities of many companies. These market fluctuations often have been unrelated or disproportionate to changes in the operating performance of those companies. These fluctuations, as well as general economic, political and market
28
TABLE OF CONTENTS
conditions such as recessions, interest rate changes, international currency fluctuations or regulatory changes may negatively impact the market price of our Common Stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our managements attention from other business concerns.
Our Common Stock is thinly traded and there may not be an active, liquid trading market for our Common Stock.
There is no guarantee that an active trading market for our Common Stock will be maintained on NASDAQ, or that the volume of trading will be sufficient to allow for timely trades. Investors may not be able to sell the shares of our Common Stock that they acquire as a result of their purchase of Class A Units quickly or at the latest market price if trading in our stock is not active or if trading volume is limited. In addition, if trading volume in our Common Stock is limited, trades of relatively small numbers of shares may have a disproportionate effect on the market price of our Common Stock.
If there are substantial sales of our Common Stock, or the perception that these sales could occur in the future, the trading price of our Common Stock could decline.
The trading price of our Common Stock could decline as a result of sales of a large number of shares of our Common Stock in the public market. The perception that these sales could occur may also depress the trading price of our Common Stock. As of November 10, 2015, we had 8,830,700 shares of Common Stock outstanding. Certain of our stockholders are entitled, under contracts providing for registration rights, to require us to register shares of our Common Stock owned by them for public sale in the United States. We have received waivers of these registration rights with respect to this offering from certain of such
stockholders. In connection with our offerings of Common Stock and warrants on July 30, 2015 and August 26, 2015, we filed a registration statement on Form S-3, on September 22, 2015, to register for resale the shares of our Common Stock issuable upon exercise of such warrants. In addition, certain stockholders, including stockholders owning a majority of our outstanding shares as well as current and former employees, are eligible to resell shares of Common Stock in the public market under Rule 144, which, in the case of our affiliates, would be subject to volume limitations and certain other restrictions under Rule 144. We have also registered 672,644 shares of Common Stock previously issued or reserved for future issuance under our equity compensation plans and agreements. Subject to the satisfaction of applicable exercise periods and vesting requirements, the shares of Common Stock issued upon exercise of outstanding options will be available for immediate resale in the United
States in the open market.
The warrants and the A-1 Preferred Stock are unlisted securities and there is no public market for them.
There is no established public trading market for the warrants or the A-1 Preferred Stock, and we do not expect a market to develop. In addition, the warrants and A-1 Preferred Stock are not listed, and we do not intend to apply for listing of the warrants or the A-1 Preferred Stock on any securities exchange or trading system. Without an active market, the liquidity of the warrants and the A-1 Preferred Stock is limited, and investors may be unable to liquidate their investments in the warrants and A-1 Preferred Stock.
The warrants may not have any value.
The warrants will be exercisable for five (5) years from the closing date at an initial exercise price per share of $ . In the event that the price of a share of our Common Stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
A warrant does not entitle the holder to any rights as common stockholders until the holder exercises the warrant for shares of our Common Stock.
Until you acquire shares of our Common Stock upon exercise of your warrants, the warrants will not provide you any rights as a common stockholder. Upon exercise of your warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs on or after the exercise date.
29
TABLE OF CONTENTS
We are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act and, for as long as we continue to be an emerging growth company, we intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements related to our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company for up to five years from the date of the completion of our IPO, or until the earlier of (1) the last day of the fiscal year in which our total annual gross revenues exceed $1 billion, (2) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the Exchange Act), which would occur if the market value of our common equity that is held by non-affiliates exceeds $700 million as of the last business day our most recently completed second fiscal quarter or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. We cannot predict if investors will find our Common Stock less attractive if we continue to rely on these
exemptions. If some investors find our Common Stock less attractive as a result of any choices that we make to reduce our disclosure, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Under this provision, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption
of such standards is required for public companies that are not emerging growth companies. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
We are a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our Common Stock less attractive to investors.
We are currently a smaller reporting company as defined in the Exchange Act. Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that an independent registered public accounting firm provide an attestation report on the effectiveness of internal control over financial reporting, and have certain other decreased disclosure obligations in their SEC filings.
We cannot predict whether investors will find our Common Stock less attractive because of our reliance on any of these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
We incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to comply with the laws and regulations affecting public companies.
We became a public company in February 2012. Although we are an emerging growth company as defined under the JOBS Act, as a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements, in order to comply with the rules and regulations imposed by the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NASDAQ Stock Market. In addition, management and other personnel will need to devote a substantial amount of time to comply with these requirements.
30
TABLE OF CONTENTS
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports and detect fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting, and have our chief executive officer and chief financial officer certify as to the accuracy and completeness of our financial reports. The process of implementing internal controls and complying with Section 404 is expensive and time consuming, and requires
significant attention from management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.
For so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the
effectiveness of our internal controls over financial reporting. To date, our independent registered public accounting firm has not expressed an opinion on the effectiveness of our internal controls. If we are not able to comply with the requirements of Section 404 in a timely manner, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause our stock price to decline.
We have identified three material weaknesses in our internal control over financial reporting as of August 31, 2015. If our remedial measures are insufficient to address these material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our ability to provide accurate and timely financial information could be negatively affected, which could reduce the reliability of our financial reporting, harm investor confidence in our Company and affect the market price of our Common Stock.
We perform system and process evaluations and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. In connection with the preparation of our audited financial statements for fiscal year 2015, we identified material weaknesses in our control environment, our control
activities related to expenses in Brazil, and our control activities related to our revenue recognition, in addition to a significant deficiency in our control activities related to the precision of managements review of our year end financial statements. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis by the companys internal controls. A significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the companys financial reporting. Because of these material weaknesses, and the significant deficiency management concluded
that the Company did not maintain effective internal control over financial reporting as of August 31, 2015.
We are in the process of taking the necessary steps to remediate the material weaknesses and the significant deficiency that we identified and have made enhancements to our control procedures; however, the material weaknesses and the significant deficiency, will not be remediated until the necessary controls have been implemented and are operating effectively. We cannot assure that there will not be additional material weaknesses and significant deficiencies that we or our independent registered public accounting firm will identify. Moreover, if we do not maintain effective internal control over financial reporting or if we or
our independent registered public accounting firm identify additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause our stock price to decline.
31
TABLE OF CONTENTS
Anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law could delay or prevent an acquisition of our company, even if the acquisition may be beneficial to our stockholders.
Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of our company deemed undesirable by our board of directors. Among other things, our amended and restated certificate of incorporation and bylaws (i) provide for a board of directors that is divided into three classes, with staggered three-year terms, (ii) provide that all stockholder action must be effected at a duly called meeting of the stockholders and not by a consent in writing, (iii) provide that only a majority of our board of directors, the chairman of the board of directors, our chief executive
officer or president (in the absence of a chief executive officer) may call a special meeting of the stockholders, (iv) provide for the ability of our board of directors to issue undesignated preferred stock, (v) require that certain amendments to the amended and restated certificate of incorporation be approved by a 66 2/3% stockholder vote, and (vi) establish advance notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholders meetings. These provisions may also frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors who are responsible for appointing the members of our management team. As a Delaware corporation, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in excess of
15% of our outstanding stock from merging or combining with us without board of directors or stockholder approval. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer to acquire our company may be considered beneficial by some stockholders and could limit the opportunity for our stockholders to receive a premium for their shares.
We do not expect to declare any dividends in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our Common Stock in the foreseeable future. Consequently, investors may need to rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Common Stock.
If we fail to adhere to the listing criteria of the NASDAQ Capital Market, our Common Stock may be delisted, which may adversely affect the liquidity and market price of our Common Stock, our ability to raise additional financing and may subject us to certain penny stock restrictions, which may further adversely affect the liquidity and market price of our Common Stock.
Our Common Stock is currently listed on the NASDAQ Capital Market which requires that we adhere to specified listing criteria. In April 2014, we were informed by the NASDAQ that we had failed to comply with NASDAQ Listing Rule 5450(a)(1), which required that we maintain a minimum closing bid price of $1.00 per share. After transferring our Common Stock to the NASDAQ Capital Market, we achieved compliance with the corresponding rule through a reverse stock split in April 2015. In the future, if we were to fail to adhere to the Markets listing criteria, including maintaining a minimum closing bid price of $1.00 per share,
our Common Stock may be delisted. If our Common Stock were to be delisted, the liquidity of our Common Stock would be adversely affected and the market price of our Common Stock could decrease, as would our ability to raise additional financing through public or private sales of equity securities. In addition, if delisted we would no longer be subject to NASDAQ rules, including rules requiring us to have a certain number of independent directors and to meet other corporate governance standards. Our failure to be listed on NASDAQ or another established securities market would have a material adverse effect on the value of your investment in us. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
If our Common Stock is delisted by NASDAQ or another national exchange, our Common Stock may be eligible for quotation on an over-the-counter quotation system or on the pink sheets. Upon any such delisting, our Common Stock would likely become subject to the regulations of the SEC relating to the market for penny stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations applicable to penny stocks may severely affect the market liquidity for our Common Stock and could limit the ability of
32
TABLE OF CONTENTS
shareholders to sell securities in the secondary market. In such a case, an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of our Common Stock, and there can be no assurance that our Common Stock will be eligible for trading or quotation on any alternative exchanges or markets. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:
|
|
make a special written suitability determination for the purchaser; |
|
|
receive the purchasers written agreement to the transaction prior to sale; |
|
|
provide the purchaser with risk disclosure documents which identify certain risks associated with investing in penny stocks and which describe the market for these penny stocks as well as a purchasers legal remedies; and |
|
|
obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a penny stock can be completed. |
As a result of these requirements, the market price of our securities may be adversely impacted, and current stockholders may find it more difficult to sell our securities.
Our management may not apply the net proceeds from this offering in ways that increase stockholder value.
We currently intend to use the net proceeds from this offering as described in the Use of Proceeds section of this prospectus. However, our management may not apply the net proceeds in ways that ultimately increase stockholder value. Investors will not have the opportunity to influence our decisions on how to use the net proceeds from this offering.
33
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements, other than statements of historical facts contained in this prospectus, including statements regarding our efforts to develop and commercialize our products, anticipated yields and product performance, our short-term and long-term business strategies, market and industry expectations and future results of operations and financial position, including anticipated cost savings and projected cash expenditures from our restructuring plan and liquidity, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as
may, will, should, expect, plan, anticipate, could, intend, target, project, contemplate, believe, estimate, potential, continue or other similar words.
We based these forward-looking statements largely on our current expectations and projections about future events or trends that we believe may affect our business and financial performance. These forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to materially differ from any future results, performance or achievements expressed or implied by these forward-looking statements. We have described in the Risk Factors section and elsewhere in this prospectus the material risks and uncertainties that we believe could cause actual
results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify, you should not rely on these forward-looking statements as guarantees of future results, performance or achievements.
The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We undertake no obligation to update publicly, except to the extent required by law, any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
34
TABLE OF CONTENTS
MARKET AND INDUSTRY DATA
Market data and certain industry data and forecasts included in this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, governmental agency reports and industry publications and surveys, including reports by the following authorities:
|
|
Food and Agriculture Organization of the United Nations (FAOSTAT); |
|
|
The International Service for the Acquisition of Agri Biotech Applications; and |
|
|
National Science Board. |
This information involves a number of assumptions and limitations. These industry and government publications, surveys and forecasts generally indicate that the information has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we believe the third party market and industry data and forecasts included in this prospectus are generally reliable, we have not independently verified any of the data from third party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internally generated industry
forecasts, which we believe to be reliable based on our managements knowledge of the industry, have not been independently verified by a third party. We are responsible for all of the disclosure in this prospectus.
35
TABLE OF CONTENTS
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately $10.4 million, based on an assumed offering price of $1.18 per Class A Unit and $1,000 per Class B Unit, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $12.1 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any additional proceeds from any future conversions of the A-1 Preferred Stock. We
will only receive additional proceeds from the exercise of the warrants issuable in connection with this offering if the warrants are exercised and the holders of such warrants pay the exercise price in cash upon such exercise and do not utilize the cashless exercise provision of the warrants.
We intend to use the net proceeds from this offering for general corporate purposes, including working capital. Pending the use of the net proceeds of this offering, we intend to invest the net proceeds in short-term investment-grade, interest-bearing securities.
36
TABLE OF CONTENTS
PRICE RANGE OF OUR COMMON STOCK
Our Common Stock began trading on NASDAQ under the symbol CERE on February 22, 2012. Prior to that time, there was no public market for our Common Stock. The following table sets forth the high and low sales prices per share of our Common Stock for each of the quarters in fiscal 2014, 2015 and 2016 (through November 23, 2015). All of the share prices are adjusted to reflect the 1-for-8 reverse stock split of our Common Stock, which took effect on April 8, 2015.
|
|
|
|
|
|
|
High |
|
Low |
Fiscal 2014
|
|
|
|
|
|
|
|
|
First quarter (September 1, 2013 November 30, 2013) |
|
$ |
17.12 |
|
|
$ |
9.28 |
|
Second quarter (December 1, 2013 February 28, 2014) |
|
|
14.56 |
|
|
|
10.24 |
|
Third quarter (March 1, 2014 May 31, 2014) |
|
|
11.60 |
|
|
|
4.00 |
|
Fourth quarter (June 1, 2014 August 31, 2014) |
|
|
6.56 |
|
|
|
4.08 |
|
Fiscal 2015
|
|
|
|
|
|
|
|
|
First quarter (September 1, 2014 November 30, 2014) |
|
$ |
4.48 |
|
|
$ |
1.76 |
|
Second quarter (December 1, 2015 February 28, 2015) |
|
|
3.20 |
|
|
|
1.44 |
|
Third quarter (March 1, 2015 May 31, 2015) |
|
|
4.48 |
|
|
|
1.63 |
|
Fourth quarter (June 1, 2015 August 31, 2015) |
|
|
4.80 |
|
|
|
0.90 |
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
First quarter (September 1, 2015 November 23, 2015) |
|
$ |
1.65 |
|
|
$ |
0.91 |
|
37
TABLE OF CONTENTS
DIVIDEND POLICY
We have never declared or paid cash dividends on our Common Stock. We currently intend to retain any future earnings and do not expect to declare or pay any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board of Directors considers relevant.
We will not pay any dividends on shares of Common Stock (other than dividends in the form of Common Stock) unless and until such time as we pay dividends on each A-1 Preferred Share (as defined below) on an as-converted basis. Other than as set forth in the previous sentence, no other dividends will be paid on A-1 Preferred Shares and we will pay no dividends (other than dividends in the form of Common Stock) on shares of Common Stock unless we simultaneously comply with the previous sentence.
38
TABLE OF CONTENTS
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our capitalization as of August 31, 2015:
|
|
on an actual basis; and |
|
|
on an as adjusted basis to give effect to the sale of 2,545,000 Class A Units and 9,000 Class B Units in this offering, the application of the net proceeds of this offering and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. |
You should read this table together with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the accompanying notes contained in this prospectus.
|
|
|
|
|
|
|
As of August 31, 2015 |
|
|
Actual |
|
As Adjusted |
|
|
|
|
(Unaudited) |
|
|
(In thousands, except per share data) |
Cash and cash equivalents |
|
$ |
8,095 |
|
|
$ |
|
|
Common stock warrant liabilities |
|
$ |
1,631 |
|
|
|
|
|
Long-term debt, less current portion |
|
$ |
|
|
|
$ |
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock, $0.01 par value; 10,000,000 shares authorized, actual and as adjusted; no shares issued and outstanding as of August 31, 2015, actual; and 9,000 shares issued and outstanding, as adjusted |
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value; 240,000,000 shares authorized, actual and as adjusted; 8,830,700 shares issued and outstanding as of August 31, 2015, actual; and 11,375,700 shares issued and outstanding, as adjusted |
|
|
88 |
|
|
|
|
|
Additional paid-in capital |
|
|
335,424 |
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
762 |
|
|
|
|
|
Accumulated deficit |
|
|
(332,061 |
) |
|
|
|
|
Total stockholders equity |
|
|
4,213 |
|
|
|
|
|
The table above does not include:
|
|
409,763 shares of Common Stock issuable upon exercise of options to purchase our Common Stock outstanding as of August 31, 2015 at a weighted average exercise price of $43.87 per share; |
|
|
2,775,083 shares of Common Stock issuable upon exercise of warrants to purchase our Common Stock outstanding as of August 31, 2015 at a weighted average exercise price of $16.79 per share; |
|
|
5,200 shares of Common Stock reserved as of August 31, 2015 for future issuance under our 2010 Stock Option/Stock Issuance Plan; |
|
|
130,256 shares of Common Stock reserved as of August 31, 2015 for future issuance under our Amended and Restated 2011 Equity Incentive Plan; |
|
|
7,627,140 shares of Common Stock that may be issued upon conversion of shares of A-1 Preferred Stock; |
|
|
10,172,140 shares of Common Stock underlying the warrants issuable to investors in connection with this offering; and |
|
|
203,442 shares of Common Stock underlying the warrants issuable to the representative in connection with this offering. See Underwriting Representatives Warrants. |
39
TABLE OF CONTENTS
DILUTION
If you invest in units in this offering, your ownership interest will be immediately diluted to the extent of the difference between the public offering price per Class A Unit and the as adjusted net tangible book value per share of our Common Stock immediately after giving effect to this offering. As adjusted net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the total number of shares of our Common Stock outstanding as of August 31, 2015. Assuming that we issue only Class A Units (and no Class B Units) at an assumed per share offering price of $1.18,
which was the last reported sale price of our Common Stock on the NASDAQ Capital Market on November 23, 2015, and excluding units that may be issued upon exercise of the underwriters overallotment option and shares of Common Stock that may be issued and any proceeds received upon exercise of warrants and shares of Common Stock issuable upon exercise of warrants and after deduction of the underwriters fees and estimated offering expenses payable by us, our as adjusted net tangible book value as of August 31, 2015, would have been $11.4 million, or $0.42 per share.
The following table illustrates this dilution on a per share basis:
|
|
|
|
|
Assumed public offering price per share of Common Stock included in a Class A Unit |
|
|
|
|
|
$ |
1.18 |
|
Net tangible book value per share as of August 31, 2015 before giving effect to this offering |
|
$ |
0.48 |
|
|
|
|
|
Decrease in net tangible book value per share attributable to new investors |
|
$ |
0.06 |
|
|
|
|
|
As adjusted net tangible book value per share after giving effect to this offering |
|
|
|
|
|
$ |
0.42 |
|
Dilution per share to investors in this offering |
|
|
|
|
|
$ |
0.76 |
|
If the underwriters over-allotment option is exercised in full, dilution per share to new investors would be $0.75 per share of Common Stock.
The above discussion and table are based on our Common Stock outstanding as of August 31, 2015.
This number excludes:
|
|
409,763 shares of Common Stock issuable upon exercise of options to purchase our Common Stock outstanding as of August 31, 2015 at a weighted average exercise price of $43.87 per share; |
|
|
2,775,083 shares of Common Stock issuable upon exercise of warrants to purchase our Common Stock outstanding as of August 31, 2015 at a weighted average exercise price of $16.79 per share; |
|
|
5,200 shares of Common Stock reserved as of August 31, 2015 for future issuance under our 2010 Stock Option/Stock Issuance Plan; |
|
|
130,256 shares of Common Stock reserved as of August 31, 2015 for future issuance under our Amended and Restated 2011 Equity Incentive Plan; |
|
|
7,627,140 shares of Common Stock that may be issued upon conversion of shares of A-1 Preferred Stock; |
|
|
10,172,140 shares of Common Stock underlying the warrants issuable to investors in connection with this offering; and |
|
|
203,442 shares of Common Stock underlying the warrants issuable to the representative in connection with this offering. |
To the extent that any outstanding options or warrants are exercised, new investors will experience further dilution.
40
TABLE OF CONTENTS
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below for, and as of the end of, each of the years in the five-year period ended August 31, 2015, are derived from the consolidated financial statements of Ceres, Inc. and subsidiaries, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated financial statements as of August 31, 2015 and 2014, and for each of the years in the two-year period ended August 31, 2015, and the report thereon, are included elsewhere in this prospectus. The consolidated financial statements as of August 31, 2013, 2012 and 2011 and for each of the years in
the three-year period ended August 31, 2013 are not included in this prospectus.
Historical results are not necessarily indicative of results for future periods. You should read the following selected consolidated financial data in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
|
(In thousands, except per share data) |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
434 |
|
|
$ |
146 |
|
|
$ |
462 |
|
|
$ |
432 |
|
|
$ |
116 |
|
Services |
|
|
2,286 |
|
|
|
2,258 |
|
|
|
4,781 |
|
|
|
4,939 |
|
|
|
6,500 |
|
Total revenues |
|
|
2,720 |
|
|
|
2,404 |
|
|
|
5,243 |
|
|
|
5,371 |
|
|
|
6,616 |
|
Cost and operating expenses(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
5,267 |
|
|
|
3,021 |
|
|
|
6,245 |
|
|
|
2,384 |
|
|
|
2,492 |
|
Research and development |
|
|
9,684 |
|
|
|
14,156 |
|
|
|
16,401 |
|
|
|
19,155 |
|
|
|
19,014 |
|
Selling, general and administrative |
|
|
15,946 |
|
|
|
14,484 |
|
|
|
15,187 |
|
|
|
12,634 |
|
|
|
10,008 |
|
Total cost and operating expenses(1) |
|
|
30,897 |
|
|
|
31,661 |
|
|
|
37,833 |
|
|
|
34,173 |
|
|
|
31,514 |
|
Loss from operations |
|
$ |
(28,177 |
) |
|
|
(29,257 |
) |
|
|
(32,590 |
) |
|
|
(28,802 |
) |
|
|
(24,898 |
) |
Interest expense |
|
|
(30 |
) |
|
|
(68 |
) |
|
|
(46 |
) |
|
|
(560 |
) |
|
|
(456 |
) |
Interest income |
|
|
28 |
|
|
|
5 |
|
|
|
126 |
|
|
|
39 |
|
|
|
7 |
|
Other income (expense) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
(11,020 |
) |
Loss before income taxes |
|
$ |
(28,155 |
) |
|
|
(29,320 |
) |
|
|
(32,510 |
) |
|
|
(29,407 |
) |
|
|
(36,367 |
) |
Income tax (expense) benefit |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
31 |
|
Net loss |
|
$ |
(28,156) |
|
|
|
(29,321 |
) |
|
|
(32,511 |
) |
|
|
(29,410 |
) |
|
|
(36,336 |
) |
Basic and diluted net loss per share attributable to common stockholders(2) |
|
$ |
(4.57 |
) |
|
|
(6.48 |
) |
|
|
(10.48 |
) |
|
|
(17.44 |
) |
|
|
(146.72 |
) |
Weighted average outstanding common shares used for net loss per share attributable to common stockholders(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
6,166,006 |
|
|
|
4,525,745 |
|
|
|
3,099,503 |
|
|
|
1,686,402 |
|
|
|
247,703 |
|
|
(1) |
Our stock-based compensation expense is as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
Cost of product sales |
|
$ |
145 |
|
|
$ |
174 |
|
|
$ |
(170 |
) |
|
$ |
152 |
|
|
$ |
|
|
Research and development |
|
|
640 |
|
|
|
1,031 |
|
|
|
1,189 |
|
|
|
293 |
|
|
|
1,895 |
|
Selling, general and administrative |
|
|
1,480 |
|
|
|
1,863 |
|
|
|
2,291 |
|
|
|
1,464 |
|
|
|
815 |
|
Total stock-based compensation expense |
|
$ |
2,265 |
|
|
$ |
3,068 |
|
|
$ |
3,310 |
|
|
$ |
1,909 |
|
|
$ |
2,710 |
|
|
(2) |
The basic and diluted loss per share are computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. As we have incurred a net loss for all periods presented, all potentially dilutive common shares comprising of stock options, warrants, Convertible Notes and convertible preferred stock have been excluded as they are anti-dilutive. |
41
TABLE OF CONTENTS
Our consolidated balance sheet data is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 31, |
|
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
Cash and cash equivalents |
|
$ |
8,095 |
|
|
$ |
3,423 |
|
|
$ |
8,881 |
|
|
$ |
21,069 |
|
|
$ |
21,911 |
|
Working capital |
|
$ |
4,544 |
|
|
|
24,607 |
|
|
|
28,439 |
|
|
|
51,226 |
|
|
|
16,739 |
|
Total assets |
|
$ |
11,122 |
|
|
|
32,424 |
|
|
|
37,178 |
|
|
|
69,247 |
|
|
|
36,797 |
|
Common and preferred stock warrant liabilities |
|
$ |
1,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,726 |
|
Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,630 |
|
Total long-term liabilities |
|
$ |
1,687 |
|
|
|
93 |
|
|
|
175 |
|
|
|
344 |
|
|
|
33,518 |
|
Convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,502 |
|
Total stockholders equity (deficit) |
|
$ |
4,213 |
|
|
$ |
27,609 |
|
|
$ |
33,006 |
|
|
$ |
62,561 |
|
|
$ |
(204,318 |
) |
42
TABLE OF CONTENTS
Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and the other financial information appearing elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Please see Special Note Regarding Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with these statements. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future
periods, and our actual results may differ materially from those discussed in our forward-looking statements as a result of various factors, including but not limited to those listed under Risk Factors on page 10 of this prospectus and those included elsewhere in this prospectus.
Overview
We are an agricultural biotechnology company that develops and markets seeds and traits to produce crops for feed, forages, sugar and other markets. We use a combination of advanced plant breeding, biotechnology and bioinformatics to develop seed products and biotechnology traits to address many of the current limitations and future challenges facing agriculture. These technology platforms, which can increase crop productivity, improve quality, reduce crop inputs and improve cultivation on marginal land, have broad application across multiple end markets, including food, feed, fiber and fuel.
In 2014, we began realigning our business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. Previously, we prioritized our working capital in Brazil, where, since 2010 we focused on the large-scale evaluation and adoption of sorghum for bioenergy production. We believe that these changes represent an important step in the transformation of our business as we refocus on our strengths in agricultural technology and redirect our existing seed products and trait pipelines toward food and feed markets being fueled by global prosperity growth.
Our current commercial seed products have demonstrated a number of favorable attributes for forage feed, including high yields and lower water requirements, as well as competitive production costs relative to corn and certain hay crops. In addition our product development pipeline contains numerous traits and seed products that have demonstrated further yield improvements as well as enhanced energy content and nutrition. Following commercial field evaluations in 2014, we launched our U.S. forage sorghum business in 2015 via multiple distribution arrangements. Distributors provide us with local market information, agronomy
support and access to their customer base.
In addition to our forage sorghum opportunity, in certain crops, including corn, rice and sugar beet, we have out-licensed a portion of our traits and gene technology to existing market participants and continue to pursue opportunities to out-license these technologies, among other go-to-market strategies. We believe that the strength of our technology has been validated by our receipt of multiple competitive grants as well as collaborations with leading companies. We also have significant intellectual property rights to our technology platforms, traits and seed products.
We operate in one segment, and accordingly, our results of operations are presented on a consolidated basis. To date the majority of our revenue and expense has been denominated in U.S. dollars and Brazilian Real. In fiscal year 2015 there was a benefit to our operating expenses related to the impact of expenses incurred in Brazilian Real as a result of the strengthening dollar which was offset by increased costs incurred in Brazil.
We generate revenues from product sales, research and development collaboration agreements, government grants and software and services. We began selling products in 2008 and, while our product sales have been minimal to date, we expect product sales to eventually become the primary source of our revenues. We expect future product revenues to include a combination of seed sales and trait fees, similar to current business models used for food crops incorporating biotech traits. As we continue to develop traits for our products, we expect that a significant portion of our product revenues will be generated from the sale of seeds
that include our traits.
Seed inventory costs are computed on a first-in, first-out basis and valued at the lower of cost or market with any excess cost recognized during the period within cost of product sales. When inventory costs exceed
43
TABLE OF CONTENTS
expected market value due to obsolescence or lack of demand, inventory write-downs are recorded for the difference between the cost and the market value in the period based on our evaluation of such inventory. The recoverability of our seed inventory is dependent on increased customer adoption and acceptance.
We have invested significantly in research, development and technology and applied our proprietary technology platforms to energy crops and expect to continue to invest in research and development focusing on forage sorghum, as well as traits with significant market potential in other crops, like corn, rice and sugarcane. For the fiscal years ended August 31, 2015 and 2014, we invested $9.7 million and $14.2 million, respectively, in research and development, with the main emphasis on breeding and traits. Our other operating expenses are related to selling, general and administrative expenses incurred to establish and build
our market presence and business infrastructure.
Our consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We expect to incur further losses in the operations of our business and have been dependent on funding our operations through the issuance and sale of equity securities. Our accumulated deficit as of August 31, 2015 was $332.1 million. Our cash and cash equivalents of $8.1 million as of August 31, 2015 is not sufficient to enable us to remain in business beyond January 2016 without raising further capital or
significantly curtailing our operations. These circumstances raise substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Therefore, you should not rely on our consolidated financial statements as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of liquidation.
Historically, we have funded our operations with payments from collaborators and government grants and the proceeds from issuances of common stock, convertible preferred stock, warrants, convertible notes and debt financing. We have experienced significant losses as we invested heavily in research and development and marketing, and those costs have exceeded revenues. We will continue to need capital to fund our research and development projects, to commercialize our products and to provide working capital to fund other aspects of our business. The Company is evaluating opportunities to secure additional financing, including
the issuance of equity or debt, sale or divesture of business units, and additional revenues from grants or collaborations. However there are no assurances that such opportunities will be available or available on terms that are acceptable to the Company. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, develop and commercialize products or technologies, or otherwise respond to competitive pressures will be significantly limited. If this happens, we may be forced to obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, grant licenses to our technology and sell assets on terms that are not favorable to us or delay or terminate research and development programs or the commercialization of products or significantly curtail or cease our operations.
On June 19, 2015, we announced the continued realignment of our business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, we undertook a restructuring of our Brazilian seed operations. The restructuring of our Brazilian seed operations, includes, among other actions, a workforce reduction that initially impacted 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. We estimated that we would incur charges of approximately $0.6 million over the five-month period
ending in October 2015 with respect to the initial workforce reductions in Brazil and the U.S., including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.5 million of one-time severance and other costs, all of which will be cash expenditures.
As of August 19, 2015, we had initiated a further workforce reduction that impacted an additional 19 positions in Brazil. We estimated that we would incur additional charges of approximately $0.8 million over the four-month period ending on December 31, 2015 with respect to the additional workforce reductions in Brazil, including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.7 million of one-time severance and other costs, all of
44
TABLE OF CONTENTS
which will be cash expenditures. We expect to save up to approximately $8.0 to $10.0 million in cash in fiscal 2016 as a result of restructuring our operations as described above which is higher than we originally estimated. The restructuring of our Brazilian seed operations is expected to be substantially completed by February 1, 2016. After full implementation of the restructuring plan, our Brazilian operations will be focused on sugarcane trait development activities for the Brazilian sugarcane market. There can be no assurance that we will achieve the cost savings we expect in fiscal 2016 after fully implementing the
realignment plan.
In July 2014, our Brazilian subsidiary was selected for a competitive grant and a multi-year credit facility to fund a product development project for sorghum and sugarcane for up to approximately 85 million reais, or $22.1 million, under the governments PAISS Agricola program. The project consists of a non-repayable grant of up to approximately 10 million reais, or $2.6 million, and a government-subsidized credit facility for up to approximately 67.5 million reais, or $17.55 million. The Company is expected to fund up to approximately 7.5 million reais, or $1.95 million, of the project. While we have received approval
for the grant and approval in principle for the credit facility, in light of the restructuring of our Brazilian operations first announced on June 19, 2015, we have approached the Brazilian government to narrow the focus and significantly reduce the size of the project, and it is uncertain at this time if we will draw from the grant or the credit facility.
Public Offerings
On March 10, 2014, we completed a registered public offering of 2,875,000 shares of our Common Stock (including 375,000 shares purchased by the underwriter upon the exercise in full of their right to purchase up to an additional 375,000 shares to cover over-allotments) at a price to the public of $8.00 per share. We received approximately $20.8 million of proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses. We issued warrants to purchase an aggregate of 60,000 shares of common stock to certain affiliated designees of the underwriter as part of the underwriters
compensation related to the March 10, 2014 registered public offering. The warrants are exercisable at any time or from time to time, in whole or in part, beginning on March 4, 2015 and expire on March 4, 2019. The exercise price is $12.00 per share of common stock.
On July 30, 2015, we completed a registered public offering of an aggregate of 1,200,000 shares of Common Stock, par value $0.01 per share, of the Company, at an offering price of $1.296 per share for estimated net proceeds of approximately $1.0 million, after deducting the placement agent fee and related offering expenses. In a concurrent private placement, we issued warrants exercisable for one share of Common Stock for each share purchased in the offering for an aggregate of 1,200,000 shares of Common Stock at an exercise price of $1.62 per share. The warrants are exercisable at any time or from time to time, in whole or in
part, beginning on January 30, 2016 and expire on January 30, 2021. We also issued warrants to purchase an aggregate of 24,000 shares of our Common Stock at an exercise price of $1.944 per share to the placement agent as part of the placement agents compensation. The warrants issued to the placement agent are exercisable at any time or from time to time, in whole or in part, beginning on July 30, 2016 and expire on July 30, 2020.
On August 26, 2015, we completed a registered public offering of an aggregate of 1,598,478 shares of Common Stock, par value $0.01 per share, of the Company, at an offering price of $1.22 per share for estimated net proceeds, together with the concurrent private placement, of approximately $1.7 million, after deducting the placement agent fee and related offering expenses. In a concurrent private placement, we issued warrants exercisable for 0.75 shares of Common Stock for each share purchased in the August 26, 2015 offering for an aggregate of 1,198,859 shares of Common Stock at an exercise price of $1.22 per share. The
warrants are exercisable at any time or from time to time, in whole or in part, beginning on February 26, 2016 and expire on February 26, 2021. We also issued warrants to purchase an aggregate of 31,970 shares of our Common Stock at an exercise price of $1.83 per share to the placement agent as part of the placement agents compensation. The warrants issued to the placement agent are exercisable at any time or from time to time, in whole or in part, beginning on August 26, 2016 and expire on August 26, 2020.
Key Components of Our Results of Operations
Revenues
To date, our revenues have related to our product sales, collaborative research and government grants.
45
TABLE OF CONTENTS
|
|
Product Sales. Product sales are primarily composed of seed and biomass sales. We began selling products in 2008. |
|
|
Collaborative Research. Collaborative research revenues generally consist of payments for research and development activities for specific projects. These arrangements may include a combination of non-refundable technology license fees, research and development fees, and/or fees for the achievement of contractually defined milestone events and royalties. |
|
|
Government Grants. Government grant revenues consist of payments from government entities. The terms of these grants generally provide us with reimbursement for research and development services and certain types of capital expenditures over a contractually defined period. |
|
|
Software Licensing and Development. Software licensing and development revenues generally consist of services related to software arrangements that involve (1) significant production, modification or customization and (2) post contract customer support (PCS). |
Cost of Product Sales
Cost of product sales consists principally of the cost of labor, raw materials and third-party services related to growing, harvesting, packaging and shipping our seeds, and direct and indirect costs related to our biomass sales. These costs are comprised of the direct costs of our seed production employees, as well as the temporary seasonal labor costs during planting and harvesting times. Third-party services include contract labor, grower payments, crop management services and other professional services related to the cost of product sales. Cost of product sales also consists of input costs such as chemicals and seed
production costs. Costs associated with collaboration, research and government grants are not included in cost of product sales but instead are included as research and development expenses. Although historically not significant, future royalty expenses associated with collaboration and license agreements with third parties will be included in cost of product sales. The amount of royalties we owe under these agreements is a function of our sales, and the applicable royalty rates depend on a number of factors, including the portion of our third-party collaborators intellectual property that is present in our products. We believe that as we increase seed production volumes, we will be able to achieve better economies of scale from third parties as well as our own seed production.
Research and Development
Research and development expenses principally consist of personnel costs related to our research and development staff in support of plant breeding, agronomy, technology development and protection, and exploratory research. Research and development expenses also include costs incurred for laboratory supplies, reimbursable costs associated with government grants and our collaborative agreements, third-party contract payments, consultants and facility and related overhead costs. Also included in research and development expenses are expenses in connection with warrants granted to The Texas A&M University System and The
Samuel Roberts Noble Foundation, Inc. The warrants vest based on the achievement of certain research and commercialization milestones or the passage of time. The warrants are accounted for at fair value at each quarter end until the vesting targets are met using the Black Scholes option pricing model. As a publicly traded company, the volatility of our stock price could cause an increase in the warrant fair value and resulting expense charges to research and development.
We do not track our research and development expenditures by project. Our ongoing research and development activities are dedicated to improving our product offerings, with a main emphasis on breeding, bioinformatics and traits. Our research and development expenses consist principally of personnel and related costs and at November 10, 2015, we had 24 full-time employees primarily engaged in our research and development activities. Our employees work time is spread across multiple research and development methods continuously focused on our technology platforms and to a much lesser extent areas for which we have received
government grant awards and collaboration funding. As a result of the restructuring of our Brazil operations during July and August 2015, we expect our research and development expenses to be significantly lower during our next fiscal year ended August 31, 2016.
46
TABLE OF CONTENTS
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of personnel costs related to our executive, sales, legal, finance and human resources staff and professional fees including legal and accounting. Selling costs relate to business development and our sales and marketing programs to build brand awareness. We improve our brand awareness through programs including publication of crop management guides, speaking roles at industry events, trade show displays and local-level grower meetings. Costs related to these activities, including travel, are included in selling expenses. We believe that our use of distributors for
our forage sorghum products should allow us to operate with relatively modest overall selling expenses for the near term. As a result of the restructuring of our Brazil operations during July and August 2015, we expect our selling, general and administrative expenses to be significantly lower during our next fiscal year ended August 31, 2016.
Interest Expense
We recognize interest expense on our debt obligations. We expect interest expense to fluctuate in the future with changes in our debt levels.
Interest Income
Interest income consists primarily of interest earned on investments and cash balances. Our interest income will vary each reporting period depending on our average investment and cash balances during the period and market interest rates. We expect interest income to fluctuate in the future with changes in average investment and cash balances and market interest rates.
Other Income (Expense)
Other income (expense) consists primarily of the changes in the fair value of our common stock warrants.
Provision for Income Tax Benefits
Since our inception, we have been subject to income taxes principally in the United States and Brazil, where we established a legal presence in 2010. We anticipate that as we expand our operations outside the United States, we will become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.
Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
As of August 31, 2015 and 2014, based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have recorded a full valuation allowance against all of our deferred tax assets. As of August 31, 2015, we had approximately $273.9 million of federal, $196.8 million of state and $25.8 million of foreign operating loss carry-forwards available to offset future taxable income, if any, which expire in varying amounts from 2018 through 2035 for federal tax purposes and from 2015 through 2035 for state tax purposes if unused. The carry-forward period for the foreign
net operating loss is indefinite. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an ownership change, as defined in Section 382 of the Code (as defined below). We have not completed a Section 382 analysis to determine if a change in ownership has occurred. Until an analysis is completed, there can be no assurance that the existing net operating loss carry-forwards or credits are not subject to significant limitation.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses
47
TABLE OF CONTENTS
and related disclosures. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
Our financial statements have been prepared under the assumption that we will continue as a going concern. As discussed in the report of our independent registered public accounting firm, dated November 23, 2015, included herein, we have incurred recurring losses and we expect that the current level of cash and cash equivalents will only be sufficient to fund operations through January 2016 which raises substantial doubt as to our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
We believe the following critical accounting policies involve significant areas of managements judgments and estimates in the preparation of our financial statements.
Revenue Recognition
Revenues are recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) transfer of product or technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. To date, our primary source of revenues has been derived from research collaborations and government grants, software and services, and to a lesser extent, product sales.
Product Sales
Product sales are derived from seed and biomass sales, and trait fees. Product sales are recognized, net of discounts and allowances, once passage of title and risk of loss have occurred and contractually specified acceptance criteria have been met, provided all other revenue recognition criteria have also been met.
Collaborative Research and Government Grants
From time to time, we have entered into research and development collaboration agreements with third parties, including a large agriculture supplier, a consumer goods conglomerate and several biofuel producers. In addition, we have received grants from government agencies such as the DOE and the USDA. The research and development collaboration agreements typically provide us with multiple revenue streams, which may include upfront, non-refundable fees for licensing certain of our technologies, fees for research and development activities, and contingent milestone payments upon achievement of contractual criteria.
|
|
Technology License Fees. For collaboration agreements in which we have continuing involvement, license fees are recognized on a straight-line basis over the term of the arrangement. Licensing fees are non-refundable and not subject to future performance. |
|
|
Government Grants. We receive payments from government entities in the form of government grants. Government grants generally provide us with cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period, as well as an allocated portion of our overhead expenses. Revenues from government grants are recognized in the period during which the related costs are incurred, provided that substantially all conditions under which the government grants were provided have been met and we only have perfunctory obligations outstanding. |
|
|
Research and Development Fees. Generally, fees for research and development activities are recognized as the services are performed over the performance period, as specified in the respective agreements. Certain of our collaboration agreements require us to deliver research data by specific dates and the collective program plan will result in reaching specific crop characteristics by certain dates. For such arrangements, we recognize revenues either on a straight-line basis over the term of the arrangement or based on the completed contract method under the agreement, but the revenue recognized cannot exceed the payments that have accrued to us to date under the agreement. The research and development period is estimated at the inception of each agreement and is periodically evaluated. |
48
TABLE OF CONTENTS
|
|
Milestone Payments. Fees that are contingent upon achievement of substantive performance milestones at inception of the agreement are recognized based on the achievement of the milestone, as defined in the respective agreements. |
We have earned research funding revenues from several agreements with the DOE, the USDA, USAID and several leading biofuel producers whereby we performed research activities and received revenues that partially reimbursed our expenses incurred. Under such grants and agreements, we retained a proprietary interest in the products and technology we developed. These expense reimbursements primarily consisted of direct expense sharing arrangements. We recorded revenue related to these grants of approximately $1.0 million and $1.4 million in the years ended August 31, 2015 and 2014, respectively.
Software and Services
During the years ended August 31, 2015 and 2014, we provided services related to software arrangements that involve (1) significant production, modification or customization and (2) PCS. The customer has the option, annually, to extend the arrangement or elect to receive only maintenance. We do not have vendor specific objective evidence (VSOE) related to these components. In addition, there are substantive acceptance provisions related to the production, modification or customization. We apply the completed contract method to these arrangements. However, only costs related to the production, modification or customization are
deferred. Revenue is recognized upon acceptance of the production, modification or customization as that is later than the expiration of the annual PCS period. Revenue related to these arrangements was $0.7 million and $0.3 million in 2015 and 2014.
We also had an arrangement that included a license, installation services and PCS. As we do not have VSOE for the elements, we have deferred revenue until PCS is the only undelivered element and will recognize revenue over the remaining PCS period. There was no revenue related to this arrangement during 2015 and 2014.
Billings in Excess of Costs
We recognize billings in excess of costs to the extent that cash received under the software and service arrangements are in excess of the revenues recognized related to the arrangements since the work under the arrangements have not yet been performed, or the work has not been fully completed at the balance sheet date, which is classified as other current liabilities on the accompanying consolidated balance sheets.
For the fiscal year ended August 31, 2015, USAID, Syngenta, Exelus, Florida Crystals and Bayer represented 33.5%, 13.1%, 12.2%, 11.9% and 10.4% of our revenues, respectively. For the fiscal year ended August 31, 2014, USAID, ARPA-E, Exelus, and Syngenta represented 41.9%, 17.5%, 16.5% and 11.6% of our revenues, respectively.
Stock-Based Compensation
We recognize compensation expense related to stock-based compensation, including the awarding of employee and non-employee stock options, based on the grant date estimated fair value. We amortize the fair value of the employee stock options on a straight-line basis over the requisite service period of the award, which is generally the vesting period. Options granted to non-employees are re-measured as the services are performed and the options vest, and any resulting change in value is recognized as expense during the period the related services are rendered. We account for restricted stock grants issued based on the fair
market value of our Common Stock. We estimate the fair value of stock-based compensation awards using the Black-Scholes option pricing model, which requires judgments to be made, including estimating: (i) the expected life of an award; (ii) stock price volatility; and (iii) prior to the IPO, estimating the fair value of our Common Stock.
The Black-Scholes option-pricing model calculates the estimated fair value of stock options using the following inputs: (i) expected life; (ii) expected volatility; (iii) risk-free interest rate; (iv) expected dividend yield rate; (v) exercise price; and (vi) closing price of our Common Stock on the date of grant. Due to our limited history of grant activity, we calculate our expected term utilizing the simplified method permitted by the SEC, which is the average of the total contractual term of the option and its vesting period. We calculate our expected volatility rate from the historical volatilities of selected
comparable public companies within our industry, due to a lack of historical information regarding the volatility of our stock price. We will
49
TABLE OF CONTENTS
continue to analyze the historical stock price volatility assumption as more historical data for our Common Stock becomes available. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the options expected term. We do not expect to pay dividends. Forfeitures have been estimated based upon our historical and expected forfeiture experience.
The estimated fair value of a stock option using the Black-Scholes option-pricing model is impacted significantly by changes in a companys stock price. For example, all other assumptions being equal, the estimated fair value of a stock option will increase as the closing price of a companys stock increases, and vice versa. Prior to the closing of the IPO, we were a private company and, as such, we were required to estimate the fair value of our common stock. In the absence of a public trading market, we determined a reasonable estimate of the then-current fair value of our Common Stock for purposes of granting
stock-based compensation based on multiple criteria. We estimated the fair value of our Common Stock utilizing methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the AICPA Practice Aid.
Fair Value of Liability Classified Warrants to Purchase Common Stock
We issued warrants to purchase our Common Stock in connection with issuances of our Common Stock. We account for these warrants as liabilities as the warrants are not considered indexed to our Common Stock. We estimate the fair value of these warrants using an option-pricing model, which incorporates several estimates and assumptions that are subject to management judgment. Changes in fair value at each period-end are recorded in other income (expense) in our consolidated statement of operation until the earlier of the exercise or expiration of the warrants.
Income Taxes
Income taxes are accounted for under the asset and liability method. 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 and operating loss and tax credit carryforwards. 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. We record a valuation allowance when it is more likely than not that some of our net deferred tax assets will not be realized. In determining the need for valuation allowances, we consider our projected future taxable income and the availability of tax planning strategies. We have recorded a full valuation allowance to reduce our net deferred tax assets to zero because we have determined that it is more likely than not that our net deferred tax assets will not be realized. If in the future we determine that we will be able to realize any of our net deferred tax assets, we will make an adjustment to the allowance, which would increase our income in the period that the determination is made.
We operate in various tax jurisdictions and are subject to audit by various tax authorities. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Assets Held for Sale
We reclassify long-lived assets to Assets Held for Sale when all required criteria for such reclassification are met. The assets are recorded at the lower of the carrying value or fair value less costs to sell. Assets held for sale must meet the following conditions: (1) management, having authority to approve the action, commits to a plan to sell the asset, (2) the asset is available for immediate sale in its present condition, (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, (4) the sale of the asset is probable, and transfer of the asset is
expected to qualify for recognition as a completed sale, within one year, (5) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
50
TABLE OF CONTENTS
In connection with an agreement we entered into on March 31, 2014 to sell our facility and certain equipment located in College Station, Texas, a determination was made that the assets met the criteria to be classified as held for sale and the fair value for the related assets was in excess of their carrying amount. Accordingly, during 2014, we recorded a charge of $0.5 million to research and development expense for the difference between the net carrying amount of these assets of $1.2 million and the net cash proceeds of $0.7 million. On June 2, 2014, we completed the sale of this facility and equipment for net cash proceeds
of approximately $0.7 million.
In connection with the announcement we made on June 19, 2015, to restructure our Brazilian seed operations, a determination was made that the fixed assets in Brazil met the criteria to be classified as held for sale and the carrying amount of those assets was in excess of their fair value. Accordingly, we recorded a charge of $0.4 million to cost of product sales, research and development and general and administrative expense for the difference between the net carrying value of these assets of $0.9 million and estimated net cash proceeds of $0.5 million. Fair value of the assets held for sale was determined using an appraisal
for certain assets and resale information available for certain assets.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our long-lived assets comprise a single asset group for evaluation purposes. We evaluate whether an impairment indicator occurs primarily based on progress achieved against our business plans. To the extent that an impairment indicator has occurred, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Results of Operations
The following table sets forth our consolidated results of operations for the periods shown (in thousands):
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
434 |
|
|
$ |
146 |
|
Services |
|
|
2,286 |
|
|
|
2,258 |
|
Total revenues |
|
|
2,720 |
|
|
|
2,404 |
|
Cost and operating expenses:
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
5,267 |
|
|
|
3,021 |
|
Research and development |
|
|
9,684 |
|
|
|
14,156 |
|
Selling, general and administrative |
|
|
15,946 |
|
|
|
14,484 |
|
Total cost and operating expenses |
|
|
30,897 |
|
|
|
31,661 |
|
Loss from operations |
|
|
(28,177 |
) |
|
|
(29,257 |
) |
Interest expense |
|
|
(30 |
) |
|
|
(68 |
) |
Interest income |
|
|
28 |
|
|
|
5 |
|
Other income |
|
|
24 |
|
|
|
|
|
Loss before income taxes |
|
|
(28,155 |
) |
|
|
(29,320 |
) |
Income tax expense |
|
|
(1 |
) |
|
|
(1 |
) |
Net loss |
|
$ |
(28,156 |
) |
|
$ |
(29,321 |
) |
51
TABLE OF CONTENTS
Comparison of Years Ended August 31, 2015 and 2014
Revenues
|
|
|
|
|
|
|
|
|
Year Ended August 31, |
|
Change |
|
|
2015 |
|
2014 |
|
|
(In thousands) |
Product sales |
|
$ |
434 |
|
|
$ |
146 |
|
|
$ |
288 |
|
Services |
|
|
2,286 |
|
|
|
2,258 |
|
|
|
28 |
|
Total revenues |
|
$ |
2,720 |
|
|
$ |
2,404 |
|
|
$ |
316 |
|
Our total revenues increased by $0.3 million to $2.7 million for the year ended August 31, 2015 compared to the year ended August 31, 2014. Product sales increased by $0.3 million primarily due to increased biomass sales which resulted from the expansion of our sales incentive and promotional programs for the 2014-2015 sorghum growing season in Brazil. Services revenue remained relatively unchanged at $2.3 million. Within Services, software revenue increased by $0.4 million, which was offset by decreased revenue recognized under our collaborative research programs of $0.4 million.
Cost and Operating Expenses
|
|
|
|
|
|
|
|
|
Year Ended August 31, |
|
Change |
|
|
2015 |
|
2014 |
|
|
(In thousands) |
Cost of product sales |
|
$ |
5,267 |
|
|
$ |
3,021 |
|
|
$ |
2,246 |
|
Research and development |
|
|
9,684 |
|
|
|
14,156 |
|
|
|
(4,472 |
) |
Selling, general and administrative |
|
|
15,946 |
|
|
|
14,484 |
|
|
|
1,462 |
|
Total cost and operating expenses |
|
$ |
30,897 |
|
|
$ |
31,661 |
|
|
$ |
(764 |
) |
Cost of Product Sales
Our cost of product sales increased by $2.2 million to $5.3 million for the year ended August 31, 2015 compared to the year ended August 31, 2014. The increase was primarily due to increased expenses of $1.9 million resulting from increases in crop management services performed under our sales incentive and promotional programs for the 2014-2015 growing season in Brazil, and due to $0.3 million of increased expenses related to obsolete seed inventory. As a result of the restructuring of our Brazil operations, we do not expect to incur costs for crop management services in our next fiscal year ended August 21, 2016.
Research and Development Expenses
Our research and development expenses decreased by $4.5 million to $9.7 million for the year ended August 31, 2015 compared to the year ended August 31, 2014. In the U.S., research and development expenses decreased by $4.2 million primarily due to reduced personnel and related expenses of $3.1 million, reduced external research and development and licensing expenses of $0.3 million, and reduced laboratory and agricultural supply costs of $0.8 million. In Brazil, research and development expenses decreased by $0.3 million as a result of decreased personnel and related expenses.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses increased by $1.5 million to $15.9 million for the year ended August 31, 2015 compared to the year ended August 31, 2014. In Brazil expenses increased by $1.7 million primarily as a result of increased expenditures related to building our market presence and business infrastructure, and supporting the business activities related to our sales incentive and promotional programs. In the U.S., expenses decreased by $0.2 million primarily due to reduced personnel and related expense of $1.0 million which was mostly offset by increased legal and professional and patent expenses of
$0.8 million.
52
TABLE OF CONTENTS
Interest Expense, Interest Income and Other (Expense) Income
|
|
|
|
|
|
|
|
|
Year Ended August 31, |
|
Change |
|
|
2015 |
|
2014 |
|
|
(In thousands) |
Interest expense |
|
$ |
(30 |
) |
|
$ |
(68 |
) |
|
$ |
38 |
|
Interest income |
|
|
28 |
|
|
|
5 |
|
|
|
23 |
|
Other income |
|
|
24 |
|
|
|
|
|
|
|
24 |
|
Total |
|
$ |
22 |
|
|
$ |
(63 |
) |
|
$ |
85 |
|
Interest Expense
Interest expense decreased $38,000 for the year ended August 31, 2015 compared to the prior year. The decrease is related to our Brazil operations.
Interest Income
Interest income increased $23,000 for the year ended August 31, 2015 compared to the prior year. The increase was primarily due to higher rates of return from our invested cash balances in Brazil.
Other Income
Other income increased by $24,000 due to the changes in fair market value of our common stock warrants issued in connection with the July and August 2015 financings.
Liquidity and Capital Resources
Our consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We expect to incur further losses in the operations of our business and have been dependent on funding our operations through the issuance and sale of equity securities. Our accumulated deficit as of August 31, 2015 was $332.1 million. Our cash and cash equivalents of $8.1 million as of August 31, 2015 is not sufficient to enable us to remain in business beyond January 2016 without raising further capital or
significantly curtailing our operations. These circumstances raise substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Therefore, you should not rely on our consolidated financial statements as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of liquidation.
Since our inception we have incurred significant net losses, and, as of August 31, 2015, we had an accumulated deficit of $332.1 million. We expect to incur additional losses related to the continued development and expansion of our business including research and development, seed production and operations, and sales and marketing. There is no assurance that we will achieve profitable operations, or if achieved, that we can sustain them on a continued basis.
Historically, we have funded our operations with payments from collaborators and government grants and the proceeds from issuances of Common Stock, convertible preferred stock, warrants, convertible notes and debt financing. We have experienced significant losses as we invested heavily in research and development and marketing, and those costs have exceeded revenues. We will continue to need capital to fund our research and development projects, to commercialize our products and to provide working capital to fund other aspects of our business. The Company is evaluating opportunities to secure additional financing, including
the issuance of equity or debt, sale or divesture of business units, and additional revenues from grants or collaborations. However there are no assurances that such opportunities will be available or available on terms that are acceptable to the Company. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, develop and commercialize products or technologies, or otherwise respond to competitive pressures will be significantly limited. If this happens, we may be forced to obtain funds through collaborative and licensing arrangements that may require us to
53
TABLE OF CONTENTS
relinquish commercial rights, grant licenses to our technology and sell assets on terms that are not favorable to us or delay or terminate research and development programs or the commercialization of products or significantly curtail or cease our operations.
On July 30, 2015, we completed a registered public offering of an aggregate of 1,200,000 shares of Common Stock, par value $0.01 per share, of the Company, at an offering price of $1.296 per share for estimated net proceeds of approximately $1.0 million, after deducting the placement agent fee and related offering expenses. In a concurrent private placement, we agreed to issue warrants exercisable for one share of Common Stock for each share purchased in the July 30, 2015 offering for an aggregate of 1,200,000 shares of Common Stock at an exercise price of $1.62 per share. The warrants are exercisable at any time or from time
to time, in whole or in part, beginning on January 30, 2016 and expire on January 30, 2021. We also issued warrants to purchase an aggregate of 24,000 shares of our Common Stock at an exercise price of $1.944 per share to the placement agent as part of the placement agents compensation. The warrants issued to the placement agent are exercisable at any time or from time to time, in whole or in part, beginning on July 30, 2016 and expire on July 30, 2020.
On August 26, 2015, we completed a registered public offering of an aggregate of 1,598,478 shares of Common Stock, par value $0.01 per share, of the Company, at an offering price of $1.22 per share for estimated net proceeds, together with the concurrent private placement, of approximately $1.7 million, after deducting the placement agent fee and related offering expenses. In a concurrent private placement, we agreed to issue warrants exercisable for 0.75 shares of Common Stock for each share purchased in the August 26, 2015 offering for an aggregate of 1,198,859 shares of Common Stock at an exercise price of $1.22 per share.
The warrants are exercisable at any time or from time to time, in whole or in part, beginning on February 26, 2016 and expire on February 26, 2021. We also issued warrants to purchase an aggregate of 31,970 shares of our Common Stock at an exercise price of $1.83 per share to the placement agent as part of the placement agents compensation. The warrants issued to the placement agent are exercisable at any time or from time to time, in whole or in part, beginning on August 26, 2016 and expire on August 26, 2020.
On March 10, 2014, we completed a registered public offering of 2,875,000 shares of our Common Stock (including 375,000 shares purchased by the underwriter upon the exercise in full of their right to purchase up to an additional 375,000 shares to cover over-allotments) at a price to the public of $8.00 per share, resulting in net proceeds of approximately $20.8 million, after deducting underwriting discounts and commissions and offering expenses. We also issued warrants to purchase an aggregate of 60,000 shares of our Common Stock to certain affiliated designees of the underwriter as part of the underwriters
compensation. The warrants are exercisable at any time or from time to time, in whole or in part, beginning on March 4, 2015 and expire on March 4, 2019. The exercise price is $12.00 per share of Common Stock.
On October 11, 2013, we commenced the implementation of a plan (Plan) intended to further align expenditures with our near-term commercial opportunity in Brazil, shift Northern Hemisphere sorghum breeding activities from College Station, Texas to a more appropriate location, de-emphasize research and development for U.S. cellulosic feedstocks, reduce costs and conserve cash. The actions taken under the Plan, which included, among others, a workforce reduction that impacted 16 positions in the U.S, were completed at August 31, 2014. During 2014, we incurred total charges of approximately $1.6 million with respect to the U.S.
workforce reductions, including $0.9 million of one-time severance expenses, $0.4 million for continuation of salary and benefits of certain employees until their work was completed and $0.3 million of other costs. Of the $1.6 million of cash payments made during 2014, $1.0 million, $0.5 million and $0.1 million was recorded to research and development expenses, cost of sales and general and administrative expenses, respectively.
For the years ended August 31, 2015 and 2014, we used $0.4 million and $1.0 million, respectively, in cash to fund capital expenditures. We currently anticipate making aggregate capital expenditures of between $0.1 million and $0.5 million for the year ended August 31, 2016.
54
TABLE OF CONTENTS
The following table sets forth a summary of our cash flows for the periods indicated (in thousands):
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Net cash used in operating activities |
|
$ |
(23,217 |
) |
|
$ |
(22,563 |
) |
Net cash (used in) provided by investing activities |
|
$ |
24,069 |
|
|
|
(3,589 |
) |
Net cash provided by (used in) financing activities |
|
$ |
2,725 |
|
|
$ |
20,592 |
|
Cash Flows from Operating Activities
For all periods presented, we have incurred net losses and net cash used in operating activities. The net cash used in operating activities primarily resulted from significant research and development expenses and seed production costs to develop and produce our seeds and traits. Such expenses and costs have exceeded our revenues, which have primarily been generated from collaborative research and government grants and, to a much lesser extent, product sales.
Net cash outflows of $23.2 million from operating activities during the year ended August 31, 2015 primarily resulted from our net loss of $28.2 million, which was partially offset by non-cash charges of $3.6 million and changes in operating assets of $1.4 million. Non-cash charges primarily included $2.3 million in stock-based compensation expense, $0.7 million in depreciation expense, and $0.5 million in asset impairment. The net change in our operating assets and liabilities was $1.4 million, primarily consisting of an increase in accounts payable and accrued expenses of $0.9 million and an increase in billings in excess of
cost of $0.5 million.
Net cash outflows of $22.6 million from operating activities during the year ended August 31, 2014 primarily resulted from our net loss of $29.3 million, which was partially offset by non-cash charges of $5.4 million and changes in operating assets of $1.4 million. Non-cash charges primarily included $1.5 million in depreciation expense, $0.3 million in amortization of discounts on marketable securities and $3.1 million in stock-based compensation expense. The net change in our operating assets and liabilities was $1.3 million, primarily consisting of an increase in accounts payable and accrued expenses of $0.4 million, an
increase in billings in excess of cost of $0.4 million and a decrease in accounts receivable of $0.6 million.
Cash Flows from Investing Activities
Our investing activities consisted primarily of net investment purchases, maturities of investments and capital expenditures.
Net cash provided by investing activities was $24.1 million during the year ended August 31, 2015, which resulted from the maturity of marketable securities of $25.1 million and proceeds from sale of property and equipment of $0.1 million, which was partially offset by the purchases of marketable securities of $0.7 million and purchases of property and equipment of $0.4 million.
Net cash used in investing activities was $3.6 million during the year ended August 31, 2014, which resulted from the purchase of marketable securities of $33.1 million and the purchase of property and equipment of $1.0 million, which was mostly offset by the maturity of marketable securities of $29.7 million and proceeds from the sale of the property and equipment of $0.8 million.
Cash Flows from Financing Activities
Net cash inflows of $2.7 million from finance activities during the year ended August 31, 2015 was due to $2.8 million net proceeds from the issuance of Common Stock and warrants in connection with our July and August 2015 financings, which was partially offset by $0.1 million of payments on capital leases.
Net cash inflows of $20.6 million from finance activities during the year ended August 31, 2014 was due to $20.8 million net proceeds from the issuance of Common Stock in connection with our follow-on equity offering, which was partially offset by $0.2 million of payments on capital leases.
55
TABLE OF CONTENTS
Contractual Obligations
The following is a summary of our contractual obligations as of August 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
Total |
|
For Years Ended August 31, |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 and thereafter |
|
|
(In thousands) |
Operating Lease Obligations |
|
$ |
2,527 |
|
|
$ |
621 |
|
|
|
606 |
|
|
$ |
618 |
|
|
$ |
631 |
|
|
$ |
51 |
|
Research Collaboration Agreements |
|
$ |
652 |
|
|
|
602 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,179 |
|
|
$ |
1,223 |
|
|
$ |
656 |
|
|
$ |
618 |
|
|
$ |
631 |
|
|
$ |
51 |
|
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our consolidated balance sheets.
Seasonality
Product sales are dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both highly seasonal patterns and substantial fluctuations in quarterly sales and profitability. Our product sales for the years ended August 31, 2015 and 2014 were minimal and, accordingly, we have not yet experienced the full nature or extent to which our business may be seasonal. Weather conditions and natural disasters, such as heavy rains, hurricanes, hail, floods, tornadoes, freezing conditions, drought or fire, also affect decisions by our customers about the types and amounts of seeds to plant and
the timing of harvesting and planting such seeds. Disruptions that cause delays by our customers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results.
Inflation
We believe that inflation has not had a material impact on our results of operations for the years ended August 31, 2015 and 2014. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
Recent Accounting Pronouncements
The information contained in Note (1) to the Audited Consolidated Financial Statements under the heading Recent Accounting Pronouncements is hereby incorporated by reference in this Recent Accounting Pronouncements section.
56
TABLE OF CONTENTS
BUSINESS
Overview
We are an agricultural biotechnology company that develops and markets seeds and traits to produce crops for feed, forages, sugar and other markets. We use a combination of advanced plant breeding, biotechnology and bioinformatics to develop seed products and biotechnology traits to address many of the current limitations and future challenges facing agriculture. These technology platforms, which can increase crop productivity, improve quality, reduce crop inputs and improve cultivation on marginal land, have broad application across multiple end markets, including food, feed, fiber and fuel.
Increased global prosperity is driving increasing agricultural demand. As human societies become wealthier, they typically increase meat and dairy consumption. As a result, demand for forage, feed and hay crops to feed meat and dairy cattle is expected to continue to increase. We believe that growers of forage crops, including vertically integrated businesses such as dairies, will need to seek improved sources of forage as well as utilize more marginal quality cropland, or cropland with limited water availability, to meet their feedstock requirements. To maximize milk and meat production, dairies and livestock producers
frequently supplement rations of grasses with other crops and nutritional sources. We believe that a single crop plant with improved forage quality can be a significant supplement to existing livestock feed rations. Using our technology platforms, we are developing forage and feed crops with a better balance of yield, energy and nutrition. In forage sorghum, we are taking advantage of the natural drought tolerance and lower fertilizer requirements of sorghum and combining it with biotech traits for enhanced biomass yield and quality. By utilizing our high biomass or quality traits, such as our high carbohydrate trait, we believe sorghum could potentially surpass silage corn in milk yield per acre, which is a key crop performance metric for dairies. We also believe there is an opportunity to utilize these traits in other forage crops, such as alfalfa and silage corn. Many of these traits have already been developed as part of our historical activities in bioenergy.
Our current commercial seed products have demonstrated a number of favorable attributes for forage feed, including high yields and lower water requirements, as well as competitive production costs relative to corn and certain hay crops. In addition our product development pipeline contains numerous traits and seed products that have demonstrated further yield improvements as well as enhanced energy content and nutrition. Following commercial field evaluations in 2014, we launched our U.S. forage sorghum business in 2015 and initiated multiple distribution arrangements with well-established providers of crop inputs and
services, including Helena Chemical Company, Wilbur-Ellis and 3rd Millennium Genetics. Distributors provide us with local market information, agronomy support and access to their customer base.
In addition to our forage sorghum opportunity, in certain crops, including corn, rice and sugar beet, we have out-licensed a portion of our traits and gene technology to existing market participants and continue to pursue opportunities to out-license these technologies, among other go-to-market strategies. We believe that the strength of our technology has been validated by our receipt of multiple competitive grants as well as collaborations with leading companies. We also have significant intellectual property rights to our technology platforms, traits and seed products.
Forage Sorghum Seed and Traits
In 2015, we expanded our sorghum offerings to include hybrids for use as livestock feed and forage. We are leveraging our core capabilities in plant transformation and biotech traits and combining them with proprietary forage sorghum hybrids and breeding lines. Our goal is to expand forage sorghum into a major feed crop with higher yield and nutritional quality. We believe that our opportunity is supported by the following capabilities and advantages:
|
|
Access to Leading Germplasm via Long-Term Relationship with Texas A&M University. Since 2007, we have acquired access to valuable sorghum parental lines (germplasm) through our strategic collaboration with Texas A&M University. We believe that this long-term relationship will continue to play a key role in developing new hybrids for the forage market similar to the advantages we received during our historical activities with similar types of sorghum. |
|
|
Multiple Distribution Arrangements. We have entered into several distribution agreements with well-established distributors of crop inputs and services in North America, including Helena |
57
TABLE OF CONTENTS
|
|
Chemical Company, Wilbur-Ellis and 3rd Millennium Genetics. For the 2015 growing season underway in North America, we sold more than 4,000 acres of our Blade forage sorghum seed products for commercial evaluations, compared to approximately 3,000 acres previously estimated in July 2015 and 600 acres planted the previous season. We believe drought and water supply concerns in certain regions of the U.S. positively influenced customer decisions to plant our forage sorghum hybrids. As an outlet for previous generations of products in our portfolio, we also introduced generic seed for certain market segments. Plantings of generic seed are expected to cover several thousand additional acres. |
|
|
Favorable Performance Compared to Other Forage Sorghum and Silage Corn. Our current hybrids, which are traditionally bred and do not yet contain biotech traits, have performed well in numerous commercial and multi-hybrid field trials in the United States and have demonstrated a number of favorable attributes for forage feed, such as high yields and lower water requirements, as well as competitive production costs relative to corn and certain hay crops. For example, in two university-led evaluations, which included products from well-known seed companies, we achieved the highest milk production yield per acre, which is a key metric for dairy operations. For the 2015 growing season in North America, we are evaluating more than a dozen new hybrids that offer performance advantages such as higher yields and improved nutrition. |
|
|
Field Validated Biotech Traits and Non-Regulated Status. We have also advanced our biotech traits in sorghum for additional field evaluations in the United States. In a 2014 U.S. field evaluation, one of our leading biotech traits provided a greater than 20% biomass yield advantage in a commercial-type sorghum. In 2014, we also received confirmation from the USDA that our high biomass trait was not considered a regulated article under 7 CFR §340 of the USDAs mandate to regulate genetically engineered traits. This determination is likely to make it more cost-effective and timely for us to develop this trait in sorghum, and as a result, we believe we have a clear and near-term path forward to the commercialization of this trait. We are targeting commercial release as early as 2018. By utilizing our high biomass or quality traits, such as our high carbohydrate trait, which has been validated in the greenhouse, we
believe sorghum could potentially surpass silage corn in milk yield per acre, which is a key crop performance metric for dairies. |
Biotech Traits for Sugarcane and Other Crops
Our biotechnology traits include traits that increase biomass yields and provide greater yield stability and resilience to drought and other stress conditions. Our strategy is to focus on genes that have shown large, step increases in performance, and whose benefits are largely maintained across multiple species. Trait performance is evaluated in target crops, such as corn, rice and sugarcane, through multi-year field tests in various locations. To date, our field evaluations have largely confirmed earlier results obtained in greenhouse and laboratory settings.
We believe that a number of our biotech traits could provide significant benefits to sugarcane production, such as improved biomass yields and greater resilience to drought and other stress conditions. Biotech solutions are particularly attractive in sugarcane because improvements through plant breeding have been cumbersome and slow compared to other crops. According to the United Nations Food and Agriculture Organization crop database, FAOSTAT, sugarcane is cultivated on approximately 65 million acres worldwide, including approximately 25 million acres in Brazil, 1 million acres in Colombia and 1 million acres in the
U.S., all of which are initial target markets for our traits. In research-scale field evaluations completed in March 2015, our biotech traits demonstrated significant advantages in enhancing and protecting yields in commercial sugarcane varieties under tropical conditions in Latin America. Our yield traits accelerated maturation and ripening while demonstrating significant increases in overall biomass yields over controls. In addition, plants with one of our drought tolerance traits maintained biomass yields under low water conditions, and in certain cases, maintained yields with as little as half the water normally required during production. Plantings for the next stage of field trials were completed in June 2015 ahead of our original schedule. The next stage of research field trials, which should provide more definitive results, is expected to be completed by June 2016. At this current pace, commercial sugarcane cultivars with our traits could be ready for commercial scale-up, in
select markets, as early as 2018.
58
TABLE OF CONTENTS
For crops that have been intensely bred, like corn and rice, we have taken a different approach than other crop biotechnology companies in developing traits. First, we have optimized the expression of our genes differently by using gene promoters in a more precise, sophisticated manner. Promoters are the on-off switches for genes that determine where, when and under what conditions a gene is turned on, or expressed. We also believe that combining our transgenes together provides the best approach to generate a high impact advantage, such as increased grain yield or better drought tolerance. We describe these as multi-gene
traits to distinguish them from first generation biotech crop traits, which usually consist of a single transgene per trait.
In two years of field evaluations in corn in China, our multi-gene biotech traits demonstrated significant yield advantages over controls in many of our research-scale field evaluations. Field evaluations represent a critical stage in the development of biotech crop traits, as they provide greater insight into how traits may perform in an agricultural setting. We have since advanced our best multi-gene combinations for additional testing of corn in China. We have expanded the scope of our trials, including evaluations of our traits in a more diverse set of corn breeding lines. Results of these evaluations are expected by
January 2016. Favorable results from small-scale evaluations and research settings are not a guarantee of future commercial performance, and further evaluations will be necessary to confirm results.
While we believe multi-gene combinations provide a more optimal solution, not all combinations work. Just as important, the promoters, which determine where and when a gene is expressed, are a critical to optimizing performance. However, testing the thousands of possible combinations for multiple genes and promoters can easily overwhelm even the most robust trait development pipelines.
To help overcome this challenge, we have also developed a new high-throughput, low-cost approach called iCODE, to rapidly create, evaluate and select optimal combinations of genes and their control components for next-generation biotechnology traits in crops. We believe that iCODE may have application in multiple row crops, including canola, corn, cotton, rice, sorghum, soybean and wheat. Due to the efficiency of the system, we believe that it can enable new kinds of discoveries and allow even smaller research programs to compete effectively against larger companies. In August 2015, we were awarded a U.S. patent covering our
iCODE technology.
In the third quarter of fiscal year 2015, we entered into a multi-year collaboration with a leading agricultural producer to develop biotech traits for our collaborators crop in a defined geography. We expect the development and commercialization program will be fully funded by our collaboration partner, with payments to us expected to exceed $1.0 million by mid-2016. Under the agreement, we will also receive royalties for new cultivars commercialized under the collaboration. We are also exploring discussions with other agricultural companies to develop and commercialize our biotech traits in crops, such as corn and
sugarcane, for certain geographies. In October 2015, we entered into a multi-year collaboration with FGI to develop and commercialize improved alfalfa. We expect that FGI will begin evaluating alfalfa varieties with our traits by next year. Results from these trials will determine commercialization timelines.
Persephone Bioinformatics Software
We have developed proprietary bioinformatics software, known as Persephone, to deal with the massive amounts of data generated in plant genomics. In September 2015, we licensed Persephone to global seed developer, KWS SAAT SE. Bayer CropScience, Syngenta Biotechnology and HZPC Holland BV, all multi-national life sciences companies, have also licensed Persephone as their primary genome browser. The technology is also being evaluated by other companies and institutions in plant genomics.
Persephone is a proprietary bioinformatics technology that enables storage and access to large, complex datasets as well as optimized data visualizations to view genetic data from public sources and proprietary databases. Our early need for the ability to manage large amounts of plant genomic data led to the effort to develop a scalable informatics platform, which resulted in our Persephone software. We believe that Persephone today is significantly more advanced than comparable products, including many in the human healthcare space. The Persephone software includes a number of proprietary data management optimizations to
quickly access and visualize very large datasets. This speed enables more dynamic visualizations, intuitive discovery and greater insights into genetic information. We believe that our direct experience using Persephone internally and our ability to continually develop and launch new versions with additional features
59
TABLE OF CONTENTS
and functions will enable us to further establish our market position in the plant sciences and expand into new markets, such as biomedical research and diagnostics.
Realignment Plan
On June 19, 2015, we announced the continued realignment of our business away from bioenergy to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, we undertook a restructuring of our Brazilian seed operations. The restructuring of our Brazilian seed operations, includes, among other actions, a workforce reduction that initially impacted 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. We estimated that we would incur charges of approximately $0.6 million over the
five-month period ending in October 2015 with respect to the initial workforce reductions in Brazil and the U.S., including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.5 million of one-time severance and other costs, all of which will be cash expenditures.
As of August 19, 2015, we had initiated a further workforce reduction that impacted an additional 19 positions in Brazil. We estimated that we would incur additional charges of approximately $0.8 million over the four-month period ending on December 31, 2015 with respect to the additional workforce reductions in Brazil, including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.7 million of one-time severance and other costs, all of which will be cash expenditures. We expect to save up to approximately $8.0 to $10.0 million in cash
in fiscal 2016 as a result of restructuring our operations as described above, which is higher than we originally estimated. The restructuring of our Brazilian seed operations is expected to be substantially completed by February 1, 2016. After full implementation of the restructuring plan, our Brazilian operations will be focused on sugarcane trait development activities for the Brazilian sugarcane market.
We believe that these changes represent an important step in the transformation of our business as we refocus on our strengths in agricultural technology and redirect our existing seed products and trait pipelines toward food and feed markets being fueled by global prosperity growth.
Our Markets
Across the world, growers are facing increasing demand for food, feed, fiber and fuel. This increasing demand is being primarily driven by an expanding middle class in certain regions. As global demand for agricultural outputs rises, a concurrent trend toward urbanization is causing a large reduction in the amount of arable land per capita available. The FAOSTAT data shows that the ratio of arable land to population steadily declined by over 50% from 1962 to 2012. Faced with increasing demand and limited supply in addition to stresses from climate variability and competition for water resources, growers are seeking to improve
crop productivity through a number of technologies.
Livestock Feed and Forage
Globally, the market for forage feed was valued at approximately $85 billion in 2013, according to a 2014 report from Transparency Market Research. Due to increased global consumption of meat and dairy products, demand for forage feed and hay is expected to continue to increase. In the U.S., forage crops collectively represent the third largest crop by acreage. According to the USDAs Economic Research Service there were approximately 57 million acres of hay harvested for livestock feed and forage in 2014. While exact production estimates worldwide are difficult to obtain, based on public reports, we estimate that
approximately 119 million acres of alfalfa, silage corn and forage sorghum are planted globally each year. The market that we believe can be targeted by our improved forage sorghum hybrids and traits consists of approximately 2 million acres of forage sorghum and approximately 7 million acres of silage corn in the U.S. as well as approximately 40 million acres of silage corn produced internationally. We believe that growers of forage crops, including vertically integrated businesses such as dairies, will need to seek improved sources of forage as well as utilize more marginal quality cropland, or cropland with limited water availability, to meet their feedstock requirements. To maximize milk and meat production, dairies and livestock producers frequently supplement rations of grasses with other crops and nutritional sources. We believe that a single crop plant with improved forage quality can provide a preferable solution.
60
TABLE OF CONTENTS
Sugar
According to FAOSTAT, sugarcane is cultivated on approximately 65 million acres worldwide, including approximately 25 million acres in Brazil, 1 million acres in Colombia and 1 million acres in the U.S., all of which are initial target markets for our traits. Based on favorable greenhouse and initial field results, we believe that a number of our biotech traits could provide significant benefits to sugarcane production, such as higher juice and sugar yields, accelerated growth and greater resilience to drought and other stress conditions. Biotech solutions are particularly attractive in sugarcane since improvements through
plant breeding have been cumbersome and slow compared to other crops.
Row Crops
Approximately 448 million acres of biotechnology crops were planted globally in 2014, according to a January 2015 report published by the International Service for the Acquisition of Agri-Biotech Applications. The global market value of biotechnology crop seeds was approximately $15.7 billion, according to the same report. In the United States, we estimate, based on the price differential between conventional seed varieties and similar varieties with a trait, that retail premiums for traits and stacked trait combinations in food, feed and fiber crops range from approximately $10 to $50 per acre, depending on crop and
geography. We estimate that the value created by traits is typically shared between seed companies and growers at a ratio ranging from approximately 30/70 to 60/40, respectively. As people in many countries become more affluent, they tend to consume more of their dietary protein in the form of meat and dairy products, driving the demand for animal feed grains and forage higher. Therefore, greater production of food, feed, and fiber will require higher crop productivity levels among all crops over time. In order to continue the productivity gains made in many crops over the past 75 years, and to do so in a more sustainable manner, we believe that advanced breeding methods, and biotech traits, in particular, will be required to produce higher performance crops that make more productive use of cultivated land, as well as to develop more robust, stress-tolerant crops that can grow under more difficult conditions and on marginal land. Our belief is consistent with historical yield
improvements achieved via plant breeding and the adoption of agricultural biotechnology.
Genomics and Bioinformatics Technologies
The genomics and bioinformatics markets are growing rapidly. According to a May 2014 industry report from Allied Market Research, the bioinformatics market alone is forecast to grow from $3.4 billion in 2013 to $12.8 billion by 2020. Based on a 2014 report by the National Science Board, we estimate that the current market for Persephone consists of approximately 100,000 life science researchers who routinely access and utilize genetic and genomic information for research purposes and discovery. We believe that Persephone has immediate application in multiple scientific and medical fields that utilize genetic information, with
a natural extension into clinical and diagnostic settings and additional potential end users in professional and consumer markets. Bioinformatics involves the development and storage methods that help in the organizing, analyzing, and retrieving of biological information. Today, a genome can be sequenced in a few hours for several thousand dollars a task that took 13 years and $2.7 billion to accomplish during the Human Genome Project. Gathering genetic data is no longer a bottleneck for scientific researchers; however, a major hurdle remains in the efficient organization, analysis, and interpretation of the data. We expect that the low cost and widespread application of DNA sequencing and genetic testing in both plant and medical research will require improved tools, like our Persephone bioinformatics platform, to visualize, explore and mine genetic data. Based on internal performance metrics, and those reported by our current collaborators, we believe that our
Persephone software offers a number of competitive performance advantages and has applications across a number of life science technology platforms that utilize genomics data.
Competitive Strengths
We believe that we possess a number of competitive strengths that position us to become a leading provider of seeds, traits and bioinformatics technologies, including:
Current Commercial Products with Multiple Advanced Products in Pipeline
Our current commercial products and product pipeline contain numerous traits and seed products with potential across multiple crops including sorghum, sugarcane and corn, among others. Moreover, we are focused on crops and traits outside the primary market areas of major international agrochemical and agricultural biotechnology corporations.
61
TABLE OF CONTENTS
Leading Platform with Full Agricultural Biotech Seed Company Capabilities
We are an agricultural biotechnology company that uses biotechnology, advanced plant breeding and genomic technologies to create high value traits and seeds to produce agricultural crops. Our integrated technology platform delivers a combination of valuable genetic assets and competencies in genomics and gene mapping, biotechnology and bioinformatics. Our iCODE technology enables high throughput genetic testing that can speed up the trait development process. In addition to possessing the research and development capabilities necessary to generate new product candidates, we are vertically integrated, which gives us the ability
to bring agricultural biotechnology products to market in select crops.
Extensive Intellectual Property Portfolio of High Value Traits and Germplasm
We have an extensive intellectual property portfolio of both field-validated high value traits and germplasm, which includes thousands of specimens and breeding lines, as well as multiple pools of regionally adapted germplasm spanning multiple climates. We have extensive filings around unique combinations of gene promotors and protein coding sequences. Having both germplasm and field-validated trait portfolios allows us to leverage the synergies created to facilitate innovation in a way that is not possible with germplasm or traits alone. In our focus geographies, we believe that we have a significant advantage over new
entrants who would need several generations of germplasm development and/or access to biotech traits to achieve performance equivalent to our current product portfolio and pipeline.
Multiple Out-Licensing Opportunities
Our biotech traits and core technology platforms provide multiple opportunities for exclusive or non-exclusive out-licensing, by crop and/or geography and market. Traits developed through biotechnology, also known as genetic engineering, can be added to multiple crops with similar effect in most cases. Our strategy is to focus on genes that have shown large, step increases in performance and whose benefits are largely maintained across multiple species.
Positioned to Capitalize on Growth of Large End Markets
Our biotechnology platform, which has proven to increase biomass productivity, raise quality, reduce crop inputs and improve cultivation on marginal land, has broad application across multiple end markets and crops. Faced with increasing demand and limited supply in addition to stresses from climate variability and competition for water resources, growers are seeking to improve crop productivity through a number of technologies. Agricultural biotechnology has and will continue to represent a significant source of innovation for increasing crop yields through improving performance of seeds.
Validated, Robust Bioinformatics Platform
We have established our Persephone bioinformatics software as a preeminent platform for storing, organizing, accessing and visualizing genetic information, and have displaced incumbent solutions at major life science companies. The software includes a number of proprietary data management optimizations to quickly access and visualize very large datasets. This speed enables more dynamic visualizations, intuitive discovery and greater insights into genetic information. We believe that our direct experience using Persephone internally and our ability to continually develop and launch new versions with additional features and
functions will enable us to further establish our market position in the plant sciences and expand into new markets, such as biomedical research and diagnostics.
Attractive Business Model
Seed businesses traditionally incur significant research and development expenditures and have long product development time lines, but benefit from a combination of high gross margins, low capital expenditure requirements and intellectual property protection. Once developed, seeds require little physical infrastructure or production cost to be replicated for sale. Seeds are typically priced, however, based on a share of the value created to the customer as opposed to their cost of production. In general, seed costs to growers are a relatively small percentage of their total production cost, but the performance of those seeds
is critical to the growers economics. We believe we can position our business to take advantage of low production costs relative to the high value of our products to our customers.
62
TABLE OF CONTENTS
Management Team with Significant Industry Experience
Our management team includes leading scientists and industry experts who have extensive experience in the field of agricultural biotechnology and possess a deep understanding of a variety of agricultural and biotechnology businesses, including the seed industry.
Our Strategy
Our objective is to be a leading provider of seeds and traits to a variety of agricultural markets, including livestock feed and forage, sugar and other markets. In our realigned business, we plan to leverage many of the technology advances we achieved historically for bioenergy markets, including traits for increased biomass and improved digestibility. Key elements of our business strategy include:
|
|
Expand forage sorghums use into a major feed crop with greater yield and nutritional quality, increased value capture and expanded market potential; |
|
|
Make use of the positive regulatory landscape to introduce biotech traits in our branded sorghum seed products, beginning in the U.S.; |
|
|
Pursue additional license and royalty-based collaborations with market leaders in multiple geographies to introduce our biotechnology traits to other forage crops and sugarcane; |
|
|
Continue to realign our business operations in Brazil toward sugarcane trait development and commercialization, and work with well-established local partners; and |
|
|
Increase the number of plant sciences customers utilizing our Persephone platform and expand into the biomedical fields, where genetic information is analyzed and viewed in a similar manner to plant genomics. |
Our Technology Platforms
Our integrated technology platforms are a combination of existing genetic assets, specifically germplasm and traits, and competencies in genomics, biotechnology and bioinformatics. Integration of these platforms allows us to improve our existing genetic assets as well as develop and commercialize new products from them. We have also identified to date numerous genes and their relatives from different species that significantly enhance agriculturally relevant traits.
Germplasm
We believe that we have a highly competitive sorghum germplasm collection. Our belief is based on the diversity and nature of the entries we have and how well they have been evaluated, measured and cataloged. Germplasm comprises collections of parental lines and other genetic resources representing the diversity of a crop, the attributes of which are inherited from generation to generation. Germplasm is a key strategic asset since it forms the basis of plant breeding programs and product development. We have acquired access to valuable germplasm through strategic collaborations with leading institutions, including Texas
A&M. When we sell varieties developed during such collaborations, or based on the results of such collaborations, we will typically pay our collaborators royalties on net sales of such varieties.
Traits
We are able to further improve the quality of our future product offerings by adding our proprietary traits to our germplasm collections. The majority of our traits are developed through biotechnology, also known as genetic engineering. Biotechnology allows us to precisely add traits not readily achievable through conventional breeding methods. In most cases, the same trait can be added to multiple crops with similar effect. In some instances, a gene introduced through biotechnology may confer more than one beneficial trait, such as salt tolerance and drought tolerance. Our strategy is to focus on genes that have shown large,
step increases in performance, and whose benefits are largely maintained across multiple species. We have historically focused on traits that increase biomass yields and biomass quality versus grain yields, which has been the focus of many agricultural biotechnology companies. As a result, we believe that we have a competitive advantage in developing traits for improved forage crops and sugarcane.
63
TABLE OF CONTENTS
We believe we were one of the first companies to implement the practice of developing biotech traits using two test species, rather than just one, which allows us to more successfully select gene-trait combinations that enhance commercial crops. Our current portfolio includes genes that have been shown to substantially increase sugar levels or biomass growth and height per plant as well as genes that have been shown to increase biomass under normal and reduced levels of nitrogen fertilizer. We have genes that allow plants to use water more efficiently and/or recover from water deficits more readily. We also have genes that
have been shown to provide tolerance and enhanced recovery to both acute and prolonged salt stress, as well as withstand toxic levels of aluminum in the soil. In addition, we have genes that have demonstrated enhanced conversion of biomass to fermentable sugars and genes that regulate flower development.
Our biotech traits are at various stages of development in our pipeline. We are currently evaluating their performance in various target crops primarily through replicated, multi-year field evaluations. These evaluations are designed to validate the function of the gene and measure the performance of the biotech trait in a specific crop. To date, our field evaluations have largely confirmed previous results obtained in greenhouse and laboratory settings.
The commercial development of biotech traits in commercial crops is a multi-year process. Following transformation, when the selected gene is inserted in a target crop, the resulting plants are evaluated in the greenhouse for one to two years, and then in the field to confirm results for two to four years. Following field trials, specific gene-trait combinations are typically selected and, if required, submitted for regulatory approval, or deregulation, which has historically been a multi-year process in the United States and other countries. Assuming these averages, we believe that we could introduce our first regulated
biotech trait or traits to the market in 2018 at the earliest.
We intend to price our traits based on the added value they create, which can vary by crop and geography. For our biotech traits, we are considering various pricing models, including separate annual trait fees per acre as well as blended seed and trait prices. In row crops, we have licensed and intend to license our traits to existing market participants. These licensing agreements are expected to vary by crop, geography, the nature and economic benefit of the trait, and how well advanced the trait is within our pipeline. Future payments to us may be based on a percentage of sales or other performance metrics or milestones.
Research and Development Programs
We have developed research and development expertise that we believe will allow us to continue to improve our offerings over time. To develop higher performing seeds and traits, we deploy a variety of research and development methods and tools, including genomics, plant breeding, agronomy and other genomics-based technologies.
For the fiscal years ended August 31, 2015, 2014 and 2013, we invested $9.7 million, $14.2 million and $16.4 million, respectively, in research and development, with the main emphasis on breeding and traits.
Genomics
Plant genomics involves the large-scale, simultaneous study of large numbers of genes, their effects and their interactions. One of our strengths in genomics involves our ability to organize the genetic data we amass into actionable information via proprietary relational databases, software and algorithms. In general, we have focused our research efforts on determining gene function, gene regulation and finding which genes enhance desirable traits. In addition to identifying novel gene-trait combinations, our genomics tools allow us to work with large groups of genes and complex biological processes controlled by multiple
genes.
In order to capitalize upon our internal catalog of genetic information as well as information in the public realm, we developed our own proprietary software, including our Persephone bioinformatics platform, which serves as an important tool for locating, mapping and annotating genetic information. We have used Persephone in our marker-assisted breeding and biotech trait pipelines to speed the development of elite parental breeding lines and improved sorghum hybrids. This software platform has been non-exclusively licensed to Syngenta Biotechnology, Bayer CropScience, HZPC Holland and KWS SAAT.
64
TABLE OF CONTENTS
Plant Breeding
Plant breeding is the act of bringing together specific parent plants to produce a new offspring plant. This cross creates a new plant that will contain a mixture of the characteristics of its parents. The offspring are tested under various conditions to determine which has the superior combination of desired attributes. Further improvements are made by mating and continuing selection of superior parents and offspring through succeeding generations. Plant breeding allows researchers to identify plants with the most favorable combination of desired characteristics to serve as both parental lines and products. In addition to
conventional plant breeding, we believe that our genomics expertise makes the identification of proprietary molecular markers more direct and more comprehensive, which allows us to select key crop characteristics more rapidly and accurately than conventional plant breeding alone.
Agronomy
The performance of plant varieties and traits is influenced by the growing environment, which includes climate, day length, soil quality, pests, length of the growing season and crop management practices. Our network of field trials extends across numerous hardiness zones and regions. This network provides regional performance data and market fit information to support our research and commercialization efforts.
Our Current Product Lines and Product Pipeline
Forage Sorghum
Forage sorghum seeds are primarily used for growing feed for livestock, including dairy and beef cattle. The crop can be harvested as hay, made into silage, grazed, or fed as greenchop, a harvest technique that involves cutting and chopping the crop and delivering it directly to animals. Sorghum is a naturally drought tolerant and water efficient crop. Based on reports from USDA, the University of Florida and Texas A&M University, forage sorghum can produce more milk per inch of water than both alfalfa and corn silage. During the growing season, forage sorghum requires a minimum of approximately 23.5 inches of water
compared to silage corn and alfalfa, which require a minimum of approximately 29 inches and 62 inches of water, respectively. Our current hybrids, which are conventionally bred and do not yet contain biotech traits, have performed well in numerous commercial and multi-hybrid field trials in the United States and have demonstrated a number of favorable attributes for forage feed, such as high yields and lower water requirements, as well as competitive production costs relative to corn and certain hay crops. For example, in two university-led evaluations, which included products from well-known seed companies, we achieved the highest milk production yield per acre, which is a key metric for dairy operations. For the 2015 growing season in North America, we are evaluating more than a dozen new hybrids that offer performance advantages such as higher yields and improved nutrition. We have also advanced our biotech traits in sorghum for additional field evaluations in the United States. In
a 2014 U.S. field evaluation, one of our leading biotech traits provided a greater than 20% biomass yield advantage in a commercial-type sorghum. In 2014, we received confirmation from the USDA that our high biomass trait was not considered a regulated article under 7 CFR §340 of the USDAs mandate to regulate genetically engineered traits. This determination is likely to make it more cost-effective and timely for us to develop this trait in sorghum, and as a result, we believe we have a clear and near-term path forward to the commercialization of this trait. Performance results for both our traditionally developed hybrids and biotech traits are expected by the end of the calendar year. Results from small scale evaluations and research settings are not a guarantee of future commercial performance, and further evaluations will be necessary to confirm results.
Seed Production and Operations
The production of commercial-scale quantities of seeds requires the multiplication of seeds through a succession of plantings and seed harvests. We produce commercial seed either on leased land managed by us or with contract seed producers. Healthy seeds can remain saleable for several years if stored under optimal conditions. In the United States, we receive, condition, treat, package and warehouse our seed grown in the northern hemisphere at our seed warehouse and order fulfillment center in Amarillo, Texas. We anticipate that we will be able to warehouse and process up to 8 to 10 million pounds of seed annually at this
facility, or about 1.5 million or 2 million acres of commercial sorghum production. In addition, we work with several third parties who have complete production and packaging capabilities to complement our own production capabilities.
65
TABLE OF CONTENTS
Sales and Marketing
We market our seed products under the trade name Blade. Our customers have included, among others, dairies and livestock producers, agri-industrial facilities, individual growers and grower cooperatives. We sell, market and distribute our seed products through both direct sales as well as distributors. Distributors provide us with local market information, agronomy support and access to their customer base. They also allow us to cost effectively extend our product development efforts. We select distributors based on shared vision, technical expertise and local market knowledge. We intend to limit the number of distributors
with whom we have relationships in any particular area in order to provide adequate support and opportunity to those with whom we choose to do business.
We are positioning Blade in the marketplace as a premium brand that represents quality, innovation and value across multiple seed markets. As a result, we price our proprietary products based on their added value, and not on production costs. Our seed prices are determined based on a series of complex considerations, including the best alternative use of land and perceived added value to growers and end-users of biomass. Our pricing philosophy is to share a portion of the added value we create with our customers. In the U.S., the suggested retail price of our branded commercial and pre-commercial forage sorghum hybrids
currently ranges from $25 to $35 per acre.
Our market development activities typically include field evaluations of our current and experimental seed products. These generally small-scale evaluations provide new and prospective customers an opportunity to gain first-hand experience with our Blade products as well as identify the best mix of seed varieties for their growing conditions and harvest timelines. For customers with greater experience with our products, we sell and supply various seed products to support larger, commercial-scale evaluations and uses.
Major Research Collaborations
Texas A&M University
In August 2007, we entered into an agreement with The Texas A&M University System, or Texas A&M, for the development and commercialization of high biomass sorghum, sweet sorghum and selected related crops as energy crops, together with the discovery of molecular markers for certain traits. The agreement was amended and restated in September 2011 and provides us with exclusive access to a highly regarded sorghum breeding program and the extensive sorghum genetics, breeding and genomics infrastructure of Texas A&M through September 2026. This agreement provides exclusive options and licenses to defined sorghum
germplasm, elite sorghum breeding lines, parental lines, advanced hybrids and genomic markers. We fund the majority of the activities performed by Texas A&M pursuant to our Amended and Restated Sponsored Research Agreement, or the Sponsored Research Agreement. The specific research projects and budgets undertaken pursuant to such agreement will be determined by an Executive Committee comprised of two members from each of Texas A&M and us as set forth in the Sponsored Research Agreement. Ownership of intellectual property rights on results from the program work are allocated based on inventorship. Pursuant to our Sponsored Research Agreement and Amended and Restated Intellectual Property Rights Agreement, or the IP Rights Agreement, we have an option to obtain an exclusive world-wide commercial license to results of the program. Texas A&M has agreed not to conduct any activities in the field of our collaboration under an agreement which would grant rights to a third party
during the term of our Sponsored Research Agreement. Our Sponsored Research Agreement expires in September 2026, unless terminated earlier pursuant to customary contract termination provisions or program inactivity. Our licenses on results of the joint program survive termination of the Sponsored Research Agreement and survive until, on a country-by-country basis, the expiration of all registered or patented intellectual property rights of Texas A&M covering the licensed line. Under the Sponsored Research Agreement, we were obligated to enter into good faith negotiations regarding our provision to Texas A&M of certain in-kind research support for Texas A&Ms use in performing project activities under the agreement. We satisfied this obligation by entering into a software license, use and access agreement with Texas Agrilife Research in April 2012, pursuant to which we provide them with up to two years of access to our proprietary Persephone genome viewer software, and
by providing other relevant information.
We have entered into two exclusive world-wide license agreements with Texas A&M for sorghum lines. The terms of such exclusive license agreements provide that the licenses expire on a country-by-country basis upon the expiration of all registered or patented intellectual property rights of Texas A&M covering the
66
TABLE OF CONTENTS
licensed line. Pursuant to such agreements, we pay Texas A&M a royalty on sales of varieties developed using the licensed line at a rate that decreases from low double digits to low single digit rates as a percentage of sales when the licensed line is combined with lines from other sources to develop a variety. We also pay Texas A&M a royalty in the low double digits as a percentage of license income if we grant sublicenses and minimum royalties creditable against royalties on sales. Royalty rates for our current commercial varieties developed using lines licensed from Texas A&M are in the mid-single digits as a
percentage of sales. Minimum royalties payable to Texas A&M under these agreements escalate on a yearly basis and range from zero to $5,000 per year. We also bear reasonable expenses for intellectual property protection. Further, pursuant to our Amended and Restated Sponsored Research Agreement and Amended and Restated Intellectual Property Rights Agreement, we have an option to obtain an exclusive world-wide commercial license with the right to grant sublicenses to the inventions and sorghum lines resulting from our sponsored program. As of August 31, 2014, aggregate upfront license fees that have been paid or have become due to Texas A&M under these agreements have been $7,000. There are no milestone payments payable under our agreements with Texas A&M. Pursuant to the IP Rights Agreement, we issued warrants in December 2011 to Texas A&M to purchase 8,333 shares of our Common Stock at an exercise price equal to $114.40. The warrants expire on September 24, 2026 and,
subject to certain conditions, vest in equal installments on the fifth, tenth and fifteenth anniversary of the IP Rights Agreement.
Chinese Academy of Agricultural Sciences
Our high-throughput field evaluations of rice are conducted in China by the Institute of Crop Sciences of the Chinese Academy of Agricultural Sciences, or ICS. Pursuant to our Collaboration Agreement for rice, ICS performs transformation of rice with our genes, evaluates the transformed rice plants in the field according to detailed protocols, and reports results and observations to us. We own all results and intellectual property resulting from such activities. We pay ICS for the services pursuant to an agreed upon budget. The program is due to expire on December 31, 2015. We believe, and our results have confirmed, that by
selecting genes that perform similarly in both of our model plant species, we can readily identify superior genes among thousands of candidates.
Research Activity Costs
At August 31, 2015, the future minimum payments under our research collaboration agreements are as follows:
|
|
|
|
|
(in thousands) |
2016 |
|
$ |
602 |
|
2017 |
|
|
50 |
|
|
|
$ |
652 |
|
Enabling Technologies
We have developed or acquired licenses to certain technologies that we deem necessary or useful for the development of biotech traits, which while under development remain several years away from commercialization. Such licenses include a non-exclusive license from Monsanto to a transformation technology and certain other technologies, pursuant to which we will pay Monsanto a royalty on sales in the low single digits as a percentage of sales of products covered by the licensed patents. This agreement with Monsanto will terminate upon the expiration of the last patent under certain patent rights listed in the agreement. Such
licenses further include an exclusive license with Cambridge Enterprise Ltd. (formerly known as Cambridge University Technical Services Ltd.) to a technology developed at the University of Cambridge (United Kingdom) to regulate gene activity, pursuant to which we will pay a royalty on sales in the low single digits as a percentage of sales of products covered by the licensed patents and a royalty in the low single digits as a percentage of license income. Pursuant to the agreement, the maximum milestone payments payable by us are $250,000. All such milestone payments have been made. The agreement with Cambridge Enterprise Ltd. will expire on the date of the expiration of the last-to-expire patent licensed under the agreement. We expect that the presently issued U.S. patent under this agreement will expire in 2023.
67
TABLE OF CONTENTS
Intellectual Property
We seek to protect our plant genes, traits, germplasm and other technology and know-how under patent, plant variety protection, plant breeders rights, copyright, trademark and trade secret laws. Protection of products, technology and trade secrets is also maintained using confidential disclosure agreements entered into by our employees, consultants and potential and actual third party collaborators. From time to time, we align our intellectual property strategy and portfolio with our business objectives, which can result in a change in the total number of issued patents, exclusively licensed rights to patents and pending
patent applications. As of August 31, 2015, we owned or had exclusive licensed rights to approximately 90 issued patents and approximately 70 pending patent applications in the United States and in various foreign jurisdictions. The patents for Ceres-developed inventions are set to expire beginning in 2020. Our patents or patent applications generally relate to compositions of matter for DNA and protein sequences, plants and plant parts, methods of improving plants and seed products. In addition, we hold numerous granted rights or pending applications for patents and Plant Variety Protection certificates for our commercial varieties, hybrids and inbreds, as well as for methods for the improvement, production, and use of various crops. Our filings in foreign jurisdictions, such as Europe and Brazil are generally targeted to the products we plan to offer in those respective markets. We continue to file new patent applications, for which terms generally extend 20 years from the filing
date in the United States. The duration of plant variety protection and plant breeders rights protection varies among jurisdictions, e.g., the duration is 20 years from issue in the United States, 25 years from filing in Europe, and 15 years from grant of a Provisional Certificate of Protection in Brazil. Our registered and pending trademarks in the United States and in selected foreign countries include Ceres, Blade, iCODE, Persephone and Skyscraper.
Government Grant Awards
Grant awards help mitigate the costs and risks of developing new products and have historically allowed us to broaden the scope and speed of our research and development activities. Over the past five years, we have received grants from the DOE, the USDA, the USAID, and the joint USDA/DOE BRDI program as well as state-level grants. Our grant revenue totaled $1.0 million in the fiscal year ended August 31, 2015. In July 2014, our Brazilian subsidiary was selected for a competitive grant and a multi-year credit facility to fund a product development project for sorghum and sugarcane for up to approximately 85 million reais, or
$22.1 million, under the governments PAISS Agricola program. The project consists of a non-repayable grant of up to approximately 10 million reais, or $2.6 million, and a government-subsidized credit facility for up to approximately 67.5 million reais, or $17.55 million. The Company is expected to fund up to approximately 7.5 million reais, or $1.95 million, of the project. While we have received approval for the grant and approval in principle for the credit facility, in light of the restructuring of our Brazilian operations first announced on June 19, 2015, we have approached the Brazilian government to narrow the focus and significantly reduce the size of the project, and it is uncertain at this time if we will draw from the grant or the credit facility.
Significant Customers
For the fiscal year ended August 31, 2015, USAID, Syngenta, Exelus, Florida Crystals and Bayer represented 33.5%, 13.1%, 12.2%, 11.9% and 10.4% of our revenues, respectively.
For the fiscal year ended August 31, 2014, USAID, ARPA-E, Exelus, and Syngenta represented 41.9%, 17.5%, 16.5% and 11.6% of our revenues, respectively.
Competition
The seed, agricultural biotechnology and genomics industries are rapidly evolving and new competitors with competing technologies and products are regularly entering the market. We expect to compete with other providers of seed and vegetative propagation materials in the market for our crops as well as other developers of biotech traits, genetic technologies and bioinformatics software. Based on our experience with customers, we believe the primary competitive factors in the seed industry are yield, product quality, performance, scale, price, reliable supply and sustainability. We believe that the competitive factors affecting
the market for our Persephone software include product functionality and features, performance, price, ease of product implementation and quality of customer support services. We believe that our products and services currently compete favorably with respect to such factors. However, we may not be able to maintain our competitive position against current and potential competitors.
68
TABLE OF CONTENTS
In the seed industry, our principal competitors may include major international agrochemical and agricultural biotechnology corporations, such as Advanta India Limited, The Dow Chemical Company, Monsanto Company, Pioneer Hi-Bred (DuPont), KWS Saat AG and Syngenta AG, all of which have substantially greater resources to dedicate to research and development, production or marketing than we have and some of which are selling competitive products in our markets. We also face direct competition from other seed companies, such as Chromatin, Inc., S&W Seed Company and Winfield Solutions LLC, a subsidiary of Land O Lakes, as
well as biotechnology companies, and from academic and government research institutions. In the genomics and bioinformatics market, we face direct competition from academic and government-funded research institutions as well as commercial software developers. In addition, well established companies, such as Illumina, Inc., F.Hoffmann-La Roche Ltd. and Google Inc., may expand the scope of their current analytical software and services to include visualization and exploration functions and features similar to Persephone. We are unable to predict what effect evolution of these industries and potential new entrants may have on price, selling strategies, intellectual property or our competitive position.
Regulatory Matters
Some of our products and operations are subject to complex regulations.
U.S. Regulatory Process for Our Biotechnology Products
Under the Plant Protection Act of 2000, regulatory approval is required before the introduction, including the environmental release, interstate movement, and importation, of certain genetically engineered organisms, which encompasses many of our biotechnology products. The primary U.S. regulatory agency overseeing field testing and deregulation for commercialization of our biotechnology products is the USDA. Should our products intended for the U.S. market include herbicide-tolerance or pesticidal traits, they would fall under the additional regulatory oversight of the Environmental Protection Agency, or EPA. Moreover, review
by the Food and Drug Administration, or FDA, would be required for our biotechnology products should they be intended for food or animal feed uses. The Biotechnology Regulatory Services, or BRS, within the USDAs Animal and Plant Health Inspection Service, or APHIS, has direct oversight of the field testing and deregulation of our biotechnology products.
The permitting process for the establishment of initial field tests typically ranges from two to four months, but can be significantly longer for novel products or circumstances. If successful, APHIS authorizes field testing for a period in a specific location. We must petition APHIS to deregulate certain of our biotechnology products before being able to commercialize the product. The petition process is a multi-year process that varies based on a number of factors, including the extent of the supporting information required, the nature and extent of review by APHIS, including the type and scope of the environmental review
conducted, and the number and types of public comments received. Deregulation of a product is not a guaranteed outcome when a petition to deregulate a biotechnology plant is submitted to APHIS. Some of our biotechnology products are not regulated by APHIS. For instance, at our request, APHIS confirmed to us that, based on our description of the origin and development of certain of our biotech traits, certain experimental sorghum lines were not regulated articles under 7 CFR §340 of the USDAs mandate to regulate genetically engineered traits. We believe that the ruling from APHIS will make it more cost-effective for us to develop these traits in energy and forage crops. As a member of the Excellence Through Stewardship organization, we continue to follow standard stewardship procedures for field evaluations of traits that have been granted non-regulated status by APHIS. Such traits may still be subject to other applicable APHIS regulations and other regulatory authorities
such as EPA and FDA.
Brazilian Regulatory Process for Our Biotechnology Products
In Brazil, the approval of biotechnology products is regulated by CTNBio under the Ministry of Science and Technology. The application process for approval of a biotechnology product is generally an iterative process with the applicant providing data for review and consideration as requested by CTNBio. Prior to commercialization, biotechnology products must also be approved by the National Biosafety Council, or CNBS, which reviews any socio-economic aspects or national interests that may be implicated. In March 2012, we received a Certificate of Quality in Biosafety from CTNBio, which allows us to submit requests to import and
evaluate plants with traits developed through biotechnology at our plant breeding facility in Centralina, Minas Gerais.
69
TABLE OF CONTENTS
European Regulatory Process for Our Biotechnology Products
The European Union, or EU, has established a legal framework for activities involving what it describes as genetically modified organisms, or GMOs, and some of our biotechnology products will fall within the scope of this legislation. Product development field trials and commercial introduction are primarily governed by European Directive 2001/18/EC and, in cases where our biotechnology products or derivatives thereof are intended to be used as food or feed, or could end up in food or feed, Regulation (EC) No 1829/2003. Under EU legislation, regulatory approval is required before conducting product development
field trials or commercially introducing such products. The legislation also provides principles for environmental and food safety risk assessment by expert advisory panels. While approval procedures within the EU are harmonized, there are differences among member states. The GMO regulatory framework itself as well as guidance and recommendations from expert advisory panels are also updated regularly. In addition, the political acceptance of biotech traits crops is known to differ considerably between member states and between consecutive governments in a member state. Therefore, it is not possible to predict the outcome of any application made in the EU. Our current products offerings in the EU do not include biotech traits and are not subject to regulatory oversight for GMOs.
Other Regulation
Phytosanitary Certification. Nearly all countries, including the United States and Brazil, and many local jurisdictions, require phytosanitary certificates to import seed or plant materials. These certificates, issued by government agricultural inspectors where seeds or plants are produced or packaged, attest that seeds or plants are clean, free of prohibited impurities and have been tested for the presence of various pathogens that can be carried in or on the seeds or plant tissue. We obtain such certificates when necessary, including in connection with the use of our seeds for research or sample testing.
Seed and Plant Variety Registration. Seed and plant variety registration provides an organized system for protecting seed and plant variety owners as well as growers from misleading marketing practices. Registration of seed and plant varieties is voluntary in the United States under the Federal Seed Act. Applicants must attest that their product is phenotypically unique; that is, verifiably different from varieties that currently exist in the market. A similar system exists in Brazil, the European Union and many other countries; however, the registration process itself may be more regulated, and is sometimes
required prior to the commencement of seed sales. In Brazil, sorghum requires two seasons of trial data to be registered, which must be completed prior to the commencement of sales. We have received the necessary governmental variety registrations for the sorghum varieties we are marketing in Brazil. Similarly, in the European Union, two years of field trials with a national authority are typically required to receive registration. Registration is required prior to the commencement of sales for new sorghum seed varieties.
Regulation of Laboratory and Greenhouse Activities. The use of genetically engineered organisms in laboratory and greenhouse facilities is subject to rules intended to ensure that such organisms are handled safely and do not pose an unacceptable risk to human health or the environment. Our current biosafety level requires a low level of containment for experiments involving our plants with biotechnology traits. In addition, our laboratory and field activities inherently involve the use of potentially hazardous materials, which are subject to health, safety and environmental regulations. Our infrastructure,
procedures and equipment are designed to meet our obligations under these regulations. We perform recurring internal and third-party audits and provide employees ongoing training and support, as required.
Employees
As of November 10, 2015, we had 44 full-time employees. We consider our employee relations to be good. None of our U.S. employees are represented by a labor union or collective bargaining agreement.
Properties
Headquarters
Our headquarters is located in Thousand Oaks, California, where we lease approximately 49,000 square feet of office, laboratory and greenhouse space. The lease expires on September 30, 2019. We have one option to extend the lease for an additional term of five years, provided that we give notice to the landlord no more than nine months, nor less than six months prior to the expiration of the term of the lease.
70
TABLE OF CONTENTS
Amarillo Operations
Our primary U.S. seed warehousing, conditioning, packaging and order fulfillment facility is located in Amarillo, Texas. Purchased in 2009, the site consists of approximately 46,000 square feet of office and warehouse space on a 32-acre parcel. We anticipate that we will be able to warehouse and process up to 8 to 10 million pounds of seed annually at this facility.
Brazil
We lease two offices in Uberlândia and Centralina, Brazil. Our plant breeding facility is located in the Municipality of Centralina, State of Minas Gerais, Brazil. The plant breeding facility consists of approximately 450 square meters of office and warehouse space on an approximately 3,876-square-meter parcel. The lease of the plant breeding facility expires in August 2017. We have a right of first refusal to acquire the property.
We believe that our facilities in California, Texas and Brazil will adequately meet our needs in the near term.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently a party to any material litigation or other material legal proceedings. We may, however, be involved in material legal proceedings in the future. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.
71
TABLE OF CONTENTS
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers, directors and key employees as of November 10, 2015.
|
|
|
|
|
Name |
|
Age |
|
Position |
Board of Directors:
|
|
|
|
|
Cheryl Morley(1)(2) |
|
61 |
|
Chair of the Board |
Pascal Brandys(1) |
|
56 |
|
Director |
Richard Flavell, Ph.D.(2) |
|
72 |
|
Director |
Robert Goldberg, Ph.D.(3) |
|
71 |
|
Director |
Aflalo Guimaraes(2)(3) |
|
46 |
|
Director |
Richard Hamilton, Ph.D. |
|
53 |
|
Director, President and Chief Executive Officer |
Thomas Kiley(1)(3) |
|
72 |
|
Director |
Other Executive Officers and Key Employees: |
|
|
|
|
Paul Kuc |
|
53 |
|
Chief Financial Officer |
Wilfriede van Assche |
|
60 |
|
Senior Vice President, General Counsel and Secretary |
Roger Pennell, Ph.D. |
|
56 |
|
Vice President of Trait Development |
|
(1) |
Member of Audit Committee |
|
(2) |
Member of Compensation Committee |
|
(3) |
Member of the Nominating and Corporate Governance Committee |
Our executive officers are elected by, and serve at the discretion of, our Board of Directors. There are no family relationships among any of our directors and executive officers.
Board of Directors
Cheryl Morley, Chair of the Board
Ms. Morley has served on our Board of Directors since August 2011 and as Chair of the Board since September 2014. She was Senior Vice President of Corporate Strategy with Monsanto Company from 2003 to 2009, president of the Animal Agricultural Group from 1997 to 2003 and held a number of other leadership positions at Monsanto and its subsidiaries from 1983 to 1997. Ms. Morley has served as a board member of Fleming Pharmaceuticals since March 2010 and the Missouri Botanical Gardens since June 2006. Ms. Morley has served as a board member and finance committee member for Mercy Health System since June 2012. From March 2009 to
October 2010, she served as a board member for Mercy Health Plans. Ms. Morley was chair of the board and a member of the audit and compensation committees of the Nidus Center for Scientific Enterprise from September 2003 to October 2010. She was presiding director, chair of the nominating and governance committee and a member of the audit committee for Indevus Pharmaceuticals from June 2002 to March 2009. She holds a B.S. degree from the University of Arizona and is a Certified Public Accountant. Ms. Morley brings extensive experience in finance, service on numerous boards and an understanding of the seed business to our Board of Directors.
Pascal Brandys, Director
Mr. Brandys served on our Board of Directors from December 1997 until March 2014. He rejoined the Board in September 2014. Mr. Brandys is the President and managing member of Biobank Technology Ventures, LLC, an early-stage life sciences investment company which he co-founded in 2001. He was previously a co-founder of the genomics company, Genset S.A., and also served as its Chairman and Chief Executive Officer from 1989 to 2000. Mr. Brandys is currently a director of several private companies and previously served as a director of Ilog S.A. and Innogenetics N.V. He holds an M.S. in Economic Systems from Stanford University
and is a graduate of the Ecole Polytechnique of Paris. Mr. Brandys brings extensive business experience in the genomics field and experience as an executive and an investment professional to our Board of Directors.
72
TABLE OF CONTENTS
Richard Flavell, Ph.D., FRS, CBE, Director
Dr. Flavell has served on our Board of Directors since June 2009. Dr. Flavell joined Ceres in 1998 and served as Chief Scientific Officer from 1998 until October 2012, when he became our Chief Scientific Advisor on a consultancy basis. Since 2001, Dr. Flavell has been an Adjunct Professor in the Department of Molecular, Cellular and Developmental Biology at the University of California, Los Angeles. From 1987 to 1998, Dr. Flavell was the Director of the John Innes Centre in Norwich, England, a premier plant and microbial research institute. He has published over 200 scientific articles, lectured widely and contributed
significantly to the development of modern biotechnology in agriculture. Dr. Flavell is an expert in cereal plant genomics, having produced the first molecular maps of plant chromosomes to reveal the constituent sequences. In 1999, Dr. Flavell was named a Commander of the British Empire for his contributions to plant and microbial sciences. Dr. Flavell received his Ph.D. from the University of East Anglia and has been a Fellow of European Molecular Biology Organization since 1990 and of The Royal Society of London since 1998. Dr. Flavell brings extensive experience and knowledge of plant biotechnology to our Board of Directors.
Robert Goldberg, Ph.D., Director
Dr. Goldberg is a Distinguished Professor of Molecular, Cell and Developmental Biology at the University of California, Los Angeles and a founder of Ceres. He has been a Professor at the University of California, Los Angeles since 1976, teaching genetic engineering and studying the genes that are required for seed formation. Dr. Goldberg is a member of the National Academy of Sciences and has consulted extensively in the agriculture and biotechnology industries. Dr. Goldberg has served as a director of Ceres since 1996. Dr. Goldberg received his Bachelors Degree in botany from Ohio University, his Ph.D. in plant genetics
from the University of Arizona, and was a Postdoctoral Fellow in developmental biology at the California Institute of Technology. Dr. Goldberg brings extensive experience in the agriculture and biotechnology industries to our Board of Directors.
Aflalo Guimaraes, Director
Mr. Guimaraes has served on our Board since December 2014. He is a Managing Director of the Invus Group. He joined Invus in 1998. Prior to joining Invus, Mr. Guimaraes was at Marakon Associates where as a manager he led strategic consulting engagements for large multinational companies in a wide range of industries including financial services, retail and consumer products. Previously he worked at the Federal Reserve Bank. Mr. Guimaraes holds an MBA from the University of Pennsylvania's The Wharton School and a BA in Economics and Political Science from Yale University. He also serves on the boards and audit committees of a
number of private companies. Mr. Guimaraes brings extensive financial and business expertise to our Board of Directors.
Richard Hamilton, Ph.D., President, Chief Executive Officer and Director
Dr. Hamilton joined Ceres in 1998. He served as our Chief Financial Officer until September 2002, at which time he was appointed President and Chief Executive Officer. He has served on our Board of Directors since 2002. In addition to his leadership role at Ceres, Dr. Hamilton sits on the Keck Graduate Institute Advisory Council and he was a founding member of the Council for Sustainable Biomass Production. He has served on the U.S. Department of Energys Biomass Research and Development Technical Advisory Committee and has been active in the Biotechnology Industry Organization where he has served as Vice Chairman of the
organization, chaired its Food and Agriculture Governing Board and served in other leadership roles. From 1992 to 1997, Dr. Hamilton was a principal at Oxford Bioscience Partners, one of the leading investors in the genomics field and a founder of Ceres. From 1990 to 1991, he was a Howard Hughes Medical Institute Research Fellow at Harvard Medical School. Dr. Hamilton holds a Ph.D. in molecular biology from Vanderbilt University. Dr. Hamilton brings extensive management experience and biotechnology industry expertise to our Board of Directors.
73
TABLE OF CONTENTS
Thomas Kiley, Director
Mr. Kiley has served as a director of Ceres since May 2003. He became the first general counsel of Genentech in February 1980 and later served as its vice president for corporate development until 1988. Previously, Mr. Kiley practiced intellectual property litigation as a partner of Lyon & Lyon from June 1969 until January 1980. Mr. Kiley served as a director of Transcept Pharmaceuticals, Inc., a publicly traded pharmaceutical company from February 2004 to October 2014 upon completion of a merger with Paratek. He also serves as a director of several privately-held development stage companies. From July 1996 to May 2013,
Mr. Kiley served as a director of Geron, Inc., a publicly traded biopharmaceutical company. He received his B.S. in chemical engineering from The Pennsylvania State University and his J.D. from The George Washington University School of Law. He is a member of the State Bar of California. Mr. Kiley brings extensive experience as an intellectual property attorney and director of other public companies to our Board of Directors.
Executive Officers
Paul Kuc, Chief Financial Officer
Mr. Kuc joined Ceres in 2008 as Chief Financial Officer, following a 12-year career with Monsanto Company, where he held various regional and global finance positions, including posts in Argentina, Brazil, Canada, Mexico and the United States, with his last position, beginning April 2007, as Lead Worldwide Manufacturing Finance at Seminis, Inc., which was purchased by Monsanto in 2005. At Monsanto, among other responsibilities, he developed and implemented international costing and financial systems for the seed and agricultural biotechnology company. Mr. Kuc began his career, from June 1994 to June 1996, at the pharmaceutical
company Eli Lilly and Company. He holds a Masters of Science degree in Economics from the University of Lodz, Poland and an M.B.A. from the Ivey Business School, University of Western Ontario, Canada.
Wilfriede van Assche, Senior Vice President & General Counsel and Secretary
Ms. van Assche joined Ceres in 2000. She has more than 25 years of legal experience in the plant biotechnology and seed industry. From 1996 until 2000, Ms. van Assche was the General Counsel of the plant biotechnology and seed divisions of Hoechst Schering AgrEvo GmbH and following the merger of Hoechst and Rhone Poulenc, of the same divisions of Aventis, a leading life sciences company that is now part of Bayer AG. Previously, she was the General Counsel of Plant Genetic Systems N.V. from 1988 until its acquisition by Hoechst Schering AgrEvo GmbH in 1996. She began her career with the law firm De Bandt van Hecke (now
Linklaters) in Belgium from 1979 until 1982, and was counsel in the legal department of GTE Atea (now Siemens), a telecommunications company, from 1982 until 1988. Ms. van Assche holds a law degree from the University of Leuven and a postgraduate degree from the College of Europe. She is a member of the State Bar of California.
Roger Pennell, Ph.D., Vice President of Trait Development
Dr. Pennell joined Ceres in 1998 and held various research management positions, including Director, Trait Development from 2006 until 2009 when he assumed his current role as Vice President of Trait Development. Dr. Pennell has been an Adjunct Professor in the Department of Molecular, Cellular and Developmental Biology at the University of California, Los Angeles since 2001 and a frequent reviewer for the scientific press. Dr. Pennell holds a Ph.D. from University College London. He performed post-doctoral research at the John Innes Institute and Wageningen Agricultural University, and in 1990 was the recipient of a
prestigious Royal Society University Research Fellowship, which he used at University College London and, from 1995, at the Salk Institute. During this time, Dr. Pennell studied cellular and molecular aspects of plant growth, development and disease resistance, and has published more than 40 scientific papers on these subjects.
74
TABLE OF CONTENTS
Board of Directors
Our Board of Directors currently consists of seven members. Our amended and restated certificate of incorporation and our amended and restated bylaws permit our Board of Directors to establish by resolution the authorized number of directors.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide for a classified Board of Directors consisting of three classes, with staggered three-year terms as follows:
|
|
Class I directors, whose current term will expire at the annual meeting of stockholders to be held in 2016; |
|
|
Class II directors, whose current term will expire at the annual meeting of stockholders to be held in 2017; and |
|
|
Class III directors, whose current term will expire at the annual meeting of stockholders to be held in 2018. |
At each annual meeting of stockholders, upon expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders held in the year in which that term expires. Each directors term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.
The Class I directors consist of Dr. Goldberg, Mr. Guimaraes and Mr. Kiley; the Class II directors consist of Dr. Flavell and Dr. Hamilton; and the Class III directors consist of Mr. Brandys and Ms. Morley.
The classification of our Board of Directors may have the effect of delaying or preventing changes in our control or management.
Risk Oversight
The Board of Directors is responsible for general oversight of company risk and risk management, and reviews managements strategies for adequately mitigating and managing the identified risks. Although our Board of Directors administers this risk management oversight function, our Audit Committee supports our Board of Directors in discharging its oversight duties and addressing risks. Our Compensation Committee oversees management of risks relating to our compensation plans and programs. Our Board of Directors expects company management to consider risk and risk management in its business decisions, to develop and
monitor risk management strategies and processes for day-to-day activities and to implement risk management strategies adopted by the committees and the Board of Directors.
Director Independence
Our Common Stock is listed on the NASDAQ Stock Market. Under the rules of the NASDAQ Stock Market, independent directors must comprise a majority of a listed companys board of directors. In addition, the rules of the NASDAQ Stock Market require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under the rules of the NASDAQ Stock Market, a director will only qualify as an independent director
if, in the opinion of that companys Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
75
TABLE OF CONTENTS
Our Board of Directors has reviewed its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our Board of Directors has determined that none of Messrs. Brandys, Goldberg, Guimaraes, Flavell and Kiley and Ms. Morley, representing six of our seven directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is
independent as that term is defined under the rules of the NASDAQ Stock Market.
Our Board of Directors also determined that Messrs. Brandys and Kiley and Ms. Morley, who comprise our Audit Committee, and Mr. Guimaraes and Ms. Morley, who comprise our Compensation Committee, satisfy the independence standards for those committees established by applicable SEC rules and the rules of The NASDAQ Stock Market. In making this determination, our Board of Directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock
held by each non-employee director.
Committees of the Board of Directors
Our Board of Directors has established an Audit Committee, Compensation Committee and a Nominating and Corporate Governance Committee. Each committee has the composition and responsibilities described below.
Audit Committee
Our Audit Committee is comprised of Ms. Morley and Messrs. Kiley and Brandys, who is the chair of the Audit Committee. The composition of our Audit Committee meets the requirements for independence under the current NASDAQ Stock Market and SEC rules and regulations. Each member of our Audit Committee possesses financial sophistication as defined under the rules of the NASDAQ Stock Market. Ms. Morley and Mr. Brandys are our Audit Committee financial experts as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. Being an Audit Committee financial expert does
not impose on Ms. Morley or Mr. Brandys any duties, obligations or liabilities that are greater than are generally imposed on them as a member of our Audit Committee and our Board of Directors. Our Board of Directors has adopted a charter for our Audit Committee, which provides, among other things, that our Audit Committee will:
|
|
oversee our accounting and financial reporting processes and audits of our financial statements; |
|
|
be directly responsible for the appointment, retention, compensation and oversight of the work of the independent registered public accounting firm; |
|
|
have the sole authority to preapprove any non-audit services to be provided by the independent registered public accounting firm and to review with the lead audit partner whether any of the audit team members receive any discretionary compensation from the audit firm with respect to non-audit services performed by the independent registered public accounting firm; |
|
|
actively engage in dialogue with the independent registered public accounting firm with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent registered public accounting firm and recommend that the Board of Directors take appropriate action to oversee the independence of the independent auditor; and |
|
|
discuss the adequacy of the Companys internal control over financial reporting with the independent registered public accounting firm and management and review and discuss any changes implemented by management to address control deficiencies or to make controls more effective. |
Compensation Committee
Our Compensation Committee is comprised of Mr. Flavell, Mr. Guimaraes and Ms. Morley, who is the chair of the Compensation Committee. Mr. Flavell joined the Compensation Committee on October 11, 2015. The composition of our Compensation Committee meets the requirements for independence under the current NASDAQ Stock Market and SEC rules and regulations. The purpose of our Compensation Committee is to
76
TABLE OF CONTENTS
set compensation policy, administer compensation plans and recommend compensation for executive officers to the Board of Directors. Our Board of Directors has adopted a charter for our Compensation Committee, under which our Compensation Committee will discharge the responsibilities of our Board of Directors relating to compensation of our executive officers, and will, among other things:
|
|
establish the Companys general compensation philosophy; |
|
|
review and recommend that our Board of Directors approve the compensation of our executive officers; |
|
|
review and recommend that our Board of Directors approve the compensation of our directors; |
|
|
review and approve, or recommend that the Board of Directors approve, payouts under annual bonus and other performance-based compensation programs; |
|
|
review and recommend that our Board of Directors approve new or existing long-term or equity-based compensation plans or arrangements and administer those plans or arrangements; |
|
|
assist in developing succession and continuity plans for the CEO and other executive officers; |
|
|
review and consult with the Board of Directors on our compensation and benefit plans to determine whether they create risks that are reasonably likely to have a material adverse effect on the company; and |
|
|
review, discuss with management, and approve the compensation, discussion and analysis when required in our public filings. |
Nominating and Corporate Governance Committee
Our Board of Directors has established a Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee is comprised of Messrs. Goldberg, Guimaraes and Kiley, who is the chair of the Nominating and Corporate Governance Committee. The composition of our Nominating and Corporate Governance Committee meets the requirements for independence under the current NASDAQ Stock Market and SEC rules and regulations. Our Board of Directors has adopted a charter for our Nominating and Corporate Governance Committee, under which our Nominating and Corporate Governance Committee will, among other things:
|
|
identify and recommend director nominees; |
|
|
recommend directors to serve on our various committees; and |
|
|
implement our corporate governance guidelines. |
The charters of our Audit, Compensation and Nominating and Corporate Governance Committees, and any amendments that may be adopted from time to time, are posted on our website at www.ceres.net.
Compensation Committee Interlocks and Insider Participation
During fiscal 2015, our Compensation Committee consisted of Mr. Guimaraes and Ms. Morley, who is the chair of our Compensation Committee. Mr. Flavell joined the Compensation Committee on October 11, 2015. Mr. Daniel Glat was a member of the Compensation Committee until his resignation as a director in July 2015. None of them has at any time during the last fiscal year been one of our officers or employees, nor have any of our executive officers served as a member of the Board of Directors, or as a member of the compensation or similar committee, of an entity that has one or more executive officers who served on our Board of
Directors or Compensation Committee during fiscal 2015.
Limitation of Liability and Indemnification of Officers and Directors
Our amended and restated certificate of incorporation and our amended and restated bylaws limit the liability of our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Section 145 of the Delaware General Corporation Law permits indemnification of officers, directors and other agents under certain circumstances and subject to certain limitations. Delaware law also permits a corporation to not hold its directors personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for:
77
TABLE OF CONTENTS
|
|
breach of their duty of loyalty to us or our stockholders; |
|
|
acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
|
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; and |
|
|
any transaction from which the director derived an improper personal benefit |
These limitations of liability do not apply to liabilities arising under the federal or state securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation also permits us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity. We have obtained directors and officers liability insurance to cover certain liabilities described above. We have entered into separate indemnity agreements with each of our directors and
executive officers that require us to indemnify such persons against any and all expenses (including attorneys fees), witness fees, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any action, suit or proceeding or alternative dispute resolution mechanism, inquiry hearing or investigation, whether threatened, pending or completed, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of us or any of our affiliated enterprises, provided that such person must follow the procedures for determining entitlement to indemnification set out in the indemnity agreements. The indemnity agreements also set forth other procedures that will apply in the event of a claim for indemnification thereunder. We believe that these provisions and agreements are necessary to attract and retain qualified persons as executive officers and directors of our
company.
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial conditions may be negatively affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these
indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
78
TABLE OF CONTENTS
Director Compensation
The following table sets forth information concerning the compensation of our directors during the year ended August 31, 2015:
|
|
|
|
|
|
|
|
|
Name(1) |
|
Fees earned or paid in cash ($) |
|
Option awards ($)(2) |
|
All other compensation ($) |
|
Total ($) |
Pascal Brandys(3) |
|
|
32,375 |
|
|
|
5,766 |
|
|
|
|
|
|
|
38,141 |
|
Raymond Debbane(4) |
|
|
17,831 |
|
|
|
|
|
|
|
|
|
|
|
17,831 |
|
Richard Flavell, Ph.D. |
|
|
30,000 |
|
|
|
1,363 |
|
|
|
45,340 |
(5) |
|
|
76,703 |
|
Daniel Glat(6) |
|
|
29,637 |
|
|
|
1,363 |
|
|
|
|
|
|
|
31,000 |
|
Robert Goldberg, Ph.D. |
|
|
32,625 |
|
|
|
1,363 |
|
|
|
|
|
|
|
33,988 |
|
Aflalo Guimaraes(7) |
|
|
19,288 |
|
|
|
3,361 |
|
|
|
|
|
|
|
22,648 |
|
Thomas Kiley |
|
|
43,500 |
|
|
|
1,363 |
|
|
|
|
|
|
|
44,863 |
|
Steven Koonin, Ph. D.(8) |
|
|
42,339 |
|
|
|
1,363 |
|
|
|
|
|
|
|
43,702 |
|
Cheryl Morley |
|
|
76,875 |
|
|
|
1,363 |
|
|
|
|
|
|
|
78,238 |
|
|
(1) |
Dr. Hamilton, our President and Chief Executive Officer, is not included in this table as he is an employee of the Company and does not receive additional compensation for his service as a director. All of the compensation paid to Dr. Hamilton for the services he provides to us is reflected in the Summary Compensation Table. |
|
(2) |
The amounts in the Option Awards column reflect the aggregate grant date fair value of stock options granted during fiscal 2015, computed in accordance with ASC Topic 718. The assumptions used by us in determining the grant date fair value of option awards and our general approach to our valuation methodology are set forth in the Managements Discussion and Analysis of Financial Condition and Results of Operations Stock-based Compensation section of this prospectus. These amounts do not correspond to the actual value that may be recognized by the non-employee directors. |
|
(3) |
Mr. Brandys had chosen not to stand for re-election to the Board of Directors at the 2014 Annual Shareholder Meeting and left the Board of Directors in March 2014. On September 12, 2014, Mr. Brandys was elected to serve as a Class III director for a term beginning September 12, 2014 and expiring at the Companys annual meeting of stockholders in 2015, to fill the vacancy on the Board. |
|
(4) |
Mr. Debbane resigned from the Board of Directors in December 2014. |
|
(5) |
Represents payments for consulting services performed under Dr. Flavells exclusive consultancy agreement described under Narrative to Director Compensation Table below. |
|
(6) |
Mr. Glat resigned from the Board of Directors in July 2015. |
|
(7) |
Mr. Guimaraes joined the Board of Directors in December 2014. |
|
(8) |
Mr. Koonin resigned from the Board of Directors in July 2015. |
Narrative to Director Compensation table.
Based on the recommendation of our Compensation Committee, our Board of Directors has adopted a compensation policy that is applicable to all of our non-employee directors. Under our Amended and Restated Non-employee Director Compensation Program, each non-employee director will receive an annual cash retainer and an annual stock option grant. In addition, upon initial appointment to the Board of Directors, each non-employee director will receive an initial stock option grant. In addition, committee members who serve on one or more of the Audit, Compensation or Nominating and Governance Committee of the Board of Directors will
receive, for each committee he or she serves on, either an additional annual cash committee retainer or, in the case of a committee chair, a committee chair retainer paid in lieu of the committee retainer. If we elect a lead/non-executive chair of the Board of Directors, he or she will also receive an additional annual cash lead director retainer. All annual cash retainers are payable on a quarterly basis. The retainer and stock option amounts that we provide are as follows:
79
TABLE OF CONTENTS
|
|
an annual retainer of $30,000, payable on a quarterly basis; |
|
|
an initial stock option grant to purchase 1,458 shares, to vest annually over three years; |
|
|
an annual stock option grant to purchase 729 shares, to vest 100% on January 31 of the year following the date of grant; |
|
|
an annual retainer for committee members as follows: $7,500 for members of the audit and compensation committees, and $3,500 for members of the nominating and governance committee; |
|
|
an annual retainer for committee chairs as follows: $15,000 for the chairs of the audit and compensation committees, and $6,000 for the chair of the nominating and governance committee; |
|
|
an additional annual retainer of $30,000 for any non-employee director appointed as lead/non-executive chairman of the board of directors; and |
|
|
reimbursement for reasonable out-of-pocket business expenses. |
In connection with Dr. Flavells retirement from the position of Chief Scientific Officer in October 2012, we entered into an exclusive consultancy agreement with him. Pursuant to the consultancy agreement, Dr. Flavell will earn $2,000 per day for 20 to 25 days of service per year, and he agrees not to provide services to any other party in the field of commercial, for profit bioenergy crop activities. The consultancy agreement had an initial term of one year, effective October 11, 2012, and automatically renews for an undetermined amount of time, subject to termination by either party by giving six months notice.
In June 2013, Dr. Flavell was granted an option to purchase 625 shares of our Common Stock under the Amended and Restated Ceres, Inc. 2011 Equity Incentive Plan, or the 2011 Plan, in connection with his consulting services.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership of these securities with the SEC. Executive officers, directors and greater than ten percent beneficial owners are required by applicable regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the forms furnished to us during or with respect to our most recent fiscal year, all of our directors and executive officers subject to the reporting
requirements and each beneficial owner of more than ten percent of our Common Stock satisfied all applicable filing requirements under Section 16(a).
Code of Business Conduct and Ethics
Our Board of Directors has adopted a Code of Business Conduct and Ethics which applies to all directors, officers and employees of Ceres, Inc. and its subsidiaries, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The full text of our Code of Business Conduct and Ethics is available on our website, www.ceres.net, in the Investors section.
80
TABLE OF CONTENTS
Executive Compensation
Summary Compensation Table
The following table sets forth information regarding compensation earned by our named executive officers for the years ended August 31, 2015, 2014 and 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position |
|
Year |
|
Salary ($) |
|
Bonus ($)(1) |
|
Stock Awards ($)(2) |
|
Option Awards ($)(2) |
|
All Other Compensation ($) |
|
Total ($) |
Richard Hamilton President and Chief Executive Officer |
|
|
2015 |
|
|
|
478,923 |
|
|
|
|
|
|
|
13,250 |
|
|
|
18,872 |
|
|
|
10,900 |
(3) |
|
|
521,945 |
|
|
|
2014 |
|
|
|
466,000 |
|
|
|
168,925 |
|
|
|
103,333 |
|
|
|
163,334 |
|
|
|
10,100 |
|
|
|
911,692 |
|
|
|
2013 |
|
|
|
466,000 |
|
|
|
|
|
|
|
262,824 |
|
|
|
|
|
|
|
10,934 |
|
|
|
739,758 |
|
Paul Kuc Chief Financial Officer |
|
|
|
2015 |
|
|
|
332,231 |
|
|
|
|
|
|
|
4,770 |
|
|
|
6,040 |
|
|
|
6,778 |
(4) |
|
|
349,819 |
|
|
|
2014 |
|
|
|
323,000 |
|
|
|
96,900 |
|
|
|
82,667 |
|
|
|
130,666 |
|
|
|
6,263 |
|
|
|
639,496 |
|
|
|
2013 |
|
|
|
323,000 |
|
|
|
|
|
|
|
182,172 |
|
|
|
|
|
|
|
6,582 |
|
|
|
511,754 |
|
Wilfriede van Assche Senior Vice President and General Counsel |
|
|
|
2015 |
|
|
|
308,308 |
|
|
|
|
|
|
|
3,710 |
|
|
|
4,908 |
|
|
|
10,349 |
(5) |
|
|
327,275 |
|
|
|
2014 |
|
|
|
300,000 |
|
|
|
90,000 |
|
|
|
16,533 |
|
|
|
26,134 |
|
|
|
10,100 |
|
|
|
442,767 |
|
|
|
2013 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,295 |
|
|
|
310,295 |
|
|
(1) |
Bonuses for our named executive officers were determined on a discretionary basis by our Compensation Committee and our Board of Directors. In general, the amount of each named executive officers target bonus was not determined by applying any specific formula, but was determined based upon the following: (i) the achievement of company milestones; (ii) the achievement of individual milestones; and (iii) other factors deemed relevant by our Compensation Committee and our Board of Directors. In fiscal 2015, the Compensation Committee did not grant any discretionary bonuses. |
|
(2) |
The amounts in the Stock Awards and Option Awards column reflect the aggregate grant date fair value of stock options and restricted stock awards granted during fiscal 2013, fiscal 2014 and fiscal 2015 as applicable, computed in accordance with ASC Topic 718. The assumptions used by us in determining the grant date fair value of option awards and our general approach to our valuation methodology are set forth in the Managements Discussion and Analysis of Financial Condition and Results of Operations Stock-based Compensation section of this prospectus. These amounts do not correspond to the actual value that may be recognized by the named executive officers. |
|
(3) |
This amount includes a company matching contribution to our 401(k) plan in the amount of $10,600 and company-paid life insurance premiums in the amount of $300. |
|
(4) |
This amount includes a company matching contribution to our 401(k) plan in the amount of $6,478 and company-paid life insurance premiums in the amount of $300. |
|
(5) |
This amount includes a company matching contribution to our 401(k) plan in the amount of $10,049 and company-paid life insurance premiums in the amount of $300. |
81
TABLE OF CONTENTS
Outstanding Equity Awards at Fiscal 2015 Year-End
The following table itemizes outstanding equity awards held by the named executive officers as of August 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
Name |
|
Option Grant Date |
|
Number of Securities Underlying Unexercised Options(#) Exercisable(1)* |
|
Number of Securities Underlying Unexercised Options(#) Unexercisable |
|
Option Exercise Price ($)(2) |
|
Option Expiration Date |
|
Number of Shares or Units of Stock (#) That Have Not Vested** |
|
Stock Award Grant Date |
|
Market Value of Shares or Units of Stock ($) That Have Not Vested(3) |
Richard Hamilton |
|
|
12/19/2002 |
|
|
|
49,999 |
(4) |
|
|
|
|
|
|
15.60 |
|
|
|
12/18/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/16/2006 |
|
|
|
8,541 |
(5) |
|
|
|
|
|
|
31.20 |
|
|
|
1/15/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/21/2007 |
|
|
|
23,415 |
(6) |
|
|
|
|
|
|
54.00 |
|
|
|
12/20/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/23/2011 |
|
|
|
8,332 |
(7)(8) |
|
|
|
|
|
|
134.16 |
|
|
|
6/22/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2012 |
|
|
|
11,180 |
(9)(10) |
|
|
5,485 |
(9)(10) |
|
|
104.00 |
|
|
|
2/26/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,942 |
|
|
|
10/10/2012 |
|
|
|
2,292 |
|
|
|
|
9/25/2013 |
|
|
|
20,832 |
(11)(12) |
|
|
|
|
|
|
9.92 |
|
|
|
9/24/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/12/2014 |
|
|
|
|
|
|
|
6,249 |
(13)(14) |
|
|
4.24 |
|
|
|
9/11/2024 |
|
|
|
2,344 |
|
|
|
9/12/2014 |
|
|
|
2,766 |
|
Paul Kuc |
|
|
9/3/2008 |
|
|
|
13,749 |
(15) |
|
|
|
|
|
|
54.00 |
|
|
|
9/2/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/8/2010 |
|
|
|
4,165 |
(16) |
|
|
|
|
|
|
54.00 |
|
|
|
6/7/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/23/2011 |
|
|
|
1,666 |
(7)(8) |
|
|
|
|
|
|
134.16 |
|
|
|
6/22/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2012 |
|
|
|
3,665 |
(9)(10) |
|
|
2,167 |
(9)(10) |
|
|
104.00 |
|
|
|
2/26/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,346 |
|
|
|
10/10/2012 |
|
|
|
1,588 |
|
|
|
|
9/25/2013 |
|
|
|
16,665 |
(11)(12) |
|
|
|
|
|
|
9.92 |
|
|
|
9/24/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/12/2014 |
|
|
|
|
|
|
|
2,000 |
(13)(14) |
|
|
4.24 |
|
|
|
9/11/2024 |
|
|
|
844 |
|
|
|
9/12/2014 |
|
|
|
996 |
|
Wilfriede van Assche |
|
|
1/16/2006 |
|
|
|
4,270 |
(5) |
|
|
|
|
|
|
31.20 |
|
|
|
1/15/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/8/2010 |
|
|
|
1,041 |
(16) |
|
|
|
|
|
|
54.00 |
|
|
|
6/7/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/20/2011 |
|
|
|
2,082 |
(17) |
|
|
|
|
|
|
58.56 |
|
|
|
1/19/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/23/2011 |
|
|
|
1,666 |
(7)(8) |
|
|
|
|
|
|
134.16 |
|
|
|
6/22/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/27/2012 |
|
|
|
2,275 |
(9)(10) |
|
|
1,474 |
(9)(10) |
|
|
104.00 |
|
|
|
2/26/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/25/2013 |
|
|
|
3,333 |
(11)(12) |
|
|
|
|
|
|
9.92 |
|
|
|
9/24/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/12/2014 |
|
|
|
|
|
|
|
1,625 |
(13)(14) |
|
|
4.24 |
|
|
|
9/11/2024 |
|
|
|
657 |
|
|
|
9/12/2014 |
|
|
|
775 |
|
|
* |
All stock options issued under our 2010 Stock Option/Stock Issuance Plan, or the 2010 Plan, and our 2000 Stock Option/Stock Issuance Plan, or the 2000 Plan, may be exercised prior to vesting, subject to repurchase rights that expire over the vesting periods indicated in the footnotes below. |
|
** |
Unvested shares of restricted stock are generally forfeited if the named executive officers employment terminates, except to the extent otherwise provided in an employment agreement or award agreement. The stock awards held by our named executive officers awards may be accelerated upon a change in control of our company, and/or a termination of employment following a change in control, as further described below in Executive Compensation Potential Severance Payments upon Termination and upon Termination Following a Change in Control. |
|
(1) |
Unless otherwise specified, options granted before 2011 vest as to 25% of the original number of shares on the first anniversary of the vesting commencement date and the remainder of the shares vest ratably each month thereafter until the fourth anniversary of the vesting commencement date. Notwithstanding the foregoing, awards may be accelerated upon a change in control of our company, and/or a termination of employment following a change in control, as further described below in Executive Compensation Potential Severance Payments upon Termination and upon Termination Following a Change in Control. Unvested options granted under the 2010 Plan and the 2000 Plan are subject to early exercise, in which case, until they vest, the shares acquired pursuant to such exercise will be restricted and subject to repurchase by the Company at the exercise price upon the participants termination of employment. |
|
(2) |
The option exercise price for options granted prior to our initial public offering represents the fair market value of our Common Stock as of the date of grant, as determined by our Board of Directors. The option |
82
TABLE OF CONTENTS
|
|
exercise price for all options granted on February 27, 2012 have an exercise price equal to the initial public offering price per share of our initial public offering. For a discussion of our methodology for determining the fair market value of our Common Stock, see the Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates section of this prospectus. |
|
(3) |
The market value of stock awards reported is computed by multiplying the number of shares of Restricted Stock granted by $1.18, which was the closing market price of one share of our Common Stock on August 31, 2015. The restricted stock awards granted in fiscal 2013 vest in three equal annual installments beginning October 10, 2013. The restricted stock awards granted in fiscal year 2015 vest in four equal annual installments on July 19, 2015, July 19, 2016, July 19, 2017, and July 19, 2018. |
|
(4) |
The vesting commencement date of this grant is September 23, 2002. The options underlying this grant were originally scheduled to expire on December 18, 2012. On August 15, 2012, we held a Special Meeting of Stockholders, at which the stockholders of the Company approved an amendment to the 2000 Plan to extend the term of such options to thirteen years from their date of grant (subject to the consent of the affected option holders). Mr. Hamilton consented to the extension of these options to purchase 49,999 shares of Common Stock on September 10, 2012. |
|
(5) |
The vesting commencement date of this grant is January 16, 2006. |
|
(6) |
The vesting commencement date of this grant is December 21, 2007. |
|
(7) |
All options granted on June 23, 2011, are subject to a five-year vesting schedule with a two-year cliff, with 40% of the options vesting on the second anniversary of the grant date and the remainder vesting ratably each month thereafter until the fifth anniversary of the grant date. |
|
(8) |
The vesting commencement date of this grant is June 23, 2011. |
|
(9) |
All options granted on February 27, 2012 are subject to a five-year vesting schedule with a two-year cliff, with 40% of the options besting on the second anniversary of the grant date and the remainder vesting ratably each month thereafter until the fifth anniversary of the grant date. |
|
(10) |
The vesting commencement date of this grant is February 27, 2012. |
|
(11) |
All options granted on September 25, 2013, are subject to a two-year vesting schedule, with 50% of the options vesting on July19, 2014 and the remaining 50% of the options vesting on July 19, 2015. |
|
(12) |
The vesting commencement date of this grant is September 25, 2013. |
|
(13) |
All options granted on September 12, 2014, vest as to 25% of the original number of shares on the first anniversary of the vesting commencement date and the remainder of the shares vest ratably each month thereafter until the fourth anniversary of the vesting commencement date. |
|
(14) |
The vesting commencement date of this grant is September 12, 2014. |
|
(15) |
The vesting commencement date of this grant is September 3, 2008. |
|
(16) |
The vesting commencement date of this grant is June 8, 2010. |
|
(17) |
The vesting commencement date of this grant is January 20, 2011. |
Potential Payments upon Termination and upon Termination in Connection with a Change in Control
We entered into employment agreements with each of our named executive officers that became effective on September 1, 2011, and which are described in more detail under Executive Employment Agreements below. Under these employment agreements, our named executive officers are entitled to certain severance payments and benefits in the event of their termination of employment under certain circumstances, including (i) termination without cause, (ii) resignation for good reason, (iii) termination without cause or resignation for good reason in connection with a change in control of the Company or (iv) termination due
to death or disability. In addition, under our 2010 Plan and our 2000 Plan, our named executive officers are entitled to accelerated vesting of outstanding equity awards in the event of their involuntary termination of employment within 12 months after a change in control or other corporate transaction. Under our 2011 Plan, our named executive officers are entitled to accelerated vesting of outstanding equity awards in the event of a qualifying termination of employment, as defined in the 2011 Plan, within six months prior to or 12 months after a change in control or other corporate transaction.
83
TABLE OF CONTENTS
Executive Employment Agreements
We entered into executive employment agreements with each of our named executive officers effective as of September 1, 2011. The terms of each of these agreements are substantially similar, except with respect to each named executive officers initial base salary, which is described below.
Each of the executive employment agreements has an initial term of one year, starting on September 1, 2011, with an automatic renewal for additional one-year periods, unless either party gives 90 days notice of nonrenewal. The employment agreements provide for an initial annual base salary (to be reviewed by the Compensation Committee annually), a performance bonus and long-term incentive award opportunity as determined by the Compensation Committee, and participation in the Companys savings, retirement and other welfare benefit plans that the Company may have in place from time to time.
Under the executive employment agreements, if the Company terminates the named executive officers employment or does not renew the term of the employment agreement for reasons other than for cause or if the named executive officer resigns his or her employment for good reason, then he will be entitled to (i) a lump sum severance payment equal to one years base salary; (ii) to the extent the termination occurs on or after the midpoint of the Companys fiscal year, a pro-rated annual bonus and (iii) any other compensation and benefits accrued on or prior to the termination date. The named
executive officer (or his or her estate, if applicable) will also receive the foregoing amounts if his or her employment is terminated due to death or disability.
If the named executive officers employment is terminated or not renewed by the Company for reasons other than for cause or if he resigns from his or her employment for good reason, in each case within six months prior to, or within twelve months after, a change in control, then he is entitled to a lump sum severance payment equal to two times his or her base salary and any other accrued compensation and benefits. If the named executive officers employment is terminated or the term of the employment agreement is not renewed for cause or if the named executive officer
resigns from his or her employment or does not renew the term for any reason other than good reason, then he will be entitled only to compensation and benefits that have accrued on or prior to the termination date.
The named executive officers are obligated to comply with a confidentiality, proprietary information and inventions assignment agreement previously entered into with the Company and non-disparagement covenants under the executive employment agreements. In addition, payments under the agreements will be subject to any clawback or recoupment policies as required under applicable law.
Under the executive employment agreements, the following definitions apply:
|
|
Cause is defined as (i) a material breach of the employment agreement or any other written agreement with the Company to the extent the breach is not cured within 30 days; (ii) the named executive officers conviction or plea of nolo contendere to a felony or another crime involving dishonesty or moral turpitude or which could reflect negatively on or otherwise impair or impede the Companys operations; (iii) the named executive officers engaging in misconduct, negligence, dishonesty, violence or threat of violence that is injurious to the Company; (iv) a material breach of a written policy of the Company or the rules of any governmental or regulatory body applicable to the Company that could result in an adverse effect on the Company or could reflect negatively on or impair the operations of the Company or (v) any other willful misconduct that is materially injurious to the financial condition or business reputation
of the Company. |
|
|
Good reason is defined as any of the following: (i) an adverse change in the named executive officers position with the Company that materially reduces his or her level of authority, duties or responsibility; (ii) a reduction of base salary by more than five percent (except a reduction of 15% or less if the reduction is similarly applied to all executives); (iii) a relocation of place of employment by more than 50 miles without the executives consent or (iv) a substantial change in the nature or orientation of the Companys core business such that the Company is no longer substantially engaged in the agricultural biotechnology business. |
|
|
A change in control means the occurrence of any of the following events: (i) any person or group becomes the beneficial owner of greater than 50% of the Companys total voting power; (ii) the sale |
84
TABLE OF CONTENTS
|
|
of substantially all of the Companys assets; or (iii) the consummation of a merger or consolidation of the Company, after which the voting securities of the Company outstanding immediately prior to the event no longer represent 50% or more of the voting power represented by the voting securities of the Company or surviving entity immediately after the event. |
As of the end of August 31, 2015, the salaries of our named executive officers were as follows:
|
|
|
Name |
|
Salary ($) |
Richard Hamilton |
|
|
480,000 |
|
Paul Kuc |
|
|
333,000 |
|
Wilfriede van Assche |
|
|
309,000 |
|
Equity Compensation Plans
The following table provides information as of November 10, 2015 regarding compensation plans under which our equity securities are authorized for issuance:
|
|
|
|
|
|
|
Plan Category |
|
Number of Securities to be Issued Upon Exercise of Outstanding Options |
|
Weighted Average Exercise Price of Outstanding Options |
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans |
Equity compensation plans approved by stockholders |
|
|
392,381 |
(1) |
|
$ |
44.13 |
|
|
|
152,839 |
(2) |
Equity compensation plans not approved by stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
392,381 |
(1) |
|
$ |
44.13 |
|
|
|
152,839 |
(2) |
|
(1) |
Consists of shares underlying stock options granted under our Amended and Restated 2011 Equity Incentive Plan, or the 2011 Plan, our 2010 Stock Option/Stock Issuance Plan, or the 2010 Plan, and our 2000 Stock Option/Stock Issuance Plan, or the 2000 Plan. |
|
(2) |
Consists of shares issuable under the 2011 Plan and the 2010 Plan. No additional shares are available for future issuance under the 2000 Plan other than in respect of shares underlying outstanding stock options. The shares issuable under the 2011 Plan may be increased by the number of shares that would have been issuable under any stock option granted under the 2010 Plan or the 2000 Plan that were forfeited or that expired without being exercised. No future grants will be made under the 2010 Plan. |
85
TABLE OF CONTENTS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the compensation arrangements, including employment, termination of employment and change-in-control and indemnification arrangements, discussed above under Management and Management Executive Compensation, the following is a description of each transaction since September 1, 2014, and each currently proposed transaction in which:
|
|
we have been or are to be a participant; |
|
|
the amount involved exceeds or will exceed $120,000; and |
|
|
any of our directors, executive officers or holders of more than 5% of any class of our capital stock at the time of the transactions in issue, or any immediate family member of or person sharing the household with any of these individuals, had or will have a direct or indirect material interest. |
Indemnification Arrangements
We have entered into an indemnity agreement with each of our directors and officers. The indemnity agreements and our amended and restated certificate of incorporation and amended and restated bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. Please see Management Limitation of Liability and Indemnification of Officers and Directors.
Executive Compensation and Employment Arrangements
Please see Management Executive Compensation for information on compensation arrangements with our executive officers, including option grants and agreements with executive officers.
Investors Rights Agreement
Stockholder Registration Rights
In June 2010, we entered into an Amended and Restated Investors Rights Agreement, or the Investors Rights Agreement, with our major stockholders pursuant to which we agreed to provide certain rights to those stockholders that are a party to the Investors Rights Agreement to register the shares of our Common Stock (i) issuable upon conversion of outstanding convertible preferred stock, (ii) issued as a dividend or other distribution related to the convertible preferred stock, (iii) currently held or later acquired, and (iv) issuable upon the exercise of warrants held by any stockholder that is party to the
agreement. We will bear all expenses incurred in connection with any underwritten registration, including, without limitation, all registration, filing and qualification fees, printers and accounting fees and the reasonable fees of counsel for the selling holders, but excluding underwriting discounts and commissions.
The registration rights provided for under the Investors Rights Agreement terminate after the earlier of five years following the consummation of an initial public offering, or any such time as the holder would be able to dispose of all of its registrable securities in any three month period under SEC Rule 144.
Demand Registration Rights
Pursuant to the Investors Rights Agreement, if, at any time after six months after the effective date of the first registration statement for a public offering of our securities (other than a registration statement relating either to the sale of securities to our employees pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), upon the written request of the holders of at least 15% of the securities covered by the Investors Rights Agreement that we file a registration statement under the Securities Act covering the registration of at least 15% of the securities covered by the
Investors Rights Agreement, then we are required to file a registration statement covering the resale of the Common Stock requested to be registered. We are not obligated to file a registration statement after we have effected five registration statements pursuant to the Investors Rights Agreement or during certain periods prior to and after a registration statement has been filed by the company or, for a period of 90 days in the event the board of directors, in its judgment, makes the determination that it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and is therefore essential to defer the filing of such registration statement.
If an underwriter selected for an underwritten offering advises the holders demanding registration that marketing factors require a limitation on the number of shares to be underwritten, then, subject to certain
86
TABLE OF CONTENTS
limitations, the number of shares of registrable securities that may be included in the underwriting will be allocated among all holders of registrable securities in proportion to the amount of our registrable securities owned by each holder.
Piggyback Registration Rights
Pursuant to the Investors Rights Agreement, if, subject to certain exceptions, we propose to register any of our stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash, we are required to promptly give such holders written notice of such registration. Upon the written request of each eligible holder, we will, subject to certain limitations, cause to be registered under the Securities Act all such securities that each such holder has requested to be registered.
Registration Rights Agreement
Stockholder Registration Rights
On July 30, 2015, we entered into a Registration Rights Agreement with certain stockholders, and on August 26, 2015, we amended and supplemented the Registration Rights Agreement. We agreed pursuant to the Registration Rights Agreement to provide certain rights to those stockholders that are a party to the Registration Rights Agreement to register (i) the shares of our Common Stock issuable upon exercise of outstanding warrants held by such stockholders and (ii) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the warrants or shares
underlying the warrants held by such stockholders. We will bear all expenses incurred in connection with our performance of or compliance with the Registration Rights Agreement, including, without limitation, all registration, filing and qualification fees, printers and accounting fees and fees and disbursements of our counsel.
The registration rights provided for under the Registration Rights Agreement terminate after the earlier of (a) all securities registrable under the Registration Rights Agreement have been disposed of pursuant to an effective registration statement, (b) all securities registrable under the Registration Rights Agreement have been sold pursuant to Rule 144 under the Securities Act, (c) all securities registrable under the Registration Rights Agreement may be sold without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect,
addressed, delivered and acceptable to the Transfer Agent or (d) the five (5) year anniversary of the date of the issuance of the warrants that were the subject of the registration rights agreement.
Piggyback Registration Rights
Pursuant to the Registration Rights Agreement, if, subject to certain exceptions, we determine to register any of our equity securities under the Securities Act, we are required to promptly give holders of Registrable Securities under the Registration Rights Agreement written notice of such determination. Upon the written request of each eligible holder, we will, subject to certain limitations, cause to be registered under the Securities Act all such securities that each such holder has requested to be registered.
Related Person Transaction Policy
As provided in our current Audit Committee charter, our Audit Committee is responsible for reviewing and approving all related party transactions on an ongoing basis and must review any potential conflict of interest situations where appropriate.
Director Independence
For a discussion of the independence of our directors, please see Management Director Independence above.
87
TABLE OF CONTENTS
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our Common Stock, as of November 10, 2015, by:
|
|
each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our voting securities; |
|
|
each of our named executive officers; and |
|
|
all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which the individual or entity has sole or shared voting power or investment power. The information does not necessarily indicate beneficial ownership for any other purpose. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, to our knowledge the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock beneficially owned.
Percentage ownership of our Common Stock in the table is based on 8,830,700 shares of our Common Stock outstanding on November 10, 2015. The number of shares beneficially owned by each person or group as of November 10, 2015 includes shares of Common Stock that such person or group had the right to acquire on or within 60 days after November 10, 2015, upon the exercise of options and warrants. References to options and warrants in the footnotes of the table below include only options and warrants outstanding as of November 10, 2015 that were exercisable on or within 60 days after November 10, 2015. For the purposes of
calculating each persons or groups percentage ownership, stock options and warrants exercisable within 60 days after November 10, 2015 are included for that person or group but not the stock options or warrants of any other person or group.
Information in the table is derived from SEC filings made by such persons on Schedule 13D, Schedule 13G and/or under Section 16(a) of the Exchange Act and other information received by us. Except as otherwise set forth below, the address of the beneficial owner is c/o Ceres, Inc., 1535 Rancho Conejo Blvd., Thousand Oaks, CA 91320.
|
|
|
|
|
Name and Address of Beneficial Owner |
|
Number (#) |
|
Percentage (%) |
5% Stockholders
|
|
|
|
|
|
|
|
|
Artal Luxembourg S.A.(1) |
|
|
1,080,750 |
|
|
|
12.16 |
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
Cheryl Morley(2) |
|
|
2,187 |
|
|
|
|
* |
Pascal Brandys(3) |
|
|
12,883 |
|
|
|
|
* |
Richard Flavell(4) |
|
|
32,052 |
|
|
|
|
* |
Robert Goldberg(5) |
|
|
29,270 |
|
|
|
|
* |
Aflalo Guimaraes(6) |
|
|
486 |
|
|
|
|
|
Richard Hamilton(7) |
|
|
107,063 |
|
|
|
1.20 |
|
Thomas Kiley(8) |
|
|
12,376 |
|
|
|
|
* |
Paul Kuc(9) |
|
|
55,324 |
|
|
|
|
* |
Wilfriede van Assche(10) |
|
|
21,168 |
|
|
|
|
* |
All directors and executive officers as a group (10 persons) |
|
|
302,961 |
|
|
|
3.36 |
% |
|
(1) |
Includes 56,730 shares of Common Stock that may be acquired pursuant to the exercise of warrants held by Artal Luxembourg S.A. The address for Artal Luxembourg S.A. is 10-12 avenue Pasteur, L-2310 Luxembourg. |
88
TABLE OF CONTENTS
|
(2) |
Includes 2,187 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015. |
|
(3) |
Includes 5,563 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015. |
|
(4) |
Includes 18,030 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015, 167 of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Dr. Flavells cessation of service with us prior to vesting. |
|
(5) |
Includes 23,503 shares of Common Stock held by The Robert B. Goldberg Revocable Living Trust and 5,767 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015. |
|
(6) |
Includes 486 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015. |
|
(7) |
Includes 2,344 shares of restricted stock held by Dr. Hamilton, 4,166 shares of Common Stock held by the Richard Hamilton 2011-Ceres GRAT and 75,135 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015, 833 of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Dr. Hamiltons cessation of service with us prior to vesting. |
|
(8) |
Includes 7,810 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015. Also includes 1,842 shares of Common Stock held by The Kiley Revocable Trust and 641 shares of Common Stock issuable upon the exercise of warrants held by The Kiley Revocable Trust. |
|
(9) |
Includes 844 shares of restricted stock held by Mr. Kuc and 40,903 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015, 167 of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Kucs cessation of service with us prior to vesting. |
|
(10) |
Includes 657 shares of restricted stock held by Ms. van Assche and 15,502 shares of Common Stock issuable pursuant to stock options exercisable within 60 days of November 10, 2015, 167 of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Ms. van Assches cessation of service with us prior to vesting. |
89
TABLE OF CONTENTS
DESCRIPTION OF SECURITIES
Description of Units
We are offering up to 2,545,000 Class A Units, with each Class A Unit consisting of one share of Common Stock (based upon an assumed offering price per share of $1.18, which was the last reported sale price of our Common Stock on November 23, 2015) and a warrant to purchase one share of our Common Stock (together with the shares of Common Stock underlying such warrants) at a public offering price of $ per Class A Unit. Each warrant included in the Class A Units entitles its holder to purchase one share of Common Stock at an exercise price of $ .
We are also offering to those purchasers, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 9.99% of our outstanding Common Stock following the consummation of this offering, the opportunity to purchase, in lieu of Class A Units that would result in ownership in excess of 9.99%, Class B Units, with each Class B Unit consisting of one share of A-1 Preferred Stock, par value $0.01 per share, convertible into 847.460 shares of Common Stock (based upon an assumed conversion price per share of $1.18, which was the
last reported sale price of our Common Stock on November 23, 2015) and warrants to purchase 847.460 shares of our Common Stock (together with the shares of Common Stock underlying such warrants) at a public offering price of $ per Class B Unit. Each warrant included in the Class B Units entitles its holder to purchase one share of Common Stock at an exercise price of $ .
The securities of which the units are composed (the underlying securities) are being sold in this offering only as part of the units. However, the Class A Units and Class B Units will not be certificated and the underlying securities comprising such units are immediately separable. Each underlying security purchased in this offering will be issued independent of each other underlying security and not as part of a unit. Upon issuance, each underlying security may be transferred independent of any other underlying security, subject to applicable law and transfer restrictions.
Description of Warrants Included in the Units
The material terms and provisions of the warrants being offered pursuant to this prospectus are summarized below. This summary of some provisions of the warrants is not complete. For the complete terms of the warrants, you should refer to the form of warrant filed as an exhibit to the registration statement of which this prospectus is a part.
Pursuant to a warrant agency agreement between us and American Stock Transfer & Trust Company, LLC, as warrant agent, the warrants will be issued in book-entry form and shall initially be represented by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
Each Class A Unit includes a warrant to purchase one share of our Common Stock and each Class B Unit issued in this offering includes warrants to purchase 847.460 shares of our Common Stock (each based upon an assumed offering price per share of $1.18, which was the last reported sale price of our Common Stock on November 23, 2015) at a price equal to $ per share at any time for up to five (5) years after the date of the closing of this offering. The warrants issued in this offering will be governed by the terms of a global warrant held in book-entry form. The holder of a warrant will not be deemed a
holder of our underlying Common Stock until the warrant is exercised.
Subject to certain limitations as described below the warrants are immediately exercisable upon issuance on the closing date and expire on the five (5) year anniversary of the closing date. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holders affiliates, and any persons acting as a group together with such holder or any of such holders affiliates) would beneficially own a number of shares of Common Stock in excess of 4.99% of the shares of our Common Stock then outstanding after giving effect to such exercise
(the Beneficial Ownership Limitation); provided, however, that upon 61 days prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial
90
TABLE OF CONTENTS
Ownership Limitation exceed 9.99% and any increase in the Beneficial Ownership Limitation will not be effective until 61 days following notice of such increase from the holder to us.
The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Common Stock. The warrant holders must pay the exercise price in cash upon exercise of the warrants, unless such warrant holders are utilizing the cashless exercise provision of the warrants. On the expiration date, unexercised warrants will automatically be exercised via the cashless exercise provision.
In addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which our common shares are converted or exchanged for securities, cash or other property, or we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of Common Stock, then following such event, the holders of the warrants will be entitled to receive upon exercise of the warrants the same kind and amount of securities, cash or property which the holders would have received had
they exercised the warrants immediately prior to such fundamental transaction. Any successor to us or surviving entity shall assume the obligations under the warrants.
In the event of a fundamental transaction that is (i) an all cash transaction, (ii) a Rule 13e-3 transaction as defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended, or (iii) with certain limited exceptions, a fundamental transaction involving a person or entity not traded on a national securities exchange, then the Company or any successor entity will pay at the holders option, exercisable at any time concurrently with or within 30 days after the consummation of the fundamental transaction, an amount of cash equal to the value of the remaining unexercised portion of the warrants on the
date of consummation of the fundamental transaction as determined in accordance with the Black Scholes option pricing model.
Upon the holders exercise of a warrant, we will issue the shares of Common Stock issuable upon exercise of the warrant within three trading days following our receipt of a notice of exercise, provided that payment of the exercise price has been made (unless exercised via the cashless exercise provision).
Prior to the exercise of any warrants to purchase Common Stock, holders of the warrants will not have any of the rights of holders of the Common Stock purchasable upon exercise, including the right to vote, except as set forth therein.
Warrant holders may exercise warrants only if the issuance of the shares of Common Stock upon exercise of the warrants is covered by an effective registration statement, or an exemption from registration is available under the Securities Act and the securities laws of the state in which the holder resides. We intend to use commercially reasonable efforts to have the registration statement, of which this prospectus forms a part, effective when the warrants are exercised. The warrant holders must pay the exercise price in cash upon exercise of the warrants unless there is not an effective registration statement or, if required,
there is not an effective state law registration or exemption covering the issuance of the shares underlying the warrants (in which case, the warrants may only be exercised via a cashless exercise provision).
We do not intend to apply for listing of the warrants on any securities exchange or other trading system.
Description of Capital Stock
General
The following summary of our capital stock is based on certain provisions of our amended and restated certificate of incorporation and bylaws and on the applicable provisions of the Delaware General Corporation Law, or DGCL. This summary does not purport to be complete and is qualified in its entirety by reference to the applicable provisions of our amended and restated certificate of incorporation and bylaws and the DGCL. For information on how to obtain copies of such documents, please refer to the heading Where You Can Find More Information in this prospectus.
91
TABLE OF CONTENTS
Our authorized capital stock consists of 250,000,000 shares, with a par value of $0.01 per share, of which:
|
|
240,000,000 shares are designated as Common Stock; and |
|
|
10,000,000 shares are designated as preferred stock. |
On March 12, 2015, our Annual Meeting of Stockholders approved an amendment to our amended and restated certificate of incorporation, authorizing a reverse stock split of our Common Stock. A one-for-eight ratio for the reverse stock split was subsequently approved by our board of directors and the reverse stock split took effect on April 8, 2015. As a result of the reverse stock split, every eight shares of our Common Stock were automatically combined and converted into one issued and outstanding share of our Common Stock, with no change in the par value per share. All share amounts, per share amounts and share prices in this
prospectus have been adjusted to reflect the reverse stock split.
As of November 10, 2015, we had outstanding 8,830,700 shares of Common Stock, held of record by approximately 180 stockholders, and no shares of preferred stock. In addition, as of November 10, 2015, we had outstanding options to acquire 392,381 shares of Common Stock and warrants outstanding to purchase 2,678,930 shares of our Common Stock.
Common Stock
The holders of our Common Stock are entitled to one vote per share on all matters submitted to a vote of our stockholders and do not have cumulative voting rights. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of Common Stock are entitled to receive ratably any dividends declared by our board of directors out of assets legally available. Upon our liquidation, dissolution or winding up, holders of our Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then
outstanding shares of preferred stock. Holders of Common Stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to our Common Stock.
Preferred Stock
Pursuant to our amended and restated certificate of incorporation, and our amendment thereto, our board of directors has the authority, without further action by our stockholders, to issue from time to time up to 10,000,000 shares of preferred stock in one or more series. Our board of directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of any series. The issuance of preferred stock or even
the ability to issue preferred stock could have the effect of delaying, deterring or preventing a change in control.
A-1 Preferred Stock
Our board of directors has designated shares of our preferred stock as Series A-1 Convertible Preferred Stock (A-1 Preferred Shares), none of which are currently issued and outstanding. The preferences and rights of the A-1 Preferred Stock will be as set forth in a Certificate of Designation (the A-1 Certificate of Designation) filed as an exhibit to the registration statement of which this prospectus is a part.
Pursuant to a transfer agency agreement between us and American Stock Transfer & Trust Company, LLC, as transfer agent, the A-1 Preferred Stock will be issued in book-entry form and shall initially be represented by one or more global certificates deposited with The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
In the event of a liquidation, the holders of A-1 Preferred Shares are entitled to participate on an as-converted-to-Common Stock basis with holders of the Common Stock in any distribution of assets of the Company to the holders of the Common Stock. The A-1 Certificate of Designation provides, among other things, that we shall not pay any dividends on shares of Common Stock (other than dividends in the form of Common Stock) unless and until such time as we pay dividends on each A-1 Preferred Share on an as-converted basis. Other than as set forth in the previous sentence, the A-1 Certificate of Designation provides that no
other dividends shall be paid on A-1 Preferred Shares and that we shall pay no dividends (other than dividends in the form of Common Stock) on shares of Common Stock unless we simultaneously
92
TABLE OF CONTENTS
comply with the previous sentence. The A-1 Certificate of Designation does not provide for any restriction on the repurchase of A-1 Preferred Shares by us while there is any arrearage in the payment of dividends on the A-1 Preferred Shares. There are no sinking fund provisions applicable to the A-1 Preferred Shares.
With certain exceptions, as described in the A-1 Certificate of Designation, the A-1 Preferred Shares have no voting rights. However, as long as any shares of A-1 Preferred Shares remain outstanding, the A-1 Certificate of Designation provides that we shall not, without the affirmative vote of holders of a majority of the then-outstanding A-1 Preferred Shares, (a) alter or change adversely the powers, preferences or rights given to the A-1 Preferred Shares or alter or amend the A-1 Certificate of Designation, (b) increase the number of authorized shares of A-1 Preferred Shares or (c) effect a stock split or reverse stock split
of the A-1 Preferred Shares or any like event.
Each A-1 Preferred Share is convertible at any time at the holders option into a number of shares of Common Stock equal to $1,000 per share divided by the A-1 Conversion Price. The A-1 Conversion Price is initially $ and is subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations. Notwithstanding the foregoing, the A-1 Certificate of Designation further provides that we shall not effect any conversion of A-1 Preferred Shares, with certain exceptions, to the extent that, after giving effect to an attempted conversion, the holder of A-1
Preferred Shares (together with such holders affiliates, and any persons acting as a group together with such holder or any of such holders affiliates) would beneficially own a number of shares of Common Stock in excess of the Beneficial Ownership Limitation; provided, however, that upon 61 days prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99% and any increase in the Beneficial Ownership Limitation will not be effective until 61 days following notice of such increase from the holder to us.
Beginning on the third anniversary of the closing date of this offering, we will have the right to cause each holder of A-1 Preferred Stock to convert all or part of such holders A-1 Preferred Stock upon 20 calendar days prior written notice to such holder (which notice may be given by the preferred stock agent). Such notice may be given prior to the third anniversary of the closing date of this offering and shall be given in accordance with any applicable procedures of the depositary for the A-1 Preferred Stock.
We do not intend to apply for listing of the A-1 Preferred Shares on any securities exchange or other trading system.
Outstanding Warrants
As of November 10, 2015, we had warrants outstanding to purchase 2,678,930 shares of our Common Stock.
On August 26, 2015 we issued warrants to purchase an aggregate of 1,198,859 shares of Common Stock to certain investors as part of an offering of Common Stock and warrants. The warrants are exercisable at any time and from time to time, in whole or in part, beginning on February 26, 2016 and expire on February 26, 2021. The exercise price is $1.22 per share of Common Stock.
On August 26, 2015 we issued warrants to purchase an aggregate of 31,970 shares of Common Stock to Ladenburg Thalmann & Co. Inc. (Ladenburg) as part of Ladenburgs compensation related to an offering of Common Stock and warrants. The warrants are exercisable at any time and from time to time, in whole or in part, beginning on August 26, 2016 and expire on August 26, 2020. The exercise price is $1.83 per share of Common Stock.
On July 30, 2015 we issued warrants to purchase an aggregate of 1,200,000 shares of Common Stock to certain investors as part of an offering of Common Stock and warrants. The warrants are exercisable at any time and from time to time, in whole or in part, beginning on January 30, 2016 and expire on January 30, 2021. The exercise price is $1.62 per share of Common Stock.
On July 30, 2015 we issued warrants to purchase an aggregate of 24,000 shares of Common Stock to Ladenburg as part of Ladenburgs compensation related to an offering of Common Stock and warrants. The warrants are exercisable at any time and from time to time, in whole or in part, beginning on July 30, 2016 and expire on July 30, 2020. The exercise price is $1.944 per share of Common Stock.
93
TABLE OF CONTENTS
On March 10, 2014 we issued warrants to purchase an aggregate of 60,000 shares of Common Stock to certain affiliated designees of the underwriter as part of the underwriters compensation related to the registered public offering. The warrants are exercisable at any time and from time to time, in whole or in part, beginning on March 4, 2015 and expire on March 4, 2019. The exercise price is $12.00 per share of Common Stock. The fair value of these warrants upon issuance was $305 using a risk free rate of 1.64%, expected volatility 84.2%, expected term of 5 years and 0% dividend yield and was treated as an issuance cost of
the Common Stock.
In December 2011, we issued warrants to purchase 8,333 shares of our Common Stock to Texas A&M at an exercise price equal to $114.40. The warrants expire on September 24, 2026 and, subject to certain conditions, vest in equal installments on the fifth, tenth and fifteenth anniversary of our Amended and Restated Intellectual Property Rights Agreement with Texas A&M.
In June 2010, we issued warrants to purchase 128,205 shares of our Common Stock at an exercise price of $156.00 per share in connection with a private placement of convertible preferred stock. These warrants expire on June 24, 2020.
In January 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB, to finance qualified equipment purchases, pursuant to which we granted SVB warrants to purchase shares of our convertible preferred stock at an exercise price of $52.00 per share. Upon completion of our IPO, these warrants were automatically converted into warrants to purchase approximately 1,794 shares of Common Stock at an exercise price of $156.00 per share. These warrants expire on February 29, 2020.
In August 2007, we entered into an agreement with Texas A&M University, pursuant to which we granted Texas A&M University a warrant to purchase 8,333 shares of our Common Stock for an exercise price of $240.00 per share. The warrant vests in various installments based on certain research and commercialization milestones being met and will remain exercisable until August 28, 2017.
In May 2006, we entered into an agreement with The Samuel Roberts Noble Foundation, Inc., pursuant to which we granted the Noble Foundation a warrant to purchase 16,667 shares of our Common Stock for an exercise price of $240.00 per share. On June 20, 2011, we agreed to amend this warrant such that the warrant vests in equal installments of 4,167 shares on May 19, 2009, May 19, 2011, May 19, 2013 and May 19, 2015, respectively, and shall remain exercisable until the earliest of a period of five years from the respective vesting date, or May 18, 2017.
In July 2004, we entered into a borrowing agreement with SVB to finance construction of a greenhouse and tenant improvements at our Thousand Oaks, California facility, pursuant to which we granted SVB warrants to purchase shares of our convertible preferred stock at an exercise price of $52.00 per share, which were set to expire on the later of July 31, 2014 or five years after an initial public offering. During 2010, the warrants were extended and expire on February 29, 2020. Upon completion of our IPO, these warrants were automatically converted into warrants to purchase approximately 769 shares of Common Stock at an
exercise price of $156.00 per share.
Registration Rights
Investors Rights Agreement
Stockholder Registration Rights
In June 2010, we entered into an Amended and Restated Investors Rights Agreement, or the Investors Rights Agreement, with our major stockholders pursuant to which we agreed to provide certain rights to those stockholders that are a party to the Investors Rights Agreement to register the shares of our Common Stock (i) issuable upon conversion of outstanding convertible preferred stock, (ii) issued as a dividend or other distribution related to the convertible preferred stock, (iii) currently held or later acquired, and (iv) issuable upon the exercise of warrants held by any stockholder that is party to the
agreement. We will bear all expenses incurred in connection with any underwritten registration, including, without limitation, all registration, filing and qualification fees, printers and accounting fees and the reasonable fees of counsel for the selling holders, but excluding underwriting discounts and commissions.
94
TABLE OF CONTENTS
The registration rights provided for under the Investors Rights Agreement terminate after the earlier of five years following the consummation of an initial public offering, or any such time as the holder would be able to dispose of all of its registrable securities in any three month period under SEC Rule 144.
Demand Registration Rights
Pursuant to the Investors Rights Agreement, if, at any time after six months after the effective date of the first registration statement for a public offering of our securities (other than a registration statement relating either to the sale of securities to our employees pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), upon the written request of the holders of at least 15% of the securities covered by the Investors Rights Agreement that we file a registration statement under the Securities Act covering the registration of at least 15% of the securities covered by the
Investors Rights Agreement, then we are required to file a registration statement covering the resale of the Common Stock requested to be registered. We are not obligated to file a registration statement after we have effected five registration statements pursuant to the Investors Rights Agreement or during certain periods prior to and after a registration statement has been filed by the company or, for a period of 90 days in the event the board of directors, in its judgment, makes the determination that it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and is therefore essential to defer the filing of such registration statement.
If an underwriter selected for an underwritten offering advises the holders demanding registration that marketing factors require a limitation on the number of shares to be underwritten, then, subject to certain limitations, the number of shares of registrable securities that may be included in the underwriting will be allocated among all holders of registrable securities in proportion to the amount of our registrable securities owned by each holder.
Piggyback Registration Rights
Pursuant to the Investors Rights Agreement, if, subject to certain exceptions, we propose to register any of our stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash, we are required to promptly give such holders written notice of such registration. Upon the written request of each eligible holder, we will, subject to certain limitations, cause to be registered under the Securities Act all such securities that each such holder has requested to be registered. We have received waivers of these registration rights with respect to this offering from all
of the requisite stockholders.
Registration Rights Agreement
Stockholder Registration Rights
On July 30, 2015, we entered into a Registration Rights Agreement with certain stockholders, and on August 26, 2015, we amended and supplemented the Registration Rights Agreement. We agreed pursuant to the Registration Rights Agreement to provide certain rights to those stockholders that are a party to the Registration Rights Agreement to register (i) the shares of our Common Stock issuable upon exercise of outstanding warrants held by such stockholders and (ii) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the warrants or shares
underlying the warrants held by such stockholders. We will bear all expenses incurred in connection with our performance of or compliance with the Registration Rights Agreement, including, without limitation, all registration, filing and qualification fees, printers and accounting fees and fees and disbursements of our counsel.
The registration rights provided for under the Registration Rights Agreement terminate after the earlier of (a) all securities registrable under the Registration Rights Agreement have been disposed of pursuant to an effective registration statement, (b) all securities registrable under the Registration Rights Agreement have been sold pursuant to Rule 144 under the Securities Act, (c) all securities registrable under the Registration Rights Agreement may be sold without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect,
addressed, delivered and acceptable to the Transfer Agent or (d) the five (5) year anniversary of the date of the issuance of the warrants that were the subject of the registration rights agreement.
95
TABLE OF CONTENTS
Piggyback Registration Rights
Pursuant to the Registration Rights Agreement, if, subject to certain exceptions, we determine to register any of our equity securities under the Securities Act, we are required to promptly give holders of Registrable Securities under the Registration Rights Agreement written notice of such determination. Upon the written request of each eligible holder, we will, subject to certain limitations, cause to be registered under the Securities Act all such securities that each such holder has requested to be registered.
Anti-Takeover Provisions
Certain provisions of the DGCL and our amended and restated certificate of incorporation and bylaws may have the effect of delaying, deferring or discouraging another party from acquiring control of our company. These provisions, which are summarized below, may discourage certain types of coercive takeover practices and inadequate takeover bids and encourage anyone seeking to acquire control of our company to first negotiate with our board of directors. These provisions might also have the effect of preventing changes in our management and could make it more difficult to accomplish transactions that stockholders might
otherwise deem to be in their best interests. However, we believe that the advantages gained by protecting our ability to negotiate with any unsolicited and potentially unfriendly acquirer outweigh the disadvantages of discouraging such proposals, because, among other reasons, the negotiation of such proposals could result in improving their terms.
Amended and Restated Certificate of Incorporation and Bylaw Provisions
Our amended and restated certificate of incorporation and bylaws include a number of provisions that may have the effect of delaying, deferring or discouraging another party from acquiring control of our company or preventing changes in our management, including the following:
|
|
Issuance of Undesignated Preferred Stock. Our board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with rights, preferences and privileges designated from time to time by our board of directors without further action by stockholders. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms, any or all of which may be greater than the rights of Common Stock. |
|
|
Size of the Board of Directors and Filling Vacancies. The number of directors constituting our board of directors may be set only by resolution adopted by a majority vote of our entire board of directors. Any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of the board of directors, may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum. |
|
|
Classified Board. Our board of directors is divided into three classes of directors, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. |
|
|
No Cumulative Voting. Our amended and restated certificate of incorporation and bylaws do not permit cumulative voting in the election of directors. Cumulative voting allows a stockholder to vote a portion, or all of its shares for one or more candidates. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat. |
|
|
Removal of Directors. Directors can only be removed by our stockholders for cause and removal of a director will require a 66 2/3% stockholder vote. |
|
|
No Written Consent of Stockholders. All stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting. Stockholders may not take action by written consent in lieu of a meeting. The inability of stockholders to take action by written consent means that a stockholder would need to wait until the next annual or special meeting to bring business before the stockholders for a vote. |
96
TABLE OF CONTENTS
|
|
Special Meetings of Stockholders. Special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our chief executive officer or president (in the absence of a chief executive officer). Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of our stockholders. |
|
|
Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our amended and restated bylaws provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. These procedures provide that notice must be timely given in writing prior to the meeting at which the action is to be taken and the form and content of such notice must comply with the applicable provisions of our amended and restated bylaws. These procedures may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of us. |
|
|
Amendment to Amended and Restated Certificate of Incorporation and Bylaws. Any amendment, repeal or modification of certain provisions of our amended and restated certificate of incorporation and bylaws requires a 66 2/3 stockholder vote. Provisions requiring such supermajority vote include, among other things, any amendment, repeal or modification of the provisions relating to the classification of our board of directors, the requirement that stockholder actions be effected at a duly called annual or special meeting of our stockholders and the designated parties entitled to call a special meeting of our stockholders. |
Section 203 of the DGCL
We are subject to Section 203 of the DGCL. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a three-year period following the time that this stockholder becomes an interested stockholder, unless it satisfies one of the following conditions:
|
|
the transaction is approved by the board of directors prior to the time that the interested stockholder became an interested stockholder; |
|
|
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or |
|
|
at or subsequent to such time that the stockholder became an interested stockholder, the business combination was approved by the board of directors and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
In general, Section 203 defines business combination to include the following:
|
|
any merger or consolidation involving the corporation and the interested stockholder; |
|
|
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of the assets of the corporation with an aggregate market value of 10% or more of either the aggregate market value of all assets of the corporation on a consolidated basis or the aggregate market value of all of the outstanding stock of the corporation involving the interested stockholder; |
|
|
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
|
|
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or |
|
|
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the corporation. |
97
TABLE OF CONTENTS
In general, Section 203 defines an interested stockholder as an entity or person who, together with the stockholders affiliates and associates (as defined in Section 203), beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Treatment of Options Upon Change of Control
In general, under the terms of our 2010 Stock Option/Stock Issuance Plan and our Amended and Restated 2011 Equity Incentive Plan, in the event of certain change in control transactions, if the successor corporation does not assume our outstanding options or issue replacement awards, or if an option holders employment is involuntarily terminated in connection with such change in control, the vesting of the options outstanding under such plans will accelerate.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is and, for the A-1 Preferred Stock, will be, American Stock Transfer & Trust Company, LLC. The transfer agents telephone number is (800) 937-5449.
Stock Exchange Listing
Our Common Stock is listed on the NASDAQ Capital Market under the symbol CERE.
98
TABLE OF CONTENTS
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
The following discussion is a summary of certain material U.S. federal tax consequences relating to the acquisition of the units and the ownership and disposition of our warrants, Common Stock and A-1 Preferred Stock by U.S. holders and non-U.S. holders (each as defined below). This discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury regulations, rulings and judicial decisions, all as in effect on the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income and estate tax consequences different from those
discussed below. There can be no assurance that the U.S. Internal Revenue Service, or the IRS, will agree with the statements herein.
A U.S. holder means a beneficial owner of our warrants, Common Stock or A-1 Preferred Stock that is for U.S. federal income tax purposes:
|
|
a citizen or individual resident of the United States; |
|
|
a corporation or other entity treated as a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
|
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
|
|
a trust, if (1) a court within the United States is able to exercise primary supervision over the trusts administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (2) a valid election to be treated as a U.S. person is in effect under the relevant Treasury regulations with respect to such trust. |
A non-U.S. holder means a beneficial owner of our warrants, Common Stock or A-1 Preferred Stock that is neither a U.S. holder nor a partnership (including an entity that is treated as a partnership for U.S. federal income tax purposes).
This discussion deals only with our warrants, Common Stock and A-1 Preferred Stock held as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the U.S. federal income and estate tax consequences that may be relevant to a holder in light of such holders own particular circumstances, nor does it deal with special situations, such as:
|
|
tax consequences to holders who may be subject to special tax treatment, such as banks and other financial institutions, insurance companies, partnerships or other entities treated as pass-through entities for U.S. federal income tax purposes, certain former citizens or residents of the United States, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, tax-exempt entities, common trust funds, certain trusts, hybrid entities, foreign governments, international organizations and dealers or traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
|
|
tax consequences to persons holding our warrants, Common Stock or A-1 Preferred Stock as part of a hedging, integrated, constructive sale or conversion transaction or a straddle; |
|
|
any gift tax consequences; |
|
|
alternative minimum tax consequences, if any; or |
|
|
any U.S. state or local or foreign tax consequences. |
If an entity treated as a partnership for U.S. federal income tax purposes holds our warrants, Common Stock or A-1 Preferred Stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Prospective investors that are entities treated as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income and estate tax considerations to them and their partners of holding our warrants, Common Stock or A-1 Preferred Stock.
99
TABLE OF CONTENTS
THIS DISCUSSION IS NOT A LEGAL OPINION AND CANNOT BE USED FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER THE CODE OR APPLICABLE U.S. STATE OR LOCAL LAWS. IF YOU ARE CONSIDERING THE ACQUISITION OF UNITS, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO YOU IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION, THE EFFECT OF ANY CHANGES IN APPLICABLE TAX LAW, AND YOUR ENTITLEMENT TO BENEFITS UNDER AN APPLICABLE INCOME TAX TREATY.
Purchase of Units
For U.S. federal income tax purposes, the purchase by a holder of a unit will be treated as the acquisition of an investment unit consisting of two components. In the case of a holder that purchases the Class A Units, the investment unit will consist of shares of Common Stock and warrants to purchase shares of Common Stock. In the case of a holder that purchases the Class B Units, the investment unit will consist of one (1) share of A-1 Preferred Stock and warrants to purchase shares of Common Stock. The purchase price for each unit will be
allocated between the components in the respective unit in proportion to their relative fair market values at the time the respective unit is purchased by the holder. This allocation of the purchase price for each unit will establish a Holders initial tax basis for U.S. federal income tax purposes in the warrants, Common Stock and A-1 Preferred Stock that comprise the units. Each holder should consult its own tax advisor regarding the allocation of the purchase price for the units between the two components.
U.S. Holders
Taxation of Warrants
Exercise of Warrants
A U.S. holder will not recognize gain or loss on the exercise of a warrant and related receipt of our Common Stock. A U.S. holders initial tax basis in our Common Stock received on the exercise of a warrant will be equal to the sum of (a) such U.S. holders tax basis in such warrant plus (b) the exercise price paid by such U.S. holder on the exercise of such warrant.
Disposition of Warrants
A U.S. holder will recognize gain or loss on the sale or other taxable disposition of a warrant in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. holders tax basis in the warrant sold or otherwise disposed of. Gain or loss recognized by a U.S. holder on a disposition of a warrant will be long-term capital gain or loss if the holding period for the warrant exceeds one year at the time of the disposition. Long-term capital gain recognized by non-corporate U.S. holders (including individuals) is eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
Expiration of Warrants without Exercise
Upon the lapse or expiration of a warrant, a U.S. holder will recognize a loss in an amount equal to such U.S. holders tax basis in the warrant. Any such loss generally be a capital loss and will be a long-term capital loss if the warrants are held for more than one year. The deductibility of capital losses is subject to certain limitations.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment to the number of shares of Common Stock that will be issued on the exercise of the warrants, or an adjustment to the exercise price of the warrants, may be treated as a constructive distribution to a U.S. holder of the warrants if, and to the extent that, such adjustment has the effect of increasing such non-U.S. holders proportionate interest in the earnings and profits or assets of the Company, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to shareholders of the
Company). It is unclear whether such constructive distributions would be eligible for the reduced tax rate applicable to qualified dividend income paid to non-corporate U.S. holders or for the dividends-received deduction applicable to certain
100
TABLE OF CONTENTS
dividends paid to corporate U.S. holders. A U.S. holder should consult its tax advisor as to the tax consequences of receiving constructive dividends. Generally, a U.S. holders tax basis in a warrant will be increased by the amount of any such constructive distribution.
Taxation of Common Stock
Dividends on Common Stock
We do not expect to declare or pay any dividends on our Common Stock in the foreseeable future. If we make a distribution of cash or other property (other than certain pro rata distributions of our Common Stock) in respect of our Common Stock, the distribution will be treated as a dividend to the extent it is paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If the amount of a distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a tax-free return of capital to the extent of the non-U.S. holders
adjusted tax basis in our Common Stock, and thereafter will be treated as capital gain.
Dividend income received by non-corporate U.S. holders (including individuals) of our Common Stock will generally be subject to the preferential rates applicable to long-term capital gains if such dividends are treated as qualified dividend income for U.S. federal income tax purposes. Dividend income received by corporate U.S. holders of our Common Stock generally will be eligible for the dividends-received deduction. Generally, this deduction is allowed if our Common Stock is held by the corporate U.S. holder for at least 46 days during the 91 day period beginning on the date 45 days before the ex-dividend date of
our Common Stock.
Sale, Exchange or Other Disposition of Common Stock
A U.S. holder generally will recognize capital gain or loss upon a sale, exchange or other taxable disposition of our Common Stock. Any gain or loss will equal the difference between the proceeds received and the U.S. holders adjusted tax basis in our Common Stock. The gain or loss recognized by the U.S. holder on a disposition of our Common Stock will be long-term capital gain or loss if the holding period for such Common Stock exceeds one year at the time of the disposition. Long-term capital gain recognized by certain non-corporate U.S. holders (including individuals) is eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
Taxation of A-1 Preferred Stock
Dividends on A-1 Preferred Stock
Distributions on our A-1 Preferred Stock (if any) will be treated as described in U.S. Holders Taxation of Common Stock Dividends on Common Stock above.
Conversion of A-1 Preferred Stock
A U.S. holder will not recognize gain or loss on the conversion of our A-1 Preferred Stock into shares of Common Stock. A U.S. holders initial tax basis in our Common Stock received on the conversion of A-1 Preferred Stock will be equal to such U.S. holders tax basis in such A-1 Preferred Stock.
Disposition of A-1 Preferred Stock
A disposition of our A-1 Preferred Stock will be treated as described in U.S. Holders Taxation of Common Stock Sale, Exchange, or Other Disposition of Common Stock above.
Certain Adjustments to the A-1 Preferred Stock
Under Section 305 of the Code, an adjustment to the conversion ratio or conversion price of our A-1 Preferred Stock may be treated as a constructive distribution to a U.S. holder of our A-1 Preferred Stock if, and to the extent that, such adjustment has the effect of increasing such U.S. holders proportionate interest in the earnings and profits or assets of the Company, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to shareholders of the Company). See U.S. Holders Taxation of
Common Stock Dividends on Common Stock above for the U.S. federal income tax treatment of constructive distributions that may arise as a result of certain adjustments to our A-1 Preferred Stock.
101
TABLE OF CONTENTS
Information Reporting and Backup Withholding
Dividends (constructive or actual) on our Common Stock and A-1 Preferred Stock and proceeds from the sale, exchange or other disposition of our warrants, Common Stock and A-1 Preferred Stock are potentially subject to backup withholding at the applicable rate unless the U.S. holder provides a correct taxpayer identification number and complies with applicable certification requirements. Payments made to U.S. holders by a broker upon a sale of our warrants, Common Stock and A-1 Preferred Stock will generally be subject to information reporting and backup withholding.
Backup withholding is not an additional tax. Any amounts withheld from a payment to a U.S. holder under the backup withholding rules generally will be allowed as a refund or a credit against any U.S. federal income tax liability of the holder, provided the required information is timely furnished to the IRS.
U.S. holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them.
Non-U.S. Holders
Dividends on Common Stock or A-1 Preferred Stock
We do not expect to declare or pay any dividends on our Common Stock or our A-1 Preferred Stock in the foreseeable future. If we make a distribution of cash or other property (other than certain pro rata distributions of our Common Stock) in respect of our Common Stock or A-1 Preferred Stock, the distribution will be treated as a dividend to the extent it is paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If the amount of a distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a tax-free return of capital
to the extent of the non-U.S. holders adjusted tax basis in our Common Stock or A-1 Preferred Stock, and thereafter will be treated as capital gain.
Distributions treated as dividends on our Common Stock or A-1 Preferred Stock held by a non-U.S. holder generally will be subject to U.S. federal withholding tax at a rate of 30%, or at a lower rate if provided by an applicable income tax treaty and the non-U.S. holder has provided the documentation required to claim benefits under such treaty. Generally, to claim the benefits of an income tax treaty, a non-U.S. holder will be required to provide a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or appropriate substitute or successor form) certifying its entitlement to benefits under the treaty.
If, however, a dividend is effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder (and, if an applicable tax treaty so provides, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States), the dividend will not be subject to U.S. federal withholding tax (so long as the non-U.S. holder has provided the appropriate documentation, generally an IRS Form W-8ECI (or appropriate substitute or successor form), to the withholding agent), but the non-U.S. holder generally will be subject to U.S. federal income tax in respect of the
dividend on a net income basis at regular U.S. federal income tax rates in substantially the same manner as U.S. persons. Dividends received by a non-U.S. holder that is a corporation for U.S. federal income tax purposes and which are effectively connected with the conduct of a U.S. trade or business (and, if an applicable tax treaty so provides, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States) may also be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty).
A non-U.S. holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund together with the required information with the IRS.
102
TABLE OF CONTENTS
Certain Adjustments to the Warrants or A-1 Preferred Stock
Under Section 305 of the Code, (i) an adjustment to the number of shares of our Common Stock that will be issued on the exercise of the warrants, (ii) an adjustment to the exercise price of the warrants, or (iii) an adjustment to the conversion ratio or conversion price of our A-1 Preferred Stock may be treated as a constructive distribution to a non-U.S. holder of the warrants or A-1 Preferred Stock if, and to the extent that, such adjustment has the effect of increasing such non-U.S. holders proportionate interest in the earnings and profits or assets of the Company, depending on the circumstances of such
adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to shareholders of the Company). See Non-U.S. Holders Dividends on Common Stock or A-1 Preferred Stock above for the U.S. federal income tax treatment of constructive distributions under Section 305 of the Code.
Sale, Exchange or Other Disposition of Warrants, Common Stock and A-1 Preferred Stock
Subject to the discussion of backup withholding below, a non-U.S. holder generally will not be subject to U.S. federal income tax (including withholding tax) on gain realized on the sale, exchange or other disposition of our warrants, Common Stock or A-1 Preferred Stock unless:
|
|
such non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of such sale, exchange or disposition, and certain other conditions are met; |
|
|
such gain is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States (and, if an applicable tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder in the United States); or |
|
|
we are or have been a United States real property holding corporation, or a USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year testing period ending on the date of such disposition and the non-U.S. holders holding period of our Common Stock, and certain other conditions are met. |
Gain realized by a non-U.S. holder that is effectively connected with such non-U.S. holders conduct of a trade or business in the United States generally will be subject to U.S. federal income tax on a net income basis at regular U.S. federal income tax rates in substantially the same manner as a U.S. person (except as provided by an applicable tax treaty). In addition, if such non-U.S. holder is a corporation for U.S. federal income tax purposes, it may also be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty).
Generally, a corporation is a USRPHC if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide (domestic and foreign) real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). For this purpose, real property interests include land, improvements and associated personal property. We believe that we are not currently a USRPHC for this purpose. If we were a USRPHC during the applicable testing period, non-U.S. holders owning (directly or
indirectly) more than 5% of our Common Stock generally would be subject to U.S. federal income tax on the gain realized on the sale, exchange or disposition of our Common Stock, which would be treated as income effectively connected with a U.S. trade or business (and taxable as discussed above). Even if we were a USRPHC during the testing period, U.S. federal income tax would not apply to gain realized on the sale, exchange or disposition of our Common Stock by a non-U.S. holder that owns (directly or indirectly) 5% or less of our Common Stock so long as our Common Stock is regularly traded on an established securities market within the meaning of the applicable U.S. Treasury regulations. Similarly, U.S. federal income tax would not apply to gain realized on the sale, exchange or disposition of our warrants or A-1 Preferred Stock by a non-U.S. holder unless on the date a non-U.S. holder acquires such warrants or A-1 Preferred Stock, such instruments have a fair market value
greater than 5% of the fair market value of our Common Stock, assuming the Common Stock is regularly traded on an established securities market. For this purpose, if a non-U.S. holder subsequently acquires additional warrants or A-1 Preferred Stock, then all of such non-U.S. holders warrants or A-1 Preferred Stock will be aggregated and valued as of the date of the subsequent acquisition to apply the
103
TABLE OF CONTENTS
5% limitation. Prospective investors should be aware that no assurance can be provided that our Common Stock will be so regularly traded when a non-U.S. holder sells our warrants, Common Stock or A-1 Preferred Stock.
Information Reporting and Backup Withholding
Dividends (constructive or actual) on our Common Stock and A-1 Preferred Stock and proceeds from the sale, exchange or other disposition of our warrants, Common Stock or A-1 Preferred Stock are potentially subject to backup withholding at the applicable rate. In general, backup withholding will not apply to dividends on our Common Stock or A-1 Preferred Stock paid by us or our paying agents, in their capacities as such, to a non-U.S. holder if such holder has provided the required certification that it is a non-U.S. holder, such as by providing an IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI (or appropriate substitute
or successor form) and neither we nor our paying agent has actual knowledge (or reason to know) that such holder is a U.S. holder that is not an exempt recipient.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a non-U.S. holders U.S. federal income tax liability, provided the required information is furnished on a timely basis to the IRS.
Non-U.S. holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (generally referred to as FATCA), when applicable, will impose a U.S. federal withholding tax of 30% on certain payments to foreign financial institutions (which are broadly defined for this purpose and generally includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of certain interests in or accounts with those entities) have been satisfied. Payments subject to withholding tax under FATCA include dividends on common stock of U.S.
corporations (such as our Common Stock) and gross proceeds from sales or redemptions of such Common Stock (beginning in 2019). Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of amounts withheld. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the potential application and impact of these requirements based upon their particular circumstances.
U.S. Federal Estate Tax
Warrants, Common Stock or A-1 Preferred Stock owned or treated as owned by an individual who is not a citizen or resident of the United States (as specifically defined for U.S. federal estate tax purposes) at the time of death will be included in the individuals gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise.
104
TABLE OF CONTENTS
UNDERWRITING
We have entered into an underwriting agreement dated , 2015, among Ladenburg Thalmann & Co. Inc., as the representative of the underwriters (the representative) named below and the sole book-running manager of this offering, and the other underwriters set forth below. The underwriting agreement provides for the purchase of a specific number of Class A Units and Class B Units. Each Class A Unit consists of one share of Common Stock (based upon an assumed offering price per share of $1.18, which was the last reported sale price of our Common Stock on
November 23, 2015) and a warrant to purchase one share of our Common Stock. Each Class B Unit consists of one share of A-1 Preferred Stock, par value $0.01 per share, convertible into 847.460 shares of Common Stock (based upon an assumed conversion price per share of $1.18, which was the last reported sale price of our Common Stock on November 23, 2015) and warrants to purchase 847.460 shares of our Common Stock. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally and not jointly agreed to purchase from us, at the public offering prices less the underwriting discounts set forth on the cover page of this prospectus, the number of our securities set forth opposite their respective names below.
|
|
|
|
|
Underwriter |
|
Class A Units |
|
Class B Units |
Ladenburg Thalmann & Co. Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,545,000 |
|
|
|
9,000 |
|
A copy of the underwriting agreement has been filed as an exhibit to the registration statement of which this prospectus is part. The securities we are offering are being offered by the underwriters subject to certain conditions specified in the underwriting agreement.
We have been advised by the underwriters that they propose to offer the units directly to the public at the applicable public offering price set forth on the cover page of this prospectus. Any units sold by the underwriters to securities dealers will be sold at the applicable public offering price less a selling concession not in excess of $ per unit.
The underwriting agreement provides that the underwriters obligation to purchase the securities we are offering is subject to conditions contained in the underwriting agreement. Subject to the satisfaction or waiver by the representative of such conditions, the underwriters are obligated to purchase and pay for all of the units offered by this prospectus.
No action has been taken by us or the underwriters that would permit a public offering of the units, or the Common Stock,
A-1 Preferred Stock and warrants to purchase Common Stock included in the units, or the Common Stock underlying the warrants and the A-1 Preferred Stock in any jurisdiction outside the United States where action for that purpose is required. None of our securities included in this offering may be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sales of any of the units, the Common Stock, A-1 Preferred
Stock and warrants to purchase Common Stock, or the Common Stock underlying the warrants and the A-1 Preferred Stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to this offering of units, the Common Stock, A-1 Preferred Stock and warrants to purchase Common Stock, or the Common Stock underlying the warrants and the A-1 Preferred Stock and the distribution of this prospectus. This prospectus is neither an offer to sell nor a solicitation of any offer to buy the units, the Common Stock, A-1 Preferred Stock and warrants to purchase Common Stock, or the Common Stock underlying the warrants and the A-1 Preferred Stock in any jurisdiction where that would not be permitted or legal.
The underwriters have advised us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
105
TABLE OF CONTENTS
Underwriting Discount and Expenses
The following table summarizes the underwriting discount and commission to be paid to the underwriters by us.
|
|
|
|
|
|
|
|
|
Per Class A Unit |
|
Per Class B Unit |
|
Total |
Public offering price |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Underwriting discount(1)(2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Proceeds, before expenses, to Ceres |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
We have also agreed to issue warrants to the representative and to reimburse the representative for certain expenses. |
|
(2) |
We have granted a 45 day option to the underwriters to purchase up to an additional 1,525,821 shares of Common Stock and/or warrants exercisable for up to an additional 1,525,821 shares of Common Stock (up to 15% of the shares plus the number of shares of Common Stock issuable upon conversion of shares of A-1 Preferred Stock and up to 15% of the warrants firmly committed in this offering) solely to cover over-allotments, if any. |
We estimate the total expenses payable by us for this offering to be approximately $ , which amount includes (i) the underwriting discount of $ ($ if the underwriters over-allotment option is exercised in full), (ii) reimbursement of the accountable expenses of the representative up to $100,000 (none of which has been paid in advance), including the legal fees of the representative being paid by us, and (iii) other estimated expenses of approximately $ which includes legal, accounting, printing costs and various fees associated
with the registration and listing of our shares.
We have also agreed, subject to certain conditions, to give the representative a ten month right of first refusal from September 1, 2015 to act as a co-lead underwriter or co-lead placement agent in any private or public offering of our securities following the closing date of this offering. In addition, we will pay the representative a fee equal to the underwriting discount percentage in this offering (including the compensation warrants issuable to the representative) in the event that any investor contacted by the representative in connection with this offering (other than certain insider investors) purchases securities
from us at any time between the closing and July 13, 2016. However, such fee shall not be duplicated if the representative is also receiving a placement agent fee or underwriting discount in such transaction.
Representatives Warrants
In addition to the underwriting discount to be paid by us, we have agreed to issue to the representative or its designees warrants to purchase the number of shares of our Common Stock that is equivalent to 2.0% of the number of shares of Common Stock sold in this offering to the representative (not including any shares of Common Stock purchased by certain insider investors and including the number of shares of Common Stock issuable upon conversion of shares of A-1 Preferred Stock but excluding any shares of Common Stock underlying the warrants issued in this offering and any shares of Common Stock issued upon any exercise of
the underwriters over-allotment option), at an exercise price equal to 150% of the per share equivalent paid by the investors in this offering. The representatives warrants will have a term of exercise expiring five years from the effective date of the registration statement of which this prospectus is a part. Pursuant to FINRA Rule 5110(g), the representatives warrants and any shares issued upon exercise of the compensation warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security:
|
|
by operation of law or by reason of reorganization of our company; |
|
|
to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period; |
|
|
if the aggregate amount of securities of our company held by the holder of the compensation warrants or related persons do not exceed 1% of the securities being offered; |
106
TABLE OF CONTENTS
|
|
that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or |
|
|
the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period. |
The representatives warrants are exercisable for cash or on a cashless basis. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of Common Stock at a price below the warrant exercise price.
Over-allotment Option
We have granted to the underwriters an option, exercisable not later than 45 days after the date of this prospectus, to purchase up to an additional 1,525,821 shares of Common Stock and/or warrants exercisable for up to an additional 1,525,821 shares of Common Stock (up to 15% of the shares plus the number of shares of Common Stock issuable upon conversion of shares of A-1 Preferred Stock and up to 15% of the warrants firmly committed in this offering) at the public offering price, less the underwriting discount, set forth on the cover page of this prospectus. The underwriters may exercise the option solely to cover
over-allotments, if any, made in connection with this offering. If any additional shares of Common Stock and/or warrants are purchased pursuant to the over-allotment option, the underwriters will offer these shares of Common Stock and/or warrants on the same terms as those on which the other units are being offered hereby. The over-allotment option may be used to purchase shares of Common Stock, or warrants, or any combination thereof, as determined by the representative.
Determination of Offering Price
Our stock is currently traded on the NASDAQ Capital Market under the symbol CERE. On November 23, 2015, the closing price of our Common Stock was $1.18 per share. We do not intend to apply for listing of the A-1 Preferred Stock or warrants on any securities exchange or other trading system.
The public offering price of the units offered by this prospectus has been determined by negotiation between us and the underwriters. Among the factors considered in determining the public offering price of the shares were:
|
|
our history and our prospects; |
|
|
the industry in which we operate; |
|
|
our past and present operating results; |
|
|
the previous experience of our executive officers; and |
|
|
the general condition of the securities markets at the time of this offering. |
The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the units. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that the units can be resold at or above the public offering price.
Lock-up Agreements
Pursuant to certain lock-up agreements, we, our executive officers, directors and certain stockholders have agreed, subject to certain exceptions, not to offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any shares or any securities convertible into or exercisable or exchangeable for shares, whether currently owned or subsequently acquired, without the prior written consent of the representative, for a period of 90 days from the date of effectiveness of the registration statement of which this prospectus is a part.
Stabilization, Short Positions and Penalty Bids
The underwriters may engage in syndicate covering transactions, stabilizing transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our Common Stock:
107
TABLE OF CONTENTS
|
|
Stabilizing transactions permit bids to purchase shares of Common Stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares of Common Stock while this offering is in progress. |
|
|
Over-allotment transactions involve sales by the underwriters of shares of Common Stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares and/or warrants in the open market. |
|
|
Syndicate covering transactions involve purchases of shares of Common Stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares and/or warrants available for purchase in the open market as compared with the price at which they may purchase shares and/or warrants through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, has a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase
in this offering. |
|
|
Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the securities originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These syndicate covering transactions, stabilizing transactions and penalty bids may have the effect of raising or maintaining the market prices of our securities or preventing or retarding a decline in the market prices of our securities. As a result, the price of our Common Stock may be higher than the price that might otherwise exist in the open market. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our Common Stock. These transactions may be effected on The NASDAQ Capital Market, in the over-the-counter market or on any
other trading market and, if commenced, may be discontinued at any time.
In connection with this offering, the underwriters also may engage in passive market making transactions in our Common Stock in accordance with Regulation M during a period before the commencement of offers or sales of shares of our Common Stock in this offering and extending through the completion of the distribution. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for that security. However, if all independent bids are lowered below the passive market makers bid, that bid must then be lowered when specific purchase limits are exceeded. Passive market
making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the prices of our securities. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these transactions or that any transactions, once commenced, will not be discontinued without notice.
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including certain liabilities arising under the Securities Act, or to contribute to payments that the underwriters may be required to make for these liabilities.
108
TABLE OF CONTENTS
Other Relationships
The underwriters and their respective affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. Other than compensation paid to the representative in connection with our offerings of Common Stock and warrants, which closed on July 30, 2015 and August 26, 2015, respectively, we have not paid the representative any compensation in the 180 days prior to the date of this prospectus supplement, and we have no current
arrangements or expectation to pay the representative any compensation (other than in connection with this offering) within the next 90 days.
LEGAL MATTERS
Certain legal matters relating to the issuance of the securities offered by this prospectus will be passed upon for us by Shearman & Sterling LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the representative by Ellenoff Grossman & Schole LLP.
EXPERTS
The consolidated financial statements of Ceres, Inc. as of August 31, 2015 and 2014, and for each of the years in the two-year period ended August 31, 2015, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The audit report covering the August 31, 2015 consolidated financial statements contains an explanatory paragraph that states that the Company has incurred recurring losses and expects the current level of cash and cash equivalents will only be sufficient to fund operations until January 2016, which raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC covering the units we are offering by this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits filed as part of the registration statement for copies of the actual contract, agreement or other document.
We file annual, quarterly and other periodic reports, proxy statements and other information with the Securities and Exchange Commission. You can read our Securities and Exchange Commission filings, including this registration statement, over the Internet at the Securities and Exchange Commissions website at www.sec.gov. You may also read and copy any document we file with the Securities and Exchange Commission at its public reference facilities at 100 F Street NE, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the Securities
and Exchange Commission at 100 F Street NE, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
Our Internet address is www.ceres.net. There we make available free of charge, on or through the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission. The information found on our website is not part of this prospectus and investors should not rely on any such information in deciding whether to invest.
109
F-1
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ceres, Inc.:
We have audited the accompanying consolidated balance sheets of Ceres, Inc. and subsidiaries as of August 31, 2015 and 2014 and the related consolidated statements of operations, comprehensive loss, stockholders equity and cash flows for each of the years in the two-year period ended August 31, 2015. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ceres, Inc. and subsidiaries as of August 31, 2015 and 2014 and the results of their operations and their cash flows for each of the years in the two-year period ended August 31, 2015, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has incurred recurring losses and expects that the current level of cash and cash equivalents will only be sufficient to fund operations until January 2016 which raises substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
|
|
|
|
|
/s/ KPMG LLP |
Los Angeles, California
November 23, 2015
F-2
TABLE OF CONTENTS
CERES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
August 31, |
|
|
2015 |
|
2014 |
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,095 |
|
|
$ |
3,423 |
|
Marketable securities |
|
|
|
|
|
|
24,579 |
|
Prepaid expenses |
|
|
477 |
|
|
|
633 |
|
Accounts receivable |
|
|
577 |
|
|
|
370 |
|
Inventories |
|
|
|
|
|
|
84 |
|
Assets held for sale |
|
|
474 |
|
|
|
|
|
Other current assets |
|
|
143 |
|
|
|
240 |
|
Total current assets |
|
|
9,766 |
|
|
|
29,329 |
|
Property and equipment, net |
|
|
1,258 |
|
|
|
2,996 |
|
Other assets |
|
|
98 |
|
|
|
99 |
|
Total long-term assets |
|
|
1,356 |
|
|
|
3,095 |
|
Total assets |
|
$ |
11,122 |
|
|
$ |
32,424 |
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
4,402 |
|
|
$ |
4,278 |
|
Billings in excess of costs |
|
|
802 |
|
|
|
356 |
|
Deferred rent |
|
|
18 |
|
|
|
18 |
|
Current portion of long-term debt |
|
|
|
|
|
|
70 |
|
Total current liabilities |
|
|
5,222 |
|
|
|
4,722 |
|
Deferred rent |
|
|
56 |
|
|
|
75 |
|
Common stock warrant liabilities |
|
|
1,631 |
|
|
|
|
|
Long-term debt, net of current portion |
|
|
|
|
|
|
18 |
|
Total liabilities |
|
|
6,909 |
|
|
|
4,815 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value; 240,000,000 shares authorized; 8,830,700 shares issued and outstanding at August 31, 2015; 6,024,108 shares issued and outstanding at August 31,2014 |
|
|
88 |
|
|
|
60 |
|
Additional paid-in capital |
|
|
335,424 |
|
|
|
332,049 |
|
Accumulated other comprehensive loss |
|
|
762 |
|
|
|
(595 |
) |
Accumulated deficit |
|
|
(332,061 |
) |
|
|
(303,905 |
) |
Total stockholders equity |
|
|
4,213 |
|
|
|
27,609 |
|
Total liabilities and stockholders equity |
|
$ |
11,122 |
|
|
$ |
32,424 |
|
See accompanying notes to the consolidated financial statements.
F-3
TABLE OF CONTENTS
CERES, INC.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Revenues:
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
434 |
|
|
$ |
146 |
|
Services |
|
|
2,286 |
|
|
|
2,258 |
|
Total revenues |
|
|
2,720 |
|
|
|
2,404 |
|
Cost and operating expenses:
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
5,267 |
|
|
|
3,021 |
|
Research and development |
|
|
9,684 |
|
|
|
14,156 |
|
Selling, general and administrative |
|
|
15,946 |
|
|
|
14,484 |
|
Total cost and operating expenses |
|
|
30,897 |
|
|
|
31,661 |
|
Loss from operations |
|
|
(28,177 |
) |
|
|
(29,257 |
) |
Interest expense |
|
|
(30 |
) |
|
|
(68 |
) |
Interest income |
|
|
28 |
|
|
|
5 |
|
Other income |
|
|
24 |
|
|
|
|
|
Loss before income taxes |
|
|
(28,155 |
) |
|
|
(29,320 |
) |
Income tax expense |
|
|
(1 |
) |
|
|
(1 |
) |
Net loss |
|
$ |
(28,156 |
) |
|
$ |
(29,321 |
) |
Basic and diluted net loss per share attributable to common stockholders |
|
$ |
(4.57 |
) |
|
$ |
(6.48 |
) |
Weighted average outstanding common shares used for net loss per shares attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
6,166,006 |
|
|
|
4,525,746 |
|
See accompanying notes to the consolidated financial statements.
F-4
TABLE OF CONTENTS
CERES, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Net loss |
|
$ |
(28,156 |
) |
|
$ |
(29,321 |
) |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
1,346 |
|
|
|
100 |
|
Net unrealized gain (loss) on marketable securities |
|
|
11 |
|
|
|
1 |
|
Total comprehensive loss |
|
$ |
(26,799 |
) |
|
$ |
(29,220 |
) |
See accompanying notes to the consolidated financial statements.
F-5
TABLE OF CONTENTS
CERES, INC.
Consolidated Statements of Stockholders Equity
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Accumulated Other Comprehensive Loss |
|
Accumulated Deficit |
|
Total Stockholders Equity (Deficit) |
|
Number of Shares |
|
Amount |
Balance at August 31, 2013 |
|
|
3,112,147 |
|
|
|
30 |
|
|
|
308,256 |
|
|
|
(696 |
) |
|
|
(274,584 |
) |
|
|
33,006 |
|
Common stock issued upon offering, net of costs |
|
|
2,875,000 |
|
|
|
29 |
|
|
|
20,722 |
|
|
|
|
|
|
|
|
|
|
|
20,751 |
|
Restricted stock issued |
|
|
43,320 |
|
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Restricted stock cancelled |
|
|
(6,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
3,068 |
|
|
|
|
|
|
|
|
|
|
|
3,068 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,321 |
) |
|
|
(29,321 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
100 |
|
Unrealized gain on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Balance at August 31, 2014 |
|
|
6,024,108 |
|
|
$ |
60 |
|
|
$ |
332,049 |
|
|
$ |
(595 |
) |
|
$ |
(303,905 |
) |
|
$ |
27,609 |
|
Common stock issued upon offering, net of costs |
|
|
2,798,478 |
|
|
|
28 |
|
|
|
1,110 |
|
|
|
|
|
|
|
|
|
|
|
1,138 |
|
Restricted stock issued |
|
|
9,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancelled |
|
|
(1,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
2,265 |
|
|
|
|
|
|
|
|
|
|
|
2,265 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,156 |
) |
|
|
(28,156 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,346 |
|
|
|
|
|
|
|
1,346 |
|
Unrealized gain on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
Balance at August 31, 2015 |
|
|
8,830,700 |
|
|
$ |
88 |
|
|
$ |
335,424 |
|
|
$ |
762 |
|
|
$ |
(332,061 |
) |
|
$ |
4,213 |
|
See accompanying notes to the consolidated financial statements.
F-6
TABLE OF CONTENTS
CERES, INC.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,156 |
) |
|
$ |
(29,321 |
) |
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value of common stock warrants |
|
|
(24 |
) |
|
|
|
|
Impairment of assets |
|
|
502 |
|
|
|
|
|
Net (loss) gain on disposal of assets |
|
|
(39 |
) |
|
|
385 |
|
Depreciation and amortization |
|
|
657 |
|
|
|
1,517 |
|
Amortization of premiums on marketable securities |
|
|
142 |
|
|
|
288 |
|
Stock compensation |
|
|
2,265 |
|
|
|
3,068 |
|
Other |
|
|
52 |
|
|
|
152 |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
122 |
|
|
|
113 |
|
Accounts receivable |
|
|
(208 |
) |
|
|
589 |
|
Inventories |
|
|
65 |
|
|
|
(61 |
) |
Other assets |
|
|
85 |
|
|
|
(21 |
) |
Accounts payables and accrued expenses |
|
|
892 |
|
|
|
390 |
|
Billings in excess of costs |
|
|
446 |
|
|
|
356 |
|
Deferred rent |
|
|
(18 |
) |
|
|
(18 |
) |
Net cash used in operating activities |
|
|
(23,217 |
) |
|
|
(22,563 |
) |
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(387 |
) |
|
|
(1,014 |
) |
Proceeds from sale of property and equipment |
|
|
60 |
|
|
|
810 |
|
Purchase of marketable securities (at cost) |
|
|
(720 |
) |
|
|
(33,085 |
) |
Maturities of marketable securities |
|
|
25,116 |
|
|
|
29,700 |
|
Net cash provided by (used in) investing activities |
|
|
24,069 |
|
|
|
(3,589 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on debt |
|
|
(69 |
) |
|
|
(159 |
) |
Proceeds from issuance of common stock and common stock warrants, net of underwriters discounts and commissions and offering expenses |
|
|
2,794 |
|
|
|
20,751 |
|
Net cash provided by financing activities |
|
|
2,725 |
|
|
|
20,592 |
|
Effect of foreign currency translation on cash |
|
|
1,095 |
|
|
|
102 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
4,672 |
|
|
|
(5,458 |
) |
Cash and cash equivalents at beginning of period |
|
|
3,423 |
|
|
|
8,881 |
|
Cash and cash equivalents at end of period |
|
$ |
8,095 |
|
|
$ |
3,423 |
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid during the year |
|
$ |
30 |
|
|
$ |
46 |
|
Income taxes paid during the year |
|
$ |
1 |
|
|
$ |
1 |
|
See accompanying notes to the consolidated financial statements.
F-7
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies
Description of Business
Ceres, Inc. (Company) is an agricultural biotechnology company that develops and markets seeds and traits to produce crops for feed, forages, sugar and other markets. The Company uses a combination of advanced plant breeding, biotechnology and bioinformatics to develop seed products and biotechnology traits to address many of the current limitations and future challenges facing agriculture. These technology platforms, which can increase crop productivity, improve quality, reduce crop inputs and improve cultivation on marginal land, have broad application across multiple end markets, including food, feed, fiber and fuel.
In January 2010, the Company formed a subsidiary, Ceres Sementes do Brasil Ltda. The Companys ownership in this subsidiary is 99.9% and the Companys Chief Executive Officer owns the remaining interest. In May 2014, the Company formed a wholly owned subsidiary, Ceres Agrotechnologies Intl LLC. In May 2014, the Company also formed a subsidiary, CS Semillas de Mexico, S.de L. de C.V. The Companys ownership in this subsidiary is 99.9% and Ceres Agrotechnologies Intl LLC owns the remaining interest.
On March 10, 2014, the Company completed a registered public offering of 23,000,000 shares of its common stock (including 3,000,000 shares purchased by the underwriter upon the exercise in full of their right to purchase up to an additional 3,000,000 shares to cover over-allotments) at a price to the public of $1.00 per share. The Company received approximately $20,800 of proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses.
On April 8, 2015, the Company filed an amendment to its amended and restated certificate of incorporation which effected a 1 for 8 reverse stock split of the Companys issued and outstanding shares of common stock. The par value of the common stock was not adjusted as a result of the reverse stock split. All issued and outstanding shares of common stock, warrants, and stock options and per share amounts contained in the Companys consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.
On July 30, 2015, the Company completed a registered public offering of an aggregate of 1,200,000 shares of Common Stock, par value $0.01 per share, of the Company, at an offering price of $1.296 per share for estimated net proceeds of approximately $1.0 million, after deducting the placement agent fee and related offering expenses. In connection with the offering, the Company issued warrants exercisable for one share of Common Stock for each share purchased at an exercise price of $1.62 per share. The Company also issued warrants to purchase an aggregate of 24,000 shares of Common Stock at an exercise price of $1.944 per
share to the placement agent as part of the placement agents compensation.
On August 26, 2015, the Company completed a registered public offering of an aggregate of 1,598,478 shares of Common Stock, par value $0.01 per share, of the Company, at an offering price of $1.22 per share for estimated net proceeds, together with the concurrent private placement, of approximately $1.7 million, after deducting the placement agent fee and related offering expenses. In connection with the offering, the Company issued warrants exercisable for 0.75 shares of Common Stock, for an aggregate of 1,198,859 shares of Common Stock at an exercise price of $1.22 per share. The Company also issued warrants to purchase an
aggregate of 31,970 shares of Common Stock at an exercise price of $1.83 per share to the placement agent as part of the agents compensation.
Liquidity
The Company has incurred substantial net losses from operations since its inception, including net losses of $28,156 and $29,321 for the years ended August 31, 2015 and 2014, respectively. As of August 31, 2015 the Company had an accumulated deficit of $332,061.
As of August 31, 2015, the Company had cash and cash equivalents of $8,095. Management believes this will only be sufficient to fund operations until January 2016. The Company needs to raise additional capital to
F-8
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
continue beyond this point. The Company is evaluating opportunities to secure additional financing, including the issuance of equity or debt, sale or divesture of business units, and additional revenues from grants or collaborations. However there are no assurances that such opportunities will be available or available on terms that are acceptable to the Company. If the Company is unable to raise additional funds, the Company will not have adequate liquidity to fund its operations and will be forced to significantly curtail or cease its operations. This raises substantial doubt about the Companys ability to continue as a
going concern. These financial statements have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
The Company has incurred recurring losses and expects to incur additional losses related to the continued development of its business, including research and development, seed production and operations, and sales and marketing. There is no assurance that the Company will achieve profitable operations, or if achieved, can be sustained on a continued basis.
Restructuring
On October 11, 2013, the Company commenced the implementation of a plan (Plan) intended to further align expenditures with the Companys near-term commercial opportunity in Brazil, shift Northern Hemisphere sorghum breeding activities from College Station, Texas to a more appropriate location, de-emphasize research and development for U.S. cellulosic feedstocks, reduce costs and conserve cash. The actions taken under the Plan, which included, among others, a workforce reduction that impacted 16 positions in the U.S, were completed at August 31, 2014. During 2014, the Company incurred total charges of approximately $1,600
with respect to the U.S. workforce reductions, including $900 of one-time severance expenses, $400 for continuation of salary and benefits of certain employees until their work was completed and $300 of other costs. Of the $1,600 of cash payments made during the nine months ending May 31, 2014, $1,000, $500 and $100 was recorded to research and development expenses, cost of sales and general and administrative expenses, respectively.
On June 19, 2015, the Company announced the continued realignment of its business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, the Company undertook a restructuring of its Brazilian seed operations. The restructuring of the Companys Brazilian seed operations, includes, among other actions, a workforce reduction that initially impacted 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. The Company estimated that it would incur charges of approximately
$600 over the five-month period ending in October 2015 with respect to the initial workforce reductions in Brazil and the U.S., including $100 in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $500 of one-time severance and other costs, all of which will be cash expenditures. During the year ended August 31, 2015, the Company made cash payments of approximately $500 related to these expenses. The remaining cash payments of approximately $100 are expected to be made prior to the quarter ended November 30, 2015, and are accrued in accounts payable and accrued expenses as of August 31, 2015.
As of August 19, 2015, the Company initiated a further workforce reduction that impacted an additional 19 positions in Brazil. The Company estimated that it would incur additional charges of approximately $800 over the four-month period ending on December 31, 2015 with respect to the additional workforce reductions in Brazil, including $100 in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $700 of one-time severance and other costs, all of which will be cash expenditures. The restructuring of the Companys Brazilian seed operations is expected
to be substantially completed by February 1, 2016. After full implementation of the restructuring plan, the Brazilian operations will be focused on sugarcane trait development activities for the Brazilian sugarcane market. During the year ended August 31, 2015, the Company made cash payments of approximately $200 related to
F-9
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
these expenses. The remaining cash payments of approximately $600 are expected to be made prior to December 31, 2015, and are accrued in accounts payable and accrued expenses as of August 31, 2015.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (GAAP) and with the Rules and Regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. This affects the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include the valuation of assets held for sale, inventory, deferred tax assets, common stock, stock options, and liability classified warrants. Actual results
could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents. Cash equivalents totaled $3,792 and $2,174 at August 31, 2015 and 2014, respectively.
Marketable Securities
Marketable securities are classified as available for sale and are recorded at fair value, with the unrealized gains and losses, if any, net of taxes, reported as a component of shareholders equity until realized or until a determination is made that an other-than-temporary decline in market value has occurred.
In determining whether an other-than-temporary impairment exists for debt securities, management considers: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management has determined that there has been no other-than-temporary impairment of its marketable securities.
The cost of marketable securities sold is based upon the specific identification method and any realized gains or losses on the sale of investments are reflected as a component of interest income or expense. There were no sales of marketable securities during the years ended August 31, 2015 and 2014.
The Company classifies marketable securities as current or non-current based upon whether such assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.
Financial Instruments
The carrying value of financial instruments such as cash and cash equivalents, accounts receivables, accounts payable, and accrued expenses approximate their fair value due to the short-term nature of these instruments. At each period end, the fair value of the long-term debt approximated carrying value based on interest rates currently available to the Company.
F-10
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels that are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. |
|
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
|
|
Level 3 inputs are unobservable inputs for the asset or liability. |
The following tables present the Companys financial assets that were measured at fair value on a recurring basis as of August 31, 2015 and 2014 by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
August 31, 2015 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
3,732 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,732 |
|
Certificates of deposit available for sale |
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
Total |
|
$ |
3,732 |
|
|
$ |
60 |
|
|
$ |
|
|
|
$ |
3,792 |
|
All of the money market funds and certificates of deposit are included in cash and cash equivalents on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
August 31, 2014 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
2,114 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,114 |
|
Certificates of deposit available for sale |
|
|
|
|
|
|
4,240 |
|
|
|
|
|
|
|
4,240 |
|
Commercial paper available for sale |
|
|
|
|
|
|
5,249 |
|
|
|
|
|
|
|
5,249 |
|
Corporate bonds available for sale |
|
|
|
|
|
|
15,150 |
|
|
|
|
|
|
|
15,150 |
|
Total |
|
$ |
2,114 |
|
|
$ |
24,639 |
|
|
$ |
|
|
|
$ |
26,753 |
|
All of the money market funds and $60 of the certificates of deposit are included in cash and cash equivalents on the consolidated balance sheets.
Financial Liabilities
Certain common stock warrants have been classified as liabilities due to some features which could enable the holder to receive cash. The Company utilized an option pricing valuation model to determine the fair value of its outstanding common stock warrant liabilities. The inputs to the model included fair value of the stock related to the warrant, exercise price of the warrant, expected term, expected volatility, risk-free interest rate and dividend yield. As several significant inputs were not observable, the overall fair value measurement of the common stock warrants were classified as Level 3. The fair value of the
Companys common stock warrant liabilities were $1,631 at August 31, 2015. There were no common stock warrant liabilities outstanding at August 31, 2014.
F-11
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
The fair value of the common stock warrant liabilities at August 31, 2015 was estimated using the following weighted-average assumptions:
|
|
|
|
|
Year Ended August 31, 2015 |
Expected term (in years) |
|
|
4.91 5.49 |
|
Expected volatility |
|
|
69.80% |
|
Risk free interest rate |
|
|
1.54% |
|
Expected dividend yield |
|
|
0% |
|
Accounts Receivable
Accounts receivable represents amounts owed to the Company from product sales and collaborative research and government grants. The Company had no amounts reserved for doubtful accounts at August 31, 2015 and 2014 as the Company expected full collection of the accounts receivable balances.
Customers representing greater than 10% of accounts receivable were as follows (in percentages):
|
|
|
|
|
|
|
As of August 31, |
Customers |
|
2015 |
|
2014 |
Customer B |
|
|
23.7 |
|
|
|
59.5 |
|
Customer E |
|
|
18.9 |
|
|
|
25.9 |
|
Customer F |
|
|
38.2 |
|
|
|
|
** |
Customer G |
|
|
16.1 |
|
|
|
|
** |
Customers representing greater than 10% of revenues were as follows (in percentages):
|
|
|
|
|
|
|
Year Ended August 31, |
Customers |
|
2015 |
|
2014 |
Customer A |
|
|
|
** |
|
|
17.5 |
|
Customer B |
|
|
33.5 |
|
|
|
41.9 |
|
Customer E |
|
|
12.2 |
|
|
|
16.5 |
|
Customer F |
|
|
13.1 |
|
|
|
11.6 |
|
Customer I |
|
|
11.9 |
|
|
|
|
** |
Inventories and Inventory Valuation
At August 31, 2015, inventory was fully reserved. At August 31, 2014, seed inventory consisted of work-in-process and finished goods for costs related to the Companys sorghum seeds in Brazil. When inventory costs exceed expected market value due to obsolescence or lack of demand, inventory write-downs are recorded for the difference between the cost and the market value in the period based on the Companys evaluation of such inventory.
F-12
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the shorter of the estimated useful lives or the remaining life of the lease. Depreciation periods for the Companys property and equipment are as follows:
|
|
|
Automobiles and trucks |
|
|
3 5 years |
|
Office, laboratory, farm and warehouse equipment and furniture |
|
|
3 5 years |
|
Leasehold improvements |
|
|
3 10 years |
|
Buildings |
|
|
14 39 years |
|
Assets Held for Sale
The Company reclassifies long-lived assets to Assets Held for Sale when all required criteria for such reclassification are met. The assets are recorded at the lower of the carrying value or fair value less costs to sell. Assets held for sale must meet the following conditions: (1) management, having authority to approve the action, commits to a plan to sell the asset, (2) the asset is available for immediate sale in its present condition, (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, (4) the sale of the asset is probable, and transfer of the
asset is expected to qualify for recognition as a completed sale, within one year, (5) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
In connection with an agreement the Company entered into on March 31, 2014 to sell its facility and certain equipment located in College Station, Texas, a determination was made that the assets met the criteria to be classified as held for sale and the fair value for the related assets was in excess of their carrying amount. Accordingly, the Company recorded a charge of $464 to Research and development expense for the difference between the net carrying amount of these assets of $1,152 and the net cash proceeds of $688. On June 2, 2014, the Company completed the sale of this facility and equipment for net cash proceeds of
$688.
In connection with the announcement by the Company on June 19, 2015, to restructure its Brazilian seed operations, a determination was made that the fixed assets in Brazil met the criteria to be classified as held for sale and the carrying amount of those assets was in excess of their fair value. Accordingly, the Company recorded a charge of $395 to cost of product sales, research and development and general and administrative expense for the difference between the net carrying value of these assets of $869 and estimated net cash proceeds of $474. Fair value of the assets held for sale was determined using an appraisal for
certain assets and resale information available for certain assets.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent that an impairment indicator has occurred, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements with employees using a fair value method under ASC Topic 718, Compensation Stock Compensation, which requires the recognition of compensation expense for costs related to all stock-based payments including stock options and restricted stock awards.
F-13
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Company uses an option pricing model to estimate the fair value of stock options granted that are expensed on a straight-line basis over the vesting period. The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the option pricing model. The measurement of stock-based compensation to non-employees is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if
any, is recognized in the Companys consolidated statements of operations during the period the related services are rendered.
The Company accounts for restricted stock awards based on the quoted market price of the Companys common stock on the date of grant that are expensed on a straight-line basis over the vesting period.
Revenue Recognition
Revenues are recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) transfer of product or technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. To date, the Companys primary source of revenues has been derived from collaborative research agreements and government grants and to a lesser extent, product sales.
Product Sales
Product sales are derived from seed and biomass sales, and trait fees. Product sales are recognized, net of discounts and allowances, once passage of title and risk of loss have occurred and contractually specified acceptance criteria have been met, provided all other revenue recognition criteria have also been met.
Collaborative Research and Government Grants
From time to time, the Company has entered into research and development collaboration agreements with third parties, including a large agriculture supplier, a consumer goods conglomerate and several biofuel producers. In addition, the Company has received grants from government agencies such as the Department of Energy (DOE) and the United States Department of Agriculture (USDA). The research and development collaboration agreements typically provide the Company with multiple revenue streams, which may include up-front, non-refundable fees for licensing certain of the Companys technologies, government grants and fees
for research and development activities, and contingent milestone payments based upon achievement of contractual criteria.
|
|
Technology License Fees For collaboration agreements in which the Company has continuing involvement, license fees are recognized on a straight-line basis over the term of the arrangement. Licensing fees are non-refundable and not subject to future performance. |
|
|
Government Grants The Company receives payments from government entities in the form of government grants. Government grants generally provide the Company with cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period, as well an allocated portion of overhead expenses. Revenues from government grants are recognized in the period during which the related costs are incurred, provided substantially all the conditions under which the government grants were provided have been met and the Company has only perfunctory obligations outstanding. |
|
|
Research and Development Fees Generally, fees for research and development activities are recognized as the services are performed over the performance period, as specified in the respective agreements. Certain of the Companys collaboration agreements require the Company to deliver research data by specific dates and that the collective program plan will result in reaching specific crop characteristics by certain dates. For such arrangements, the Company recognizes revenues either |
F-14
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
|
|
on a straight-line basis over the term of the arrangement or based on the approximate percentage of completion of services under the agreement, but the revenue recognized cannot exceed payments received by the Company to date under the agreement. The research and development period is estimated at the inception of each agreement and is periodically evaluated. |
|
|
Milestone Fees Fees that are contingent based on achievement of substantive performance milestones at inception of the agreement are recognized based on the achievement of the milestone, as defined in the respective agreements. |
The Company has earned research funding revenues from several agreements with the DOE, the USDA, USAID and several leading biofuel producers whereby the Company performed research activities and received revenues that partially reimbursed its expenses incurred. Under such grants and agreements, the Company retained a proprietary interest in the products and technology it developed. These expense reimbursements primarily consisted of direct expense sharing arrangements. The Company recorded revenue related to these grants and collaboration agreements of approximately $1,630 and $1,980 in 2015 and 2014, respectively.
Software and Services
During the years ended August 31, 2015 and 2014, the Company provided services related to software arrangements that involve (1) significant production, modification or customization and (2) post contract customer support (PCS). The customer has the option, annually, to extend the arrangement or elect to receive only maintenance. The Company does not have vendor specific objective evidence (VSOE) related to these components. In addition, there are substantive acceptance provisions related to the production, modification or customization. The company applies the completed contract method to the arrangement. However, only costs
related to the production, modification or customization are deferred. Revenue is recognized upon acceptance of the production, modification or customization as that is later that the expiration of the annual PCS period. Revenue related to these arrangements was $656 and $278 million in 2015 and 2014.
The Company also had an arrangement that included a license, installation services and PCS. As the Company does not have VSOE for the elements, the Company has billings in excess of cash until PCS is the only undelivered element and will recognize revenue over the remaining PCS period. There was no revenue related to these arrangements during 2015 and 2014.
Billings in Excess of Costs
The Company recognizes billings in excess of costs to the extent that cash received under the software and service arrangements are in excess of the revenues recognized related to the arrangements since the work under the arrangements have not yet been performed, or the work has not been fully completed at the balance sheet date.
Research and Development
Research and development expenses principally consist of personnel costs related to the Companys research and development staff as well as depreciation of research and development assets. Research and development expenses also include costs incurred for laboratory supplies, reimbursable costs associated with government grants and collaborative agreements, third-party contract payments, consultants, facility and related overhead costs.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, 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 and operating loss
F-15
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
and tax credit carryforwards. 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. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
The Company accounts for unrecognized tax benefits also in accordance with ASC 740, Income Taxes, which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution to any related appeals or litigation, based solely on the technical merits of the position. The Company has no accrual for interest or penalties related to uncertain tax positions at August 31, 2015 and 2014, and did not
recognize interest or penalties in the Statements of Operations during the years ended August 31, 2015 and 2014.
The major jurisdictions in which the Company files income tax returns include the federal and state jurisdictions within the United States and Brazil, where it has a subsidiary. The tax years after 2009 remain open to examination by federal and state taxing jurisdictions and the tax years after 2011 remain open to examination by foreign jurisdictions. However, the Company has NOLs beginning in 1998 which would cause the statute of limitations to remain open for the year in which the NOL was incurred.
Foreign Currency Translation
The Brazilian real is the functional currency of the Companys subsidiary in Brazil and the Mexican Peso is the functional currency of the Companys subsidiary in Mexico. Accordingly, assets and liabilities of those operations are translated into United States dollars using the current exchange rate in effect at the balance sheet date and equity accounts are translated into United States dollars using historical rates. Revenues and expenses are translated at the weighted average rate of exchange during the reporting period. Gains and losses from foreign currency translation adjustments are represented as a component
of accumulated other comprehensive loss.
Accumulated Other Comprehensive Loss
The Companys unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments represents the components of comprehensive loss and have been disclosed in the consolidated statements of stockholders equity.
The following summarizes the changes in the balances of each component of accumulated comprehensive income (loss) during the years presented:
|
|
|
|
|
|
|
|
|
Foreign Currency Translation |
|
Unrealized Gains (Losses) on Securities |
|
Accumulated Other Comprehensive Loss |
Balance at August 31, 2013 |
|
$ |
(684 |
) |
|
$ |
(12 |
) |
|
$ |
(696 |
) |
Comprehensive gain |
|
|
100 |
|
|
|
1 |
|
|
|
101 |
|
Balance at August 31, 2014 |
|
|
(584 |
) |
|
|
(11 |
) |
|
|
(595 |
) |
Comprehensive gain |
|
|
1,346 |
|
|
|
11 |
|
|
|
1,357 |
|
Balance at August 31, 2015 |
|
$ |
762 |
|
|
$ |
|
|
|
$ |
762 |
|
F-16
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
Basic and Diluted Net Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding, to the extent they are dilutive. Potential common shares consist of shares issuable upon the exercise of stock options and warrants (using the treasury stock method), and the weighted average conversion of the convertible preferred stock into shares of
common stock (using the if-converted method). Dilutive net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive.
The following potentially dilutive, common share equivalents were excluded from the calculation of diluted net loss per common share because their effect was anti-dilutive for each of the periods presented:
|
|
|
|
|
|
|
Year Ended August 31, |
|
|
2015 |
|
2014 |
Options to purchase common stock |
|
|
409,763 |
|
|
|
396,504 |
|
Warrants to purchase common stock |
|
|
2,775,083 |
|
|
|
320,255 |
|
Total |
|
|
3,184,846 |
|
|
|
716,759 |
|
Segment information
Management has determined that it has one business activity and operates in one segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Companys chief operating decision maker.
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when: (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction, and (2) the entity intends to use the deferred tax asset
for that purpose. ASU 2013-11 changes existing presentation requirements but does not require new recurring disclosures and is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2013. The Company does not anticipate that the adoption of this ASU will materially change the presentation of its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board issued the Accounting Standards Update (ASU) 2014-09 Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 replaces the majority of all U.S. GAAP guidance that currently exists on revenue recognition with a single model to be applied to all contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For a public entity, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. An entity must apply ASU 2014-09 using either the full retrospective approach, by restating all years presented, or the cumulative effect at the date of adoption approach. We are currently assessing the impact that these changes will have on our consolidated financial statements and therefore are unable to quantify such impact or determine the method of adoption.
F-17
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies (continued)
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern Sub-topic 205-40. The new guidance addresses managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for interim and annual periods beginning on or after December 15, 2016, and early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.
(2) Marketable Securities
At August 31, 2015, there were no marketable securities.
At August 31, 2014, marketable securities classified as available for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31, 2014 |
Available for sale securities |
|
Amortized Cost |
|
Gross Unrealized Gain |
|
Gross Unrealized Loss |
|
Fair Value |
Certificates of Deposit |
|
$ |
4,244 |
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
4,240 |
|
Commercial Paper |
|
|
5,249 |
|
|
|
|
|
|
|
|
|
|
|
5,249 |
|
Corporate Bonds |
|
|
15,157 |
|
|
|
|
|
|
|
(7 |
) |
|
|
15,150 |
|
Total |
|
$ |
24,650 |
|
|
$ |
|
|
|
$ |
(11 |
) |
|
$ |
24,639 |
|
At August 31, 2014, $60 of the certificates of deposit and $1,199 of the commercial paper, respectively, is included in the cash and cash equivalents on the consolidated balance sheet.
There were no marketable securities classified as held-to maturity as of August 31, 2015 and 2014, respectively.
All marketable securities at August 31, 2014 are due to mature in one year or less.
(3) Inventories
At August 31, 2015, inventory was fully reserved. Inventories at August 31, 2014 consisted of the following:
|
|
|
|
|
August 31, 2014 |
Work in process |
|
$ |
20 |
|
Seed inventory |
|
|
64 |
|
Total inventories |
|
$ |
84 |
|
(4) Property and Equipment
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
As of August 31, |
|
|
2015 |
|
2014 |
Land |
|
$ |
43 |
|
|
$ |
43 |
|
Automobiles and trucks |
|
|
44 |
|
|
|
1,113 |
|
Buildings |
|
|
1,215 |
|
|
|
1,215 |
|
Office, laboratory, farm and warehouse equipment and furniture |
|
|
10,863 |
|
|
|
12,718 |
|
Leasehold improvements |
|
|
5,659 |
|
|
|
5,659 |
|
|
|
|
17,824 |
|
|
|
20,748 |
|
Less accumulated depreciation and amortization |
|
|
(16,566 |
) |
|
|
(17,752 |
) |
Property and equipment, net |
|
$ |
1,258 |
|
|
$ |
2,996 |
|
F-18
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
As of August 31, |
|
|
2015 |
|
2014 |
Accounts payable |
|
$ |
2,000 |
|
|
$ |
1,406 |
|
Accrued payroll and related expenses |
|
|
1,581 |
|
|
|
2,303 |
|
Research and development contracts |
|
|
283 |
|
|
|
123 |
|
Taxes |
|
|
395 |
|
|
|
|
|
Other |
|
|
143 |
|
|
|
446 |
|
|
|
$ |
4,402 |
|
|
$ |
4,278 |
|
(6) Long-Term Debt
There were no long-term debt obligations as of August 31, 2015. Long-term debt as of August 31, 2014 is summarized as follows:
|
|
|
|
|
As of August 31, 2014 |
Capital Leases |
|
$ |
88 |
|
Less current portion |
|
|
(70 |
) |
|
|
$ |
18 |
|
(7) Stock-Based Compensation
Equity Plans
The Company has established three equity plans: the Ceres, Inc. 2000 Stock Option/Stock Issuance Plan (2000 Plan), the Ceres, Inc. 2010 Stock Option/Stock Issuance Plan (2010 Plan) and the Amended and Restated Ceres, Inc. 2011 Equity Incentive Plan (2011 Plan, and collectively with the 2000 Plan and the 2010 Plan, the Equity Plans). The Equity Plans provide for grants of Incentive Stock Options (ISOs) to employees and Nonqualified Stock Options (NSOs), stock and restricted stock to employees, directors, and consultants. In addition, the 2011 Plan provides for the grant of other equity based awards such as restricted stock
units, stock appreciation rights and deferred stock to employees, directors and consultants. The option term, as determined by the Companys Board of Directors, may not exceed ten years. Vesting, also determined by the Companys Board of Directors, generally occurs ratably over four to five years. ISOs and NSOs may be granted at a price per share of not less than the fair market value at the date of grant.
The total number of shares reserved for issuance under the Equity Plans is 844,374. At the Companys 2013 Annual Meeting of Stockholders, the stockholders approved the amendment and restatement of the Ceres, Inc. 2011 Equity Incentive Plan, which increased the maximum aggregate number of shares that may be issued under the plan by 187,500,000 shares and prohibits the re-pricing of stock options without stockholder approval. As of August 31, 2015, the Company had 135,456 shares available under the 2011 Plan for future grant. The Company does not intend to make further grants under the 2000 Plan or the 2010 Plan.
Stock Option Valuation and Compensation
The Company uses a Black Scholes option pricing model to determine the fair value of stock options. The weighted average grant date fair value of stock option awards was $3.04 and $7.28 per option share for 2015 and 2014, respectively.
The weighted average grant date estimated fair value of the Companys common stock was $3.76 and $10.24 per share for 2015 and 2014, respectively.
F-19
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(7) Stock-Based Compensation (continued)
The fair value of employee stock options was estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
Year ended August 31, |
|
|
2015 |
|
2014 |
Expected term (in years) |
|
|
5.50 6.08 |
|
|
|
5.50 6.08 |
|
Expected volatility |
|
|
79% 83% |
|
|
|
83% 87% |
|
Risk free interest rate |
|
|
1.66% 2.06% |
|
|
|
1.62% 2.04% |
|
Expected dividend yield |
|
|
0% |
|
|
|
0% |
|
Expected Term Because of limited employee share option exercises, the Company uses a simplified method in which the expected term of an award is presumed to be mid-point between the vesting date and the expiration date of the award. The expected term for all employee option grants is an average of 3.06 years.
Expected Volatility The Company estimates the volatility of its common stock by using the historical volatility of a group of comparable companies over the options expected term. The decision to use historical volatility of comparable companies was based upon the fact there is limited history of trading activity of the Companys common stock.
Risk-Free Interest Rate The Company bases the risk-free interest rate used in the option valuation model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Expected Dividend Yield The Company does not anticipate paying any cash dividends in the foreseeable future.
Stock-based compensation expense included in operating expenses is as follows:
|
|
|
|
|
|
|
Year ended August 31, |
|
|
2015 |
|
2014 |
Stock-based compensation costs for employee stock options |
|
$ |
2,270 |
|
|
$ |
3,074 |
|
Fair value changes of collaboration warrants |
|
|
(5 |
) |
|
|
(6 |
) |
Total stock-based compensation costs included in operating expenses |
|
$ |
2,265 |
|
|
$ |
3,068 |
|
Stock Option Activity
The following summarizes the stock option transactions under the Equity Plans during the periods presented:
|
|
|
|
|
|
|
Shares |
|
Weighted Average Exercise Price |
Options outstanding at August 31, 2013 |
|
|
348,830 |
|
|
$ |
59.92 |
|
Options granted |
|
|
98,004 |
|
|
|
10.16 |
|
Options forfeited |
|
|
(50,330 |
) |
|
|
67.60 |
|
Options outstanding at August 31, 2014 |
|
|
396,504 |
|
|
|
46.62 |
|
Options granted |
|
|
41,738 |
|
|
|
3.75 |
|
Options forfeited |
|
|
(28,479 |
) |
|
|
23.41 |
|
Options outstanding at August 31, 2015 |
|
|
409,763 |
|
|
$ |
43.87 |
|
F-20
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(7) Stock-Based Compensation (continued)
The following table summarizes information about stock options outstanding and exercisable at August 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Price |
|
Number Outstanding |
|
Remaining Contractual Life |
|
Weighted- Average Exercise Price |
|
Number Vested and Exercisable |
|
Remaining Contractual Life |
|
Weighted- Average Exercise Price |
$1.96 $5.06 |
|
|
36,004 |
|
|
|
9.52 |
|
|
$ |
4.00 |
|
|
|
187 |
|
|
|
8.76 |
|
|
$ |
5.06 |
|
$7.26 $15.60 |
|
|
137,803 |
|
|
|
5.26 |
|
|
$ |
12.24 |
|
|
|
134,754 |
|
|
|
5.19 |
|
|
$ |
12.30 |
|
$26.24 $32.40 |
|
|
56,831 |
|
|
|
3.50 |
|
|
$ |
29.53 |
|
|
|
50,326 |
|
|
|
2.95 |
|
|
$ |
29.83 |
|
$45.68 $61.60 |
|
|
103,286 |
|
|
|
3.67 |
|
|
$ |
54.93 |
|
|
|
102,719 |
|
|
|
3.65 |
|
|
$ |
54.91 |
|
$96.80 $137.28 |
|
|
75,839 |
|
|
|
6.26 |
|
|
$ |
113.77 |
|
|
|
58,178 |
|
|
|
6.24 |
|
|
$ |
114.68 |
|
|
|
|
409,763 |
|
|
|
|
|
|
|
|
|
|
|
346,164 |
|
|
|
|
|
|
|
|
|
No tax benefits were recorded on compensation costs recognized during the years ended August 31, 2015 and 2014. As of August 31, 2015 and 2014, there were $1,159 and $2,993 of total unrecognized compensation cost related to stock options respectively. That cost is expected to be recognized over a weighted average 1.46 years. The Companys policy is to issue new shares for options exercised.
Restricted Stock Activity
The following summarizes the restricted stock transactions under the Equity Plans for the periods presented:
|
|
|
|
|
|
|
Shares |
|
Weighted Average Grant Date Fair Value |
Restricted stock outstanding and unvested at August 31, 2013 |
|
|
36,311 |
|
|
$ |
44.40 |
|
Restricted stock granted |
|
|
41,032 |
|
|
$ |
10.48 |
|
Restricted stock vested |
|
|
(32,877 |
) |
|
$ |
16.96 |
|
Restricted stock forfeited |
|
|
(6,648 |
) |
|
$ |
38.00 |
|
Restricted stock outstanding and unvested at August 31, 2014 |
|
|
37,818 |
|
|
$ |
32.58 |
|
Restricted stock granted |
|
|
9,125 |
|
|
$ |
4.20 |
|
Restricted stock vested |
|
|
(8,690 |
) |
|
$ |
36.63 |
|
Restricted stock forfeited |
|
|
(1,011 |
) |
|
$ |
12.77 |
|
Restricted stock outstanding and unvested at August 31, 2015 |
|
|
37,242 |
|
|
$ |
25.17 |
|
As of August 31, 2015, there was $91 of total unrecognized compensation cost related to restricted stock awards. That cost is expected to be recognized over a weighted average of 1.07 years.
Stock Activity
During the fiscal year 2014, the Company granted 2,288 shares of common stock under the 2011 Plan with a fair market value of $7.28 per share. The Company recorded $16.7 of expense related to this stock grant.
F-21
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(8) Stockholders Equity
Common Stock
On March 7, 2014, the Company held its 2014 Annual Meeting of Stockholders (Annual Meeting). At the Annual Meeting, the stockholders approved an amendment to the Companys Amended and Restated Certificate of Incorporation which decreased the total number of shares of common stock of the Company from 490,000,000 to 240,000,000. Holders of the Companys common stock are entitled to dividends as and when declared by the Board of Directors, subject to rights and holders of all classes of stock outstanding having priority rights to dividends. There have been no dividends declared to date. Each share of common stock is
entitled to one vote.
Preferred Stock
Pursuant to the Companys amended and restated certificate of incorporation, the Company is authorized to issue 10,000,000 shares of preferred stock. The Board of Directors has the authority, without action by the Companys stockholders, to designate and issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof.
Common Stock Warrants Financing
Warrants issued in connection with Noble Agreement
In May 2006, the Company entered into a collaboration agreement with The Samuel Roberts Noble Foundation, Inc. (Noble) (Noble Agreement) to establish a research program (see Note (12)). In connection with this collaboration, the Company granted Noble a warrant to purchase 16,667 shares of the Companys common stock for an exercise price of $240.00 per share. The original terms were as follows: the warrant vests in equal installments of 4,167 shares on May 19, 2009, May 19, 2011, May 19, 2013, and May 19, 2015, respectively, and shall remain exercisable for a period of two years from the respective vesting dates. These
warrants were accounted for at fair value and remeasured until vested. The fair value, including the resulting change in value as a result of remeasurement was recognized as research and development expense. The inception to date expense recognized with respect to this warrant totals $624.4 as of August 31, 2015. As of August 31, 2015, all of the 16,667 warrants had vested under this arrangement.
In June 2011, the Company and Noble agreed to modify the warrants issued to Noble as follows: the warrant vests in equal installments of 4,167 shares on May 19, 2013 and May 19, 2015, respectively and shall remain exercisable until the earliest of a period of five years from the respective vesting dates and May 18, 2017.
Warrants issued in connection with TAMU Agreement
In August 2007, the Company entered into a sponsored research and intellectual property rights agreement with The Texas A&M University System (TAMU) to establish a research program (see Note (12)). In connection with this collaboration, the Company granted TAMU a warrant to purchase 8,333 shares of the Companys common stock for an exercise price of $240.00 per share. The warrant vests based on certain research and commercialization milestones being met and shall remain exercisable until August 28, 2017. This warrant is accounted for at fair value and remeasured until the vesting targets are met. The fair value,
including the resulting change in value as a result of remeasurement is being recognized as research and development expense. The inception to date expense recognized with respect to this warrant totals $0 as of August 31, 2015. The fair value of the warrants at August 31, 2015 was $0, using a risk-free rate of 0.74%, expected volatility of 72.1%, expected term of 1.99 years and 0% dividend yield. No warrants had vested under this arrangement as of August 31, 2015.
F-22
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(8) Stockholders Equity (continued)
In December 2011, pursuant to an Amended and Restated Intellectual Property Rights Agreement (IP Rights Agreement) (see Note (12)), the Company issued warrants to TAMU to purchase 8,333 shares of common stock at an exercise price of $114.40 per share. The warrants expire on September 24, 2026 and, subject to certain conditions, vest in equal installments on the fifth, tenth and fifteenth anniversary of the IP Rights Agreement. The inception to date expense recognized with respect to this warrant totals $1.8 as of August 31, 2015. The fair value of the warrants at August 31, 2015 was $3.8, using a risk-free rate of 2.21%,
expected volatility of 88.9%, expected term of 11.06 years and 0% dividend yield. No warrants had vested under this arrangement as of August 31, 2015.
Warrants issued in connection with March 10, 2014 registered public offering
On March 10, 2014 the Company issued warrants to purchase an aggregate of 60,000 shares of common stock to certain affiliated designees of the underwriter as part of the underwriters compensation related to the registered public offering. The warrants are exercisable at any time or from time to time, in whole or in part, beginning on March 4, 2015 and expire on March 4, 2019. The exercise price is $12 per share of common stock. The fair value of these warrants upon issuance was $305 using a risk free rate of 1.64%, expected volatility 84.2%, expected term of 5 years and 0% dividend yield and was treated as an issuance
cost of the common stock.
Warrants issued in connection with the July 30, 2015 registered public offering
On July 30, 2015 the Company issued warrants exercisable for one share of Common Stock for each share purchased in the July 30, 2015 offering for an aggregate of 1,200,000 shares of Common Stock at an exercise price of $1.62 per share. The Company estimated the fair value upon issuance of these warrants to be $760.0 based on a risk-free rate of 1.62%, volatility of 69.50%, expected term or 5.5 years and 0% dividend yield. The warrants are exercisable at any time or from time to time, in whole or in part, beginning on January 30, 2016 and expire on January 30, 2021. The fair value of these warrants at August 31, 2015 was $755.6
based on a risk-free rate of 1.54%, volatility of 69.80%, expected term of 5.41 years and 0% dividend yield.
The Company also issued warrants to purchase an aggregate of 24,000 shares of our Common Stock at an exercise price of $1.944 per share to the placement agent as part of the placement agents compensation. The Company estimated the fair value upon issuance of these warrants to be $13.3 based on a risk-free rate of 1.62%, volatility of 69.50%, expected term of 5.0 years and 0% dividend yield. The warrants issued to the placement agent are exercisable at any time or from time to time, in whole or in part, beginning on July 30, 2016 and expire on July 30, 2020. The fair value of these warrants at August 31, 2015 was $13.2
based on a risk-free rate of 1.62%, volatility of 69.80%, expected term of 4.9 years and 0% dividend yield.
Warrants issued in connection with the August 26, 2015 registered public offering
On August 26, 2015, the Company issued warrants exercisable for 0.75 shares of Common Stock for each share purchased in the August 26, 2015 offering for an aggregate of 1,198,859 shares of Common Stock at an exercise price of $1.22 per share. The Company estimated the fair value upon issuance of these warrants to be $863.5 based on a risk-free rate of 1.49%, volatility of 69.80%, expected term of 5.5 years and 0% dividend yield. The warrants are exercisable at any time or from time to time, in whole or in part, beginning on February 26, 2016 and expire on February 26, 2021. The fair value of these warrants at August 31, 2015
was $844.2 based on a risk-free rate of 1.54%, volatility of 69.80%, expected term of 5.5 years and 0% dividend yield.
F-23
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(8) Stockholders Equity (continued)
The Company also issued warrants to purchase an aggregate of 31,970 shares of our Common Stock at an exercise price of $1.83 per share to the placement agent as part of the placement agents compensation. The Company estimated the fair value upon issuance of these warrant to be $18.7 based on a risk-free rate of 1.49%, volatility of 69.80%, expected term of 5.0 years and 0% dividend yield. The warrants issued to the placement agent are exercisable at any time or from time to time, in whole or in part, beginning on August 26, 2016 and expire on August 26, 2020. The fair value of these warrants at August 31, 2015 was $18.3
based on a risk-free rate of 1.54%, volatility of 69.80%, expected term of 5.0 years and 0% dividend yield.
(9) Income Taxes
Deferred tax benefits associated with deferred tax assets are offset by a corresponding valuation allowance. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.
Income tax expense attributable to loss before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
Current |
|
Deferred |
|
Total |
Year ended August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State and local |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
Current |
|
Deferred |
|
Total |
Year ended August 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State and local |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
Income tax expense differs from the amount computed by applying the federal corporate income tax rate of 34% to the loss before income taxes due to the following:
|
|
|
|
|
|
|
Year Ended August 31, 2015 |
|
Year Ended August 31, 2014 |
Computed expected tax expense |
|
$ |
(9,584 |
) |
|
$ |
(9,969 |
) |
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
625 |
|
|
|
774 |
|
State and local income taxes, net of federal income tax benefit |
|
|
1 |
|
|
|
1 |
|
Foreign rate differential |
|
|
|
|
|
|
|
|
Warrants modification and changes in fair value |
|
|
|
|
|
|
|
|
Other |
|
|
21 |
|
|
|
12 |
|
Change in valuation allowance |
|
|
8,937 |
|
|
|
9,183 |
|
Income tax expense |
|
$ |
1 |
|
|
$ |
1 |
|
F-24
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(9) Income Taxes (continued)
The following table summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at each period end:
|
|
|
|
|
|
|
August 31, 2015 |
|
August 31, 2014 |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
240 |
|
|
$ |
279 |
|
Other assets |
|
|
157 |
|
|
|
169 |
|
Inventory capitalization |
|
|
266 |
|
|
|
446 |
|
Deferred revenue |
|
|
348 |
|
|
|
139 |
|
Total current deferred tax assets |
|
|
1,011 |
|
|
|
1,031 |
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,834 |
|
|
|
2,310 |
|
Inventory reserves |
|
|
2,973 |
|
|
|
2,689 |
|
Deferred rent |
|
|
22 |
|
|
|
29 |
|
Other assets |
|
|
1,013 |
|
|
|
859 |
|
Net operating loss carryforward |
|
|
112,373 |
|
|
|
101,485 |
|
Federal and state tax credit carryforward |
|
|
8,919 |
|
|
|
8,919 |
|
Total noncurrent deferred tax assets |
|
|
127,133 |
|
|
|
116,291 |
|
Total deferred tax assets |
|
|
128,145 |
|
|
|
117,323 |
|
Less valuation allowance |
|
|
(128,145 |
) |
|
|
(117,323 |
) |
Net deferred tax assets |
|
$ |
|
|
|
$ |
|
|
As of August 31, 2015 the Company had $273,908 of federal, $196,789 of state and $25,833 of foreign net operating loss (NOL) carryforwards available to offset future taxable income, if any, which expire in varying amounts from 2018 through 2035 for federal tax purposes and from 2015 through 2035 for state tax purposes if unused. The carryforward period for the foreign NOL is indefinite. The excess tax benefits associated with the exercise of non-qualified stock options, restricted stock grants, and disqualifying dispositions of incentive stock option stock, for 2015 and 2014 in the amount of $911 and $957, respectively, did
not reduce the current income taxes payable and, accordingly, are not included in the deferred tax asset relating to NOL carryforwards, but are included with the federal and state NOL carryforwards. In addition, the Company has alternative minimum tax (AMT) for state income tax purposes of approximately $17 and research and development tax carryforwards for federal income tax purposes of approximately $8,907, which are available to offset future tax liabilities, if any, through 2029.
In accordance with Internal Revenue Code (IRC) Sections 382 and 383, the annual utilization of net operating loss carryforwards and credits is limited if a change in control occurs, including a change resulting from an initial public offering. The Company has not completed a Section 382 analysis to determine if a change in ownership has occurred. Until such analysis is completed, there are no assurances that the existing net operating loss carryforwards or credits are not subject to significant limitation.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the historical taxable income (loss) and projections for future taxable income (loss) over the
periods in which the deferred tax assets are deductible, management believes it is more likely that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has established a full valuation allowance of $128,145 and $117,323 for the years ended August 31, 2015 and 2014, respectively.
F-25
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(10) 401(k) Benefit Plan
The Company has a 401(k) profit sharing plan (the Plan) which covers substantially all employees of the Company. Plan participants may make voluntary contributions of up to 60% of their earnings up to the statutory limit. The Company will match 50% of each employee contribution up to a maximum of 4% of the employees salary in matching funds per pay period. The matching contribution vests over a three-year service period; 25% vests immediately and an additional 25% vests for each year of service to the Company thereafter over the next three years. The Company recorded expense of $132 and $207 in 2015 and 2014,
respectively. The Company made no discretionary contributions in any year.
(11) Commitments and Contingencies
The Company leases certain of its facilities and equipment under various noncancelable operating leases expiring through 2020. The leases on the facilities contains provisions for future rent increases. The Company records monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent, which is reflected as a separate line item in the accompanying consolidated balance sheets as of August 31, 2015 and 2014.
In connection with one of its facilities leases, the Company received a reimbursement for leasehold improvements of $270. This reimbursement is a lease incentive which has been recognized as a liability in deferred rent and is being amortized to rent expense on a straight-line basis over the lease term. Total rental expense recognized during each period was $457 and $440 for 2015 and 2014, respectively.
Future minimum payments under noncancelable operating leases as of August 31, 2015 are as follows:
|
|
|
|
|
Operating leases |
2016 |
|
$ |
621 |
|
2017 |
|
|
606 |
|
2018 |
|
|
618 |
|
2019 |
|
|
631 |
|
2020 |
|
|
51 |
|
Total minimum lease payments |
|
$ |
2,527 |
|
(12) Research Collaboration Agreements
The Company has a number of research agreements with academic collaborators, including among others, TAMU, Noble, and the Institute of Crop Sciences of the Chinese Academy of Agricultural Sciences. In connection with these agreements, the Company receives certain exclusive options or licensing rights to technology and intellectual property developed under these agreements. The Company expenses amounts under these agreements to research and development expense in the period in which the services are rendered. The Company also licenses technology from third parties. Initial payments under these license agreements are capitalized
and expensed on a straight-line basis over the license term.
Noble Agreement
In May 2006, the Company entered into a collaboration agreement with Noble to establish a research program. Under the Noble Agreement, the Company agreed to fund certain research activities undertaken by Noble in an amount up to $3,800 through July 31, 2012 and granted Noble a warrant to purchase 16,667 shares of the Companys common stock for an exercise price of $240.00 per share (see Note (9)). Additional projects may be added under the agreement, if agreed to by both parties.
Under the collaboration agreement, in August 2012 the Company agreed to fund certain research activities undertaken by Noble through July 31, 2013 and 2014 of $82.7 and $85.3 per year, respectively.
F-26
TABLE OF CONTENTS
CERES, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(12) Research Collaboration Agreements (continued)
TAMU Agreement
In August 2007, the Company entered into a Sponsored Research and Intellectual Property Rights agreement with TAMU to establish a research program. Under the agreement, the Company agreed to fund certain research activities undertaken by TAMU in an amount up to $5,100 through 2012 and granted TAMU a warrant to purchase 8,333 shares of the Companys common stock for an exercise price of $240.00 per share (see Note (9)).
On September 24, 2011, the Company entered into an Amended and Restated Sponsored Research Agreement and an Amended and Restated Intellectual Property Rights Agreement (the IP Rights Agreement) with TAMU which both expire on September 23, 2026. The specific research projects and budgets undertaken pursuant to such agreement will be determined by an Executive Committee comprised of two members from each of TAMU and the Company as set forth in the Amended and Restated Sponsored Research Agreement. In December 2011, pursuant to the IP Rights Agreement, the Company issued warrants to TAMU to purchase 8,333 shares of
common stock at an exercise price of $114.40 per share (see Note (9)).
At August 31, 2015, the future minimum payments under the Companys research collaboration agreements are as follows:
|
|
|
2016 |
|
$ |
602 |
|
2017 |
|
|
50 |
|
|
|
$ |
652 |
|
F-27
TABLE OF CONTENTS
2,545,000 Class A Units consisting of Common Stock and warrants
and 9,000 Class B Units consisting of shares of Series A-1
convertible preferred stock and warrants (and 17,799,280 shares of
Common Stock underlying shares of Series A-1 convertible
preferred stock and warrants)
PROSPECTUS
LADENBURG THALMANN
TABLE OF CONTENTS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses payable by us in connection with the sale of the securities being registered. All amounts shown are estimates except for the Securities and Exchange Commission registration fee.
|
|
|
|
|
Amounts to be Paid |
SEC registration fee |
|
$ |
3,222.40 |
|
Transfer Agent and Registrar fees and expenses |
|
$ |
5,000 |
|
NASDAQ fees |
|
$ |
22,300 |
|
FINRA filing fee |
|
$ |
3,000 |
|
Printing expenses |
|
$ |
20,000 |
|
Legal fees and expenses |
|
$ |
350,000 |
|
Accounting fees and expenses |
|
$ |
160,000 |
|
Miscellaneous fees and expenses |
|
$ |
36,478 |
|
TOTAL |
|
$ |
600,000 |
|
Item 14. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law, or DGCL, provides that a corporation may, in its original certificate of incorporation or an amendment thereto, eliminate or limit the personal liability of a director for violations of the directors fiduciary duty, except (1) for any breach of the directors duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends or unlawful
stock purchases or redemptions or (4) for any transaction from which a director derived an improper personal benefit.
Section 145 of the DGCL provides that a corporation may indemnify any person, including an officer or director, who is, or is threatened to be made, party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of such corporation, by reason of the fact that such person was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including
attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the corporations best interest and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify any officer or director in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred.
Our bylaws and the indemnification agreements we entered into with our directors and officers provide for indemnification of the officers and directors to the full extent permitted by the DGCL.
We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or otherwise.
II-1
TABLE OF CONTENTS
Item 15. Recent Sales of Unregistered Securities.
Since September 1, 2012, we have issued the following securities that were not registered under the Securities Act:
|
(1) |
On July 30, 2015, in a private placement we issued for no additional consideration warrants to purchase 1,200,000 shares of our Common Stock to certain institutional investors in a concurrent SEC-registered offering of Common Stock. The warrants are exercisable beginning on January 30, 2016 at an exercise price equal to $1.62 per share of Common Stock. The warrants expire on January 30, 2021. |
|
(2) |
On July 30, 2015, in a private placement we issued warrants to purchase 24,000 shares of our Common Stock to the representative in compensation for its services as a placement agent in connection with a concurrent SEC-registered offering and a private placement. The warrants are exercisable beginning on July 30, 2016 at an exercise price equal to $1.944 per share of Common Stock. The warrants expire on July 30, 2020. |
|
(3) |
On August 26, 2015, in a private placement we issued warrants to purchase 1,198,859 shares of our Common Stock to certain institutional investors in a concurrent SEC-registered offering of Common Stock. The warrants were sold at a price of $0.125 per share of Common Stock issuable upon exercise of the warrants. The warrants are exercisable beginning on February 26, 2016 at an exercise price equal to $1.22 per share of Common Stock. The warrants expire on February 26, 2021. |
|
(4) |
On August 26, 2015, in a private placement we issued warrants to purchase 31,970 shares of our Common Stock to the representative in compensation for its services as a placement agent in connection with a concurrent SEC-registered offering and a private placement. The warrants are exercisable beginning on August 26, 2016 at an exercise price equal to $1.83 per share of Common Stock. The warrants expire on August 26, 2020. |
The issuances of warrants described in items (1) through (4) above were deemed exempt from registration under Section 4(a)(2) or Regulation D of the Securities Act. The recipients of securities in the transactions exempt under Section 4(a)(2) or Regulation D of the Securities Act represented their intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments issued in such transactions.
Item 16. Exhibits.
See Exhibit Index.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
|
(1) |
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
|
(i) |
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
|
(ii) |
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement. |
|
(iii) |
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
II-2
TABLE OF CONTENTS
|
(2) |
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
|
(3) |
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
|
(4) |
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
|
(i) |
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
|
(ii) |
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
|
(iii) |
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
|
(iv) |
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
|
(5) |
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
|
(6) |
For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-3
TABLE OF CONTENTS
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Thousand Oaks, State of California, on November 24, 2015.
CERES, INC.
/s/ Paul Kuc
Paul Kuc
Chief Financial Officer
II-4
TABLE OF CONTENTS
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
Cheryl Morley |
|
Chair of the Board |
|
November 24, 2015 |
*
Pascal Brandys |
|
Director |
|
November 24, 2015 |
*
Aflalo Guimaraes |
|
Director |
|
November 24, 2015 |
*
Richard Flavell, PhD, FRS, CBE |
|
Director |
|
November 24, 2015 |
*
Richard Hamilton, PhD |
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
|
November 24, 2015 |
*
Thomas Kiley |
|
Director |
|
November 24, 2015 |
*
Robert Goldberg, PhD |
|
Director |
|
November 24, 2015 |
/s/ Paul Kuc
Paul Kuc |
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
|
November 24, 2015 |
* /s/ Paul Kuc
Paul Kuc | |
Attorney-in-Fact |
|
November 24, 2015 |
II-5
TABLE OF CONTENTS
INDEX TO EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located |
Exhibit No. |
|
Description of Exhibit |
|
Form |
|
Exhibit No. |
|
Filing Date |
|
Filed Herewith |
1.1 |
|
Form of Underwriting Agreement. |
|
|
|
|
|
|
|
X |
1.2 |
|
Placement Agency Agreement dated as of July 26, 2015, by and between Ceres, Inc. and Ladenburg Thalmann & Co. Inc. |
|
8-K |
|
1.1 |
|
7/30/2015 |
|
|
1.3 |
|
Placement Agency Agreement dated as of August 20, 2015, by and between Ceres, Inc. and Ladenburg Thalmann & Co. Inc. |
|
8-K |
|
1.1 |
|
8/26/2015 |
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of Ceres, Inc. |
|
10-Q |
|
3.1 |
|
4/12/2012 |
|
|
3.1.1 |
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Ceres, Inc. filed with the Secretary of State of the State of Delaware on March 11, 2014 and effective as of March 11, 2014. |
|
8-K |
|
3.1 |
|
3/11/2014 |
|
|
3.1.2 |
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Ceres, Inc. filed with the Secretary of State of the State of Delaware on April 8, 2015 and effective as of April 8, 2015. |
|
8-K |
|
3.1 |
|
4/8/2015 |
|
|
3.2 |
|
Form of Certificate of Designation of the Series A-1 Convertible Preferred Stock |
|
|
|
|
|
|
|
X |
3.3 |
|
Amended and Restated Bylaws of Ceres, Inc. |
|
10-Q |
|
3.2 |
|
4/12/2012 |
|
|
4.1 |
|
Form of Ceres, Inc. Common Stock Certificate. |
|
S-1/A |
|
4.1 |
|
1/17/2012 |
|
|
4.2 |
|
Warrant to Purchase Shares of Series E Preferred Stock issued to Silicon Valley Bank, dated August 16, 2004, as amended. |
|
S-1/A |
|
4.2 |
|
7/25/2011 |
|
|
4.2.1 |
|
Amendment No. 2 to Warrant to Purchase Shares of Series E Preferred Stock issued to Silicon Valley Bank, dated August 16, 2004, as amended. |
|
10-K |
|
4.2.1 |
|
11/20/2012 |
|
|
4.3 |
|
Warrants to Purchase Shares of Series F Preferred Stock issued to Silicon Valley Bank, dated March 1, 2010. |
|
S-1/A |
|
4.5 |
|
7/25/2011 |
|
|
4.3.1 |
|
Amendment No. 1 to Warrant to Purchase Shares of Series F Preferred Stock issued to Silicon Valley Bank, dated March 1, 2010 (6,153.67 shares). |
|
10-K |
|
4.3.1 |
|
11/20/2012 |
|
|
4.3.2 |
|
Amendment No. 1 to Warrant to Purchase Shares of Series F Preferred Stock issued to Silicon Valley Bank, dated March 1, 2010 (8,205 shares). |
|
10-K |
|
4.3.2 |
|
11/20/2012 |
|
|
4.4 |
|
Warrant to Purchase Shares of Common Stock issued to The Samuel Roberts Noble Foundation, Inc., dated November 28, 2006, as amended. |
|
S-1/A |
|
4.3 |
|
9/16/2011 |
|
|
4.5 |
|
Warrant to Purchase Shares of Common Stock issued to The Texas A&M University System, dated July 18, 2008, as amended. |
|
S-1/A |
|
4.4 |
|
7/25/2011 |
|
|
4.6 |
|
Warrant to Purchase Shares of Common Stock issued to The Texas A&M University System, dated December 19, 2011. |
|
S-1/A |
|
4.10 |
|
1/17/2012 |
|
|
II-6
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located |
Exhibit No. |
|
Description of Exhibit |
|
Form |
|
Exhibit No. |
|
Filing Date |
|
Filed Herewith |
4.7 |
|
Amended and Restated Investors Rights Agreement, dated June 25, 2010, by and among Ceres, Inc. and the stockholders named therein. |
|
S-1 |
|
4.6 |
|
5/23/2011 |
|
|
4.8 |
|
Form of Series F Original Warrant. |
|
10-K |
|
4.8 |
|
11/20/2012 |
|
|
4.8.1 |
|
Form of Series F Original Warrant, as amended. |
|
S-1/A |
|
4.7 |
|
8/23/2011 |
|
|
4.9 |
|
Form of Series G Original Warrant, as amended. |
|
S-1/A |
|
4.8 |
|
8/23/2011 |
|
|
4.10 |
|
Form of Convertible Note |
|
S-1/A |
|
4.9 |
|
8/23/2011 |
|
|
4.10.1 |
|
Amendment No. 1 to Convertible Notes, dated January 10, 2012 |
|
S-1/A |
|
4.11 |
|
1/17/2012 |
|
|
4.11 |
|
Common Stock Purchase Warrant Agreement, dated March 10, 2014, between Ceres, Inc. and certain affiliated designees of Aegis Capital Corp. |
|
8-K |
|
4.1 |
|
8/20/2012 |
|
|
4.12 |
|
Form of Investor Warrant, dated July 30, 2015 |
|
8-K |
|
4.1 |
|
7/30/2015 |
|
|
4.13 |
|
Form of Placement Agent Warrant, dated July 30, 2015 |
|
8-K |
|
4.2 |
|
7/30/2015 |
|
|
4.14 |
|
Form of Investor Warrant, dated August 26, 2015 |
|
8-K |
|
4.1 |
|
8/26/2015 |
|
|
4.15 |
|
Form of Placement Agent Warrant, dated August 26, 2015 |
|
8-K |
|
4.2 |
|
8/26/2015 |
|
|
4.16 |
|
Form of Investor Warrant |
|
|
|
|
|
|
|
X |
4.17 |
|
Form of Warrant for the Representative |
|
|
|
|
|
|
|
X |
5.1 |
|
Opinion of Shearman & Sterling LLP. |
|
|
|
|
|
|
|
X |
10.1 |
|
Ceres, Inc. 2000 Stock Option/Stock Issuance Plan, as amended. |
|
8-K |
|
10.1 |
|
8/20/2012 |
|
|
10.2 |
|
Form of Stock Option Agreement under the Ceres, Inc. 2000 Stock Option/Stock Issuance Plan. |
|
S-1/A |
|
10.2 |
|
7/25/2011 |
|
|
10.3 |
|
Form of Stock Purchase Agreement under the Ceres, Inc. 2000 Stock Option/Stock Issuance Plan. |
|
S-1/A |
|
10.3 |
|
10/14/2011 |
|
|
10.4 |
|
Ceres, Inc. 2010 Stock Option/Stock Issuance Plan. |
|
S-1/A |
|
10.4 |
|
5/23/2011 |
|
|
10.5 |
|
Form of Stock Option Agreement under the Ceres, Inc. 2010 Stock Option/Stock Issuance Plan. |
|
S-1/A |
|
10.5 |
|
7/25/2011 |
|
|
10.6 |
|
Form of Stock Purchase Agreement under the Ceres, Inc. 2010 Stock Option/Stock Issuance Plan. |
|
S-1/A |
|
10.6 |
|
9/16/2011 |
|
|
10.7 |
|
Form of Securities Purchase Agreement, dated as of July 26, 2015, by and among Ceres, Inc. and certain investors |
|
8-K |
|
10.1 |
|
7/30/2015 |
|
|
10.8 |
|
Form of Securities Purchase Agreement, dated as of August 20, 2015, by and among Ceres, Inc. and certain investors |
|
8-K |
|
10.1 |
|
8/26/2015 |
|
|
10.9 |
|
Form of Registration Rights Agreement, dated as of July 30, 2015, by and among Ceres, Inc. and certain investors |
|
8-K |
|
10.2 |
|
7/30/2015 |
|
|
10.10 |
|
Form of Registration Rights Agreement Amendment, dated as of August 26, 2015, by and among Ceres, Inc. and certain investors |
|
8-K |
|
10.2 |
|
8/26/2015 |
|
|
II-7
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located |
Exhibit No. |
|
Description of Exhibit |
|
Form |
|
Exhibit No. |
|
Filing Date |
|
Filed Herewith |
10.11 |
|
Amended and Restated Ceres, Inc. 2011 Equity Incentive Plan |
|
8-K |
|
10.1 |
|
2/13/2013 |
|
|
10.12 |
|
Ceres, Inc. Performance Incentive Plan. |
|
S-1/A |
|
10.31 |
|
10/14/2011 |
|
|
10.13 |
|
Form of Stock Option Grant Notice and Option Award Agreement under the Amended and Restated Ceres, Inc. 2011 Equity Incentive Plan. |
|
S-1/A |
|
10.32 |
|
1/17/2012 |
|
|
10.14 |
|
Form of Restricted Stock Grant Notice and Restricted Stock Award Agreement under the Amended and Restated Ceres, Inc. 2011 Equity Incentive Plan. |
|
10-K |
|
10.10 |
|
11/20/2012 |
|
|
10.14.1 |
|
Form of Stock Payment Grant Notice and Stock Payment Award Agreement under the Amended and Restated Ceres, Inc. 2011 Equity Incentive Plan. |
|
10-K |
|
10.10.1 |
|
11/26/2013 |
|
|
10.15 |
|
Form of Indemnification Agreement between Ceres, Inc. and its directors and officers. |
|
S-1/A |
|
10.36 |
|
1/25/2012 |
|
|
10.16 |
|
Employment Agreement between Ceres, Inc. and Richard Hamilton, dated September 1, 2011. |
|
S-1/A |
|
10.23 |
|
9/16/2011 |
|
|
10.17 |
|
Employment Agreement between Ceres, Inc. and Paul Kuc, dated September 1, 2011. |
|
S-1/A |
|
10.24 |
|
9/16/2011 |
|
|
10.18 |
|
Employment Agreement between Ceres, Inc. and Wilfriede van Assche, dated September 1, 2011. |
|
S-1/A |
|
10.26 |
|
9/16/2011 |
|
|
10.19 |
|
Exclusive Consultancy Agreement between Ceres, Inc. and Richard Flavell, dated October 11, 2011. |
|
10-K |
|
10.16 |
|
11/20/2012 |
|
|
10.20 |
|
Exclusive Consulting Agreement between Ceres, Inc. and Robert Goldberg, dated June 19, 2013. |
|
10-Q |
|
10.1 |
|
7/11/2013 |
|
|
10.21 |
|
Agricultural Lease Agreement between John & Connie Giesenschlag and Ceres, Inc. dated April 1, 2008 |
|
S-1 |
|
10.9 |
|
7/25/2011 |
|
|
10.22 |
|
Ground Lease Agreement between John & Connie Giesenschlag and Ceres, Inc. dated April 1, 2008 |
|
S-1 |
|
10.10 |
|
5/23/2011 |
|
|
10.23 |
|
Exclusive License Agreement between Cambridge University Technical Services, Ltd. and Ceres, Inc., dated November 1, 2001. |
|
S-1/A |
|
10.11 |
|
10/14/2011 |
|
|
10.24 |
|
Sponsored Research Agreement between The Texas Agricultural Experiment Station of The Texas A&M University System and Ceres, Inc., dated August 29, 2007, as amended. |
|
S-1/A |
|
10.12 |
|
1/17/2012 |
|
|
10.24.1 |
|
Amended and Restated Sponsored Research Agreement between Texas AgriLife Research (f/k/a The Texas Agricultural Experiment Station of The Texas A&M University System) and Ceres, Inc., dated September 24, 2011. |
|
S-1/A |
|
10.34 |
|
12/19/2011 |
|
|
10.25 |
|
Intellectual Property Rights Agreement between The Texas Agricultural Experiment Station of The Texas A&M University System and Ceres, Inc., dated August 29, 2007. |
|
S-1/A |
|
10.13 |
|
12/19/2011 |
|
|
II-8
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located |
Exhibit No. |
|
Description of Exhibit |
|
Form |
|
Exhibit No. |
|
Filing Date |
|
Filed Herewith |
10.25.1 |
|
Amended and Restated Intellectual Property Rights Agreement between The Texas Agricultural Experiment Station of The Texas A&M University System and Ceres, Inc., dated September 24, 2011. |
|
S-1/A |
|
10.35 |
|
12/29/2011 |
|
|
10.26 |
|
Material Transfer and Evaluation Agreements between The Texas A&M University System and Ceres, Inc., dated April 23, 2008. |
|
S-1/A |
|
10.14 |
|
8/29/2011 |
|
|
10.26.1 |
|
Amendment No. 2 to Material Transfer and Evaluation Agreement between The Texas A&M University System and Ceres, Inc., dated April 23, 2008 (MTA-001018) |
|
8-K |
|
10.1 |
|
1/10/2013 |
|
|
10.26.2 |
|
Amendment No. 2 to Material Transfer and Evaluation Agreement between The Texas A&M University System and Ceres, Inc., dated April 23, 2008 (MTA-001019) |
|
8-K |
|
10.1 |
|
1/10/2013 |
|
|
10.27 |
|
Line License Agreement between The Texas A&M University System and Ceres, Inc., dated October 16, 2009. |
|
S-1/A |
|
10.15 |
|
10/14/2011 |
|
|
10.28 |
|
Line License Agreement between Ceres, Inc. and The Texas A&M University System, dated July 12, 2011. |
|
S-1/A |
|
10.30 |
|
8/29/2011 |
|
|
10.28.1 |
|
Amendment No. 1 to Line License Agreement between Ceres, Inc. and The Texas A&M University System, dated July 12, 2011. |
|
10-K |
|
10.25.1 |
|
11/20/2012 |
|
|
10.29 |
|
Master Research Agreement between The Samuel Roberts Noble Foundation, Inc. and Ceres, Inc., dated May 19, 2006. |
|
S-1/A |
|
10.26 |
|
1/25/2012 |
|
|
10.28.1 |
|
Schedule 7 to Master Research Agreement between The Samuel Roberts Noble Foundation, Inc. and Ceres, Inc., dated May 19, 2006. |
|
10-K |
|
10.10 |
|
11/20/2012 |
|
|
10.29 |
|
Evaluation, Production and License Agreement between The Samuel Roberts Noble Foundation, Inc. and Ceres, Inc., dated May 19, 2006. |
|
S-1/A |
|
10.17 |
|
10/14/2011 |
|
|
10.31 |
|
License Agreement for NF/GA992 and NF/GA993 between The Samuel Roberts Noble Foundation, Inc. and Ceres, Inc., dated December 1, 2008. |
|
S-1/A |
|
10.18 |
|
10/14/2011 |
|
|
10.32 |
|
License Agreement for NF/GA002 between The Samuel Roberts Noble Foundation, Inc. and Ceres, Inc., dated September 1, 2009. |
|
S-1/A |
|
10.19 |
|
10/14/2011 |
|
|
10.33 |
|
Collaboration Agreement between the Institute of Biological, Environmental and Rural Sciences of Aberystwyth University and Ceres, Inc., dated April 1, 2007, as amended. |
|
S-1/A |
|
10.20 |
|
1/25/2012 |
|
|
10.34.1 |
|
Amendment IV to the Schedule I to the Collaboration Agreement between the Institute of Biological, Environmental, and Rural Sciences of Aberystwyth University in Wales, U.K. and Ceres, Inc., dated April 1, 2007. |
|
10-Q |
|
10.1 |
|
7/12/2012 |
|
|
II-9
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located |
Exhibit No. |
|
Description of Exhibit |
|
Form |
|
Exhibit No. |
|
Filing Date |
|
Filed Herewith |
10.34.2 |
|
Amendment V to the Schedule I to the Collaboration Agreement between the Institute of Biological, Environmental, and Rural Sciences of Aberystwyth University in Wales, U.K. and Ceres, Inc., dated April 1, 2007. |
|
10-K |
|
10.30.2 |
|
11/26/2013 |
|
|
10.35 |
|
Collaboration Agreement between Institute of Crop Sciences of the Chinese Academy of Agricultural Sciences and Ceres, Inc., dated November 15, 2007, as amended. |
|
S-1/A |
|
10.21 |
|
12/19/2011 |
|
|
10.34.1 |
|
Amendment III to the Collaboration Agreement between Institute of Crop Sciences of the Chinese Academy of Agricultural Sciences and Ceres, Inc., dated November 15, 2007, as amended. |
|
10-Q |
|
10.1 |
|
7/12/2012 |
|
|
10.34.2 |
|
Amendment IV to the Collaboration Agreement between Institute of Crop Sciences of the Chinese Academy of Agricultural Sciences and Ceres, Inc., dated November 15, 2007, as amended. |
|
10-K |
|
10.31.2 |
|
11/20/2012 |
|
|
10.35 |
|
Enabling Technology License Agreement between Ceres, Inc. and Monsanto Company, dated April 1, 2002. |
|
S-1/A |
|
10.29 |
|
7/5/2011 |
|
|
10.36 |
|
Convertible Note Purchase Agreement among Ceres, Inc. and the investors named therein, dated August 1, 2011 |
|
S-1/A |
|
10.33 |
|
11/10/2012 |
|
|
21.1 |
|
List of Subsidiaries |
|
10-K |
|
21.1 |
|
11/23/2015 |
|
|
23.1 |
|
Consent of KPMG LLP |
|
|
|
|
|
|
|
X |
23.2 |
|
Consent of Shearman and Sterling LLP (included in Exhibit 5.1). |
|
|
|
|
|
|
|
X |
+24.1 |
|
Power of Attorney. |
|
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document. |
|
|
|
|
|
|
|
X |
101.SCH |
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
|
|
X |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
|
|
X |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
|
|
X |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
|
|
X |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
|
|
X |
|
|
Certain provisions of this exhibit have been omitted pursuant to a request for confidential treatment. |
II-10
EXHIBIT 1.1
FORM OF
UNDERWRITING AGREEMENT
____________ SHARES of
Common Stock
_________
ShaRES OF SERIES A-1 CONVERTIBLE PREFERRED Stock
(CONVERTIBLE
INTO ______ SHARES OF COMMON STOCK) and
——————
Warrants (EXERCISABLE FOR ___________
SHARES
OF COMMON STOCK) of
CERES, INC.
December __, 2015
Ladenburg Thalmann & Co. Inc.
As the Representative of the
Several underwriters, if any, named in Schedule I
hereto
c/o Ladenburg Thalmann & Co. Inc.
4400 Biscayne Blvd., 12th Floor
Miami, FL 33137
Ladies and Gentlemen:
The undersigned, CERES,
INC., a company incorporated under the laws of Delaware (the “Company”), hereby confirms its agreement (this
“Agreement”) with the several underwriters (such underwriters, including the Representative (as defined below),
the “Underwriters” and each an “Underwriter”) named in Schedule I hereto for which
LADENBURG THALMANN & CO. INC. is acting as representative to the several Underwriters (the “Representative”
and if there are no Underwriters set forth on Schedule I other than the Representative, references herein to multiple Underwriters
shall be disregarded and the term Representative as used herein shall have the same meaning as Underwriter) on the terms and conditions
set forth herein.
It is understood that the
several Underwriters are to make a public offering of the Public Securities (as defined below) as soon as the Representative deems
it advisable to do so. The Public Securities are to be initially offered to the public at the initial public offering price set
forth in the Prospectus. The Representative may from time to time thereafter change the public offering price and other selling
terms.
It is further understood
that you will act as the Representative for the Underwriters in the offering and sale of the Closing Securities and, if any, the
Option Securities in accordance with this Agreement (each as defined below).
ARTICLE I
DEFINITIONS
1.1 Definitions.
In addition to the terms defined elsewhere in this Agreement (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined herein) and (b) the following terms have the meanings
set forth in this Section 1.1:
“Action”
shall have the meaning ascribed to such term in Section 3.1(k).
“Affiliate”
means with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls or
is controlled by or is under common control with such Person as such terms are used in and construed under Rule 405 under the Securities
Act.
“AST”
means American Stock Transfer & Trust Company, LLC, a New York limited liability trust company.
“Board
of Directors” means the board of directors of the Company.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.
“Certificate
of Designation” means the Certificate of Designation to be filed prior to the Closing by the Company with the Secretary
of State of Delaware in the form of Exhibit E attached hereto.
“Class
A Unit” shall have the meaning ascribed to such term in Section 2.1(b).
“Class
B Unit” shall have the meaning ascribed to such term in Section 2.1(b).
“Closing”
means the closing of the purchase and sale of the Closing Securities pursuant to Section 2.1.
“Closing
Date” means the hour and the date on the Trading Day on which all conditions precedent to (i) the Underwriters’
obligations to pay the Closing Purchase Price and (ii) the Company’s obligations to deliver the Closing Securities, in each
case, have been satisfied or waived, but in no event later than 10:00 a.m. (New York City time) on the third Trading Day following
the date hereof or at such earlier time as shall be agreed upon by the Representative and the Company.
“Closing
Preferred Shares” shall have the meaning ascribed to such term in Section 2.1(a)(iii).
“Closing
Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b) (for purposes of clarity, such aggregate
purchase price shall be net of the underwriting discounts and commissions, which discounts and commissions shall not be separately
payable).
“Closing
Securities” shall have the meaning ascribed to such term in Section 2.1(a)(iii).
“Closing
Shares” shall have the meaning ascribed to such term in Section 2.1(a)(i).
“Closing
Warrants” shall have the meaning ascribed to such term in Section 2.1(a)(ii).
“Commission”
means the United States Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.01 per share, issued hereunder as part of the Class A Units,
and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Company
Auditor” means KPMG LLP, with offices located at 550 South Hope Street, Suite 1500, Los Angeles, California 90071.
“Company
Counsel” means Shearman & Sterling LLP, with offices located at 599 Lexington Avenue, New York, New York 10022.
“Conversion
Price” shall have the meaning ascribed to such term in the Certificate of Designation.
“Conversion
Shares” shall have the meaning ascribed to such term in the Certificate of Designation.
“Effective
Date” shall have the meaning ascribed to such term in Section 3.1(f).
“EGS”
means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Execution
Date” shall mean the date on which the parties execute and enter into this Agreement.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted for such purpose, (b) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date
of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price
of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company,
provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its
subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall
provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing
in securities, and (d) securities issued by the Company with the prior written consent of the Representative.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.
“FINRA”
means the Financial Industry Regulatory Authority, Inc.
“GAAP”
shall have the meaning ascribed to such term in Section 3.1(i).
“Indebtedness”
means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness
of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course
of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in
accordance with GAAP.
“Insider
Investors” shall have the meaning ascribed to such term in the Investment Banking Agreement.
“Investment
Banking Agreement” shall have the meaning ascribed to such term in Section 7.2.
“Investors’
Rights Agreement” means the Amended and Restated Investors’ Rights Agreement, dated as of June 25, 2010, by and
among the Company and the stockholders named therein.
“Liens”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Lock-Up
Agreements” shall mean the lock-up agreements, in the form of Exhibit D attached hereto, delivered contemporaneously
herewith by each Person set forth on Schedule II.
“Material
Adverse Effect” shall have the meaning ascribed to such term in Section 3.1(b).
“Offering”
shall have the meaning ascribed to such term in Section 2.1(c).
“Option
Closing Date” shall have the meaning ascribed to such term in Section 2.2(c).
“Option
Closing Purchase Price” shall have the meaning ascribed to such term in Section 2.2(b), which aggregate purchase price
shall, for clarity, be net of the underwriting discounts and commissions, which discounts and commissions shall not be separately
payable.
“Option
Securities” shall have the meaning ascribed to such term in Section 2.2(a)(ii).
“Option
Shares” shall have the meaning ascribed to such term in Section 2.2(a)(i).
“Option
Warrants” shall have the meaning ascribed to such term in Section 2.2(a).
“Over-Allotment
Option” shall have the meaning ascribed to such term in Section 2.2.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preferred
Share and Warrant Combined Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Preferred
Stock” means the up to _____ shares of the Company’s Series A-1 Convertible Preferred Stock issued pursuant to
this Agreement as part of the Class B Units having the rights, preferences and privileges set forth in the Certificate of Designation,
in the form of Exhibit E hereto.
“Preliminary
Prospectus” means, if any, any preliminary prospectus relating to the Securities included in the Registration Statement
or filed with the Commission pursuant to Rule 424(b).
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“Prospectus”
means the final prospectus filed for the Registration Statement.
“Prospectus
Supplement” means, if any, any supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is
filed with the Commission.
“Public
Securities” means, collectively, the Closing Securities and, if any, the Option Securities.
“Registration
Rights Agreement” means the Registration Rights Agreement, dated as of July 30, 2015 and amended as of August 26, 2015,
by and among the Company and the Purchasers named therein.
“Registration
Statement” means, collectively, the various parts of the registration statement prepared by the Company on Form S-1 (File
No. 333-206718) with respect to the Securities, each as amended as of the date hereof, including the Prospectus and Prospectus
Supplement, if any, the Preliminary Prospectus, if any, and all exhibits filed with or incorporated by reference into such registration
statement.
“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants
or conversion in full of all shares of Preferred Stock, ignoring any conversion or exercise limits set forth therein.
“Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(i).
“Securities”
means the Closing Securities, the Option Securities, the Warrant Shares and the Conversion Shares.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share
Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Shares”
means, collectively, the shares of Common Stock delivered to the Underwriters in accordance with Section 2.1(a)(i) and Section
2.2(a).
“Share
and Warrant Combined Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Stated
Value” shall have the meaning ascribed to such term in the Certificate of Designation.
“Subsidiary”
means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company
formed or acquired after the date hereof.
“Trading
Day” means a day on which the principal Trading Market is open for trading.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange (or any successors to any of the foregoing).
“Transaction
Documents” means this Agreement, the Warrants, the Warrant Agency Agreement, the Certificate of Designation, the Transfer
Agency Agreement, the Lock-Up Agreements and all exhibits and schedules thereto and hereto.
“Transfer
Agency Agreement” means the transfer agency agreement dated on or about the date hereof, among the Company and AST in
the form of Exhibit F attached hereto.
“Transfer
Agent” means AST and any successor transfer agent of the Company.“Underlying Shares” means the Warrant
Shares and the Conversion Shares.
“Warrant
Agency Agreement” means the warrant agency agreement dated on or about the date hereof, among the Company and AST in
the form of Exhibit C attached hereto.
“Warrant
Agent” means AST and any successor warrant agent of the Company.
“Warrant
Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants.
“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the Underwriters in accordance with Section 2.1(a)(ii) and
Section 2.2, which Warrants shall be exercisable immediately and have a term of exercise equal to ___ years.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) Upon
the terms and subject to the conditions set forth herein, the Company agrees to sell in the aggregate ________ shares of Common
Stock, ______ shares of Preferred Stock, and Warrants as specified in (ii) below, and each Underwriter agrees to purchase, severally
and not jointly, at the Closing, the following securities of the Company:
(i) the
number of shares of Common Stock (the “Closing Shares”) set forth opposite the name of such Underwriter on Schedule
I hereof;
(ii) Warrants
to purchase up to the number of shares of Common Stock set forth opposite the name of such Underwriter on Schedule I hereof
(the “Closing Warrants”), which Warrants shall have an exercise price of $____, subject to adjustment as provided
therein, in the form of Exhibit C attached hereto; and
(iii) the
number of shares of Preferred Stock (the “Closing Preferred Shares”) set forth opposite the name of such Underwriter
on Schedule I hereof (collectively with the Closing Shares and Closing Warrants the “Closing Securities).
(b) The
aggregate purchase price for the Closing Securities to be purchased by each Underwriter shall equal the amount set forth opposite
the name of such Underwriter on Schedule I hereto (the “Closing Purchase Price”). The purchase price
for (x) one Share and one Warrant to purchase one Warrant Share having an exercise term of ___ years, sometimes referred to as
a Class A Unit, shall be $__ (the “Share and Warrant Combined Purchase Price”), which shall be allocated
as $_____ per Share (the “Share Purchase Price”) and $____ per Warrant (the “Warrant Purchase Price”)
and (y) one Preferred Share and Warrants to purchase a number of Warrant Shares equal to the quotient obtained by dividing the
Stated Value by the Conversion Price, having an exercise term of ___ years, sometimes referred to as a Class B Unit, shall be $___
(the “Preferred Share and Warrant Combined Purchase Price”).
(c)
On the Closing Date, each Underwriter shall deliver or cause to be delivered to the Company, via wire transfer, immediately available
funds equal to such Underwriter’s Closing Purchase Price and the Company shall deliver to, or as directed by, such Underwriter
its respective Closing Securities and the Company shall deliver the other items required pursuant to Section 2.3 deliverable at
the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.3 and 2.4, the Closing shall occur at the
offices of EGS or such other location as the Company and Representative shall mutually agree. The Public Securities are to be offered
initially to the public at the offering prices set forth on the cover page of the Prospectus (the “Offering”).
2.2 Over-Allotment
Option.
(a) Solely
for the purposes of covering any over-allotments in connection with the distribution and sale of the Closing Securities, the Underwriters
are hereby granted an option (the “Over-Allotment Option”) to purchase, in the aggregate, up to _____ shares
of Common Stock (the “Option Shares”) and Warrants to purchase up to ____ shares of Common Stock (the “Option
Warrants” and, collectively with the Option Shares, the “Option Securities”) which may be purchased
in any combination of Option Shares and/or Option Warrants at the Share Purchase Price and/or Warrant Purchase Price, respectively.
(b) In
connection with an exercise of the Over-Allotment Option, (a) the purchase price to be paid for the Option Shares is equal to the
product of the Share Purchase Price multiplied by the number of Option Shares to be purchased and (b) the purchase price to be
paid for the Option Warrants is equal to the product of the Warrant Purchase Price multiplied by the number of Option Warrants
(the sum of (a) and (b) constituting the aggregate purchase price to be paid on an Option Closing Date, the “Option Closing
Purchase Price”).
(c) The
Over-Allotment Option granted pursuant to this Section 2.2 may be exercised by the Representative as to all (at any time) or any
part (from time to time) of the Option Securities within 45 days after the Execution Date. An Underwriter will not be under any
obligation to purchase any Option Securities prior to the exercise of the Over-Allotment Option by the Representative. The Over-Allotment
Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed
in writing no later than the next Business Day by overnight mail or facsimile or other electronic transmission setting forth the
number of Option Shares and/or Option Warrants to be purchased and the date and time for delivery of and payment for the Option
Securities (each, an “Option Closing Date”), which will not be earlier than three (3) Business Days after the
date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of EGS or
at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and
the Representative. If such delivery and payment for the Option Securities does not occur on the Closing Date, each Option Closing
Date will be as set forth in the notice. Upon exercise of the Over-Allotment Option, subject to the terms and conditions set forth
herein, the Company will become obligated to convey to the Underwriters, and, the Underwriters will become obligated to purchase,
the number of Option Shares and/or Option Warrants specified in such notice. The Representative may cancel any remaining portion
of the Over-Allotment Option at any time prior to the expiration of the Over-Allotment Option by written notice to the Company.
2.3 Deliveries.
The Company shall deliver or cause to be delivered to each Underwriter (if applicable) the following:
(i) At
the Closing Date, the Closing Shares and, as to each Option Closing Date, if any, the applicable Option Shares, which shares shall
be delivered via The Depository Trust Company system for the accounts of the several Underwriters;
(ii) At
the Closing Date, the Closing Warrants and, as to each Option Closing Date, if any, the applicable Option Warrants via The Depository
Trust Company system for the accounts of the several Underwriters;
(iii) At
the Closing Date, evidence of the filing and acceptance of the Certificate of Designation from the Secretary of State of Delaware;
(iv) At
the Closing Date, to the Representative only, a Warrant to purchase up to a number of shares of Common Stock equal to 2% of the
Closing Shares issued on the Closing Date (excluding Closing Shares sold to Insider Investors), for the account of the Representative
(or its designees), which Warrant shall have an exercise price of 150% of the public offering price of the Closing Shares in customary
form, including cashless exercise, an exercise term of five (5) years from the effective date of the Registration Statement and
otherwise compliant with FINRA Rule 5110(g) (“Representative Warrants”);
(v) At
the Closing Date, a legal opinion of Company Counsel addressed to the Underwriters, including, without limitation, a negative assurance
letter, substantially in the form of Exhibit A attached hereto and as to each Option Closing Date, if any, a bring-down
opinion from Company Counsel in form and substance reasonably satisfactory to the Representative;
(vi) Contemporaneously
herewith, a cold comfort letter, addressed to the Underwriters and in form and substance satisfactory in all respects to the Representative
from the Company Auditor dated as of the date of this Agreement and on the Closing Date and each Option Closing Date, if any, a
bring-down comfort letter dated as of the Closing Date and each Option Closing Date, if any, as applicable;
(vii) Contemporaneously
herewith, on the Closing Date and on each Option Closing Date, a duly executed and delivered Officer’s Certificate, substantially
in the form required by Exhibit B attached hereto;
(viii) On
the Closing Date and on each Option Closing Date, a duly executed and delivered Secretary’s Certificate in form and substance
satisfactory in all respects to the Representative;
(ix) Contemporaneously
herewith, the duly executed and delivered Lock-Up Agreements;
(x) At
the Closing Date, the Transfer Agency Agreement duly
executed by the Company and the Transfer
Agent; and
(xi) At the Closing Date, the Warrant
Agency Agreement duly executed by the Company and the Warrant Agent.
2.4 Closing
Conditions. The respective obligations of each Underwriter hereunder in connection with the Closing and each Option Closing
Date, if any, are subject to the following conditions being met (or waived by the Representative in its sole and absolute discretion):
(iv) the
accuracy in all material respects when made and on the date in question (other than representations and warranties of the Company
already qualified by materiality, which shall be true and correct in all respects) of the representations and warranties of the
Company contained herein (unless as of a specific date therein);
(v) all
obligations, covenants and agreements of the Company required to be performed at or prior to the date in question shall have been
performed;
(vi) the
delivery by the Company of the items set forth in Section 2.3 of this Agreement;
(vii) the
Registration Statement shall be effective on the date of this Agreement and at each of the Closing Date and each Option Closing
Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or shall be pending or, to the Company’s knowledge, contemplated by the Commission
and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction
of the Representative;
(viii) by
the Execution Date, if required by FINRA, the Underwriters shall have received clearance from FINRA as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration Statement;
(ix) the
Closing Shares, the Option Shares and the Warrant Shares have been approved for listing on the Trading Market; and
(iv) prior
to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no material adverse change
or development involving a prospective material adverse change in the condition or prospects or the business activities, financial
or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus;
(ii) no action suit or proceeding, at law or in equity, shall have been pending or, to the Company’s knowledge, threatened
against the Company before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income
of the Company, except as set forth in the Registration Statement and Prospectus; (iii) no stop order shall have been issued
under the Securities Act with respect to the Offering and no proceedings therefor shall have been initiated or threatened by the
Commission; and (iv) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain
all material statements which are required to be stated therein in accordance with the Securities Act and the rules and regulations
thereunder and shall conform in all material respects to the requirements of the Securities Act and the rules and regulations thereunder,
and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (provided, however, that the condition set forth in (iv)
shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to
the Company by the Underwriters expressly for use therein).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except as set forth in the SEC Reports, the Preliminary Prospectus or the Prospectus Supplement,
if any, which SEC Reports, Preliminary Prospectus and Prospectus Supplement, if any, shall be deemed a part hereof and shall qualify
any representation or warranty made herein to the extent of the disclosure contained in such SEC Reports, Preliminary Prospectus
or Prospectus Supplement, if any, the Company represents and warrants to the Underwriters as of the Execution Date, as of the Closing
Date and as of each Option Closing Date, if any, as follows:
(a) Subsidiaries.
All of the direct and indirect Subsidiaries of the Company are set forth in the Company’s SEC Reports. The Company owns,
directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and
all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b) Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing (or any local equivalent) under the laws of the jurisdiction of its incorporation or organization,
with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles
of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing (or any local equivalent) as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect its obligations under
any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority
or qualification.
(c) Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents to which it is a party and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders
in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction
Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by applicable law.
(d) No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any
of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing
a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which
any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court
or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i)
the filing with the Commission of the Registration Statement, the Preliminary Prospectus, the Prospectus and the Prospectus Supplement,
if any, (ii) the declaration of the effectiveness of the Registration Statement by the Commission, (iii) the filing with the Commission
of one or more Current Reports on Form 8-K; (iv) the notice and/or application(s) to each applicable Trading Market for the issuance
and sale of the Securities and the listing of the Shares and the Underlying Shares for trading thereon in the time and manner required
thereby; (v) such filings as are required to be made under applicable state securities laws and (vi) any waivers or consents required
under the Investors’ Rights Agreement (collectively, the “Required Approvals”), each of which has been
obtained or will be obtained prior to Closing.
(f) Registration
Statement. The Company has filed with the Commission the Registration Statement, including any related Preliminary Prospectus
or Prospectuses, and the Company shall file pursuant to Rule 424 any related Prospectus or Prospectuses, for the registration of
the Securities under the Securities Act, which Registration Statement has been prepared by the Company in all material respects
in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities
Act. The Registration Statement has been declared effective by the Commission on the date hereof (the “Effective Date”).
(g) Issuance
of Securities. The Securities (other than the Underlying Shares) are duly authorized and, when issued and paid for in accordance
with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company. The Underlying Shares are duly authorized and, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company, other than
restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock
a number of shares of Common Stock for issuance pursuant to the Transaction Documents at least equal to the Required Minimum on
the date hereof. The holders of the Securities will not be subject to personal liability by reason of being such holders. The Securities
are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights
granted by the Company. The Securities conform in all material respects to all statements with respect thereto contained
in the Registration Statement.
(h) Capitalization.
The capitalization of the Company is as set forth in the Preliminary Prospectus, as of the date hereof, and the Prospectus, as
of the Closing Date. Except as disclosed in the Preliminary Prospectus and the Prospectus, the Company has not issued any capital
stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock
options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the
date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents that
has not been waived or complied with. Except as set forth in the Preliminary Prospectus and the Prospectus and as a result of the
purchase and sale of the Securities and the issuance of warrants to purchase Common Stock to the Representative, there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is
or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Underwriters) and
will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under
any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. The authorized
shares of the Company conform in all material respects to all statements relating thereto contained in the Registration Statement
and the Prospectus. Except to the extent the applicable statute of limitations may have expired, the offers and sales of the Company’s
securities were at all relevant times either registered under the Securities Act and the applicable state securities or Blue Sky
laws or, based in part on the representations and warranties of the purchasers, exempt from such registration requirements. No
further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of
the Securities other than the Required Approvals. Except as disclosed in the Preliminary Prospectus and the Prospectus, there are
no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to
which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
(i) SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and
none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required
by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments.
(j) Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock
option or stock purchase plans. The Company does not have pending before the Commission any request for confidential treatment
of information. Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance,
occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been
publicly disclosed at least 1 Trading Day prior to the date that this representation is made
(k) Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities
or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or executive officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving
the Company or any current director or executive officer of the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act
or the Securities Act.
(l) Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
(other than Ceres Sementes do Brasil Ltda.) employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries (other than Ceres Sementes do Brasil Ltda.)
is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their
employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is in violation of
any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition
agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment
of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. The Company and its Subsidiaries are in compliance with all applicable U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except
where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(m) Compliance.
Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any
court, arbitrator or other governmental authority or (iii) is in violation of any statute, rule, ordinance or regulation of any
governmental authority, including without limitation all applicable foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.
(n) Environmental
Laws. The Company and its Subsidiaries (i) are in compliance with all applicable federal, state, local and foreign laws relating
to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface
or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment,
or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental
Laws”); (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or
approval where in the case of each of clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
(o) Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports
or the Preliminary Prospectus, except where the failure to possess such permits could not reasonably be expected to result in a
Material Adverse Effect (each, a “Material Permit”), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any Material Permit. The disclosures in the Prospectus
concerning the effects of applicable, material Federal, State, local and foreign regulation on the Company’s business as
currently contemplated, are correct in all material respects.
(p) Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property (excluding the Intellectual Property Rights) owned by them that is material
to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially
affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by
the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves
have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
(q) Intellectual
Property. To the Company’s knowledge, the Company and the Subsidiaries have, or have rights to use or can acquire on
reasonable terms, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports or the
Preliminary Prospectus as necessary or required for use in connection with their respective businesses and which the failure to
so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the
Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights has expired,
terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this
Agreement, except as could not have or reasonably be expected to result in a Material Adverse Effect. The Company has not received,
since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim and no executive
officer of the Company has received any oral notice that the Intellectual Property Rights violate or infringe upon the rights of
any Person, except as could not have or reasonably be expected to have a Material Adverse Effect. To the knowledge of the Company,
all such Intellectual Property Rights, to the extent issued, are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights, except as could not have or reasonably be expected to result in a Material Adverse
Effect. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(r) Insurance.
The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including,
but not limited to, with respect to the Company, directors and officers insurance coverage. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to continue its business without, except in the case of directors
and officer insurance, a significant increase in cost.
(s) Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports or the Preliminary Prospectus, none of the executive
officers or directors of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary
(other than for services as executive officers and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing
of money from or lending of money to or otherwise requiring payments to or from any executive officer or director or, to the knowledge
of the Company, any entity in which any executive officer or director has a substantial interest or is an officer, director, trustee,
stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including
stock option agreements under any stock option plan of the Company.
(t) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. Except as disclosed in the SEC
Reports and the Preliminary Prospectus, the Company and the Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization,
and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls
and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules
and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of
the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange
Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under
the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected,
or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries,
except for any such changes as the SEC Reports disclose have occurred or may occur.
(u) Certain
Fees. Except as set forth in the Prospectus, no brokerage or finder’s fees or commissions are or will be payable by the
Company or any Subsidiary, or, to the knowledge of the Company, by any Affiliate of the Company, to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents. Since January 1, 2015, the Company has not made any direct or indirect payments (in cash, securities
or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising
capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA
member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member other
than payments to the Representative. None of the net proceeds of the Offering will be paid by the Company to any participating
FINRA member or its affiliates, except as specifically stated in the Prospectus.
(v) Investment
Company. The Company is not and immediately after receipt of payment for the Securities, will not be, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
(w) Registration
Rights. Other than as disclosed in the SEC Reports or the Preliminary Prospectus, no Person has any right to cause the Company
or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(x) Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and the Company
has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. Other than as disclosed in the Company’s SEC Reports, the Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance
requirements, except as could not have or reasonably be expected to result in a Material Adverse Effect. The Common Stock is currently
eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company
is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection
with such electronic transfer.
(y) Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable as a result of the Underwriters and the Company fulfilling
their obligations or exercising their rights under the Transaction Documents.
(z) Disclosure;
10b-5. The Registration Statement contains all exhibits and schedules as required by the Securities Act. Each of the Registration
Statement and any post-effective amendment thereto, if any, at the time it became effective, complied in all material respects
with the Securities Act and the applicable rules and regulations under the Securities Act and did not and, as amended or supplemented,
if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The Prospectus and the Prospectus Supplement, if any, each as of its respective date, comply in all material respects with the
Securities Act and the applicable rules and regulations under the Securities Act. Each of the Prospectus and the Prospectus Supplement,
if any, as amended or supplemented, did not and will not contain as of the date thereof any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading. The SEC Reports, when they were filed with the Commission, conformed in all material respects to the
requirements of the Exchange Act and the applicable rules and regulations thereunder. There are no documents required to be filed
with the Commission in connection with the transaction contemplated hereby that (x) have not been filed as required pursuant to
the Securities Act or (y) will not be filed within the requisite time period. There are no contracts or other documents required
to be described in the Prospectus or Prospectus Supplement, if any, or to be filed as exhibits or schedules to the Registration
Statement, which have not been described or filed as required.
(aa) No
Integrated Offering. The Company has not, directly or indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings
by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which any of the securities
of the Company are listed or designated.
(bb) Indebtedness.
The Prospectus sets forth as of its date, the Indebtedness of the Company and Subsidiaries.
(cc) Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed, or secured all extensions for the filing
of all applicable United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its
books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.
(dd) Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision
of FCPA applicable to it.
(ee) Accountants.
To the knowledge and belief of the Company, the Company Auditor is a registered public accounting firm as required by the Exchange
Act. The Company Auditor has not, during the periods covered by the financial statements included in the Prospectus, provided to
the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act other than as disclosed in the SEC
Reports or the Prospectus.
(ff) No
Disagreements with Accountants. There are no disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants formerly or presently employed by the Company and the Company is current
with respect to any fees owed to its accountants which could affect the Company’s ability to perform any of its obligations
under any of the Transaction Documents.
(gg) USDA.
As to each product subject to the jurisdiction of the U.S. Department of Agriculture Animal and Plant Health Inspection Service
(“USDA”) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company
or any of its Subsidiaries (each such product, a “Regulated Product”), such Regulated Product is being manufactured,
packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under
applicable USDA and similar laws, rules and regulations relating to registration, premarket clearance, licensure, or application
approval, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be
in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company's knowledge, threatened,
action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation)
against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning
letter or other written communication from the USDA or any other applicable governmental entity, which (i) contests the premarket
clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing
of, the sale of, or the labeling and promotion of any Regulated Product, (ii) withdraws its approval of, requests the recall, suspension,
or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Regulated Product,
(iii) enjoins production at any facility of the Company or any of its Subsidiaries, (iv) enters or proposes to enter into a consent
decree of permanent injunction with the Company or any of its Subsidiaries, or (v) otherwise alleges any violation of any laws,
rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have
a Material Adverse Effect. The properties, business and operations of the Company are being conducted in all material respects
in accordance with all applicable laws, rules and regulations of the USDA. The Company has not been informed by the USDA
that the USDA will prohibit the marketing, sale, license or use in the United States of any product produced or marketed by the
Company nor has the USDA expressed any concern to the Company as to approving or clearing for marketing any product being developed
or proposed to be developed by the Company.
(hh) Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer or
employee of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“OFAC”).
(ii) Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in material compliance
with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any
arbitrator involving the Company and any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of
the Company or any Subsidiary, threatened.
(jj) D&O
Questionnaires. To the Company’s knowledge, all information contained in the questionnaires completed by each of the
Company’s directors and officers most recently prior to the Offering as well as in the Lock-Up Agreement provided to the
Underwriters is true and correct in all material respects and the Company has not become aware of any information which would cause
the information disclosed in such questionnaires become materially inaccurate and incorrect.
(kk) FINRA
Affiliation. No officer, director or, to the Company’s knowledge, any beneficial owner of 5% or more of the Company’s
unregistered securities has any direct or indirect affiliation or association with any FINRA member (as determined in accordance
with the rules and regulations of FINRA). The Company will advise the Representative and EGS if it learns that any officer,
director or owner of 5% or more of the Company’s outstanding shares of Common Stock or Common Stock Equivalents is or becomes
an affiliate or associated person of a FINRA member firm within 90 days from the Closing Date.
(ll) Officers’
Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you shall be deemed a representation
and warranty by the Company to the Underwriters as to the matters covered thereby.
(mm) Board
of Directors. The Board of Directors is comprised of the persons set forth under the heading of the Prospectus captioned “Management.”
The qualifications of the persons serving as board members and the overall composition of the Board of Directors comply with the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder applicable to the Company and the rules of the Trading Market.
At least one member of the Board of Directors qualifies as a “financial expert” as such term is defined under the Sarbanes-Oxley
Act of 2002 and the rules promulgated thereunder and the rules of the Trading Market. In addition, at least a majority of the persons
serving on the Board of Directors qualify as “independent” as defined under the rules of the Trading Market.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Amendments
to Registration Statement. The Company has delivered, or will as promptly as practicable deliver, to the Underwriters complete
conformed copies of the Registration Statement and of each consent and certificate of experts, as applicable, filed as a part thereof,
and conformed copies of the Registration Statement (without exhibits), the Prospectus and the Prospectus Supplement, as amended
or supplemented, in such quantities and at such places as an Underwriter reasonably requests. Neither the Company nor any of its
directors and officers has distributed and none of them will distribute, prior to the Closing Date, any offering material in connection
with the offering and sale of the Securities other than the Preliminary Prospectus, the Prospectus, any Prospectus Supplement,
the Registration Statement, and copies of the documents incorporated by reference therein. The Company shall not file any such
amendment or supplement to the Registration Statement to which the Representative shall reasonably object in writing within two
business days; provided that the Company may file any document or report determined by the Company to be required to be
filed pursuant to the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder within the time periods
required for such filing irrespective of any such objection.
4.2 Federal
Securities Laws.
(a) Compliance.
During the time when a Prospectus is required to be delivered under the Securities Act, the Company will use best efforts to comply
with all requirements imposed upon it by the Securities Act and the rules and regulations thereunder and the Exchange Act and the
rules and regulations thereunder, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings
in the Securities in accordance with the provisions hereof and the Prospectus. If at any time when a Prospectus relating to the
Securities is required to be delivered under the Securities Act, any event shall have occurred as a result of which, in the opinion
of the Company or counsel for the Underwriters, the Prospectus, as then amended or supplemented, includes an untrue statement of
a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Securities Act, the Company will notify the Underwriters promptly and prepare and file with the Commission,
subject to Section 4.1 hereof, an appropriate amendment or supplement in accordance with Section 10 of the Securities Act.
(b) Filing
of Prospectus. The Company will file the Prospectus and any Prospectus Supplement with the Commission pursuant to the requirements
of Rule 424.
(c) Exchange
Act Registration. For a period of one year from the Execution Date, the Company will use its commercially reasonable efforts
to maintain the registration of the Common Stock, Preferred Stock, and Warrants under the Exchange Act unless the Company is acquired
or goes private under Exchange Act Rule 13e-3 prior to such time.
(d) Free
Writing Prospectuses. The Company represents and agrees that it has not made and will not make any offer relating to the Securities
that would constitute an issuer free writing prospectus, as defined in Rule 433 of the rules and regulations under the Securities
Act, without the prior written consent of the Representative. Any such free writing prospectus consented to by the Representative
is hereinafter referred to as a “Permitted Free Writing Prospectus.” The Company represents that it will
treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus” as defined in rule and regulations
under the Securities Act, and has complied and will comply with the applicable requirements of Rule 433 of the Securities Act,
including timely Commission filing where required, legending and record keeping.
4.3 Delivery
to the Underwriters of Prospectuses. The Company will deliver to the Underwriters, without charge, from time to time during
the period when the Prospectus is required to be delivered under the Securities Act or the Exchange Act such number of copies of
each Prospectus as the Underwriters may reasonably request. The Company has delivered, or will as promptly as practicable deliver,
to the Representative complete conformed copies of the Registration Statement and of each consent and certificate of experts, as
applicable, filed as a part thereof, and conformed copies of the Registration Statement (without exhibits), the Prospectus, and
any Prospectus Supplement, as amended or supplemented, in such quantities and at such places as the Representative reasonably requests.
4.4 Effectiveness
and Events Requiring Notice to the Underwriters. The Company will use its commercially reasonable efforts to cause the Registration
Statement to remain effective with a current prospectus until the later of one (1) month from the Execution Date and the date the
Warrants are no longer outstanding, and will notify the Underwriters and the holders of the Warrants promptly and confirm the notice
in writing (which notice and confirmation may be by means of a press release, Form 8-K filing or other filing of a periodic report
with the Commission) : (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the
issuance by the Commission of any stop order relating to the Offering or of the initiation, or the threatening, of any proceeding
for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that
purpose; (iv) of the filing with the Commission of any amendment or supplement to the Registration Statement or Prospectus;
(v) of the receipt of any comments or request for any additional information from the Commission with respect to the Company,
the Registration Statement or the Offering; and (vi) of the happening of any event during the period described in this Section
4.4 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement or the Prospectus
untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission
shall enter a stop order relating to the Offering or suspend such qualification at any time, the Company will exercise commercially
reasonable efforts to obtain promptly the lifting of such order.
4.5 Expenses.
(a) General
Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and each Option Closing Date,
if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration
of the Securities to be sold in the Offering (including the Option Securities) with the Commission; (b) all FINRA Public Offering
Filing System fees associated with the review of the Offering by FINRA, all fees and expenses relating to the listing of such Closing
Shares, Option Shares and Warrant Shares on the Trading Market, and such other stock exchanges as the Company and the Representative
together determine; (c) all fees, expenses and disbursements relating to the registration or qualification of such Securities under
the “blue sky” securities laws of such states and other foreign jurisdictions as the Representative may reasonably
designate (including, without limitation, all filing and registration fees, and the fees and expenses of Blue Sky counsel, if any);
(d) the costs of preparing, printing and delivering Preliminary Prospectuses and Prospectuses in such quantities as the Representative
may reasonably deem necessary; (e) the costs of preparing, printing and delivering certificates representing the Securities; (f)
fees and expenses of the Transfer Agent for the Securities (including, without limitation, any fees required for same-day processing
of any instruction letter delivered by the Company); (g) fees and expenses of the Warrant Agent for the Warrants; (h) fees and
expenses of the Transfer Agent for the Preferred Stock; (i) stock transfer and/or stamp taxes, if any, payable upon the transfer
of securities from the Company to the Underwriters; (i) the fees and expenses of the Company’s accountants; and (j) the fees
and expenses of the Company’s legal counsel and other agents and representatives. The Underwriters may also deduct from the
net proceeds of the Offering payable to the Company on the Closing Date, or each Option Closing Date, if any, the expenses set
forth in Section 4.5(b) to be paid by the Company to the Representative.
(b) Expenses
of the Representative. The Company further agrees that, in addition to the expenses payable pursuant to Section 4.5(a), on
the Closing Date, the Company will reimburse the Representative for its actual and accountable out-of-pocket expenses related to
the Offering up to an aggregate of $100,000 by deduction from the proceeds of the Offering contemplated herein. For purposes of
clarity, the expense reimbursement set forth in this Section 4.5(b) shall not be applicable to any expenses of the Underwriters
other than the Representative and the Company agrees it will not reimburse any Underwriter for expenses other than the Representative.
4.6 Application
of Net Proceeds. The Company will apply the net proceeds from the Offering received by it in a manner consistent with the application
described under the caption “Use of Proceeds” in the Prospectus.
4.7 Delivery
of Earnings Statements to Security Holders. The Company will make generally available to its security holders as soon as practicable,
but not later than the first day of the fifteenth full calendar month following the Execution Date, an earnings statement (which
need not be certified by independent public or independent certified public accountants unless required by the Securities Act or
the Rules and Regulations under the Securities Act, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of
the Securities Act) covering a period of at least twelve consecutive months beginning after the Execution Date.
4.8 Stabilization.
Neither the Company, nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative)
has taken or will take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected
to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Public Securities.
4.9 Internal
Controls. While the Common Stock is registered under the Exchange Act, the Company will use commercially reasonable efforts
to maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect
to any differences, and will seek to remediate any deficiencies in such internal controls within a reasonable period of time.
4.10 Accountants.
The Company shall retain an independent registered public accounting firm reasonably acceptable to the Representative for a period
of at least one year after the Execution Date unless the Company is acquired or goes private under Exchange Act Rule 13e-3 prior
to such time. The Underwriters acknowledge that the Company Auditor is acceptable to the Underwriters.
4.11 FINRA.
Until the date that is 90 days following the Closing Date, the Company shall advise the Underwriters (who shall make an appropriate
filing with FINRA) if it is aware that any 5% or greater shareholder of the Company becomes an affiliate or associated person of
a FINRA member firm participating in the Offering (as determined in accordance with the rule and regulations of FINRA).
4.12 No
Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely
contractual and commercial in nature, based on arms-length negotiations and that neither the Underwriters nor their affiliates
or any selected dealer shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company
or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement. Notwithstanding
anything in this Agreement to the contrary, the Company acknowledges that the Underwriters may have financial interests in the
success of the Offering that are not limited to the difference between the price to the public and the purchase price paid to the
Company by the Underwriters for the Securities and the Underwriters have no obligation to disclose, or account to the Company for,
any of such additional financial interests. The Company hereby waives and releases, to the fullest extent permitted by law, any
claims that the Company may have against the Underwriters with respect to any breach or alleged breach of fiduciary duty.
4.13 Underlying
Shares. The shares of Common Stock underlying the shares of Preferred Stock shall be issued free of legends. If all or any
portion of a Warrant is exercised at a time when there is an effective registration statement to cover the issuance of the Warrant
Shares or if the Warrant is exercised via cashless exercise at a time when such Warrant Shares would be eligible for resale under
Rule 144 by a non-affiliate of the Company, the Warrant Shares issued pursuant to any such exercise shall be issued free of all
restrictive legends. If at any time following the date hereof until the date none of the Warrants are outstanding, the Registration
Statement (or any subsequent registration statement registering the sale or resale of the Warrant Shares) is not effective or is
not otherwise available for the sale of the Warrant Shares, the Company shall promptly notify the holders of the Warrants in writing
that such registration statement is not then effective and thereafter shall promptly notify such holders when the registration
statement is effective again and available for the sale of the Warrant Shares (it being understood and agreed that the foregoing
shall not limit the ability of the Company to issue, or any holder thereof to sell, any of the Warrant Shares in compliance with
applicable federal and state securities laws).
4.14 [Reserved].
4.15 Securities
Laws Disclosure; Publicity. At the request of the Representative, by 9:00 a.m. (New York City time) on the Trading Day immediately
following the date hereof if this Agreement is executed on or after 9:30 a.m. (New York City time) and on the date hereof if this
Agreement is executed prior to 9:30 a.m. (New York City time), the Company shall issue a press release disclosing the material
terms of the Offering. The Company and the Representative shall consult with each other in issuing any other press releases with
respect to the Offering, and neither the Company nor any Underwriter shall issue any such press release nor otherwise make any
such public statement without the prior consent of the Company, with respect to any press release of such Underwriter, or without
the prior consent of such Underwriter, with respect to any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.
4.16 Shareholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any
Underwriter of the Securities is an “Acquiring Person” under any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Underwriter of Securities could be deemed to trigger the provisions of any such plan or arrangement,
by virtue of receiving Securities.
4.17 Reservation
of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company
to issue the Required Minimum.
4.18 Listing
of Common Stock. The Company hereby agrees to use commercially reasonable efforts to maintain the listing or quotation of the
Common Stock on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply
to list or quote all of the Closing Shares, Option Shares and the Underlying Shares on such Trading Market and promptly secure
the listing of all of the Closing Shares, Option Shares and the Underlying Shares on such Trading Market. The Company further agrees,
if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all
of the Closing Shares, the Option Shares and the Underlying Shares, and will take such other action as is necessary to cause all
of the Closing Shares, the Option Shares and the Underlying Shares to be listed or quoted on such other Trading Market as promptly
as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock
on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the Trading Market.
4.19 Subsequent
Equity Sales. From the date hereof until 90 days following the Effective Date, neither the Company nor any Subsidiary shall
issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common
Stock Equivalents. Notwithstanding the foregoing, this Section 4.20 shall not apply in respect of (x) an Exempt Issuance or (y)
any filing by the Company of a registration statement, prospectus or other document with the Commission or related announcement
pursuant to the Investors’ Rights Agreement or the Registration Rights Agreement.
4.20 Research
Independence. In addition, the Company acknowledges that each Underwriter’s research analysts and research departments,
if any, are required to be independent from their respective investment banking divisions and are subject to certain regulations
and internal policies, and that such Underwriter’s research analysts may hold and make statements or investment recommendations
and/or publish research reports with respect to the Company and/or the offering that differ from the views of its investment bankers.
The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against such
Underwriter with respect to any conflict of interest that may arise from the fact that the views expressed by their independent
research analysts and research departments may be different from or inconsistent with the views or advice communicated to the Company
by such Underwriter’s investment banking divisions. The Company acknowledges that the Representative is a full service securities
firm and as such from time to time, subject to applicable securities laws, may effect transactions for its own account or the account
of its customers and hold long or short position in debt or equity securities of the Company.
ARTICLE V.
DEFAULT BY
UNDERWRITERS
If
on the Closing Date or any Option Closing Date, if any, any Underwriter shall fail to purchase and pay for the portion of the Closing
Securities or Option Securities, as the case may be, which such Underwriter has agreed to purchase and pay for on such date (otherwise
than by reason of any default on the part of the Company), the Representative, or if the Representative is the defaulting Underwriter,
the non-defaulting Underwriters, shall use their reasonable efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein,
the Closing Securities or Option Securities , as the case may be, which the defaulting Underwriter or Underwriters failed to purchase.
If during such 36 hours the Representative shall not have procured such other Underwriters, or any others, to purchase the Closing
Securities or Option Securities, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then
(a) if the aggregate number of Closing Securities or Option Securities, as the case may be, with respect to which such default
shall occur does not exceed 10% of the Closing Securities or Option Securities, as the case may be, covered hereby, the other Underwriters
shall be obligated, severally, in proportion to the respective numbers of Closing Securities or Option Securities, as the case
may be, which they are obligated to purchase hereunder, to purchase the Closing Securities or Option Securities, as the case may
be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of Closing Securities
or Option Securities, as the case may be, with respect to which such default shall occur exceeds 10% of the Closing Securities
or Option Securities, as the case may be, covered hereby, the Company or the Representative will have the right to terminate this
Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Article
VI hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Article V, the applicable Closing
Date or Option Closing Date may be postponed for such period, not exceeding seven days, as the Representative, or if the Representative
is the defaulting Underwriter, the non-defaulting Underwriters, may determine in order that the required changes in the Prospectus
or in any other documents or arrangements may be effected. The term “Underwriter” includes any person substituted for
a defaulting Underwriter. Any action taken under this Section shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification
of the Underwriters. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless the Underwriters
and each of their respective directors, officers and employees and each Person, if any, who controls such Underwriter (“Controlling
Person”) within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter
Indemnified Parties,” and each, an “Underwriter Indemnified Party”), against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action
between such Underwriter Indemnified Party and the Company or between such Underwriter Indemnified Party and any third party or
otherwise) to which they or any of them may become subject under the Securities Act or the Exchange Act, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact contained in (i) any Preliminary Prospectus, if any, the
Registration Statement or the Prospectus (as from time to time each may be amended and supplemented); or (ii) any materials or
information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including
any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or
the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made
in reliance upon and in conformity with written information furnished to the Company with respect to the applicable Underwriter
by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, if any, the Registration Statement or Prospectus,
or any amendment or supplement thereto, as the case may be. With respect to any untrue statement or omission or alleged untrue
statement or omission made in the Preliminary Prospectus, if any, or the Prospectus, the indemnity agreement contained in this
Section 6.1 shall not inure to the benefit of an Underwriter Indemnified Party to the extent that any loss, liability, claim, damage
or expense of such Underwriter Indemnified Party results from the fact that a copy of the Preliminary Prospectus or the Prospectus,
as the case may be, was not given or sent to the Person asserting any such loss, liability, claim or damage at or prior to the
written confirmation of sale of the Securities to such Person as required by the Securities Act and the rules and regulations thereunder,
and if the untrue statement or omission has been corrected in the Preliminary Prospectus or Prospectus, as the case may be, unless
such failure to deliver the Preliminary Prospectus or Prospectus was a result of non-compliance by the Company with its obligations
under this Agreement. The Company agrees promptly to notify each Underwriter or Controlling Person (if named) of the commencement
of any litigation or proceedings against the Company or any of its officers or directors in connection with the issue and sale
of the Public Securities or in connection with the Registration Statement or Prospectus. It is understood and agreed that the Company
shall not be responsible to indemnify, hold harmless or contribute to any Underwriter Indemnified Party under this Article VI to
the extent such Underwriter Indemnified Party receives indemnity, contribution or other payment from the Company pursuant to Paragraph
(B) of Exhibit A of the Investment Banking Agreement with respect to substantially the same matter with respect to which indemnity,
contribution or any other payment pursuant to this Article VI is sought under this Agreement.
6.2 Procedure.
If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company
pursuant to Section 6.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of
such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the
reasonable approval of such Underwriter Indemnified Party) and payment of actual expenses. Such Underwriter Indemnified Party shall
have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense
of such Underwriter Indemnified Party unless (i) the employment of such counsel at the expense of the Company shall have been authorized
in writing by the Company in connection with the defense of such action, or (ii) the Company shall not have employed counsel to
have charge of the defense of such action, or (iii) such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from or additional to those available to the Company (in which case
the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any
of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by such Underwriter
Indemnified Party (in addition to one local counsel, if any) shall be borne by the Company. Notwithstanding anything to the contrary
contained herein, if any Underwriter Indemnified Party shall assume the defense of such action as provided above, the Company shall
have the right to approve the terms of any settlement of such action which approval shall not be unreasonably withheld.
6.3 Indemnification
of the Company. Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, its directors,
officers, employees and agents and Persons who control the Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from
the Company to such Underwriter, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements
or omissions made in any Preliminary Prospectus, if any, the Registration Statement or Prospectus or any amendment or supplement
thereto, in reliance upon, and in conformity with, written information furnished to the Company with respect to such Underwriter
by or on behalf of such Underwriter expressly for use in such Preliminary Prospectus, if any, the Registration Statement or Prospectus
or any amendment or supplement thereto. In case any action shall be brought against the Company or any other Person so indemnified
based on any Preliminary Prospectus, if any, the Registration Statement or Prospectus or any amendment or supplement thereto, and
in respect of which indemnity may be sought against such Underwriter, such Underwriter shall have the rights and duties given to
the Company, and the Company and each other Person so indemnified shall have the rights and duties given to such Underwriter by
the provisions of Section 6.2. Notwithstanding the provisions of this Section 6.3, no Underwriter Indemnified Party shall be required
to indemnify the Company for any amount in excess of the underwriting discounts and commissions applicable to the Securities purchased
by such Underwriter. The Underwriters' obligations in this Section 6.3 to indemnify the Company are several in proportion to their
respective underwriting obligations and not joint.
6.4 Contribution.
(a) Contribution
Rights. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) any Person
entitled to indemnification under this Article VI makes a claim for indemnification pursuant hereto but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Article
VI provides for indemnification in such case, or (ii) contribution under the Securities Act, the Exchange Act or otherwise may
be required on the part of any such Person in circumstances for which indemnification is provided under this Article VI, then,
and in each such case, the Company and each Underwriter, severally and not jointly, shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and such Underwriter,
as incurred, in the same relative proportions, respectively, as the aggregate underwriting discount appearing on the cover page
of the Prospectus bears to the aggregate initial offering price appearing thereon; provided, that, no Person guilty of a 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. If the allocation provided for in the preceding sentence is not permitted
by applicable law, the Company and each Underwriter, severally and not jointly, shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and such Underwriter,
as incurred, in such proportion as is appropriate to reflect not only the allocation referred to in the preceding sentence but
also the relative fault of the Company, on the one hand, and such Underwriter, on the other, with respect to the statements or
omissions that resulted in such loss, liability, claim, damage or expense. The relative fault shall be determined by reference
to 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 the Underwriter, the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. For purposes of this Section, each director, officer and employee
of such Underwriter or the Company, as applicable, and each Person, if any, who controls such Underwriter or the Company, as applicable,
within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Underwriter or the Company,
as applicable. Notwithstanding the provisions of this Section 6.4, no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Securities purchased by such Underwriter. The Underwriters'
obligations in this Section 6.4 to contribute are several in proportion to their respective underwriting obligations and not joint.
(b) Contribution
Procedure. Within fifteen days after receipt by any party to this Agreement (or its representative) of notice of the commencement
of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another
party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to
so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party
or its representative of the commencement thereof within the aforesaid fifteen days, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such
party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this
Section 6.4 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the
Exchange Act or otherwise available.
ARTICLE VII.
MISCELLANEOUS
7.1 Termination.
(a) Termination
Right. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if
any domestic or international event or act or occurrence has materially disrupted, or in its opinion will in the immediate future
materially disrupt, general securities markets in the United States; or (ii) if trading on any Trading Market shall have been
suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction,
or (iii) if the United States shall have become involved in a new war or an increase in major hostilities, or (iv) if
a banking moratorium has been declared by a New York State or federal authority, or (v) if a moratorium on foreign exchange
trading has been declared which materially adversely impacts the United States securities markets, or (vi) if the Company
shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the Representative’s opinion, make it inadvisable to
proceed with the delivery of the Securities, or (vii) if the Company is in material breach of any of its representations,
warranties or covenants hereunder, or (viii) if the Representative shall have become aware after the date hereof of such a
material adverse change in the conditions or prospects of the Company, or such material adverse change in general market conditions
as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the
Securities or to enforce contracts made by the Underwriters for the sale of the Securities.
(b) Expenses.
In the event this Agreement shall be terminated pursuant to Section 7.1(a) within the time specified herein or any extensions thereof
pursuant to the terms herein, the Company shall be obligated to reimburse the Representative for its actual and accountable out
of pocket expenses related to the transactions contemplated herein which are then due and payable, including the fees and disbursements
of EGS, in an aggregate amount for all such expenses, up to $100,000 (less any amounts already advanced to such firm by the Company
in connection with the offering); provided, however, that
such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement set forth in Article
VI. For purposes of clarity, if this Agreement shall be terminated pursuant to Section 7.1(a), the Company shall have no
obligation to reimburse the expenses of any Underwriter other than the Representative as set forth in this Section 7.1(b).
(c) Indemnification.
Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of Article VI shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or any part hereof.
7.2 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, the Prospectus and the Prospectus Supplement,
and the Investment Banking Agreement, dated July 13, 2015 (the “Investment Banking Agreement”), as amended,
by and between the Company and the Representative, contain the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and schedules. In the event of a conflict between
the Investment Banking Agreement and this Agreement, this Agreement shall prevail, except that, in the event of any such conflict,
Sections 4(b) and 5 of the Investment Banking Agreement shall prevail; provided further, that in the event the Offering is not
closed, the rights of participation set forth in Section 5 of the Investment Banking Agreement shall terminate and no longer be
in effect.
7.3 Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and
shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number or email attachment at the email address set forth on the signature pages attached hereto
at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth
on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight
courier service or (d) upon actual receipt by the party to whom such notice is required to be given; provided that
for any notice delivered by email to be deemed given and effective, such notice must be followed by notice sent by overnight courier
service to be delivered on the next business day following such email, unless the recipient of such email has acknowledged via
return email receipt of such email. The address for such notices and communications shall be as set
forth on the signature pages attached hereto. If the Warrants are held through a depositary, any notice to the holders of the Warrants
shall be sufficiently given if given in accordance with the procedures of such depositary.
7.4 Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and the Representative. No waiver of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default
or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.
7.5 Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
7.6 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted
assigns.
7.7 Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection
herewith, and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or that such suit, action or proceeding has been brought in an inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) 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 contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions
of this Agreement, then, in addition to the obligations of the Company under Article VI, the prevailing party in such action, suit
or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or proceeding.
7.8 Survival.
The representations and warranties contained herein shall survive the Closing and the Option Closing, if any, and the delivery
of the Securities.
7.9 Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being
understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
7.10 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
7.11 Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Underwriters
and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages
may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents
and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
7.12 Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken
or such right may be exercised on the next succeeding Business Day, to the extent permitted by applicable law.
7.13 Construction.
The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise this Agreement
and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments hereto. In addition, each and every reference to
share prices and shares of Common Stock in this Agreement shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
7.14 WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE PARTIES HERETO EACH KNOWINGLY AND INTENTIONALLY,
TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE FOREVER
ANY RIGHT TO TRIAL BY JURY.
(Signature Pages Follow)
If the foregoing correctly
sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among the Company and the several Underwriters in accordance
with its terms.
|
Very truly yours, |
|
|
|
CERES, INC. |
|
|
|
By: |
|
|
|
Name: |
|
|
Title: |
Address for Notice:
1535 Rancho Conejo Boulevard
Thousand Oaks, California 91320
Attention: Secretary
Email: secretary@ceres.net
Facsimile: (805) 499-9017
Copy to:
Robert Evans III
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Accepted on the date first above written.
LADENBURG THALMANN & CO. INC.
As the Representative of the several
Underwriters listed on Schedule I
By: Ladenburg Thalmann & Co. Inc.
Address for Notice:
4400 Biscayne Blvd., 12th Floor
Miami, FL 33137
Email: [•]
Copy to:
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, New York 10105
Attn: Robert Charron; rcharron@egsllp.com
SCHEDULE I
Schedule
of Underwriters
Underwriters |
|
Closing Shares |
|
Closing Preferred
Shares |
|
Closing Warrants |
|
Closing Purchase
Price |
Ladenburg
Thalmann & Co. Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
SCHEDULE II
Cheryl Morley
Pascal Brandys
Richard Flavell
Robert Goldberg
Aflalo Guimaraes
Richard Hamilton
Thomas Kiley
Richard Hamilton
Paul Kuc
Wilfriede van Assche
Roger Pennell
Artal Luxembourg S.A.
Exhibit B
CERES, INC.
OFFICERS’ CERTIFICATE
[Date]
This Officers’ Certificate is being delivered pursuant to
that certain Underwriting Agreement dated as of [dated] (the “Agreement”), by and among Ceres, Inc., a Delaware corporation
(the “Company”), Ladenburg Thalmann & Co. Inc., as representative of the underwriters named therein (the “Representative”),
and the other underwriters named therein (together with the Representative, the “Underwriters”). Terms used but not
defined herein shall have the meanings ascribed to them in the Agreement.
The undersigned, [Richard Hamilton], President and Chief Executive
Officer of the Company, and [Paul Kuc], Chief Financial Officer of the Company, have reviewed the Registration Statement, any
Prospectus Supplement, any Permitted Free Writing Prospectus and the Agreement, and hereby certify as follows:
| 1. | We are, respectively, the President and Chief Executive
Officer and the Chief Financial Officer of the Company, and make the statements contained herein. |
| 2. | The representations and warranties of the Company in the
Agreement are true and correct, as if made on and as of the date hereof, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied at or prior to the date hereof. |
| 3. | No stop order suspending the effectiveness of the Registration
Statement or the use of the Base Prospectus or any Prospectus Supplement has been issued and no proceedings for that purpose have
been instituted or are pending or, to the Company’s knowledge, threatened under the Securities Act; no order having the
effect of ceasing or suspending the distribution of the Securities or any other securities of the Company has been issued by any
securities commission, securities regulatory authority or stock exchange in the United States and no proceedings for that purpose
have been instituted or are pending or, to the knowledge of the Company, contemplated by any securities commission, securities
regulatory authority or stock exchange in the United States. |
| 4. | When the Registration Statement became effective, at the
time of sale, and at all times subsequent thereto up to the delivery of this Officers’ Certificate, the Registration Statement,
when it became effective, contained all material information required to be included therein by the Securities Act and the applicable
rules and regulations of the Commission thereunder, and in all material respects conformed to the requirements of the Securities
Act and the applicable rules and regulations of the Commission thereunder, and the Registration Statement did not and does not
include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they were made, not misleading (provided, however,
that the preceding representations and warranties contained in this clause (4) shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriters expressly for
use therein) and, since the effective date of the Registration Statement, there has occurred no event required by the Securities
Act and the rules and regulations of the Commission thereunder to be set forth in the Registration Statement which has not been
so set forth. |
| 5. | Subsequent to the respective dates as of which information
is given in the Registration Statement and any Prospectus Supplement, there has not been: (a) any transaction that is material
to the Company and the Subsidiaries taken as a whole, except transactions entered into in the ordinary course of business; (b)
any obligation, direct or contingent, that is material to the Company and the Subsidiaries taken as a whole, incurred by the Company
or any Subsidiary, except obligations incurred in the ordinary course of business; (c) any material change in the capital stock
(except changes thereto resulting from the exercise of outstanding stock options or warrants) or outstanding indebtedness of the
Company or any Subsidiary; (d) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company;
or (e) any loss or damage (whether or not insured) to the property of the Company or any Subsidiary which has been sustained or
will have been sustained which has a Material Adverse Effect. |
EXHIBIT 3.2
ceres,
inc.
FORM OF
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A-1
CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 151 OF THE
Delaware
GENERAL CORPORATION LAW
The undersigned, Richard Hamilton and Wilfriede
van Assche, do hereby certify that:
1. They are the Chief Executive Officer
and Secretary, respectively, of Ceres, Inc., a Delaware corporation (the “Corporation”).
2. The Corporation is authorized to issue
10,000,000 shares of preferred stock, zero (0) of which have been issued.
3. The following resolutions were duly adopted
by a committee (the “Pricing Committee”) of the board of directors of the Corporation (the “Board of Directors”):
WHEREAS, the certificate of incorporation
of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of 10,000,000 shares, $0.01
par value per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized
to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences
of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof,
of any of them and has authorized the Pricing Committee to exercise such powers to the extent set forth in its resolution duly
adopted on September 17, 2015; and
WHEREAS, it is the desire of the Pricing
Committee, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a
series of the preferred stock, which shall consist of, except as otherwise set forth in the Underwriting Agreement, up to [_____]
shares of the preferred stock which the Corporation has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED, that the
Pricing Committee does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities,
rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series
of preferred stock as follows:
TERMS OF PREFERRED STOCK
Section 1. Definitions.
For the purposes hereof, the following terms shall have the following meanings:
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
“Alternate
Consideration” shall have the meaning set forth in Section 7(e).
“Beneficial
Ownership Limitation” shall have the meaning set forth in Section 6(d).
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.
“Buy-In”
shall have the meaning set forth in Section 6(c)(iv).
“Closing”
shall have the meaning ascribed to such term in the Underwriting Agreement.
“Closing
Date” shall have the meaning ascribed to such term in the Underwriting Agreement.
“Commission”
means the United States Securities and Exchange Commission.
“Common
Stock” means the Corporation’s common stock, par value $0.01 per share, and stock of any other class of securities
into which such securities may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof
to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
“Conversion
Amount” in respect of the Preferred Stock held by any Holder means the sum of the Stated Value of the Preferred Stock
held by such Holder (including adjustments needed, if any, to take account of any Preferred Stock previously converted by such
Holder).
“Conversion
Date” shall have the meaning set forth in Section 6(a).
“Conversion
Price” shall have the meaning set forth in Section 6(b).
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in
accordance with the terms hereof.
“DTC”
shall have the meaning set forth in Section 2.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Fundamental
Transaction” shall have the meaning set forth in Section 7(e).
“GAAP”
means United States generally accepted accounting principles.
“Holder”
shall have the meaning given such term in Section 2.
“Liquidation”
shall have the meaning set forth in Section 5.
“New
York Courts” shall have the meaning set forth in Section 9(d).
“Notice
of Conversion” shall have the meaning set forth in Section 6(a).
“Original
Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers
of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred
Stock.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preferred
Stock” shall have the meaning set forth in Section 2.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share
Delivery Date” shall have the meaning set forth in Section 6(c).
“Stated
Value” shall have the meaning set forth in Section 2.
“Subsidiary”
means any subsidiary of the Corporation as set forth in Exhibit 21.1 to the Company’s Annual Report on Form 10-K most recently
filed with the Commission and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed
or acquired after the date of the Underwriting Agreement.
“Successor
Entity” shall have the meaning set forth in Section 7(e).
“Trading
Day” means a day on which the principal Trading Market is open for business.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange (or any successors to any of the foregoing).
“Transfer
Agent” means American Stock Transfer & Trust Company, LLC, the current transfer agent of the Corporation with a mailing
address of 6201 15th Avenue, Brooklyn, NY 11219 and a facsimile number of 718-236-2641, and any successor transfer agent of the
Corporation.
“Underwriters”
means Ladenburg Thalmann & Co. Inc. and [ ].
“Underwriting
Agreement” means the underwriting agreement, dated as of [________], 2015, among the Corporation and the Underwriters,
as amended, modified or supplemented from time to time in accordance with its terms.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable,
(c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported on OTC Pink of the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest
of the Preferred Stock then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid
by the Corporation.
Section 2. Designation,
Amount and Par Value. The series of preferred stock shall be designated as its Series A-1 Convertible Preferred Stock (the
“Preferred Stock”) and the number of shares of such series so designated shall be up to [___] (which shall not
be subject to increase without the written consent of all of the holders of the Preferred Stock (each, a “Holder”
and collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $0.01 per share and
a stated value equal to $1,000 (the “Stated Value”). The shares of Preferred Stock shall initially be issued
and maintained in the form of securities held in book-entry form and the Depository Trust Company or its nominee (“DTC”)
shall initially be the sole registered holder of the shares of Preferred Stock.
Section 3. Dividends.
Except for stock dividends or distributions for which adjustments are to be made pursuant to Section 7, Holders shall be entitled
to receive, and the Corporation shall pay, dividends on shares of Preferred Stock equal (on an as-if-converted-to-Common-Stock
basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid
on shares of the Common Stock. No other dividends shall be paid on shares of Preferred Stock.
Section 4. Voting
Rights. Except as otherwise provided herein or as otherwise required by law, the Preferred Stock shall have no voting rights.
However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the
Holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences
or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) increase the number of authorized
shares of Preferred Stock, or (c) effect a stock split or reverse stock split of the Preferred Stock or any like event.
Section 5. Liquidation.
Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall be entitled to participate on an as-converted-to-Common Stock basis with holders of the Common Stock in any distribution
of assets of the Corporation to the holders of the Common Stock. The Corporation shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each Holder.
Section 6. Conversion.
a) Conversions
at Option of Holder. Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the
Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitation
set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Holders
shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice
of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the
number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent
to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date that
such Notice of Conversion to the Corporation is deemed delivered hereunder (such date, the “Conversion Date”).
If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion
to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and
entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions
of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred
Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder
shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue. Shares
of Preferred Stock converted into Common Stock in accordance with the terms hereof shall be canceled and shall not be reissued.
Notwithstanding
the foregoing in this Section 6(a), a holder whose interest in the shares of Preferred Stock is a beneficial interest in certificate(s)
representing the shares of Preferred Stock held in book-entry form through DTC (or another established clearing corporation performing
similar functions), shall effect conversions made pursuant to this Section 6(a) by delivering to DTC (or such other clearing corporation,
as applicable) the appropriate instruction form for conversion, complying with the procedures to effect conversions that are required
by DTC (or such other clearing corporation, as applicable).
By reason
of the provisions of this Section 6(a), following the conversion of a portion of the Preferred Stock represented by a certificate,
the number of shares of Preferred Stock available for conversion under such certificate at any given time may be less than the
amount stated on the face of the certificate. Absent manifest error, following any conversion of Preferred Stock, the remaining
number of shares of Preferred Stock available for conversion under any certificate shall be equal to the applicable number contained
in the records of the Transfer Agent maintained for such purpose.
b) Conversion
Price. The conversion price for the Preferred Stock shall equal $[_____], subject to adjustment herein (the “Conversion
Price”).
c) Mechanics
of Conversion
i. Delivery
of Conversion Shares Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share
Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) Conversion Shares
which shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Underwriting
Agreement) representing the number of Conversion Shares being acquired upon the conversion of the Preferred Stock, and (B) a bank
check in the amount of accrued and unpaid dividends, if any. The Corporation shall use its commercially reasonable efforts to deliver
the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust
Company or another established clearing corporation performing similar functions.
ii. Failure
to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as
directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation
at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall
promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly
return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
iii. Obligation
Absolute; Partial Liquidated Damages. Subject to Section 6(d), the Corporation’s obligation to issue and deliver the
Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged
violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however,
that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such
Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may
not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged
in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to such Holder, restraining
and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation
posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject
to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and
the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the
Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. Subject to Section 6(d),
if the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the third Trading Day after
the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages
and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $25 per Trading Day (increasing to $50
per Trading Day on the fifth Trading Day after such damages begin to accrue) for each Trading Day after such third Trading Day
after the Share Delivery Date until such Conversion Shares are delivered or the Holder rescinds such conversion. Nothing herein
shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within
the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
iv. Compensation
for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. Subject to Section 6(d), in addition to any other
rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares
by the third Trading Day after the Share Delivery Date pursuant to Section 6(c)(i), and if after such third Trading Day after such
Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or
the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder
of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a
“Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available
to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage
commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that
such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order
giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder,
either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion
(in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that
would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example,
if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating
the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such
loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s
failure to timely deliver Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms
hereof.
v. Reservation
of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock as herein
provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the
other Holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the
terms and conditions set forth in the Underwriting Agreement) be issuable (taking into account the adjustments and restrictions
of Section 7) upon the conversion of the then outstanding shares of Preferred Stock. The Corporation covenants that all shares
of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
vi. Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock.
As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall
at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.
vii. Transfer
Taxes and Expenses. The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to
any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion
Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares
of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person
or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established
to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required
for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
d) Beneficial
Ownership Limitation. Notwithstanding any other provision of this Section 6, the Corporation shall not effect any conversion
of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that,
after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s
Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the
number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred
Stock beneficially owned by such Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Holder or any of its Affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing
to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible
for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 6(d)
applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder
together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such
Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares
of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) and how
many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance
with this restriction, each Holder shall be deemed to represent to the Corporation each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no
obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s
most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by
the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares
of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within two Trading Days
confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the
Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon
conversion of Preferred Stock held by the applicable Holder. A Holder, upon notice to the Corporation, may increase or decrease
the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions
of this Section 6(d) shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until
the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder.
The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms
of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of Preferred Stock.
Section 7. Certain
Rights.
a) Stock
Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend
or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common
Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion
of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number
of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the
Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section
7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend
or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b)
[RESERVED]
c) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then each Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred
Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase
Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right
to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its
right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro
Rata Distributions. During such time as this Preferred Stock is outstanding, if the Corporation declares or makes any dividend
or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by
way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a
“Distribution”), at any time after the issuance of this Preferred Stock, then, in each such case, the Holder
shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the
Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Preferred Stock (without regard
to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before
the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders
of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to
the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial
ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall
be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).
e) Fundamental
Transaction. If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one
or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation,
directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange
offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, or (v) the Corporation, directly or indirectly, in one or more
related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more
than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase
agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion
of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section
6(d) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation
or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred
Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the
conversion of this Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the
Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock
following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation
or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions
and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to
convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction
in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations
of the Corporation under this Certificate of Designation in accordance with the provisions of this Section 7(e) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay)
prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Preferred
Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this
Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent
entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard
to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price
which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the
shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares
of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately
prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder.
Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that
from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation referring to the “Corporation”
shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of
the obligations of the Corporation under this Certificate of Designation with the same effect as if such Successor Entity had been
named as the Corporation herein.
f) Calculations.
All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
g) Notice
to the Holders.
i. Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation
shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii. Notice
to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,
(C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required
in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any
sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be
filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered
to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days
prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date
as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein
or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the
extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation
or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during
the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as
may otherwise be expressly set forth herein.
Section 8. Forced
Conversion. Beginning on the third anniversary of the Original Issue Date, subject to compliance with Section 6(d), the Corporation
shall have the right to cause each Holder of Preferred Stock to convert all or part of such Holder’s Preferred Stock upon
20 calendar days’ prior written notice to such Holder (which notice may be given by the Transfer Agent). Such notice may
be given prior to the third anniversary of the Original Issue Date and shall be given in accordance with any applicable procedures
of the depositary for the Preferred Stock.
Section 9. Miscellaneous.
a) Notices.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Conversion, shall be in writing and delivered personally, by email or facsimile (if specified), or sent by a nationally
recognized overnight courier service, addressed to the Corporation, at 1535 Rancho Conejo Boulevard, Thousand Oaks, California
91320, Attention: Secretary, e-mail address: Secretary@ceres.net, and facsimile number: (805) 499-9017 or such other
facsimile number, e-mail address or address as the Corporation may specify for such purposes by notice to the Holders delivered
in accordance with this Section 9. Any and all notices or other communications or deliveries to be provided by the Corporation
hereunder shall be in writing and delivered personally, by facsimile or email (if followed by notice sent by overnight courier
service to be delivered on the next business day following such email, unless receipt of the email is acknowledged by the recipient
via return email), or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number,
email address or address of such Holder appearing on the books of the Corporation. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile or email prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile or email on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given, in each case to the parties at the addresses or facsimile number specified herein (or at such other address or facsimile
number for a party as shall be specified by like notice) and provided that for any notice delivered by email to be deemed
given and effective, such notice must be followed by notice sent by overnight courier service to be delivered on the next business
day following such email, unless the recipient of such email has acknowledged via return email receipt of such email. Notwithstanding
any other provision of this Certificate of Designation, where this Certificate of Designation provides for notice of any event
to a Holder, if this Certificate of Designation is held in global form by DTC (or any successor depositary), such notice shall
be sufficiently given if given to DTC (or such successor depositary) pursuant to the procedures of DTC (or such successor depositary).
b) Absolute
Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the
obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages and accrued dividends, as applicable,
on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
c) Lost
or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated
certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of
Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of
such certificate (including appropriate indemnity), and of the ownership hereof reasonably satisfactory to the Corporation.
d) Stock
Register. The Corporation will keep at its principal office or at the offices of the Transfer Agent, a register of the Preferred
Stock, which shall be prima facia indicia of ownership of all outstanding shares of Preferred Stock.
e) Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation
shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to
the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement
and defense of the transactions contemplated by this Certificate of Designation (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Certificate
of Designation), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out
of or relating to this Certificate of Designation or the transactions contemplated hereby. If any party shall commence an action
or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation,
preparation and prosecution of such action or proceeding.
f) Waiver.
Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as
or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate
of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to
any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or
any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of
Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.
g) Severability.
If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation
shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable
to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates
the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum
rate of interest permitted under applicable law.
h) Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
i) Headings.
The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not
be deemed to limit or affect any of the provisions hereof.
j) Status
of Converted or Reacquired Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Underwriting Agreement.
If any shares of Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized
but unissued shares of preferred stock and shall no longer be designated as Series A-1 Convertible Preferred Stock.
*********************
RESOLVED, FURTHER, that the Chairman, the
Chief Executive Officer, the Chief Financial Officer, the Secretary or any vice-president or any assistant secretary, of the Corporation
be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations
in accordance with the foregoing resolution and the provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned have
executed this Certificate this ___ day of _____ 2015.
|
|
|
Name: |
|
Name: |
Title: |
|
Title: |
ANNEX A
NOTICE OF CONVERSION
(To
be Executed by the Registered Holder in order to Convert Shares of Preferred Stock)
The undersigned hereby elects to convert
the number of shares of Series A-1 Convertible Preferred Stock indicated below into shares of common stock, par value $0.01 per
share (the “Common Stock”), of Ceres, Inc., a Delaware corporation (the “Corporation”), according
to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other
than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders
for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion: |
|
Number of shares of Preferred Stock owned prior to Conversion: |
|
Number of shares of Preferred Stock to be Converted: |
|
Stated Value of shares of Preferred Stock to be Converted: |
|
Number of shares of Common Stock to be Issued: |
|
Applicable Conversion Price: |
|
Number of shares of Preferred Stock subsequent to Conversion: |
|
(If Preferred Stock is not in book-entry form) Address for Delivery: _______________________________
or
(If Preferred Stock is in book-entry form) DWAC Instructions:
Broker no: _________
Account no: ___________
|
[HOLDER] |
|
|
|
By: |
|
|
|
Name: |
|
|
Title: |
EXHIBIT 4.16
FORM OF
INVESTOR WARRANT
ceres,
inc.
Warrant Shares: [_______] |
|
Initial Exercise Date: [_______], 2015 |
Warrant No.: [ ] |
|
Issue Date: [ ], 2015 |
THIS COMMON
STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns
(the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”)
and on or prior to the close of business on the five year anniversary of the Initial Exercise Date (the
“Termination Date”) but not thereafter, to subscribe for and purchase from Ceres, Inc., a Delaware
corporation (the “Company”), up to ______ shares (as subject to adjustment hereunder, the
“Warrant Shares”) of the Company’s common stock, par value $0.01 per share (“Common
Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b). This Warrant shall initially be issued and maintained in the form of a global security held in
book-entry form and deposited with AST, as custodian on behalf of the Depositary Trust Company or its nominee (“DTC”), which
shall initially be the sole registered holder of this Warrant.
Section
1. Definitions. In addition to the terms defined elsewhere in this
Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“AST”
means American Stock Transfer & Trust Company, LLC, with a mailing address of [6201 15th Avenue, Brooklyn, NY 11219 and a facsimile
number of (718) 236-2641].
“Board
of Directors” means the board of directors of the Company.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.
“Commission”
means the United States Securities and Exchange Commission.
“Common Stock Equivalents”
means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Liens”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Subsidiary”
means any subsidiary of the Company as set forth in Exhibit 21.1 to the Company’s Annual Report on Form 10-K most recently
filed with the Commission and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or
acquired after the Issue Date.
“Trading
Day” means a day on which the Common Stock is traded on a Trading Market.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the
New York Stock Exchange (or any successors to any of the foregoing).
“Transfer
Agent” means AST and any successor transfer agent of the Company.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable,
(c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported on OTC Pink of the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority of the
then-outstanding rights to purchase Warrant Shares pursuant to this Warrant and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
“Warrant Agency
Agreement” means that certain warrant agency agreement, dated the Issue Date, between the Company and AST, and as it
may be subsequently amended.
“Warrant Agent”
means AST and any successor warrant agent of the Company.
a) Exercise
of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company pursuant to the notice provisions hereof (or such
other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed copy by e-mail attachment of the Notice of Exercise in the form annexed
hereto as Exhibit A and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company
shall have received payment of the aggregate Exercise Price of the shares of Common Stock thereby purchased by wire transfer or
cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in
Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee
or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall
not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for
cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises
of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect
of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant
Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date
of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of
such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions
of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available
for purchase hereunder at any given time may be less than the amount stated on the face hereof.
Notwithstanding
the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing
this Warrant held in book-entry form through DTC (or another established clearing corporation performing similar functions), shall
effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the
appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other
clearing corporation, as applicable).
b) Exercise
Price. The exercise price per share of the Common Stock under this Warrant shall be $[_____], subject to adjustment
hereunder (the “Exercise Price”).
c) Cashless
Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall follow the exercise procedure
set out in paragraph (a) above and shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
| (A) | = |
the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless
exercise,” as set forth in the applicable Notice of Exercise; |
| (B) | = |
the Exercise Price of this Warrant, as adjusted hereunder; and |
| (X) | = |
the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant
if such exercise were by means of a cash exercise rather than a cashless exercise. |
If
such formula results in a quotient that is less than or equal to zero (0), no Warrant Shares shall be issued as a result of such
cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9)
of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period
of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares, subject to applicable law. The
Company agrees not to take any position contrary to this Section 2(c), subject to applicable law.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised in whole via cashless exercise
pursuant to this Section 2(c) and upon any such exercise, the Holder shall surrender this Warrant to the Company for cancellation
within three (3) Trading Days.
i. Delivery
of Warrant Shares Upon Exercise. Subject to Section 2(e), Warrant Shares purchased hereunder shall be transmitted by the Transfer
Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository
Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant
in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale
limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company’s share
register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after
the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). The Warrant
Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to
the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any,
pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. Subject to Section 2(e) and receipt by the
Company of the Exercise Price (except in the case of a cashless exercise), if the Company fails for any reason to deliver to the
Holder the Warrant Shares subject to a Notice of Exercise by the third Trading Day after the Warrant Share Delivery Date, the Company
shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such
exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading Day (increasing
to $10 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after the third
Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
ii. Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. Subject to Section 2(e) and receipt by the Company of
the Exercise Price (except in the case of a cashless exercise), in addition to any other rights available to the Holder, if the
Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section
2(d)(i) above pursuant to an exercise by the third Trading Day after the Warrant Share Delivery Date, and if after such third Trading
Day after such Warrant Share Delivery Date the Holder is required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder
of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company
shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number
of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (2) the actual
sale price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which
case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.
Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely
deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi. Charges,
Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company,
and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees
to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day
electronic delivery of the Warrant Shares.
vii. Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
e) Holder’s
Exercise Limitations. Notwithstanding any other provision of this Section 2, the Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to
the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder
(together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include,
but not be limited to, the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion
of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common
Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section
2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation
is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion
of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned
by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction, each Holder shall be deemed to represent to the Company each
time it delivers a Notice of Exercise that such Notice of Exercise has not violated the restrictions set forth in this paragraph,
and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination
as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent
periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or
(C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder
or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company,
may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e)
shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 61st
day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.
| Section 3. | Certain Rights. |
a) Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder
exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase
Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Beneficial Ownership Limitation).
c) Pro
Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this
Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall
be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
d) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction,
(2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving
a person or entity not traded on a national securities exchange, the Company or any Successor Entity (as defined below) shall,
at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental
Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of
the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black
Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the
“OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable
Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination
Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg
as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value
of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the
time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company
shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions
of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by
the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to
the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor
Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant
(without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise
price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of
the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number
of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately
prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder.
Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that
from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
e) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
f) Notice
to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly
send to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of
Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be sent to the Holder at its last address
as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to send such notice or any defect therein or in the sending thereof shall not affect the validity
of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except
as may otherwise be expressly set forth herein.
| Section 4. | Transfer of Warrant. |
a) Transferability.
This Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office
of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning
this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase
of Warrant Shares without having a new Warrant issued.
b) New
Warrants. If this Warrant is not held in global form through DTC (or any successor depositary), this Warrant may be divided
or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject
to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such
notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant
except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant
Register. The Warrant Agent shall register this Warrant, upon records to be maintained by the Warrant Agent for that purpose
(the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company and the Warrant
Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof
or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
a) No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in
Section 3.
b) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c) Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d) Authorized
Shares.
The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged
with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be
listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue). Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon
the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be necessary to enable the Company to perform its obligations
under this Warrant.
Before taking
any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
| e) | Governing Law and Jurisdiction. All questions concerning the construction, validity, enforcement
and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning
the interpretation, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto
or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Warrant), and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions
contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses
incurred in the investigation, preparation and prosecution of such action or proceeding. |
f) Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does
not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact
that all rights hereunder terminate on the Termination Date. Without limiting any other provision of this Warrant, if the Company
willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited
to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
| h) | Notices. Any and all notices or other communications or deliveries to be provided by the
Holder hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by email
or facsimile (if specified), or sent by a nationally recognized overnight courier service, addressed to the Company, at 1535 Rancho
Conejo Boulevard, Thousand Oaks, California 91320, Attention: Secretary, e-mail address: Secretary@ceres.net, and facsimile number:
(805) 499-9017 or such other facsimile number, e-mail address or address as the Company may specify for such purposes by notice
to the Holder delivered in accordance with this Section 5(h). Any and all notices or other communications or deliveries to be provided
by the Company hereunder shall be in writing and delivered personally, by facsimile or email (if followed by notice sent by overnight
courier service to be delivered on the next business day following such email, unless receipt of the email is acknowledged by the
recipient via return email), or sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile
number, email address or address of the Holder appearing on the Warrant Register. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile or email prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile or email on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given, in each case to the parties at the addresses or facsimile number specified herein (or at such other address or facsimile
number for a party as shall be specified by like notice) and provided that for any notice delivered by email to be deemed given
and effective, such notice must be followed by notice sent by overnight courier service to be delivered on the next business day
following such email, unless the recipient of such email has acknowledged via return email receipt of such email. Notwithstanding
any other provision of this Warrant, where this Warrant provides for notice of any event to the Holder, if this Warrant is held
in global form by DTC (or any successor depositary), such notice shall be sufficiently given if given to DTC (or any successor
depositary) pursuant to the procedures of DTC (or such successor depositary). |
i) Warrant
Agency Agreement. This Warrant is issued subject to the Warrant Agency Agreement. To the extent any provision of this Warrant
conflicts with the express provisions of the Warrant Agency Agreement, the provisions of the Warrant Agency Agreement shall govern
and be controlling.
j) Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
k) Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
l) Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
m) Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder
or beneficial owner of this Warrant.
n) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
o) Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the
Company has caused this Warrant to be executed by its officers thereunto duly authorized as of the Issue Date indicated above.
|
ceres, inc. |
|
|
|
|
By: |
|
|
|
Name: |
|
|
Title: |
|
|
|
|
By: |
|
|
|
Name: |
|
|
Title: |
Exhibit A
NOTICE OF EXERCISE
To: ceres,
inc.
(1) The undersigned
hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall
take the form of (check applicable box):
¨ lawful
money of the United States; or
¨ if
permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3) Please issue said
Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered
to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity: ___________________________________________________________________________
Signature of Authorized Signatory of
Investing Entity: _____________________________________________________
Name of Authorized Signatory: _______________________________________________________________________
Title of Authorized Signatory: ________________________________________________________________________
Date: ___________________________________________________________________________________________
Exhibit B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, [____]
all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
|
Dated: ______________, _______ |
|
Holder’s Signature: |
_____________________________ |
|
|
|
|
Holder’s Address: |
_____________________________ |
|
|
|
|
|
_____________________________ |
EXHIBIT 4.17
NEITHER THIS SECURITY NOR THE SECURITIES
INTO WHICH THIS SECURITY IS EXERCISABLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION
THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
FORM OF WARRANT FOR THE REPRESENTATIVE
ceres,
inc.
Warrant Shares: _______ |
Initial Exercise Date: ________ |
Warrant No.: _______ |
Issue Date: ________ |
THIS COMMON STOCK
PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ________ or its assigns (the
“Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after ______ (the “Initial Exercise Date”) and on or prior to the
close of business on ______1 (the
“Termination Date”) but not thereafter, to subscribe for and purchase from Ceres, Inc., a Delaware
corporation (the “Company”), up to _______ shares (as subject to adjustment hereunder, the
“Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant is issued by the Company as of the date hereof
pursuant to Section 2.3(iv) of the Underwriting Agreement, dated as of _______, 2015 (the “Underwriting
Agreement”), between the Company and Ladenburg Thalmann & Co. Inc. (“Ladenburg”) as
representative of the underwriters named therein.
Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Underwriting Agreement and as
set forth herein:
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board of
Directors” means the board of directors of the Company.
1 5 year anniversary of the
effective date of the registration statement.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.
“Commission”
means the United States Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.01 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.
“Common Stock
Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Liens”
means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect
as such Rule.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Trading Day”
means a day on which the Common Stock is traded on a Trading Market.
“Trading Market”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange
(or any successors to any of the foregoing).
“Transfer
Agent” means American Stock Transfer & Trust Company, LLC, the current transfer agent of the Company, with a mailing
address of 6201 15th Avenue, Brooklyn, NY 11219 and a facsimile number of 718-236-2641, and any successor transfer agent of the
Company.
Section 2. Exercise.
a) Exercise
of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time
or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company pursuant to
the notice provisions in the Underwriting Agreement (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly
executed copy by e-mail attachment of the Notice of Exercise in the form annexed hereto as Exhibit A and within three (3)
Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the
aggregate Exercise Price of the shares of Common Stock thereby purchased by wire transfer or cashier’s check drawn on a
United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No
ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall
not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the
Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company.
Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal
to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of
Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise
within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount
stated on the face hereof.
b) Exercise
Price. The exercise price per share of the Common Stock under this Warrant shall be $_____,2 subject to adjustment
hereunder (the “Exercise Price”).
c) Cashless
Exercise. If at any time on or after the Initial Exercise Date, there is no effective registration statement registering, or
no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless exercise” in which the Holder shall follow the exercise procedure
set out in paragraph (a) above and shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
2 150% of the public offering
price per share
(A) = the
VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless
exercise,” as set forth in the applicable Notice of Exercise;
(B) = the
Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant
if such exercise were by means of a cash exercise rather than a cashless exercise.
If such formula results in a quotient that is less than or equal to zero (0), no Warrant Shares shall be issued as a result of such cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9)
of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period
of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares, subject to applicable law. The
Company agrees not to take any position contrary to this Section 2(c), subject to applicable law.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable,
(c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders
of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised in whole via
cashless exercise pursuant to this Section 2(c) and upon any such exercise, the Holder shall surrender this Warrant to the
Company for cancellation within three (3) Trading Days.
d) Mechanics
of Exercise.
i. Delivery
of Warrant Shares Upon Exercise. Subject to Section 2(e), Warrant Shares purchased hereunder shall be transmitted by the
Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The
Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is
then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the
Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the
Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of a
certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of
Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice
of Exercise by the date that is three (3) Trading Days after the delivery to the Company of the Notice of Exercise (such
date, the “Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior
to the issuance of such shares, having been paid. Subject to Section 2(e) and receipt by the Company of the Exercise Price
(except in the case of a cashless exercise), if the Company fails for any reason to deliver to the Holder the Warrant Shares subject
to a Notice of Exercise by the third Trading Day after the Warrant Share Delivery Date, the Company shall pay to the Holder,
in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on
the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading Day (increasing to $10 per
Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after the third
Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such
exercise.
ii. Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. Subject to Section 2(e) and receipt by the Company
of the Exercise Price (except in the case of a cashless exercise), in addition to any other rights available to the Holder, if
the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise by the third Trading Day after the Warrant Share Delivery Date, and if
after such third Trading Day after such Warrant Share Delivery Date the Holder is required by its broker to purchase (in an
open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which
(x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue by (2) the actual sale price at which the sell order giving
rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be
deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to
it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
v. No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi. Charges,
Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer
tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid
by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed
by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached
hereto as Exhibit B duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required
for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established
clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
e) Holder’s
Exercise Limitations. Notwithstanding any other provision of this Section 2, the Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or
otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the
Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the
Holder and its Affiliates shall include, but not limited to, the number of shares of Common Stock issuable upon exercise of
this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the
Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is
in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be
filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of
which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of
Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder shall be deemed
to represent to the Company each time it delivers a Notice of Exercise that such Notice of Exercise has not violated the
restrictions set forth in this paragraph, and the Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance
with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section
2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares
of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as
the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or
the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of
a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder,
upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e),
provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by
the Holder and the provisions of this Section 2(e) shall continue to apply. Any such increase in the Beneficial Ownership
Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions
of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this
Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3. Certain
Rights.
a) Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) [RESERVED]
c) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder
exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase
Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Beneficial Ownership Limitation).
d) Pro
Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"),
at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation
in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time,
if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation.
To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion
of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
e) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction,
(2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving
a person or entity not traded on a national securities exchange, the Company or any Successor Entity (as defined below) shall,
at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental
Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of
the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black
Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the
“OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable
Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination
Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg
as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value
of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the
time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company
shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Company under this Warrant
in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory
to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option
of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital
stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance
to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted
for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
f) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g) Notice
to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall
promptly send to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to
the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case,
the Company shall cause to be sent to the Holder at its last address as it shall appear upon the Warrant Register of
the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to send such notice or any defect therein or in the sending thereof
shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice
provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the
effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer
of Warrant.
a) Transferability.
Neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall be sold, transferred, assigned, pledged
or hypothecated , or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective
economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness
or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer of any security:
(i) by
operation of law or by reason of reorganization of the Company;
(ii) to
any FINRA member firm participating in the offering and the officers and partners thereof, if all securities so transferred remain
subject to the lock-up restriction in the first paragraph of this Section 4(a) for the remainder of the time period;
(iii) if
the aggregate amount of securities of the Company held by the Holder or related persons do not exceed 1% of the securities offered
in the offering;
(iv) that
is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages
or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity
in the fund; or
(v) the
exercise or conversion of any security, if all securities received remain subject to the lock-up restriction in the first paragraph
of this Section 4(a) for the remainder of the time period.
Subject to
compliance with any applicable securities laws, the conditions set forth in Section 4(d) hereof and the restriction set out in
the first paragraph of this Section 4(a), this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated
agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder
or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the
Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company
within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full.
The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.
b) New
Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original
Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant
Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary.
d) Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or
current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer,
that the transferor thereof provides to the Company an opinion of counsel selected by the transferor and reasonably acceptable
to the Company and the Transfer Agent, the form and substance of which opinion shall be reasonably satisfactory to the Company
and the Transfer Agent, to the effect that such transfer does not require registration of such transferred Securities under the
Securities Act.
e) Representation
by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any
exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities
law, except pursuant to sales registered or exempted under the Securities Act.
Section 5. Miscellaneous.
a) No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in
Section 3.
b) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c) Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d) Authorized
Shares.
The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged
with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be
listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue).
Except and
to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending
its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting
the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking
any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Underwriting Agreement.
f) Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does
not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all
rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of
this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of
appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
h) Notices.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
in accordance with the notice provisions of the Underwriting Agreement.
i) Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j) Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
n) Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the
Company has caused this Warrant to be executed by its officers thereunto duly authorized as of the Issue Date indicated above.
|
ceres, inc. |
|
|
|
|
By: |
|
|
|
Name: |
|
|
Title: |
|
|
|
|
By: |
|
|
|
Name: |
|
|
Title: |
EXHIBIT A
NOTICE OF EXERCISE
To: ceres,
inc.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.
(2) Payment
shall take the form of (check applicable box):
¨ lawful money of the United States; or
¨ if
permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to
the cashless exercise procedure set forth in subsection 2(c).
(3) Please
issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to
the following DWAC Account Number:
(4) Accredited Investor.
The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933,
as amended.
[SIGNATURE
OF HOLDER]
Name of Investing Entity: _____________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _______________________________________________________
Name of Authorized Signatory: _________________________________________________________________________
Title of Authorized Signatory: __________________________________________________________________________
Date: ______________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT
FORM
(To assign the
foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED,
the foregoing Warrant and all rights evidenced thereby are hereby assigned to
Name: |
|
|
(Please Print) |
|
|
Address: |
|
|
(Please Print) |
Dated: _______________ __, ______ |
|
|
|
Holder’s Signature: |
|
|
|
Holder’s Address: |
|
EXHIBIT 5.1
599 LEXINGTON
AVENUE | NEW YORK | NY | 10022-6069
WWW.SHEARMAN.COM | T +1.212.848.4000 | F +1.212.848.7179
November 24, 2015
The Board of Directors
Ceres, Inc.
1535 Rancho Conejo Boulevard
Thousand Oaks, California 91320
Ceres, Inc.
Ladies and Gentlemen:
We have acted as counsel to Ceres, Inc., a
Delaware corporation (the “Company”), in connection with the registration statement on Form S-1 (Registration No. 333-
206718) filed with the Securities and Exchange Commission (the “Commission”) on September 1, 2015, and each amendment
thereto (the “Registration Statement”), relating to the registration under the Securities Act of 1933, as amended (the
“Securities Act”), of (i) Class A Units consisting of shares of the Company’s common stock, par value $0.01 per
share (“Common Stock”), and warrants to purchase Common Stock (“Warrants”), (ii) Class B Units consisting
of shares of the Company’s Series A-1 convertible preferred stock, par value $0.01 per share (“A-1 Preferred Stock”),
and Warrants, (iii) Common Stock issuable upon conversion of the A-1 Preferred Stock (“Conversion Shares”), and (iv)
Common Stock issuable upon exercise of the Warrants (“Warrant Shares”) ((i) through (iv) collectively, the “Securities”).
The Securities are to be sold pursuant to an underwriting agreement (“Underwriting Agreement”) to be entered into by
and among the Company and Ladenburg Thalmann & Co. Inc., on behalf of themselves and as representative of the several underwriters
named in Schedule I thereto. The Warrants will be issued pursuant to a warrant agency agreement (“Warrant Agency Agreement”)
with American Stock Transfer & Trust Company, LLC, as warrant agent (the “Warrant Agent”).
In that connection, we have reviewed originals or copies of
such records of the Company, certificates of public officials and officers of the Company and agreements and other documents as
we have deemed necessary as a basis for the opinions expressed below.
ABU DHABI | BEIJING | BRUSSELS | FRANKFURT | HONG KONG | LONDON | MENLO PARK | MILAN | NEW YORK
PARIS | ROME | SAN FRANCISCO | SÃO PAULO | SHANGHAI | SINGAPORE | TOKYO | TORONTO | WASHINGTON, DC |
|
SHEARMAN & STERLING LLP IS A LIMITED LIABILITY PARTNERSHIP ORGANIZED IN THE UNITED STATES UNDER THE LAWS OF THE STATE OF DELAWARE, WHICH LAWS LIMIT THE PERSONAL LIABILITY OF PARTNERS. |
In our review, we have assumed:
| (a) | The genuineness of all signatures. |
| (b) | The authenticity of the originals of the documents submitted to us. |
| (c) | The conformity to authentic originals of any documents submitted to us as copies. |
| (d) | As to matters of fact, the truthfulness of the representations made in certificates of public officials and officers of the
Company. |
We have not independently established the validity of the foregoing
assumptions.
Based upon the foregoing and upon such other investigation as
we have deemed necessary and subject to the qualifications set forth below, we are of the opinion that:
1. The shares of Common Stock included
in the Class A Units have been duly authorized by the Company and when (i) the terms of issuance and sale of the applicable shares
of Common Stock included in the Class A Units have been duly approved by the Company in conformity with the Company’s Amended
and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and Amended and Restated Bylaws (the
“Bylaws”) and (ii) such shares of Common Stock are issued as provided in the Certificate of Incorporation and Bylaws
and delivered to the purchasers thereof against payment of the consideration therefor as contemplated in the Underwriting Agreement,
such shares of Common Stock will be validly issued, fully paid and non-assessable.
2. The
shares of A-1 Preferred Stock included in the Class B Units have been duly authorized by the Company and when (i) the final terms
of the A-1 Preferred Stock have been duly established and approved by the Company in conformity with the Company’s Certificate
of Incorporation and Bylaws, (ii) all corporate action necessary for issuance of the A-1 Preferred Stock has been taken, including
the adoption of a certificate of designation relating thereto (the “Certificate of Designation”), (iii) the
Certificate of Designations establishing the terms of the A-1 Preferred Stock has been duly filed with the Secretary of State of
the State of Delaware, and (iv) such shares of A-1 Preferred Stock are issued as provided
in the Certificate of Incorporation, Bylaws and Certificate of Designation by the Company and delivered to the purchasers thereof
against payment of the consideration therefor as contemplated in the Underwriting Agreement, the A-1 Preferred Stock will be validly
issued, fully paid and non-assessable.
3. The
Conversion Shares issuable upon conversion of the A-1 Preferred Stock have been duly authorized by the Company and such Conversion
Shares, when reserved for issuance upon conversion thereof by all necessary corporate action, issued as provided in the Certificate
of Incorporation and delivered as provided in the Certificate of Designation, will be validly issued, fully paid and non-assessable.
4. The
Warrant Shares issuable upon exercise of the Warrants have been duly authorized by the Company and such Warrant Shares, when reserved
for issuance upon exercise thereof by all necessary corporate action, issued as provided in the Warrant Agency Agreement and delivered
and paid for as provided in the Warrants, will be validly issued, fully paid and non-assessable.
5. The
Warrants and the Warrant Agency Agreement have been duly authorized and when (i) the final terms of the Warrants have been duly
established and approved, (ii) certificates representing the Warrants have been duly executed by the Company and delivered to and
paid for by the purchasers thereof as contemplated in the Underwriting Agreement and (iii) the Warrant Agency Agreement has been
duly executed and delivered by the Company and duly authorized, executed and delivered by the Warrant Agent, the Warrants will
be the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and
entitled to the benefits of the Warrant Agency Agreement, and the Warrant Agency Agreement will be the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with its terms.
Our opinions expressed above are subject to the following qualifications:
(a) Our opinions in paragraphs 2 and
5 above are subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights generally (including without limitation all laws relating to fraudulent transfers).
(b) Our opinion in paragraph 2 and 5
above is also subject to the effect of general principles of equity, including without limitation concepts of materiality, reasonableness,
good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law).
(c) Our opinions are limited to the laws
of the State of New York and the General Corporation Law of the State of Delaware, and we do not express any
opinion herein concerning any other law.
This opinion letter is rendered to you in connection with the
preparation and filing of the Registration Statement. This opinion letter may not be relied upon by you for any other purpose without
our prior written consent.
We hereby consent to the filing of this opinion
letter as an exhibit to the Registration Statement and to the use of our name under the heading “Legal Matters” therein
and in the Prospectus constituting a part of the Registration Statement. In giving this consent, we do not hereby admit that we
come within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations
of the Commission thereunder.
|
Very truly yours, |
|
|
|
/s/ Shearman & Sterling LLP |
RE/BB/RDG
LLJ
Exhibit 23.1
Consent of Independent Registered Public
Accounting Firm
The Board of Directors and Stockholders of Ceres, Inc.:
We consent to the use of our report dated
November 23, 2015, with respect to the consolidated balance sheets of Ceres, Inc. as of August 31, 2015 and 2014, and the related
consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the
two-year period ended August 31, 2015, included herein and to the reference to our firm under the heading “Experts”
in the prospectus.
Our report dated November 23, 2015 contains
an explanatory paragraph that states that the Company has incurred recurring losses and expects the current level of cash and cash equivalents will only be sufficient to fund operations until January 2016, which raises substantial
doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that
might result from the outcome of that uncertainty.
/s/ KPMG LLP
Los Angeles, California
November 24, 2015
Cerevel Therapeutics (NASDAQ:CERE)
Historical Stock Chart
From Mar 2024 to Apr 2024
Cerevel Therapeutics (NASDAQ:CERE)
Historical Stock Chart
From Apr 2023 to Apr 2024