BioRestorative Therapies, Inc. Commitments Disclosure

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Litigation, Claims and Assessments

 

Coventry Enterprises, LLC

 

On February 11, 2020, pursuant to an Order to Show Cause of the United States District Court of the Eastern District of New York (the “Court”), in the matter of Coventry Enterprises, LLC vs. BioRestorative Therapies, Inc., pending the hearing of the plaintiff’s application for a preliminary injunction, the Court issued a temporary restraining order enjoining the Company from issuing any additional shares of stock except for purposes of fulfilling the plaintiff’s share reserve requests or conversion requests until such reserve requests were fulfilled and enjoining the Company from reserving authorized shares for any other party until the plaintiff’s reserve requests were fulfilled. Pursuant to a hearing held on February 13, 2020, the temporary restraining order with regard to the Company issuing shares of common stock was not continued.

 

On March 11, 2020, the Court ordered that the Company (i) convene and hold a special meeting, by no later than March 18, 2020, of the Board of Directors of the Company (the “Board”), for approval of certain changes to the shares of the Company, as set forth below; (ii) approve a reverse split and/or a stock consolidation, solely of the Company’s outstanding shares, at a ratio of 1,000 to 1, (iii) approve of the continuation of the Company’s then total authorized shares of common stock at 2,000,000,000 shares; and (iv) call a special meeting of stockholders of the Company, within ten days of the special meeting of the Board and by not later than March 25, 2020, to approve the foregoing. On March 18, 2020, the Board considered the matter, and, based upon the Court order, determined to approve the foregoing items, including the 1,000 to 1 reverse split, subject to the Company having available funds to effectuate such items. As discussed above in Note 7 – Notes Payable – Chapter 11 Reorganization, on March 20, 2020, the Company filed a petition commencing its Chapter 11 Case. As of the date of this report, the Company has not effected the 1,000 to 1 reverse split; however, on October 27, 2021, the Company effected a 4,000 to 1 reverse split of its common stock.

 

The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.

 

Appointment or Departure of Directors and Certain Officers

 

On March 18, 2021, the Company and Lance Alstodt, its President, Chief Executive Officer and Chairman of the Board, entered into an employment agreement (the “Alstodt Employment Agreement”) which provides for a term ending on March 18, 2026. Pursuant to the Alstodt Employment Agreement, Mr. Alstodt was entitled to receive initially an annual salary of $250,000. The Alstodt Employment Agreement also provides for annual salary increases of $50,000 per year. In addition, based upon certain performance goals having been met, Mr. Alstodt’s salary increased by $150,000 in November 2021. The Alstodt Employment Agreement also provides for the grant to Mr. Alstodt pursuant to the 2021 Plan of (i) a ten-year option for the purchase of 293,479 shares of common stock of the Company and (ii) 146,740 RSUs of the Company (see Note 8 – Stockholders’ Equity (Deficit) for additional information). On November 4, 2021, the Company reduced the exercise price of these options from $47.60 per share to $13.50 per share and revised the vesting period. On December 10, 2021, the Company reduced the exercise price of these options from $13.50 per share to $5.08 per share, subject to stockholder approval. The aggregate grant date fair value of the above-mentioned equity consideration was $20,852,838, of which, $11,370,020 has been recorded as stock-based compensation in general and administrative expenses on the statement of operations for the year ended December 31, 2021. In March 2022, we and Mr. Alstodt agreed that, in lieu of a $50,000 increase in his annual salary (as provided for in his employment agreement), we issued to Mr. Alstodt 12,438 RSUs (having a value of $50,000), which RSUs will vest in twelve equal monthly installments. Such grant was in consideration of Mr. Alstodt deferring his right to receive the $50,000 increase in his salary for one year.

 

 

On March 18, 2021, the Company and Francisco Silva, its Vice President, Research and Development, entered into an employment agreement (the “Silva Employment Agreement”) which provides for a term ending on March 18, 2026. Pursuant to the Silva Employment Agreement, Mr. Silva was entitled to receive initially an annual salary of $225,000. The Silva Employment Agreement also provides for annual salary increases of $50,000 per year. In addition, based upon certain performance goals having been met, Mr. Silva’s salary increased by $150,000 in November 2021. The Silva Employment Agreement also provides for the grant to Mr. Silva pursuant to the 2021 Plan of (i) a ten-year option for the purchase of 293,479 shares of common stock of the Company and (ii) 146,740 RSUs of the Company (see Note 8 – Stockholders’ Equity (Deficit) for additional information). On November 4, 2021, the Company reduced the exercise price of these options from $47.60 per share to $13.50 per share and revised the vesting period. On December 10, 2021, the Company reduced the exercise price of these options from $13.50 per share to $5.08 per share, subject to stockholder approval. The aggregate grant date fair value of the above-mentioned equity consideration was $20,852,838, of which, $11,370,020 has been recorded as stock-based compensation in general and administrative expenses on the statement of operations for the year ended December 31, 2021. In March 2022, we and Mr. Silva agreed that, in lieu of a $50,000 increase in his annual salary (as provided for in his employment agreement), we issued to Mr. Silva 12,438 RSUs (having a value of $50,000), which RSUs will vest in twelve equal monthly installments. Such grant was in consideration of Mr. Silva deferring his right to receive the $50,000 increase in his salary for one year.

 

On November 4, 2021, the Company appointed Robert Kristal as the Company’s Chief Financial Officer and entered into an employment agreement with him (the “Kristal Employment Agreement”) which provides for a term ending on November 4, 2022. Pursuant to the Kristal Employment Agreement, Mr. Kristal is entitled to receive initially an annual salary of $175,000. The Kristal Employment Agreement provides for Mr. Kristal to receive a discretionary bonus, upon the approval of the Board of Directors, up to 30% of his base salary. In addition, the Kristal Employment Agreement provides for the grant to Mr. Kristal pursuant to the 2021 Plan of a ten-year option for the purchase of 10,490 shares of common stock of the Company with an exercise price of $13.50 per share. On December 10, 2021, the Company reduced the exercise price of these options from $13.50 per share to $5.08 per share, subject to stockholder approval. The aggregate grant date fair value of the above-mentioned equity consideration was $53,288, of which, $2,220 has been recorded as stock-based compensation in general and administrative expenses on the statement of operations for the year ended December 31, 2021.

 

Conversion of Convertible Notes

 

During the year ended December 31, 2020, certain lenders requested to exchange a portion of their outstanding convertible note principal and accrued interest for shares of the Company’s common stock. As of the Petition Date these shares had yet to be issued to the lenders; however, the shares of the Company’s common stock issued for unsecured claims as part of the Plan to the certain lenders represented the aggregate unsecured claims less the principal and accrued interest that was represented in the uneffected exchanges. In June 2021, the Company settled a claim with a lender and issued 750 shares of the Company’s common stock.

 

Research and Development Agreement and Grant

 

In September 2021, we were awarded a National Institutes of Health Small Business Technology Transfer (STTR) Phase 1 grant for $256,000 to evaluate the therapeutic effects on our hypoxic cultured bone marrow derived mesenchymal stem cells (BRTX-100) after encapsulation with a PEG-peptide hydrogel. The work is being done in collaboration with Washington University of St. Louis.

 

On December 20, 2021, the Company entered into a Master Clinical Services Agreement (the “Services Agreement”) with Professional Research Consulting, Inc. (“PRC”) pursuant to which PRC will provide trial management services related to Phase 2 of the Company’s clinical trials. The Services Agreement has a 46-month term with an estimated budgeted cost of $5,844,380. Upon execution on the Services Agreement the Company made an upfront payment of $328,152 which was recorded as a prepaid expense on the consolidated balance sheet at December 31, 2021, and will be expensed over the life of the Services Agreement.