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BIOSTAGE, INC.

Date Filed : Jan 04, 2017

S-11v456124_s1.htmS-1

As filed with the Securities and ExchangeCommission on January 3, 2017

 

Registration No. 333-

 

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  

 

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Biostage, Inc.

(Exact name of registrant as specifiedin its Charter)

 

 

 

 

 

         
Delaware   3841   45-5210462

(State or other jurisdiction of

incorporation or organization)

 

 

(Primary Standard Industrial

Classification Code Number)

 

 

(I.R.S. Employer

Identification No.)

 

 

84 October Hill Road, Suite 11, Holliston,Massachusetts 01746

(774) 233-7300

(Address, including zip code, and telephonenumber, including area code, of registrant’s principal executive office)

 

 

 

 

 

James McGorry
President and Chief Executive Officer
Biostage, Inc.
84 October Hill Road, Suite 11, Holliston, Massachusetts 01746
(774) 233-7300

(Name,address, including zip code, and telephone number, including area code, of agent for service)  

 

 

 

 

With copies to:

 

Josef B. Volman, Esq.

Chad J. Porter, Esq.

Burns & Levinson LLP
125 Summer Street
Boston, MA 02110
(617) 345-3000 

 

Joseph A. Smith, Esq.

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas

New York, NY 10105

(212) 370-1300

  

 

 

 

 

Approximate date of commencement of proposed sale to thepublic: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are tobe 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 foran offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant toRule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of theearlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant toRule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of theearlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (checkone)

 

             
Large Accelerated filer   ¨   Accelerated filer   ¨
       
Non-accelerated filer   ¨  (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)
 

Amount of

Registration Fee

 

Common Stock, par value $0.01 per share (2)        
Series C Convertible Preferred Stock, par value $0.01 per share (2)        
Common Stock issuable upon conversion of Preferred Stock (2)        
Warrants to purchase Common Stock (2)        
Common Stock issuable upon exercise of Warrants (2)        
Placement agent’s warrants (3)        
Common stock issuable upon exercise of placement agent’s warrants (3)        
Total   $8,000,000   $928 (4)

 

(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, as amended.  This Registration Statement also relates to the Rights to purchase shares of Series A Junior Participating Cumulative Preferred Stock of the Registrant which are attached to all shares of Common Stock pursuant to the terms of the Registrant’s Shareholder Rights Agreement dated October 31, 2008, as amended by Amendment No. 1 dated February 12, 2015. Until the occurrence of certain prescribed events, the Rights are not exercisable, are evidenced by the certificates for the Common Stock and will be transferred only with such stock.

(2) Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(3) Represents warrants to purchase a number of shares of common stock equal to 5% of the common stock sold in this offering (including the number of shares of common stock issuable upon conversion of shares of Series C Preferred Stock sold in this offering but excluding any shares of common stock underlying the warrants issued in this offering).

(4) Calculated in accordance with Rule 457(o) of the Securities Act at the statutory rate of $115.90 per $1,000,000 of securities registered.

  

 

The Registrant hereby amends this Registration Statementon such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment whichspecifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) ofthe Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securitiesand Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

 

SUBJECT TO COMPLETION, DATEDJANUARY 3, 2017

 

The information in thispreliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filedwith the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seekan offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS 

 

Up to$8,000,000 in Shares of Common Stock,
Warrants to Purchase Shares of Common Stock and
Shares of Series C Convertible Preferred Stock

 

 

 

 

We are offering up to       shares of common stock, together with warrants to purchase        shares of common stock at a purchaseprice of        (and the shares issuable from time to time upon exercise of the warrants) pursuantto this prospectus. The shares and warrants will be separately issued but will be purchased together in this offering. Each warrantwill have an exercise price of        per share, will be exercisable upon issuance and will expireyears from the date of issuance.

 

We are also offering to those purchasers,whose purchase of shares of common stock in this offering would result in the purchaser, together with its affiliates and certainrelated parties, beneficially owning more than 4.99% of our outstanding common stock following the consummation of this offering,the opportunity to purchase, if they so choose, in lieu of the shares of our common stock that would result in ownership in excessof 4.99%, shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”), convertible at any timeat the holder’s option into a number of shares of common stock equal to $1,000 divided by $        (the “Conversion Price”), at a public offering price of $1,000 per share of Series C Preferred Stock. Each share ofSeries C Preferred Stock is being sold together with the same warrants described above being sold with each share of common stock.Each share of Series C Preferred Stock entitles its holder to receive shares of common stock upon conversion, subject to certainadjustments.

 

Our common stock is listed on the NASDAQCapital Market under the symbol “BSTG.” On December 30, 2016, the closing price for our common stock, as reported onthe NASDAQ Capital Market, was $0.89 per share. The warrants and any shares of Series C Preferred Stock that we issue are not andwill not be listed for trading on the NASDAQ Capital Market.

 

Investing in our securities involvesa high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors”contained in this prospectus beginning on page 8 and any applicable prospectus supplement, and under similar headings in theother documents that are incorporated by reference into this prospectus.

 

NEITHER THE SECURITIES AND EXCHANGECOMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUSIS ACCURATE, TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

 

 

 

    Per Share of Common
Stock and Warrant
    Per Share of Series C Preferred
Stock and Warrant
    Total      
Public offering price                    
Placement agent fees (1)                    
Proceeds, before expenses, to us                    

 

(1)We have also agreed to (i) grant warrants to purchase shares of common stock to the placement agent as described under “Plan of Distribution” on page 25 of this prospectus, (ii) pay the placement agent a management fee equal to 1% of the gross proceeds raised in this offering and (iii) pay the placement agent a reimbursement for out of pocket expenses in connection with marketing the transaction in the amount of up to $45,000 and a reimbursement for legal fees and expenses of the placement agent in the amount of $100,000. For additional information about the compensation to be paid to the placement agent, see “Plan of Distribution.”

 

We have retained H.C. Wainwright &Co., LLC as our exclusive placement agent to use its reasonable best efforts to solicit offers to purchase the securities in thisoffering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale ofany specific number or dollar amount of the securities.

 

We expect to deliver the shares and the warrants to purchasersin this offering on or about             , 2017.

 

Rodman& Renshaw
a unit of H.C. Wainwright & Co.  

 

The date of this prospectus is , 2017.

 

 

TABLE OF CONTENTS

 

     
ABOUT THIS PROSPECTUS  i 
     
PROSPECTUS SUMMARY   1 
      
THE OFFERING   6 
      
RISK FACTORS   8 
      
NOTE REGARDING FORWARD-LOOKING STATEMENTS   12 
      
USE OF PROCEEDS   13 
      
PRICE RANGE OF OUR COMMON EQUITY   14 
      
DIVIDEND POLICY   14 
      
DILUTION   15 
      
DESCRIPTION OF OUR CAPITAL STOCK   17 
      
PLAN OF DISTRIBUTION   25 
      
EXECUTIVE COMPENSATION   27 
      
DIRECTOR COMPENSATION   33 
      
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END   34 
      
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS   36 
      
EQUITY COMPENSATION PLAN INFORMATION   37 
      
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   38 
      
SHARES ELIGIBLE FOR FUTURE SALE   39 
      
LEGAL MATTERS   40 
      
EXPERTS   40 
      
WHERE YOU CAN FIND MORE INFORMATION   41 
      
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE   42 

 

 

 

We have not, and the placement agent hasnot, authorized anyone to provide any information or to make any representations other than those contained in this prospectusor in any prospectus supplement or free writing prospectuses prepared by or on behalf of us or to which we have referred you. Wetake no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you.This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where itis lawful to do so. The information contained in this prospectus or in any applicable prospectus supplement or free writing prospectusis current only as of its date, regardless of its time of delivery or any sale of our securities. Our business, financial condition,results of operations and prospects may have changed since that date.

 

For investors outside the United States:We have not, and the placement agent has not, done anything that would permit this offering or possession or distribution of thisprospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside theUnited States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to,the offering of the securities and the distribution of this prospectus outside the United States.

 

 

 

ABOUT THIS PROSPECTUS

 

You should rely only on the informationcontained in or incorporated by reference into this prospectus and any prospectus supplement or free writing prospectus authorizedby us. To the extent the information contained in this prospectus differs or varies from the information contained in any documentfiled prior to the date of this prospectus and incorporated by reference, the information in this prospectus will control. We havenot authorized any other person to provide you with different information. If anyone provides you with different or inconsistentinformation, you should not rely on it. The information in this prospectus is accurate only as of the date it is presented. Youshould read this prospectus, the documents incorporated by reference described in the section entitled “Incorporation ofCertain Information by Reference” into this prospectus, and any prospectus supplement or free writing prospectus that wehave authorized for use in connection with this offering, in their entirety before investing in our securities.

 

We are offering to sell, and seeking offersto buy, the securities offered by this prospectus only in jurisdictions where offers and sales are permitted. The distributionof this prospectus and the offering of the securities offered by this prospectus in certain jurisdictions may be restricted bylaw. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offerto buy, any securities offered by this prospectus in any jurisdiction in which it is unlawful for such person to make such an offeror solicitation.

 

 i 

 

 

 

 

PROSPECTUS SUMMARY

 

The following summary highlights informationcontained elsewhere in this prospectus. It may not contain all of the information that is important to you. You should read theentire prospectus carefully, especially the discussion regarding the risks of investing in our securities under the heading “RiskFactors,” before investing in our securities. All references to “Company” “we,” “our”or “us” refer solely to Biostage, Inc. and its subsidiaries and not to the persons who manage us or constitute ourBoard of Directors.

 

About Biostage, Inc.

 

We are a biotechnology company developingbioengineered organ implants based on our novel CellframeTM technology. Our Cellframe technology is comprised of a biocompatiblescaffold seeded with the patient’s own stem cells. Our platform technology is being developed to treat life-threatening conditionsof the esophagus, bronchi and trachea. By focusing on these underserved patients, we hope to dramatically improve the treatmentparadigm for these patients. Our unique Cellframe technology combines the clinically proven principles of tissue engineering, cellbiology and material science.

 

We believe that our Cellframe technologymay provide surgeons a new paradigm to address life-threatening conditions of the esophagus, bronchi, and trachea due to cancer,infection, trauma or congenital abnormalities. Our novel technology harnesses the body’s response and modulates it towardthe healing process to restore the continuity and integrity of the organ. We are pursuing the CellspanTM esophagealimplant as our first product candidate to address esophageal atresia and esophageal cancer, and we are also developing our technology’sapplications to address conditions of the bronchi and trachea.

 

In collaboration with world-class institutions,such as Mayo Clinic and Connecticut Children’s Medical Center, we are expecting to transition from a pre-clinical companyto a clinical company in 2017. We plan to file an Investigational New Drug application (IND) with the U.S. Food and Drug Administration(FDA) for our Cellspan esophageal implant in the third quarter of 2017 and expect to begin first in human clinical trials in thefourth quarter of 2017.

 

Our Cellspan technology platform: howit works

 

Our Cellframe process begins with the collectionof an adipose (fat) tissue biopsy from the patient followed by the use of standard tissue culture techniques to isolate and expandthe patient’s own (autologous) mesenchymal (multipotent) stem cells, or MSC. The cells are seeded onto a biocompatible, syntheticscaffold, produced to mimic the dimensions of the organ to be regenerated, and incubated in a proprietary, organ bioreactor. Thescaffold is electrospun from polyurethane (PU) to form a non-woven, hollow tube. The specific microstructure of the Cellspan implantare designed to allow the cultured cells to attach to and cover the scaffold fibers.

 

 

 

 

 

 1 

 

 

 

 

We have conducted large-animal studiesto investigate the use of the Cellspan implants for the reconstitution of the continuity and integrity of tubular shape organs,such as the esophagus and the large airways, following a full circumferential resection of a clinically relevant segment, justas would occur in a clinical setting. We announced favorable preliminary preclinical results of large-animal studies for the esophagus,bronchus and trachea in November 2015. Based on the results of those studies, we chose the esophagus to be the initial focus forour organ regeneration technology.

 

Illustrationof intersection of Cellspan esophageal implant and native

esophagusat time of implant

 

In May 2016, we reported an update of resultsfrom additional, confirmatory pre-clinical large-animal studies. We disclosed that the studies had demonstrated in a predictivelarge-animal model the ability of our Cellspan organ implant to successfully stimulate the regeneration of a section of esophagusthat had been surgically removed. Cellspan esophageal implants, consisting of a proprietary biocompatible synthetic scaffold seededwith the recipient animal’s own stem cells, were surgically implanted in place of the esophagus section that had been removed.After the surgical full circumferential resection of a portion of the thoracic esophagus, the Cellspan implant stimulated the reconstitutionof full esophageal structural integrity and continuity.

 

Illustrationof esophageal reconstitution over Cellspan esophageal

implantfollowing time of implant

 

Study animals were returned to a soliddiet three weeks after the implantation surgery. The implants, which are intended to be in place only temporarily, were retrievedthree weeks post-surgery via the animal’s mouth in a non-surgical endoscopic procedure. Therefore, no synthetic materialremained in the animals after the esophageal tube was reconstituted. Within 2.5 to 3 months, a complete inner epithelium layerand other specialized esophagus tissue layers were fully regenerated. Two animals in the study have not been sacrificed and arealive at nine and ten

 

 

 

 2 

 

 

 

 

months, respectively. These animals havedemonstrated significant weight gain and appear healthy and free of any significant side effects and are receiving no specializedcare.

 

Platform technology in life-threatening orphan indications

 

In December 2016, we were granted OrphanDrug Designation for our Cellspan esophageal implant by the FDA to restore the structure and function of the esophagus subsequentto esophageal damage due to cancer, injury or congenital abnormalities. Orphan drug designation provides a seven-year marketingexclusivity period against competition in the U.S. from the date of a product’s approval for marketing. This exclusivitywould be in addition to any exclusivity we may obtain from our patents. Additionally, orphan designation provides certain incentives,including tax credits and a waiver of the Biologics License Application fee. We also plan to apply for orphan drug designationfor our Cellspan esophageal implant in Europe. Orphan drug designation in Europe provides market exclusivity in Europe for tenyears from the date of the product’s approval for marketing.

 

We are now advancing the development ofour Cellframe technology, specifically a Cellspan esophageal implant, in large-animal studies with collaborators. As we believethat our recent studies provided sufficient data, we have initiated the Good Laboratory Practice (GLP) studies to demonstrate thatour technology, personnel, systems and practices are sufficient for advancing into human clinical trials. In order to seek approvalfor the initiation of clinical trials for Biostage Cellspan esophageal implants in humans, GLP studies are required to submit anInvestigational New Drug (IND) application with the FDA.

 

Our goal is to submit an IND filing inthe third quarter of 2017.

 

Our product candidates are currently indevelopment and have not yet received regulatory approval for sale anywhere in the world.

 

Changingthe surgical treatment of Esophageal Cancer

 

 

   
Illustration of esophageal cancer site  Illustration of potential human application of
Cellspan esophageal implant at site of
esophageal cancer (depicting implant prior to
esophageal reconstitution over implant)

 

According to the World Health Organization’sInternational Agency for Research on Cancer, there are approximately 450,000 new cases of esophageal cancer worldwide each year.A portion of all patients diagnosed with esophageal cancer are treated via a surgical procedure known as an esophagectomy. Thecurrent standard of care for an esophagectomy requires a complex surgical procedure that involves moving the patient’s stomachor a portion of their colon into the chest to replace the portion of esophagus resected by the removal of the tumor. These currentprocedures have high rates of complications, and can lead to a severely diminished quality of life and require costly ongoing care.Our Cellspan esophageal implants aim to simplify the procedure, reduce complications, result in a better quality of life and reducethe overall cost of these patients to the healthcare system.

 

 

 

 

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Congenital Abnormalities - EsophagealAtresia: a much needed focus on children

 

Each year, several thousand births worldwidecome with a congenital abnormality known as esophageal atresia, a condition where the baby is born with an esophagus that doesnot extend completely from the mouth to the stomach. When a long segment of the esophagus is lacking, the current standard of careis a series of surgical procedures where surgical sutures are applied to both ends of the esophagus in an attempt to stretch themand pull them together so they can be connected at a later date. This process can take weeks and the procedure is plagued by seriouscomplications and may carry high rates of failure. Such approach also requires, in time, at least two separate surgical interventions.Other options include the use of the child’s stomach or intestine that would be pulled up into the chest to allow a connectionto the mouth. We are working to develop a Cellspan esophageal implant solution to address newborns’ esophageal atresia, thatcould potentially be life-saving or organ-sparing, or both.

 

Financial Conditions

 

We have incurred substantial operatinglosses since our inception, and as of September 30, 2016, we have an accumulated deficit of approximately $33.0 million. We expectto continue to incur operating losses and negative cash flows from operations in 2017 and for the foreseeable future.

 

In their audit report dated March 30, 2016 included in thisForm 10-K, our independent registered public accounting firm included a “going concern” qualification as to our abilityto continue as a going concern. We believe that if we do not raise additional capital from outside sources in the near future,we may be forced to curtail or cease our operations. We believe that our existing cash resources will be sufficient to fund ourplanned operations through March 2017. Our cash requirements and cash resources will vary significantly depending upon the timing,financial and other resources that will be required to complete ongoing development and pre-clinical and clinical testing of ourproducts as well as regulatory efforts and collaborative arrangements necessary for our products that are currently under development.In addition to development and other costs, we expect to incur capital expenditures from time to time. These capital expenditureswill be influenced by our regulatory compliance efforts, our success, if any, at developing collaborative arrangements with strategicpartners, our needs for additional facilities and capital equipment and the growth, if any, of our business in general. We willrequire additional funding to continue our anticipated operations and support our capital needs. We may seek to raise necessaryfunds through a combination of public or private equity offerings, debt financings, other financing mechanisms, strategic collaborationsand licensing arrangements. We may not be able to obtain additional financing on terms favorable to us, if at all.

 

We are and we will remain an “emerging growth company”until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenues equal or exceed $1 billion(subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of ourfirst sale of common equity securities pursuant to an effective registration statement, (iii) the date on which we have, duringthe previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a“large accelerated filer” under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. For so longas we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions fromvarious reporting requirements that are applicable to other 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-OxleyAct, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptionsfrom the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachutepayments not previously approved.

 

 

 

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Corporate Information

 

We were incorporated under the laws ofthe State of Delaware on May 3, 2012 by Harvard Bioscience, Inc. (“Harvard Bioscience”) to provide a means for separatingits regenerative medicine business from its other businesses. On March 31, 2016, we changed our name from Harvard Apparatus RegenerativeTechnology, Inc. to Biostage, Inc. Our principal executive offices are located at 84 October Hill Road, Suite 11, Holliston, Massachusetts.Our telephone number is (774) 233-7300. We maintain a web site at http://www.biostage.com. The reference to our web siteis intended to be an inactive textual reference only. The information contained on, or that can be accessed through, our web siteis not a part of this prospectus.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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THE OFFERING

 

Securities offered by us  

Up to       shares of our common stock

 

 

 

Warrants to purchase up to          shares of our common stock

 

 

 

Up to          shares of Series C Preferred Stock that are convertible into an aggregate of up to         shares of common stock, subject to certain adjustments.

 

   
Warrants   The warrants will be exercisable at an initial exercise price of $             per share. The warrants are exercisable at any time for a period of               years from the date of issuance. This prospectus also relates to the offering of the shares of common stock issuable upon exercise of the warrants.
     
Series C Preferred Stock   Each share of Series C Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock equal to $1,000 divided by the Conversion Price. Notwithstanding the foregoing, we shall not effect any conversion of Series C Preferred Stock, to the extent that, after giving effect to an attempted conversion, the holder of shares of Series C Preferred Stock (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 a number of shares of our common stock in excess of 4.99% of the shares of our common stock then outstanding after giving effect to such exercise. For additional information, see “Description of Our Capital Stock—Series C Convertible Preferred Stock” on page 18 of this prospectus.  
   
Common stock outstanding before this offering   17,108,968 shares
   
Common stock outstanding after this offering                    shares
   
   
Price per share of common stock and warrant $
   
Price per share of Series C Preferred Stock and _____ warrants $            
   
Use of proceeds   We intend to use the net proceeds from this offering for research and development, including funding preclinical and clinical trials relating to the Cellframe™ technology, business development, sales and marketing, capital expenditures, working capital and other general corporate purposes. See “Use of Proceeds” on page 13.
   
NASDAQ Capital Market symbol for common stock   BSTG. We do not plan on applying to list the warrants or the Series C Preferred Stock on NASDAQ, any national securities exchange or any other nationally recognized trading system. Without an active trading market, the liquidity of the warrants and Series C Preferred Stock will be limited.
   
Risk factors   This investment involves a high degree of risk. See the information contained in or incorporated by reference under “Risk Factors” beginning on page 8 of this prospectus and in the documents incorporated by reference into this prospectus.

 

 

 

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The number of shares of our common stockto be outstanding after this offering is based on 17,108,968 shares of our common stock outstanding as of December 30, 2016 andassumes the conversion of all shares of Series C Preferred Stock being offered in this offering into an aggregate of shares ofcommon stock, but does not include, as of such date:

 

  · 3,878,082 shares issuable upon exercise of outstanding stock options;

 

  · 268 shares issuable pursuant to outstanding deferred stock awards of restricted stock units;

 

  · 1,560,284 shares issuable upon exercise of outstanding warrants to purchase shares of our common stock;

 

  · 2,036,994 shares available for future grants under our 2013 Equity Incentive Plan and our Employee Stock Purchase Plan;

 

  ·                  shares of common stock issuable upon the exercise of warrants to be issued to investors in this offering at an exercise price of $             per share; and

 

  ·                  shares of common stock issuable upon exercise of warrants to be issued to the placement agent as described in “Plan of Distribution.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 7 

 

 

RISK FACTORS

 

Investing in our securities involves ahigh degree of risk. You should carefully consider the risks described herein and in the documents incorporated by reference inthis prospectus, as well as other information we include or incorporate by reference into this prospectus, before making an investmentdecision. In particular, you should consider the risk factors under theheading “Risk Factors” included in our most recent Annual Report on Form 10-K,as may be revised or supplemented by our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, each of whichare on file with the SEC and are incorporated herein by reference, and which may be amended, supplemented or superseded from timeto time by other reports we file with the SEC in the future. Our business, financial condition or results of operationscould be materially adversely affected by the materialization of any of these risks. The trading price of our securities coulddecline due to the materialization of any of these risks, and you may lose all or part of your investment. This prospectus andthe documents incorporated herein by reference also contain forward-looking statements that involve risks and uncertainties. Actualresults could differ materially from those anticipated in these forward-looking statements as a result of certain factors, includingthe risks described herein and in the documents incorporated herein by reference.

 

We have broad discretion to determinehow to use the proceeds raised in this offering, and we may not use the proceeds effectively.

 

Our management will have broad discretionover the use of proceeds from this offering, and we could spend the proceeds from this offering in ways with which you may notagree or that do not yield a favorable return. We intend to use the net proceeds from this offering for research and development,including funding preclinical and clinical trials relating to the Cellframe™ technology, business development, sales andmarketing, capital expenditures, working capital and other general corporate purposes. If we do not invest or apply the proceedsof this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could causeour stock price to decline.

 

You will experience immediate andsubstantial dilution in the net tangible book value per share of the common stock you purchase.

 

Since the price per share of our commonstock being offered is substantially higher than the net tangible book value per share of our common stock, you will suffer immediatedilution in the net tangible book value of the common stock you purchase in this offering. After giving effect to the sale of sharesof our common stock in this offering at the offering price of $ per share, and after deducting the placement agent fees and expensesand estimated offering expenses payable by us, you will experience immediate dilution of $ per share, representing the differencebetween our net tangible book value per share as of September 30, 2016 after giving effect to this offering and the offering price.See the section entitled “Dilution” below for a more detailed discussion of the dilution you will incur if you purchasethe common stock in this offering.

 

You will experience immediate andsubstantial dilution in the net tangible book value per share of the Series C Preferred Stock you purchase.

 

Since the price per share of our SeriesC Preferred Stock being offered is substantially higher than the net tangible book per share of our underlying common stock, youwill suffer substantial dilution in the net tangible book value of the shares that you purchase in this offering. Based on an assumedoffering price to the public of $ per share, if you purchase Series C Preferred Stock in this offering, you will suffer immediateand substantial dilution of $ per share in the net tangible book value of the shares of common stock underlying the Series C PreferredStock. See the section entitled “Dilution” below for a more detailed discussion of the dilution you will incur if youpurchase Series C Preferred Stock in this offering.

 

 

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The issuance of additional equitysecurities may negatively impact the trading price of our common stock.

 

We have issued equity securities in thepast, will issue equity securities in this offering and expect to continue to issue equity securities to finance our activitiesin the future. In addition, outstanding options and warrants to purchase our common stock may be exercised and additional optionsand warrants may be issued, resulting in the issuance of additional shares of common stock. The issuance by us of additional equitysecurities, including the shares of common stock issuable upon exercise of the warrants issued by us in this offering, would resultin dilution to our stockholders, and even the perception that such an issuance may occur could have a negative impact on the tradingprice of our common stock.

 

There is no public market for thewarrants to purchase shares of our common stock being offered by us in this offering.

 

There is no established public tradingmarket for the warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intendto apply to list the warrants on any national securities exchange or other nationally recognized trading system, including theNASDAQ Capital Market. Without an active market, the liquidity of the warrants will be limited.

 

The warrantsare speculative in nature.

 

The warrants donot confer any rights of common stock ownership on its holders, such as voting rights or the right to receive dividends, but rathermerely represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencingon the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise priceof $  per share, subject to certain adjustments, prior to ___ years from the date of issuance, after which date any unexercisedwarrants will expire and have no further value. Moreover, following this offering, the market value of the warrants, if any, isuncertain and there can be no assurance that the market value of the warrants will equal or exceed their imputed offering price.The warrants will not be listed or quoted for trading on any market or exchange. There can be no assurance that the market priceof the common stock will ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitablefor holders of the warrants to exercise the warrants.

 

A substantial number of sharesof our common stock may be sold in this offering, which could cause the price of our common stock to decline.

 

In this offering, in addition to the SeriesC Preferred Stock, we will sell shares of common stock representing approximately % of our outstanding common stock as of , 2017.This sale and any future sales of a substantial number of shares of our common stock in the public market, or the perception thatsuch sales may occur, could adversely affect the price of our common stock. We cannot predict the effect, if any, that market salesof those shares of common stock or the availability of those shares of common stock for sale will have on the market price of ourcommon stock.

 

A significant number of additionalshares of our common stock may be issued upon the conversion of existing securities, including the Series C Preferred Stock, whichissuances would substantially dilute existing stockholders and may depress the market price of our common stock.

 

As of December 30, 2016, there were 17,108,968shares of common stock outstanding. In addition, shares of common stock, representing approximately % of our outstanding commonstock as of December 30, 2016, will be issuable upon conversion of our Series C Preferred Stock. The issuance of any such sharesof common stock would substantially dilute the proportionate ownership and voting power of existing security holders, and theirissuance, or the possibility of their issuance, may depress the market price of our common stock.

 

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There is no public market for theSeries C Preferred Stock being offered by us in this offering.

 

Prior to this offering, there has beenno public market for our Series C Preferred Stock. We are not listing our Series C Preferred Stock on an exchange or any tradingsystem, including the Nasdaq Capital Market, and we do not expect that a trading market for our Series C Preferred Stock will develop.

 

Upon conversion of the Series CPreferred Stock, holders may receive less valuable consideration than expected because the value of our common stock may declineafter such holders exercise their conversion right but before we settle our conversion obligation.

 

Under the Series C Preferred Stock, a convertingholder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrendersshares of Series C Preferred Stock for conversion until the date we settle our conversion obligation. Upon conversion, we willbe required to deliver the shares of our common stock, together with a cash payment for any fractional share (if so elected bythe Company), on the third business day following the relevant conversion date. Accordingly, if the price of our common stock decreasesduring this period, the value of the shares of common stock that you receive will be adversely affected and would be less thanthe conversion value of the Series C Preferred Stock on the conversion date.

 

We may issue additional seriesof preferred stock that rank senior or equally to the Series C Preferred Stock as to dividend payments and liquidation preference.

 

Neither our amended and restated certificateof incorporation nor the Certificate of Designation for the Series C Preferred Stock prohibits us from issuing additional seriesof preferred stock that would rank senior or equally to the Series C Preferred Stock as to dividend payments and liquidation preference.Our amended and restated certificate of incorporation provides that we have the authority to issue up to 2,000,000 shares of preferredstock. The issuances of other series of preferred stock could have the effect of reducing the amounts available to the Series CPreferred Stock in the event of our liquidation, winding-up or dissolution. It may also reduce cash dividend payments on the SeriesC Preferred Stock if we do not have sufficient funds to pay dividends on all Series C Preferred Stock outstanding and outstandingparity preferred stock.

 

Our Series C Preferred Stock willrank junior to all our liabilities to third party creditors in the event of a bankruptcy, liquidation or winding up of our assets.

 

In the event of bankruptcy, liquidationor winding up, our assets will be available to pay obligations on our Series C Preferred Stock only after all our liabilities havebeen paid. Our Series C Preferred Stock will effectively rank junior to all existing and future liabilities held by third partycreditors. The terms of our Series C Preferred Stock do not restrict our ability to raise additional capital in the future throughthe issuance of debt. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, afterpaying our liabilities, to pay amounts due on any or all of our Series C Preferred Stock then outstanding.

 

Future issuances of preferred stockmay adversely affect the market price for our common stock.

 

Additional issuances and sales of preferredstock, or the perception that such issuances and sales could occur, may cause prevailing market prices for our common stock todecline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorableto us.

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We have received notices from NASDAQof non-compliance with its continuing listing rules.

 

On July 16, 2015, we received a noticefrom NASDAQ of non-compliance with its continuing listing rules, namely that the audit committee of our Board of Directors hadtwo members following James McGorry’s appointment as our President and Chief Executive Officer instead of the required minimumof three members. In accordance with NASDAQ continued listing rules, we were given until the earlier of our next annual shareholders’meeting or July 6, 2016 to add a third audit committee member. On March 10, 2016, Blaine McKee, Ph.D. was appointed as a memberof the Board of Directors and its audit committee, and we regained compliance with that requirement.

 

On November 10, 2015, we received a noticefrom NASDAQ of non-compliance with its listing rules regarding the requirement that the listed securities maintain a minimum bidprice of $1 per share. Based upon the closing bid price for the 30 consecutive business days preceding the notice, the Companyno longer met this requirement. However, the NASDAQ rules also provide the Company a period of 180 calendar days in which to regaincompliance and, in some circumstances, a second 180-day compliance period. On November 25, 2015, we regained compliance with theminimum bid price requirement when the closing price of our common stock was at least $1 per share for ten consecutive businessdays.

 

On November 18, 2016, we received a noticefrom NASDAQ of non-compliance with its listing rules regarding the minimum bid price requirement. As noted above, the NASDAQ rulesprovide the Company a period of 180 calendar days in which to regain compliance and, in some circumstances, a second 180-day complianceperiod. We are monitoring the closing bid price of our common stock and will consider available options to resolve the non-compliancewith the minimum bid price requirement as may be necessary, including the possibility of seeking stockholder approval of a reversestock split. There can be no assurance that we would be successful in receiving such stockholder approval.

 

The failure to meet continuing compliancestandards subjects our common stock to delisting. Delisting of our common stock would have an adverse effect on the market liquidityof our common stock and, as a result, the market price for our common stock could become more volatile. Further, delisting alsocould make it more difficult for us to raise additional capital.

 

 

 

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus (including any relatedprospectus supplement or free writing prospectus and documents incorporated by reference herein and therein) contains statementswith respect to us which constitute “forward-looking statements” within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be coveredby the “safe harbor” created by those sections. These statements relate to future events or to our future financialperformance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performanceor achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-lookingstatements. Forward-looking statements may include, but are not limited to, statements relating to the regulatory approval of ourCellspanTM product candidates for the esophagus and airways or any other product candidates, by the FDA, EMA, MHRA orotherwise, which such approvals may not be obtained on a timely basis or at all; anticipated future earnings or other financialmeasures; success with respect to any clinical trials and other regulatory approval efforts and the number of patients who canbe treated with our products or product candidates; commercialization efforts and marketing approvals of our products as well asthe success thereof, including our Cellspan product candidates for the esophagus and airways; the continued availability of a marketfor our securities; our ability to raise sufficient capital to finance our planned operations, and our estimates concerning capitalrequirements and need for additional financing; our ability to continue as a going concern; the amount and timing of costs associatedwith our development of bioreactors, scaffolds and other devices and products; our failure to comply with regulations and any changesin regulations; our ability to access debt and equity markets; unpredictable difficulties or delays in the development of new technology;our collaborators not devoting sufficient time and resources to successfully carry out their duties or meet expected deadlines;our ability to attract and retain qualified personnel and key employees and retain senior management; the availability and priceof acceptable raw materials and components from third-party suppliers; difficulties in obtaining or retaining the management andother human resource competencies that we need to achieve our business objectives; increased competition in the field of regenerativemedicine and the financial resources of our competitors; our ability to obtain and maintain intellectual property protection forour device and product candidates; our inability to implement our growth strategy; and our liquidity.

 

In some cases, you can identify forward-lookingstatements by terms such as “believe,” “may,” “estimate,” “continue,” “anticipate,”“intend,” “should,” “could,” “would,” “target,” “seek,”“aim,” “believe,” “predicts,” “think,” “objectives,” “optimistic,”“new,” “goal,” “strategy,” “potential,” “is likely,” “will,”“expect,” “plan” “project,” “permit” and similar expressions intended to identifyforward-looking statements. These statements reflect our current views with respect to future events, are based on assumptionsand are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-lookingstatements. We discuss many of these risks in greater detail under the heading “Risk Factors” in our SEC filings, andunder the caption “Risk Factors” in this prospectus.

 

You should read this prospectus andany related prospectus supplement and free writing prospectus and the documents that we incorporate by reference herein and thereinand have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understandingthat our actual future results may be materially different from what we expect. You should assume that the information appearingin this prospectus is accurate as of the date on the cover of this prospectus or prospectus supplement only. Our business, financialcondition, results of operations and prospects may change. We may not update these forward-looking statements, even though oursituation may change in the future, unless we have obligations under the federal securities laws to update and disclose materialdevelopments related to previously disclosed information. We qualify all of the information presented in this prospectus and anyrelated prospectus supplement or free writing prospectus, and particularly our forward-looking statements, by these cautionarystatements.

 

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USE OF PROCEEDS

 

We estimatethe net proceeds from this offering will be approximately $ million, after deducting placement agent fees and expenses andour estimated offering expenses. In addition, if all of the warrants offered pursuant to this prospectus are exercised infull for cash, we will receive approximately an additional $     million in cash.

 

We intend to use the net proceeds fromthis offering, together with other available funds, for research and development, including funding preclinical and clinical trialsrelating to the Cellframe™ technology, business development, sales and marketing, capital expenditures, working capital andother general corporate purposes.

 

Pending these uses, we intend to investthe net proceeds to us from this offering in a variety of capital preservation investments, including short-term, investment-gradeand interest-bearing instruments. The precise amounts and timing of the application of proceeds will depend upon our funding requirementsand the availability of other funds. We may find it necessary or advisable to use the net proceeds for other purposes, and we willhave broad discretion in the application of the net proceeds and investors will be relying on the judgment of our management regardingthe application of the net proceeds from this offering.

 

Based upon our historical and anticipatedfuture growth and our financial needs, we may engage in additional financings of a character and amount that we determine as theneed arises. We may raise additional capital through additional public or private financings, the incurrence of debt and otheravailable sources.

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PRICE RANGE OF OUR COMMON EQUITY

 

Our common stock trades on The NASDAQ CapitalMarket under the symbol “BSTG.” Prior to April 1, 2016, in connection with our name change, our common stock tradedon The NASDAQ Capital Market under the symbol “HART” since October 21, 2013. The following table sets forth, for thequarters shown, the range of high and low sales prices of our common stock on the NASDAQ Capital Market.

 

    High   Low
Fiscal Year ended December 31, 2016                
First Quarter   $ 2.60     $ 1.08  
Second Quarter   $ 2.86     $ 0.92  
Third Quarter   $ 1.22     $ 0.90  
Fourth Quarter   $ 1.42     $ 0.73  
Fiscal Year ended December 31, 2015                
First Quarter   $ 4.32     $ 1.89  
Second Quarter   $ 3.47     $ 1.39  
Third Quarter   $ 1.49     $ 0.59  
Fourth Quarter   $ 3.25     $ 0.54  

The closing price of our common stock onthe NASDAQ Capital Market on December 30, 2016 was $0.89 per share. Immediately prior to this offering, we had 17,108,968 sharesof common stock outstanding, which were held by approximately 178 stockholders of record as of December 30, 2016.

 

DIVIDEND POLICY

 

We have never declared or paid cash dividendson our common stock in the past and do not intend to pay cash dividends on our common stock in the foreseeable future. Any futuredetermination to pay cash dividends will be at the discretion of our board of directors and will depend on our financial condition,results of operations, capital requirements and other factors our board of directors deems relevant.

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DILUTION

 

If you purchase our common stock, SeriesC Preferred Stock, or both, in this offering, assuming conversion of the Series C Preferred Stock into shares of our common stock,your interest will be diluted to the extent of the difference between the public offering price per share and the net tangiblebook value per share of our common stock after this offering.

 

The net tangible book value of our commonstock on September 30, 2016 was approximately $4.8 million, or approximately $0.28 per share, based on 17,108,968 shares of ourcommon stock outstanding as of September 30, 2016. We calculate net tangible book value per share by subtracting our total liabilitiesfrom our total tangible assets and dividing the difference by the number of outstanding shares of our common stock. Dilution innet tangible book value per share to the new investors represents the difference between the amount per share paid by purchasersof shares of our common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. 

 

After giving effect to the sale of sharesof common stock by us at the public offering price and shares of Series C Preferred Stock by us at the public offering price (includingthe shares of common stock issuable upon conversion of the Series C Preferred Stock) and after deducting placement agent fees andexpenses and estimated offering expenses, our pro forma net tangible book value as of September 30, 2016 would have been approximately$          million, or $          per share, whichexcludes the warrants to purchase                 shares of our common stock to be issued to investors in this offering. This represents an immediate increase in net tangible bookvalue of $             per share to existing stockholders and immediatedilution of $          per share to investors purchasing our common stock in this offeringat the public offering price. The following table illustrates this dilution on a per share basis:

 

Public offering price per share of common stock     
Public offering price per share of Series C Preferred Stock (on an as-converted basis)     
Net tangible book value per share as of September 30, 2016  $0.28 
Increase in net tangible book value per share attributable to this offering     
Pro forma net tangible book value per share as of September 30, 2016 after giving effect to this offering     
Dilution per share to the new investors in this offering     

 

The number of shares of our common stockto be outstanding after this offering is based on 17,108,968 shares of our common stock outstanding as of September 30, 2016 andassumes the conversion of all shares of Series C Preferred Stock being offered in this offering into an aggregate of shares ofcommon stock, but does not include, as of such date:

 

  · 3,879,033 shares issuable upon exercise of outstanding stock options;

 

  · 268 shares issuable pursuant to outstanding deferred stock awards of restricted stock units;
     
  · 1,560,284 shares issuable upon exercise of outstanding warrants to purchase shares of our common stock;

 

  · 2,035,775 shares available for future grants under our 2013 Equity Incentive Plan and our Employee Stock Purchase Plan;

 

  ·             shares of common stock issuable upon the exercise of warrants to be issued to investors in this offering at an exercise price of $             per share; and

 

  ·             shares of common stock issuable upon exercise of warrants to be issued to the placement agent as described in “Plan of Distribution.”
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To the extent that outstanding optionsor warrants are exercised, investors purchasing our common stock in this offering will experience further dilution. In addition,we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficientfunds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity orconvertible debt securities, the issuance of these securities could result in further dilution to our stockholders. 

 

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DESCRIPTION OF OUR CAPITAL STOCK

 

The following description of our commonstock, warrants to purchase our common stock and Series C Convertible Preferred Stock summarizes the material terms and provisionsof the securities that we may offer under this prospectus. The following description of our capital stock does not purport to becomplete and is subject to, and qualified in its entirety by, our amended and restated certificate of incorporation, or our Charter,and our second amended and restated bylaws, or our Bylaws, which are exhibits to the registration statement of which this prospectusforms a part, and by applicable law. The terms of our common stock and warrants to purchase our common stock may also be affectedby Delaware law.

 

Authorized Capital Stock

 

Our authorized capital stock consists of60,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of undesignated preferred stock, par value $0.01per share. As of December 30, 2016, there were 17,108,968 shares of common stock outstanding and no shares of preferred stockoutstanding.

 

Common Stock

 

Holders of our common stock are entitledto one vote for each share held of record on all matters submitted to a vote of shareholders; provided, that, except as otherwiserequired by law, holders of common stock are not entitled to vote on any amendment to the Charter that changes the powers, preferences,rights or other terms of one or more series of undesignated preferred stock if the holders of the affected series are entitledto vote, separately or together, with the holders of one or more other such series, on such amendment pursuant to our Charter orDelaware General Corporation Law. Our Charter provides that our Board of Directors shall be divided into three classes, each consistingas nearly as reasonably may be possible of one-third of the total number of directors constituting the entire Board of Directors,with each class’s term expiring on a staggered basis. Newly-created directorships and vacancies on our Board of Directorsmay only be filled by a majority of the members of the incumbent board then in office, though less than a quorum, and not by ourstockholders. Directors may be removed from office only for cause by the affirmative vote of the holders of at least seventy-fivepercent (75%) of the outstanding shares entitled to be cast on the election of directors by the then-outstanding shares of allclasses and series of capital stock, voting together as a single class. Holders of common stock have no preemptive, redemptionor conversion rights and are not subject to future calls or assessments. No sinking fund provisions apply to our common stock.All outstanding shares are fully-paid and non-assessable. In the event of our liquidation, dissolution or winding up, after thesatisfaction in full of the liquidation preferences of holders of any preferred stock, holders of common stock are entitled toratable distribution of the remaining assets available for distribution to stockholders. Holders of common stock are entitled toreceive proportionately any such dividends declared by our Board of Directors, out of legally available funds for dividends, subjectto any preferences that may be applicable to any shares of preferred stock that may be outstanding at that time. The rights, preferencesand privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of sharesof any series of preferred stock that we may designate and issue in the future. To the extent our Shareholder Rights Agreementremains in effect at the time we sell any shares of common stock under this prospectus, such shares of common stock would alsobe accompanied by certain preferred stock purchase rights. See “Description of Capital Stock – Provisions of our Certificateof Incorporation and Bylaws and Delaware Anti-Takeover Law” for additional details regarding our Shareholder Rights Agreement.

  

Listing

 

Our common stock is listed on the NASDAQCapital Market under the symbol “BSTG.” On December 30, 2016, the closing price for our common stock, as reported onthe NASDAQ Capital Market, was $0.89 per share. As of the close of business on December 30, 2016, there were 178 stockholders ofrecord of our common stock. Prior to our name change on March 31, 2016 from Harvard Apparatus Regenerative Technology, Inc. toBiostage, Inc., our common stock was listed on the NASDAQ Capital Market under the symbol “HART.”

 

On July 16, 2015, we received a noticefrom NASDAQ of non-compliance with its continuing listing rules, namely that the audit committee of our Board of Directors hadtwo members following James McGorry’s appointment as our President and Chief Executive Officer instead of the required minimumof three members. In accordance with

 

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NASDAQ continued listing rules, we weregiven until the earlier of our next annual shareholders’ meeting or July 6, 2016 to add a third audit committee member. OnMarch 10, 2016, Blaine McKee, Ph.D. was appointed as a member of the Board of Directors and its audit committee, and we regainedcompliance with that requirement.

 

On November 10, 2015, we received a noticefrom NASDAQ of non-compliance with its listing rules regarding the requirement that the listed securities maintain a minimum bidprice of $1 per share. Based upon the closing bid price for the 30 consecutive business days preceding the notice, the Companyno longer met this requirement. However, the NASDAQ rules also provide the Company a period of 180 calendar days in which to regaincompliance and, in some circumstances, a second 180-day compliance period. On November 25, 2015, we regained compliance with theminimum bid price requirement when the closing price of our common stock was at least $1 per share for ten consecutive businessdays.

 

On November 18, 2016, we received a noticefrom NASDAQ of non-compliance with its listing rules regarding the minimum bid price requirement. As noted above, the NASDAQ rulesprovide the Company a period of 180 calendar days in which to regain compliance and, in some circumstances, a second 180-day complianceperiod. We are monitoring the closing bid price of our common stock and will consider available options to resolve the noncompliancewith the minimum bid price requirement as may be necessary, including the possibility of seeking stockholder approval of a reversestock split. There can be no assurance that we would be successful in receiving such stockholder approval.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for ourcommon stock is Computershare.

 

Series C Convertible Preferred Stock

 

General

 

Our Board of Directors is authorized toissue up to 2,000,000 shares of preferred stock in one or more series without shareholder approval. Our Board of Directors maydetermine the designations, powers, preferences and the relative, participating, optional or other special rights, and any qualification,limitations and restrictions, of each series of preferred stock. Our Board of Directors has designated 5,000 shares of preferredstock as Series A Junior Participating Cumulative Preferred Stock, 1,000,000 shares of preferred stock as Series B ConvertiblePreferred Stock and      shares of preferred stock as Series C Convertible Preferred Stock, which we refer to herein as the Series CPreferred Stock. The Series A Junior Participating Cumulative Preferred Stock and Series B Convertible Preferred Stock is not beingregistered pursuant to the registration statement of which this prospectus forms a part. As of December 30, 2016, there were noshares of preferred stock outstanding.

 

Rank

 

The Series C Preferred Stock ranks (1)on parity with our common stock on an “as converted” basis, (2) on parity with our Series A Junior Participating CumulativePreferred Stock and Series B Convertible Preferred Stock, (3) senior to any series of our capital stock hereafter created specificallyranking by its terms junior to the Series C Preferred Stock, (4) on parity with any series of our capital stock hereafter createdspecifically ranking by its terms on parity with the Series C Preferred Stock, and (5) junior to any series of our capital stockhereafter created specifically ranking by its terms senior to the Series C Preferred Stock in each case, as to dividends or distributionsof assets upon our liquidation, dissolution or winding up whether voluntary or involuntary.

 

Conversion

 

Each share of the Series C Preferred Stockis convertible into shares of common stock at any time at the option of the holder, provided that the holder will be prohibitedfrom converting Series C Preferred Stock into shares of our common stock if, as a result of such conversion, the holder would ownmore than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of the sharesof common stock issuable upon conversion of the Series C Preferred Stock, or such holder, together with its affiliates, would own

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more than 9.99% of the number of sharesof common stock outstanding immediately after giving effect to the issuance of the shares of common stock issuable upon conversionof the Series C Preferred Stock. The conversion rate of the Series C Preferred Stock is subject to proportionate adjustments forstock splits, reverse stock splits and similar events, but is not subject to adjustment based on price anti-dilution provisions.The Series C Preferred Stock automatically converts into common stock upon the occurrence of certain “Fundamental Transactions,”as described below.

 

Dividends

 

In addition to stock dividends or distributionsfor which proportionate adjustments will be made, holders of Series C Preferred Stock are entitled to receive dividends on sharesof Series C Preferred Stock equal, on an as-if-converted-to-common-stock basis, to and in the same form as dividends actually paidon shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends are payableon shares of Series C Preferred Stock.

 

Voting Rights

 

Except as provided in the Certificate ofDesignation or as otherwise required by law, the holders of Series C Preferred Stock will have no voting rights. However, the Companymay not, without the consent of holders of a majority of the outstanding shares of Series C Preferred Stock, alter or change adverselythe powers, preferences or rights given to the Series C Preferred Stock or alter or amend the Certificate of Designation.

 

Liquidation Rights

 

Upon any liquidation, dissolution or winding-upof the Company, whether voluntary or involuntary, the holders of Series C Preferred Stock are entitled to receive, pari passuwith the holders of common stock, out of the assets available for distribution to stockholders an amount equal to such amount pershare as would have been payable had all shares of Series C Preferred Stock been converted into common stock immediately beforesuch liquidation, dissolution or winding up, without giving effect to any limitation on conversion as a result of the BeneficialOwnership Limitation, as described below.

 

Beneficial Ownership Limitation

 

The Company may not effect any conversionof the Series C Preferred Stock, and a holder does not have the right to convert any portion of the Series C Preferred Stock tothe extent that, after giving effect to the conversion set forth in a notice of conversion such holder would beneficially own inexcess of the holder Beneficial Ownership Limitation, or such holder, together with such holder’s affiliates, and any personsacting as a group together with such holder or affiliates, would beneficially own in excess of the affiliates Beneficial OwnershipLimitation. The “holder Beneficial Ownership Limitation” is 4.99% of the number of shares of the common stock outstandingimmediately after giving effect to the issuance of shares of common stock issuable upon conversion of Series C Preferred Stockheld by the applicable holder. The “affiliates Beneficial Ownership Limitation” is 9.99% of the number of shares ofthe common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversionof Series C Preferred Stock held by the applicable holder and its affiliates (the holder Beneficial Ownership Limitation togetherwith the affiliates Beneficial Ownership Limitation collectively referred to as the “Beneficial Ownership Limitation”).A holder may, with 61 days prior notice to the Company, or immediately upon notice from the holder to the Company at any time afterthe public announcement or other disclosure of a Fundamental Transaction, elect to increase or decrease one or both of the holderBeneficial Ownership Limitation and the affiliates Beneficial Ownership Limitation; provided, however, that in no event may eitherthe holder Beneficial Ownership Limitation or the affiliate Beneficial Ownership Limitation be 9.99% or greater.

 

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Exchange Listing

 

We do not plan on making an applicationto list the shares of Series C Preferred Stock on the NASDAQ Capital Market, any national securities exchange or other nationallyrecognized trading system. Our common stock issuable upon conversion of the Series C Preferred Stock is listed on the NASDAQ CapitalMarket.

 

Failure to Deliver Conversion Shares

 

If the Company fails to timely delivershares of common stock upon conversion of the Series C Preferred Stock (the “Conversion Shares”) within the time periodspecified in the Certificate of Designation (within three trading days after delivery of the notice of conversion), and if theholder has not exercised its Buy-In rights as described below with respect to such shares, then the Company is obligated to payto the holder, as liquidated damages, an amount equal to $100 per business day (increasing to $200 per business day after the tenthbusiness day) for each $10,000 of Conversion Shares for which the Series C Preferred Stock converted which are not timely delivered.If the Company makes such liquidated damages payments, it is not also obligated to make Buy-In payments with respect to the sameConversion Shares.

 

Compensation for Buy-In on Failureto Timely Deliver Shares

 

If the Company fails to timely deliverthe Conversion Shares to the holder, and if after the required delivery date the holder is required by its broker to purchase (inan open market transaction or otherwise) or the holder or its brokerage firm otherwise purchases, shares of common stock to deliverin satisfaction of a sale by the holder of the Conversion Shares which the holder anticipated receiving upon such conversion orexercise (a “Buy-In”), then the Company is obligated to (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,minus any amounts paid to the holder by the Company as liquidated damages for late delivery of such shares, exceeds (y) the amountobtained by multiplying (1) the number of Conversion Shares that the Company was required to deliver times (2) the price at whichthe sell order giving rise to such purchase obligation was executed, and (B) at the option of the holder, either reinstate theportion of the Series C Preferred Stock and equivalent number of Conversion Shares for which such conversion was not honored (inwhich case such conversion shall be deemed rescinded) or deliver to the holder the number of shares of common stock that wouldhave been issued had the Company timely complied with its conversion and delivery obligations.

 

Subsequent Rights Offerings; ProRata Distributions

 

If the Company grants, issues or sellsany common stock equivalents pro rata to the record holders of any class of shares of common stock (the “Purchase Rights”),then a holder of Series C Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregatePurchase Rights which the holder could have acquired if the holder had held the number of shares of common stock acquirable uponconversion of the Series C Preferred Stock (without regard to any limitations on conversion). If the Company declares or makesany dividend or other distribution of its assets (or rights to acquire its assets) to holders of common stock, then a holder ofSeries C Preferred Stock is entitled to participate in such distribution to the same extent as if the holder had held the numberof shares of common stock acquirable upon complete conversion of the Series C Preferred Stock (without regard to any limitationson conversion).

 

Fundamental Transaction

 

If, at any time while the Series C PreferredStock is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidationof the Company with or into another person pursuant to which the shares of capital stock of the Company outstanding immediatelyprior to such merger or consolidation are converted into or exchanged for shares of another corporation or entity and represent,or are converted into or exchanged for equity securities that represent, immediately following such merger or consolidation, lessthan a majority, by voting power, of the equity securities of (1) the surviving or resulting party or (2) if the surviving or resultingparty is a wholly owned subsidiary of another party immediately following such merger or consolidation,

 

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the parent of such surviving or resultingparty, (ii) the Company, directly or indirectly, effects any sale of all or substantially all of its assets in one or a seriesof related transactions, (iii) any tender offer or exchange offer (whether by the Company or another person) is completed pursuantto which holders of common stock are permitted to sell, tender or exchange their shares for other securities, cash or propertyand has been accepted by the holders of 50% or more of the outstanding common stock, or (iv) the Company, directly or indirectly,in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, withoutlimitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another person whereby such other personacquires more than 50% of the outstanding shares of common stock (not including any shares of common stock held by the other personor other persons making or party to, or associated or affiliated with the other persons making or party to, such stock or sharepurchase agreement or other business combination) (each a “Fundamental Transaction”), then the Series C Preferred Stockautomatically converts and the holder will receive, for each Conversion Share that would have been issuable upon such conversionimmediately prior to the occurrence of such Fundamental Transaction (subject to the Beneficial Ownership Limitation), the numberof shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, andany additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transactionby a holder of the number of shares of common stock for which the Series C Preferred Stock is convertible immediately prior tosuch Fundamental Transaction (subject to the Beneficial Ownership Limitation). For purposes of any such conversion, the determinationof the conversion ratio will be appropriately adjusted to apply to such Alternate Consideration based on the amount of AlternateConsideration issuable in respect of one share of common stock in such Fundamental Transaction. If holders of common stock aregiven any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder will be giventhe same choice as to the Alternate Consideration it receives upon automatic conversion of the Series C Preferred Stock followingsuch Fundamental Transaction.

 

Warrants

 

The following is a brief summary of thematerial terms of the warrants offered pursuant to this prospectus and is subject in all respects to the provisions contained inthe warrants, the form of which is incorporated by reference in this prospectus. As of December 30, 2016, there were warrants topurchase 1,560,284 shares of our common stock outstanding. The previously issued warrants all have an exercise price of $1.7625per warrant and are exercisable commencing November 19, 2016 through their expiration date of May 19, 2021.

 

Exercisability

 

Holders may exercise warrants at any timeup to 11:59 p.m., New York time, on the date that is          years after the date of issuance. The warrants are exercisable, at theoption of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in fullfor the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise discussedbelow). The holder of warrants does not have the right to exercise any portion of the warrant if the holder would beneficiallyown in excess of 4.99% of the shares of our common stock outstanding immediately after giving effect to such exercise. This percentagemay, however, be raised or lowered to an amount not to exceed 9.99% at the option of the holder upon at least 61 days’ priornotice from the holder to us.

 

Cashless Exercise

 

At any time when a registration statementcovering the issuance of the shares of common stock issuable upon exercise of the warrants is not effective, the holder may, atits option, exercise its warrants on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelledin payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.

 

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Exercise Price

 

The exercise price of common stock purchasableupon exercise of the warrants is $             per share. The exerciseprice and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalizationevents, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting our common stock, andalso upon any distributions of assets, including cash, stock or other property to our stockholders.

 

Transferability

 

The warrants may be transferred at theoption of the holder upon surrender of the warrants with the appropriate instruments of transfer.

 

Exchange Listing

 

We do not plan on making an applicationto list the warrants on the NASDAQ Capital Market, any national securities exchange or other nationally recognized trading system.Our common stock underlying the warrants is listed on the NASDAQ Capital Market.

 

Fundamental Transactions

 

In the event of a fundamental transaction,as described in the warrants and generally including any reorganization, recapitalization or reclassification of our common stock,the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger withor into another person, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amountof securities with cash or other property that the holders would have received had they exercised the warrants immediately priorto such fundamental transaction.

 

Rights as Stockholder

 

Except as otherwise provided in the warrants(such as the rights described above of a warrant holder upon our sale or grant of any rights to purchase stock, warrants or securitiesor other property to our stockholders on a pro rata basis) or by virtue of such holder’s ownership of shares of our commonstock, the holders of the warrants do not have the rights or privileges of holders of our common stock, including any voting rights,until they exercise their warrants.

 

Fractional Shares

 

No fractional shares of common stock willbe issued upon the exercise of the warrants. Rather, the number of shares of common stock to be issued will be rounded down tothe nearest whole number.

 

2013 Equity Incentive Plan

 

Under our 2013 Equity Incentive Plan, wecan grant stock options to employees, directors and consultants. The 2013 Equity Incentive Plan also permits us to make grantsof incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards,unrestricted stock awards, performance shares and dividend equivalent rights. We currently have reserved 5,960,000 shares of commonstock for the issuance of awards under the 2013 Equity Incentive Plan.

 

Employee Stock Purchase Plan

 

Under our employee stock purchase plan,participating employees can authorize us to withhold a portion of their base pay during consecutive six-month payment periods forthe purchase of shares of our common stock. At the conclusion of the period, participating employees can purchase shares of ourcommon stock at eight-five percent (85%) of the lower of the fair market value of our common stock at the beginning or end of theperiod. Shares are

 

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issued under the plan for the six-monthperiods ending June 30 and December 31. Under this plan, 150,000 shares of common stock are authorized for issuance ofwhich 58,638 were issued as of December 30, 2016.

 

Provisions of our Certificate of Incorporationand Bylaws and Delaware Anti-Takeover Law

 

Certain provisions of the Delaware GeneralCorporation Law and of our Charter and Bylaws could have the effect of delaying, deferring or discouraging another party from acquiringcontrol of us. These provisions, which are summarized below, are expected to discourage certain types of coercive takeover practicesand inadequate takeover bids and, as a consequence, they might also inhibit temporary fluctuations in the market price of our commonstock that often result from actual or rumored hostile takeover attempts. These provisions are also designed in part to encourageanyone seeking to acquire control of us to first negotiate with our Board of Directors. These provisions might also have the effectof preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactionsthat stockholders might otherwise deem to be in their best interests. However, we believe that the advantages gained by protectingour ability to negotiate with any unsolicited and potentially unfriendly acquirer outweigh the disadvantages of discouraging suchproposals, including those priced above the then-current market value of our common stock, because, among other reasons, the negotiationof such proposals could improve their terms.

 

Provisions of our Certificate ofIncorporation and Bylaws

 

Our Charter, our Bylaws and Delaware lawcontain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficialto our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for sharesof our common stock. The following are examples of such provisions in our Charter and Bylaws:

 

  only our Board of Directors, pursuant to a resolution adopted by a majority of our directors, may call special meetings of our stockholders;

 

  stockholders may not act by written consent and stockholder action must take place at the annual or special meeting of our stockholders;

 

  stockholder proposals and nominations of candidates for election as directors other than nominations made by or at the direction of our Board of Directors or a committee of our Board of Directors to be brought before any meeting of our stockholders must comply with advance notice procedures;

 

  our Board of Directors is classified into three classes, each consisting as nearly as reasonably may be possible of one-third of the total number of directors constituting the entire Board of Directors;

 

  our Board will fix the exact number of directors to comprise our Board of Directors;

 

  subject to any rights that holders of any series of our undesignated preferred stock may have to elect directors and to fill vacancies on our Board of Directors, newly-created directorships and vacancies on our Board of Directors may only be filled by a majority of the members of the incumbent board then in office, even if less than a quorum is present, and not by our stockholders;

 

  a director may be removed from office only for cause by the affirmative vote of holders of shares representing at least seventy-five percent (75%) of the votes entitled to be cast on such matter by the then-outstanding shares of all classes and series of our capital stock, voting together as a single class;

 

  our Charter and Bylaws do not provide for cumulative voting in the election of directors;

 

  our Bylaws may be further amended by either (i) the affirmative vote of at least a majority of our entire Board of Directors or (ii) the affirmative vote of the holders of at least seventy-five percent (75%) of the combined voting power of the outstanding shares of all classes and series of our capital stock entitled to vote on such amendment, voting together as a single class; and

 

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  our Board of Directors is authorized to issue, without further action by our stockholders, up to 2,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our Board of Directors.

 

We implemented a Stockholder Rights Plan(the “Rights Plan”) on October 31, 2013. Pursuant to the Rights Plan, one preferred stock purchase right willbe issued for each outstanding share of our common stock. Each right issued will be subject to the terms of the Rights Plan. TheRights Plan is intended to protect our stockholders in the event of an unfair or coercive offer to acquire us and to provide theBoard of Directors with adequate time to evaluate unsolicited offers; however, it may have anti-takeover effects. In general terms,our Rights Plan works by imposing a significant penalty upon any person or group that acquires twenty percent (20%) or more ofour outstanding common stock, without the approval of our Board of Directors. The Rights Plan, however, should not affect any prospectiveoffer or willingness to make an offer at a fair price as determined by our Board of Directors, nor should it interfere with anymerger or other business combination approved by our Board of Directors. However, because the rights may substantially dilute thestock ownership of a person or group attempting to take us over without the approval of our Board of Directors, our Rights Plancould make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) withoutfirst negotiating with our Board of Directors regarding that acquisition.

 

Additionally, as required by the DelawareGeneral Corporation Law, any amendment of our Charter must first be approved by a majority of our Board of Directors and, as requiredby our Charter, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majorityof the outstanding shares of each class entitled to vote thereon, voting together as a single class, except that the amendmentof the provisions relating to stockholder action, directors, limitation of liability, the amendment of our Bylaws and Charter,forum and transactions with Harvard Bioscience must be approved by not less than seventy-five percent (75%) of the outstandingshares entitled to vote on the amendment, and not less than seventy-five percent (75%) of the outstanding shares of each classentitled to vote thereon as a class. Our Bylaws may be amended by either (i) a vote of at least a majority of our entire Boardof Directors or (ii) a vote of the holders of at least seventy-five percent (75%) of the combined voting power of the outstandingshares of all classes and series of our capital stock entitled to vote on such amendment, voting together as a single class.

 

Delaware Anti-Takeover Law

 

We are subject to the provisions of Section 203of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engagingin a “business combination” with an “interested stockholder” for a three-year period following the timethat this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A“business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting ina financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliatesand associates, owns, or did own within three years prior to the determination of interested stockholder status, fifteen percent(15%) or more of the corporation’s voting stock. Under Section 203, a business combination between a corporation andan interested stockholder is prohibited unless it satisfies one of the following conditions:

  

  before the stockholder became interested, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

  upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least eight-five percent (85%) of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or

 

  at or after the time the stockholder became interested, the business combination was approved by the Board of Directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
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PLAN OF DISTRIBUTION

 

Pursuant to a placement agency agreement,we have engaged H.C. Wainwright & Co., LLC, or the placement agent, to act as our exclusive placement agent in connection withthis offering of our securities pursuant to this prospectus on a reasonable best efforts basis. The terms of this offering weresubject to market conditions and negotiations between us, the placement agent and prospective investors. The placement agency agreementdoes not give rise to any commitment by the placement agent to purchase any of our securities, and the placement agent will haveno authority to bind us by virtue of the placement agency agreement. Further, the placement agent does not guarantee that it willbe able to raise new capital in any prospective offering. The placement agent may engage sub-agents or selected dealers to assistwith the offering.

 

Investors purchasing $         or more of the securities offered hereby will execute a securities purchase agreement with us, providing such investors with certainrepresentations, warranties and covenants from us, which representations, warranties and covenants will not be available to investorsof lesser amounts of our securities. Therefore, investors purchasing $          or less of the securities shall rely solely on this prospectus in connection with the purchase of securities in the offering.

 

We will deliver the securities being issuedto the investors upon receipt of investor funds for the purchase of the securities offered pursuant to this prospectus. We expectto deliver the securities being offered pursuant to this prospectus on or about , 2017.

 

We have agreed to pay the placementagent a total cash fee equal to 7% of the gross proceeds of this offering, except with respect to cash consideration paid tous in this offering by certain investors, in which case we will pay the placement agent a cash fee equal to 4% of the grossproceeds received from such investors. We will also pay the placement agent a management fee equal to 1% of the grossproceeds of this offering, a reimbursement for out-of-pocket expenses in the amount of up to $45,000 and a reimbursement forthe placement agent’s legal fees and expenses in the amount of $100,000. In addition, we have agreed to issue to theplacement agent warrants to purchase up to 5% of the aggregate number of shares of common stock sold in this offering at anexercise price of $     per share. The placement agent warrants will have substantially the same terms as the warrants being soldto the investors in this offering. Pursuant to FINRA Rule 5110(g), the placement agent warrants and any shares issued uponexercise of the placement agent warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be thesubject of any hedging, short sale, derivative, put or call transaction that would result in the effective economicdisposition of the securities by any person for a period of 180 days immediately following the date of effectiveness orcommencement of sales of this offering, except the transfer of any security: (i) by operation of law or by reason of ourreorganization; (ii) to any FINRA member firm participating in the offering and the officers or partners thereof, if allsecurities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period;(iii) if the aggregate amount of our securities held by the placement agent or related persons do not exceed 1% of thesecurities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund,provided that no participating member manages or otherwise directs investments by the fund and the participating members inthe aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if allsecurities remain subject to the lock-up restriction set forth above for the remainder of the time period.

 

We have also agreed to givethe placement agent a twelve-month right of first refusal to act as our lead underwriter or placement agent for anyfurther capital raising transactions undertaken by us (exclusive for the first six months and with a minimum of 50% of feesfor the remaining six months) and, in the event an offering is not completed during the term of the agreement, a twelve-monthtail fee equal to the cash and warrant compensation in this offering, if any investor who was contacted by the placementagent provides us with further capital during such twelve-month period following the expiration or termination of ourengagement.

 

We have agreed to indemnify the placementagent and specified other persons against some civil liabilities, including liabilities under the Securities Act and the ExchangeAct, and to contribute to payments that the placement agent may be required to make in respect of such liabilities.

 

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The placement agent may be deemed to bean underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profitrealized on the resale of the securities sold by it while acting as principal might be deemed to be underwriting discounts or commissionsunder the Securities Act. As an underwriter, the placement agent would be required to comply with the requirements of the SecuritiesAct and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5 and RegulationM under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common stock andwarrants by the placement agent acting as principal. Under these rules and regulations, the placement agent:

 

·may not engage in any stabilization activity in connection with our securities; and

 

·may not bid for or purchase any of our securities or attempt to induce any person to purchase anyof our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.

 

Lock-up Agreements

 

Our officers and directors and their respectiveaffiliates have agreed with the representative to be subject to a lock-up period of           days following the date of this prospectus. During the applicable lock-up period, such persons may not offer for sale, contractto sell, sell, distribute, grant any option, right or warrant to purchase, pledge, hypothecate or otherwise dispose of, directlyor indirectly, any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares ofour common stock. Certain limited transfers are permitted during the lock-up period if the transferee agrees to these lock-up restrictions.The lock-up period is subject to an additional extension to accommodate for our reports of financial results or material news releases.The placement agent may, in its sole discretion and without notice, waive the terms of any of these lock-up agreements. In thesecurities purchase agreement, we have agreed to a limitation on the issuance and sale of our securities for              days following the closing of this offering, subject to certain exceptions.

 

Listing

 

Our common stock is listed on the NASDAQCapital Market under the symbol “BSTG.”

 

Transfer Agent and Registrar

 

The transfer agent and registrar for ourcommon stock is Computershare.

 

Other Relationships

 

From time to time, the placement agenthas provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in theordinary course of business, for which they have received and may continue to receive customary fees and commissions. However,except as disclosed in this prospectus, we have no present arrangements with the placement agent for any further services.

 

The placement agent in this offering servedas our exclusive placement agent in a securities offering we consummated in May 2016, pursuant to which it received compensation,including warrants to purchase shares of our common stock.

  

 

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EXECUTIVE COMPENSATION

 

We are an “emerging growthcompany” within the meaning of the Jumpstart Our Business Startups Act of 2012. As a result, we have elected to comply withthe reduced disclosure requirements applicable to emerging growth companies in accordance with SEC rules. We have only three executiveofficers. James McGorry, our President and Chief Executive Officer, Thomas McNaughton, our Chief Financial Officer and SaverioLaFrancesca, M.D., our Chief Medical Officer, are named executive officers.

 

Summary Compensation Table

 

The table below summarizes thetotal compensation paid or earned by each of the named executive officers for services rendered in all capacities during the fiscalyears ended December 31, 2015 and December 31, 2016, excluding the compensation Mr. McGorry received in 2015 as an independentdirector.

 

Name and Principal Position  Year  Salary   Option
Awards(1)
   All Other
Compensation
   Total 
James McGorry
  2016  $375,000   $168,720   $19,208(2)  $562,928 
President and Chief Executive Officer  2015  $173,077   $615,204   $4,327(3)  $792,608 
Thomas McNaughton  2016  $309,000   $84,360   $15,483(4)  $408,843 
Chief Financial Officer  2015  $309,000   $201,790   $15,450(5)  $526,240 
Saverio LaFrancesca, M.D.
  2016  $400,000   $84,360   $   $484,360 
Chief Medical Officer  2015  $400,000   $489,292   $   $889,292 

 __________

 

(1)Based on the aggregategrant date fair value computed in accordance with the provisions of FASB ASC 718, “Compensation — StockCompensation”, excluding the impact of estimated forfeitures. Assumptions used in the calculation of this amount are setforth under 2013 Plan Valuation and Expense Information under Stock-Based-Payment Accounting in Note 13 to our audited financialstatements for the fiscal year ended December 31, 2015, included in our Annual Report on Form 10-K filed with the Securities andExchange Commission on March 30, 2016.

(2)Amount represents $17,307for matching contributions made by the Company to Mr. McGorry’s tax-qualified 401(k) Savings Plan account and premiums inthe amount of $1,901 for a life insurance policy.

(3)Amount represents $4,327for matching contributions made by the Company to Mr. McGorry’s tax-qualified 401(k) Savings Plan account.

(4)Amount represents $15,483for matching contributions made by the Company to Mr. McNaughton’s tax-qualified 401(k) Savings Plan account.

(5)Amount represents $15,450for matching contributions made by the Company to Mr. McNaughton’s tax-qualified 401(k) Savings Plan account.

 

 

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Discussion of Summary Compensation Table and RelatedMatters

 

2016 Executive Compensation

 

Salary and Bonus

 

In the first quarter of 2016, theCompensation Committee reviewed the overall executive compensation of the Company’s named executive officers. Based on avariety of factors, with respect to the named executive officers, the Compensation Committee elected to not approve any salaryincreases or cash incentive compensation for 2016.

 

Long-Term Equity IncentiveCompensation

 

In 2016, the Compensation Committeeapproved grants of long-term equity incentive awards in the form of stock options to executives as part of our total compensationpackage. The long-term equity incentive awards were granted in an effort to achieve certain key objectives, including (i) to attractand retain high performing and experienced executives, (ii) motivate and reward executives whose knowledge, skills and performanceare critical to our success, and (iii) to align the interests of our executives and our stockholders by providing our executiveswith strong incentives to increase stockholder value and a significant reward for doing so. Our decisions regarding the amountand type of long-term equity incentive compensation and relative weighting of these awards among total executive compensation havealso been based on our understanding of market practices of our peers and take into account additional factors such as level ofindividual responsibility, experience and performance. The long term incentive grants made to our named executive officers duringfiscal 2016 are described in the table below:

 

    Stock Option
Awards (#)
James McGorry
President and Chief Executive Officer
    150,000 (1) 
Thomas McNaughton
Chief Financial Officer
    75,000 (1) 
Saverio LaFrancesca, Ph.D.
Chief Medical Officer
    75,000 (1) 

 

 

________ 

 

(1)These options vest in fourequal installments on each of March 22, 2017, 2018, 2019 and 2020 and have a term of ten years from the date of grant, being March22, 2016.

 

 

Employment Agreementsand Severance and Change in Control Benefits

 

Current Named ExecutiveOfficers

 

James McGorry

 

We entered into an employment agreementwith Mr. McGorry dated as of June 23, 2015 and effective as of July 6, 2015, appointing Mr. McGorry as our President and ChiefExecutive Officer. Mr. McGorry’s employment agreement has a term of three years, but will automatically renew for successiveone year periods unless either party provides 90 days’ notice that it does not wish to extend the agreement. Mr. McGorry’semployment agreement provides for an annual base salary in the amount of three hundred seventy-five thousand dollars ($375,000)which will be reevaluated on an annual basis by the Board of Directors or the compensation committee. Mr. McGorry also receivedan option to purchase 671,400 shares of our common stock upon the commencement of his employment, which vests in four equal installmentson January 1 of 2016, 2017, 2018 and 2019. Mr. McGorry is eligible to receive cash incentive compensation as determined by theBoard of Directors or the compensation committee, and is also eligible to participate in all of our employee benefit plans, includingwithout limitation, retirement plans, stock option plans, stock purchase plans and medical insurance plans.

 

Mr. McGorry’s employmentagreement also provides for payments to be made to Mr. McGorry in the event of his termination under certain circumstances. IfMr. McGorry’s employment is terminated by us without “cause” (as such term is defined in Mr. McGorry’semployment agreement) or by Mr. McGorry for “good reason” (as such term is defined in Mr. McGorry’s employmentagreement), we are obligated to pay Mr. McGorry the sum of his average annual base salary for the prior three fiscal years or annualsalary for the prior fiscal year, whichever is higher, and his average annual cash incentive compensation for the prior three fiscalyears or annual cash incentive compensation for the prior fiscal year, whichever is higher. Such payment is conditioned upon Mr.McGorry’s

 

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execution of a general releaseof claims against us. In addition, all of Mr. McGorry’s stock options or stock-based awards that would otherwise vest withinthe 12 month period following such termination shall accelerate and become immediately exercisable. We shall continue to pay healthinsurance premiums for health insurance coverage for Mr. McGorry and his immediate family for a period of one year following histermination without cause or for good reason.

 

Mr. McGorry may also be entitledto certain payments in the event of a change in control of our Company. If Mr. McGorry’s employment is terminated by us withoutcause or by Mr. McGorry for good reason within 18 months of a change in control of our Company, Mr. McGorry is entitled to receivea lump sum cash payment in an amount equal to the sum of Mr. McGorry’s current or most recent annual salary and his mostrecent cash incentive compensation. In addition, in the event of a change in control, all of Mr. McGorry’s stock optionsor stock-based awards shall accelerate and become immediately exercisable. We will continue to pay health insurance premiums forhealth insurance coverage for Mr. McGorry and his immediate family for a period of one year following his termination as a resultof a change in control.

 

Mr. McGorry will not be entitledto severance payments unless mutually agreed upon in writing if Mr. McGorry is terminated for cause, due to death or disability,or he terminates his employment without good reason. In the event Mr. McGorry is terminated due to death or disability, we willcontinue to pay health insurance premiums for health insurance coverage for Mr. McGorry and his immediate family for a period ofone year following his termination.

 

Pursuant to the terms of his employmentagreement, Mr. McGorry is also subject to certain confidentiality, non-solicitation and non-competition obligations. The non-solicitationand non-competition obligations survive during the term of his agreement and for a period of 12 months thereafter.

  

For purposes of Mr. McGorry’semployment agreement, “cause” means: (A) conduct by Mr. McGorry constituting a material act of willful misconduct inconnection with the performance of his duties; (B) criminal or civil conviction of Mr. McGorry, a plea of nolo contendere by Mr.McGorry or conduct by Mr. McGorry that would reasonably be expected to result in material injury to our reputation if he were retainedin his position with us; (C) continued, willful and deliberate non-performance by Mr. McGorry of his duties; (D) a breach by Mr.McGorry of his confidentiality, non-solicitation and non-competition obligations to us; or (E) a material violation by Mr. McGorryof our employment policies.

 

For purposes of Mr. McGorry’semployment agreement, “good reason” means the occurrence of any of the following events: (A) a substantial diminutionor other substantive adverse change, not consented to by Mr. McGorry, in his responsibilities, authorities, powers, functions orduties; (B) any removal of Mr. McGorry’s title of President and/or Chief Executive Officer; (C) an involuntary reductionin Mr. McGorry’s annual salary except for across-the-board reductions similarly affecting substantially all management employees;(D) a breach by us of any of our other material obligations under Mr. McGorry’s employment agreement; (E) the involuntaryrelocation of our offices at which Mr. McGorry is principally employed to a location more than 30 miles from our current offices;or (F) our failure to obtain the agreement from any successor company to us to assume and agree to perform Mr. McGorry’semployment agreement.

 

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Thomas McNaughton

 

On October 31, 2013, we enteredinto an Employment Agreement with Mr. McNaughton. The term of this agreement commenced on November 1, 2013. Mr. McNaughton’semployment agreement has a term of two years, but will automatically renew for successive two year periods unless either partyprovides 90 days’ notice that it does not wish to extend the agreement. Mr. McNaughton’s employment agreement providesfor an annual base salary in the amount of three hundred nine thousand dollars ($309,000) which will be reevaluated on an annualbasis by the Board of Directors or the compensation committee. Mr. McNaughton is eligible to receive cash incentive compensationas determined by the Board of Directors or the compensation committee, and is also eligible to participate in all of our employeebenefit plans, including without limitation, retirement plans, stock option plans, stock purchase plans and medical insurance plans.

 

Mr. McNaughton’s employmentagreement also provides for payments to be made to Mr. McNaughton in the event of his termination under certain circumstances.If Mr. McNaughton’s employment is terminated by us without “cause” (as such term is defined in Mr. McNaughton’semployment agreement) or by Mr. McNaughton for “good reason” (as such term is defined in Mr. McNaughton’s employmentagreement), we are obligated to pay Mr. McNaughton the sum of his average annual base salary for the prior three fiscal years orannual salary for the prior fiscal year, whichever is higher, and his average annual cash incentive compensation for the priorthree fiscal years or annual cash incentive compensation for the prior fiscal year, whichever is higher. Such payment is conditionedupon Mr. McNaughton’s execution of a general release of claims against us. In addition, all of Mr. McNaughton’s stockoptions or stock-based awards that would otherwise vest within the 18 month period following such termination shall accelerateand become immediately exercisable. We shall continue to pay health insurance premiums for health insurance coverage for Mr. McNaughtonand his immediate family for a period of one year following his termination without cause or for good reason.

 

Mr. McNaughton may also be entitledto certain payments in the event of a change in control of our Company. If Mr. McNaughton’s employment is terminated by uswithout cause or by Mr. McNaughton for good reason within 18 months of a change in control of our Company, Mr. McNaughton is entitledto receive a lump sum cash payment in an amount equal to the sum of Mr. McNaughton’s most recent annual salary and his mostrecent cash incentive compensation. In addition, in the event of a change in control, all of Mr. McNaughton’s stock optionsor stock-based awards shall accelerate and become immediately exercisable. We will continue to pay health insurance premiums forhealth insurance coverage for Mr. McNaughton and his immediate family for a period of one year following his termination as a resultof a change in control.

 

Mr.McNaughton will not be entitled to severance payments unless mutually agreed upon in writing if Mr. McNaughton is terminated forcause, due to death or disability, or he terminates his employment without good reason. In the event Mr. McNaughton is terminateddue to death or disability, we will continue to pay health insurance premiums for health insurance coverage for Mr. McNaughtonand his immediate family for a period of one year following his termination.

 

Mr.McNaughton is also eligible to receive a gross up payment in the event that any amounts received pursuant to the terms of his employmentagreement are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”),or any interest or penalties on such excise tax are incurred by Mr. McNaughton. Such payment will be equal to the amount of (i)the excise tax, (ii) any federal, state or local tax resulting from the gross up payment and (iii) any interest and/or penaltiesassessed with respect to such excise tax. Pursuant to the terms of his employment agreement, Mr. McNaughton is also subject tocertain confidentiality, non-solicitation and non-competition obligations. The non-solicitation and non-competition obligationssurvive during the term of his agreement and for a period of 12 months thereafter.

 

 30 

 

 

Forpurposes of Mr. McNaughton’s employment agreement, “cause” means: (A) conduct by Mr. McNaughton constitutinga material act of willful misconduct in connection with the performance of his duties; (B) criminal or civil conviction of Mr.McNaughton, a plea of nolo contendere by Mr. McNaughton or conduct by Mr. McNaughton that would reasonably be expected to resultin material injury to our reputation if he were retained in his position with us; (C) continued, willful and deliberate non-performanceby Mr. McNaughton of his duties; (D) a breach by Mr. McNaughton of his confidentiality, non-solicitation and non-competition obligationsto us; or (E) a violation by Mr. McNaughton of our employment policies.

 

Forpurposes of Mr. McNaughton’s employment agreement, “good reason” means the occurrence of any of the followingevents: (A) a substantial diminution or other substantive adverse change, not consented to by Mr. McNaughton, in his responsibilities,powers, or duties; (B) any removal of Mr. McNaughton’s title of Chief Financial Officer; (C) an involuntary reduction inMr. McNaughton’s annual salary except for across-the-board reductions similarly affecting substantially all management employees;(D) a breach by us of any of our other material obligations under Mr. McNaughton’s employment agreement; (E) the involuntaryrelocation of our offices at which Mr. McNaughton is principally employed to a location more than 30 miles from our current offices;or (F) our failure to obtain the agreement from any successor company to us to assume and agree to perform Mr. McNaughton’semployment agreement.

 

Saverio LaFrancesca, M.D.

 

Weentered into an employment agreement with Dr. LaFrancesca dated as of April 8, 2014 effective as of April 14, 2014, appointingDr. LaFrancesca as our Chief Medical Officer. We entered into an amendment to Dr. LaFrancesca’s employment agreement on March24, 2016. Dr. LaFrancesca’s employment agreement has a term of one year, but will automatically renew for successive oneyear periods unless either party provides 90 days’ notice that it does not wish to extend the agreement. Dr. LaFrancesca’semployment agreement provides for an annual base salary in the amount of four hundred thousand dollars ($400,000) which will bereevaluated on an annual basis by the Board of Directors or the compensation committee. Dr. LaFrancesca also received an optionto purchase 100,000 shares of our common stock upon the commencement of his employment, which vests in four equal installmentson January 1 of 2015, 2016, 2017 and 2018. Dr. LaFrancesca is eligible to receive cash incentive compensation as determined bythe Board of Directors or the compensation committee, and is also eligible to participate in all of our employee benefit plans,including without limitation, retirement plans, stock option plans, stock purchase plans and medical insurance plans.

 

Dr.LaFrancesca’s employment agreement also provides for payments to be made to Dr. LaFrancesca in the event of his terminationunder certain circumstances. If Dr. LaFrancesca’s employment is terminated by us without “cause” (as such termis defined in Dr. LaFrancesca’s employment agreement) or by Dr. LaFrancesca for “good reason” (as such term isdefined in Dr. LaFrancesca’s employment agreement), we are obligated to pay Dr. LaFrancesca the sum of his average annualbase salary for the prior three fiscal years or annual salary for the prior fiscal year, whichever is higher, and his average annualcash incentive compensation for the prior three fiscal years or annual cash incentive compensation for the prior fiscal year, whicheveris higher. Such payment is conditioned upon Dr. LaFrancesca’s execution of a general release of claims against us. In addition,all of Dr. LaFrancesca’s stock options or stock-based awards that would otherwise vest within the 12 month period followingsuch termination shall accelerate and become immediately exercisable. We shall continue to pay health insurance premiums for healthinsurance coverage for Dr. LaFrancesca and his immediate family for a period of one year following his termination without causeor for good reason.

 

Dr.LaFrancesca may also be entitled to certain payments in the event of a change in control of our Company. If Dr. LaFrancesca’semployment is terminated by us without cause or by Dr. LaFrancesca for good reason within 18 months of a change in control of ourCompany, Dr. LaFrancesca is entitled to receive a lump sum cash payment in an amount equal to the sum of Mr. Dr. LaFrancesca’scurrent or most recent annual salary and his most recent cash incentive compensation. In addition, in the event of a change incontrol, all of Dr. LaFrancesca’s stock options or stock-based awards shall accelerate and become immediately exercisable.We will continue to pay health insurance premiums for health insurance coverage for Dr. LaFrancesca and his immediate family fora period of one year following his termination as a result of a change in control.

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Dr.LaFrancesca will not be entitled to severance payments unless mutually agreed upon in writing if Dr. LaFrancesca is terminatedfor cause, due to death or disability, or he terminates his employment without good reason. In the event Dr. LaFrancesca is terminateddue to death or disability, we will continue to pay health insurance premiums for health insurance coverage for Dr. LaFrancescaand his immediate family for a period of one year following his termination.

 

Pursuantto the terms of his employment agreement, Dr. LaFrancesca is also subject to certain confidentiality, non-solicitation and non-competitionobligations. The non-solicitation and non-competition obligations survive during the term of his agreement and for a period of12 months thereafter.

 

Forpurposes of Dr. LaFrancesca’s employment agreement, “cause” means: (A) conduct by Dr. LaFrancesca constitutinga material act of willful misconduct in connection with the performance of his duties; (B) criminal or civil conviction of Dr.LaFrancesca, a plea of nolo contendere by Dr. LaFrancesca or conduct by Dr. LaFrancesca that would reasonably be expected to resultin material injury to our reputation if he were retained in his position with us; (C) continued, willful and deliberate non-performanceby Dr. LaFrancesca of his duties; (D) a breach by Dr. LaFrancesca of his confidentiality, non-solicitation and non-competitionobligations to us; or (E) a violation by Dr. LaFrancesca of our employment policies.

 

Forpurposes of Dr. LaFrancesca’s employment agreement, “good reason” means the occurrence of any of the followingevents: (A) a substantial diminution or other substantive adverse change, not consented to by Dr. LaFrancesca, in his responsibilities,authorities, powers, functions or duties; (B) any removal of Dr. LaFrancesca’s title of Chief Medical Officer; (C) an involuntaryreduction in Dr. LaFrancesca’s annual salary except for across-the-board reductions similarly affecting substantially allmanagement employees; (D) a breach by us of any of our other material obligations under Dr. LaFrancesca’s employment agreement;(E) the involuntary relocation of our offices at which Dr. LaFrancesca is principally employed to a location more than 30 milesfrom our current offices; or (F) our failure to obtain the agreement from any successor company to us to assume and agree to performDr. LaFrancesca’s employment agreement.

 

Retirement and Other Benefits

 

Wehave established a 401(k) tax-deferred savings plan, which permits participants, including our named executive officers, to makecontributions by salary deduction pursuant to Section 401(k) of the Code. We are responsible for administrative costs of the 401(k)plan. We may, in our discretion, make matching contributions to the 401(k) plan. In addition, all full-time employees, includingour named executive officers, may participate in our health and welfare benefit programs, including medical coverage, vision coverage,dental coverage, disability insurance, and life insurance.

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DIRECTOR COMPENSATION

 

We use a combination of cash andstock-based incentive compensation to attract and retain qualified candidates to serve on our Board of Directors. In setting directorcompensation, the Board of Directors and the Compensation Committee consider the significant amount of time that directors expendin fulfilling their duties to the Company as well as the skill-level required by the Company of members of the Board of Directors.

 

Directors who are also employeesof the Company receive no additional compensation for service as a director.

 

Each non-employee director thatis elected to our Board of Directors will receive a non-qualified stock option to purchase 25,000 shares of our Common Stock vestingone year from the date of grant and granted on the fifth business day following his or her initial election to the Board of Directors.Each non-employee director also receives an annual retainer of $30,000 paid in four equal quarterly installments. Each non-employeedirector is also entitled to receive a non-qualified stock option to purchase 25,000 shares of our Common Stock vesting one yearfrom the date of grant and granted on the third business day following the issuance of our earnings release for year-end results.

 

Non-employee directors continueto be reimbursed for their expenses incurred in connection with attending Board of directors and committee meetings.

 

Director Compensation Table

 

The following table presents thecompensation provided by us to the non-employee directors who served during the fiscal year ended December 31, 2016.

 

Name(1)  Fees earned or
paid in cash
   Option
awards
(1)(2)
   Total 
John J. Canepa  $30,000   $26,513   $56,513 
John F. Kennedy  $30,000   $26,513   $56,513 
Blaine H. McKee  $23,736   $55,378   $79,114 
Thomas H. Robinson  $30,000   $26,513   $56,513 
David Green  $12,115   $26,513   $38,628 

 

__________

 

(1)Based on the aggregategrant date fair value computed awards in accordance with the provisions of FASB ASC 718, “Compensation — StockCompensation” excluding the impact of estimated forfeitures. Assumptions used in the calculation of this amount are includedunder 2013 Plan Valuation and Expense Information under Share-Based-Payment Accounting in Note 13 to our audited financial statementsfor the fiscal year ended December 31, 2015, included in our Annual Report on Form 10-K filed with the Securities and ExchangeCommission on March 30, 2016.

(2)The aggregate number ofoption awards outstanding at our 2016 fiscal year end and held by the non-employee directors were as follows: 75,000 for Mr. Canepa;80,026 for Mr. Kennedy; 50,000 for Mr. McKee; 75,000 for Mr. Robinson; and 775,627 for Mr. Green. With respect to Mr. Kennedy,these holdings include grants of options to purchase 5,026 shares that were issued by our Company in connection with the requiredadjustment to the similar outstanding equity awards held by him and issued by Harvard Bioscience resulting from the impact ofthe spin-off of our Company by Harvard Bioscience.

  

 

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OUTSTANDING EQUITY AWARDSAT FISCAL YEAR-END

 

The following table sets forthinformation concerning the number and value of exercisable and unexercisable options to purchase Common Stock, and the number ofrestricted stock units held by our named executive officers as of December 31, 2016.

 

   Option Awards   Restricted
Stock Units
 
   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   Option
Exercise
Price
($)
   Option
Expiration
Date
  Number of
Securities
Underlying
Restricted
Stock Units
 
James McGorry   25,000       $4.29   11/18/2023    
    25,000       $1.84   5/29/2025    
    167,850    503,550(1)  $1.38   7/6/2025    
         150,000(2)  $1.69   3/22/2026    
Thomas McNaughton        75,000(3)  $1.69   3/22/2026    
    25,000    75,000(4)  $1.40   9/1/2025    
    21,250    63,750(5)  $1.84   5/29/2025    
    108,844    36,282(6)  $4.29   11/18/2023    
    48,375    24,188(7)  $4.29   11/18/2023    
    1,546    515(8)  $5.22   5/31/2023   268(9)
    4,383        $3.67   6/1/2022    
    2,769       $5.79   6/2/2021    
    11,108       $3.27   5/21/2019    
    5,544       $2.90   11/14/2018    
  Saverio LaFrancesca, M.D.   50,000    50,000(10)  $8.66   5/1/2024    
    25,000    75,000(11)  $4.08   3/4/2025    
    10,000    30,000(11)  $1.84   5/29/2025    
    40,000    120,000(13)  $1.40   8/31/2025    
        75,000(14)  $1.69   3/22/2026    

 

___________

 

(1)The option was grantedon July 6, 2015 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson January 1 of each of 2017, 2018 and 2019.

(2)The option was grantedon March 22, 2016 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson March 22 of each of 2017, 2018, 2019 and 2020.

(3)The option was grantedon March 22, 2016 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson March 22 of each of 2017, 2018, 2019 and 2020.

(4)The option was grantedon August 31, 2015 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson August 31 of each of 2017, 2018 and 2019.

(5)The option was grantedon May 29, 2015 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson May 29 of each of 2017, 2018 and 2019.

(6)The option was grantedon November 1, 2013 and, assuming continued employment with our Company, the unvested shares become exercisable on January 1,2017.

(7)The option was grantedon November 18, 2013 and, assuming continued employment with our Company, the unvested shares become exercisable in two equalincrements subject to the achievement of certain milestone targets determined by our Board of Directors.
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(8)The option was grantedon November 1, 2013 and, assuming continued employment with our Company, the unvested shares become exercisable on January 1,2017.

(9)The restricted stock unitswere granted on November 1, 2013 and, assuming continued employment with our Company, these restricted stock units vest on January1, 2017.

(10)The option was grantedon May 1, 2014 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson May 1 of each of 2017 and 2018.

(11)The option was grantedon March 4, 2015 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson March 4 of each of 2017, 2018 and 2019.

(12)The option was grantedon May 29, 2015 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson May 29 of each of 2017, 2018 and 2019.

(13)The option was grantedon August 31, 2015 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson August 31 of each of, 2017, 2018 and 2019.

(14)The option was grantedon March 23, 2016 and, assuming continued employment with our Company, the unvested shares become exercisable in equal installmentson March 23 of each of 2017, 2018, 2019 and 2020.

 

 35 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS

 

The following table sets forthinformation regarding the beneficial ownership of our Common Stock as of December 30, 2016 by: (i) all persons known by us to ownbeneficially more than 5% of our voting securities; (ii) each of our directors; (iii) each of our named executive officers; and(iv) all of our current directors and executive officers as a group.

 

The number of shares beneficiallyowned by each stockholder is determined under rules issued by the SEC and includes voting or investment power with respect to securities.Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting poweror investment power and includes any shares as to which the individual or entity has the right to acquire beneficial ownershipwithin 60 days after December 30, 2016 through the exercise of any warrant, stock option or other right. The inclusion of suchshares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares.Common stock subject to options currently exercisable, or exercisable within 60 days after December 30, 2016, are deemed outstandingfor the purpose of computing the percentage ownership of the person holding those options, but are not deemed outstanding for computingthe percentage ownership of any other person.

 

Unless otherwise indicated below,to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares of Common Stock,except to the extent spouses share authority under community property laws.

 

   Common Stock Beneficially Owned 
Name and Address of Beneficial Owner(1)  Shares   Percent Prior to Offering(2)   Percent Following Completion of  Offering(2) 
Greater than 5% Holders               
David Green   1,288,886    7.2%(3)    %(3)
First Pecos LLC and affiliates   1,077,018    6.3%(4)    %(4)
Named Executive Officers               
James J. McGorry   512,000    2.9%(5)    %(5)
Thomas W. McNaughton   447,824    2.6%(6)    %(6)
Saverio LaFrancesca, M.D.   168,998    1.0%(7)    *(7)
Non-Employee Directors               
John J. Canepa   67,241     *(8)    *(8)
John F. Kennedy   113,432     *(9)    *(9)
Thomas H. Robinson   100,000     *(8)    *(8)
Blaine H. McKee       *     *
All current executive officers and directors, as a group (7 persons)   1,409,495    7.8%(10)    %(10)

 

__________

 

*Represents less than1% of all of the outstanding shares of Common Stock.

(1)Unless otherwise indicated,the address for all persons shown is c/o Biostage, Inc., 84 October Hill Road, Suite 11, Holliston, Massachusetts 01746.

(2)Based on 17,108,968shares of Common Stock outstanding on December 31, 2016, together with the applicable options for each stockholder that becomeexercisable within 60 days.

(3)Includes options toacquire 750,627 shares that are exercisable within 60 days of December 31, 2016, and 538,259 shares.
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(4)This information is based solely upon an amended Schedule13D filed jointly by First Pecos LLC (“Pecos”), Banco Panamericano, Inc. ("Banco"), Leslie Jabine (“Jabine”)and Chip Greenblatt (“Greenblatt”) on October 27, 2016 reporting beneficial ownership as of October 20, 2016. Consistsof:

 

(a)547,000 shares held by Pecos;
(b)490,018 shares held by Banco; and
(c)40,000 shares held by Jabine.

 

Greenblatt,as sole manager of Pecos and sole director of Banco, has voting and investment power with respect to the shares held by thoseentities.

 

(5)Includes options to acquire385,700 shares exercisable within 60 days of December 31, 2016, and 126,300 shares.

 

(6)Includes options to acquire241,696 shares exercisable within 60 days of December 31, 2016, and 206,128 shares.

 

(7)Includes options to acquire125,000 shares exercisable within 60 days of December 31, 2016, and 43,998 shares.

 

(8)Includes options to acquire50,000 shares exercisable within 60 days of December 31, 2016 and 17,241 shares.

 

(9)Includes options to acquire55,026 shares that are exercisable within 60 days of December 31, 2016, and 58,406 shares.

 

(10)Includes options to acquire907,422 shares that are exercisable within 60 days of December 31, 2016 and 502,073 shares.

 

EQUITY COMPENSATION PLANINFORMATION

 

The followingtable sets forth information as of December 31, 2016 concerning the number of shares of Common Stock issuable under our existingequity compensation plans.

     
Plan Category   Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Restricted Stock Units,
Warrants and Rights
  Weighted Average
Exercise Price of
Outstanding Options,
Warrants, and Rights
  Number of Securities
Remaining Available For
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
    (a)   (b)   (c)
Equity compensation plans approved by security holders(1)     3,878,082     $ 2.80       2,036,994 (2) 
Equity compensation plans not approved by security holders                  
Total     3,878,082     $ 2.80       2,036,994  

 

_____________

 

(1)Consists of our 2013 EquityIncentive Plan, or 2013 Plan, and our Employee Stock Purchase Plan.

(2)Includes 1,945,632 sharesavailable for future issuance under our 2013 Plan and 91,362 shares available for future issuance under our Employee Stock PurchasePlan.

 

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CERTAIN RELATIONSHIPSAND RELATED PARTY TRANSACTIONS

 

The Audit Committee charter setsforth the standards, policies and procedures that we follow for the review, approval or ratification of any related person transactionthat we are required to report pursuant to Item 404(a) of Regulation S-K promulgated by the Securities and Exchange Commission.Under the Audit Committee charter, which is in writing, the Audit Committee must conduct an appropriate review of these relatedperson transactions on an ongoing basis, and the approval of the Audit Committee is required for all such transactions. The AuditCommittee relies on management to identify related person transactions and bring them to the attention of the Audit Committee.

 

During the 2015 and 2016 fiscalyears, we were not a participant in any related person transactions that required disclosure under this heading except as it relatesto (i) our engagement of, and payment during 2015 of $166,645 to RobinsonButler, an executive recruiting consultancy firm whereThomas Robinson, a member of our Board of Directors, is a partner, to complete the search for our President and Chief ExecutiveOfficer, and (ii) our commercial agreements with Harvard Bioscience that were entered into in connection with the spin-off of ourCompany. Harvard Bioscience remained a related party during a portion of 2015, due in part to Mr. Green, our former Chairman andCEO, also being a director of Harvard Bioscience. Since Mr. Green resigned from the positions of Chairman and CEO of Biostage onApril 17, 2015, Harvard Bioscience is no longer considered a related party. These commercial agreements with Harvard Bioscienceinclude: (i) a Separation and Distribution Agreement to effect the separation and spin-off distribution and provide other agreementsto govern our relationship with Harvard Bioscience after the spin-off; (ii) an Intellectual Property Matters Agreement, which governsvarious intellectual property related arrangements between our Company and Harvard Bioscience, including the separation of intellectualproperty rights between us and Harvard Bioscience, as well as certain related cross-licenses between the two companies; (iii) aProduct Distribution Agreement, which provides that each company will become the exclusive distributor for the other party forproducts such other party develops for sale in the markets served by the other; (iv) a Tax Sharing Agreement, which governs theparties respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparationand filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes for periods before,during and after the spin-off; (v) a Transition Services Agreement, which provided for certain services to be performed on a transitionalbasis by Harvard Bioscience to facilitate our transition into a separate public reporting company for time frames of limited length,which expired in 2014; and (vi) a Sublease of approximately 17,000 square feet of mixed use space of the facility located at 84October Hill Road, Suite 11, Holliston, Massachusetts, which is our corporate headquarters.

 

As part of the Transition ServicesAgreement, and for up to one year following the spin-off date, Harvard Bioscience provided certain support services to us, including,among others, accounting, payroll, human resources and information technology services, with the charges for the transition servicesgenerally intended to allow Harvard Bioscience to fully recover the costs directly associated with providing the services, plusall out-of-pocket costs and expenses. In connection with the spin-off and in accordance with these agreements, Harvard Biosciencecontributed capital of approximately $15.0 million to us to fund our operations, and transferred to us approximately $0.8 millionin assets, made up primarily of property, plant and equipment. As these agreements evidence ongoing commercial arrangements whichmay involve varying amounts over time, we are unable to provide an approximate dollar value of the amount involved in the transaction.In fiscal 2015, we paid approximately $0.2 million to Harvard Bioscience with respect to the Transition Services Agreement, Subleaseand related cost, and research and development supplies. With respect to such approximate amount paid during fiscal 2015, approximately$50,000 was paid during the period that Harvard Bioscience continued to be a related party. Neither Mr. Green nor Mr. McNaughtonreceive any amounts from the transactions with Harvard Bioscience relating to their roles as current or former executive officers,and a director as to Mr. Green, of our Company, and it is our understanding that neither Mr. Green nor Mr. McNaughton receive anydirect amounts from such agreements and the transactions in relation to their former roles as executive officers of Harvard Bioscience,and Mr. Green’s continued role as a director of such company, and their interest is limited to benefits they may receivesolely relating to their ongoing roles as executive officer, as to Mr. McNaughton, and director, as to Mr. Green, and stockholdersof our Company. As a non-employee director of Harvard Bioscience, Mr. Green also is entitled to receive director compensation thatall non-employee directors are entitled to receive under Harvard Bioscience’s director compensation programs.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Future sales of substantial amounts ofour common stock in the public market, including shares issued upon exercise of outstanding options or warrants, or the anticipationof these sales, could adversely affect market prices prevailing from time to time and could impair our ability to raise capitalthrough sales of equity securities.

 

Sale of Restricted Securities

 

Shares of our common stock beneficiallyowned by individuals who are our affiliates will be restricted securities under the Securities Act. Individuals who may be consideredour affiliates are those individuals who control, are controlled by or are under common control with us, as those terms generallyare interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers.Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registrationstatement under the Securities Act, or an exemption from the registration requirements of the Securities Act, such as those affordedby Section 4(a)(1) of the Securities Act or Rule 144 thereunder.

 

Rule 144

 

In general, under Rule 144 as currentlyin effect, a person (or persons whose shares are aggregated), including an affiliate, who beneficially owns “restricted securities”of a “reporting company” may not sell these securities until the person has beneficially owned them for at least sixmonths. Thereafter, affiliates may not sell within any three-month period a number of shares in excess of the greater of: (i) 1%of the then outstanding shares of common stock as shown by the most recent report or statement published by the issuer; and (ii) theaverage weekly reported trading volume in such securities during the four preceding calendar weeks.

 

Sales under Rule 144 by our affiliatesalso will be subject to restrictions relating to manner of sale, notice and the availability of current public information aboutus and may be affected only through unsolicited brokers’ transactions.

 

Persons not deemed to be affiliates whohave beneficially owned “restricted securities” for at least six months but for less than one year may sell these securities,provided that current public information about us is “available,” which means that, on the date of sale, we are currentin our Exchange Act filings. After beneficially owning “restricted securities” for one year, our non-affiliates mayengage in unlimited re-sales of such securities.

 

 39 

 

 

LEGAL MATTERS

 

Certain legal matters with respect to thevalidity of the securities offered by this prospectus will be passed upon for us by Burns & Levinson LLP, Boston, MA. Certainlegal matters in connection with this offering will be passed upon for the placement agent by Ellenoff Grossman & Schole LLP,New York, NY.

 

EXPERTS

 

The consolidated financial statements ofBiostage, Inc. as of December 31, 2015 and 2014, and for each of the years in the two-year period ended December 31, 2015, havebeen incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent registeredpublic accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

 

The audit report covering the December31, 2015 consolidated financial statements contains an explanatory paragraph that states that the Company has suffered recurringlosses from operations and will require additional financing to fund future operations which raise substantial doubt about itsability to continue as a going concern. The consolidated financial statements do not include any adjustments that might resultfrom the outcome of that uncertainty.

 40 

 


 

WHERE YOU CAN FIND MORE INFORMATION

 

We are subject to the information requirementsof the Exchange Act and, in accordance therewith, file annual, quarterly and special reports, proxy statements and other informationwith the SEC. You may read and copy any document we file at the SEC’s Public Reference Room at 100 F Street, Washington,D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Thesedocuments also may be accessed through the SEC’s electronic data gathering, analysis and retrieval system, or EDGAR, viaelectronic means, including the SEC’s home page on the Internet (www.sec.gov).

 

We post on our public website (http://www.biostage.com)our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to thosereports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicableafter we electronically file such material with, or furnish it to, the SEC. Our website and the information contained on that site,or connected to that site, are not incorporated into and are not a part of this prospectus.

 

We have the authority to designate andissue more than one class or series of stock having various preferences, conversion and other rights, voting powers, restrictions,limitations as to dividends, qualifications, and terms and conditions of redemption. See “Description of Capital Stock.”We will furnish a full statement of the relative rights and preferences of each class or series of our stock which has been sodesignated and any restrictions on the ownership or transfer of our stock to any shareholder upon request and without charge. Writtenrequests for such copies should be directed to Biostage, Inc., 84 October Hill Road, Suite 11, Holliston, Massachusetts 01746-1371,or by telephone request to (774) 233-7300.

 

 41 

 

 

INCORPORATION OF CERTAIN INFORMATIONBY REFERENCE

 

The SEC allows us to incorporate by referencethe information and reports we file with them under File No. 001-35853, which means that we can disclose important informationto you by referring you to those publicly available documents. The information incorporated by reference is an important part ofthis prospectus, and information that we file later with the SEC will automatically update and supersede the information alreadyincorporated by reference. We are incorporating by reference the documents listed below, which we have already filed with the SEC,and all documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, except as to anyportion of any future report or document that is not deemed filed under such provisions, prior to the termination of the offering:

 

  Our Annual Report on Form 10-K for the year ended December 31, 2015;
     
  Our Quarterly Reports on Form 10-Q for the three months ended March 31, 2016, the three months ended June 30, 2016 and the three months ended September 30, 2016;
     
  Our Current Reports on Form 8-K filed with the SEC on January 7, 2016, March 10, 2016, March 17, 2016, March 24, 2016, March 31, 2016, May 16, 2016, May 20, 2016, May 26, 2016, October 6, 2016,  and November 22, 2016 (in each case, except for information contained therein which is furnished rather than filed); and
     
  The description of our common stock contained in our registration statement on Form 10-12B filed with the SEC on July 31, 2013 and amended on September 20, 2013 and October 11, 2013.

 

Any statement contained in a document incorporatedor deemed to be incorporated by reference in this prospectus is modified or superseded for purposes of the prospectus to the extentthat a statement contained in this prospectus or in any other subsequently filed document that also is or is deemed to be incorporatedby reference herein modifies or supersedes such statement.

 

Upon request, we will provide, withoutcharge, to each person, including any beneficial owner, to whom a copy of this prospectus is delivered a copy of the documentsincorporated by reference into this prospectus. You may request a copy of these filings, and any exhibits we have specificallyincorporated by reference as an exhibit in this prospectus, at no cost by writing or telephoning us at the following address:

 

Biostage, Inc.

84 October Hill Road, Suite 11

Holliston, Massachusetts 01746-1371

Telephone: (774) 233-7300.

 

This prospectus is part of a registrationstatement we filed with the SEC. We have incorporated exhibits into this registration statement. You should read the exhibits carefullyfor provisions that may be important to you.

 

We also incorporate by reference any futurefilings, other than current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed on such form that arerelated to such items, made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in each case, otherthan those documents or the portions of those documents deemed to be furnished and not filed in accordance with SEC rules, untilthe offering of the securities under the registration statement of which this prospectus forms a part is terminated or completed.

 

Information in such future filings updatesand supplements the information provided in this prospectus. Any statements in any such future filings will be deemed to modifyand supersede any information in any document we previously filed with the SEC that is incorporated or deemed to be incorporatedherein by reference to the extent that statements in the later filed document modify or replace such earlier statements.

 

Because we are incorporating by reference future filings withthe SEC, this prospectus is continually updated and later information filed with the SEC may update and supersede some of the informationincluded or incorporated by reference in this prospectus. This means that you must look at all of the SEC filings that we incorporateby reference

 42 

 

to determine if any of the statements in this prospectus orin any document previously incorporated by reference have been modified or superseded.

 

You should rely only on the informationincorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone to provideyou with different information. We are not making an offer of these securities in any state where the offer is not permitted. Youshould not assume that the information in this prospectus or in the documents incorporated by reference is accurate as of any dateother than the date on the front of this prospectus or those documents.

 43 

 

 

 

 

 

Up to $8,000,000 in Shares of CommonStock,
Warrants to Purchase Shares of Common Stock and

Shares of Series C Convertible PreferredStock

 

 

 

PROSPECTUS

 

 

 

 

 

 

 

 

Rodman & Renshaw
a unit of H.C. Wainwright & Co.

 

,2017  

 

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

 

The expenses payable by Biostage, Inc.(the “Registrant” or the “Company”) in connection with the issuance and distribution of the securitiesbeing registered (other than placement agent fees and expenses) are set forth below. Each item listed is estimated, except forthe Securities and Exchange Commission (the “SEC”) registration fee and FINRA filing fees.

 

Securities and Exchange Commission registration fee   $ 928  
FINRA filing fees     1,700  
Legal fees and expenses     *  
Accounting fees and expenses     *  
Transfer agent fees and expenses     *  
Miscellaneous     *  
         
Total   $ *  

 

*To be provided by amendment. 

 

Item 14. Indemnification of Directors and Officers.

 

As permitted by Section 102 of theDelaware General Corporation Law, we have adopted provisions in our Amended and Restated Certificate of Incorporation, or our Charter,and Second Amended and Restated Bylaws, or our Bylaws, that limit or eliminate the personal liability of our directors for a breachof their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation,directors exercise an informed business judgment based on all material information reasonably available to them. Consequently,a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director,except for liability for:

 

  any breach of the director’s duty of loyalty to us or our stockholders;

 

  any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

  any act related to unlawful stock repurchases, redemptions or other distributions or payments of dividends; or

 

  any transaction from which the director derived an improper personal benefit.

 

These limitations of liability do not affectthe availability of equitable remedies such as injunctive relief or rescission. Our Charter also authorizes us to indemnify ourofficers, directors and other agents to the fullest extent permitted under Delaware law.

 

As permitted by Section 145 of theDelaware General Corporation Law, our Charter and Bylaws provide that we will indemnify any person who was or is a party or isthreatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that suchperson, or a person of whom he or she is the legal representative, is or was our director or officer, or by reason of the factthat our director or officer is or was serving, at our request, as a director, officer, employee or agent of another corporationor of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintainedor sponsored by us. We will indemnify such persons against expenses (including attorneys’ fees), judgments, fines and amountspaid in settlement actually and reasonably incurred in connection with such action if such person acted in good faith and in amanner reasonably believed to be in our best interests and, with respect to any criminal proceeding, had no

 

 II-1 

 

 

reason to believe such person’s conductwas unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses(including attorneys’ fees) incurred in connection with the defense or settlement of such actions, and court approval isrequired before there can be any indemnification where the person seeking indemnification has been found liable to us. Any amendmentof this provision will not reduce our indemnification obligations relating to actions taken before an amendment.

 

Our Charter, filed as an exhibit to ourRegistration Statement on Form 10-12B filed with the SEC on July 31, 2013, and our Bylaws, filed as an exhibit to our Current Reporton Form 8-K filed with the SEC on March 31, 2016, provide for the indemnification provisions described above and elsewhere herein.In addition, we have entered into separate indemnification agreements, a form of which is attached as Exhibit 10.7 to our RegistrationStatement on Form 10-12B, filed with the Securities and Exchange Commission on July 31, 2013, with our directors and officers whichmay be broader than the specific indemnification provisions contained in the Delaware General Corporation Law.

 

These indemnification agreements generallyrequire us, among other things, to indemnify our officers and directors against liabilities that may arise by reason of their statusor service as directors or officers, subject to certain exceptions and limitations. These indemnification agreements also requireus to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they couldbe indemnified. In addition, we have obtained policies that insure our directors and officers and those of our subsidiaries againstcertain liabilities they may incur in their capacity as directors and officers. Under these policies, the insurer, on our behalf,may also pay amounts for which we have granted indemnification to the directors or officers. These indemnification provisions andthe indemnification agreements may be sufficiently broad to permit indemnification of our officers and directors for liabilities,including reimbursement of expenses incurred, arising under the Securities Act.

 

Item 15. Recent Sales of Unregistered Securities.

 

Set forth below is information regardingthe shares of common stock and preferred stock and the warrants issued, and options granted, by us in the three years precedingthe filing of this registration statement that were not registered under the Securities Act. The offers, sales and issuances ofthe securities described below were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of theSecurities Act.

 

Aspire Capital,LLC Transaction

 

On December 15, 2015, we entered into aCommon Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liabilitycompany (“Aspire Capital”), which provided that, upon the terms and subject to the conditions and limitations set forththerein, Aspire Capital was committed to purchase up to an aggregate of $15.0 million of shares of our common stock (the “PurchaseShares”) over the 30-month term set forth in the Purchase Agreement.

 

On December 15, 2015, we issued 150,000shares of its common stock to Aspire Capital in consideration for entering into the Purchase Agreement (the “Commitment Shares”)and sold 500,000 shares to Aspire Capital for an aggregate purchase price of $1,000,000 (the “Initial Purchase Shares”).Under the Purchase Agreement, the Purchase Shares could be sold by us to Aspire Capital on any business day in two ways: (1) througha regular purchase of up to 150,000 shares at a known price based on the market price of our common stock prior to the time ofeach sale, and (2) through a VWAP purchase of a number of shares up to 30% of the volume traded on the purchase date at a priceequal to the lessor of the closing sale price or 97% of the volume weighted average price for such purchase date.

 

On May 12, 2016, we issued 150,000 sharesof common stock under this arrangement in exchange for gross proceeds of approximately $371,000. We terminated the Aspire PurchaseAgreement effective as of May 17, 2016.

 

 II-2 

 

May 2016 Offering

 

On May 15, 2016, we entered into a SecuritiesPurchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the sale byus of 2,836,880 registered shares of our common stock at a purchase price of $1.7625 per share. Concurrently with the sale of theshares of our common stock, pursuant to the Purchase Agreement we also sold unregistered warrants to purchase 1,418,440 sharesof our common stock. The aggregate gross proceeds for the sale of the shares of common stock and the warrants was approximately$5.0 million.  Subject to certain ownership limitations, the warrants will be initially exercisable commencing six monthsfrom the issuance date at an exercise price equal to $1.7625 per share of common stock, subject to adjustments as provided underthe terms of the warrants. The warrants are exercisable for five years from the initial exercise date. The closing of the salesof these securities under the Purchase Agreement occurred on May 19, 2016.

 

We entered into an engagement letter (the“Engagement Letter”) H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which Wainwright agreedto serve as exclusive placement agent for the issuance and sale of our shares of common stock and the warrants. Pursuant to theEngagement Letter, we granted to Wainwright unregistered warrants to purchase up to 5% of the aggregate number of shares sold inthe transactions (the “Wainwright Warrants”). The Wainwright Warrants have substantially the same terms as the warrants.

 

Item 16. Exhibits and Financial Statement Schedules.

A list of exhibits filed with this registrationstatement on Form S-1 is set forth on the Exhibit Index and is incorporated herein by reference.

 

Item 17. Undertakings.

 

The undersigned registrant hereby undertakes:

 

(1) To file, duringany period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include anyprospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflectin the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effectiveamendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in theregistration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollarvalue of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimatedmaximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant toRule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change inthe maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registrationstatement; and

  

(iii) To includeany material information with respect to the plan of distribution not previously disclosed in the registration statement or anymaterial change to such information in the registration statement;

 

provided, however, that paragraphs(a)(l)(i), (a)(l)(ii) and (a)(l)(iii) of this section do not apply if the information required to be included in a post-effectiveamendment by those paragraphs is contained in reports filed with or furnished to the Securities and Exchange Commission by theregistrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporatedby reference in the registration statement;

 

(2) That, forthe purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed tobe a new registration statement relating to the securities offered therein, and the offering of such securities at that time shallbe deemed to be the initial bona fide offering thereof;

 

 II-3 

 

(3) To removefrom registration by means of a post-effective amendment any of the securities being registered which remain unsold at the terminationof the offering;

 

(4) That, forthe purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i) Each prospectusfiled by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of thedate the filed prospectus was deemed part of and included in the registration statement; and

 

(ii) Each prospectusrequired to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance onRule 430B relating to an offering made pursuant to Rule 415(a)(l)(i), (vii), or (x) for the purpose of providingthe information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included inthe registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the dateof the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liabilitypurposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective dateof the registration statement relating to the securities in the registration statement to which that prospectus relates, and theoffering of such securities at that time shall be deemed to be the initial bona fide offering thereof; provided, however,that no statement made in a registration statement or prospectus that is part of the registration statement or made in a documentincorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registrationstatement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statementthat was made in the registration statement or prospectus that was part of the registration statement or made in any such documentimmediately prior to such effective date;

 

(5) That, forthe purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distributionof the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrantpursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, ifthe securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrantwill be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminaryprospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any freewriting prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by theundersigned registrant;

 

(iii) The portionof any other free writing prospectus relating to the offering containing material information about the undersigned registrantor its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any othercommunication that is an offer in the offering made by the undersigned registrant to the purchaser;

 

(6) That, forpurposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuantto Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filingof an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) thatis incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securitiesoffered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;and

 

 II-4 

 

(7) Insofaras indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controllingpersons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinionof the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the paymentby the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successfuldefense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securitiesbeing registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressedin the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 II-5 

 

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933,the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized,in the Town of Holliston, Commonwealth of Massachusetts, on this 3rd day of January, 2017.

 

       
  BIOSTAGE, INC.
     
  By:  

/s/ James J. McGorry

      James J. McGorry
      President and Chief Executive Officer

 

KNOW ALL BE THESE PRESENTS, that each personwhose signature appears below hereby constitutes and appoints James McGorry and Thomas McNaughton, and each of them singly (withfull power to each of them to act alone), as such person’s true and lawful attorney-in-fact and agent, with full power ofsubstitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, tosign any or all amendments (including, without limitation, post-effective amendments) to this registration statement (or any registrationstatement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933),and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission,granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisiteand necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person,hereby ratifying and confirming all that said attorney-in-fact and agent, or any substitute or substitutes of them, may lawfullydo or cause to be done by virtue hereof.

 

Pursuant to the requirements of the SecuritiesAct of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ James J. McGorry   President and Chief Executive Officer and Director   January 3, 2017
James J. McGorry   (Principal Executive Officer)    
         
/s/ Thomas W. McNaughton  

Chief Financial Officer

(Principal Financial Officer and

  January 3, 2017
Thomas W. McNaughton    Principal Accounting Officer)    
         
/s/ John F. Kennedy   Chairman   January 3, 2017
John F. Kennedy        
         
/s/ John J. Canepa   Director   January 3, 2017
John J. Canepa        
         
/s/ Blaine H. McKee   Director   January 3, 2017
Blaine H. McKee        
         
/s/ Thomas Robinson   Director   January 3, 2017
Thomas Robinson        

 

 

 II-6 

 

EXHIBITS

 

EXHIBIT INDEX

 

Exhibit
Number
  Description of Exhibit
 2.1§ (3)   Separation and Distribution Agreement between Biostage, Inc. and Harvard Bioscience, Inc. dated as of October 31, 2013.
3.1 (1)   Amended and Restated Certificate of Incorporation of Biostage, Inc.
3.2 (13)   Certificate of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc., dated as of March 30, 2016
3.3 (13)   Second Amended and Restated By-laws of the Biostage, Inc.
3.4 (2)   Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Biostage, Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock.
3.5(6)   Certificate of Designation of Series B Convertible Preferred Stock of Biostage, Inc. classifying and designating the Series B Convertible Preferred Stock.
3.6**   Form of Certificate of Designation of Series C Convertible Preferred Stock of Biostage, Inc. classifying and designating the Series C Convertible Preferred Stock.
4.1**   Form of Warrant.
4.3 (1)   Specimen Stock Certificate evidencing shares of common stock.
4.4 (7)   Specimen Series B Convertible Preferred Stock Certificate.
4.5**   Specimen Series C Convertible Preferred Stock Certificate.
4.6 (2)   Shareholder Rights Agreement, dated as of October 31, 2013, between Biostage, Inc. and Registrar and Transfer Company, as Rights Agent.
4.7(6)   Amendment to Shareholder Rights Agreement, dated as of February 12, 2015 between Biostage, Inc. and Computershare Trust Company, N.A., as successor to Registrar and Transfer Company.
4.8 (10)   Registration Rights Agreement, dated December 15, 2015, between Biostage, Inc. and Aspire Capital Fund, LLC.
4.9 (14)   Form of Common Stock Purchase Warrant, dated as of May 2016.
5.1**   Opinion of Burns & Levinson LLP
10.1 (3)     Intellectual Property Matters Agreement between Biostage, Inc. and Harvard Bioscience, Inc. dated as of October 31, 2013.
10.2 (3)     Product Distribution Agreement between Biostage, Inc. and Harvard Bioscience, Inc. dated as of October 31, 2013.
10.3 (3)     Tax Sharing Agreement between Biostage, Inc. and Harvard Bioscience, Inc. dated as of October 31, 2013.
10.4 (3)     Transition Services Agreement between Biostage, Inc. and Harvard Bioscience, Inc. dated as of October 31, 2013.
10.5 (3)     Sublease by and between Biostage, Inc. and Harvard Bioscience, Inc. dated as of October 31, 2013.
 10.6# (3)     Employment Agreement between Biostage, Inc. and David Green dated as of October 31, 2013.
 10.7# (3)     Employment Agreement between Biostage, Inc. and Thomas McNaughton dated as of October 31, 2013.
10.8 (1)     Form of Indemnification Agreement for Officers and Directors.
10.8 (1)     2013 Equity Incentive Plan.
10.9 (1)     Employee Stock Purchase Plan.
10.10 (1)   Form of Incentive Stock Option Agreement.
10.11 (1)   Form of Non-Qualified Stock Option Agreement for executive officers.
10.12 (1)   Form of Non-Qualified Stock Option Agreement for directors.
10.13 (1)   Form of Deferred Stock Award Agreement.
 10.14# (1)   Director Compensation Arrangements.
  10.15† (4)   Sublicense Agreement dated as of December 7, 2012 between Biostage, Inc. and Harvard Bioscience, Inc., and related Trademark License Agreement, dated December 19, 2002, by and between Harvard Bioscience, Inc. and President and Fellows of Harvard College.
10.16 (1)   Patent Rights Assignment dated December 21, 2012 between Biostage, Inc. and Dr. Paolo Macchiarini.
 II-7 

 

 

10.17 (1)   Sponsored Research Agreement dated August 5, 2009 by and among Biostage, Inc. (as assignee of Harvard Bioscience, Inc.), Sara Mantero, Maria Adelaide Asnaghi, and Department of Bioengineering of the Politecnico Di Milano
  10.18† (5)   Exclusive License Agreement dated August 6, 2009 by and between Biostage, Inc. (as assignee of Harvard Bioscience, Inc.) and Sara Mantero and Maria Adelaide Asnaghi.
10.19 (1)   Novel Surgery Agreement dated as of May 21, 2012 between Biostage, Inc. and State Budget Institution of Public Health Department Regional Clinical Hospital #1 and Vladimir Alekseevich Porhanov.
 10.20 (1)   Novel Surgery Agreement dated as of May 24, 2012 between Biostage, Inc. and OSF Healthcare System, owner and operator of Saint Francis Medical Center and Children’s Hospital of Illinois, and Mark Holterman, M.D.
 10.21 (1)   Amendment to Novel Surgery Agreement dated as of April 5, 2013 between Biostage, Inc. and OSF Healthcare System, owner and operator of Saint Francis Medical Center and Children’s Hospital of Illinois, and Mark Holterman, M.D.
 10.22 (1)   Amendment to Novel Surgery Agreement dated as of June 26, 2013 between Biostage, Inc. and State Budget Institution of Public Health Department Regional Clinical Hospital #1 and Igor S. Polyakov.
10.23(6)   Underwriting Agreement dated as of February 12, 2015, between Biostage, Inc. and National Securities Corporation as representative of the underwriters named therein.
10.24#(8)   Employment Agreement between Biostage, Inc. and James McGorry dated as of June 23, 2015.
10.25#(9)   Employment Agreement between Biostage, Inc. and Saverio LaFrancesca, M.D. dated as of April 8, 2014.
10.26(10)   Common Stock Purchase Agreement, dated December 15, 2015 between Biostage, Inc. and Aspire Capital Fund, LLC.
10.27#(11)   Amendment to Employment Agreement between Biostage, Inc. and Saverio LaFrancesca, M.D. dated as of March 24, 2016.
10.28(14)   Form of Securities Purchase Agreement, dated May 15, 2016, between Biostage, Inc. and the Purchasers listed therein.
10.29(14)   Engagement Letter, dated May 15, 2016, between Biostage, Inc. and Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC.
10.30(15)   Amendment to Engagement Letter, dated May 18, 2016, between Biostage, Inc. and Rodman & Renshaw, a unit of H.C. Wainwright & Co.,  LLC.
10.31**   Form of Placement Agency Agreement.
10.32**   Form of Securities Purchase Agreement.
21.1(12)    Subsidiaries of the Biostage, Inc.
23.1**    Consent of Burns & Levinson LLP (included in Exhibit 5.1)
23.2*   Consent of KPMG LLP
24.1*   Power of Attorney (included in signature page)

 

(1)Previously filed as anexhibit to the Company’s Registration Statement on Form 10-12B (filed July 31, 2013) and incorporated by reference thereto.

 

(2)Previously filed as anexhibit to the Company’s Registration Statement on Form 8-A (filed October 31, 2013) and incorporated by reference thereto.

 

(3)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on November 6, 2013) and incorporated by reference thereto.

 

(4)Previously filed as anexhibit to the Company’s Amendment No. 2 to Form S-1 Registration Statement (filed on February 15, 2013) and incorporatedby reference thereto.

 

(5)Previously filed as Exhibit10.19 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement (filed on February 15, 2013) and incorporated byreference thereto.

 

(6)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on February 12, 2015) and incorporated by reference thereto.

  

 II-8 

 

 

(7)Previously filed as anexhibit to the Company’s Annual Report on Form 10-K (filed on March 27, 2015) and incorporated by reference thereto.

 

(8)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on July 6, 2015) and incorporated by reference thereto.

 

(9)Previously filed as anexhibit to the Company’s Quarterly Report on Form 10-Q (filed on August 14, 2015) and incorporated by reference thereto.

 

(10)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on December 15, 2015) and incorporated by reference thereto.

 

(11)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on March 24, 2016) and incorporated by reference thereto.

 

(12)Previously filed as anexhibit to the Company’s Annual Report on Form 10-K (filed on March 30, 2016) and incorporated by reference thereto.

 

(13)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on March 31, 2016) and incorporated by reference thereto.

 

(14)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on May 16, 2016) and incorporated by reference thereto.

 

(15)Previously filed as anexhibit to the Company’s Current Report on Form 8-K (filed on May 20, 2016) and incorporated by reference thereto.

 

* Filed herewith.
   
** To be filed by amendment.
   
# Management contract or compensatory plan or arrangement.
   
§ The schedules and exhibits to the Separation and Distribution Agreement have been omitted. A copy of any omitted schedule or exhibit will be furnished to the SEC supplementally upon request. The Company will furnish to stockholders a copy of any exhibit without charge upon written request.
   
Confidential portions of this exhibit have been redacted and filed separately with the SEC pursuant to a confidential treatment request in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 II-9 

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