Filed Pursuant to Rule 424(b)(5)
Registration No. 333-197820
PROSPECTUS SUPPLEMENT
To Prospectus dated August 21, 2014
1,560,978
Shares of Common Stock
We are offering 1,560,978 shares (which we
refer to herein as the Shares) of our common stock, par value $0.00001 per share pursuant to this prospectus supplement and the
accompanying base prospectus. The sales will be made in accordance with the Securities Purchase Agreement entered into between
us and the investors (which we refer to herein as the Purchase Agreement) and a Placement Agency Agreement (which we refer to herein
as the Placement Agency Agreement) entered into between us and Aegis Capital Corp. as sole placement agent for the offering (which
we refer to herein as the Placement Agent).
Pursuant to the Purchase Agreement, we will
sell to the investors the Shares at a public offering price of $2.05 per share. We will pay all of the expenses incident to the
registration, offering and sale of the Shares under this prospectus supplement and the accompanying base prospectus.
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Per Share
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Total
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Initial price to public
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$
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2.05
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$
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3,200,005
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Placement Agent Fees (1)
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$
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0.1435
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$
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224,000
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Proceeds before expenses to us
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$
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1.9065
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$
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2,976,005
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(1)
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In addition to the placement
agent fees equal to 7% of the gross proceeds in this offering, we have agreed to pay (a) up to $100,000 of the fees and expenses
of the placement agent in connection with this offering, which includes the fees and expenses of the placement agent’s counsel
and (b) non-accountable expense allowance in the aggregate amount of 1% of the gross proceeds in this offering. See “Plan
of Distribution” for more information.
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In a concurrent private placement, we are also
selling to the investors, for no additional consideration, a warrant to purchase 0.50 of a share of common stock for each share
purchased for cash in this offering (which we refer to herein as the Warrants). The Warrants will be exercisable immediately on
the date of issuance (which we refer to as the Initial Exercise Date), at an exercise price of $2.50 per share and will expire
on the fifth (5
th
) anniversary of the Initial Exercise Date. The Warrants and the shares of common stock issuable upon
the exercise of the Warrants (which we refer to as the Warrant Shares), are not being registered under the Securities Act of 1933,
as amended (which we refer to as the Securities Act), pursuant to the registration statement of which this prospectus supplement
and the accompanying base prospectus form a part and are not being offered pursuant to this prospectus supplement and the accompanying
base prospectus. The Warrants are being offered pursuant to an exemption from the registration requirements of the Securities Act
provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Warrants are not and will not
be listed for trading on any national securities exchange. The Placement Agent is acting as the sole placement agent for the offer
and sale of the Warrants.
We estimate the expenses of this offering,
excluding placement agent fees, will be approximately $100,000.
Our common stock is listed on the NASDAQ Capital
Market under the symbol “XGTI.” On August 15, 2017, the last reported sale price of our common stock on the NASDAQ
Capital Market was $2.21 per share.
As of the date of this prospectus supplement,
the aggregate market value of our outstanding voting and non-voting common equity held by non-affiliates was $30,000,260.04 based
on 12,235,865 shares of outstanding common stock, of which 11,811,126 shares were held by non-affiliates, and the last reported
sale price of our common stock of $2.54 per share on July 24, 2017. Pursuant to General Instruction I.B.6 of Form S-3, in no event
will we sell securities in a public primary offering with a value exceeding more than one-third of our public float in any 12-month
period so long as our public float remains below $75,000,000. During the previous 12 calendar months prior to and including the
date of this prospectus supplement, we have offered $9,858,724 of our securities pursuant to General Instruction I.B.6 of Form
S-3.
We are an “emerging growth company”
as the term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, have elected
to comply with certain reduced public company reporting requirements for this and future filings.
You should read carefully this prospectus supplement,
the accompanying base prospectus and the documents incorporated by reference into this prospectus supplement and the accompanying
base prospectus before you invest. The Placement Agent is deemed to be an “underwriter” for the offering within the
meaning of Section 2(a)(11) of the Securities Act of 1933, as amended.
Delivery of the Shares is expected to be made
on or about August 18, 2017.
Our business and an investment in our shares
of common stock involve a high degree of risk. See “Risk Factors” beginning on page S-6
of this prospectus
supplement, on page 4 of the accompanying base prospectus and the risk factors described in the documents incorporated by
reference into this prospectus supplement and the accompanying base prospectus for more information.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement
or the accompanying base prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Aegis Capital Corp.
The date of this prospectus supplement is August
15, 2017.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts, this prospectus
supplement and the accompanying base prospectus, both of which are part of a registration statement on Form S-3 that we filed with
the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process.
The two parts of this document include: (1)
this prospectus supplement, which describes the specific details regarding this offering of securities; and (2) the accompanying
base prospectus, which provides a general description of the securities we may offer, some of which may not apply to this offering.
Generally, when we refer to this “prospectus,” we are referring to both documents combined. If information in this
prospectus supplement is inconsistent with the accompanying base prospectus, you should rely on this prospectus supplement. You
should read this prospectus supplement together with the additional information described below under the heading “Where
You Can Find More Information” and “Information Incorporated by Reference.”
Any statement made in this prospectus supplement
or in a document incorporated or deemed to be incorporated by reference into this prospectus supplement will be deemed to be modified
or superseded for purposes of this prospectus supplement to the extent that a statement contained in this prospectus supplement
or in any other subsequently filed document that is also incorporated by reference into this prospectus supplement modifies or
supersedes that statement. Any statements so modified or superseded will be deemed not to constitute a part of this prospectus
supplement except as so modified or superseded.
The registration statement that contains this
prospectus supplement, including the exhibits to the registration statement and the information incorporated by reference, contains
additional information about the securities offered under this prospectus. That registration statement can be read on the SEC website
or at the SEC offices mentioned below under the heading “Where You Can Find More Information.”
We are responsible for the information contained
and incorporated by reference in this prospectus supplement, the accompanying base prospectus and any related free writing prospectus
we prepare or authorize. We have not authorized anyone to provide you with different or additional information, and we take no
responsibility for any other information that others may give you. If you receive any other information, you should not rely on
it.
This prospectus supplement and the accompanying
base prospectus do not constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered
securities to which this prospectus supplement relates, nor do this prospectus supplement and the accompanying base prospectus
constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction.
You should not assume that the information
in this prospectus supplement and the accompanying base prospectus is accurate at any date other than the date indicated on the
cover page of this prospectus supplement or that any information we have incorporated by reference is correct on any date subsequent
to the date of the document incorporated by reference. Our business, financial condition, results of operations or prospects may
have changed since that date.
You should not rely on or assume the accuracy
of any representation or warranty in any agreement that we have filed in connection with this offering or that we may otherwise
publicly file in the future because any such representation or warranty may be subject to exceptions and qualifications contained
in separate disclosure schedules, may represent the parties’ risk allocation in the particular transaction, may be qualified
by materiality standards that differ from what may be viewed as material for securities law purposes or may no longer continue
to be true as of any given date.
Unless stated otherwise or the context otherwise
requires, references in this prospectus supplement and the accompanying base prospectus to the “Company,” “xG,”
“xG Technology,” “we,” “us” or “our” refer to xG Technology, Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus supplement and the documents
incorporated by reference herein, including the sections entitled “Risk Factors”, contain “forward-looking statements”
within the meaning of Section 21(E) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section
27A of the Securities Act of 1933, as amended (the “Securities Act”). These forward-looking statements include, without
limitation: statements regarding proposed new products or services; statements concerning litigation or other matters; statements
concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and
future economic performance; statements of management’s goals and objectives; statements concerning our competitive environment,
availability of resources and regulation; trends affecting our financial condition, results of operations or future prospects;
our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words
such as “may”, “will”, “should”, “could”, “would”, “predicts”,
“potential”, “continue”, “expects”, “anticipates”, “future”, “intends”,
“plans”, “believes” and “estimates,” and variations of such terms or similar expressions, are
intended to identify such forward-looking statements.
Forward-looking statements should not be read
as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which,
that performance or those results will be achieved. Forward-looking statements are based on information available at the time they
are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and
uncertainties that could cause actual performance or results to differ materially from what is expressed in or suggested by the
forward-looking statements.
Forward-looking statements speak only as of
the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements,
no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Investors
should review our subsequent reports filed with the SEC described in the sections of this prospectus supplement and the accompanying
base prospectus entitled “Where You Can Find More Information” and “Information Incorporated by Reference,”
all of which are accessible on the SEC’s website at
www.sec.gov
.
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information
contained or incorporated by reference in this prospectus supplement and the accompanying base prospectus. This summary does not
contain all the information you should consider before investing in our securities. You should carefully read this entire prospectus
supplement, the accompanying base prospectus and the documents incorporated by reference herein and therein before making a decision
about whether to invest in our securities.
Our Company
Our overarching strategy is to design, develop
and deliver advanced wireless communications solutions that provide customers in our target markets with enhanced levels of reliability,
mobility, performance and efficiency in their business operations and missions. xG’s business lines include the brands of
Integrated Microwave Technologies LLC (“IMT”), Vislink Communication Systems (“Vislink”), and xMax. There
is considerable brand interaction, owing to complementary market focus, compatible product and technology development roadmaps,
and solution integration opportunities. In addition to these brands, we have a dedicated Federal Sector Group focused on providing
next-generation spectrum sharing solutions to national defense, scientific research and other federal organizations.
IMT:
On January 29,
2016, we completed the acquisition of the net assets that constituted the business of IMT, pursuant to an Asset Purchase Agreement
by and between us and Skyview Capital, LLC. The IMT business develops, manufactures and sells microwave communications equipment
utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. COFDM is a transmission technique that combines
encoding technology with OFDM (Orthogonal Frequency Division Multiplexing) modulation to provide the low latency and high image
clarity required for real-time live broadcasting video transmissions. IMT has extensive experience in ultra-compact COFDM wireless
technology, and this has allowed IMT to develop integrated solutions over the past 20 years that deliver reliable video footage
captured from both aerial and ground-based sources to fixed and mobile receiver locations.
IMT provides product and service solutions
marketed under the well-established brand names Nucomm, RF Central and IMT. Its video transmission products primarily address three
major market areas: Broadcasting, Sports and Entertainment, and Surveillance (for Military and Government).
The Broadcasting market consists of electronic
news gathering, wireless camera systems, portable microwave, and fixed point to point systems. Customers within this market are
blue-chip tier-1 major network TV stations that include over-the-air broadcasters, and cable and satellite news providers. For
this market, IMT designs, develops and markets solutions for use in news helicopters, ground-based news vehicles, camera operations,
central receive sites, remote onsite and studio newscasts and live television events. In this market, IMT’s Nucomm line is
recognized as a premium brand of digital broadcast microwave video systems.
The Sports and Entertainment market consists
of key segments that include Sports Production, Sports Venue Entertainment systems, movie director video assist, and the non-professional
user segment. Customers within this market are major professional sports teams, movie production companies, live video production
service providers, system integrators and a growing segment of drone and unmanned ground vehicle providers. Among the key solutions
IMT provides to this market are wireless camera systems and mobile radios. IMT’s RF Central is a well-established brand of
compact microwave video equipment in the market for both licensed and license-free sports and entertainment applications.
The Government/Surveillance market consists
of key segments that include state and local law enforcement agencies, Federal “3-letter” agencies and military system
integrators. Customers within this market include recognizable state police forces, sheriff’s departments, fire departments,
first responders, the Department of Justice and the Department of Home Land Security. The key solutions IMT provides to this market
are mission-critical wireless video solutions for applications including manned and unmanned aerial and ground systems, mobile
and handheld receive systems and transmitters for concealed video surveillance. IMT’s products in this market are sold under
the brand name IMT.
Vislink:
We originally announced the acquisition of
Vislink on October 20, 2016 in a $16 million binding asset purchase agreement. On February 2, 2017, we completed the acquisition
and assumed full legal ownership of Vislink.
Vislink specializes in the wireless capture,
delivery and management of secure, high-quality, live video from the field to the point of usage. Vislink designs and manufactures
products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated
amplifier items.
Vislink serves two core markets: broadcast
and media, and law enforcement, public safety and surveillance. In the broadcast and media market, Vislink provides broadcast communication
links for the collection of live news, sports and entertainment events. Customers in this market include national broadcasters,
multi-channel broadcasters, network owners and station groups, sports and live broadcasters and hosted service providers. In the
law enforcement, public safety and surveillance markets, Vislink provides secure video communications and mission-critical solutions
for law enforcement, defense and homeland security applications. Its public safety and surveillance customers include metropolitan,
regional and national law enforcement agencies as well as domestic and international defense agencies and organizations.
While our intent is to merge Vislink’s
operations with those of IMT, the Vislink brand and its legacy brands, including Gigawave, Link, Advent and MRC, will be preserved.
IMT has assumed all the Vislink product warranties and will continue to support all the Vislink and IMT product offerings. Vislink’s
business in the Americas will become part of IMT, and their business in the rest of the world will be handled by Vislink’s
existing UK operation. IMT is maintaining all the existing physical facilities around the world, including offices in Colchester
in the UK, Billerica (Massachusetts), Anaheim (California), Singapore, Dubai, and IMT’s newest factory in Hackettstown (NJ).
xMax:
xMax is a secure, rapid-deploy mobile broadband
system that delivers mission-assured wireless connectivity in demanding operating environments. xMax was specifically designed
to serve as an expeditionary and critical communications network for use in unpredictable scenarios and during fluid situations.
We believe xMax represents a compelling solution for disaster response, emergency communications, and defense applications, among
other sectors. xMax has already been deployed at U.S. Army bases and by the U.S. State Department in Mexico.
The equipment that we develop, manufacture
and market under the xMax brand includes a suite of products and services that includes access points, fixed and mobile dual-band
WiFi hotspots, mobile switching centers, as well as network management and deployment tools. These products embody our broad portfolio
of innovative intellectual property including spectrum sharing, interference mitigation, multiple-input multiple-output (MIMO)
and cognitive and software defined radio (SDR). xMax utilizes an end-to-end Internet Protocol (IP) architecture that allows it
to serve as a turnkey network system ranging from a last-mile solution to a full network backbone.
xG Federal:
The xG Federal business unit leverage our extensive
portfolio of patented RF communications technologies to engage in collaborative research and development projects.
Company Information
We were organized as a limited liability company
under the laws of the State of Delaware on August 26, 2002 under the name JTS Acquisitions, LLC. On March 21, 2003, we changed
our name to xG Technology, LLC. Pursuant to a certificate of conversion and a certificate of incorporation filed with the State
of Delaware on November 8, 2006, xG Technology, LLC converted to a Delaware corporation under the name xG Technology, Inc.
We are an “emerging growth company”
as defined in the JOBS Act. We could remain an emerging growth company for up to five years, or until the earliest of (i) the last
day of the first fiscal year in which our annual gross revenue exceeds $1 billion, (ii) the date that we become a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock
that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter
or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Pursuant to Section 102 of the JOBS Act, we have provided reduced executive compensation disclosure and have omitted a compensation
discussion and analysis from this prospectus supplement and the accompanying base prospectus. Pursuant to Section 107 of the JOBS
Act, we have elected to utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying
with new or revised accounting standards.
Where You Can Find Us
Our executive offices are located at 240 S.
Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our telephone number is (941) 953-9035. Our website address is
www.xgtechnology.com
.
Information contained on our website does not form part of this prospectus supplement and is intended for informational purposes
only.
THE OFFERING
Concurrent Private Placement
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In a concurrent private placement, we are also selling Warrants to the investors for no additional consideration. The Warrants represent the right to purchase 0.50 of a share of common stock for each share purchased for cash in this offering. The Warrants will be exercisable immediately on the date of issuance at an exercise price of $2.50 per share and will expire on the fifth (5th) anniversary of the Initial Exercise Date. The Warrants and the Warrant Shares underlying the Warrants are not being registered under the Securities Act pursuant to the registration statement of which this prospectus supplement and the accompanying base prospectus form a part and are not being offered pursuant to this prospectus supplement and the accompanying base prospectus. The Warrants are being offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Placement Agent is acting as the sole placement agent for the offer and sale of the Warrants.
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Common Stock Outstanding after the Offering (excluding the shares of common stock underlying the Warrants)
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13,796,843 shares of common stock.
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We estimate that the net proceeds from the sale of the Shares offered by us will be approximately $2,844,005, based on the public offering price of $2.05 per share, after deducting placement agent fees and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for working capital and other general corporate purposes. See “Use of Proceeds” on page S-23 of this prospectus supplement for a more complete description of the intended use of proceeds from this offering.
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Investing in our securities involves substantial risks that are described in the “Risk Factors” section beginning on page S-6
of this prospectus supplement, the “Risk Factors” section beginning on page 4
of the accompanying base prospectus, and the risk factors described in the documents incorporated by reference into this prospectus supplement and the accompanying base prospectus. You should carefully consider these risks before investing in our securities.
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Our shares of common stock are traded on the NASDAQ Capital Market under the symbol “XGTI.” There is no established trading market for the Warrants, and we do not expect an active trading market to develop. We do not intend to list the Warrants on any securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited.
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The number of shares of our common stock to
be issued and outstanding after this offering is based on 12,235,865 shares of common stock issued and outstanding as of August
15 2017, which number excludes, as of that date, the following:
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7,926,872 shares of
common stock issuable upon exercise of warrants at a weighted exercise price of $5.78 per share.
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•
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6,365,500 shares of
common stock issuable upon exercise of stock options at a weighted average exercise price of $1.58 per share
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As of August 15, 2017, we have no shares of
common stock underlying convertible debt or convertible preferred stock outstanding.
Except as otherwise indicated, the information
in this prospectus supplement assumes there has been no exercise of the Warrants issued in the concurrent private placement.
Recent Developments
None
RISK FACTORS
Investing in our securities involves a high
degree of risk. You should carefully consider and evaluate all of the information contained in this prospectus supplement, the
accompanying base prospectus and in the documents we incorporate by reference into this prospectus supplement and the accompanying
base prospectus before you decide to purchase our securities. In particular, you should carefully consider and evaluate the risks
and uncertainties described under the heading “Risk Factors” in this prospectus supplement and the accompanying base
prospectus. Any of the risks and uncertainties set forth in this prospectus supplement and the accompanying base prospectus, as
updated by annual, quarterly and other reports and documents that we file with the SEC and incorporate by reference into this prospectus
supplement or the accompanying base prospectus could materially and adversely affect our business, results of operations and financial
condition, which in turn could materially and adversely affect the value of our securities. As a result, you could lose all or
part of your investment.
Risks Relating to this Offering of Securities
Investors will incur immediate and substantial
dilution as a result of this offering.
Investors purchasing securities in this offering
will incur immediate and substantial dilution in net tangible book value per share of common stock. After giving effect to the
sale by us of 1,560,978 shares of common stock at a public offering price of $2.05 per Share, purchasers of the Shares will effectively
incur dilution of $0.33 per share in the net tangible book value of their shares of common stock.
Furthermore, you may experience additional
dilution to the extent that shares of our common stock are issued upon the exercise of outstanding stock options and warrants.
See “Dilution
”
for a discussion of the dilution to the purchasers in this offering.
Exercise of options or warrants or conversion
of convertible securities may have a dilutive effect on your percentage ownership and may result in a dilution of your voting power
and an increase in the number of shares of common stock eligible for future resale in the public market, which may negatively impact
the trading price of our shares of common stock, and in turn, the trading price of the Series E Convertible Preferred Stock.
The exercise or conversion of some or all of
our outstanding options, warrants, including the Warrants offered in the concurrent private placement, or convertible securities
could result in significant dilution in the percentage ownership interest of investors in this offering and in the percentage ownership
interest of our existing common stockholders and in a significant dilution of voting rights and earnings per share.
As of August 15, 2017, we have outstanding
warrants to purchase up to 7,926,872 shares of our common (which excludes the Warrants to purchase up to 780,489 shares of common
stock offering in the concurrent private placement ) stock at a weighted exercise price of $5.78 per share.
Additionally, the issuance of up to 6,365,500
shares of common stock upon exercise of stock options outstanding under our stock incentive plans will further dilute our stockholders’
voting interests. To the extent options and/or warrants and/or conversion rights are exercised, additional shares of common stock
will be issued, and such issuance will dilute stockholders.
In addition to the dilutive effects described
above, the exercise of those securities would lead to an increase in the number of shares of common stock eligible for resale in
the public market. Sales of substantial numbers of such shares of common stock in the public market could adversely affect the
market price of our shares of common stock. Substantial dilution and/or a substantial increase in the number of shares of common
stock available for future resale may negatively impact the trading price of our shares of common stock.
Sales of a significant number of shares
of our common stock in the public markets or significant short sales of our common stock, or the perception that such sales could
occur, could depress the market price of our common stock and impair our ability to raise capital.
Sales of a substantial number of shares of
our common stock or other equity-related securities in the public markets, including any shares of common stock issued upon exercise
of the Warrants, could depress the market price of our common stock. If there are significant short sales of our common stock,
the price decline that could result from this activity may cause the share price to decline more so, which, in turn, may cause
long holders of our common stock to sell their shares, thereby contributing to further sales of common stock in the market. Such
sales also may impair our ability to raise capital through the sale of additional equity securities in the future at a time and
price that our management deems acceptable, if at all.
We may seek to raise additional funds,
finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the
terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares
of common stock.
We have financed our operations, and we expect
to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity and/or
convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further, any additional
financing that we secure, may require the granting of rights, preferences or privileges senior to, or
pari passu
with, those
of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock
and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock
to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments
senior to our shares of common stock. We cannot be certain how the repayment of those promissory notes will be funded and we may
issue further equity or debt in order to raise funds to repay the promissory notes, including funding that may be highly dilutive.
The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders. If
we experience dilution from the issuance of additional securities and we grant superior rights to new securities over common stockholders,
it may negatively impact the trading price of our shares of common stock and you may lose all or part of your investment.
The market price of our shares of common
stock is particularly volatile given our status as a relatively unknown company with a generally small and thinly traded public
float and lack of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your shares of common
stock at or above your purchase price, which may result in substantial losses to you.
The market for our shares of common stock is
characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a
national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile
than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable
to a number of factors. First, as noted above, our shares of common stock are, compared to the shares of such larger, more established
companies, sporadically and thinly traded. The price for our shares of common stock could, for example, decline precipitously in
the event that a large number of our shares of common stock are sold on the market without commensurate demand. Secondly, we are
a speculative or “risky” investment due to our lack of profits to date. As a consequence of this enhanced risk, more
risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress,
be more inclined to sell their shares of common stock on the market more quickly and at greater discounts than would be the case
with the stock of a larger, more established company that trades on a national securities exchange and has a large public float.
In addition, the volatility of our stock price may be increased due to market perceptions regarding our ability to integrate VCS
into our existing business and realize expected synergies and cost savings. Many of these factors are beyond our control and may
decrease the market price of our shares of common stock, regardless of our operating performance.
If we are not able to comply with the
applicable continued listing requirements or standards of NASDAQ, NASDAQ could delist our common stock.
Our common stock is currently listed on NASDAQ.
In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including
those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share
price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable
listing standards.
In the event that our common stock is delisted
from NASDAQ and is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in
the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the
OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common
stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause
the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed
on a major exchange.
In the event that our common stock is
delisted from NASDAQ, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because
they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to regulate
“penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules include Rules
3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks”
generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions
in such securities is provided by the exchange or system). Our shares of common stock have in the past constituted, and may again
in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure
requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common
stock, which could severely limit the market liquidity of such shares of common stock and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock to
anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess
of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks”.
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
An active, liquid trading market for
our common stock may not continue, which may cause our common stock to trade at a discount from the initial offering price and
make it difficult for you to sell the common stock you purchase.
Our common stock is currently listed on NASDAQ.
However, there can be no assurance that an active, liquid trading market for our common stock will continue. If an active, liquid
trading market does not continue, you may have difficulty selling any of our common stock that you purchase. The market price of
our common stock may decline below the initial offering price, and you may not be able to sell your shares of our common stock
at or above the price you paid, or at all.
If and when a larger trading market for
our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares of common stock at or above the price at which you acquired them.
The market price of our common stock is likely
to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control,
including, but not limited to:
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variations in our revenues
and operating expenses;
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actual or anticipated
changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our common stock,
other comparable companies or our industry generally;
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market conditions in
our industry, the industries of our customers and the economy as a whole;
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actual or expected changes
in our growth rates or our competitors’ growth rates;
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developments in the
financial markets and worldwide or regional economies;
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announcements of innovations
or new products or services by us or our competitors;
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announcements by the
government relating to regulations that govern our industry;
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sales of our common
stock or other securities by us or in the open market; and
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changes in the market
valuations of other comparable companies.
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we may fail to meet
publicly announced financial guidance or other expectations about our business; and
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risks relating to our
ability to successfully integrate VCS into our existing operations and our ability to recognize anticipated synergies and cost
savings.
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In addition, if the market for technology stocks
or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for
reasons unrelated to our business, financial condition or operating results. The trading price of our shares of common stock might
also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us.
In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against
companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention
and resources, which could materially and adversely affect our business, operating results and financial condition.
Our charter documents and Delaware law
could prevent a takeover that stockholders consider favorable and could also reduce the market price of our common stock.
Our amended and restated certificate of incorporation
and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our Company. These provisions
could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
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authorizing the Board
of Directors to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;
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limiting the persons
who may call special meetings of stockholders; and
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requiring advance notification
of stockholder nominations and proposals.
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In addition, the provisions of Section 203
of the Delaware General Corporation Law govern us. These provisions may prohibit large stockholders, in particular those owning
15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent
of our Board of Directors.
These and other provisions in our amended and
restated certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential takeover
attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the
market price of our common stock being lower than it would be without these provisions.
We have broad discretion in the use of
the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in
the application of the net proceeds from this offering, including for any of the purposes described in the section of this prospectus
entitled “Use of Proceeds.” The failure by our management to apply these funds effectively could harm our business.
Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities.
These investments may not yield a favorable return to our stockholders.
We have not paid dividends in the past
and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future
appreciation in the value of our common stock.
We currently intend to retain any future earnings
to support the development and expansion of our business and do not anticipate paying cash dividends on our shares of common stock
in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking
into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans
and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our shares
of common stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates,
which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way
to realize their investment, and if the price of our common stock does not appreciate, then there will be no return on investment.
Investors seeking cash dividends should not purchase our common stock.
Non-U.S. investors may have difficulty
effecting service of process against us or enforcing judgments against us in courts of non-U.S. jurisdictions.
We are incorporated under the laws of the state
of Delaware. All of our directors and officers reside in the United States. It may not be possible for non-U.S. investors to effect
service of process within their own jurisdictions upon our company and our directors and officers. In addition, it may not be possible
for non-U.S. investors to collect from our company and our directors and officers judgments obtained in courts in such non-U.S.
jurisdictions predicated on non-U.S. legislation.
If securities or industry analysts do
not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock adversely, our share price and trading volume could decline.
The trading market for our shares of common
stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our
market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely,
or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst
who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which in turn could cause our common stock price or trading volume to decline.
The requirements of being a U.S. public
company may strain our resources and divert management’s attention.
As a U.S. public company, we are subject to
the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ,
and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and
financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems
and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business
and operating results.
As a result of disclosure of information in
this prospectus and in filings required of a public company, our business and financial condition is more visible, which we believe
may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful,
our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor,
these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business
and operating results.
We acknowledge material weaknesses in
the controls and procedures of our financial reporting and may identify additional material weaknesses in the future that may cause
us to fail to meet our reporting obligations, including timeliness, or result in material misstatements of our financial statements.
If we continue to fail to remediate our material weaknesses or if we fail to implement effective controls and procedures for our
financial reporting, our ability to accurately and timely report our financial results could be adversely affected, which likely
would adversely affect the value of our common stock.
Our management has previously identified a
material weakness regarding inadequate accounting resources to maintain adequate segregation of duties due to the need to hire
accounting personnel with the requisite knowledge of U.S. GAAP. Additionally, management has not performed on effective risk assessment
of, or monitored internal controls over, financial reporting. Due to these material weaknesses as well as the recent loss of accounting
personnel through cost cutting measures and the need to deal with complex accounting transactions, we believe that our disclosure
controls and internal controls over financial reporting are not yet effective.
A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further,
the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been detected. Failure of our internal control systems to
prevent error or fraud could materially adversely impact us, could lead to restatements of our financial statements and investors
not being able to rely on the completeness and accuracy of the financial information contained in our filings with the SEC, and
could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder litigation.
Any such failure could also cause investors to lose confidence in our reported financial information or our ongoing ability to
meet SEC filing deadlines, which likely would adversely affect the value of our common stock and severely limit or even eliminate
the prospects for our success in obtaining new capital.
Risks Related to Our Business
We are uncertain of our ability to continue
as a going concern, indicating the possibility that we may not be able to operate in the future.
To date, we have completed only the initial
stages of our business plan and we can provide no assurance that we will be able to generate a sufficient amount of revenue, if
at all, from our business in order to achieve profitability. It is not possible for us to predict at this time the potential success
of our business. The revenue and income potential of our proposed business and operations are currently unknown. If we cannot continue
as a viable entity, you may lose some or all of your investment in our company.
We are an early stage entity and have incurred
net losses since inception. Our ability to continue as a going concern is contingent upon, among other factors, our ability to
raise additional cash from equity financings, secure debt financing, and/or generate revenue from the sales of our products. We
cannot provide any assurance that we will be able to raise additional capital. If we are unable to secure additional capital, we
may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve
our cash in amounts sufficient to sustain operations and meet our obligations.
We may require additional capital in
the future to develop new products. If we do not obtain any such additional financing, if required, our business prospects, financial
condition and results of operations will be adversely affected.
We may require additional capital in the future
to develop new products. We may not be able to secure adequate additional financing when needed on acceptable terms, or at all.
To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at a price
lower than the public offering price in this offering or the market price of our common stock at the time of such issuance. If
we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or delay, scale back and eliminate
future product development.
Defects or errors in our products and
services or in products made by our suppliers could harm our brand and relations with our customers and expose us to liability.
If we experience product recalls, we may incur significant expenses and experience decreased demand for our products.
Our products are inherently complex and may
contain defects and errors that are only detectable when the products are in use. Because our products are used for both personal
and business purposes, such defects or errors could have a serious impact on our end customers, which could damage our reputation,
harm our customer relationships and expose us to liability. Defects or impurities in our components, materials or software, equipment
failures or other difficulties could adversely affect our ability, and that of our customers, to ship products on a timely basis
as well as customer or licensee demand for our products. Any such shipment delays or declines in demand could reduce our revenues
and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component
or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty
reserves.
We may fail to meet publicly announced
financial guidance or other expectations about our business, which would cause our stock to decline in value.
From time to time, we provide preliminary financial
results or forward-looking financial guidance, to our investors. Such statements are based on our current views, expectations and
assumptions and involve known and unknown risks and uncertainties that may cause actual results, performance, achievements or share
prices to be materially different from any future results, performance, achievements or share prices expressed or implied by such
statements. Such risks and uncertainties include, among others, changes to the assumptions used to forecast or calculate such guidance
We may not fully realize anticipated
benefits from our recent acquisitions.
On January 29, 2016, and February 2, 2017,
we completed the acquisition of certain assets and liabilities of IMT and VCS, respectively. Although we expect to realize strategic,
operational and financial benefits as a result of these acquisitions, we cannot predict whether and to what extent such benefits
will be achieved, or that any operational or financial benefits will be achieved. The success of the acquisition will depend upon,
among other things, our ability to integrate acquired personnel, operations, products and technologies into our organization effectively,
to retain and motivate key personnel of IMT and VCS and to retain their customers. Any acquisition may result in diversion of management’s
attention from other business concerns, and may result in unanticipated costs and operational challenges.
Although certain technical problems experienced
by users may not be caused by our products, our business and reputation may be harmed if users perceive our solutions as the cause
of a slow or unreliable network connection, or a high profile network failure.
We expect that our products will be in many
different locations and user environments and will be capable of providing transmission of video, mobile broadband connectivity
and interference mitigation, among other applications. The ability of our products to operate effectively can be negatively impacted
by many different elements unrelated to our products. Although certain technical problems experienced by users may not be caused
by our products, users often may perceive the underlying cause to be a result of poor performance of our technology. This perception,
even if incorrect, could harm our business and reputation. Similarly, a high profile network failure may be caused by improper
operation of the network or failure of a network component that we did not supply, but other service providers may perceive that
our products were implicated, which, even if incorrect, could harm our business, operating results and financial condition.
Our ability to sell our products will
be highly dependent on the quality of our support and services offerings, and our failure to offer high-quality support and services
would have a material adverse effect on our sales and results of operations.
Once our products are deployed, our channel
partners and end-customers will depend on our support organization to resolve any issues relating to our products. A high level
of support will be important for the successful marketing and sale of our products. In many cases, our channel partners will likely
provide support directly to our end-customers. We will not have complete control over the level or quality of support provided
by our channel partners. These channel partners may also provide support for other third-party products, which may potentially
distract resources from support for our products. If we and our channel partners do not effectively assist our end-customers in
deploying our products, succeed in helping our end-customers quickly resolve post-deployment issues or provide effective ongoing
support, our ability to sell our products to existing end-customers could be adversely affected and our reputation with potential
end-customers could be harmed. In some cases, we guarantee a certain level of performance to our channel partners and end-customers,
which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems were to arise.
We may fail to recruit and retain qualified
personnel.
We expect to rapidly expand our operations
and grow our sales, development and administrative operations. This expansion is expected to place a significant strain on our
management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel
in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the
areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable
to continue our marketing and development activities, and this could have a material adverse effect on our business, financial
condition, results of operations and future prospects.
We rely on key executive officers, and
their knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on our executive officers
because of their expertise and experience in the telecommunications industry. We have agreements with our executive officers containing
customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have “key person”
life insurance policies for any of our officers. The loss of the technical knowledge and management and industry expertise of any
of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources,
which could adversely affect our operating results.
We purchase some components, subassemblies
and products from a limited number of suppliers. The loss of any of these suppliers may substantially disrupt our ability to obtain
orders and fulfill sales as we design and qualify new components.
We sometimes rely on third party components
and technology to build and operate our products, and, until full integration with IMT and VCS, we may rely on our contract manufacturers
to obtain the components, subassemblies and products necessary for the manufacture of our products. Shortages in components that
we use in our products are possible, and our ability to predict the availability of such components is limited. While components
and supplies are generally available from a variety of sources, we and our contract manufacturers currently depend on a single
or limited number of suppliers for several components for our products. If our suppliers of these components or technology were
to enter into exclusive relationships with other providers of wireless networking equipment or were to discontinue providing such
components and technology to us and we were unable to replace them cost effectively, or at all, our ability to provide our products
would be impaired. We and our contract manufacturers generally rely on purchase orders rather than long-term contracts with these
suppliers. As a result, even if available, we and our contract manufacturers may not be able to secure sufficient components at
reasonable prices or of acceptable quality to build our products in a timely manner. Therefore, we may be unable to meet customer
demand for our products, which would have a material adverse effect on our business, operating results and financial condition.
We do not have long-term contracts with
our existing contract manufacturers. The loss of any of our existing contract manufacturers could have a material adverse effect
on our business, operating results and financial condition.
We do not have long-term contracts with our
existing contract manufacturers. If any of our existing contract manufacturers are unable or unwilling to manufacture our products
in the future, the loss of such contract manufacturers could have a material adverse effect on our business, operating results
and financial condition.
Our intellectual property protections
may be insufficient to properly safeguard our technology.
Our success and ability to compete effectively
are, in large part, dependent upon proprietary technology that we have developed internally. Given the rapid pace of innovation
and technological change within the wireless and broadband industries, the technological and creative skill of our personnel, consultants
and contractors and their ability to develop, enhance and market new products and upgrades to existing products are critical to
our continued success. We rely primarily on patent laws to protect our proprietary rights. As of August 15, 2017, in the United
States, we have 59 patents granted, no patent applications pending and 1 provisional application pending. Internationally, we have
33 patents granted and 6 patent applications pending. There can be no assurance that patents pending or future patent applications
will be issued, or that if issued, we would have the resources to protect any such issued patent from infringement. Further, we
cannot patent much of the technology that is important to our business. To date, we have relied on copyright, trademark and trade
secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing
arrangements with our employees, consultants, contractors, customers and vendors, to establish and protect our rights to this technology
and, to the best extent possible, control the access to and distribution of our technology, software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology
without authorization. Policing unauthorized use of this technology is difficult. There can be no assurance that the steps we take
or will take will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technology we
rely on. In addition, effective protection may be unavailable or limited in some jurisdictions. Litigation may be necessary in
the future to enforce or protect our rights.
We may be subject to claims of intellectual
property infringement or invalidity. Expenses incurred with respect to monitoring, protecting, and defending our intellectual property
rights could adversely affect our business.
Competitors and others may infringe on our
intellectual property rights, or may allege that we have infringed on theirs. Monitoring infringement and misappropriation of intellectual
property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights.
We may also incur significant litigation expenses in protecting our intellectual property or defending our use of intellectual
property, reducing our ability to fund product initiatives. These expenses could have an adverse effect on our future cash flows
and results of operations. If we are found to infringe on the rights of others we could be required to discontinue offering certain
products or systems, to pay damages, or purchase a license to use the intellectual property in question from its owner. Litigation
can also distract management from the day-to-day operations of the business.
Enforcement of our intellectual property
rights abroad, particularly in China, is limited and it is often difficult to protect and enforce such rights.
Patent protection outside the United States
is generally not as comprehensive as in the United States and may not protect our intellectual property in some countries where
our products are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement
in those countries may not be available. Many companies have encountered substantial intellectual property infringement in countries
where we sell, or intend to sell, products or have our products manufactured.
In particular, the legal regime relating to
intellectual property rights in China is limited and it is often difficult to protect and enforce such rights. The regulatory scheme
for enforcing China’s intellectual property laws may not be as developed as regulatory schemes in other countries. Any advancement
of an intellectual property enforcement claim through China’s regulatory scheme may require an extensive amount of time,
allowing intellectual property infringers to continue largely unimpeded, to our commercial detriment in the Chinese and other export
markets. In addition, rules of evidence may be unclear, inconsistent or difficult to comply with, making it difficult to prove
infringement of our intellectual property rights. As a result, enforcement cases involving technology, such as copyright infringement
of software code, or unauthorized manufacture or sale of products containing patented inventions, may be difficult or not possible
to sustain.
These factors may make it increasingly complicated
for us to enforce our intellectual property rights against parties misappropriating or copying our technology or products without
our authorization, allowing competing enterprises to harm our business in the Chinese or other export markets by affecting the
pricing for our products, reducing our own sales and diluting our brand or product quality reputation.
The intellectual property rights of others
may prevent us from developing new products or entering new markets.
The telecommunications industry is characterized
by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets
that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate
new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual
property rights of others, including our competitors, we may be prevented from introducing new products or expanding into new markets
created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies,
our financial condition, operating results or prospects may be harmed.
Further impairment charges could have
a material adverse effect on our financial condition and results of operations.
We are required to test our finite-lived intangible
assets for impairment if events occur or circumstances change that would indicate the remaining net book value of the finite-lived
intangible assets might not be recoverable. These events or circumstances could include a significant change in the business climate,
including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition,
sale or disposition of a significant portion of our business, potential government actions and other factors. If the fair value
of our finite-lived intangible assets is less than their book value in the future, we could be required to record impairment charges.
During 2016, we recognized an impairment charge of $2.7 million on software development costs due to our analysis of the net realizable
value of our capitalized software costs. The amount of any further impairment could be significant and could have a material adverse
effect on our reported financial results for the period in which the charge is taken.
We rely on the availability of third-party
licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and operating
results would be harmed.
We have incorporated third-party licensed technology
into our products. It may be necessary in the future to renew licenses relating to various aspects of these products or to seek
additional licenses for existing or new products. There can be no assurance that the necessary licenses will be available on acceptable
terms or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights on favorable terms,
or the need to engage in litigation regarding these matters, could result in delays in product releases until such time, if ever,
as equivalent technology could be identified, licensed or developed and integrated into our products and might have a material
adverse effect on our business, operating results and financial condition. Moreover, the inclusion in our products of intellectual
property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products.
Our customers could also become the target
of litigation relating to the patent and other intellectual property rights of others.
Any litigation relating to the intellectual
property rights of others could trigger technical support and indemnification obligations in licenses or customer agreements that
we may enter into. These obligations could result in substantial expenses, including the payment by us of costs and damages relating
to claims of intellectual property infringement. In addition to the time and expense required for us to provide support or indemnification
to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relationships
with such customers and cause the sale of our products to decrease. No assurance can be given that claims for indemnification will
not be made, or that if made, such claims would not have a material adverse effect on our business, operating results or financial
conditions.
We expect to base our inventory purchasing
decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate, our operating results could be materially
harmed.
As our customer base increases, we expect to
place orders with our contract manufacturers based on our forecasts of our customers’ demand. Our forecasts will be based
on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our
customers. When demand for our products increases significantly, we may not be able to meet demand on a timely basis, and we may
need to expend a significant amount of time working with our customers to allocate limited supply and maintain positive customer
relations, or we may incur additional costs in order to rush the manufacture and delivery of additional products. If we underestimate
customers’ demand, we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely,
if we overestimate customer demand, we may purchase more inventory than we are able to sell at any given time or at all. In addition,
we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including
obsolete inventory. As a result of our failure to properly estimate demand for our products, we could have excess or obsolete inventory,
resulting in a decline in the value of our inventory, which would increase our costs of revenues and reduce our liquidity. Our
failure to accurately manage inventory relative to demand would adversely affect our operating results.
If our technology does not work as well
as planned or if we are unsuccessful in developing and selling new products or in penetrating new markets, our business and operating
results would suffer.
Our success and ability to compete are dependent
on technology which we have developed or may develop in the future. There is a risk that the technology that we have developed
or may develop may not work as intended, or that the marketing of the technology may not be as successful as anticipated. Further,
the markets in which we and our customers compete or plan to compete are characterized by constantly and rapidly changing technologies
and technological obsolescence. Our ability to compete successfully depends on our ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market needs and
satisfy the demands of customers. A fundamental shift in technologies in any of our target markets could harm our competitive position
within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies
could materially delay our development of new products, which could result in product obsolescence, decreased revenue and a loss
of customer wins to our competitors. The development of new technologies and products generally require substantial investment
and can require long development and testing periods before they are commercially viable. We intend to continue to make substantial
investments in developing new technologies and products and it is possible that that we may not successfully be able to develop
or acquire new products or product enhancements that compete effectively within our target markets or differentiate our products
based on functionality, performance or cost and that our new technologies and products will not result in meaningful revenue. Any
delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and customers. Any technical
flaws in product releases could diminish the innovative impact of our products and have a negative effect on customer adoption
and our reputation. If we fail to introduce new products that meet the demands of our customers or target markets or do not achieve
market acceptance, or if we fail to penetrate new markets, our revenue will not increase over time and our operating results and
competitive position would suffer.
Computer malware, viruses, hacking and
phishing attacks could harm our business and results of operations.
Computer malware, viruses, and computer hacking
and phishing attacks have become more prevalent in our industry and may occur on our systems in the future. Though it is difficult
to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance,
reliability, security, and availability of our products and technical infrastructure to the satisfaction of our users may harm
our reputation and our ability to attract and retain customers.
If we do not effectively manage changes
in our business, these changes could place a significant strain on our management and operations.
Our ability to grow successfully requires an
effective planning and management process. The expansion and growth of our business could place a significant strain on our management
systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems
and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to support
a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including
acquisitions, this could have a material adverse effect on our business, financial condition, results of operations and future
prospects.
If our estimates relating to our critical
accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results could fall
below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in
conformity with U.S. GAAP requires our management to make estimates, assumptions and judgments that affect the amounts reported
in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results
may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could
cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock
price. Significant assumptions and estimates used in preparing our financial statements include those related to revenue recognition,
inventory, product warranties, allowance for doubtful accounts, stock-based compensation expense, capitalization of intangible
assets, impairment of long-lived assets and income taxes.
Our exposure to the credit risks of our
customers may make it difficult to collect accounts receivable and could adversely affect our operating results and financial condition.
In the course of our sales to customers, we
may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable.
Economic conditions may impact some of our customers’ ability to pay their accounts payable. While we will attempt to monitor
these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, we have written down
accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid accounts receivable write-downs
or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating results
for the period in which they occur.
Demand for our defense-related products
and products for emergency response services depends on government spending.
The U.S. military market is largely dependent
upon government budgets, particularly the defense budget. The funding of government programs is subject to Congressional appropriation.
Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on
a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only
partially funded and additional funds are committed only as Congress makes further appropriations. No assurance can be given that
an increase in defense spending will be allocated to programs that would benefit our business. A decrease in levels of defense
spending or the government’s termination of, or failure to fully fund, one or more of the contracts for which our products
may be utilized could have a material adverse effect on our financial position and results of operations.
In addition, the sale of our products to local
municipalities for emergency response services depends on government spending allocated to such areas. There can be no assurance
that government spending will be allocated to emergency response services at a level that would benefit our business. A decrease
in levels of government spending for emergency response services, or the government’s termination of, or failure to fully
fund, one or more of the contracts for which our products may be utilized with respect to emergency response services, could have
a material adverse effect on our financial position and results of operations.
Our failure to obtain and maintain required
certifications could impair our ability to bid on defense contracts.
In order for us to participate in certain government
programs we could be required to obtain and maintain quality certification and certain standards for Department of Defense wireless
security such as certification by the Joint Interoperability and Test Command (JITC) and to meet production standards in order
to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional certification which
may be required, we will be ineligible to bid for contracts which may impair our financial operations and consequently, our ability
to continue in business.
Regulation of the telecommunications
industry could harm our operating results and future prospects.
The traditional telecommunications industry
is highly regulated, and our business and financial condition could be adversely affected by changes in regulations relating to
the Internet telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or commerce
on IP networks, but future regulations could include sales taxes and tariffs in previously unregulated areas and provider access
charges. We could be adversely affected by regulation of IP networks and commerce in any country where we market equipment and
services to service or content providers. Regulations governing the range of services and business models that can be offered by
service providers or content providers could adversely affect those customers’ needs for products designed to enable a wide
range of such services or business models. For instance, the U.S. Federal Communications Commission has issued regulations governing
aspects of fixed broadband networks and wireless networks. These regulations might impact service provider and content provider
business models and as such, providers’ needs for Internet telecommunications equipment and services. In addition, many jurisdictions
are evaluating or implementing regulations relating to cyber security, privacy and data protection, which could affect the market
and requirements for networking and security equipment.
In addition, environmental regulations relevant
to electronic equipment manufacturing or operations may impact our business and financial condition adversely. For instance, the
European Union has adopted regulations on Electronic waste, e-waste, e-scrap, or waste electrical and electronic equipment (“WEEE”),
Restriction of the Use of Certain Hazardous Substances (“ROHS”) and Registration, Evaluation, Authorisation and Restriction
of Chemical substances (“REACH”). Furthermore, some governments have regulations prohibiting government entities from
purchasing security products that do not meet specified indigenous certification criteria even though those criteria may be in
conflict with accepted international standards. Similar regulations are in effect or under consideration in several jurisdictions
where we do business.
The adoption and implementation of such regulations
could decrease demand for our products, increase the cost of building and selling our products and impact our ability to ship products
into affected areas and recognize revenue in a timely manner. Any of these impacts could have a material adverse effect on our
business, financial condition, and results of operations.
As an emerging growth company as defined
in the JOBS Act, we will utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements
will make our common stock less attractive to investors.
We are an emerging growth company as defined
in the JOBS Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified
disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and
omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on
executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”), including the additional testing of our internal control over financial reporting
as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may
not have access to certain information they may deem important.
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this extended
transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or
revised accounting standards as they become applicable to public companies. We cannot predict if investors will find our common
stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock and our stock price may be more volatile.
We could remain an emerging growth company
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds
$1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three-year period.
We have not engaged our independent registered
public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for
any period reported in our financial statements. Had our independent registered public accounting firm performed an audit of our
internal control over financial reporting, additional material weaknesses may have been identified. For so long as we qualify as
an emerging growth company under the JOBS Act, which may be up to five years following this offering, we will not have to provide
an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section
404(b) of the Sarbanes-Oxley Act. During the course of the evaluation, documentation or attestation, we or our independent registered
public accounting firm may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner or at all
as a result of the deferred implementation of this additional level of review.
Risks Relating to Our Industry
Our industry is subject to rapid technological
change, and we must make substantial investments in new products, services and technologies to compete successfully.
New technological innovations generally require
a substantial investment before they are commercially viable. We intend to continue to make substantial investments in developing
new products and technologies, and it is possible that our development efforts will not be successful and that our new technologies
will not result in meaningful revenues. Our future success will depend on our ability to continue to develop and introduce new
products, technologies and enhancements on a timely basis. Our future success will also depend on our ability to keep pace with
technological developments, protect our intellectual property, satisfy customer requirements, meet customer expectations, price
our products and services competitively and achieve market acceptance. The introduction of products embodying new technologies
and the emergence of new industry standards could render our existing products and technologies, and products and technologies
currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately to technological developments
or customer requirements, or experience any significant delays in development, introduction or shipment of our products and technologies
in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technologies
could decrease, and our competitive position could be damaged.
We may be subject to infringement claims
in the future.
We may be unaware of filed patent applications
and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain
injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology
and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s
efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the
merits of such claims. These outcomes may (i) require us to stop selling products or using technology that contains the allegedly
infringing intellectual property; (ii) require us to redesign those products that contain the allegedly infringing intellectual
property; (iii) require us to pay substantial damages to the party whose intellectual property rights we may be found to be infringing;
(iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a
license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi)
materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price
to decline significantly; (viii) materially and adversely affect our liquidity, including our ability to pay debts and other obligations
as they become due; or (ix) lead to our bankruptcy or liquidation.
Our industry is highly competitive and
we may not be able to compete effectively.
The communications industry is highly competitive,
rapidly evolving, and subject to constant technological change. We expect that new competitors are likely to join existing competitors.
Many of our competitors may be larger and have greater financial, technical, operational, marketing and other resources and experience
than we do. In the event that a competitor expends significant resources we may not be able to successfully compete. In addition,
the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies
to provide products. If our competitors were to provide better and more cost effective products than our products we may not be
able to capture any significant market share.
Regulation of Voice over Internet Protocol
(“VoIP”) services is developing and therefore uncertain and future legislative, regulatory or judicial actions could
adversely affect our business.
VoIP services have developed in an environment
largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority
over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us
and our prospective customers and the effects of future regulatory developments are uncertain. Future legislative, judicial or
other regulatory actions could have a negative effect on our business. In addition, future regulatory developments could increase
our cost of doing business and limit its growth.
Changes in current laws or regulations
or the imposition of new laws or regulations could impede the sale of our products or otherwise harm our business.
Although our legacy technology is designed
to be frequency agnostic (i.e., capable of operating at any frequency) our legacy products are being designed to be optimized for
operation in the 902 – 928 MHz band, which is presently a spectrum that is not licensed in the United States. Changes
in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the usage
of unlicensed spectrum may materially and adversely impact our future prospects, the viability of our current business model, our
expectations for future sales of our products and our business, financial condition and results of operations.
New regulations or standards or changes
in existing regulations or standards in the United States or internationally related to our products may result in unanticipated
costs or liabilities, which could have a material adverse effect on our business, results of operations and future sales, and could
place additional burdens on the operations of our business.
Our products may be subject to governmental
regulations in a variety of jurisdictions. In order to achieve and maintain market acceptance, our technology and products will
have to comply with these regulations as well as a significant number of industry standards. In the United States, our technology
and products will have to comply with various regulations defined by the Federal Communications Commission, (“FCC”),
and others. We may also have to comply with similar international regulations. For example, our wireless communication products
operate through the transmission of radio signals, and radio emissions are subject to regulation in the United States and in other
countries in which we intend to do business. In the United States, various federal agencies including the Center for Devices and
Radiological Health of the Food and Drug Administration, the FCC, the Occupational Safety and Health Administration and various
state agencies have promulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries
of the European Union have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions,
and chemical substances and use standards.
As these regulations and standards evolve,
and if new regulations or standards are implemented, we may be required to modify our technology or products or develop and support
new versions of our technology or products, and our compliance with these regulations and standards may become more burdensome.
The failure of technology or our products to comply, or delays in compliance, with the various existing and evolving industry regulations
and standards could prevent or delay introduction of our technology or products, which could harm our business. End-customer uncertainty
regarding future policies may also affect demand for communications products, including our products. Moreover, channel partners
or end-customers may require us, or we may otherwise deem it necessary or advisable, to alter our technology or products to address
actual or anticipated changes in the regulatory environment. Our inability to alter our technology or products to address these
requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.
Compliance with environmental, health
and safety laws and regulations, including new regulations requiring higher standards, may increase our costs, limit our ability
to utilize supply chains, and force design changes to our products.
Our operations are subject to a variety of
environmental, health and safety laws and regulations and equivalent local, state, and regulatory agencies in each of the jurisdictions
in which we currently operate or may operate in the future. The manufacturing of our products uses substances regulated under various
federal, state, local laws and regulations governing the environment and worker health and safety. If we, including any contract
manufacturers that we may employ, do not comply with these laws including any new regulations, such non-compliance could reduce
the net realizable value of our products, which would result in an immediate charge to our income statements. Our non-compliance
with such laws could also negatively impact our operations and financial position as a result of fines, penalties that may be imposed
on us, and increase the cost of mandated remediation or delays to any contract manufacturers we may utilize, thus we may suffer
a loss of revenues, be unable to sell our products in certain markets and/or countries, be subject to penalties and enforced fees
and/or suffer a competitive disadvantage. Costs to comply with current laws and regulations and/or similar future laws and regulations,
if applicable, could include costs associated with modifying our products, recycling and other waste processing costs, legal and
regulatory costs and insurance costs. We cannot assure you that the costs to comply with these new laws or with current and future
environmental and worker health and safety laws will not have a material adverse effect on our business, operating results and
financial condition.
Governmental regulations affecting the
import or export of products or affecting products containing encryption capabilities could negatively affect our revenues.
The United States and various foreign governments
have imposed controls, export license requirements, and restrictions on the import or export of some technologies, especially encryption
technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology,
such as requiring certification, notifications, review of source code, or the escrow and governmental recovery of private encryption
keys. For example, Russia and China recently have implemented new requirements relating to products containing encryption and India
has imposed special warranty and other obligations associated with technology deemed critical. Governmental regulation of encryption
or IP networking technology and regulation of imports or exports, or our failure to obtain required import or export approval for
our products, could harm our international and domestic sales prospects and adversely affect our revenue expectation. In addition,
failure to comply with such regulations could result in penalties, costs, and restrictions on import or export privileges or adversely
affect sales to government agencies or government funded projects.
If wireless devices pose safety risks,
we may be subject to new regulations, and demand for our products and those of our licensees and customers may decrease.
Concerns over the effects of radio frequency
emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand for our
products and those of our licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines
and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless
devices. In addition, interest groups have requested that the FCC investigate claims that wireless communication technologies pose
health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the
possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation
that may be adopted in response to these expressions of concern could reduce demand for our products and those of our licensees
and customers in the United States as well as foreign countries.
USE OF PROCEEDS
We estimate that the net proceeds from the
sale of the Shares offered by this prospectus supplement and from the sale of the Warrants in the concurrent private placement,
after deducting placement agent fees and expenses payable by us, will be approximately $2,844,005.
We intend to use the net proceeds from this
offering for working capital and other general corporate purposes. Pending use of the net proceeds, we intend to invest the net
proceeds in interest-bearing, investment-grade securities.
DILUTION
If you purchase shares of our common stock
in this offering, you will experience dilution to the extent of the difference between the price per share you pay in this offering
and the net tangible book value per share of our common stock immediately after this offering. The net tangible book value of our
common stock as of June 30, 2017, was approximately $19,814,000 or $1.70 per share of common stock based upon 11,621,227 shares
of common stock outstanding on such date. As adjusted net tangible book value per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding after
giving effect to the sale of the Shares in this offering.
We are offering the Shares at a public
offering price of $2.05 per share before placement agent fees and estimated offering expenses payable by us.
If you invest in our Shares in this offering,
your interest will be diluted to the extent of the difference between the offering price per share and the as adjusted net tangible
book value per share of our common stock immediately after completion of this offering.
The following table illustrates this dilution
on a per share basis to new investors:
Public offering price per share
|
|
$
|
2.05
|
|
Net tangible book value per share as of June 30, 2017, before giving effect to this offering
|
|
$
|
1.70
|
|
Increase in net tangible book value per share attributed to existing investors
|
|
$
|
0.02
|
|
As adjusted net tangible book value per share after giving effect to this offering
|
|
$
|
1.72
|
|
Dilution to net tangible book value per share to new investors in this offering
|
|
$
|
0.33
|
|
The table below summarizes as of June 30, 2017,
on an as adjusted basis as described above, the number of shares of our common stock, the total consideration and the average price
per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors purchasing our Shares in this offering
at a public offering price of $2.05 per share, the closing price of our common stock as listed on the NASDAQ Capital Market on
August 14, 2017, before placement agent fees and estimated offering expenses payable by us.
|
|
Shares
Purchased
|
|
|
Total Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
Existing stockholders
|
|
|
11,621,227
|
|
|
|
88
|
%
|
|
$
|
211,373,647
|
|
|
|
99
|
%
|
|
$
|
18.19
|
|
New investors
|
|
|
1,560,978
|
|
|
|
12
|
%
|
|
$
|
3,200,005
|
|
|
|
1
|
%
|
|
$
|
2.05
|
|
Total
|
|
|
13,182,205
|
|
|
|
100.0
|
%
|
|
$
|
214,573,652
|
|
|
|
100.0
|
%
|
|
$
|
16.28
|
|
The total number of shares of our common stock
reflected in the discussion and table above is based on 11,621,227 shares of our common stock outstanding as of June 30, 2017,
and excludes as of June 30, 2017:
|
•
|
8,182,497 shares of
common stock issuable upon exercise of warrants at a weighted exercise price of $5.67 per share.
|
|
•
|
3,555,500 shares of
common stock issuable upon exercise of stock options at a weighted average exercise price of $1.55 per share.
|
|
•
|
exercise of any outstanding
options, warrants or conversion rights on convertible debt or convertible preferred stock.
|
To the extent that any convertible debt is
converted, outstanding warrants are exercised, outstanding options are exercised, new options are issued under our 2013 Long Term
Incentive Plan or we issue additional shares of common stock in the future, there will be further dilution to investors participating
in this offering.
DESCRIPTION OF SECURITIES
The following is a summary description of
our authorized capital stock and the material terms of the Shares and Warrants. This summary is not complete and is qualified in
its entirety by reference to our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and the Warrants,
a form of which has been filed with the SEC and incorporated by reference into this prospectus supplement.
Authorized Capital Stock
Our authorized capital stock consists of 100,000,000
shares of common stock, par value $0.00001 per share, and 10,000,000 shares of “blank check” preferred stock, of which
5,000,000 shares were designated as our Series D Convertible Preferred Stock, par value $0.00001 per share (the “Series D
Preferred Stock”) and 5,000 shares were designated as our Series E Convertible Preferred Stock, par value $0.00001 per share
(the “Series E Preferred Stock”). On February 5, 2016, we terminated our Series A Convertible Preferred Stock, par
value $0.00001 per share, and our Series C Convertible Preferred Stock, par value $0.00001 per share. On December 6, 2016, we terminated
our Series B Convertible Preferred Stock, par value $0.00001 per share. As of the date of this prospectus supplement, we had 12,235,865
shares of common stock outstanding, no shares of Series D Preferred Stock outstanding and no shares of Series E Preferred Stock
outstanding.
On June 20, 2016, we effected a 1-for-12 reverse
stock split of our outstanding common stock. On December 15, 2016, we also effected a 1-for-10 reverse stock split of our outstanding
common stock. All share and per share information included in this prospectus supplement have been retroactively adjusted to account
for such reverse stock splits.
Shares
For a description of our common stock, see
“Description of Capital Stock” in the accompanying base prospectus.
Warrants
For a description of the Warrants being
offered in the concurrent private placement, see “Private Placement Transaction and Warrants” beginning on page S-28
of the Prospectus Supplement.
PLAN OF DISTRIBUTION
Pursuant to the Placement Agency Agreement
between us and Aegis, dated August 15, 2017, we have engaged Aegis to act as the sole placement agent (the “Placement Agent”)
in connection with this offering. The Placement Agent is not purchasing or selling any of the Shares we are offering by this prospectus
supplement, and is not required to arrange the purchase or sale of any specific number of shares or dollar amount, but the Placement
Agent has agreed to use “reasonable best efforts” to arrange for the sale of the Shares offered hereby.
The Placement Agency Agreement provides that
the obligations of the Placement Agent are subject to certain conditions precedent, including, among other things, the absence
of any material adverse change in our business and the receipt of customary opinions and closing certificates.
The Placement Agent proposes to arrange for
the sale of the Shares we are offering pursuant to this prospectus supplement to one or more investors through a securities purchase
agreement directly between the purchasers and us. All of the Shares will be sold at the same price and, we expect, at a single
closing. We established the price following negotiations with prospective investors and with reference to the prevailing market
price of our common stock, recent trends in such price and other factors. It is possible that not all of the Shares we are offering
pursuant to this prospectus supplement will be sold at the closing, in which case our net proceeds would be reduced. We expect
that the sale of the Shares will be completed on or around the date indicated on the cover page of this prospectus supplement.
Maxim Group LLC (“Maxim”) serves
as an independent adviser to the Company and is not participating in the solicitation or distribution of the offering. Maxim is
not engaged in, nor affiliated with any entity that is engaged in, the solicitation or distribution of this offering.
Commissions and Expenses
We will pay the Placement Agent a placement
agent fee equal to 7% of the gross cash proceeds of this offering. The following table shows the per share and total placement
agent fee we will pay to the Placement Agent in connection with the sale of the Shares offered hereby, assuming the purchase of
all of the Shares we are offering.
Per Share
|
|
$
|
0.1435
|
|
Total
|
|
$
|
224,000
|
|
In addition, we have agreed to reimburse the
Placement Agent at the closing non-accountable expense allowance in the aggregate amount of 1% of the gross proceeds in this offering
and for its out-of-pocket expenses, including fees of counsel to the Placement Agent, subject to compliance with FINRA Rule 5110(f)(2)(D).
We estimate the total expenses of this offering, which will be payable by us, excluding the placement agent fees, will be approximately
$100,000. After deducting the placement agent fees due to the Placement Agent and our estimated offering expenses, we expect the
net proceeds from this offering to be approximately $2,844,005.
We have agreed to indemnify the Placement Agent
against certain liabilities, including liabilities under the Securities Act. We have also agreed to contribute to payments the
Placement Agent may be required to make in respect to such liabilities.
Listing
Our common stock is listed on the Nasdaq Capital
Market under the symbol “XGTI”.
Electronic Distribution
This prospectus
supplement and the accompanying prospectus may be made available in electronic format on websites or through other online services
maintained by the Placement Agent, or by their respective affiliates. Other than this prospectus supplement and the accompanying
prospectus in electronic format, the information on the Placement Agent’s websites and any information contained in any other
websites maintained by the Placement Agent is not part of this prospectus supplement or the accompanying prospectus or the registration
statement of which this prospectus supplement and the accompanying prospectus forms a part, has not been approved and/or endorsed
by us or the Placement Agent, and should not be relied upon by investors.
The foregoing does not purport to be a complete
statement of the terms and conditions of the placement agency agreement and securities purchase agreements. A copy of the placement
agency agreement and the form of securities purchase agreement with the investors are included as exhibits to our current report
on Form 8-K that that is filed with the SEC and incorporated by reference into the Registration Statement of which this prospectus
supplement forms a part. See “Where You Can Find More Information” on page S-29.
Regulation M Restrictions
The Placement Agent may be deemed to be an
underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized
on the resale of the securities sold by it while acting as principal might be deemed to be underwriting discounts or commissions
under the Securities Act. As an underwriter, the Placement Agent would be required to comply with the requirements of the Securities
Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5 and Regulation
M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of securities by the Placement
Agent acting as a principal. Under these rules and regulations, the Placement Agent:
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must not engage in any
stabilization activity in connection with our securities; and
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must not bid for or
purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under
the Exchange Act, until it has completed their participation in the distribution.
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PRIVATE PLACEMENT TRANSACTION AND WARRANTS
In a concurrent private placement, we are selling
to each of the investors in this offering, for no additional consideration, Warrants to purchase 0.50 of a share of common stock for each
Share purchased for cash in this offering, for an aggregate amount of Warrants to purchase 780,489 shares of our common stock.
Each Warrant will be exercisable beginning
on the Initial Exercise Date, which is immediately upon the date of closing, at an exercise price of $2.50 per share. Subject to
limited exceptions, a holder of Warrants will not have the right to exercise any portion of its Warrants if the holder, together
with its affiliates, would beneficially own in excess of 9.99% of the number of shares of our common stock outstanding immediately
after giving effect to such exercise, or the Beneficial Ownership Limitation; provided, however, that upon 61 days’ prior
notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall
the Beneficial Ownership Limitation exceed 9.99%.
The exercise price and number of shares of
common stock issuable upon the exercise of the Warrants will be subject to adjustment in the event of any stock dividend and split,
reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants.
If, at any time while the Warrants are outstanding,
(A) we, directly or indirectly, in one or more related transactions, enters into a Fundamental Transaction (as defined in the Warrants),
then each holder shall have the right thereafter to receive, upon exercise of a Warrant, the same amount and kind of securities,
cash or property as such holder would have been entitled to receive upon the occurrence of such Fundamental Transaction if the
holder had been, immediately prior to such Fundamental Transaction, the holder of the number of shares of common stock then issuable
upon exercise of the Warrants. Any successor to us, surviving entity or the corporation purchasing or otherwise acquiring such
assets shall assume the obligation to deliver to the holder such alternate consideration, and the other obligations, under the
Warrants.
The Warrants and the Warrant Shares are not
being registered under the Securities Act pursuant to the registration statement of which this prospectus supplement and the accompanying
base prospectus form a part and are not being offered pursuant to this prospectus supplement and the accompanying base prospectus.
The Warrants and the Warrant Shares are being offered pursuant to an exemption from the registration requirement of the Securities
Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
After the Initial Exercise Date, if and only
if there is no effective registration statement registering, or no current prospectus available for, the resale of the shares of
common stock issuable upon exercise of the Warrants, the purchasers may exercise the Warrants by means of a “cashless exercise.”
The Placement Agent is acting as the sole placement
agent for the concurrent private placement.
This summary is not complete. The following
summary of the terms and provisions of the Warrants is qualified in its entirety by reference to the Warrants, the form of which
shall be filed as an exhibit to a Current Report on Form 8-K.
LEGAL MATTERS
Robinson Brog Leinwand Greene Genovese &
Gluck P.C., New York, New York, will render a legal opinion as to the validity of the securities to be offered hereby. Lowenstein
Sandler LLP is acting as counsel to the placement agent in connection with this offering.
EXPERTS
Our consolidated financial statements as of
and for the years ended December 31, 2016 and 2015 have been incorporated by reference herein and in the registration statement
in reliance upon the report of Marcum LLP, independent certified public accounting firm, and upon the authority of said firm as
experts in auditing and accounting. The audit report included an explanatory paragraph as to our ability to continue as a going
concern.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus supplement constitutes a part
of a registration statement on Form S-3 filed under the Securities Act. As permitted by the SEC’s rules, this prospectus
supplement and the accompanying base prospectus, which form a part of the registration statement, do not contain all the information
that is included in the registration statement. You will find additional information about us in the registration statement. Any
statements made in this prospectus supplement concerning legal documents are not necessarily complete and you should read the documents
that are filed as exhibits to the registration statement or otherwise filed with the SEC for a more complete understanding of the
document or matter.
We file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read, without charge, and copy the documents we file at the SEC’s
public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You can request copies of these documents by writing
to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public at no cost from the SEC’s website at
www.sec.gov
. Our corporate
website is
www.xgtechnology.com
. The information on our corporate website is not incorporated by reference in this prospectus
supplement or the accompanying base prospectus and you should not consider it a part of this prospectus supplement or the accompanying
base prospectus.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to “incorporate by
reference” into this prospectus supplement certain information. This means that we can disclose important information to
you by referring you to those documents that contain the information. The information we incorporate by reference is considered
a part of this prospectus supplement, and later information we file with the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act, on or after the date of this prospectus supplement (other than information “furnished”
under Items 2.02 or 7.01 (or corresponding information furnished under Item 9.01 or included as an exhibit) of any Current Report
on Form 8-K or otherwise “furnished” to the SEC, unless otherwise stated) until this offering is completed:
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Annual Report on Form
10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 31, 2017, as amended by Annual Form on Form 10-K/A
for the fiscal year ended December 31, 2017, filed with the SEC on April 28, 2017.
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Quarterly Reports on
Form 10-Q for the fiscal quarter ended March 31, 2017, filed with the SEC on May 15, 2017, and for the fiscal quarter ended June
30, 2017, filed with the SEC on August 14, 2017.
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Current Reports on Form
8-K filed with the SEC on January 10, 2017, January 19, 2017, February 3, 2017, February 6, 2017, February 10, 2017, February
14, 2017, February 23, 2017, May 16, 2017, May 23, 2017, June 19, 2017, and August 16, 2017.
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Definitive Proxy Statement
filed with the SEC on May 22, 2017, as amended by Amendment No. 1 thereto, filed with the SEC on May 24, 2017.
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The description of the
common stock contained in the registration statement on Form 8-A, filed with the SEC on June 26, 2013, as amended by Amendment
No. 1 thereto, filed with the SEC on July 18, 2013.
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In accordance with Rule 402 of Regulation S-T,
the XBRL related information in Exhibit 101 to our Annual Report on Form 10-K (as amended) and our Quarterly Reports on Form 10-Q
will not be deemed to be incorporated by reference into any registration statement or other document filed under the Securities
Act, except as will be expressly set forth by specific reference in such filing.
You can obtain a copy of any or all of the
documents incorporated by reference in this prospectus supplement (other than an exhibit to a document unless that exhibit is specifically
incorporated by reference into that document) from the SEC on its website at
www.sec.gov
. You also can obtain these documents
from us without charge by visiting our corporate website at
www.xgtechnology.com
or by requesting them in writing or by
telephoning us at:
xG Technology, Inc.
240 S. Pineapple Avenue, Suite 701
Sarasota, FL 34236
(941) 953-9035
Attention: Corporate Secretary
PROSPECTUS
$30,000,000
Common Stock
Preferred Stock
Warrants
Debt Securities
Convertible Debt Securities
Rights
Units
XG TECHNOLOGY, INC.
We may sell from time to time any combination
of common stock, preferred stock, warrants, debt securities, convertible debt securities, rights, and units as described in this
prospectus, in one or more offerings. We may also offer common stock upon conversion of the preferred stock, or common stock or
preferred stock upon the exercise of convertible debt securities, warrants, rights, or units. The aggregate offering price of all
securities sold under this prospectus may not exceed $30,000,000.
This prospectus provides a general description
of the securities that we may offer. Each time we sell securities pursuant to this prospectus, we will provide specific terms of
the offered securities, including the number of securities offered and the price per security, in one or more prospectus supplements.
The prospectus supplement may also add, update or change information contained in this prospectus. You should read this prospectus
and the applicable prospectus supplement carefully before you invest in our securities. This prospectus may not be used to consummate
a sale of securities unless accompanied by the applicable prospectus supplement.
We may offer and sell these securities through
one or more methods described under “Plan of Distribution” in this prospectus. If any agents or underwriters are involved
in the sale of any of these securities, the applicable prospectus supplement will provide the names of the agents or underwriters
and any applicable fees, commissions, discounts, or over-allotment options. The price to the public of such securities and the
net proceeds we expect to receive from such sale will also be set forth in a prospectus supplement.
Currently, our common stock and warrants are
quoted on the NASDAQ Capital Market under the symbols “XGTI” and “XGTIW”, respectively. The closing price
of our shares and warrants on NASDAQ on July 30, 2014 was $2.29 per share and $0.77 per warrant, respectively.
The aggregate market value of our outstanding
common stock held by non-affiliates is $35,197,288 based on 24,202,164 shares of outstanding common stock, of which 15,171,245
are held by non-affiliates, and a per share price of $2.32 based on the closing sale price of our common stock on July 21, 2014.
Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell our common stock in a public primary offering with
a value exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75,000,000.
We have not offered any securities pursuant to General Instruction I.B.6. of Form S-3 during the prior 12 calendar month period
that ends on and includes the date of this prospectus.
We are an “emerging growth company”
as the term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, have elected
to comply with certain reduced public company reporting requirements for this and future filings.
Investing in the securities involves a high
degree of risk. See “Risk Factors” beginning on page
4
of this prospectus and in the documents to be filed with
the Securities and Exchange Commission that are incorporated by reference in this prospectus before making a decision to purchase
our securities.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is August 21, 2014.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement
on Form S-3 that we filed with the Securities and Exchange Commission, or the SEC, using the “shelf” registration process.
Under this shelf registration process, we may offer shares of our common stock, preferred stock, warrants, debt securities, convertible
debt securities, rights, and/or units, in one or more offerings in any combination, with an aggregate value of up to $30,000,000.
This prospectus provides you with a general description of the securities we may offer. Each time we offer a type or series of
securities under this prospectus, we will provide a prospectus supplement that will contain specific information about the terms
of that offering. The prospectus supplement may also add, update or change information contained in this prospectus or in the documents
we have incorporated by reference into this prospectus and, accordingly, to the extent inconsistent, information in this prospectus
is superseded by the information in the prospectus supplement. Please read carefully this prospectus, the documents incorporated
by reference into this prospectus, and any prospectus supplement together with additional information described below under “Where
You Can Find More Information” and “Information Incorporated by Reference.” You should also carefully consider,
among other things, the matters discussed under “Risk Factors.”
You should rely only on the information contained
in or incorporated by reference in this prospectus and any applicable prospectus supplement. We have not authorized anyone to provide
you with different or additional information. If anyone provides you with different or inconsistent information, you should not
rely on it. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of securities described in this prospectus. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement, as well as information
we have previously filed with the SEC and incorporated by reference into this prospectus, is accurate as of the date on the front
of those documents only. Our business, financial condition, results of operations and prospects may have changed since those dates.
This prospectus may not be used to consummate a sale of our securities unless it is accompanied by a prospectus supplement.
The xG logo is a trademark of xG Technology,
Inc. All other trademarks and service marks appearing in this prospectus are the property of their respective holders.
PROSPECTUS SUMMARY
This summary highlights selected information
contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider
before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, especially
“Risk Factors” and the financial statements and the related notes. Unless the context provides otherwise, all references
herein to “xG”, “xG Technology”, the “Company”, “we”, “our” and “us”
refer to xG Technology, Inc. For definitions of certain industry terms used throughout this prospectus, please see “Glossary”.
Our Company
We have developed a broad portfolio of innovative
intellectual property to enhance wireless communications. Our intellectual property is embedded in proprietary software algorithms
that offer cognitive interference mitigation and spectrum access solutions for countless applications using commercial off the
shelf devices. We recently released the commercially available version of our software and hardware products using our proprietary
xMax® cognitive radio technology.
Our current cognitive radio technology is based
on years of product development. In 2008 and 2009, we generated material revenues from sales of our prior BSN250 voice-only products.
After the introduction of various smartphones in 2007 and later that could handle both voice and data, we decided to enhance our
voice-only products to include data services. In 2011, we delivered our enhanced BSN250 base station and TX70 handset for both
voice and SMS services to the U.S. Army. Given the proliferation of smartphones, the U.S. Army subsequently requested that our
BSN250 base station should integrate with commercial off the shelf devices. In 2013, we introduced an improved product line that
could handle both voice and data services. These new products, the xAP base station and xMod and xVM modems, are able to communicate
with any wi-fi enabled commercial off the shelf device. In 2014, we began developing a new product, the xRM modem which we anticipate
completing in late 2014. The xRM modem is a module that complements the xMax mobile system and is designed to provide high speed
fixed broadband access using frequencies at 2.4 GHz. It offers an end-user solution that seamlessly integrates xMax and wi-fi in
a single device, and allows the delivery of both high data rates and reliable high-speed mobility in the same system. We believe
that the xRM modem will provide higher performance with dedicated channels for voice (xMax) and data (wi-fi), will maximize user
experience via interprotocol smart-routing, and provide greater reliability.
We believe that the wireless communications
industry is facing a “spectrum crisis” because the demand for flexible, affordable voice and data access continues
to increase rapidly while the amount of available spectrum remains relatively constant. We have developed frequency-agnostic cognitive
radio solutions to address this increasing demand by eliminating the need to acquire scarce and expensive licensed radio spectrum,
and thus ideally lowering the total cost of ownership for wireless broadband access. With fast-growing demand straining network
capacity, our intellectual property is also designed to help wireless broadband network operators make more efficient use of their
existing spectrum allocations. We are targeting sales in numerous industries worldwide, such as telecommunications services, public
safety and defense, and in markets ranging from rural to urban areas as well as expeditionary deployments.
The initial implementation of our cognitive
radio intellectual property is xMax. We believe the xMax system is the only commercially available cognitive radio network system
that includes our interference mitigation and spatial processing technologies. xMax implements our proprietary interference mitigation
software that can increase capacity on already crowded airwaves by improving interference tolerance, enabling the delivery of higher
Quality of Service (“QoS”) than other technologies that would not be able to cope with the interference. We believe
that the xMax system will also, when operating on more than one radio channel, deliver dynamic spectrum access by using our patented
self-organizing network techniques. Furthermore, the xMax system can be used to provide additional capacity to licensed spectrum
by identifying and utilizing unused bandwidth within the licensed spectrum.
Our system is frequency agnostic, although
currently designed to operate within the 902 – 928 MHz unlicensed band of spectrum. xMax serves as a mobile voice
over internet protocol (“VoIP”) and broadband data system that utilizes an end-to-end Internet Protocol (“IP”)
system architecture. The xMax product and service suite includes access points, mobile switching centers, network management systems,
deployment tools and proactive customer support. The xMax system will allow mobile operators to utilize free, unlicensed 902 – 928
MHz ISM band spectrum (which spectrum is available in all of the Americas except French Guiana) instead of purchasing scarce and
expensive licensed spectrum. Our xMax system will also enable enterprises to set up a mobile communications network in an expeditious
and cost-effective manner.
We have generated significant
net losses for the past several years and we expect to continue to realize net losses for the immediate future.
Our Strengths
We believe the following strengths position
us for sustainable growth:
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Our proprietary
xMax® cognitive radio technology.
We have developed our xMax cognitive radio technology to create a turnkey
network solution. This solution encompasses the key elements of our cognitive technology, including spectrum sensing, spectrum
management, spectrum mobility, spectrum sharing and spatial processing. Our software and hardware products and our end-to-end
IP architecture implement this solution to provide quality VoIP and data services for countless applications and commercial off
the shelf devices.
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Our technology
addresses an expanding market need.
Our market opportunity has accelerated and expanded due to the spectrum
crisis and the stated goals of governmental organizations to increase spectrum access. Our cognitive technology allows mobile
wireless networks to provide quality voice and data services using unlicensed spectrum, and our interference mitigation and spatial
processing techniques enable these services even in crowded or shared spectrum bands. Rural telecommunication providers, public
safety agencies, industrial and enterprise users, and those who use unlicensed spectrum can use our products and services to create
wireless networks without the significant capital outlays and delays required to license spectrum.
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Our solutions
meet the specific needs of targeted markets.
Our cognitive radio technology has been specifically developed
to make our entire network infrastructure mobile, so that it can be rapidly deployed in response to public safety or security
threats. We believe this feature differentiates our technology from that of our competitors and will address a major capability
gap for public safety, defense, homeland security and news agencies. In addition, the expanded range of our network can provide
improved voice and data services for underserved rural markets.
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We have a broad
patent portfolio and unencumbered use of our intellectual property.
We maintain a broad patent portfolio consisting
of patents and patent applications in the United States and many international jurisdictions, which include 51 issued U.S. patents
and 65 issued international patents. We have solely funded the development of our intellectual property, which is, accordingly,
unencumbered by any federal government unlimited use licenses.
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We have an accomplished
leadership team.
Our management team and board of directors bring a wealth of experience in the telecommunications
and military sectors as well as hardware and software development. Our engineering team has a strong track record developing ad-hoc
networking domains at Motorola and Mesh Networks. In addition, most of our leadership team has strong ties to our target markets,
including public safety organizations, rural telecommunications companies and the military.
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Our Strategy
We are developing a broad portfolio of innovative
intellectual property that we believe will enhance wireless communications. Leveraging elements of this intellectual property portfolio,
we plan to introduce a range of spectrum agnostic, cognitive radio solutions for numerous industries and applications. We believe
that sales of these products and services, together with our ability to leverage our patent portfolio, present us with an attractive
revenue model. Our current strategy is to commercialize our intellectual property portfolio by developing and selling network products
using our proprietary software algorithms to offer cognitive interference mitigation and spectrum access solutions. Our future
strategies are for our intellectual property to be embedded by partners in a semiconductor chip that could be sold to third-party
equipment manufacturers and inserted in their devices, and to license our intellectual property to other customers in industry
verticals world-wide.
Company Information
The Company was organized as a limited liability
company under the laws of the State of Delaware on August 26, 2002 under the name JTS Acquisitions, LLC. On March 21, 2003, we
changed our name to xG Technology, LLC. Pursuant to a certificate of conversion and a certificate of incorporation filed with the
State of Delaware on November 8, 2006, xG Technology, LLC converted to a Delaware corporation under the name xG Technology, Inc.
We are an “emerging growth company”
as defined in the JOBS Act. We could remain an emerging growth company for up to five years, or until the earliest of (i) the last
day of the first fiscal year in which our annual gross revenue exceeds $1 billion, (ii) the date that we become a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock
that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter
or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Pursuant to Section 102 of the JOBS Act, we have provided reduced executive compensation disclosure and have omitted a compensation
discussion and analysis from this prospectus. Pursuant to Section 107 of the JOBS Act, we have elected to utilize the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Securities We May Offer
The descriptions of the securities contained
in this prospectus, together with the applicable prospectus supplements, summarize all the material terms and provisions of the
various types of securities that we may offer. We will describe in the applicable prospectus supplement relating to any securities
the particular terms of the securities offered by that prospectus supplement. If we indicate in the applicable prospectus supplement,
the terms of the securities may differ from the terms we have summarized below. We will also include information in the prospectus
supplement, where applicable, about material United States federal income tax considerations relating to the securities, and the
securities exchange, if any, on which the securities will be listed.
We may sell from time to time, in one or more
offerings:
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convertible debt securities;
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This prospectus may not be used to consummate
a sale of securities unless it is accompanied by a prospectus supplement.
Where You Can Find Us
Our executive offices are located at 240 S.
Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our telephone number is (941) 953-9035. Our website address is
www.xgtechnology.com
.
Information contained in our website does not form part of the prospectus and is intended for informational purposes only.
RISK FACTORS
Our business faces many risks and an investment
in our common stock involves significant risks. Prospective investors are strongly encouraged to consider carefully the risks described
below, as well as other information contained herein, before investing. Investors are further advised that the risks described
below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial,
may also negatively impact our business operations or financial results. If any of the events or circumstances described in this
section occurs, our business, financial condition or results of operations could suffer. Prospective investors in our common stock
should consider the following risks before deciding whether to purchase shares.
Risks Related to the Company and Our Business
We have a history of operating losses
and we expect to continue to realize net losses for at least the next 12 months.
We have recorded a net loss in each reporting
period since our inception. Our net loss for the three months ended March 31, 2014 was approximately $5,153,000. Our accumulated
deficit at March 31, 2014 was approximately $156,715,000. The Company began its research and development activities in 2002, and
has had significant net losses and will likely continue to incur net losses until we can successfully commercialize our products
and technology. Our independent registered public accounting firm has expressed substantial doubt concerning our ability to continue
as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional capital, obtain
other financing or fulfill our existing backlog. The Company expects to continue to have development costs as it develops the next
generation of products. In addition, at this stage of our development we are subject to the following risks:
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our results of operations
may fluctuate significantly, which may adversely affect the value of an investment in our common stock;
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we may be unable to
develop and commercialize our products; and
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it may be difficult
to forecast accurately our key operating and performance metrics because of our limited operating history.
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We may require additional capital in
the future to develop new products. If we do not obtain any such additional financing, if required, our business prospects, financial
condition and results of operations will be adversely affected.
We may require additional capital in the future
to develop new products. We may not be able to secure adequate additional financing when needed on acceptable terms, or at all.
To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at a price
lower than the public offering price in this offering or the market price of our common stock at the time of such issuance. If
we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or delay, scale back and eliminate
future product development.
Defects or errors in our products and
services or in products made by our suppliers could harm our brand and relations with our customers and expose us to liability.
If we experience product recalls, we may incur significant expenses and experience decreased demand for our products.
Our products are inherently complex and may
contain defects and errors that are only detectable when the products are in use. Because our products are used for both personal
and business purposes, such defects or errors could have a serious impact on our end customers, which could damage our reputation,
harm our customer relationships and expose us to liability. Defects or impurities in our components, materials or software, equipment
failures or other difficulties could adversely affect our ability, and that of our customers, to ship products on a timely basis
as well as customer or licensee demand for our products. Any such shipment delays or declines in demand could reduce our revenues
and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component
or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty
reserves.
Amounts included in our total backlog
and order backlog may not result in actual billings or revenue or translate into profits.
Our total backlog represents future product
and service billings that we expect to generate pursuant to contracts that we have entered into with our customers. Our total backlog
includes our order backlog, which represents future billings for open purchase orders and other firm commitments. We anticipate
that our total backlog and order backlog will fluctuate from period to period throughout our fiscal year 2014 and beyond.
As an emerging company our backlog is significant
when compared to our historical revenue and the revenue we anticipate in the foreseeable future. We cannot guarantee that our total
backlog or order backlog will result in actual billings in the originally anticipated period or at all. In addition, the purchase
agreements and contracts reflected in our total backlog and order backlog may not generate margins that we anticipate. Given that
we have only recently begun to market our current product and service offerings, we only recently began to track total backlog
and order backlog on a consistent basis as performance measures and as a result, we do not have significant experience in determining
the level of realization that we will actually achieve on our total backlog and order backlog.
Our customer contracts are typically structured
as purchase and service agreements. The deployments called for under our agreements could extend for a number of years but these
agreements could expire before all such purchases or services are delivered. Total backlog is an estimate based upon contractual
terms, existing purchase orders and other available information regarding the amount and timing of expected future purchase orders
to be placed by our customers and distributors, including non-binding forecasts.
No assurance can be made that firm purchase
orders will yield revenues in the amounts we estimate, within the time period we expect, or at all. Total backlog is subject to
adjustments due to the nature of our customer deployments. Adjustments can result from a variety of factors, including changes
in the nature or scope of customer deployments, the impact of contingency provisions related to future delivery or performance,
customer cancellations, the inability of customers to secure necessary financing, market conditions, delayed regulatory approvals
and customer defaults. If our total backlog or order backlog fails to materialize as expected, we could experience a material reduction
in future billings, revenue, and operating results.
Our recognition of deferred revenue is
subject to future performance obligations and may not be representative of revenues for future periods.
We currently have $480,000 of deferred revenue
recorded as a liability on our balance sheet. This deferred revenue was recorded based on shipments of our hardware products to
companies that are owned or controlled by our director, Larry Townes. Currently, we are awaiting payment for the equipment that
has been delivered in those transactions as the purchasers have indicated that the equipment does not meet certain technical specifications
associated with their networks and that they do not intend to deliver payment until such technical specifications are satisfied.
We cannot assure you that we will receive payment for these shipments or that this deferred revenue will be collected.
In accordance with the Financial Accounting
Standards Board (“FASB”), GAAP, and SEC Staff accounting guidance on revenue recognition, the Company considers revenue
earned and realizable when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or determinable,
(c) service delivery or performance has occurred, (d) customer acceptance has been received, if contractually required, and (e)
collectability of the arrangement fee is probable.
Due to potential future changes in customer
preferences, or delays in customer development or implementation schedules or budgets, and the need for us to satisfactorily perform
product support and other services, deferred revenue and backlog amounts at any particular date may not be representative of actual
revenue for any current or future period.
Although certain technical problems experienced
by users may not be caused by our products, our business and reputation may be harmed if users perceive our solutions as the cause
of a slow or unreliable network connection, or a high profile network failure.
We expect that our products will be in many
different locations and user environments and will be capable of providing mobile broadband connectivity and interference mitigation,
among other applications. The ability of our products to operate effectively can be negatively impacted by many different elements
unrelated to our products. Although certain technical problems experienced by users may not be caused by our products, users often
may perceive the underlying cause to be a result of poor performance of our technology. This perception, even if incorrect, could
harm our business and reputation. Similarly, a high profile network failure may be caused by improper operation of the network
or failure of a network component that we did not supply, but other service providers may perceive that our products were implicated,
which, even if incorrect, could harm our business, operating results and financial condition.
Our ability to sell our products will
be highly dependent on the quality of our support and services offerings, and our failure to offer high-quality support and services
would have a material adverse effect on our sales and results of operations.
Once our products are deployed, our channel
partners and end-customers will depend on our support organization to resolve any issues relating to our products. A high level
of support will be important for the successful marketing and sale of our products. In many cases, our channel partners will likely
provide support directly to our end-customers. We will not have complete control over the level or quality of support provided
by our channel partners. These channel partners may also provide support for other third-party products, which may potentially
distract resources from support for our products. If we and our channel partners do not effectively assist our end-customers in
deploying our products, succeed in helping our end-customers quickly resolve post-deployment issues or provide effective ongoing
support, our ability to sell our products to existing end-customers could be adversely affected and our reputation with potential
end-customers could be harmed. In some cases, we guarantee a certain level of performance to our channel partners and end-customers,
which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems were to arise.
We may fail to recruit and retain qualified
personnel.
We expect to rapidly expand our operations
and grow our sales, development and administrative operations. This expansion is expected to place a significant strain on our
management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel
in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the
areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable
to continue our marketing and development activities, and this could have a material adverse effect on the Company’s business,
financial condition, results of operations and future prospects.
We rely on key executive officers, and
their knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on our executive officers
because of their expertise and experience in the telecommunications industry. We have agreements with our executive officers containing
customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have “key person”
life insurance policies for any of our officers. The loss of the technical knowledge and management and industry expertise of any
of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources,
which could adversely affect our operating results.
We and our contract manufacturers purchase
some components, subassemblies and products from a limited number of suppliers. The loss of any of these suppliers may substantially
disrupt our ability to obtain orders and fulfill sales as we design in and qualify new components.
We rely on third party components and technology
to build and operate our products, and we rely on our contract manufacturers to obtain the components, subassemblies and products
necessary for the manufacture of our products. Shortages in components that we use in our products are possible, and our ability
to predict the availability of such components is limited. While components and supplies are generally available from a variety
of sources, we and our contract manufacturers currently depend on a single or limited number of suppliers for several components
for our products. If our suppliers of these components or technology were to enter into exclusive relationships with other providers
of wireless networking equipment or were to discontinue providing such components and technology to us and we were unable to replace
them cost effectively, or at all, our ability to provide our products would be impaired. We and our contract manufacturers generally
rely on purchase orders rather than long-term contracts with these suppliers. As a result, even if available, we and our contract
manufacturers may not be able to secure sufficient components at reasonable prices or of acceptable quality to build our products
in a timely manner. Therefore, we may be unable to meet customer demand for our products, which would have a material adverse effect
on our business, operating results and financial condition.
Our intellectual property protections
may be insufficient to properly safeguard our technology.
Our success and ability to compete effectively
are, in large part, dependent upon proprietary technology that we have developed internally. Given the rapid pace of innovation
and technological change within the wireless and broadband industries, the technological and creative skill of our personnel, consultants
and contractors and their ability to develop, enhance and market new products and upgrades to existing products are critical to
our continued success. We rely primarily on patent laws to protect our proprietary rights. As of July 31, 2014, in the United States,
we have 51 patents granted and 9 patent applications pending. Internationally, we have 65 patents granted, 69 patent applications
pending, and 6 Patent Cooperation Treaty (PCT) applications. There can be no assurance that patents pending or future patent applications
will be issued, or that if issued, we would have the resources to protect any such issued patent from infringement. Further, we
cannot patent much of the technology that is important to our business. To date, we have relied on copyright, trademark and trade
secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing
arrangements with our employees, consultants, contractors, customers and vendors, to establish and protect our rights to this technology
and, to the best extent possible, control the access to and distribution of our technology, software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology
without authorization. Policing unauthorized use of this technology is difficult. There can be no assurance that the steps we take
or will take will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technology we
rely on. In addition, effective protection may be unavailable or limited in some jurisdictions. Litigation may be necessary in
the future to enforce or protect our rights.
We may be subject to claims of intellectual
property infringement or invalidity. Expenses incurred with respect to monitoring, protecting, and defending our intellectual property
rights could adversely affect our business.
Competitors and others may infringe on our
intellectual property rights, or may allege that we have infringed on theirs. Monitoring infringement and misappropriation of intellectual
property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights.
We may also incur significant litigation expenses in protecting our intellectual property or defending our use of intellectual
property, reducing our ability to fund product initiatives. These expenses could have an adverse effect on our future cash flows
and results of operations. If we are found to infringe on the rights of others we could be required to discontinue offering certain
products or systems, to pay damages, or purchase a license to use the intellectual property in question from its owner. Litigation
can also distract management from the day-to-day operations of the business.
Enforcement of our intellectual property
rights abroad, particularly in China, is limited and it is often difficult to protect and enforce such rights.
Patent protection outside the United States
is generally not as comprehensive as in the United States and may not protect our intellectual property in some countries where
our products are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement
in those countries may not be available. Many companies have encountered substantial intellectual property infringement in countries
where we sell, or intend to sell, products or have our products manufactured.
In particular, the legal regime relating
to intellectual property rights in China is limited and it is often difficult to protect and enforce such rights. The
regulatory scheme for enforcing China’s intellectual property laws may not be as developed as regulatory schemes in
other countries. Any advancement of an intellectual property enforcement claim through China’s regulatory scheme may
require an extensive amount of time, allowing intellectual property infringers to continue largely unimpeded, to our
commercial detriment in the Chinese and other export markets. In addition, rules of evidence may be unclear, inconsistent or
difficult to comply with, making it difficult to prove infringement of our intellectual property rights. As a result,
enforcement cases involving technology, such as copyright infringement of software code, or unauthorized manufacture or sale
of products containing patented inventions, may be difficult or not possible to sustain.
These factors may make it increasingly
complicated for us to enforce our intellectual property rights against parties misappropriating or copying our technology or products
without our authorization, allowing competing enterprises to harm our business in the Chinese or other export markets by affecting
the pricing for our products, reducing our own sales and diluting our brand or product quality reputation.
The intellectual property rights
of others may prevent us from developing new products or entering new markets.
The telecommunications industry is characterized
by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets
that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate
new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual
property rights of others, including our competitors, we may be prevented from introducing new products or expanding into new markets
created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies,
our financial condition, operating results or prospects may be harmed.
We rely on the availability of third-party
licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and operating
results would be harmed.
We have incorporated third-party licensed
technology into our products. It may be necessary in the future to renew licenses relating to various aspects of these products
or to seek additional licenses for existing or new products. There can be no assurance that the necessary licenses will be available
on acceptable terms or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights
on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in product releases until
such time, if ever, as equivalent technology could be identified, licensed or developed and integrated into our products and might
have a material adverse effect on our business, operating results and financial condition. Moreover, the inclusion in our products
of intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary
rights in our products.
Our customers could also become the
target of litigation relating to the patent and other intellectual property rights of others.
Any litigation relating to the intellectual
property rights of others could trigger technical support and indemnification obligations in licenses or customer agreements that
we may enter into. These obligations could result in substantial expenses, including the payment by us of costs and damages relating
to claims of intellectual property infringement. In addition to the time and expense required for us to provide support or indemnification
to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relationships
with such customers and cause the sale of our products to decrease. No assurance can be given that claims for indemnification will
not be made, or that if made, such claims would not have a material adverse effect on our business, operating results or financial
conditions.
We expect to base our inventory purchasing
decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate, our operating results could be materially
harmed.
As our customer base increases, we expect
to place orders with our contract manufacturers based on our forecasts of our customers’ demand. Our forecasts will be based
on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our
customers. When demand for our products increases significantly, we may not be able to meet demand on a timely basis, and we may
need to expend a significant amount of time working with our customers to allocate limited supply and maintain positive customer
relations, or we may incur additional costs in order to rush the manufacture and delivery of additional products. If we underestimate
customers’ demand, we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely,
if we overestimate customer demand, we may purchase more inventory than we are able to sell at any given time or at all. In addition,
we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including
obsolete inventory. As a result of our failure to properly estimate demand for our products, we could have excess or obsolete inventory,
resulting in a decline in the value of our inventory, which would increase our costs of revenues and reduce our liquidity. Our
failure to accurately manage inventory relative to demand would adversely affect our operating results.
If our technology does not work as
well as planned or if we are unsuccessful in developing and selling new products or in penetrating new markets, our business and
operating results would suffer.
Our success and ability to compete are
dependent on technology which we have developed or may develop in the future. There is a risk that the technology that we have
developed or may develop may not work as intended, or that the marketing of the technology may not be as successful as anticipated.
Further, the markets in which we and our customers compete or plan to compete are characterized by constantly and rapidly changing
technologies and technological obsolescence. Our ability to compete successfully depends on our ability to design, develop, manufacture,
assemble, test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market
needs and satisfy the demands of customers. A fundamental shift in technologies in any of our target markets could harm our competitive
position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing
technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenue
and a loss of customer wins to our competitors. The development of new technologies and products generally require substantial
investment and can require long development and testing periods before they are commercially viable. We intend to continue to make
substantial investments in developing new technologies and products and it is possible that that we may not successfully be able
to develop or acquire new products or product enhancements that compete effectively within our target markets or differentiate
our products based on functionality, performance or cost and that our new technologies and products will not result in meaningful
revenue. Any delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and customers.
Any technical flaws in product releases could diminish the innovative impact of our products and have a negative effect on customer
adoption and our reputation. If we fail to introduce new products that meet the demands of our customers or target markets or do
not achieve market acceptance, or if we fail to penetrate new markets, our revenue will not increase over time and our operating
results and competitive position would suffer.
Computer malware, viruses, hacking
and phishing attacks could harm our business and results of operations.
Computer malware, viruses, and computer
hacking and phishing attacks have become more prevalent in our industry, and may occur on our systems in the future. Though it
is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain
performance, reliability, security, and availability of our products and technical infrastructure to the satisfaction of our users
may harm our reputation and our ability to attract and retain customers.
Our operating expenses will increase
as we make further expenditures to enhance and expand our operations in order to support additional growth in our business.
Historically, we limited our investment
in infrastructure; however, in the future we expect our infrastructure investments to increase substantially to support our anticipated
growth. We intend to make additional investments in systems and personnel in order to expand our business and continue to expand
our operations to support anticipated growth in our business. In addition, we may determine the need in the future to make changes
to our sales model, which changes may result in higher selling, general and administrative expenses as a percentage of our revenues.
As a result of these factors, we expect our operating expenses to increase.
If we do not effectively manage changes
in our business, these changes could place a significant strain on our management and operations.
Our ability to grow successfully requires
an effective planning and management process. The expansion and growth of our business could place a significant strain on our
management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand
our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate
to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business,
including acquisitions, this could have a material adverse effect on the Company’s business, financial condition, results
of operations and future prospects.
If we are unable to expand our sales
and marketing capabilities or enter into more agreements with third parties to sell and market any products we may develop, we
may be unable to generate product revenue.
We are currently building our internal
sales organization for the sales, marketing and distribution of our products. Part of the proceeds of the Offering is intended
to be used to expand our internal sales organization and develop further our channels to market. In order to commercialize xMax®
or any of our other products, we must build our sales, marketing, distribution, managerial and other non-technical capabilities
or make arrangements with other parties to perform these services. The expansion of our own sales force to market any products
we may develop will increase our operating costs and be time consuming. We cannot be certain that we would be able to successfully
develop this capacity. If we are unable to expand our sales and marketing capability or any other non-technical capabilities necessary
to commercialize any product we may develop, we will need to contract with other parties to market and sell any products we may
develop. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with other
parties, we may not be able to generate product revenue and may not become profitable.
If our estimates relating to our
critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results
could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements
in conformity with U.S. GAAP requires our management to make estimates, assumptions and judgments that affect the amounts reported
in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results
may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could
cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock
price. Significant assumptions and estimates used in preparing our financial statements include those related to revenue recognition,
inventory, product warranties, allowance for doubtful accounts, stock-based compensation expense, capitalization of intangible
assets, impairment of long-lived assets and income taxes.
Our exposure to the credit risks
of our customers may make it difficult to collect accounts receivable and could adversely affect our operating results and financial
condition.
In the course of our sales to customers,
we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts
receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable. While we will attempt
to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, we have
written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid accounts receivable
write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating
results for the period in which they occur.
Demand for our defense-related products
depends on government spending.
The U.S. military market is largely dependent
upon government budgets, particularly the defense budget. The funding of government programs is subject to Congressional appropriation.
Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on
a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only
partially funded and additional funds are committed only as Congress makes further appropriations. No assurance can be given that
an increase in defense spending will be allocated to programs that would benefit our business. A decrease in levels of defense
spending or the government’s termination of, or failure to fully fund, one or more of the contracts for which our products
may be utilized could have a material adverse effect on our financial position and results of operations.
Our failure to obtain and maintain
required certifications could impair our ability to bid on defense contracts.
In order for us to participate in certain
government programs we could be required to obtain and maintain quality certification and certain standards for Department of Defense
wireless security such as certification by the Joint Interoperability and Test Command, (or “JITC”) and to meet production
standards in order to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional
certification which may be required, we will be ineligible to bid for contracts which may impair our financial operations and consequently,
our ability to continue in business.
Regulation of the telecommunications
industry could harm our operating results and future prospects.
The traditional telecommunications industry
is highly regulated, and our business and financial condition could be adversely affected by changes in regulations relating to
the Internet telecommunications industry.
Currently, there are few laws or regulations
that apply directly to access to or commerce on IP networks, but future regulations could include sales taxes and tariffs in previously
unregulated areas and provider access charges. We could be adversely affected by regulation of IP networks and commerce in any
country where we market equipment and services to service or content providers. Regulations governing the range of services and
business models that can be offered by service providers or content providers could adversely affect those customers’ needs
for products designed to enable a wide range of such services or business models. For instance, the U.S. Federal Communications
Commission has issued regulations governing aspects of fixed broadband networks and wireless networks. These regulations might
impact service provider and content provider business models and as such, providers’ needs for Internet telecommunications
equipment and services. In addition, many jurisdictions are evaluating or implementing regulations relating to cyber security,
privacy and data protection, which could affect the market and requirements for networking and security equipment.
In addition, environmental regulations
relevant to electronic equipment manufacturing or operations may impact our business and financial condition adversely. For instance,
the European Union has adopted regulations on Electronic waste, e-waste, e-scrap, or waste electrical and electronic equipment
(“WEEE”), Restriction of the Use of certain Hazardous Substances (“ROHS”) and Registration, Evaluation,
Authorisation and Restriction of Chemical substances (“REACH”). In addition, some governments have regulations prohibiting
government entities from purchasing security products that do not meet specified indigenous certification criteria even though
those criteria may be in conflict with accepted international standards. Similar regulations are in effect or under consideration
in several jurisdictions where we do business.
The adoption and implementation of such
regulations could decrease demand for our products, increase the cost of building and selling our products and impact our ability
to ship products into affected areas and recognize revenue in a timely manner. Any of these impacts could have a material adverse
effect on our business, financial condition, and results of operations.
To the extent that we subcontract
work under our contracts, any failures by our subcontractors could impair our relations with the contracting agencies.
We may use subcontractors to perform work
or provide materials for contracts that we may secure and we may become dependent upon the subcontractors to meet the quality and
delivery requirements of the contracting agency. To the extent that the products or services provided by the subcontractors do
not meet the required specifications or are delivered late, the contract may be terminated by the U.S. government for default.
Such a default could result in our disqualification from bidding on contracts, which could adversely affect our financial operations.
As an emerging growth company as
defined in the JOBS Act, we will utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements
will make our common stock less attractive to investors.
We are an emerging growth company as defined
in the JOBS Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified
disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and
omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on
executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including
the additional testing of our internal control over financial reporting as may occur when outside auditors attest as to our internal
control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important.
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption
of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this
extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such
new or revised accounting standards as they become applicable to public companies. We cannot predict if investors will find our
common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We could remain an “emerging growth
company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross
revenue exceeds $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million
as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more
than $1 billion in non-convertible debt during the preceding three-year period.
We have not performed an evaluation of
our internal control over financial reporting, such as required by Section 404 of the Sarbanes-Oxley Act, nor have we engaged our
independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance
sheet date or for any period reported in our financial statements. Had we performed such an evaluation or had our independent registered
public accounting firm performed an audit of our internal control over financial reporting, material weaknesses may have been identified.
For so long as we qualify as an “emerging growth company” under the JOBS Act, which may be up to five years following
this offering, we will not have to provide an auditor’s attestation report on our internal controls in future annual reports
on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. During the course of the evaluation, documentation
or attestation, we or our independent registered public accounting firm may identify weaknesses and deficiencies that we may not
otherwise identify in a timely manner or at all as a result of the deferred implementation of this additional level of review.
Risks Relating to Our Industry
Our industry is subject to rapid
technological change, and we must make substantial investments in new products, services and technologies to compete successfully.
New technological innovations generally
require a substantial investment before they are commercially viable. We intend to continue to make substantial investments in
developing new products and technologies, and it is possible that our development efforts will not be successful and that our new
technologies will not result in meaningful revenues. Our future success will depend on our ability to continue to develop and introduce
new products, technologies and enhancements on a timely basis. Our future success will also depend on our ability to keep pace
with technological developments, protect our intellectual property, satisfy customer requirements, meet customer expectations,
price our products and services competitively and achieve market acceptance. The introduction of products embodying new technologies
and the emergence of new industry standards could render our existing products and technologies, and products and technologies
currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately to technological developments
or customer requirements, or experience any significant delays in development, introduction or shipment of our products and technologies
in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technologies
could decrease, and our competitive position could be damaged.
We may be subject to infringement
claims in the future.
We may be unaware of filed patent applications
and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain
injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology
and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s
efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the
merits of such claims. These outcomes may (i) require us to stop selling products or using technology that contains the allegedly
infringing intellectual property; (ii) require us to redesign those products that contain the allegedly infringing intellectual
property; (iii) require us to pay substantial damages to the party whose intellectual property rights we may be found to be infringing;
(iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a
license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi)
materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price
to decline significantly; (viii) materially and adversely affect our liquidity, including our ability to pay debts and other obligations
as they become due; or (ix) lead to our bankruptcy or liquidation.
Our industry is highly competitive
and we may not be able to compete effectively.
The communications industry is highly competitive,
rapidly evolving, and subject to constant technological change. We expect that new competitors are likely to join existing competitors.
Many of our competitors may be larger and have greater financial, technical, operational, marketing and other resources and experience
than we do. In the event that a competitor expends significant resources we may not be able to successfully compete. In addition,
the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies
to provide products. If our competitors were to provide better and more cost effective products than our products we may not be
able to capture any significant market share.
Regulation of Voice over Internet
Protocol (“VoIP”) services is developing and therefore uncertain and future legislative, regulatory or judicial actions
could adversely affect our business.
VoIP services have developed in an environment
largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority
over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us
and our prospective customers and the effects of future regulatory developments are uncertain. Future legislative, judicial or
other regulatory actions could have a negative effect on our business. In addition, future regulatory developments could increase
our cost of doing business and limit its growth.
Changes in current laws or regulations
or the imposition of new laws or regulations could impede the sale of our products or otherwise harm our business.
Although our technology is designed to
be frequency agnostic (i.e., capable of operating at any frequency) our current range of products is being designed to be optimized
for operation in the 902 – 928 MHz band, which is presently a spectrum that is not licensed in the United States.
Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding
the usage of unlicensed spectrum may materially and adversely impact our future prospects, the viability of our current business
model, our expectations for future sales of our products and our business, financial condition and results of operations.
New regulations or standards or changes
in existing regulations or standards in the United States or internationally related to our products may result in unanticipated
costs or liabilities, which could have a material adverse effect on our business, results of operations and future sales, and could
place additional burdens on the operations of our business.
Our products may be subject to governmental
regulations in a variety of jurisdictions. In order to achieve and maintain market acceptance, our technology and products will
have to comply with these regulations as well as a significant number of industry standards. In the United States, our technology
and products will have to comply with various regulations defined by the Federal Communications Commission, or FCC, and others.
We may also have to comply with similar international regulations. For example, our wireless communication products operate through
the transmission of radio signals, and radio emissions are subject to regulation in the United States and in other countries in
which we intend to do business. In the United States, various federal agencies including the Center for Devices and Radiological
Health of the Food and Drug Administration, the FCC, the Occupational Safety and Health Administration and various state agencies
have promulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries of the European
Union have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions, and chemical
substances and use standards.
As these regulations and standards evolve,
and if new regulations or standards are implemented, we may be required to modify our technology or products or develop and support
new versions of our technology or products, and our compliance with these regulations and standards may become more burdensome.
The failure of technology or our products to comply, or delays in compliance, with the various existing and evolving industry regulations
and standards could prevent or delay introduction of our technology or products, which could harm our business. End-customer uncertainty
regarding future policies may also affect demand for communications products, including our products. Moreover, channel partners
or end-customers may require us, or we may otherwise deem it necessary or advisable, to alter our technology or products to address
actual or anticipated changes in the regulatory environment. Our inability to alter our technology or products to address these
requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.
Compliance with environmental, health
and safety laws and regulations, including new regulations requiring higher standards, may increase our costs, limit our ability
to utilize supply chains, and force design changes to our products.
Our operations are subject to a variety
of environmental, health and safety laws and regulations and equivalent local, state, and regulatory agencies in each of the jurisdictions
in which we currently operate or may operate in the future. The manufacturing of our products uses substances regulated under various
federal, state, local laws and regulations governing the environment and worker health and safety. If we and our contract manufacturers
do not comply with these laws including any new regulations, such non-compliance could reduce the net realizable value of our products,
which would result in an immediate charge to our income statements. Our non-compliance with such laws could also negatively impact
our operations and financial position as a result of fines, penalties that may be imposed on us, and the cost of mandated remediation
or delays to our contract manufacturers, thus we may suffer a loss of revenues, be unable to sell our products in certain markets
and/or countries, be subject to penalties and enforced fees and/or suffer a competitive disadvantage. Costs to comply with current
laws and regulations and/or similar future laws and regulations, if applicable, could include costs associated with modifying our
products, recycling and other waste processing costs, legal and regulatory costs and insurance costs. We cannot assure you that
the costs to comply with these new laws or with current and future environmental and worker health and safety laws will not have
a material adverse effect on our business, operating results and financial condition.
Governmental regulations affecting
the import or export of products or affecting products containing encryption capabilities could negatively affect our revenues.
The United States and various foreign governments
have imposed controls, export license requirements, and restrictions on the import or export of some technologies, especially encryption
technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology,
such as requiring certification, notifications, review of source code, or the escrow and governmental recovery of private encryption
keys. For example, Russia and China recently have implemented new requirements relating to products containing encryption and India
has imposed special warranty and other obligations associated with technology deemed critical. Governmental regulation of encryption
or IP networking technology and regulation of imports or exports, or our failure to obtain required import or export approval for
our products, could harm our international and domestic sales prospects and adversely affect our revenue expectation. In addition,
failure to comply with such regulations could result in penalties, costs, and restrictions on import or export privileges or adversely
affect sales to government agencies or government funded projects.
If wireless devices pose safety risks,
we may be subject to new regulations, and demand for our products and those of our licensees and customers may decrease.
Concerns over the effects of radio frequency
emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand for our
products and those of our licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines
and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless
devices. In addition, interest groups have requested that the FCC investigate claims that wireless communication technologies pose
health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the
possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation
that may be adopted in response to these expressions of concern could reduce demand for our products and those of our licensees
and customers in the United States as well as foreign countries.
Risks Related to Market Conditions
Recent global economic trends could
adversely affect our business, liquidity and financial results.
Recent global economic conditions, including
a disruption of financial markets, could adversely affect us, primarily through limiting our access to capital. In addition, the
continuation or worsening of general market conditions in economies important to our businesses may adversely affect our clients’
level of spending and ability to obtain financing, leading to us being unable to generate the levels of sales that we require.
Current and continued disruption of financial markets could have a material adverse effect on the Company’s business, financial
condition, results of operations and future prospects.
Risks Relating to This Offering and
an Investment in Our Securities
Our insiders and affiliated parties
beneficially own a significant portion of our stock.
As of July 30, 2014, our executive officers,
directors and affiliated parties beneficially own approximately 44.81% of our outstanding common stock. As a result, our executive
officers, directors and affiliated parties will have significant influence to:
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elect or defeat the
election of our directors;
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amend or prevent amendment
of our articles of incorporation or bylaws; and
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effect or prevent a
merger, sale of assets or other corporate transaction.
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In addition, sales of significant amounts
of shares held by our directors and executive officers, or the prospect of these sales, could adversely affect the valuation of
our Company.
Exercise of options or warrants or
conversion of convertible securities may have a dilutive effect on your percentage ownership, may result in a dilution of your
voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact
the trading price of our shares of common stock.
The exercise or conversion of some or all
of our outstanding options, warrants, or convertible securities could result in significant dilution in the percentage of ownership
of investors in this offering and in the percentage ownership interests of our existing common stockholders and in a significant
dilution of voting rights and earnings per share.
As of July 30, 2014, we anticipate having
outstanding options to purchase an aggregate of up to 714,285 shares of our common stock, including (i) the options to purchase
571,428 shares of common stock at an exercise price of $5.50 per share granted to MBTH and (ii) the options to purchase 142,857
shares of common stock at an exercise price of $8.75 per share granted to MBTH; and outstanding warrants to purchase up to 3,588,953
shares of common stock, including (i) the warrants to subscribe up to 42,857 shares in our common stock at a subscription price
of $0.35 per share granted to MBTH, (ii) the warrant to purchase 8,571 shares of our common stock issued to Secure Strategy Group
exercisable at $35.00 per share, (iii) the warrant to purchase 14,285 shares of our common stock exercisable at $7.87 per share
granted to Mats Wennberg, (iv) 769,230 shares of common stock issuable upon the exercise of warrants sold to investors as part
of our initial public offering, including those issued as part of the over-allotment, which are exercisable at $6.87 per share,
(v) the warrants to purchase 40,134 shares of common stock at an exercise price of $6.87 per share granted pursuant to our initial
public offering completed on July 24, 2013, to the Underwriters, (vi) the warrants to purchase 1,363,636 shares of common stock
at an exercise price of $6.87 per share issued pursuant to a onetime agreement approved on September 30, 2013; (vii) the warrants
to purchase 1,093,778 shares of common stock at an exercise price of $6.87 per share granted pursuant to the conversion of the
Bridge Loan and outstanding securities convertible into 57,142 shares of our common stock issuable to Treco at a conversion price
of $35.00 per share, (viii) 27,870 shares of common stock issuable upon exercise of the rights to be granted to investors as part
of the Bridge Loan, which are exercisable at $0.35 share; and (ix) the warrants to purchase 171,450 shares of common stock at an
exercise price of $2.1875 per share granted pursuant to our public offering completed on November 18, 2013, to the Underwriters.
Additionally, the issuance of up to 914,841
shares of common stock upon exercise of stock options outstanding under our stock incentive plans will further dilute our stockholders’
voting interests. To the extent options and/or warrants and/or conversion rights are exercised, additional shares of common stock
will be issued, and such issuance will dilute stockholders.
In addition to the dilutive effects described
above, the exercise of those securities would lead to an increase in the number of shares eligible for resale in the public market.
Sales of substantial numbers of such shares in the public market could adversely affect the market price of our shares. Substantial
dilution and/or a substantial increase in the number of common shares available for future resale may negatively impact the trading
price of our shares of common stock.
We may seek to raise additional funds,
finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the
terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares
of common stock.
We have financed our operations, and we
expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity
and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further,
any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or pari passu
with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our
stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our stock to
decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments
senior to our common shares. The holders of any securities or instruments we may issue may have rights superior to the rights of
our common stockholders. If we experience dilution from issuance of additional securities and we grant superior rights to new securities
over common stockholders, it may negatively impact the trading price of our shares of common stock and you may lose all or part
of your investment.
The market price for our common shares
is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and lack
of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your common shares at or above
your purchase price, which may result in substantial losses to you.
The market for our common shares is characterized
by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities
exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of
such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number
of factors. First, as noted above, our common shares are, compared to the shares of such larger, more established companies, sporadically
and thinly traded. The price for our shares could, for example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due
to our lack of profits to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing
all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the
market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades
on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the
market price of our common shares, regardless of our operating performance.
If and when a larger trading market
for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares at or above the price at which you acquired them.
The market price of our common stock is
likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control,
including, but not limited to:
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variations in our revenues
and operating expenses;
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actual or anticipated
changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our common stock,
other comparable companies or our industry generally;
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market conditions in
our industry, the industries of our customers and the economy as a whole;
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actual or expected changes in our growth rates or our competitors’ growth rates;
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developments in the financial markets and worldwide or regional economies;
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announcements of innovations or new products or services by us or our competitors;
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announcements by the government relating to regulations that govern our industry;
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sales of our common stock or other securities by us or in the open market; and
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changes in the market valuations of other comparable companies.
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In addition, if the market for technology
stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline
for reasons unrelated to our business, financial condition or operating results. The trading price of our shares might also decline
in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these
factors, among others, could harm the value of your investment in our common stock. In the past, following periods of volatility
in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against
us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely
affect our business, operating results and financial condition.
Our charter documents and Delaware
law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our common stock.
Our amended and restated certificate of
incorporation and our amended and restated bylaws, contain provisions that could delay or prevent a change in control of our company.
These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These
provisions include:
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authorizing the board to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;
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limiting the persons who may call special meetings of stockholders; and
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requiring advance notification of stockholder nominations and proposals.
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In addition, the provisions of Section
203 of the Delaware General Corporation Law govern us. These provisions may prohibit large stockholders, in particular those owning
15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent
of our board of directors.
These and other provisions in our amended
and restated certificate of incorporation and our amended and restated bylaws, and under Delaware law, could discourage potential
takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result
in the market price of our common stock being lower than it would be without these provisions. See the section entitled “Description
of Capital Stock.”
If we are not able to comply with
the applicable continued listing requirements or standards of the NASDAQ Capital Market, NASDAQ could delist our common stock.
Our common stock is currently listed on
the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements
and standards, including those regarding director independence and independent committee requirements, minimum stockholders' equity,
minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with
the applicable listing standards.
We have a number of related party transactions
with companies that are owned or controlled by our independent director, Larry Townes. Currently, we are awaiting full payment
in those transactions as we are working with the purchasers to assure that the equipment meets certain technical specifications
associated with their networks. Upon receiving additional payment from the purchasers, Mr. Townes may no longer be considered “independent”
per the NASDAQ Listing Rule 5605(a)(2)(D), in which case we may not be compliant with NASDAQ Listing Rule 5605(b)(1), which requires
the Company’s Board of Directors to be comprised of a majority of independent directors. Should we no longer be deemed compliant,
NASDAQ Listing Rule 5605 provides a 180-day cure period for the Company to regain compliance with the independent director requirement.
In the event that our common stock is delisted
from NASDAQ and is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in
the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the
OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common
stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause
the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed
on a major exchange.
In the event that our common stock
is delisted from NASDAQ, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because
they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to
regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks”
generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions
in such securities is provided by the exchange or system). Our shares have in the past constituted, and may again in the future
constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements
imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock,
which could severely limit the market liquidity of such shares and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess
of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks”.
Stockholders should be aware that, according
to SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
We have not paid dividends in the
past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future
appreciation on the value of our common stock.
We currently intend to retain any future
earnings to support the development and expansion of our business and do not anticipate paying cash dividends or the shares in
the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into
account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and
the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our shares may
be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never
occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their
investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash
dividends should not purchase our common stock.
Non-U.S. investors may have difficulty
effecting service of process against us or enforcing judgments against us in courts of non-U.S. jurisdictions.
We are a company incorporated under the
laws of the State of Delaware. All of our directors and officers reside in the United States. It may not be possible for non-U.S.
investors to effect service of process within their own jurisdictions upon our company and our directors and officers. In addition,
it may not be possible for non-U.S. investors to collect from our company, its directors and officers, judgments obtained in courts
in such non-U.S. jurisdictions predicated on non-U.S. legislation.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our stock adversely, our shares price and trading volume could decline.
The trading market for our shares will
be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or
our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide
more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover
us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our share price or trading volume to decline.
The requirements of being a U.S.
public company may strain our resources and divert management’s attention.
As a U.S. public company, we are subject
to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ,
and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and
financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems
and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business
and operating results.
As a result of disclosure of information
in this prospectus and in filings required of a public company, our business and financial condition is more visible, which we
believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful,
our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor,
these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business
and operating results.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus, including the sections
entitled “Risk Factors” contains forward-looking statements that include information relating to future events, future
financial performance, strategies, expectations, our competitive environment, regulation and availability of resources. These forward-looking
statements include, without limitation, statements regarding: proposed new products or services; our statements concerning litigation
or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial
and operating results and future economic performance; statements of management’s goals and objectives; trends affecting
our financial condition, results of operations or future prospects; our financing plans or growth strategies; and other similar
expressions concerning matters that are not historical facts. Words such as “may”, “will”, “should”,
“could”, “would”, “predicts”, “potential”, “continue”, “expects”,
“anticipates”, “future”, “intends”, “plans”, “believes” and “estimates,”
and similar expressions, as well as similar statements in the future tense, identify forward-looking statements.
Forward-looking statements should not be
read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which,
that performance or those results will be achieved. Forward-looking statements are based on information available at the time they
are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and
uncertainties that could cause actual performance or results to differ materially from what is expressed in or suggested by the
forward-looking statements.
Forward-looking statements speak only as
of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements,
no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
USE OF PROCEEDS
Unless otherwise indicated in a prospectus
supplement accompanying this prospectus, we intend to use the net proceeds of this offering for working capital and other general
corporate purposes. Such purposes may include research and development expenditures and capital expenditures. As of the date of
this prospectus, we cannot specify with certainty all of the particular uses of the proceeds from this offering. We will set forth
in the applicable prospectus supplement our intended use for the net proceeds received from the sale of the related securities.
Accordingly, we will retain broad discretion over the use of such proceeds. Pending use of the net proceeds, we intend to invest
the net proceeds in interest-bearing, investment-grade securities.
DESCRIPTION OF CAPITAL STOCK
General
The following description of our capital
stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries
and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws. Copies
of these documents will be filed with the Securities and Exchange Commission as exhibits to a prospectus supplement and are incorporated
by reference herein.
Common Stock
Our authorized capital stock consists of
100,000,000 shares of common stock, with a par value of $0.00001 per share, and 10,000,000 shares of “blank check”
preferred stock. As of July 30, 2014, we had outstanding 24,202,164 shares of common stock.
Voting Rights
Each Stockholder has one vote for each
share of common stock held on all matters submitted to a vote of stockholders. A shareholder may vote in person or by proxy. Elections
of directors are determined by a plurality of the votes cast and all other matters are decided by a majority of the votes cast
by those Shareholders entitled to vote and present in person or by proxy.
Because our stockholders do not have cumulative
voting rights, stockholders holding a majority of the voting power of our shares of common stock will be able to elect all of our
directors. Our amended and restated certificate of incorporation and amended and restated bylaws provides that stockholder actions
may be effected at a duly called meeting of stockholders or pursuant to written consent of the majority of shareholders. A special
meeting of stockholders may be called by the majority of our board of directors or by a committee determined by the board of directors
with power to call such meetings.
Dividend Rights
The holders of outstanding shares of common
stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board may determine,
provided that required dividends, if any, on preferred stock have been paid or provided for. However, to date we have not paid
or declared cash distributions or dividends on our common stock and do not currently intend to pay cash dividends on our common
stock in the foreseeable future. We intend to retain all earnings, if and when generated, to finance our operations. The declaration
of cash dividends in the future will be determined by the board based upon our earnings, financial condition, capital requirements
and other relevant factors.
No Preemptive or Similar Rights
Holders of our common stock do not have
preemptive rights, and our common stock is not convertible or redeemable.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation or winding-up,
the assets legally available for distribution to our stockholders and remaining after payment to holders of preferred stock of
the amounts, if any, to which they are entitled, are distributable ratably among the holders of our common stock subject to any
senior class of securities.
Preferred Stock
The Company has authorized 10,000,000 shares
of undesignated preferred stock, none of which is outstanding.
Options and Other Warrants
As of July 30, 2014 and December 31, 2013,
we had outstanding options and warrants to purchase 5,160,937 and 5,229,076 shares of common stock as set forth in the table below:
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2014
Number of
options
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2013
Number of
options
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At January 1
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5,229,076
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1,295,189
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Granted
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58,300
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3,986,829
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Forfeited
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(126,439
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(52,084
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Exercised
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—
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(858
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Unexercised as at July 30, 2014 and December 31, 2013
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5,160,937
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5,229,076
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The weighted average exercise prices July
30, 2014 and December 31, 2013 were $10.28 and $10.57 respectively.
Limitation on Directors’ Liability
The Delaware General Corporation Law, or
DGCL, authorizes Delaware corporations to limit or eliminate the personal liability of their directors to them and their stockholders
for monetary damages for breach of a director’s fiduciary duty of care. The duty of care requires that, when acting on behalf
of the corporation, directors must exercise an informed business judgment based on all material information reasonably available
to them. Absent the limitations Delaware law authorizes, directors of Delaware corporations are accountable to those corporations
and their stockholders for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. Delaware
law enables Delaware corporations to limit available relief to equitable remedies such as injunction or rescission. Our certificate
of incorporation limits the liability of our directors to us and our stockholders to the fullest extent Delaware law permits. Specifically,
no director will be personally liable for monetary damages for any breach of the director’s fiduciary duty as a director,
except for liability:
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for any breach of the
director’s duty of loyalty to us or our stockholders;
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for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation of law;
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for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and
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for any transaction
from which the director derived an improper personal benefit.
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This provision could have the effect of
reducing the likelihood of derivative litigation against our directors and may discourage or deter our stockholders or management
from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might
otherwise have benefited us and our stockholders. Our bylaws provide indemnification to our officers and directors and other specified
persons with respect to their conduct in various capacities. See “Indemnification of Directors and Officers.”
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or person controlling the company pursuant to the foregoing
provisions, the company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Anti-Takeover Effects of Provisions
of the DGCL and our Certificate of Incorporation and Bylaws
Since our board of directors has the power
to retain and discharge our officers, these provisions could make it more difficult for existing stockholders or another party
to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board
of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to
change our control.
These provisions are intended to enhance
the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types
of transactions that may involve an actual or threatened acquisition of us.
These provisions are also designed to reduce
our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However,
such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of
deterring hostile takeovers or delaying changes in our control or management. As a consequence, these provisions also may inhibit
fluctuations in the market price of our stock that could result from actual or rumored takeover attempts.
Section 203 of the Delaware General
Corporation Law
We are subject to Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging in any “business combination” with any
interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with
the following exceptions:
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before such date, the
board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
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upon closing of the
transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the
voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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on or after such date,
the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned
by the interested stockholder.
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In general, Section 203 defines business
combination to include the following:
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any merger or consolidation
involving the corporation and the interested stockholder;
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any sale, transfer,
pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
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subject to certain exceptions,
any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder;
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any transaction involving
the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or
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the receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the
corporation.
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In general, Section 203 defines an “interested
stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or
within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding
voting stock of the corporation.
Listing
Our common stock and warrants are quoted
on the NASDAQ Capital Market under the symbols “XGTI” and “XGTIW”, respectively.
Transfer Agent
Our transfer agent and registrar for our
common stock is Continental Stock Transfer & Trust Company.
DESCRIPTION OF WARRANTS
General
We may issue warrants to purchase shares
of our common stock and preferred stock in one or more series together with other securities or separately, as described in the
applicable prospectus supplement. Below is a description of certain general terms and provisions of the warrants that we may offer.
Particular terms of the warrants will be described in the warrant agreements and the prospectus supplement relating to the warrants.
Copies of the form agreement for each warrant and the warrant certificate, if any, reflecting the provisions to be included in
such agreements that will be entered into with respect to a particular offering of each type of warrant, will be filed with the
SEC and incorporated by reference as exhibits to the registration statement of which this prospectus is a part. You should read
the applicable warrant agreement for additional information before you purchase any of our warrants.
The prospectus supplement relating to any
warrants we offer will describe the specific terms relating to the offering. These terms may include some or all of the following:
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the specific designation
and aggregate number of, and the price at which we will issue, the warrants;
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the currency or currency
units in which the offering price, if any, and the exercise price are payable;
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the designation, amount
and terms of the securities purchasable upon exercise of the warrants;
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if applicable, the exercise
price for shares of our common stock and the number of shares of common stock to be received upon exercise of the warrants;
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if applicable, the exercise
price for shares of our preferred stock, the number of shares of preferred stock to be received upon exercise, and a description
of that series of our preferred stock;
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the date on which the
right to exercise the warrants will begin and the date on which that right will expire or, if you may not continuously exercise
the warrants throughout that period, the specific date or dates on which you may exercise the warrants;
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whether the warrants
will be issued in fully registered form or bearer form, in definitive or global form or in any combination of these forms, although,
in any case, the form of a warrant included in a unit will correspond to the form of the unit and of any security included in
that unit;
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any applicable material
U.S. federal income tax consequences;
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the identity of the
warrant agent for the warrants and of any other depositaries, execution or paying agents, transfer agents, registrars or other
agents;
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the proposed listing,
if any, of the warrants or any securities purchasable upon exercise of the warrants on any securities exchange;
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if applicable, the date
from and after which the warrants and the common stock and preferred stock will be separately transferable;
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if applicable, the minimum
or maximum amount of the warrants that may be exercised at any one time;
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the procedures and conditions
relating to the exercise of the warrants;
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information with respect
to book-entry procedures, if any;
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the triggering event
and the terms upon which the exercise price and the number of underlying securities that the warrants are exercisable into may
be adjusted;
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the anti-dilution provisions
of the warrants, if any;
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any redemption or call
provisions;
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whether the warrants
may be sold separately or with other securities as parts of units; and
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any additional terms
of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants.
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Until the warrants are exercised, holders
of the warrants will not have any rights of holders of the underlying securities.
Outstanding Options and Warrants
As of July 30, 2014, we had outstanding
options and warrants to purchase 5,160,937 shares of common stock.
DESCRIPTION OF DEBT SECURITIES
The following summary of the terms of the
debt securities describes general terms that apply to the debt securities. The debt securities offered pursuant to this prospectus
will be either senior debt or subordinated debt. The particular terms of any debt securities will be described more specifically
in each prospectus supplement relating to those debt securities. Where any provision in an accompanying prospectus supplement is
inconsistent with any provision in this summary, the prospectus supplement will control.
Senior debt securities and subordinated
debt securities will be issued under either of two debt indentures summarized below. Where we make no distinction in our summary
between senior debt securities and subordinated debt securities, the applicable information refers to any debt securities. Since
this is only a summary, it does not contain all of the information that may be important to you. A form of senior debt indenture
relating to senior debt securities and a form of subordinated debt indenture relating to subordinated debt securities are exhibits
to the registration statement of which this prospectus is a part. We encourage you to read those documents.
General
The indentures do not limit the aggregate
principal amount of debt securities we may issue and provide that we may issue debt securities thereunder from time to time in
one or more series. The indentures do not limit the amount of other indebtedness or debt securities, other than certain secured
indebtedness as described below, which we may issue. Under the indentures, the terms of the debt securities of any series may differ
and we, without the consent of the holders of the debt securities of any series, may reopen a previous series of debt securities
and issue additional debt securities of the series or establish additional terms of the series.
Unless otherwise provided in a prospectus
supplement, the senior debt securities will be our unsecured obligations and will rank equally with all of our other unsecured
and senior indebtedness, and the subordinated debt securities will be unsecured obligations of ours and, as set forth below under
“— Subordinated Debt Securities,” will be subordinated in right of payment to all of our senior indebtedness.
You should refer to the prospectus supplement
that accompanies this prospectus for a description of the specific series of debt securities we are offering by that prospectus
supplement. The terms may include:
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the title and specific
designation of the debt securities, including whether they are senior debt securities or subordinated debt securities;
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any limit on the aggregate
principal amount of the debt securities or the series of which they are a part;
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whether the debt securities
are to be issuable as registered securities, as bearer securities or alternatively as bearer securities and registered securities,
and if as bearer securities, whether interest on any portion of a bearer security in global form will be paid to any clearing
organizations;
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the currency or currencies,
or composite currencies, in which the debt securities will be denominated and in which we will make payments on the debt securities;
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the date or dates on
which we must pay principal;
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the rate or rates at
which the debt securities will bear interest or the manner in which interest will be determined, if any interest is payable;
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the date or dates from
which any interest will accrue, the date or dates on which we must pay interest and the record date for determining who is entitled
to any interest payment;
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the place or places
where we must pay the debt securities and where any debt securities issued in registered form may be sent for transfer or exchange;
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the terms and conditions
on which we may, or may be required to, redeem the debt securities;
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the terms and conditions
of any sinking fund;
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if other than denominations
of $1,000, the denominations in which we may issue the debt securities;
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the amount we will pay
if the maturity of the debt securities is accelerated;
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whether we will issue
the debt securities in the form of one or more global securities and, if so, the identity of the depositary for the global security
or securities;
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any addition to or changes
in the events of default or covenants that apply to the debt securities;
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whether the debt securities
will be defeasible; and
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any other terms of the
debt securities and any other deletions from or modifications or additions to the applicable indenture in respect of the debt
securities, including those relating to the subordination of any debt securities.
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Unless the accompanying prospectus supplement
specifies otherwise, the debt securities will not be listed on any securities exchange.
Unless the accompanying prospectus supplement
specifies otherwise, we will issue the debt securities in fully registered form without coupons. If we issue debt securities of
any series in bearer form, the accompanying prospectus supplement will describe the special restrictions and considerations, including
special offering restrictions and special federal income tax considerations, applicable to those debt securities and to payment
on and transfer and exchange of those debt securities. Debt securities issued in bearer form will be transferable by delivery.
Unless otherwise stated in the prospectus
supplement, we will pay principal, premium, interest and additional amounts, if any, on the debt securities at the office or agency
we maintain for that purpose (initially the corporate trust office of the trustee). We may pay interest on debt securities issued
in registered form by check mailed to the address of the persons entitled to the payments or we may pay by transfer to their U.S.
bank accounts. Interest on debt securities issued in registered form will be payable on any interest payment date to the registered
owners of the debt securities at the close of business on the regular record date for the interest payment. We will name in the
prospectus supplement all paying agents we initially designate for the debt securities. We may designate additional paying agents,
rescind the designation of any paying agent or approve a change in the office through which any paying agent acts, but we must
maintain a paying agent in each place where payments on the debt securities are payable.
Unless otherwise stated in the prospectus
supplement, the debt securities may be presented for transfer (duly endorsed or accompanied by a written instrument of transfer,
if we or the security registrar so requires) or exchanged for other debt securities of the same series (containing identical terms
and provisions, in any authorized denominations, and in the same aggregate principal amount) at the office or agency we maintain
for that purpose (initially the corporate trust office of the trustee). There will be no service charge for any transfer or exchange,
but we may require payment sufficient to cover any tax or other governmental charge or expenses payable in connection with the
transfer or exchange. We will not be required to:
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issue, register the
transfer of, or exchange, debt securities during a period beginning at the opening of business 15 days before the day of mailing
of a notice of redemption of any such debt securities and ending at the close of business on the day of such mailing; or
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register the transfer
of or exchange any debt security selected for redemption in whole or in part, except the unredeemed portion of any debt security
being redeemed in part.
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We shall appoint the trustee as security
registrar. Any transfer agent (in addition to the security registrar) we initially designate for any debt securities will be named
in the related prospectus supplement. We may designate additional transfer agents, rescind the designation of any transfer agent
or approve a change in the office through which any transfer agent acts, but we must maintain a transfer agent in each place where
any payments on the debt securities are payable.
Unless otherwise stated in the prospectus
supplement, we will issue the debt securities only in fully registered form, without coupons, in minimum denominations of $1,000
and integral multiples of $1,000. The debt securities may be represented in whole or in part by one or more global debt securities.
Each global security will be registered in the name of a depositary or its nominee and the global security will bear a legend regarding
the restrictions on exchanges and registration of transfer. Interests in a global security will be shown on records maintained
by the depositary and its participants, and transfers of those interests will be made as described below. Provisions relating to
the use of global securities are more fully described below in the section entitled “Use of Global Securities.”
We may issue the debt securities as original
issue discount securities (bearing no interest or bearing interest at a rate which at the time of issuance is below market rates)
to be sold at a substantial discount below their principal amount. We will describe certain special U.S. federal income tax and
other considerations applicable to any debt securities that are issued as original issue discount securities in the accompanying
prospectus supplement.
If the purchase price of any debt securities
is payable in one or more foreign currencies or currency units, or if any debt securities are denominated in one or more foreign
currencies or currency units, or if any payments on the debt securities are payable in one or more foreign currencies or currency
units, we will describe the restrictions, elections, certain U.S. federal income tax considerations, specific terms and other information
about the debt securities and the foreign currency or currency units in the prospectus supplement.
We will comply with Section 14(e) under
the Exchange Act, and any other tender offer rules under the Exchange Act that may then be applicable, in connection with any obligation
to purchase debt securities at the option of the holders. Any such obligation applicable to a series of debt securities will be
described in the related prospectus supplement.
Unless otherwise described in a prospectus
supplement relating to any debt securities, the indentures do not limit our ability to incur debt or give holders of debt securities
protection in the event of a sudden and significant decline in our credit quality or a takeover, recapitalization or highly leveraged
or similar transaction involving us. Accordingly, we could in the future enter into transactions that could increase the amount
of indebtedness outstanding at that time or otherwise affect our capital structure or credit rating. You should refer to the prospectus
supplement relating to a particular series of debt securities for information regarding any changes in the events of default described
below or covenants contained in the indentures, including any addition of a covenant or other provisions providing event risk or
similar protection.
Subordinated Debt Securities
Unless otherwise provided in the accompanying
prospectus supplement, the following provisions will apply for subordinated debt securities.
Before we pay the principal of, premium,
if any, and interest on, the subordinated debt securities, we must be current and not in default on payment in full of all of our
senior indebtedness. Senior indebtedness includes all of our indebtedness as described below, except for:
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obligations issued or
assumed as the deferred purchase price of property;
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conditional sale obligations;
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obligations arising
under any title retention agreements;
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indebtedness relating
to the applicable subordinated debt securities;
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indebtedness owed to
one of our subsidiaries; and
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indebtedness that, by
its terms, is subordinate in right of payment to or equal with the applicable subordinated debt securities.
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Generally indebtedness means:
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the principal of, premium,
if any, and interest on indebtedness for money borrowed;
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the principal of, premium,
if any, and interest on indebtedness evidenced by notes, debentures, bonds or other similar instruments;
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obligations issued or
assumed as the deferred purchase price of property, all conditional sale obligations and all obligations arising under any title
retention agreements;
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obligations for the
reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations
with respect to certain letters of credit securing obligations entered into in the ordinary course of business);
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obligations of the type
referred to in the bullet points above assumed for another party and dividends of another party for the payment of which, in either
case, one is responsible or liable as obligor, guarantor or otherwise;
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obligations assumed
of the types referred to in the bullet points above for another party secured by any lien on any of one’s property or assets.
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Indebtedness does not include amounts owed
pursuant to trade accounts arising in the ordinary course of business.
Generally, we may not pay the principal
of, premium, if any, or interest on the subordinated debt securities if, at the time of payment (or immediately after giving effect
to such payment):
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there exists under any
senior indebtedness, or any agreement under which any senior indebtedness is issued, any default, which default results in the
full amount of the senior indebtedness being declared due and payable; or
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the trustee has received
written notice from a holder of senior indebtedness stating that there exists under the senior indebtedness, or any agreement
under which the senior indebtedness is issued, a default, which default permits the holders of the senior indebtedness to declare
the full amount of the senior indebtedness due and payable;
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unless, among other things, in either case:
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the default has been
cured or waived; or
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full payment of amounts
then due for principal and interest and of all other obligations then due on all senior indebtedness has been made or duly provided
for under the terms of any instrument governing senior indebtedness.
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Limited subordination periods apply in
the event of non-payment defaults relating to senior indebtedness in situations where there has not been an acceleration of senior
indebtedness.
A failure to make any payment on the subordinated
debt securities as a result of the foregoing provisions will not affect our obligations to the holders of the subordinated debt
securities to pay the principal of, premium, if any, and interest on the subordinated debt securities as and when such payment
obligations become due.
The holders of senior indebtedness will
be entitled to receive payment in full of all amounts due or to become due on senior indebtedness, or provisions will be made for
such payment, before the holders of the subordinated debt securities are entitled to receive any payment or distribution of any
kind relating to the subordinated debt securities or on account of any purchase or other acquisition of the subordinated debt securities
by us or any of our subsidiaries, in the event of:
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insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other similar case, relating to us or our assets;
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any liquidation, dissolution
or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy; or
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any assignment for the
benefit of our creditors or any other marshalling of our assets and liabilities.
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In addition, the rights of the holders
of the subordinated debt securities will be subrogated to the rights of the holders of senior indebtedness to receive payments
and distributions of cash, property and securities applicable to the senior indebtedness until the principal of, premium, if any,
and interest on the subordinated debt securities are paid in full.
Because of these subordination provisions,
our creditors who hold senior indebtedness or other unsubordinated indebtedness may recover a greater percentage of the debt owed
to them than the holders of the subordinated debt securities.
The indenture covering subordinated debt
securities will not limit the aggregate amount of senior indebtedness that we may issue. If this prospectus is being delivered
in connection with the offering of a series of subordinated debt securities, the accompanying prospectus supplement or the information
incorporated in this prospectus by reference will set forth the approximate amount of senior debt outstanding as of a recent date.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge into
any other person or convey or transfer or lease our properties and assets substantially as an entirety to any person unless:
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if we consolidate with
or merge into another corporation or convey or transfer our properties and assets substantially as an entirety to any person,
the successor is organized under the laws of the United States, or any state, and assumes our obligations under the debt securities;
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immediately after the
transaction, no event of default occurs and continues; and
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we meet certain other
conditions specified in the indentures.
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Modification and Waiver
We and the trustee may modify and amend
the indentures without the consent of the holders of the outstanding debt securities of each affected series, in order to, among
other things:
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evidence the succession
of another corporation to us and the assumption of all of our obligations under the debt securities, any related coupons and our
covenants by a successor;
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add to our covenants
for the benefit of holders of debt securities or surrender any of our rights or powers;
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add additional events
of default for any series;
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add, change or eliminate
any provision affecting debt securities that are not yet issued;
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secure certain debt
securities;
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establish the form or
terms of debt securities not yet issued;
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make provisions with
respect to conversion or exchange rights of holders of debt securities;
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evidence and provide
for successor trustees; or
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correct or supplement
any inconsistent provisions, cure any ambiguity or mistake, or add any other provisions, on the condition that this action does
not adversely affect the interests of any holder of debt securities of any series issued under the indentures in any material
respect.
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In addition, we and the trustee may modify
and amend the indentures with the consent of the holders of at least a majority in aggregate principal amount of the outstanding
debt securities of each affected series. However, without the consent of each holder, we cannot modify or amend the indentures
in a way that would:
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change the stated maturity
of the principal of, or any installment of principal or interest on, any debt security;
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reduce the principal
or interest on any debt security;
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change the place or
currency of payment of principal or interest on any debt security;
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impair the right to
sue to enforce any payment on any debt security after it is due; or
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reduce the percentage
in principal amount of outstanding debt securities necessary to modify or amend the indentures, to waive compliance with certain
provisions of the indentures or to waive certain defaults.
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The holders of at least a majority in aggregate
principal amount of outstanding debt securities may waive our compliance with certain restrictive covenants of the indentures.
The holders of at least a majority in principal amount of the outstanding debt securities of any series may waive any past default
under the indentures with respect to outstanding debt securities of that series, which will be binding on all holders of debt securities
of that series, except a default in the payment of principal or interest on any debt security of that series or in respect of a
provision of the indentures that cannot be modified or amended without each holder’s consent.
Events of Default
Each of the following will be an event
of default:
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default for 30 days
in the payment of any interest;
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default in the payment
of principal;
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default in the deposit
of any sinking fund payment;
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default in the performance
of any other covenant in the indentures for 90 days after written notice; and
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certain events in bankruptcy,
insolvency or reorganization.
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We are required to furnish the trustee
annually a statement as to our fulfillment of our obligations under the indentures. The trustee may withhold notice of any default
to the holders of debt securities of any series (except for a default on principal or interest payments on debt securities of that
series) if it considers it in the interest of the holders to do so.
If an event of default occurs and continues,
either the trustee or the holders of not less than 25% in principal amount of the outstanding debt securities of the series in
default may declare the principal amount immediately due and payable by written notice to us (and to the trustee if given by the
holders). Upon any such declaration, the principal amount will become immediately due and payable. However, the holders of a majority
in principal amount of the outstanding debt securities of that series may, under certain circumstances, rescind and annul the acceleration.
Except for certain duties in case of an
event of default, the trustee is not required to exercise any of its rights or powers at the request or direction of any of the
holders, unless the holders offer the trustee reasonable security or indemnity. If the holders provide this security or indemnity,
the holders of a majority in principal amount of the outstanding debt securities of a series may direct the time, method and place
of conducting any proceeding for any remedy available to the trustee, or exercising any trust or powers conferred on the trustee
with respect to the debt securities of that series.
No holder of a debt security may bring
any lawsuit or other proceeding with respect to the indentures or for any remedy under the indentures, unless:
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the holder first gives
the trustee written notice of a continuing event of default;
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the holders of at least
25% in principal amount of the outstanding debt securities of the series in default give the trustee a written request to bring
the proceeding and offer the trustee reasonable security or indemnity; and
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the trustee fails to
institute the proceeding within 60 days of the written request and has not received from holders of a majority in principal amount
of the outstanding debt securities of the series in default a direction inconsistent with that request.
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However, the holder of any debt security
has the absolute right to receive payment of the principal of and any interest on the debt security on or after the stated due
dates and to take any action to enforce any such payment.
Discharge, Defeasance and Covenant Defeasance
We may discharge certain obligations to
holders of any series of debt securities that have not already been delivered to the trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by depositing
with the trustee, in trust, funds in U.S. dollars or in the foreign currency in which such debt securities are payable in an amount
sufficient to pay the principal and any premium, interest and additional amounts on such debt securities to the date of deposit
(if the debt securities have become due and payable) or to the maturity date, as the case may be.
Unless a prospectus supplement states that
the following provisions do not apply to the debt securities of that series, we may elect either:
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to defease and be discharged
from any and all obligations with respect to such debt securities (except for, among other things, the obligation to pay additional
amounts, if any, upon the occurrence of certain events of taxation, assessment or governmental charge with respect to payments
on the debt securities and other obligations to register the transfer or exchange of such debt securities, to replace temporary
or mutilated, destroyed, lost or stolen debt securities, to maintain an office or agency with respect to such debt securities
and to hold moneys for payment in trust), such an action a “defeasance”; or
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to be released from
our obligations under the applicable indenture as may be further described in any prospectus supplement, and our failure to comply
with these obligations will not constitute an event of default with respect to such debt securities, such an action a “covenant
defeasance.”
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Defeasance or covenant defeasance is conditioned
on our irrevocable deposit with the trustee, in trust, of an amount in cash or government securities, or both, sufficient to pay
the principal of, any premium and interest on, and any additional amounts with respect to, the debt securities on the scheduled
due dates. Additional conditions to defeasance or covenant defeasance require that:
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the applicable defeasance
or covenant defeasance does not result in a breach or violation of, or constitute a default under, the applicable indenture or
any other material agreement or instrument to which we are a party or by which we are bound;
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no event of default
has occurred and continues on the date the trust is established and, with respect to defeasance only, at any time during the period
ending on the 123
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day after that date; and
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we have delivered to
the trustee an opinion of counsel to the effect that the holders of such debt securities will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and will be subject to U.S. federal
income tax for the same amounts, in the same manner and at the same times as would have been the case if the defeasance or covenant
defeasance had not occurred. This opinion, in the case of defeasance, must refer to and be based upon a letter ruling we have
received from the Internal Revenue Service, a Revenue Ruling published by the Internal Revenue Service, or a change in applicable
U.S. federal income tax law occurring after the date of the indenture.
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If we accomplish covenant defeasance on
debt securities of certain holders, those holders can still look to us for repayment of their debt securities in the event of any
shortfall in the trust deposit. If one of the remaining events of default occurred, such as our bankruptcy, and the debt securities
became immediately due and payable, there may be a shortfall. Depending on the event causing the default, such holders may not
be able to obtain payment of the shortfall.
In the case of subordinated debt securities,
the subordination provisions described under “— Subordinated Debt Securities” above are made subject to
the provisions for defeasance and covenant defeasance. In other words, if we accomplish defeasance or covenant defeasance on any
subordinated debt securities, such securities would cease to be so subordinated.
DESCRIPTION OF CONVERTIBLE DEBT SECURITIES
The following summary of the terms of the
convertible debt securities describes general terms that apply to the convertible debt securities. The convertible debt securities
offered pursuant to this prospectus will be either convertible senior debt or convertible subordinated debt. The particular terms
of any convertible debt securities will be described more specifically in each prospectus supplement relating to those convertible
debt securities. Where any provision in an accompanying prospectus supplement is inconsistent with any provision in this summary,
the prospectus supplement will control.
Convertible senior debt securities and
convertible subordinated debt securities will be issued under either of two debt indentures summarized below. The indentures are
the same as the indentures described above under “Description of Debt Securities”. Where we make no distinction in
our summary between convertible senior debt securities and convertible subordinated debt securities, the applicable information
refers to any convertible debt securities. Since this is only a summary, it does not contain all of the information that may be
important to you. We may issue convertible debt securities under our senior debt indenture and our subordinated debt indenture,
and forms of each of these indentures are exhibits to the registration statement of which this prospectus is a part. We encourage
you to read those documents.
General
The indentures do not limit the aggregate
principal amount of convertible debt securities we may issue and provides that we may issue convertible debt securities thereunder
from time to time in one or more series. The indentures do not limit the amount of other indebtedness or convertible debt securities,
other than certain secured indebtedness as described below, which we or our subsidiaries may issue. Under the indentures, the terms
of the convertible debt securities of any series may differ and we, without the consent of the holders of the convertible debt
securities of any series, may reopen a previous series of convertible debt securities and issue additional convertible debt securities
of the series or establish additional terms of the series.
Unless otherwise provided in a prospectus
supplement, the convertible senior debt securities will be our unsecured obligations and will rank equally with all of our other
unsecured and senior indebtedness, and the convertible subordinated debt securities will be unsecured obligations of ours and,
as set forth below under “— Convertible Subordinated Debt Securities,” will be subordinated in right of
payment to all of our senior indebtedness.
You should refer to the prospectus supplement
that accompanies this prospectus for a description of the specific series of convertible debt securities we are offering by that
prospectus supplement. The terms may include:
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the title and specific
designation of the convertible debt securities, including whether they are convertible senior debt securities or convertible subordinated
debt securities;
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any limit on the aggregate
principal amount of the convertible debt securities or the series of which they are a part;
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whether the convertible
debt securities are to be issuable as registered securities, as bearer securities or alternatively as bearer securities and registered
securities, and if as bearer securities, whether interest on any portion of a bearer security in global form will be paid to any
clearing organizations;
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the currency or currencies,
or composite currencies, in which the convertible debt securities will be denominated and in which we will make payments on the
convertible debt securities;
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the date or dates on
which we must pay principal;
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the rate or rates at
which the convertible debt securities will bear interest or the manner in which interest will be determined, if any interest is
payable;
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the date or dates from
which any interest will accrue, the date or dates on which we must pay interest and the record date for determining who is entitled
to any interest payment;
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the place or places
where we must pay the convertible debt securities and where any convertible debt securities issued in registered form may be sent
for transfer, conversion or exchange;
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the terms and conditions
on which we may, or may be required to, redeem the convertible debt securities;
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the terms and conditions
of any sinking fund;
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if other than denominations
of $1,000, the denominations in which we may issue the convertible debt securities;
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the terms and conditions
upon which conversion of the convertible debt securities may be effected, including the conversion price, the conversion period
and other conversion provisions;
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the amount we will pay
if the maturity of the convertible debt securities is accelerated;
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whether we will issue
the convertible debt securities in the form of one or more global securities and, if so, the identity of the depositary for the
global security or securities;
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any addition to or changes
in the events of default or covenants that apply to the convertible debt securities;
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whether the convertible
debt securities will be defeasible; and
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any other terms of the
convertible debt securities and any other deletions from or modifications or additions to the applicable indenture in respect
of the convertible debt securities, including those relating to the subordination of any convertible debt securities.
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Unless the accompanying prospectus supplement
specifies otherwise, the convertible debt securities will not be listed on any securities exchange.
Unless the accompanying prospectus supplement
specifies otherwise, we will issue the convertible debt securities in fully registered form without coupons. If we issue convertible
debt securities of any series in bearer form, the accompanying prospectus supplement will describe the special restrictions and
considerations, including special offering restrictions and special federal income tax considerations, applicable to those convertible
debt securities and to payment on and transfer and exchange of those convertible debt securities. Convertible debt securities issued
in bearer form will be transferable by delivery.
Unless otherwise stated in the prospectus
supplement, we will pay principal, premium, interest and additional amounts, if any, on the convertible debt securities at the
office or agency we maintain for that purpose (initially the corporate trust office of the trustee). We may pay interest on convertible
debt securities issued in registered form by check mailed to the address of the persons entitled to the payments or we may pay
by transfer to their U.S. bank accounts. Interest on convertible debt securities issued in registered form will be payable on any
interest payment date to the registered owners of the convertible debt securities at the close of business on the regular record
date for the interest payment. We will name in the prospectus supplement all paying agents we initially designate for the convertible
debt securities. We may designate additional paying agents, rescind the designation of any paying agent or approve a change in
the office through which any paying agent acts, but we must maintain a paying agent in each place where payments on the convertible
debt securities are payable.
Unless otherwise stated in the prospectus
supplement, the convertible debt securities may be presented for transfer (duly endorsed or accompanied by a written instrument
of transfer, if we or the security registrar so requires) or exchanged for other convertible debt securities of the same series
(containing identical terms and provisions, in any authorized denominations, and in the same aggregate principal amount) at the
office or agency we maintain for that purpose (initially the corporate trust office of the trustee). There will be no service charge
for any transfer or exchange, but we may require payment sufficient to cover any tax or other governmental charge or expenses payable
in connection with the transfer or exchange. We will not be required to:
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issue, register the
transfer of, or exchange, convertible debt securities during a period beginning at the opening of business 15 days before the
day of mailing of a notice of redemption of any such convertible debt securities and ending at the close of business on the day
of such mailing; or
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register the transfer
of or exchange any debt security selected for redemption in whole or in part, except the unredeemed portion of any debt security
being redeemed in part.
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We shall appoint the trustee as security
registrar. Any transfer agent (in addition to the security registrar) we initially designate for any convertible debt securities
will be named in the related prospectus supplement. We may designate additional transfer agents, rescind the designation of any
transfer agent or approve a change in the office through which any transfer agent acts, but we must maintain a transfer agent in
each place where any payments on the convertible debt securities are payable.
Unless otherwise stated in the prospectus
supplement, we will issue the convertible debt securities only in fully registered form, without coupons, in minimum denominations
of $1,000 and integral multiples of $1,000. The convertible debt securities may be represented in whole or in part by one or more
global debt securities. Each global security will be registered in the name of a depositary or its nominee and the global security
will bear a legend regarding the restrictions on exchanges and registration of transfer. Interests in a global security will be
shown on records maintained by the depositary and its participants, and transfers of those interests will be made as described
below. Provisions relating to the use of global securities are more fully described below in the section entitled “Use of
Global Securities.”
We may issue the convertible debt securities
as original issue discount securities (bearing no interest or bearing interest at a rate which at the time of issuance is below
market rates) to be sold at a substantial discount below their principal amount. We will describe certain special U.S. federal
income tax and other considerations applicable to any convertible debt securities that are issued as original issue discount securities
in the accompanying prospectus supplement.
If the purchase price of any convertible
debt securities is payable in one or more foreign currencies or currency units, or if any convertible debt securities are denominated
in one or more foreign currencies or currency units, or if any payments on the convertible debt securities are payable in one or
more foreign currencies or currency units, we will describe the restrictions, elections, certain U.S. federal income tax considerations,
specific terms and other information about the convertible debt securities and the foreign currency or currency units in the prospectus
supplement.
We will comply with Section 14(e) under
the Exchange Act, and any other tender offer rules under the Exchange Act that may then be applicable, in connection with any obligation
to purchase convertible debt securities at the option of the holders. Any such obligation applicable to a series of convertible
debt securities will be described in the related prospectus supplement.
Unless otherwise described in a prospectus
supplement relating to any convertible debt securities, the indentures do not limit our ability to incur debt or give holders of
convertible debt securities protection in the event of a sudden and significant decline in our credit quality or a takeover, recapitalization
or highly leveraged or similar transaction involving us. Accordingly, we could in the future enter into transactions that could
increase the amount of indebtedness outstanding at that time or otherwise affect our capital structure or credit rating. You should
refer to the prospectus supplement relating to a particular series of convertible debt securities for information regarding any
changes in the events of default described below or covenants contained in the indentures, including any addition of a covenant
or other provisions providing event risk or similar protection.
Conversion Rights
An accompanying prospectus supplement will
set forth the terms on which the convertible debt securities of any series are convertible into common stock or other securities.
Those terms will address whether conversion is mandatory, at the option of the holder or at our option. The terms may also provide
that the number of shares or interests of our common stock or other securities, as the case may be, to be received by the holders
of the convertible debt securities will be calculated according to the market price of our common stock or other securities, as
the case may be, as of a time stated in the prospectus supplement or otherwise.
Convertible Subordinated Debt Securities
Unless otherwise provided in the accompanying
prospectus supplement, the following provisions will apply for convertible subordinated debt securities.
Before we pay the principal of, premium,
if any and interest on, the convertible subordinated debt securities, we must be current and not in default on payment in full
of all of our senior indebtedness. Senior indebtedness includes all of our indebtedness as described below, except for:
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obligations issued or
assumed as the deferred purchase price of property;
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conditional sale obligations;
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obligations arising
under any title retention agreements;
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indebtedness relating
to the applicable convertible subordinated debt securities;
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indebtedness owed to
one of our subsidiaries; and
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indebtedness that, by
its terms, is subordinate in right of payment to or equal with the applicable convertible subordinated debt securities.
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Generally indebtedness means:
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the principal of, premium,
if any, and interest on indebtedness for money borrowed;
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the principal of, premium,
if any, and interest on indebtedness evidenced by notes, debentures, bonds or other similar instruments;
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obligations issued or
assumed as the deferred purchase price of property, all conditional sale obligations and all obligations arising under any title
retention agreements;
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obligations for the
reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations
with respect to certain letters of credit securing obligations entered into in the ordinary course of business);
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obligations of the type
referred to in the bullet points above assumed for another party and dividends of another party for the payment of which, in either
case, one is responsible or liable as obligor, guarantor or otherwise; and
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obligations assumed
of the types referred to in the bullet points above for another party secured by any lien on any of one’s property or assets.
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Indebtedness does not include amounts owed
pursuant to trade accounts arising in the ordinary course of business.
Generally, we may not pay the principal
of, premium, if any, or interest on the convertible subordinated debt securities if, at the time of payment (or immediately after
giving effect to such payment):
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there exists under any
senior indebtedness, or any agreement under which any senior indebtedness is issued, any default, which default results in the
full amount of the senior indebtedness being declared due and payable; or
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the trustee has received
written notice from a holder of senior indebtedness stating that there exists under the senior indebtedness, or any agreement
under which the senior indebtedness is issued, a default, which default permits the holders of the senior indebtedness to declare
the full amount of the senior indebtedness due and payable.
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unless, among other things, in either
case:
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the default has been
cured or waived; or
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full payment of amounts
then due for principal and interest and of all other obligations then due on all senior indebtedness has been made or duly provided
for under the terms of any instrument governing senior indebtedness.
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Limited subordination periods apply in
the event of non-payment defaults relating to senior indebtedness in situations where there has not been an acceleration of senior
indebtedness.
A failure to make any payment on the convertible
subordinated debt securities as a result of the foregoing provisions will not affect our obligations to the holders of the convertible
subordinated debt securities to pay the principal of, premium, if any, and interest on the convertible subordinated debt securities
as and when such payment obligations become due.
The holders of senior indebtedness will
be entitled to receive payment in full of all amounts due or to become due on senior indebtedness, or provisions will be made for
such payment, before the holders of the convertible subordinated debt securities are entitled to receive any payment or distribution
of any kind relating to the convertible subordinated debt securities or on account of any purchase or other acquisition of the
convertible subordinated debt securities by us or any of our subsidiaries, in the event of:
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insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other similar case, relating to us or our assets;
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any liquidation, dissolution
or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy; or
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any assignment for the
benefit of our creditors or any other marshalling of our assets and liabilities.
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In addition, the rights of the holders
of the convertible subordinated debt securities will be subrogated to the rights of the holders of senior indebtedness to receive
payments and distributions of cash, property and securities applicable to the senior indebtedness until the principal of, premium,
if any, and interest on the convertible subordinated debt securities are paid in full.
Because of these subordination provisions,
our creditors who hold senior indebtedness or other unsubordinated indebtedness may recover a greater percentage of the debt owed
to them than the holders of the convertible subordinated debt securities.
The convertible indenture covering convertible
subordinated debt securities will not limit the aggregate amount of senior indebtedness that we may issue. If this prospectus is
being delivered in connection with the offering of a series of convertible subordinated debt securities, the accompanying prospectus
supplement or the information incorporated in this prospectus by reference will set forth the approximate amount of senior debt
outstanding as of a recent date.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge into
any other person or convey or transfer or lease our properties and assets substantially as an entirety to any person unless:
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if we consolidate with
or merge into another corporation or convey or transfer our properties and assets substantially as an entirety to any person,
the successor is organized under the laws of the United States, or any state, and assumes our obligations under the convertible
debt securities;
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immediately after the
transaction, no event of default occurs and continues; and
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we meet certain other
conditions specified in the indentures.
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Modification and Waiver
We and the trustee may modify and amend
the indentures without the consent of the holders of the outstanding convertible debt securities of each affected series, in order
to, among other things:
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evidence the succession
of another corporation to us and the assumption of all of our obligations under the convertible debt securities, any related coupons
and our covenants by a successor;
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add to our covenants
for the benefit of holders of convertible debt securities or surrender any of our rights or powers;
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add additional events
of default for any series;
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add, change or eliminate
any provision affecting convertible debt securities that are not yet issued;
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secure certain convertible
debt securities;
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establish the form or
terms of convertible debt securities not yet issued;
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make provisions with
respect to conversion or exchange rights of holders of convertible debt securities;
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evidence and provide
for successor trustees;
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permit payment in respect
of convertible debt securities in bearer form in the United States, if allowed without penalty under applicable laws and regulations;
or
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correct or supplement
any inconsistent provisions, cure any ambiguity or mistake, or add any other provisions, on the condition that this action does
not adversely affect the interests of any holder of convertible debt securities of any series issued under the indentures in any
material respect.
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In addition, we and the trustee may modify
and amend the indentures with the consent of the holders of at least a majority in aggregate principal amount of the outstanding
convertible debt securities of each affected series.
However, without the consent of each holder,
we cannot modify or amend the indentures in a way that would:
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change the stated maturity
of the principal of, or any installment of principal or interest on, any debt security;
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reduce the principal
or interest on any debt security;
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change the place or
currency of payment of principal or interest on any debt security;
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impair the right to
sue to enforce any payment on any debt security after it is due; or
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reduce the percentage
in principal amount of outstanding convertible debt securities necessary to modify or amend the indentures, to waive compliance
with certain provisions of the indentures or to waive certain defaults.
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The holders of at least a majority in aggregate
principal amount of outstanding convertible debt securities may waive our compliance with certain restrictive covenants of the
indentures. The holders of at least a majority in principal amount of the outstanding convertible debt securities of any series
may waive any past default under the indentures with respect to outstanding convertible debt securities of that series, which will
be binding on all holders of convertible debt securities of that series, except a default in the payment of principal or interest
on any debt security of that series or in respect of a provision of the indentures that cannot be modified or amended without each
holder’s consent.
Events of Default
Each of the following will be an event
of default:
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default for 30 days
in the payment of any interest;
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default in the payment
of principal;
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default in the deposit
of any sinking fund payment;
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default in the performance
of any other covenant in the indentures for 90 days after written notice; and
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certain events in bankruptcy,
insolvency or reorganization.
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We are required to furnish the trustee
annually a statement as to our fulfillment of our obligations under the indentures. The trustee may withhold notice of any default
to the holders of convertible debt securities of any series (except for a default on principal or interest payments on convertible
debt securities of that series) if it considers it in the interest of the holders to do so.
If an event of default occurs and continues,
either the trustee or the holders of not less than 25% in principal amount of the outstanding convertible debt securities of the
series in default may declare the principal amount immediately due and payable by written notice to us (and to the trustee if given
by the holders). Upon any such declaration, the principal amount will become immediately due and payable. However, the holders
of a majority in principal amount of the outstanding convertible debt securities of that series may, under certain circumstances,
rescind and annul the acceleration.
Except for certain duties in case of an
event of default, the trustee is not required to exercise any of its rights or powers at the request or direction of any of the
holders, unless the holders offer the trustee reasonable security or indemnity. If the holders provide this security or indemnity,
the holders of a majority in principal amount of the outstanding convertible debt securities of a series may direct the time, method
and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or powers conferred on
the trustee with respect to the convertible debt securities of that series.
No holder of a convertible debt security
may bring any lawsuit or other proceeding with respect to the indentures or for any remedy under the indentures, unless:
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the holder first gives
the trustee written notice of a continuing event of default;
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the holders of at least
25% in principal amount of the outstanding convertible debt securities of the series in default give the trustee a written request
to bring the proceeding and offer the trustee reasonable security or indemnity; and
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the trustee fails to
institute the proceeding within 60 days of the written request and has not received from holders of a majority in principal amount
of the outstanding convertible debt securities of the series in default a direction inconsistent with that request.
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However, the holder of any convertible
debt security has the absolute right to receive payment of the principal of and any interest on the convertible debt security on
or after the stated due dates and to take any action to enforce any such payment.
Discharge, Defeasance and Covenant Defeasance
We may discharge certain obligations to
holders of any series of convertible debt securities that have not already been delivered to the trustee for cancellation and that
either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year)
by depositing with the trustee, in trust, funds in U.S. dollars or in the foreign currency in which such convertible debt securities
are payable in an amount sufficient to pay the principal and any premium, interest and additional amounts on such convertible debt
securities to the date of deposit (if the convertible debt securities have become due and payable) or to the maturity date, as
the case may be.
Unless a prospectus supplement states that
the following provisions do not apply to the convertible debt securities of that series, we may elect either:
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to defease and be discharged
from any and all obligations with respect to such convertible debt securities (except for, among other things, the obligation
to pay additional amounts, if any, upon the occurrence of certain events of taxation, assessment or governmental charge with respect
to payments on the convertible debt securities and other obligations to provide for the conversion rights of the holders of such
convertible debt securities, to register the transfer or exchange of such convertible debt securities, to replace temporary or
mutilated, destroyed, lost or stolen convertible debt securities, to maintain an office or agency with respect to such convertible
debt securities and to hold moneys for payment in trust), such an action a “defeasance”; or
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to be released from
our obligations under the applicable indenture as may be further described in any prospectus supplement, and our failure to comply
with these obligations will not constitute an event of default with respect to such convertible debt securities, such an action
a “covenant defeasance”.
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Defeasance or covenant defeasance is conditioned
on our irrevocable deposit with the trustee, in trust, of an amount in cash or government securities, or both, sufficient to pay
the principal of, any premium and interest on, and any additional amounts with respect to, the convertible debt securities on the
scheduled due dates. Additional conditions to defeasance or covenant defeasance require that:
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the applicable defeasance
or covenant defeasance does not result in a breach or violation of, or constitute a default under, the applicable indenture or
any other material agreement or instrument to which we are a party or by which we are bound;
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no event of default
has occurred and continues on the date the trust is established and, with respect to defeasance only, at any time during the period
ending on the 123
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day after that date; and
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we have delivered to
the trustee an opinion of counsel to the effect that the holders of such convertible debt securities will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and will be subject to
U.S. federal income tax for the same amounts, in the same manner and at the same times as would have been the case if the defeasance
or covenant defeasance had not occurred. This opinion, in the case of defeasance, must refer to and be based upon a letter ruling
we have received from the Internal Revenue Service, a Revenue Ruling published by the Internal Revenue Service, or a change in
applicable U.S. federal income tax law occurring after the date of the indenture.
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If we accomplish covenant defeasance on
convertible debt securities of certain holders, those holders can still look to us for repayment of their convertible debt securities
in the event of any shortfall in the trust deposit. If one of the remaining events of default occurred, such as our bankruptcy,
and the convertible debt securities became immediately due and payable, there may be a shortfall. Depending on the event causing
the default, such holders may not be able to obtain payment of the shortfall.
In the case of convertible subordinated
debt securities, the subordination provisions described under “— Convertible Subordinated Debt Securities”
above are made subject to the provisions for defeasance and covenant defeasance. In other words, if we accomplish defeasance or
covenant defeasance on any convertible subordinated debt securities, such securities would cease to be so subordinated.
Governing Law
The indentures and the convertible debt
securities will be governed by and interpreted under the laws of the State of Delaware.
USE OF GLOBAL SECURITIES
The debt securities of any series may be
issued in whole or in part in the form of one or more global debt securities that will be deposited with a depositary or its nominee
identified in the series prospectus supplement.
The specific terms of the depositary arrangement
covering debt securities will be described in the prospectus supplement relating to that series. We anticipate that the following
provisions or similar provisions will apply to depositary arrangements relating to debt securities, although to the extent the
terms of any arrangement differs from those described in this section, the terms of the arrangement shall supersede those in this
section as ultimately described in the applicable indenture and related documents.
Upon the issuance of a global security,
the depositary for the global security or its nominee will credit, to accounts in its book-entry registration and transfer system,
the principal amounts of the debt securities represented by the global security. These accounts will be designated by the underwriters
or agents with respect to such debt securities or by us if such debt securities are offered and sold directly by us. Only institutions
that have accounts with the depositary or its nominee, and persons who hold beneficial interests through those participants, may
own beneficial interests in a global security. Ownership of beneficial interests in a global security will be shown only on, and
the transfer of those ownership interests will be effected only through, records maintained by the depositary, its nominee or any
such participants. The laws of some states require that certain purchasers of securities take physical delivery of such securities
in definitive form. These laws may prevent you from transferring your beneficial interest in a global security.
As long as the depositary or its nominee
is the registered owner of a global security, the depositary or nominee will be considered the sole owner or holder of the debt
securities represented by the global security. Except as described below, owners of beneficial interests in a global security will
not be entitled to have debt securities registered in their names and will not be entitled to receive physical delivery of the
debt securities in definitive form.
We will make all payments of principal
of, any premium and interest on, and any additional amounts with respect to, debt securities issued as global securities to the
depositary or its nominee. Neither we nor the trustee, any paying agent or the security registrar assumes any responsibility or
liability for any aspect of the depositary’s or any participant’s records relating to, or for payments made on account
of, beneficial interests in a global security.
We expect that the depositary for a series
of debt securities or its nominee, upon receipt of any payment with respect to such debt securities, will credit immediately participants’
accounts with payments in amounts proportionate to their respective beneficial interest in the principal amount of the global security
for such debt securities as shown on the records of such depositary or its nominee. We also expect that payments by participants
to owners of beneficial interests in such global security held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the accounts of customers registered in “street name,”
and will be the responsibility of such participants.
Our indentures provide that if:
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the depositary notifies
us that it is unwilling or unable to continue as depositary for a series of debt securities, or if the depositary is no longer
legally qualified to serve in that capacity, and we have not appointed a successor depositary within 90 days of written notice;
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we determine that a
series of debt securities will no longer be represented by global securities and we execute and deliver an order to that effect
to the trustee; or
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an event of default
with respect to a series of debt securities occurs and continues.
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The global securities for that series will
be exchanged for registered debt securities in definitive form. The definitive debt securities will be registered in the name or
names the depositary instructs the trustee. We expect that these instructions may be based upon directions the depositary receives
from participants with respect to ownership of beneficial interests in global securities.
DESCRIPTION OF RIGHTS
General
We may issue rights to our stockholders
to purchase shares of our common stock or preferred stock described in this prospectus. We may offer rights separately or together
with one or more additional rights, preferred stock, common stock, warrants or any combination of those securities in the form
of units, as described in the applicable prospectus supplement. Each series of rights will be issued under a separate rights agreement
to be entered into between us and a bank or trust company, as rights agent. The rights agent for any rights we offer will be set
forth in the applicable prospectus supplement. The rights agent will act solely as our agent in connection with the certificates
relating to the rights of the series of certificates and will not assume any obligation or relationship of agency or trust for
or with any holders of rights certificates or beneficial owners of rights. The following description sets forth certain general
terms and provisions of the rights to which any prospectus supplement may relate. The particular terms of the rights to which any
prospectus supplement may relate and the extent, if any, to which the general provisions may apply to the rights so offered will
be described in the applicable prospectus supplement. To the extent that any particular terms of the rights, rights agreement or
rights certificates described in a prospectus supplement differ from any of the terms described below, then the terms described
below will be deemed to have been superseded by that prospectus supplement. We encourage you to read the applicable rights agreement
and rights certificate for additional information before you decide whether to purchase any of our rights.
The prospectus supplement relating to any
rights that we offer will include specific terms relating to the offering, including, among other matters:
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the date of determining
the stockholders entitled to the rights distribution;
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the aggregate number
of shares of common stock, preferred stock or other securities purchasable upon exercise of the rights;
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the aggregate number
of rights issued;
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whether the rights are
transferrable and the date, if any, on and after which the rights may be separately transferred;
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the date on which the
right to exercise the rights will commence, and the date on which the right to exercise the rights will expire;
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the method by which
holders of rights will be entitled to exercise;
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the conditions to the
completion of the offering;
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the withdrawal, termination
and cancellation rights;
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whether there are any
backstop or standby purchaser or purchasers and the terms of their commitment;
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whether stockholders
are entitled to oversubscription rights;
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any U.S. federal income
tax considerations; and
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any other terms of the
rights, including terms, procedures and limitations relating to the distribution, exchange and exercise of the rights.
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If less than all of the rights issued in
any rights offering are exercised, we may offer any unsubscribed securities directly to persons other than stockholders, to or
through agents, underwriters or dealers or through a combination of such methods, including pursuant to standby arrangements, as
described in the applicable prospectus supplement. In connection with any rights offering, we may enter into a standby underwriting
or other arrangement with one or more underwriters or other persons pursuant to which such underwriters or other persons would
purchase any offered securities remaining unsubscribed for after such rights offering.
DESCRIPTION OF UNITS
We may, from time to time, issue units
comprised of one or more of the other securities described in this prospectus in any combination. A prospectus supplement will
describe the specific terms of the units offered under that prospectus supplement, and any special considerations, including tax
considerations, applicable to investing in those units. You must look at the applicable prospectus supplement and any applicable
unit agreement for a full understanding of the specific terms of any units. We will incorporate by reference into the registration
statement of which this prospectus is a part the form of unit agreement, including a form of unit certificate, if any, that describes
the terms of the series of units we are offering before the issuance of the related series of units. While the terms we have summarized
below will generally apply to any future units that we may offer under this prospectus, we will describe the particular terms of
any series of units that we may offer in more detail in the applicable prospectus supplement and incorporated documents. The terms
of any units offered under a prospectus supplement may differ from the terms described below.
General
We may issue units consisting of common
stock, preferred stock, rights, warrants or any combination thereof. Each unit will be issued so that the holder of the unit is
also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder
of each included security. The unit agreement under which a unit is issued may provide that the securities included in the unit
may not be held or transferred separately, at any time, or at any time before a specified date.
We will describe in the applicable prospectus
supplement and any incorporated documents the terms of the series of units, including the following:
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the designation and
terms of the units and of the securities comprising the units, including whether and under what circumstances those securities
may be held or transferred separately;
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any provisions of the
governing unit agreement that differ from those described below; and
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any provisions for the
issuance, payment, settlement, transfer, or exchange of the units or of the securities comprising the units.
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The provisions described in this section,
as well as those described under “Description of Capital Stock — Common Stock,” “Description
of Capital Stock — Preferred Stock,” “Description of Rights,” and “Description of Warrants”
will apply to each unit and to any common stock, preferred stock, warrant or right included in each unit, respectively.
Issuance in Series
We may issue units in such amounts and
in such numerous distinct series as we determine.
Enforceability of Rights by Holders
of Units
Each unit agent will act solely as our
agent under the applicable unit agreement and will not assume any obligation or relationship of agency or trust with any holder
of any unit. A single bank or trust company may act as unit agent for more than one series of units. A unit agent will have no
duty or responsibility in case of any default by us under the applicable unit agreement or unit, including any duty or responsibility
to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder of a unit, without the consent of the
related unit agent or the holder of any other unit, may enforce by appropriate legal action its rights as holder under any security
included in the unit.
Title
We, the unit agent, and any of their agents
may treat the registered holder of any unit certificate as an absolute owner of the units evidenced by that certificate for any
purposes and as the person entitled to exercise the rights attaching to the units so requested, despite any notice to the contrary.
PLAN OF DISTRIBUTION
We may sell our securities from time to
time through underwriters, dealers or agents or directly to purchasers, in one or more transactions at a fixed price or prices,
which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or
at negotiated prices. We may use these methods in any combination.
We will describe the terms of the offering
of the securities in a prospectus supplement, information incorporated by reference or related free writing prospectus, including:
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the name or names of
any underwriters, if any;
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the purchase price of
the securities and the proceeds we will receive from the sale;
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any underwriting discounts
and other items constituting underwriters’ compensation;
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any initial public offering
price;
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any discounts or concessions
allowed or reallowed or paid to dealers; and
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any securities exchange
or market on which the securities may be listed.
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Only underwriters that we name in a prospectus
supplement, information incorporated by reference or related free writing prospectus will be underwriters of the securities offered
thereby.
The distribution of securities may be effected,
from time to time, in one or more transactions, including:
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block transactions (which
may involve crosses) and transactions on the NASDAQ Stock Market or any other organized market where the securities may be traded;
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purchases by a broker-dealer
as principal and resale by the broker-dealer for its own account pursuant to a prospectus supplement;
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ordinary brokerage transactions
and transactions in which a broker-dealer solicits purchasers;
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sales “at the
market” to or through a market maker or into an existing trading market, on an exchange or otherwise;
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sales in other ways
not involving market makers or established trading markets, including direct sales to purchasers.
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By Underwriters
We may use an underwriter or underwriters
in the offer or sale of our securities.
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If we use an underwriter
or underwriters, the offered securities will be acquired by the underwriters for their own account.
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We will include the
names of the specific managing underwriter or underwriters, as well as any other underwriters, and the terms of the transactions,
including the compensation the underwriters and dealers will receive, in the prospectus supplement.
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The underwriters will
use this prospectus and any prospectus supplement to sell our securities.
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We may also sell securities pursuant to
one or more standby agreements with one or more underwriters in connection with the call, redemption or exchange of a specified
class or series of any of our outstanding securities. In a standby agreement, the underwriter or underwriters would agree either:
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to purchase from us
up to the number of shares of common stock that would be issuable upon conversion or exchange of all the shares of the class or
series of our securities at an agreed price per share of common stock; or
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to purchase from us
up to a specified dollar amount of offered securities at an agreed price per offered security, which price may be fixed or may
be established by formula or other method and which may or may not relate to market prices of our common stock or any other outstanding
security.
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The underwriter or underwriters would also
agree, if applicable, to convert or exchange any securities of the class or series held or purchased by the underwriter or underwriters
into or for our common stock or other security.
The underwriter or underwriters may assist
in the solicitation of conversions or exchanges by holders of the class or series of securities.
By Dealers
We may use a dealer to sell our securities.
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If we use a dealer,
we, as principal, will sell our securities to the dealer.
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The dealer will then
resell our securities to the public at varying prices that the dealer will determine at the time it sells our securities.
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We will include the
name of the dealer and the terms of our transactions with the dealer in the prospectus supplement.
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By Agents
We may designate agents to solicit offers
to purchase our securities.
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We will name any agent
involved in offering or selling our securities and any commissions that we will pay to the agent in the prospectus supplement.
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Unless we indicate otherwise
in the prospectus supplement, our agents will act on a best efforts basis for the period of their appointment.
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Our agents may be deemed
to be underwriters under the Securities Act of any of our securities that they offer or sell.
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By Delayed Delivery Contracts
We may authorize our agents and underwriters
to solicit offers by certain institutions to purchase our securities at the public offering price under delayed delivery contracts.
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If we use delayed delivery
contracts, we will disclose that we are using them in the prospectus supplement and will tell you when we will demand payment
and delivery of the securities under the delayed delivery contracts.
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These delayed delivery
contracts will be subject only to the conditions that we set forth in the prospectus supplement.
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We will indicate in
the prospectus supplement the commission that underwriters and agents soliciting purchases of our securities under delayed delivery
contracts will be entitled to receive.
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Direct Sales
We may directly solicit offers to purchase
our securities, and we may directly sell our securities to institutional or other investors, including our affiliates. We will
describe the terms of our direct sales in the prospectus supplement. We may also sell our securities upon the exercise of rights
which we may issue.
General Information
Underwriters, dealers and agents that participate
in the distribution of our securities may be underwriters as defined in the Securities Act, and any discounts or commissions they
receive and any profit they make on the resale of the offered securities may be treated as underwriting discounts and commissions
under the Securities Act. Any underwriters or agents will be identified and their compensation described in a prospectus supplement.
We may indemnify agents, underwriters, and dealers against certain civil liabilities, including liabilities under the Securities
Act, or make contributions to payments they may be required to make relating to those liabilities. Our agents, underwriters, and
dealers, or their affiliates, may be customers of, engage in transactions with, or perform services for us in the ordinary course
of business.
Each series of securities offered by this
prospectus may be a new issue of securities with no established trading market. Any underwriters to whom securities offered by
this prospectus are sold by us for public offering and sale may make a market in the securities offered by this prospectus, but
the underwriters will not be obligated to do so and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for any securities offered by this prospectus.
Representatives of the underwriters through
whom our securities are sold for public offering and sale may engage in over-allotment, stabilizing transactions, syndicate short
covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase
the offered securities so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve
purchases of the offered securities in the open market after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the representative of the underwriters to reclaim a selling concession from a syndicate member when
the offered securities originally sold by such syndicate member are purchased in a syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the offered
securities to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on a
national securities exchange and, if commenced, may be discontinued at any time. Underwriters, dealers and agents may be customers
of, engage in transactions with or perform services for, us and our subsidiaries in the ordinary course of business.
Fees and Commissions
In compliance with the guidelines of the
Financial Industry Regulatory Authority, or FINRA, the aggregate maximum discount, commission or agency fees or other items constituting
underwriting compensation to be received by any FINRA member or independent broker-dealer will not exceed 8% of any offering pursuant
to this prospectus and any applicable prospectus supplement or other offering materials; however, it is anticipated that the maximum
commission or discount to be received in any particular offering of securities will be less than this amount.
If 5% or more of the net proceeds of any
offering of securities made under this prospectus will be received by a FINRA member participating in the offering or affiliates
or associated persons of such FINRA member, the offering will be conducted in accordance with FINRA Rule 5121.
LEGAL MATTERS
Certain legal matters with respect to the
securities will be passed upon for us by Robinson Brog Leinwand Greene Genovese & Gluck P.C., New York, NY.
EXPERTS
Our financial statements as of and for
the years ended December 31, 2012 and 2013, which are incorporated by reference herein, have been audited by Friedman, LLP, independent
certified public accountants, to the extent and for the periods set forth in their report as incorporated by reference herein in
reliance on such report given upon the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration
statement on Form S-3 (including exhibits) under the Securities Act, with respect to the securities to be sold in this offering.
This prospectus does not contain all the information set forth in the registration statement. For further information with respect
to our Company and the securities offered in this prospectus, reference is made to the registration statement, including the exhibits
filed thereto. With respect to each such document filed with the Commission as an exhibit to the registration statement, reference
is made to the exhibit for a more complete description of the matter involved.
We file annual, quarterly and current reports,
proxy statements and other information with the SEC. This prospectus, which constitutes part of the registration statement, does
not contain all the information set forth in the registration statement or the exhibits and schedules which are part of the registration
statement, portions of which are omitted as permitted by the rules and regulations of the SEC. Statements made in this prospectus
regarding the contents of any contract or other document are summaries of the material terms of the contract or document. With
respect to each contract or document filed as an exhibit to the registration statement, reference is made to the corresponding
exhibit. For further information pertaining to us and the common stock offered by this prospectus, reference is made to the registration
statement, including the exhibits and schedules thereto, copies of which may be inspected without charge at the Public Reference
Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. Copies
of all or any portion of the registration statement may be obtained from the SEC at prescribed rates. Information on the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The web
site can be accessed at
http://www.sec.gov.
The internet address of xG is
www.xgtechnology.com
. Information contained
on our website is not a part of, and is not incorporated into, this prospectus, and the inclusion of our website address in this
prospectus is an inactive textual reference only.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to “incorporate
by reference” into this prospectus certain information. This means that we can disclose important information to you by referring
you to those documents that contain the information. The information we incorporate by reference is considered a part of this prospectus,
and later information we file with the SEC will automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), on or after the date of this prospectus (other than information
“furnished” under Items 2.02 or 7.01 (or corresponding information furnished under Item 9.01 or included as an exhibit)
of any Current Report on Form 8-K or otherwise “furnished” to the SEC, unless otherwise stated) until this offering
is completed, as well as documents filed under such sections after the date of the initial registration statement and prior to
effectiveness of the registration statement:
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Our Annual Report on
Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 3, 2014.
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Our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 2014, filed with the SEC on May 15, 2014.
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Our Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2014, filed with the SEC on August 14, 2014.
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Our Current Report on
Form 8-K filed with the SEC on April 16, 2014.
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Our Current Report on
Form 8-K filed with the SEC on April 22, 2014.
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Our Current Report on
Form 8-K filed with the SEC on June 13, 2014.
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Our Definitive Proxy
Statement filed with the SEC on April 30, 2014.
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In accordance with Rule 402 of Regulation
S-T, the XBRL related information in Exhibit 101 to our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q will
not be deemed to be incorporated by reference into any registration statement or other document filed under the Securities Act,
except as will be expressly set forth by specific reference in such filing.
You may obtain any of the documents incorporated
by reference through the SEC or the SEC’s website as described above or on our corporate website at
www.xgtechnology.com
.
You may request copies of the documents incorporated by reference in this prospectus, at no cost, by writing or telephoning us
at:
xG Technology, Inc.
240 S. Pineapple Avenue, Suite 701
Sarasota, FL 34236
(941) 953-9035
Attention: Corporate Secretary
1,560,978
Shares of Common Stock
PROSPECTUS SUPPLEMENT
Aegis Capital Corp.
The date of this prospectus supplement is
August 15, 2017.
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