Prospectus
Transcription
Prospectus
Digital health solutions for the early detection of breast cancer Prospectus Volpara Health Technologies Limited (New Zealand company number 2206998 / ARBN 609 946 867) An Offer of 20 million shares at A$0.50 per share to raise A$10 million. The Offer is fully underwritten by Morgans Corporate Limited (ABN 49 010 669 726 AFSL 235410). 134 Volpara Health Technologies Limited | Prospectus | 2016 + IMPORTANT INFORMATION This Prospectus is issued by Volpara Health Technologies Limited (NZ company number 2206998 / ARBN 609 946 867) (VHT or Company). VHT is a company incorporated in New Zealand. The Offer contained in this Prospectus is an invitation to acquire fully paid ordinary shares (Shares) in VHT. Lodgement and listing This Prospectus is dated 24 March 2016 (Prospectus Date) and a copy was lodged with ASIC on that date. VHT will apply to ASX within seven days after the Prospectus Date for admission of the Company to the Official List and for Official Quotation of its Shares on ASX. None of ASIC, ASX or their respective officers take any responsibility for the content of this Prospectus or for the merits of the investment to which this Prospectus relates. Expiry Date No Shares will be issued or sold on the basis of this Prospectus after its expiry date, being the date 13 months after the Prospectus Date. Not investment advice The information contained in this Prospectus is not financial product advice and does not take into account the investment objectives, financial situation and particular needs (including financial and tax issues) of any prospective investor. Cooling-off rights do not apply to an investment in Shares offered under the Prospectus. This means that, in most circumstances, you cannot withdraw your Application once it has been accepted. It is important that you read this Prospectus carefully and in its entirety before deciding whether to invest in the Company. In particular, in considering the prospects of VHT, you should consider the risk factors that could affect VHT’s business, financial condition and results of operations. Some of the key risk factors that should be considered by prospective investors are set out in Section 5. You should carefully consider these risks in light of your investment objectives, financial situation and particular needs (including financial and tax issues). There may be risk factors in addition to these that should be considered in light of your personal circumstances. If you have any queries in connection with this Prospectus or in relation to an investment in the Company, you should seek advice from your stockbroker, solicitor, accountant, financial adviser, or other professional adviser before deciding whether to invest in the Shares. New Zealand company VHT is a company incorporated in New Zealand. As such it is subject to New Zealand law including the New Zealand Companies Act 1993. Once admitted to the Official List, VHT will also be subject to the requirements of the ASX Listing Rules. There are certain differences between New Zealand law and Australian law that prospective investors in Australia should be aware of. Refer to Section 10.5 for further information. Disclaimer and forward-looking statements No person is authorised to give any information or to make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not so contained may not be relied on as having been authorised by the Directors or any other person involved in the preparation of the Prospectus or the making of the Offer. You should rely only on information contained in this Prospectus. Except as required by law, and only to the extent so required, neither the Company nor any other person warrants or guarantees the future performance of the Company, or any return on any investment made pursuant to this Prospectus. This Prospectus contains forward-looking statements which are statements that may be identified by words such as “may”, “could”, “believes”, “estimates”, “expects”, “intends” and other similar words that involve risks and uncertainties. Certain statements, beliefs and opinions contained in this Prospectus, particularly those regarding the possible or assumed future financial or other performance of VHT, industry growth or other trend projections are or may be forward-looking statements. These statements are based on an assessment of present economic and operating conditions and on a number of best estimate assumptions regarding future events and actions that, at the Prospectus Date, are expected to take place. The Directors and the Lead Manager cannot and do not give any assurance that the results, performance or achievements expressed or implied by the forwardlooking statements contained in this Prospectus will actually occur, and investors are cautioned not to place undue reliance on these forward-looking statements. The Company has no intention to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this Prospectus, other than to the extent required by law. This Prospectus, including the industry overview in Section 2, uses market data, industry forecasts, research and projections. The Company has obtained portions of this information from market research and commentary prepared by third parties. There is no assurance that any of the forecasts or forward-looking information contained in the reports, surveys and research of such third parties that are referred to in this Prospectus will be achieved. The Company has not independently verified this information. Estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in the key risk factors in Section 5. Currency Unless otherwise specified, a reference to NZD, NZ$ or $ is a reference to New Zealand dollars. A reference to AUD or A$ is a reference to Australian dollars. This is an impor tant document 1 + IMPORTANT INFORMATION New Zealand investors This offer to New Zealand investors is a regulated offer made under Australian and New Zealand law. In Australia, this is Chapter 8 of the Corporations Act and Corporations Regulations 2001 (Cth) (Regulations). In New Zealand, this is Part 5 of the Securities Act 1978 and the Securities (Mutual Recognition of Securities Offerings – Australia) Regulations 2008. This Offer and the content of the Prospectus are principally governed by Australian rather than New Zealand law. In the main, the Corporations Act and Regulations (Australia) set out how the Offer must be made. There are differences in how securities are regulated under Australian law. For example, the disclosure of fees for collective investment schemes is different under the Australian regime. The rights, remedies, and compensation arrangements available to New Zealand investors in Australian securities may differ from the rights, remedies and compensation arrangements for New Zealand securities. Both the Australian and New Zealand securities regulators have enforcement responsibilities in relation to this Offer. If you need to make a complaint about this Offer, please contact the Financial Markets Authority, Wellington, New Zealand. The Australian and New Zealand regulators will work together to settle your complaint. The taxation treatment of Australian securities is not the same as for New Zealand securities. If you are uncertain about whether this investment is appropriate for you, you should seek the advice of an appropriately qualified financial adviser. The Offer may involve a currency exchange risk. The currency for the securities is not New Zealand Dollars. The value of the securities will go up or down according to changes in the exchange rate between that currency and New Zealand Dollars. These changes may be significant. If you expect the securities to pay any amounts in a currency that is not New Zealand Dollars, you may incur significant fees in having the funds credited to a bank account in New Zealand in New Zealand Dollars. If the securities are able to be traded on a securities market and you wish to trade the securities through that market, you will have to make arrangements for a participant in that market to sell the securities on your behalf. If the securities market does not operate in New Zealand, the way in which the market operates, the regulation of participants in that market, and the information available to you about the securities and trading may differ from securities markets that operate in New Zealand. Notice to investors outside Australia and New Zealand Please refer to Section 10.15 in relation to the ability of investors outside Australia and New Zealand to participate as Applicants in the Offer. 2 Volpara Health Technologies Limited | Prospectus | 2016 This Prospectus does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. No action has been taken to register or qualify the Shares or otherwise permit an offering of Shares in any jurisdiction outside Australia and New Zealand. The taxation treatment of the securities may not be the same as those for securities in jurisdictions outside New Zealand. If you are uncertain about whether this investment is appropriate for you, you should seek the advice of your stockbroker, solicitor, accountant, financial adviser or other professional adviser. The distribution of this Prospectus outside Australia and New Zealand may be restricted by law, and persons who come into possession of this Prospectus outside of Australia and New Zealand should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. This Prospectus may not be released or distributed in the United States. The Shares described in this Prospectus have not been, and will not be, registered under the US Securities Act as amended, or the securities law of any state of the United States, and may not be offered or sold directly or indirectly in the United States, other than under an applicable exemption under federal or state law. Statements of past performance This Prospectus includes information regarding the past performance of VHT. Investors should be aware that past performance should not be relied upon as being indicative of future performance of VHT. Financial information presentation All financial amounts contained in this Prospectus are expressed in New Zealand currency unless otherwise stated. Any discrepancies between totals and sums and components in tables, figures and diagrams contained in this Prospectus are due to rounding. Section 4 sets out in detail the Financial Information referred to in this Prospectus. The Financial Information has been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP) which complies with International Financial Reporting Standards (IFRS) and with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). The Financial Information is presented in an abbreviated form insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act. The Financial Information in this Prospectus should be read in conjunction with, and is qualified by reference to, the information contained in Section 4. Unless otherwise stated or implied, all pro forma data in this Prospectus gives effect to the pro forma adjustments referred to in Section 4. All references to FY appearing in this Prospectus are to the financial years ended or ending (as relevant) 31 March of the applicable year (e.g. FY15 is the year ended 31 March 2015), unless otherwise indicated. Readers should be aware that certain financial data included in this Prospectus is “non-IFRS financial information” under Regulatory Guide 230 “Disclosing non-IFRS financial information” published by ASIC. The Company believes this non-IFRS financial information provides useful information to users in measuring the financial performance and condition of VHT. The non-IFRS financial information does not have standardised meanings prescribed by Australian Accounting Standards and, therefore, may not be comparable to similarly titled measures presented by other entities, nor should they be construed as an alternate to other financial information determined in accordance with Australian Accounting Standards. Readers are cautioned, therefore, not to place undue reliance on any non-IFRS financial information or ratios included in this Prospectus. Investigating Accountant’s Report on the financial information and financial services guide The provider of the Investigating Accountant’s Report on the Financial Information has provided Australian Retail Investors with a financial services guide in relation to its independent review under the Corporations Act. The Investigating Accountant’s Report and accompanying Financial Services Guide are provided in Section 8. Prospectus availability A hard copy of the Prospectus is available free of charge during the Offer Period to any person in Australia or New Zealand by calling the VHT Offer Information Line on 1300 737 760 (toll free within Australia) or +61 2 9290 9600 (outside Australia) from 8.30 am until 5.30 pm (Sydney time) Monday to Friday. This Prospectus is also available to Australian and New Zealand resident investors in electronic form at the Offer website, www.volparasolutions.com/ investors. The Offer constituted by this Prospectus in electronic form is available only to Australian and New Zealand residents accessing the website within Australia and New Zealand. Hard copy and electronic versions of this Prospectus are generally not available to persons in other jurisdictions. Applications Applications for Shares under this Prospectus (Application) may only be made during the Offer Period on the Application Form included in, or accompanying, this Prospectus in its hard copy form, or in its electronic form which must be downloaded in its entirety from www.volparasolutions.com/investors, together with an electronic copy of this Prospectus (Application Form). By making an Application, you declare that you were given access to the Prospectus, together with an Application Form. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is included in, or accompanied by, this Prospectus in its paper copy form or the complete and unaltered electronic version of this Prospectus. Refer to Section 7 for further information. As set out in Section 7, it is expected that the Shares will be admitted to Official Quotation on a normal settlement basis. To the extent permitted by law, each of the Company, the Share Registry, and the Lead Manager disclaim all liability, whether in negligence or otherwise, to persons who trade Shares before receiving their holding statement, whether on the basis of a confirmation of allocation provided by any of them, by the VHT Offer Information Line, by a Broker or otherwise. Exposure period The Corporations Act prohibits the Company from processing Applications in the seven-day period after lodgement of this Prospectus with ASIC (Exposure Period). The Exposure Period may be extended by ASIC by up to a further seven days. The purpose of the Exposure Period is to enable the Prospectus to be examined by market participants prior to the raising of funds. The examination may result in the identification of deficiencies in this Prospectus, in which case any Application may need to be dealt with in accordance with section 724 of the Corporations Act. Applications received during the Exposure Period will not be processed until after the expiry of the Exposure Period. No preference will be conferred on any Applications received during the Exposure Period. During the Exposure Period, this Prospectus will be made available to Australian residents, without the Application Forms, at the Company’s website, www.volparasolutions.com/investors. Privacy By completing an Application Form, you are providing personal information to the Company and the Share Registry, which is contracted by the Company to manage Applications. The Company and the Share Registry on their behalf, collect, hold and use that personal information to process your Application, service your needs as a Shareholder, provide facilities and services that you request and carry out appropriate administration. If you do not provide the information requested in the Application Form, the Company and the Share Registry may not be able to process or accept your Application. Once you become a Shareholder, the Corporations Act and Australian taxation legislation require information about you (including your name, address and details of the Shares you hold) to be included in the Share register. In accordance with the requirements of the Corporations Act, information on the Share register will be accessible by members of the public. The information must continue to be included in the Share register if you cease to be a Shareholder. The Company and the Share Registry may disclose your personal information for purposes related to This is an impor tant document 3 + IMPORTANT INFORMATION your investment to their agents and service providers including those listed below or as otherwise authorised under the Privacy Act 1988 (Cth): • the Share Registry for ongoing administration of the Share register; • the Lead Manager in order to assess your Application; • printers and other companies for the purpose of preparation and distribution of documents and for handling mail; • market research companies for the purpose of analysing the Shareholder base; and • legal and accounting firms, auditors, management consultants and other advisers for the purpose of administering, and advising on, the Shares and for associated actions. The Company’s agents and service providers may be located outside Australia and New Zealand where your personal information may not receive the same level of protection as that afforded under Australian and New Zealand laws. You may request access to your personal information held by or on behalf of the Company. You may be required to pay a reasonable charge to the Share Registry in order to access your personal information. You can request access to your personal information or obtain further information about the Company’s privacy practices by contacting the Share Registry. The Company will aim to ensure that the personal information it retains about you is accurate, complete and up to date. To assist with this, please contact the Company or the Share Registry if any of the details you have provided change. Photographs and diagrams Photographs and diagrams used in this Prospectus that do not have descriptions are for illustration only and should not be interpreted to mean that any person shown in them endorses this Prospectus or its contents or that the assets or products shown in them are or, on completion of the Offer, will be owned or supplied by the Company. Diagrams used in this Prospectus are illustrative only and may not be drawn to scale. Unless otherwise stated, all data contained in charts, graphs and tables is based on information available at the Prospectus Date. Cover photograph credit: Laura Taylor. Company website Any references to documents included on the Company’s website at www.volparasolutions.com are provided for convenience only, and none of the documents or other information available on the Company’s website, or any other website referred to in the sources contained in this Prospectus, is incorporated in this Prospectus by reference. 4 Volpara Health Technologies Limited | Prospectus | 2016 Defined terms and abbreviations Defined terms and abbreviations used in this Prospectus, unless specified otherwise, have the meaning given in the Glossary in Section 11. Unless otherwise stated or implied, references to times in this Prospectus are to the time in Sydney, Australia. Unless otherwise stated or implied, references to dates or years are calendar year references. Questions If you have any questions about this Prospectus or how to apply for Shares, you should seek advice from your stockbroker, solicitor, accountant, financial adviser or other professional adviser. Instructions on how to apply for Shares are set out in Section 7 of this Prospectus and on the back of the Application Form. Alternatively, please contact the VHT Offer Information Line on 1300 737 760 (toll free within Australia) or +61 2 9290 9600 (outside Australia) between 8:30 am and 5:30 pm (Sydney time), Monday to Friday. This document is important and should be read in its entirety. + TABLE OF CONTENTS SECTION page 1 Investment Overview 8 2 Market Overview and Opportunities 19 3 The Company and its Products and Services 25 4 Financial Information 35 5 Risks 48 6 Directors, Key People and Corporate Governance 58 7 Details of the Offer 72 8 Investigating Accountant’s Report 78 9 IP and Patent Report 85 10 Additional Information 107 11 Glossary 123 12 Corporate Directory 127 13 Application Form 129 This is an impor tant document 5 + KEY DATES AND KEY OFFER DETAILS KEY EVENT DATE Lodgement of the Prospectus with ASIC Thursday 24th March 2016 Offer opening date Monday 4th April 2016 Offer closing date Friday 15th April 2016 Allotment Date Wednesday 20th April 2016 Dispatch of holding statements Thursday 21st April 2016 Normal trading of Shares on ASX Wednesday 27th April 2016 The timetable above is indicative only. VHT, in consultation with the Lead Manager, reserves the right to amend any or all of these dates subject to the Corporations Act, the ASX Listing Rules and other applicable laws, including closing the Offer early, extending the Offer, deferring completion of the Offer or accepting late Applications either generally or in particular cases, allotting Shares at different times to investors, or to withdrawing the Offer, all without prior notice. The Quotation and commencement of trading of the Shares on ASX remains subject to confirmation from ASX. KEY OFFER DETAILS Company making the Offer Volpara Health Technologies Limited, a company registered in New Zealand with company number 2206998 and registered in Australia under ARBN 609 946 867 Proposed ASX code VHT Securities offered Ordinary Fully Paid Shares Offer Price (A$) $0.50 Number of Shares available under the Offer 20 million Shares Gross proceeds from the Offer (A$)* $10 million Number of Shares held by existing Shareholders at completion of the Offer 102 million Shares Total Number of Shares on issue at completion of the Offer 122 million Shares Enterprise Value before the Offer (A$) $51 million Market capitalisation after the Offer (A$)1 $61 million * The Offer is fully underwritten by the Lead Manager. 1 6 Based on the Offer Price. Volpara Health Technologies Limited | Prospectus | 2016 + CHAIRMAN’S LETTER Dear Investor, On behalf of the Board of Volpara Health Technologies traction. In fact, VHT recently signed global distribution deals Limited (VHT), I am very pleased to present this Prospectus with GE Healthcare and Siemens Medical Solutions USA, Inc. and invite you to become a Shareholder in our Company. This is an exciting time: patients, medical professionals, VHT helps in the early detection of breast cancer. VHT researchers, payers and regulators are all recognising the develops digital health solutions to enable personalised, importance of quantitative, objective information in the high-quality breast cancer screening based on objective screening, diagnosis and treatment of breast cancer. This measurements of breast density. paradigm shift to personalised breast cancer screening is Breast cancer is a major global disease for which there is no certain cure. The impact is staggering. In developed countries, 1 in 8 women will be diagnosed with breast cancer, and in developing countries the rate is rising rapidly. Economically, the annual global loss due to breast cancer is an estimated US$88 billion. Early detection of breast cancer increases a woman’s chance of survival and saves lives. To this end, approximately 75 million women each year are screened for breast cancer globally. The main screening technology is mammography, or breast x-ray, which is primarily used on all women at the same intervals, regardless of risk profile. However, women with dense breasts—up to 50% of women in North America—carry an increased risk of developing breast cancer. Furthermore, mammography often fails to detect breast cancer in these women as the dense tissue and cancer both appear white in mammograms. Radiologists typically estimate breast density by eye, but this is a subjective process that has been shown to be unreliable. In the US, the risks associated with breast density—breast cancer going undetected—have prompted the passing of laws in 24 states requiring that women must be informed of their breast density. Since its inception in 2009, VHT has been dedicated to producing better, safer screening tools for breast cancer. Built on more than 80 years of scientific research by its founders, initially at the University of Oxford, VHT has become a world leader in automated breast density assessment and quantitative breast imaging tools—products that help radiologists provide the most accurate information possible to the women they serve. Our software helps save lives and being driven by women demanding better information, better screening systems, better healthcare and better results. This is part of a major global trend to apply state-of-the-art information technology to the health sector. As a leader in this “digital health” movement in breast screening, VHT has a unique opportunity—indeed, responsibility—to capitalise on its market-leading innovations. The funds raised from new investors will be used by VHT in four key ways. First, they will further strengthen and expand our experienced but very small sales team to grow our direct and channel-based sales of the VHT product range. Second, they will be used to expand marketing both to health insurers and to women themselves, in the form of consumer education and personalised information. Third, they will be used to help us transition smoothly into a subscription-based revenue model delivering its software through the Cloud. Finally, they will be used to help us remain creative and innovative so we can realise one of our most crucial strategic objectives, to continue to develop Cloud-based products that open up the “big data” predictive healthcare and industry-wide analytics that will help save more lives. This Prospectus contains a great deal of information about VHT, its business practices and its relationships within the healthcare industry, as well as details of the Offer itself. I urge you to read this document carefully and weigh mindfully the key risks inherent in an investment of this kind, as outlined in Section 5. It is important to note that despite generating revenue, VHT is not yet profitable and the timeline to profitability is uncertain. I remind you also that past performance is no guarantee of future performance. money by facilitating the early detection of breast cancer and We are excited about the prospect of a world in which the the efficient operation of breast centres. screening, diagnosis and treatment of breast cancer are more VHT’s intellectual property in the measurement of breast density, compression and radiation dose is deployed through software that analyses images from x-ray machines installed in breast centres currently in 34 countries around the world. To effective, more efficient and less costly. On behalf of the Board, I look forward to your involvement and support as a Shareholder in VHT. Yours sincerely, date the VHT proprietary software has been used to analyse the mammograms of over 9 million women. Our technology is proven; our professional team is world class in the field of medical physics; and our patent-protected product range is endorsed by independent, peer-reviewed research. We are committed to ongoing commercial success, with 127 paying Roger Allen AM Chairman clinical customers across the US, Europe, Australia, New Zealand and Asia as well as interest from several of the major x-ray machine manufacturers as testament to our commercial This is an impor tant document 7 1 8 INVE S TMENT OVERVIE W Volpara Health Technologies Limited | Prospectus | 2016 1 INVESTMENT OVERVIEW The information set out in this Section is intended to be a summary only and should be read in conjunction with the more detailed information appearing elsewhere in this Prospectus. In deciding whether to apply for Shares under the Offer, you should read this Prospectus carefully and in its entirety. If you are in doubt as to the course you should follow, please consult your stockbroker, solicitor, accountant, financial adviser or other professional adviser. 1.1 Volpara Health Technologies Limited – assistance in the early detection of breast cancer QUESTION ANSWER LOCATION What is the global toll of breast cancer? 1 in 8 women will develop breast cancer in their lifetime in the developed world, and the incidence is rising in the developing world. Alongside the human toll, the annual economic cost of this disease is estimated to be US$88 billion. Section 2 If “one size fits all” screening saves lives, why is it not optimal? Early detection of breast cancer saves lives by the use of mammography (breast x-rays) in a screening setting. Each year, approximately 75 million women are screened globally; the US alone spends US$7.8 billion on screening. However, “one size fits all” screening treats all women the same regardless of varying risk profiles. This approach fails to detect many cancers, generates numerous false positives, carries the risk of radiation-induced cancers and creates an uncomfortable experience for many women. Section 2 Why is breast density a key factor in cancer risk? The percentage of the breast which is not fatty tissue is known as breast density. Breast density is linked to both the risk of developing breast cancer and the risk of a cancer being undetected by mammography if it is present. It is estimated that 40–50% of women in North America, and 70–80% of women in parts of Asia, have “dense” breasts. Section 2 Why is personalised breast cancer screening based on breast density? In the US, a woman’s breast density is now recognised as being so important that laws are in place in 24 US States (covering over 65% of women in the US) that dictate that a woman must be informed of her breast density at the time of mammographic screening so she can understand its limitations and make an informed decision about further screening options. Unfortunately, reliable estimation of breast density by eye is difficult. Section 2 What is VHT? VHT develops digital health solutions to enable personalised, highquality breast cancer screening based on objective measurements of breast density, compression and radiation dose. Sections 3&4 VHT was founded in 2009 by four of the world’s leading breast imaging experts: Professor Sir John Michael Brady and Dr Ralph Highnam from the University of Oxford, Professor Nico Karssemeijer from the University of Nijmegen and Professor Martin Yaffe from the University of Toronto. VHT headquarters (R&D and engineering) were established by Dr Highnam in Wellington, New Zealand. The Volpara Products: • have US Food and Drug Administration (FDA) and other regulatory clearances; • are used in 34 countries; • have generated over 140 publications; and • have analysed approximately 9 million women. This is an impor tant document 9 1 INVESTMENT OVERVIEW QUESTION ANSWER LOCATION What are the Volpara Products and their benefits? The Volpara Products are a suite of software applications that include: Section 3 • VolparaDensity, an automated assessment of a woman’s breast density from a mammogram from most x-ray vendors. A result is available within two minutes of the last x-ray, enabling a density discussion with the woman while she is still in the clinic and, if necessary, additional imaging such as whole breast ultrasound or breast MRI. • VolparaDoseRT, a software application that uses the breast density to estimate both the radiation dose received by the breast and the applied compression pressure. This product helps radiologists and technologists ensure that women are getting the lowest radiation doses achievable and the most comfortable examination with the right level of compression, ultimately increasing patient satisfaction and decreasing risk. • VolparaAnalytics, a centralised dashboard that presents key metrics for population, productivity and quality across an entire network of breast imaging systems to help improve patient care and clinical outcomes, and enhance profitability of breast centres. • VolparaServer, the underlying platform on which all of the above products reside. VolparaServer resides within the hospital network and communicates with all the various breast x-ray devices and imaging archiving systems using international standards. Each VolparaServer can handle up to 12 x-ray devices, and can send to multiple output devices. During 2016, a greatly expanded, Cloud-based version of VolparaAnalytics, called VolparaEnterprise, will be launched, allowing easier comparisons across all participating breast centres and facilitating “big data” predictive healthcare and industry-wide analytics. Who are VHT’s customers? Although the end users of the VolparaDensity and VolparaDoseRT products are radiologists, VHT’s customer is the breast centre manager making budgetary decisions about workflow, productivity, quality and safety. Products such as VolparaAnalytics address the needs of these people directly. Section 3 Of course, ultimately, the customers of the breast centres are women themselves. VHT’s products provide timely and accurate information that help women make informed decisions about their breast care. As evidenced by the formation of patient advocacy groups such as Are You Dense? in the US, more and more women are demanding to know their breast density, thus driving the need for breast centres to have the Volpara Products. How does VHT generate revenue? Currently, VHT receives an upfront licence payment and annual maintenance fees, which vary according to how many x-ray machines are sending images to VolparaServer. A typical end-user sale could range from US$30,000 to US$150,000 depending upon the numbers of x-ray machines and the numbers of software modules selected. Annually, VHT then typically charges the customer 15% of the price paid in order to keep supplying them with the latest updates. The VolparaEnterprise product to be launched in 2016 will follow a Cloud-based subscription model. 10 Volpara Health Technologies Limited | Prospectus | 2016 Section 3 QUESTION ANSWER LOCATION What is the size of VHT’s addressable market? VHT estimates that 75 million women are screened globally each year, at around 10,500 breast centres. Of the 75 million, 39 million are in the US, where there are 8,700 centres with an average of between 1 and 2 x-ray machines per centre. Outside the US the centres tend to be much bigger. Section 3 Today, VHT sells an upfront licence. With an average price of around US$50,000 to cover the average number of x-ray machines per centre, the total available market today is estimated to be over A$1 billion. The total available market will expand. VHT estimates the number of women to be screened each year will double over the next 10 years. VHT is transitioning to a Cloud-based subscription business model that the Directors expect to provide more regular, recurring income into the future with a revenue stream based more on the number of mammograms taken each year than on the number of x-ray units on which Volpara Products are located. 1.2Financials QUESTION ANSWER LOCATION What is VHT’s historical financial performance? VHT’s product revenues have been growing year on year, with over $5 million in sales made since launch and over 90% of sales made in the US. Revenues for FY2015 were $2,409,000, which amounted to approximately 1% penetration of the US market. The software nature of the Volpara Products and the fact that most installations are virtual means that VHT has obtained approximately 80% gross margins. Sections 3&4 Further financial information regarding the Company including the reviewed pro forma statement of financial position following completion of the Offer is set out in Section 4. How does VHT expect to fund its operations? VHT expects to fund its operations from new and existing sales contracts, together with the proceeds of the Offer, then from the cash flow and profits expected to flow from its expanded operations in the longer term. Sections 4&7 What is VHT’s forecast financial performance? The Directors expect growth of the business will result from planned increased sales and marketing activities, to be partly funded by the proceeds of the Offer. However, the Directors have considered ASIC Regulatory Guide 170 and, having regard to the requirements of this Regulatory Guide and the current status of the Company, note that any prospective financial information would contain a broad range of potential outcomes and possibilities such that the Directors have concluded the Company cannot include reliable prospective financial information in this Prospectus. Section 4 This is an impor tant document 11 1 INVESTMENT OVERVIEW 1.3 Industry competitors QUESTION ANSWER LOCATION Who are VHT’s competitors? VolparaDensity is a multi-vendor software solution, meaning it is compatible with almost all known x-ray systems to generate actual physical measurements of breast composition. The Volpara Products can be retrofitted into virtually any and all current x-ray machines on the market today. Section 3 Of the commercial competitors to VolparaDensity in the US with FDA clearance: • Hologic, the dominant women’s x-ray company, has a software add-on, Quantra™, that appears to be compatible only with Hologic’s x-ray detector. • Philips has a “spectral” density solution requiring special hardware on their x-ray system. • iCAD’s software product, iReveal ®, appears to offer only a visual-like assessment of the breast image compared to Volpara’s measurement, which can be used for radiation dose scoring and other features. A recent 2016 Frost & Sullivan review of breast density assessment1 named VHT the global leader, awarding it the Frost & Sullivan Global Competitive Strategy, Innovation & Leadership Award for Breast Density Assessment Solutions. VHT’s leadership position is reflected in the estimated numbers of publications: 142 for VHT versus 25 for the nearest competitor. There are currently no direct commercial competitors that VHT is aware of for VolparaDoseRT or VolparaAnalytics. VHT believes this to be because such analytics require an accurate breast density score. In 2014, Frost & Sullivan awarded VHT the North American Breast Imaging Solutions Technology Innovation Leadership Award, stating, “For breast-imaging modalities, Volpara Solutions clearly enjoys the first-mover advantage in identifying patient-specific dose tracking and reporting as a whitespace opportunity.” 2 12 1 Frost & Sullivan, March 2016. 2 Frost & Sullivan, 17 July 2014. Volpara Health Technologies Limited | Prospectus | 2016 1.4 VHT’s growth strategy QUESTION ANSWER LOCATION What are VHT’s growth strategies? VHT’s growth is expected to come from four strategies. VHT intends to: Section 3 How will the Company seek to generate returns for investors? 1. build up US and global sales team to take advantage of its market leading position with VolparaDensity, VolparaDoseRT and VolparaAnalytics, and build up general sales infrastructure to support the installed base; 2. increase marketing and outreach to insurers, referring physicians, business centre managers and consumer education programs to women; 3. launch VolparaEnterprise worldwide and transition over time to a Cloud-based subscription model; and 4. continue to innovate and to fast-track products that better assess the risk of women developing breast cancer and enable breast centres to operate more efficiently. The Company will seek to generate returns for investors by selling existing and new Volpara Products and services into existing and new markets. Section 3 1.5 Key investment highlights QUESTION ANSWER LOCATION Large, high-growth market The fundamental market driver is women seeking or requiring breast cancer screening. VHT anticipates this to grow from 75 million women as the incidence of breast cancer is expected to double by 2030. Section 2 Extensive intellectual property portfolio VHT holds extensive intellectual property around VolparaDensity, including patents on how to make density assessments work reliably on a variety of x-ray machines, as well as numerous trademarks, copyright and trade secrets. Sections 3&9 Clinically validated VHT has worked extensively with leading researchers around the world, and its software has been the subject of 142 publications, including 33 peer-reviewed papers. The Directors believe that no competitor’s product has been subject to the same level of scrutiny. Section 3 High barriers to entry The market for breast density automation tools is developing rapidly, but for newcomers there are significant barriers to entry. Section 3 Though VolparaDensity is a software product, regulatory authorities consider it to be a medical device and therefore it is subject to strict regulatory control around the world, such as FDA clearance in the US. VolparaDensity has achieved regulatory clearance in almost all of the major territories, including the US, Australia, New Zealand, Canada and Europe. VHT’s newer products, VolparaDoseRT and VolparaAnalytics, ideally need a multi-vendor, volumetric breast assessment product like VolparaDensity to operate effectively. This is an impor tant document 13 1 INVESTMENT OVERVIEW QUESTION ANSWER LOCATION VHT is well positioned for growth VHT has marketed and sold VolparaDensity in a number of States in the US and has product champions, reference sites and increasingly active major partners, including GE Healthcare and Siemens Medical Solutions USA, Inc. Section 3 VHT has an experienced sales team in place, but needs additional resources to expand rapidly to service the growing demand, continue to innovate and launch a subscription service. Unique product pipeline VHT has a unique product pipeline which it will be bringing to market, including Cloud-based analytics and a product looking at change over time in the breast. These products will be more naturally subscription based and are expected to produce recurring revenue. Section 3 Highly experienced management team Ralph Highnam, PhD Chief Executive Officer and Chief Scientist VHT founder and scientist with 25 years’ experience in digital breast imaging whose work has commercialised his research at the University of Oxford. Section 6 Mark Koeniguer Chief Commercial Officer Over 25 years’ international commercial experience spanning marketing, sales, operations and finance. Julian Marshall Chief Marketing Officer Over 30 years’ medical imaging software experience across marketing, product management and engineering. David Murray, PhD Chief Technology Officer 25 years’ experience in medical imaging and medical device integration in Europe, the US and NZ. Brian Leighs Chief Financial Officer 40 years’ experience in senior financial management with both listed and start-up companies. 14 Volpara Health Technologies Limited | Prospectus | 2016 QUESTION ANSWER LOCATION Highly experienced Board of Directors Roger Allen AM Non-Executive Director and Chairman Highly experienced entrepreneur and investor in early-stage growth companies, particularly in IT. Former member of the Prime Minister’s Science and Technology Council. Section 6 Dr Ralph Highnam Executive Director, CEO VHT founder and scientist with 25 years’ experience in digital breast imaging whose work has commercialised his research at the University of Oxford. Professor Sir John Michael Brady Non-Executive Director Veteran entrepreneur, educator, and expert in computer vision, robotics and medical imaging. Professor of Oncological Imaging at the University of Oxford. John Pavlidis Non-Executive Director US-based senior executive and company director of multiple companies in the medical imaging industry. John Diddams Non-Executive Director CPA and public company director experienced in managing the due diligence and ASX listing processes across diverse industries. Lyn Swinburne AM Non-Executive Director Prominent women’s advocate, breast cancer spokesperson and founder of Breast Cancer Network Australia. Chair of the Royal Women’s Hospital in Melbourne. 1.6 Key investment risks QUESTION ANSWER LOCATION The Company has a limited operating history and may face difficulties encountered by companies early in their commercialisation VHT faces risks common to young medical technology companies, including its ability to implement and execute its business strategy, expand and improve the productivity of its sales and marketing efforts, and successfully navigate global regulatory oversight and obtain further approvals. Section 5 VHT’s current business model depends heavily on the success of VolparaDensity and VHT’s ability to diversify in the future If VHT is unable to achieve meaningful market penetration with VolparaDensity, its commercial strategy will be unachievable. In addition, VHT is transitioning from a classic medical device sales model to a Cloud-based subscription model with tools for business managers. Such a diversification of its revenue stream will take time and may not succeed, and may need to be accelerated if the medical imaging industry’s use of ultrasound declines. Section 5 This is an impor tant document 15 1 16 INVESTMENT OVERVIEW QUESTION ANSWER LOCATION Future profitability uncertain As a relatively young company, VHT is not yet profitable and has incurred losses in each year since incorporation. VHT has achieved early revenue principally in the US but will need to further penetrate the international markets, execute its development and growth strategies and successfully navigate competition and regulatory developments in order to achieve a sustained profitability. The extent of future profits, if any, and the time required to achieve a sustained profitability are uncertain. Moreover, the level of any profitability cannot be predicted. Section 5 Business Associate Agreements and dealing with protected health information Under the US Health Insurance Portability and Accountability Act of 1996 (HIPAA), VHT is subject to the same obligations relating to the security of protected health information (PHI) as the hospitals and clinics with which it has Business Associate Agreements. As such, any inadvertent disclosure of PHI or breach of confidentiality of PHI while under the control of VHT or its employees and contractors could lead to a damages claim and, if the Company is found liable, could have a material adverse effect on VHT’s reputation and financial performance. Section 5 Brand and reputation risk The reputation and brand of VHT and its products are important in attracting hospitals, medical clinics, large companies and radiologists to use VHT’s products. Any reputation damage or negative publicity around VHT or its products could adversely impact on VHT’s business. Section 5 VHT is reliant on the acceptance, promotion and usage of its products by healthcare professionals VHT requires not only regulatory approval and clearance of its products in the markets in which it operates but also the acceptance and promotion of its products by healthcare professionals, including radiologists. Healthcare professionals could be slow to adopt VHT’s products for reasons such as a preference for the products of competitors due to familiarity, limited return on investment data illustrating the cost benefits to healthcare professionals of the use of the Volpara Products and concern over the potential liability risks involved in using a new product. Section 5 Recruitment and retention of key personnel As a relatively young and relatively closely held company, VHT relies heavily on its existing key management personnel, who have intimate knowledge of the business, its products and its business model. The departure of, or inability to attract and retain, key personnel, or inability to attract quality sales and marketing personnel in the US, Asia and Europe, could negatively affect VHT’s ability to reach its goals. Section 5 Potentially adverse effects of healthcare reform legislation in the US and other countries and the impact of advocacy groups and sceptics Recent legislation and many proposed reform bills in the US include funding to assess the comparative effectiveness of medical devices, being the equipment on which the Volpara Products operate. If significant reforms subsequently are made to the healthcare system in the US, or in other jurisdictions, those reforms could adversely affect VHT’s financial condition and operating results. Further, if governments listen to various advocacy groups and sceptics opposed to the use of breast screening and mammograms and decide to restrict or cease funding breast screening altogether, this could have a material adverse impact on VHT’s financial performance. Section 5 VHT may not be able to pass the regulatory hurdles and gain the necessary approvals and clearances to use its products in certain jurisdictions As VHT seeks to diversify its product range and develop new products, VHT cannot guarantee that it will receive all necessary regulatory approvals, nor can VHT accurately predict the product approval timelines or other requirements that may be imposed by regulars (e.g. clinical trials or other requirements proving effectiveness of its new products). Section 5 Volpara Health Technologies Limited | Prospectus | 2016 QUESTION ANSWER LOCATION Other key risks The above risks are a summary of some of the key risks but they are not an exhaustive list of all of the key risks that may affect VHT’s business or that may be associated with an investment in the Shares. Full details of the above risks, together with a number of other key risks, are included in Section 5, and investors are recommended to review all of those key risks carefully before making an investment decision. Section 5 1.7 Overview of the Offer QUESTION ANSWER LOCATION What is the Offer? The Offer is 20 million Shares at A$0.50 per Share to raise A$10 million before Offer costs. Section 7 Where will the Shares be listed? Within seven days of the Prospectus Date, VHT will make an application to ASX for admission to the Official List and Official Quotation of the Shares under ASX code “VHT”. Section 7 What will the market capitalisation of the Company be upon Listing? The market capitalisation of VHT on listing will depend on the price at which the Shares trade, which cannot be predicted. At the Offer Price, VHT’s market capitalisation will be A$61 million. Key Offer Details How will the proceeds of the Offer be used? The proceeds of NZ$10.8 million from the Offer will be used to: Section 4 • meet the costs of the Offer ($1.2 million); • fund expansion of sales and marketing infrastructure and activities ($3.5 million); • develop and roll out VolparaEnterprise and Cloud-based offerings ($2 million); • fast-track product and services innovation ($1 million); and • provide working capital and administration costs ($3.1 million). Is the Offer underwritten? The Offer is fully underwritten by the Lead Manager. Sections 7 & 10 What are the tax implications of investing in Shares? The tax consequences of any investment in the Shares will depend upon an investor’s particular circumstances. An overview of Australia and New Zealand tax considerations is set out in Sections 10.13 and 10.14, however applicants should obtain their own tax advice prior to deciding whether to invest. Section 10 How can I apply? Shares under the Offer will only be available under the Institutional Offer and the Broker Firm Offer. Broker Firm Applicants may apply for Shares by completing a valid Application Form attached to or accompanying this Prospectus and lodging it with the Broker who invited them to participate in the Offer. Section 7 When will I receive confirmation that my application has been successful? Initial holding statements are expected to be dispatched by standard post on or around 21 April 2016. Section 7 This is an impor tant document 17 1 INVESTMENT OVERVIEW QUESTION ANSWER LOCATION What is the minimum Application size under the Offer? The minimum Application under the Broker Firm Offer is A$2,000 (equivalent to 4,000 Shares) and in multiples of A$500 (1,000 Shares) thereafter. There is no maximum value of Shares that may be applied for under the Broker Firm Offer. However, the Company and the Lead Manager reserve the right to aggregate any Applications which they believe may be multiple Applications from the same person or reject or scale back any Applications in the Broker Firm Offer. The Company and the Lead Manager may determine a person to be eligible to participate in the Broker Firm Offer, and may amend or waive the Broker Firm Offer Application procedures or requirements, in its discretion in compliance with applicable laws. Section 7 Where can I get more information about this Prospectus or the Offer? Please call the VHT Offer Information Line on 1300 737 760 (toll free within Australia) or +61 9290 9600 (outside Australia) from 8.30 am until 5.30 pm (Sydney time), Monday to Friday. If you are unclear in relation to any matter or are uncertain as to whether VHT is a suitable investment for you, you should seek professional guidance from your stockbroker, solicitor, accountant, financial adviser or other professional adviser before deciding whether to invest. 1.8 Significant interests of key people and related party transactions 18 QUESTION ANSWER LOCATION Will any Shares be subject to restrictions on disposal following Completion? A total of 97.5 million Shares amounting to 80% of the post-Offer Shares on issue will be held in escrow, of which 52 million Shares held by Directors and management will be escrowed for 24 months and the balance for up to 12 months. Section 7 What significant benefits and interests are payable to Directors and other persons connected with VHT or the Offer and what significant interests do they hold? The only benefits accruing or payable to the Directors will be directors’ fees payable in the normal course of business, details of which are set out, along with the Directors’ interests in Shares and options, in Section 6. Section 6 Will any related party have a significant interest in the Company or the Offer? Each of Roger Allen (Chairman), Ralph Highnam (CEO) and Sir John Michael Brady (Non-Executive Director) and their respective controlled entities will be substantial Shareholders with in excess of 5% of the issued capital of the Company after the Offer. The fees and interests of other persons connected with the Offer are also set out in Section 6. Details of the VHT shareholding structure, including substantial Shareholders, after the Offer are set out in Section 7. Volpara Health Technologies Limited | Prospectus | 2016 Sections 6&7 2 M A RK E T OVERVIE W A ND OPP ORTUNITIE S This is an impor tant document 19 2 MARKET OVERVIEW AND OPPORTUNITIES 2.1 Breast cancer—a major global issue Breast cancer is a major global health issue affecting millions of women and their communities. Worldwide 1.7 million new cases were diagnosed in 2012, with 521,900 of these resulting in death, including 2,795 women in Australia and 617 women in New Zealand. In the developed world (specifically, the US, Australia, Canada, New Zealand and most of Europe), it was estimated in 1981 that around 1 in 14 women would develop breast cancer during their lifetime. That number is now 1 in 8. In the developing world, breast cancer was virtually unknown approximately 20 to 30 years ago, but the rising rate, particularly in Asia, is thought to be due to the adoption of more Western lifestyles and diets and greater exposure to toxins. Of all cancers, breast cancer causes the third-highest economic loss globally, at US$88 billion per year. This figure represents the economic value of the years lost due to disability and premature death. According to the World Health Organization’s International Agency for Cancer Research, the “global battle against cancer” will be won only with a commitment to early detection, screening and prevention measures, especially in developing countries.1 The expanding global scale of breast cancer underpins the need for widespread adoption of technologies that can effectively carry out such a commitment. With its scientifically validated technology, VHT is heavily involved in the fight to reduce the mortality and costs of breast cancer. 2.2 The breast, breast density and the risk of developing breast cancer A woman’s breasts are comprised of many different kinds of tissue but for most purposes can be considered to be made up of three types of tissue: • fatty tissue, which stores energy; • fibrous tissue, which provides support; and • glandular tissue, which enables the production of milk. The non-fatty tissues—glandular and fibrous—are known collectively as “dense” tissue. In young women, the proportion of the breast tissue that is dense is typically very high. As the woman ages the amount of dense tissue decreases and converts to fat. This process is believed to accelerate in the first few years of the menopause. In mammograms—pictures of the breast taken using x-rays—dense tissue appears whiter than fatty tissue. These images show how one woman’s breasts change over time as she goes from the age of 48 to 52 to 55. As this woman is aging from 48 to 52 to 55, her mammograms are getting darker, indicating that the glandular tissue is slowly turning to fat. Breast cancers develop overwhelmingly in glandular tissue (which is why breast cancer is very rare in men). In consequence, the volume of glandular tissue in the breast is of fundamental interest to clinicians. Indeed, it has been conclusively shown that an elevated level of glandular tissue represents a significant risk of a woman’s chance of developing breast cancer. 2 3 Since it is intrinsically hard to distinguish between fibrous and glandular tissues in terms of x-ray attenuation (roughly: absorption), radiologists generally group fibrous and glandular tissues and refer to them using the term “breast density”. 1 Stewart BW, Wild CP, editors (2014). World Cancer Report 2014. Lyon, France: International Agency for Research on Cancer. 2 Boyd et. al. Mammographic Density and the Risk and Detection of Breast Cancer. N Engl J Med; 2007(356)227–36. 3 McCormack and dos Santos Silva. Breast Density and Parenchymal Patterns of Markers of Breast Cancer Risk: A Metaanalysis. Cancer Epidemiol Biomarkers Prev; 2006(15)1159–1169. 20 Volpara Health Technologies Limited | Prospectus | 2016 Breast density is the ratio of the volume of fibrous and glandular tissues to the overall breast volume: • High breast density means there is a greater volume of fibroglandular breast tissue compared to fat. • Low breast density means there is a greater volume of fat compared to fibroglandular breast tissue. All women have varying volumes of fatty and fibroglandular breast tissues in their breasts, and these change how the mammogram looks from woman to woman. These are some example mammograms: On the left is a very fatty breast, and on the right a very dense breast. Typically, in the developed world most women fall in the middle with 10% at either extreme. Today, breast density assessment is predominately performed subjectively, by eye, following the set of standards established by the American College of Radiology. The Breast Imaging-Reporting and Data System (BI-RADS) breast density categories outline four graduated levels of breast density, as shown in the following table: BI-RADS 5TH EDITION BREAST COMPOSITION CATEGORIES a The breasts are almost entirely fatty b There are scattered areas of fibroglandular density c The breasts are heterogeneously dense, which may obscure detection of small masses d The breasts are extremely dense, which lowers the sensitivity of mammography Unfortunately, despite its importance, many studies have shown a considerable variation in assessment of density category by experts. A typical figure is that two experts will disagree on density category 35% of the time. Women whose breasts fall in to the “a” or “b” category are said to have “fatty breasts,” and those in “c” or “d” are said to have “dense breasts.” According to the American Cancer Society, “women with dense breast tissue are at moderate risk for breast cancer.” See the table below for the American Cancer Society’s rating of known risk factors. (Source: American Cancer Society, Breast Cancer Facts & Figures 2013 –2014.) Factors that increase the relative risk for breast cancer in women. RELATIVE RISK FACTOR • Age (65+ vs. <65 years, although risk increases across all ages until age 80) • Biopsy-confirmed atypical hyperplasia • Certain inherited genetic mutations for breast cancer (BRCA1 and BRCA2) >4.0 times • Lobular carcinoma in situ • Mammographically dense breasts • Personal history of early onset (<40 years) breast cancer • Two or more first-degree relatives with breast cancer diagnosed at an early age • Personal history of breast cancer (40+ years) 2.1–4.0 times • High endogenous estrogen or testosterone levels (postmenopausal) • High-dose radiation to chest • One first-degree relative with breast cancer VHT’s flagship product, VolparaDensity, produces objective, automated density measurements from all the most common x-ray vendors. This is an impor tant document 21 2 MARKET OVERVIEW AND OPPORTUNITIES 2.3 Reducing deaths: early detection via “one size fits all” screening Today, breast cancer screening is based almost entirely on mammograms, and this has been shown to enable the detection of cancers as small as 1mm. Mammography is the only screening technique proven to reduce mortality. The International Agency for Research on Cancer recently found that women aged 50 to 69 who regularly receive mammography screening reduce their risk of dying from breast cancer by 40%, compared with women who are not screened. VHT estimates that, globally, 75 million women are screened annually for breast cancer with mammography, with nearly 40 million of those being in the US. This global number is growing rapidly due to the increased incidence of breast cancer across Asia, Africa and South America, as well as among the aging populations in the West. As the incidence of breast cancer is expected to double by 2030, it is reasonable to assume the number of mammograms will rise similarly. As a measure of the rapid growth of the market, in 1997 there were 14 million women screened annually in the US, compared to 39 million women in 2016. Screening protocols, ages, intervals and imaging modalities vary country by country, but within each country are generally one size fits all, though some countries are now trying to identify high-risk women for screening using breast MRI. Mammographic screening does detect cancer and helps save lives, but it does so at a high cost—an estimated $7.8 billion in the US alone—and with considerable risks involved. VHT’s automated breast density assessment tools address these costs and risks by optimising mammography’s ability to detect breast cancer early. 2.4 Women are driving change: personalised breast cancer screening Since breast screening programs are based on x-rays, there is an inevitable risk of radiation-induced cancer, though fortunately this has been shown to be relatively small. More importantly, there are the possibilities of false alarms and of missing cancers. As noted above, the second of these is vastly more likely to occur in women with dense breasts. In the US, breast screening is the second-leading cause of medical malpractice claims; not least where a woman sues the imaging centre for missing her cancer at mammography screening. It is estimated that 20–30% of cancers are missed in mammographic screening, with most of these due to high breast density. On a mammogram, fatty tissue in the breast looks dark and the denser fibroglandular breast tissue looks light grey or white. Significantly, cancer can also appear white on a mammogram, which makes interpreting mammograms more difficult in women with dense breasts, as shown in the following figure where the same “cancer,” in this case a white star, is present: A comparison of the relative ease of seeing a cancer in a fatty breast (left) and a dense breast (right). Can you see the white star? A recent study showed that 85% of cancers in fatty breasts were detected using mammography, while only 59% of cancers in dense breasts were detected. Awareness of the importance of breast density is growing among women. In the US, breast density awareness groups have been formed by women whose cancers were missed during screenings due to dense tissue. Recognition of the risks of high breast density outlined above has driven women in the US to demand to know their breast density and be informed of their options if their breast density is high. Are You Dense?, a patient advocacy group led by breast cancer survivor Nancy Cappello, successfully lobbied for state law changes requiring that women be informed of their breast density at the time of their screening. As of January 2016, women in 24 states, covering more than 65% of the screening population in the US, must now be informed of their breast density. Two more states suggest notification, another nine have legislation underway and a federal law is under consideration. 22 Volpara Health Technologies Limited | Prospectus | 2016 Are You Dense?, a leading US patient advocacy group that successfully lobbied for the first state law (in Connecticut) requiring that women be notified of their breast density at the time of their mammographic screening. Legislation activity for notification of breast density in the US. (Source: DenseBreast-info, Inc. 2015 –2016.) Breast density is not a problem confined to a small subset of women: in North America some 40–50% of women will have dense breasts at screening age; in Korea, for example, the figure is nearer to 70–80%. As awareness of the implications of breast density among women and legislators continues to grow, both in the US and globally, so will the need for personalised healthcare. VHT views the density laws as indicative of women wanting to take control of their breast health, and is committed to bringing women this important information about their breast tissue and helping them track and monitor changes over time. 2.5 “Big iron” industry’s response to breast density “Big iron,” the major manufacturers of digital imaging hardware, are responding to the demands of the market by building devices designed to better detect breast cancers, especially in dense breasts. In particular: • Digital breast tomosynthesis, a 3D form of mammography, has been on the market for a number of years. Early results are promising, especially in reducing the recall rate from screening to a work-up clinic, but there are concerns about radiation dose and ability to image extremely dense breasts. Some sites only perform tomosynthesis on denser breasts. • Whole breast ultrasound is being developed to act as a screening system. Ultrasound is not so affected by breast density and carries no ionizing radiation, but, though the cancer detection rates look promising, there are market concerns about the potential for false positives. The manufacturers are pushing ultrasound for all women with dense breasts. • Breast MRI is an imaging modality already used for imaging very high-risk women, but as a broader screening modality suffers from use of a contrast agent, cost and availability. VHT is involved in a trial in the Netherlands looking at the cost-effectiveness of breast MRI for women with extremely dense breasts. 2.6 Industry challenges are VHT opportunities Despite the hardware advances, and women pushing for better screening, significant challenges for the industry remain. These challenges are driven by payers demanding improved health outcomes at lower cost, payers being wary of self-referrals at breast centres and the fact that not identifying breast cancer remains the secondbiggest cause of medical malpractice in the US. This is an impor tant document 23 2 MARKET OVERVIEW AND OPPORTUNITIES DENSE BREAST WORKFLOW VHT PRODUCT How to assess density consistently? VolparaDensity, automated density. How to assess density in a timely manner? VolparaDensity, returns a result within two minutes of the last x-ray. How to justify to payers and others that imaging is necessary? VolparaDensity, objective, CE marked, and FDA and TGA cleared. COST-EFFECTIVENESS, SAFETY AND QUALITY VHT PRODUCT How to cost-effectively monitor patientspecific radiation dose? VolparaDoseRT displays the dose on the patient scorecard for quick visual check by the technologist and radiologist. How to cost-effectively monitor breast compression? VolparaDoseRT displays a unique measure of breast compression onto the patient scorecard for quick visual check by the technologist and radiologist. How to improve productivity of machines and operators? VolparaAnalytics presents survey information over entire sites to allow cross-comparison and in-depth analysis. How to improve performance of machines and operators? VolparaAnalytics presents survey information over entire sites to allow cross-comparison and in-depth analysis. In short, the Volpara Products are capable of providing the critical objectivity and monitoring to support personalised, high-quality breast cancer screening. 24 Volpara Health Technologies Limited | Prospectus | 2016 3 THE COMPA NY A ND IT S PRODUC TS A ND SERVICE S This is an impor tant document 25 3 THE COMPANY AND ITS PRODUCTS AND SERVICES 3.1 Company history and overview Professor Sir John Michael Brady, veteran entrepreneur and computer vision expert, moved from the Massachusetts Institute of Technology (MIT) to the University of Oxford in 1986 to build a robotics laboratory. In 1989, following the death of his mother-in-law from breast cancer, Professor Brady decided to transition his energy from robotics to medical imaging. One of Professor Brady’s first medical imaging PhD students was Dr Ralph Highnam. Together they laid out the basis for the quantification of breast composition automatically from breast x-rays—film mammograms—in Dr Highnam’s 1992 PhD thesis. At that time, the concept of quantification, while appreciated, was far beyond what the breast screening market could use clinically, and the ideas proved to be extremely difficult to implement robustly. However, as mammography turned digital in the early 2000s, implementation became both easier and more necessary. Both Professor Brady and Dr Highnam and, separately, their friends and fellow scientists Professor Nico Karssemeijer at the University of Nijmegen and Professor Martin Yaffe at the University of Toronto, began to make progress in the field and attract clinical interest. In 2009, Brady, Highnam, Karssemeijer and Yaffe met at a major medical imaging trade show in Chicago to initiate a collaboration that would prove to have far-reaching consequences. They realised that by pooling their collective talents they could generate and file new intellectual property and implement robustly the ideas originally formulated in 1992: quantification of breast composition via volumetric parameters (“Volpara”). Noting their clinical collaborators’ growing interest in the quantitative measures of the breast they were generating, and with the key enabler of digital technology, the founders felt the market was now ready for such a quantitative analysis of breast images. Each of the founders has extensive commercial experience: Professor Brady has started numerous companies in the robotics, medical imaging and Internet spaces; Professor Brady and Dr Highnam commercialised University of Oxford technology related to body imaging in 1999–2003, with Dr Highnam the CEO of Mirada Solutions from start-up until its purchase by CTI Molecular Imaging Inc.; Professor Karssemeijer was heavily involved in R2 Technology, which pioneered computer-aided detection in mammograms and was eventually purchased by Hologic, and has subsequently started several other companies; Professor Yaffe has been a longterm collaborator with the industry, particularly with GE Healthcare. Following the sale of Mirada Solutions, Dr Highnam moved to Wellington, New Zealand. Today, Wellington continues to be VHT’s headquarters, where Dr Highnam, the Company’s CEO, leads global operations with a local staff of 23 full-time equivalents and another 8 full-time equivalents in the US, UK and Asia. Dr Highnam may under certain circumstances be assisted by a highly experienced global management team. VHT has been customer focused from the start, offering both clinical benefits to patients and financial benefits to the breast centre. To ensure the customer’s voice is heard, the Company has a Medical Advisory Board that provides key, confidential advice around products but also likely financial benefits to clinics. VHT also has a much larger range of researchers globally with whom to collaborate in generating research and seeking product direction. Profiles of the VHT Medical Advisory Board can be found in Section 6.4. 26 Volpara Health Technologies Limited | Prospectus | 2016 3.2 Core technology The core technology underlying all of the Volpara Products is the ability to transform a digital mammogram, from any of the supported x-ray vendors, into quantitative, standardised information about the breast, completely removing all information about the imaging process itself. By analogy, consider a room with a wooden chair in it: the chair is made of wood no matter if the light in the room is turned on or off. Once the digital mammogram is in this standardised form, quantifying the respective volumes of tissues in the breast is straightforward. These quantitative, standardised images, however, will also provide the ideal input in the future to computer systems that seek to learn the earliest signs of breast cancer. 3.3 Volpara Products Overview Breast density change over time. The top row shows mammograms of the same breast over seven years, one year apart, from different x-ray machines. The bottom row displays the standardised versions of the same breasts using the Volpara Products, showing over time how the dense breast tissue is turning to fat. In other words, the image is becoming less white (less “dense”) over time. 1.VolparaDensity VolparaDensity automatically, objectively assesses breast density, producing a patient scorecard that is presented to the radiologist. The scorecard shows the patient’s name and ID, as well as the study date (top left). The VolparaDensity scorecard shows the patient’s Volpara Density Grade (VDG) breast density category (a, b, c or d), the VDG thresholds (where the patient falls within the specified category) and the maximum volumetric density of both breasts. At the bottom, information is summarised about the volumetric assessment for the right and left breast. The top right gives the VDG, which the FDA has cleared as equivalent to the BI-RADS breast density category. A key priority with this software is to get a score back to the patient within two minutes of the last x-ray so that density can be discussed with her while she is still at the clinic. Case studies have shown that if the density discussion takes place on site, many more women will opt for potentially lifesaving ultrasound. This is an impor tant document 27 3 THE COMPANY AND ITS PRODUCTS AND SERVICES Customers are buying VolparaDensity in order to provide consistency in density scores to their patients, achieve improved workflow and throughput to additional screening, reduce legal liability due to the various laws, save precious decision-making time for radiologists and have objective evidence to show insurers to justify why they did certain imaging. VHT’s intention from the start has been to work closely with the clinical community to obtain clinical validation across a range of clinical uses. VolparaDensity is the subject of 142 publications, including 33 peer-reviewed studies, many of which are independent (a full list is available from www.volparasolutions.com). Among many other things, researchers have shown that VolparaDensity: • correlates well to breast MRI, the established gold standard of breast density assessment; • is related to risk of developing breast cancer; • is related to risk of missing cancer in a mammogram; and • improves consistency of independent readers within a group. 2.VolparaDoseRT Currently, each x-ray machine vendor generates their own radiation dose score using different algorithms and assumptions about breast density, but this makes it difficult to compare between vendors and impossible to inform women of their specific dose. VolparaDensity generates a volumetric breast density score that can be used to generate a patient-specific, standard radiation dose, VolparaDose. VolparaDoseRT includes VolparaDose and VolparaPressure, a measure of breast compression that enables technologists to optimise radiation dose and image quality without sacrificing patient comfort—all key factors in running a service in which the customers (in this case women) can walk away with a more pleasant experience and a positive attitude to returning next year. Together, these tools ensure that an individual woman has a better experience, receiving the precise amount of pressure required to achieve a minimal radiation dose. The radiologist in turn has confidence in providing a safer, more effective experience while also ensuring optimal image quality. With VolparaDoseRT, the VolparaDensity scorecard shows the amount of pressure used to achieve a minimal radiation dose specific to the patient. 3.VolparaAnalytics VolparaAnalytics is a centralised dashboard that presents key metrics for population, productivity and quality across an entire network of breast imaging systems to help improve clinical outcomes and increase profits. VolparaAnalytics aggregates and processes population and digital mammography data output by mammography units and the Volpara algorithm. It acts as a resource for greater quality assurance by providing breast centre managers with an overview of the volumetric breast density characteristics of their population, as well as key performance indicators relevant to the different mammography units and mammography operators (radiologic technologists or radiographers) in that breast centre. 28 Volpara Health Technologies Limited | Prospectus | 2016 Customers are buying VolparaAnalytics to reduce costs associated with quality audits while improving their business performance, both in terms of quantity and quality of throughput. For example, the imaging centre manager can see how their machines and operators are performing and better understand their population: How productive are my machines? Are my operators productive and giving appropriate doses? Case studies have shown how powerful it is to have objective evidence on hand for discussions with physicists or operators. During 2016, VHT will launch VolparaEnterprise, a Cloud-based, greatly expanded version of VolparaAnalytics allowing cross-site comparisons and the collection of “big data” for the development of predictive healthcare tools. Breast centres use VolparaAnalytics to gain an over view of their population as well as per formance metrics per taining to their staff. 4.VolparaServer – product platform based on international standards Hospital networks and various imaging machines all operate under the Digital Imaging and Communications in Medicine (DICOM) image format and communications standards. These standards make interoperability of systems inside of hospitals straightforward. Today, VHT delivers its software in the form of a server that resides within the hospital network and communicates with all the breast x-ray devices and imaging archiving systems. The breast x-ray devices automatically send images for processing to VolparaServer, which then processes the images for each woman and sends out results to the picture archiving and communication system (PACS) or other workstations ready for the radiologist or other healthcare professional to review. Each VolparaServer can handle up to 12 x-ray devices, and can send to multiple output devices. This is an impor tant document 29 3 THE COMPANY AND ITS PRODUCTS AND SERVICES 3.4 Intellectual property Since 2009, VHT has built a portfolio of intellectual property rights which complements and facilitates the Company’s business objectives. The portfolio now comprises three granted patents, seven patent applications (proceeding in 40 countries), three trademarks registered in 38 countries, unregistered trademarks, copyright works (including software, graphical and text) and trade secrets (which protect the key part of the code). A “foundation” patent (PCT/GB2010/001472) describes VolparaDensity, and subsequent applications, which relate to imaging systems and supplementary image properties, cite the foundation patent. Provisional patent applications are filed regularly, reflecting VHT’s ongoing innovation, research and new product development. The choice of territory reflects enforceability, commercial activity and statement of quality. Patents have thus been pursued in China, the US and Europe, and copyright and trademarks provide protection in non-patent territories. A full, independent report on the Company’s intellectual property portfolio can be found in Section 9. 3.5 Regulatory position VolparaDensity is considered in most jurisdictions to be a medical “device” since it measures and estimates specific information about a patient. Regulatory bodies in every market dictate that medical devices must be manufactured to the highest standards and cleared before they can be marketed in that country. This presents significant barriers to entry for new market entrants such as small research-led start-ups. In the US, such a system is governed by the FDA under Title 21 of the Code of Federal Regulations, Part 820 – Quality System Regulation. Hence in the US the Company says the Volpara Products conform to 21CFR-820 and must seek regulatory clearance in the form of a 510(k) “substantially equivalent” letter from the FDA prior to marketing. VHT has achieved three such FDA clearances so far: K102556 Oct 2010 FDA 510(k) clearance for VolparaDensity, covering all digital mammography vendors and BI-RADS 4th Edition density categories. K152028 Oct 2015 FDA 510(k) clearance for VolparaDensity, covering all digital mammography and tomosynthesis vendors, and BI-RADS 4th & 5th Edition density categories. K153427 Jan 2016 FDA 510(k) clearance for output of Volpara Density Map, a product not yet formally launched commercially, but able to provide a standardised mammogram to allow better judgement of change over time. In the US, VolparaDoseRT and VolparaAnalytics are both covered as Class 1 quality control devices, which requires that they are manufactured to FDA standards and registered. In Europe, VHT has CE marking to sell all its products. VolparaDensity and VolparaDoseRT are both Class 1M medical devices, while VolparaAnalytics is not considered a medical device and thus doesn’t require clearance. VHT also has regulatory clearances to sell clinical systems into Australia, Canada, South Korea, Thailand and New Zealand. 3.6 International recognition and endorsements YEAR AWARDS 2010 Focus on Health, Runner-up New Zealand Trade and Enterprise NZ Innovation Challenge 2013 Duncan Cotterill Innovative Hi-Tech Software Product, Finalist New Zealand Hi-Tech Awards Discovering Gold, Finalist Wellington Gold Awards 2014 North American Frost & Sullivan Award for Technology Innovation Leadership in Breast Imaging Asia Pacific 2014 Winner—Ranked 54th, Deloitte Technology Fast 500 Rising Star, One to Watch—Wellington and Lower North Island, Deloitte 2014 Fast 50 Global Gold (exporters’ category) for business excellence, Winner Wellington Gold Awards 30 Volpara Health Technologies Limited | Prospectus | 2016 YEAR AWARDS 2015 Cisco Hi-Tech Emerging Company of the Year, Winner New Zealand Hi-Tech Awards, Asia Pacific 2015 Winner—Ranked 304th, Deloitte Technology Fast 500 2016 Frost & Sullivan Global Competitive Strategy, Innovation & Leadership Award for Breast Density Assessment Solutions 3.7 Competitive landscape The main women’s x-ray imaging companies are Hologic, GE Healthcare, and Siemens Medical Solutions USA, Inc., and outside of the US, Philips Medical, Fuji Medical, IMS Giotto, Planmed and many other small players. For the last few years, Hologic has dominated sales of breast x-ray imaging equipment mainly due to their first mover advantage in digital breast tomosynthesis. Hologic is based in Bedford, near Boston, US and has revenues of over US$2.7 billion. 1.VolparaDensity VolparaDensity is a multi-vendor software solution to add on to almost all breast x-ray systems and generates actual volumetric measurements of breast composition. Of the commercial competitors to VolparaDensity in the US with FDA clearance: • Hologic has a software add-on to their x-ray equipment, Quantra™, launched in 2008, that appears to be compatible only with their x-ray detector, but it is unclear how clinically accepted Quantra™ is: 8 out of 10 of VHT’s major customers are exclusively Hologic x-ray customers, but they have chosen VolparaDensity over Quantra™. • Philips has a “spectral” density solution requiring special hardware inside their x-ray systems. They have low market share in the USA for their x-ray systems. • iCAD’s software product, iReveal ®, appears to offer only a visual-like assessment of the breast image compared to VolparaDensity’s. For example, VolparaDensity can report that a breast is 750cm3 in size, while iReveal ® can only report that the breast covers 200cm2 of an image. Both iReveal ® and Spectral Density have minimal publications to date, with VolparaDensity being by far the most rigorously tested product on the market today, with 142 publications, including 33 peer-reviewed studies, many of which are independent. By way of comparison, VHT’s nearest competitor has had approximately 25 publications. Other companies are known to be developing automated breast density solutions, such as Densitas in Canada (with CE marking and Canadian clearance), and there will likely be further entries as the market develops and breast centre managers and other key individuals realise that visual assessment is not consistent enough, with a 35% disagreement rate between expert radiologists. Despite the competition, VolparaDensity has been selected as the automated density tool for several major international projects, including: • DENSE (Dense tissue and Early breast Neoplasm ScrEening) trial, Netherlands, seeking to establish costeffectiveness of screening dense breast women with breast MRI. Finishes end 2017, involves 1,000,000 women a year being imaged on Hologic x-ray equipment. • Norwegian Breast Cancer Screening Programme using Volpara to monitor breast density, dose and compression to ensure safe and consistent mammographic imaging and patient experience. They have a mix of x-ray vendors. • KARMA (KARolinska MAmmography), Swedish project for risk prediction of breast cancer and for looking at chemo-preventative drugs such as Tamoxifen. • Athena Breast Health Network, California, US. The five University of California medical centres, investigating creation of individual breast cancer risk assessment and personalised screening protocols. All these sites have Hologic x-ray equipment. 2.VolparaDoseRT To the best of VHT’s knowledge, as at the Prospectus Date, no other commercially available packages exist to directly compete with VolparaDoseRT. 3.VolparaAnalytics To the best of VHT’s knowledge, as at the Prospectus Date, no other commercially available packages exist to directly compete with VolparaAnalytics. This is an impor tant document 31 3 THE COMPANY AND ITS PRODUCTS AND SERVICES In the computed-tomography (CT) world, analytics systems to measure and monitor radiation doses have become relatively commonplace, driven by laws in the US to minimise radiation dose. GE’s DoseWatch, Sectra’s DoseTrack and Bayer’s Radimetrics appear to be the major dose tracking systems. As far as VHT can tell, the companies behind these systems appear to intend to venture into the breast imaging space, but to date, none have the capability of VolparaAnalytics for quantitative breast imaging. In fact, in 2014, Frost & Sullivan awarded VHT the North American Frost & Sullivan Award for Technology Innovation Leadership in Breast Imaging, declaring, “Frost & Sullivan lauds Volpara Solutions for what the breast imaging market has already acknowledged: continuous leadership in technology innovation, thoughtfulness in identifying the unmet need for dose tracking in breast imaging, and a clear vision for what analytics can achieve in the early detection and treatment of breast cancer.” 3.8 Go-to-market 1.Initial focus on the US to drive incremental revenue From the outset, VHT’s strategy has been to focus on what potential US customers would value. The country’s large population, strong early adopter culture and strong patient advocacy groups promote a climate of innovation. 39 million women are screened in the US each year at around 8,700 breast centres, using approximately 15,000 x-ray machines and employing the skills of 2,000 breast specialist radiologists and some 20,000 general radiologists. VHT has installations into over 103 clinical customers in the US, just over 1% of the market. 2.Global brand for global business Breast cancer screening organisations globally meet regularly. VHT has set out to be seen as a global trusted brand from the start, working with independent researchers in many countries and seeking clinical validation for its technology. In general, each country follows a similar journey, with researchers interested in VHT’s work doing the initial research on “their” women using VolparaDensity, followed by clinical validation in bigger trials and then movement and discussion about wide-scale adoption. Globally VHT has targeted the key opinion leaders and researchers, based upon VHT’s knowledge from its wide and deep clinical and academic network, to carry out the early trials, focusing especially on countries which are setting down clinical trials now. VHT has worked within 34 countries so far: Research and customers globally. VHT has installations in 34 countries. 3.Balanced distribution From the start, VHT’s strategy has been balanced distribution: seeking out high-quality local distributors around the world but always retaining the ability to go direct to the customer. VHT has local distributors in a range of countries, including the US, where Siemens Medical Solutions USA, Inc. acts as a distributor, as well as global distributors including GE Healthcare. Moving forward, VHT will continue to employ a balanced, hybrid model. VHT plans to rapidly expand its direct sales model in the US as momentum continues to build, while maintaining a strong focus on distributors and original equipment manufacturer (OEM) partners both in and outside the US. Additionally, as VHT’s focus expands from breast density alone to a broader focus on leveraging big data and personal health analytics to support the management of a woman’s breast health over time, VHT will expand 32 Volpara Health Technologies Limited | Prospectus | 2016 its go-to-market strategy to include a broader value proposition providing the breast centre managers and radiologists with more tools and analytics than currently available at most centres today. This shift will mean that VHT will need to appeal to a broader audience that includes mammography IT imaging managers and hospital chief technology officers. Furthermore, as VHT’s product line broadens, the Company will focus on other partners to include health IT and PACS companies. 3.9 VHT’s customers Although VHT’s VolparaDensity and VolparaDoseRT end users are radiologists, and it is important to have their support, VHT’s customer is, ultimately, the breast centre manager making budgetary decisions about workflow, productivity, quality and safety, and more recent products such as VolparaAnalytics target them directly. In the US, products sell where clinical benefit is matched with return on investment. VHT’s target customers to date principally have been: • large sites with multiple readers in states with breast density legislation that have concerns about consistencies between readers in density scoring as well as the decision time taken up by density scoring; • sites implementing ultrasound, or other density-driven additional screening technologies, that need the workflow benefits of reporting density scores while the women are in the clinic; and • sites buying new x-ray equipment that seek the latest new technology. Given VHT’s balanced distribution model, there are three types of direct customer: • breast centre managers, the sales team’s direct customers, though the chief radiologist has to be a champion of the Volpara Products; • distributors selling additional screening tools that want the workflow advantages that VolparaDensity offers to drive patients to their products; and • distributors selling x-ray equipment that need to offer a complete package of software tools and seek to differentiate on dose and analytics. 3.10 Marketing and lead generation VHT’s brand is being established and validated by its strong research and clinical focus, which includes key research partners and other key opinion leaders around the world. VHT has leveraged these relationships to seed the global market with the Company’s product and solutions offerings. Overall, VHT employs a multi-layered approach to marketing that includes key opinion leader development, direct and telesales, and partnerships with distributors and OEMs. These distribution methods alone drive many new prospects to VHT. In addition, the Company participates in global trade shows and uses web, social media and other Internet marketing strategies to draw interest to VHT. Finally, VHT works with many advocacy groups, such as Are You Dense? and DenseBreast-info.org, which drive the marketing and branding strategy to spur interest in the Company’s offerings. The major trade shows which VHT regularly attends are the following, where VHT exhibits, meets with potential business partners, arranges potential customer meetings and seeks to have posters and presentations: • Radiological Society of North America (RSNA) scientific assembly and annual meeting in December each year in Chicago, which draws over 50,000 people. • European Congress of Radiology annual meeting in March each year in Vienna, which draws 20,000 people. The VHT team at the RSNA conference, December 2015 This is an impor tant document 33 3 THE COMPANY AND ITS PRODUCTS AND SERVICES 3.11 Current sales strategy The current sales model is a sale of an upfront licence and then an optional annual service charge of 15% of the price paid upfront to receive the latest updates and continued support. The pricing is per x-ray machine, so the more machines a centre has, the higher the price paid. The value of the sale typically falls between US$30,000 and US$150,000 depending upon the numbers of x-ray machines and software modules, and whether the sale is direct or through a distributor. VHT’s product road map sees products and services being provided to imaging centres which will make subscription-based pricing a more natural model to pursue. 3.12 Size of market VHT estimates that there are 75 million women screened globally each year, at approximately 10,500 centres. Of the 75 million, 39 million are in the US, where there are 8,700 centres with an average of 1.6 x-ray machines per centre. Outside the US the centres tend to be much bigger. Today, VHT sells an upfront licence, but is transitioning to pay for value. Taking an end-user price of near to US$50,000 to cover the 1.6 x-ray machines per centre, and all of the Volpara Products, then the total available market today is expected to be over A$1 billion, with the software maintenance component in addition each year at 15% of the sales price. The total available market will expand as VHT estimates the number of women to be screened each year is expected to increased markedly over the next 10 years as Asia (in particular) starts to screen more women, and as VHT introduces new products and services. 3.13 Reimbursement To date, VHT has not directly pursued reimbursement for its products in the US for three main reasons: 1. uncertainties caused by the Affordable Care Act; 2. lack of consensus in medical circles about breast density; and 3. lack of available funds. Furthermore, VHT believes that its value proposition, including cost savings and revenue earning potentials of its Volpara Products, currently provides attractive financial incentive to buyers. Additionally, with 24 states in the US having already adopted breast density legislation and another 8 to 10 considering legislation, VHT believes there is already momentum and indirect pressure on insurers to consider reimbursement in the future. VHT intends to use funds from the Offer to increase consultation with insurers in the US in regard to the Volpara Products being used as pre-authorisation tools for additional imaging. 3.14 Growth strategy There are four key elements to VHT’s growth strategy, as outlined below, each of which the funds from the Offer will be used to advance. 1.Expand the US Sales and Marketing Team The US remains the critical market for VHT. Revenues have been growing year on year for the last four years, despite VHT being resource limited in the US. VHT intends to follow a more aggressive direct sales approach and to build up sales infrastructure, particularly in the US, based initially on the existing Volpara Products. 2.Expand Marketing to Insurers and Women Expand marketing to educate insurers about the Volpara Products and their benefits, particularly as a gateway to additional imaging, and downwards to individual women through the increasing use of social media and consumer education. 3.Move to a Subscription Model To date, VHT’s flagship product has been VolparaDensity, which has been sold on an upfront licence plus maintenance. Going forward, a Cloud version of VolparaAnalytics (to be called VolparaEnterprise) will increasingly be the focus and will have VolparaDensity “inside”. This new marketing and delivery model will allow the easy introduction of new features and a far closer partnership with the individual sites, meaning that a Cloud-based subscription model will be the more natural choice. 4.Continue to Innovate and Lead VHT is known for the cutting-edge science that underpins its products. VHT is committed to continuing to lead in innovation, and to developing and releasing a stream of innovative products. 34 Volpara Health Technologies Limited | Prospectus | 2016 4 FIN A NCIA L INFORM ATION This is an impor tant document 35 4 FINANCIAL INFORMATION 4.1 Overview Volpara Health Technologies Limited (formerly Matakina Technology Limited) is the parent entity of a broader group (the Volpara Group) that also comprises: • Volpara Solutions Limited (formerly Matakina International Limited); • Volpara Solutions Inc (formerly Matakina USA Inc); and • Matakina UK Limited (to be renamed Volpara Solutions Europe Limited). 4.2 Basis of preparation and presentation of the financial information The financial information contained in this Section includes information derived from the: 1.Audited consolidated statutory historical financial information 1.audited consolidated statutory historical financial information for the Volpara Group being the: The audited historical financial information has been extracted from the Volpara Group audited consolidated financial statements for the year ended 31 March 2015. • audited consolidated statutory historical income statement for the year ended 31 March 2014 (as restated); and • audited consolidated statutory historical income statement for the year 31 March 2015 (as restated) (the audited historical financial information). 2.reviewed consolidated historical financial information for the Volpara Group being the: • reviewed consolidated historical income statement for the nine months to 31 December 2015; and • reviewed consolidated historical balance sheet as at 31 December 2015 (the reviewed historical financial information). 3.pro forma historical financial information for the Volpara Group being the: • pro forma historical balance sheet as at 31 December 2015 assuming underwritten proceeds of $10.8 million (A$10 million) are raised from the Offer and other pro forma adjustments (the pro forma historical balance sheet). The audited historical financial information, the reviewed historical financial information and the pro forma historical balance sheets together form the historical financial information. Also summarised in this Section are: • the basis of preparation and presentation of the financial information; • details of share capital; • details of share options on issue; • sources and uses of funds raised under the Offer; • proposed dividend policy; • commentary on capital expenditure; • commentary on future acquisitions; • commentary on debt; and • commentary on working capital. All amounts disclosed in the tables in this Section are presented in New Zealand dollars and, unless otherwise noted, are rounded to the nearest thousand. The Directors expect growth of the business will result from planned increased sales and marketing activities, to be partly funded by the proceeds of the Offer. However, the Directors have considered ASIC 36 Regulatory Guide 170 and, having regard to the requirements of this Regulatory Guide and the current status of the Company, note that any prospective financial information would contain a broad range of potential outcomes and possibilities such that the Directors have concluded the Company cannot include reliable prospective financial information in this Prospectus. Volpara Health Technologies Limited | Prospectus | 2016 The statutory historical income statements have been audited by Deloitte (New Zealand) (Deloitte) in accordance with “International Standards on Auditing and International Standards on Auditing (New Zealand)”. Deloitte issued an unqualified audit opinion in respect of the consolidated financial statements for the year ended 31 March 2015 (as restated) on 19 February 2016, which included restated comparative information in respect of the year ended 31 March 2014. The audit report included two emphasis of matter paragraphs, as follows: “Emphasis of Matter – Going Concern Without qualifying our (Deloitte’s) opinion, we draw attention to the audited historical financial statements which indicate that the Group incurred a net loss of $3,022,000 for the year ended 31 March 2015 and, as of that date, the Group’s total liabilities exceeded its total assets by $10,130,000. These conditions, along with other matters as set out in the audited historical financial statements, indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.” If the Group was unable to continue as a going concern, and pay debts as, and when, they become due and payable, adjustments would have to be made to reflect the situation that, in such circumstances, assets may need to be realised, and liabilities extinguished, other than in the normal course of business and at amounts which could differ significantly from the amounts at which they are currently recorded in the Consolidated Statement of Financial Position. “Emphasis of Matter – Restatement Without qualifying our (Deloitte’s) opinion, we also draw attention to the significant accounting policies which detailed that the Directors have, subsequent to signing the consolidated financial statements for the year ended 31 March 2015 on 26 August 2015, become aware that the Company’s convertible preference shares (CPS) had been incorrectly classified as equity instruments and have restated these financial statements and 31 March 2014 comparatives to reflect that, prior to conversion, due to certain features of the convertible preference Shares it has been determined they should be classified as debt instruments and, therefore, a liability in the Statement of Financial Position.” The statement of significant accounting policies is set out in Section 4.5. The consolidated financial statements for the years ended 31 March 2014 and 31 March 2015 (as restated) have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP). They comply with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards as appropriate for profit-oriented entities that qualify for and apply differential reporting concessions. 2.Preparation of the Volpara Group reviewed historical financial information The reviewed historical financial information has been extracted from the Volpara Group reviewed financial statements for the nine months ended 31 December 2015. The Volpara Group historical financial information has been reviewed by Deloitte in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity. A review of the condensed consolidated interim financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly, the auditor does not express an audit opinion on those financial statements. Deloitte issued an unqualified review opinion in respect of the Volpara Group financial statements for the nine months ended 31 December 2015. The review report included two emphasis of matter paragraphs, as follows: “Emphasis of Matter – Going Concern Without qualifying our (Deloitte’s) opinion, we draw attention to the reviewed historical financial statements which indicate that the Group incurred a net loss of $3,693,000 during the nine months ended 31 December 2015 and, as of that date, the Group’s total liabilities exceeded its total assets by $13,737,000. These conditions, along with other matters as set out in the reviewed historical financial statements, indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.” If the Group was unable to continue as a going concern, and pay debts as, and when, they become due and payable, adjustments would have to be made to reflect the situation that, in such circumstances, assets may need to be realised, and liabilities extinguished, other than in the normal course of business and at amounts which could differ significantly from the amounts at which they are currently recorded in the Consolidated Statement of Financial Position. which detail that the Directors have, subsequent to signing the consolidated financial statements for the year ended 31 March 2015, become aware that the Company’s CPS had been incorrectly classified as equity instruments and have restated the 31 March 2014 and 31 March 2015 comparatives in these condensed consolidated interim financial statements to reflect that, prior to conversion, due to certain features of the CPS it has been determined they should be classified as debt instruments and, therefore, a liability in the Statement of Financial Position. The 31 March 2015 financial statements have also been restated.” The statement of significant accounting policies is set out in Section 4.5. The condensed consolidated interim financial statements have been prepared in accordance with NZ GAAP as appropriate for interim financial statements. They have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS), with NZ IFRS, and in accordance with New Zealand Equivalent to International Financial Reporting Standard 34 and International Accounting Standard 34. 3.Preparation of pro forma historical financial information The pro forma historical financial information has been prepared using the Volpara Group’s reviewed historical balance sheet as at 31 December 2015 and certain Directors’ pro forma adjustments in relation to the proposed Offer (which is the subject of this Prospectus) and certain related transactions as described below. In particular, the Directors’ pro forma adjustments are intended to reflect the impact of the proposed Offer and related costs, the conversion of the CPS to ordinary Shares, settlement of the quasi dividend entitlement (QDE) and the issue of options under the Employee Share Option Plan (ESOP) as though they had occurred as at 31 December 2015. The pro forma historical financial information is presented in an abbreviated form insofar as it does not include all of the presentation and disclosures required by NZ IFRS or IFRS and other mandatory reporting requirements applicable to general purpose financial reports prepared in accordance with the Companies Act 1993. The financial information presented in this Section should be read in conjunction with the risk factors set out in Section 5 and other information contained in this Prospectus. 4.3 Volpara Group historical income statements Table 1 (page 38) presents the audited Volpara Group consolidated historical income statements for the years ended 31 March 2014 (as restated) and 31 March 2015 (as restated) together with the reviewed historical income statement for the nine months ended 31 December 2015. “Emphasis of Matter – Restatement Without qualifying our (Deloitte’s) opinion, we also draw attention to the significant accounting policies This is an impor tant document 37 4 FINANCIAL INFORMATION Table 1: Volpara Group historical financial performance YEAR ENDED 31 MARCH NZ$’000 Revenue Cost of Sales Gross Profit Other income Total income 2014 AUDITED RESTATED 2015 AUDITED RESTATED NINE MONTHS TO 31 DECEMBER 2015 REVIEWED 1,487 2,409 1,772 (91) (372) (324) 1,396 2,037 1,448 17 79 63 1,413 2,116 1,511 (745) (933) (888) Expenses -Administration - Sales and marketing (1,541) (1,864) (1,861) - Engineering and science (1,092) (1,234) (1,137) - Quality (123) (127) (98) - Legal / IP (111) (104) (209) -Regulatory (17) (80) (46) -Finance (559) (796) (965) Total expenses (4,188) (5,138) (5,204) Loss before tax (2,775) (3,022) (3,693) - - - (2,775) (3,022) (3,693) 32 (71) (104) (2,743) (3,093) (3,797) Income tax expense Loss for the period Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Total comprehensive loss for the period, net of tax Notes: 38 1. The Volpara Group had one operating segment being involved in the provision of products and services in the medical technology industry and a corporate centre supporting the business. 2. The income statements for the years ended 31 March 2014 and 31 March 2015 have been restated to reflect that, prior to conversion, due to certain features of the CPS it has been determined they should be classified as debt instruments and, therefore, a liability in the Statement of Financial Position. In addition, a QDE of $907,559 was recorded as a finance expense for the year ended 31 March 2015. 3. There are no non-recurring items in the historical periods which require adjustment. In addition, no adjustments have been made to the statutory historical income statement to illustrate the pro forma impact of listed company costs or the cost of the issue of options under the ESOP post 31 December 2015. 4. The Directors of the Volpara Group estimate listed company costs to be $650,000 per annum, which includes ASX Listing fees, Directors’ fees, insurances, annual reporting and other compliance expenses. Volpara Health Technologies Limited | Prospectus | 2016 4.4 Pro forma historical balance sheet The pro forma historical balance sheet below reflects the underwritten Offer of $10.8 million (A$10 million) together with other adjustments set out in the accompanying notes and illustrates the Directors’ pro forma adjustments made to the Volpara Group reviewed historical balance sheet as at 31 December 2015. The pro forma adjustments reflect the impact of the Offer (and associated transactions) and the capital structure which will be in place following completion of the Offer as if it had occurred or was in place as at 31 December 2015. Table 2: Volpara Group - pro forma historical balance sheet as at 31 December 2015 AS AT 31 DECEMBER 2015 NZ$’000 NOTES REVIEWED PRO FORMA ADJUSTMENTS PRO FORMA 2, 3 1,164 9,799 10,963 Assets Current assets Cash and cash equivalents Trade and other receivables Prepaid expenses Total current assets 764 764 74 74 2,002 9,799 11,801 Non-current assets Property, plant and equipment 43 43 Patents and trademarks 2 2 Total non-current assets 45 - 45 2,047 9,799 11,846 Total assets Liabilities Current liabilities Trade and other payables 544 544 Employee benefits 132 132 Convertible preference shares 4 15,108 (15,108) - Total current liabilities 15,784 (15,108) 676 Total liabilities 15,784 (15,108) 676 (13,737) 24,907 11,170 4, 5 344 25,572 25,936 Share-based payments 6 1,631 20 1,651 Retained earnings 7 (15,617) (705) (16,322) Net assets Equity Ordinary shares Other Total equity (95) (13,737) (95) 24,907 This is an impor tant document 11,170 39 4 FINANCIAL INFORMATION Notes: 1. All inflows and outflows incurred in AUD have been converted to NZD assuming an exchange rate of 1 AUD : 1.08 NZD. The Directors’ pro forma adjustments made are: 2. Increase in pro forma cash from the Offer of $9.793 million through the issue of Shares to raise $10.8 million (A$10 million) less Offer transaction costs (estimated to be $1.007 million since 31 December 2015). 3. Increase in pro forma cash from the exercise of certain options in the three months to 31 March 2016. Pro forma cash received was $0.006 million and the number of Shares issued was 766,703. 4. Conversion of the CPS: all outstanding CPS ($12.292 million) plus pro forma accrued quasi dividend to 31 March 2016 ($3.200 million) are pro forma assumed to convert to ordinary Shares in accordance with the terms of the CPS Deed. The quasi dividend pro forma accrued from 31 December 2015 to 31 March 2016 is $0.384 million. 5. The pro forma balance sheet reflects, as a result of the underwritten Offer, an increase in contributed equity (ordinary shares) of $10.093 million through the issue of Shares by the Company ($10.8 million less Offer costs offset against contributed equity estimated to be $0.707 million). 6. Movements in the share option reserve reflect the pro forma impact of the issue of options under the ESOP since 31 December 2015. The pro forma expense for the period to 31 March 2015 is $0.020 million. 7. Retained earnings is decreased due to the pro forma expensing of offer costs which are not set off against issued capital ($0.300 million), the quasi dividend pro forma expense for the 3 months to 31 March 2016 ($0.384 million) and the pro forma ESOP expense for the period of ($0.020 million). The pro forma historical balance sheet is provided for illustrative purposes only and is not represented as being indicative of the Volpara Group’s future financial position. Further information on the sources and uses of funds of the Offer is contained later in this Section. 4.5 Statement of significant accounting policies The principal accounting policies adopted in the preparation of the financial statements for the nine months ended 31 December 2015 are set out below. Statement of compliance Volpara Health Technologies Limited is a limited company incorporated in New Zealand. Its principal place of business is Level 12, 86 Victoria St, Wellington 6011, New Zealand. Its registered office is Miller Dean CA Limited, Level 5, 203–209 Willis Street, Wellington 6142, New Zealand. Volpara Health Technologies Limited (previously Matakina Technology Limited) is a profit-oriented company incorporated under the Companies Act 1993 and domiciled in New Zealand. Its principal sales and services are in the medical device software industry. The consolidated financial statements of the Volpara Group for the period ended 31 December 2015 comprise Volpara Health Technologies Limited and its subsidiaries. The financial statements have been prepared in accordance with NZ GAAP as appropriate for interim financial statements. They have been prepared using accounting policies consistent with IFRS, with NZ IFRS, and in accordance with New Zealand Equivalent to International Accounting Standard 34 and International Accounting Standard 34. The financial statements were authorised for issue by the Directors on 19 February 2016. Basis of preparation Unless otherwise stated the measurement basis adopted is that of historical cost. The functional and presentation currency is New Zealand Dollars (NZ$). 40 Volpara Health Technologies Limited | Prospectus | 2016 Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. Significant accounting policies The following significant accounting policies have been adopted in the preparation and presentation of the financial statements: a.Basis of consolidation The consolidated financial statements incorporate the financial statements of the Group, being Volpara Health Technologies Limited and its subsidiaries Volpara Solutions Limited, Volpara Solutions Inc. and Matakina UK Limited. Subsidiaries are entities which are controlled by the Company. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the period are included in the consolidated statement of other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company. Total comprehensive income of subsidiaries is attributed to the owners of the Company. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Volpara Group are eliminated in full on consolidation. Consistent accounting policies are employed in the preparation and presentation of the Volpara Group financial statements. The 12-month balance date of the Volpara Group is 31 March. b.Revenue recognition Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: • the Volpara Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Volpara Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Volpara Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract, with unrecognised revenue recorded as a liability in the balance sheet. The stage of completion of the contract is determined as follows: • installation fees are recognised by reference to the stage of completion of the installation, determined as the proportion of the total time expected to install that has elapsed at the end of the reporting period; and • servicing and maintenance fees are recognised by reference to the proportion of the contract that has been completed within the respective period. Dividend income from investments is recognised when the Shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Volpara Group and the amount of income can be measured reliably). Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Volpara Group and the amount of income can be measured reliably. c.Foreign currencies For the purpose of the consolidated financial statements, the results and position of each group entity are expressed in NZ$, which is the functional currency of the Company and the presentation currency for the consolidated financial statements. For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Volpara Group’s foreign operations are translated into NZ$ using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the rates of exchange prevailing at the dates of the transactions. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity. All foreign currency transactions during the year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair values that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Exchange differences are recognised in profit or loss in the period in which they arise. d.Government grants Government grants are not recognised until there is reasonable assurance that the Volpara Group will comply with the conditions attaching to them and that the grants will be received. Government grants that are receivable as compensation for expenses or losses already incurred are recognised in profit or loss in the period in which it becomes reasonably certain that the Volpara Group will comply with the conditions attaching to them and that the grants will be received. e.Employee benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. f. Share-based payment arrangements Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Volpara Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Volpara Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. This is an impor tant document 41 4 FINANCIAL INFORMATION g.Property, plant and equipment Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method or the diminishing value method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. h.Intangible assets Trademarks are internally generated intangible assets. Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the 42 Volpara Health Technologies Limited | Prospectus | 2016 carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. i. Impairment of assets At the end of each reporting period, the Volpara Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Volpara Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount and an impairment loss is recognised immediately in profit or loss. When an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years and a reversal of an impairment loss is recognised immediately in profit or loss. j. Provisions Provisions are recognised when the Volpara Group has a present obligation (legal) as a result of a past event, it is probable that the Volpara Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Provisions for warranty costs are recognised at the date of sale of the relevant products, at the Directors’ best estimate of the expenditure required to settle the Volpara Group’s obligation. k.Financial assets Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are initially measured at fair value plus transaction costs, except for those financial assets classified at fair value through profit or loss which are initially measured at fair value. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. A trade receivable is deemed to be uncollectible upon notification of insolvency of the debtor or upon receipt of similar evidence that the Volpara Group will be unable to collect the trade receivable. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed. In respect of financial assets carried at amortised cost, with the exception of trade receivables, the impairment loss is reversed through profit or loss in the statement of comprehensive income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Subsequent recoveries of trade receivables previously written off are credited against the allowance account. l. Financial liabilities and equity instruments Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements. Financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the issue of financial liabilities (other than financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the issuance of financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Trade payables and other accounts payable are recognised when the Volpara Group becomes obliged to make future payments resulting from the purchase of goods and services. m. Goods and Services Tax All balances are presented net of Goods and Services Tax (GST), except for receivables and payables which are presented inclusive of GST. n.Income tax Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from “profit before tax” as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible on other years and items that are never taxable or deductible. The Volpara Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been This is an impor tant document 43 4 FINANCIAL INFORMATION enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Volpara Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred taxes are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. QDEs on CPS are considered to be non-deductible expenses in respect of taxable profit and losses. o.Convertible Preference Shares The Volpara Group has classified the CPS as a current liability due to the contractual arrangement with convertible preference Shareholders. Convertible Preference Shareholders are entitled to a QDE calculated on the amount invested multiplied by 8% per annum (compounding monthly). If converted, the QDE is settled through the issue of additional ordinary shares. If redeemed, the QDE is paid in cash based on the original amount invested plus 8% per annum (compounding monthly). These amounts have been accrued as a finance expense in the Consolidated Statement of Comprehensive Income. The CPS are convertible into ordinary shares at any time at the option of the holder or automatically on the occurrence of an Offer of Shares in the Company. The CPS are also redeemable for cash if there is an exit event (e.g. trade sale or a sale of 100% of the Shares on issue) or at 6 years from the first issue of the CPS (with the redemption at June 2016). The CPS are not currently possible to value due to variability in the range of estimates, therefore they are carried at cost. There are a total of 17,491,445 CPS on issue at 31 December 2015. In addition, the CPS holders are entitled to the QDE which has been calculated to 31 March 2016 and will result in the equivalent of an additional 6,645,634 Shares being issued to CPS holders, as at that date. All CPS and the QDE will convert to ordinary Shares immediately prior to the quotation of the Shares in the Company on the Australian Securities Exchange (ASX). p.Prior period adjustments Subsequent to signing the consolidated financial statements for the year ended 31 March 2015, the Directors became aware that the Company’s CPS had been incorrectly classified as equity instruments in prior periods and had been included as part of the Company’s share capital. Due to certain features of the 44 Volpara Health Technologies Limited | Prospectus | 2016 CPS it has been determined that, prior to conversion, they should be classified as debt instruments and, therefore, as a liability in the Statement of Financial Position. The significant features of the CPS that result in this classification are the ability of the holders to redeem these shares for cash at cost plus 8% per year after a period of 6 years from the date of first issue of the CPS (with the earliest redemption date being June 2016); and an anti-dilution provision that protects the holders from dilution resulting from later share issues at a lower price than the holders originally paid. The terms of the CPS therefore do not meet the “fixed number of shares for a fixed amount of consideration” requirement to be classified as equity as there is variability in the number of ordinary shares that will be delivered on conversion. The 31 March 2015 financial statements have been restated. q.Critical judgements in applying accounting policies In regards to sales and service revenue recognition, the Directors have considered the criteria for the recognition of revenue from the sale of goods set out in NZ IAS 18 and, in particular, whether the Volpara Group had transferred to the buyer the significant risks and rewards of ownership of the goods. In respect of service and support agreements, the Directors are satisfied that the significant risks and rewards of ownership have been transferred and that recognition of the revenue in the current year is appropriate. In regards to valuing share options, these are priced using a Black-Scholes pricing model. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions and behavioural consideration. Expected volatility is based on the historical share price volatility of NASDAQ listed companies in the biomedical field over the past 5 years. r. Key sources of estimation uncertainty There are currently no sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities. s.Standards not effective The Volpara Group has not applied new and revised NZ IFRSs (such as NZ IFRS 9 and 15) that have been issued but are not effective and has not assessed their impact as yet. t. Transition to NZ IFRS 1 The Volpara Group has fully transitioned to NZ IFRS 1 as at 31 December 2015. This transition has had no material impact on the disclosures or on the amounts recognised in the consolidated financial statements. 4.6 Share capital Table 3, below sets out a reconciliation of share capital from 31 December 2015 to post Offer illustrating the impact of the conversion of the CPS and the effect of the Offer. Table 3: Share capital reconciliation ISSUED CAPITAL NOTES Total share capital at 31 December 2015 Pro forma shares issued upon exercise of options 1 Total share capital after exercise of options NUMBER OF SHARES NZ$’000 6 9,252,052 344 766,703 6 10,018,755 350 Pro forma shares issued upon conversion of the CPS 2 17,491,445 12,292 Pro forma shares issued re quasi dividend to 31 March 2016 3 6,645,634 3,200 34,155,834 15,842 68,311,668 0 102,467,502 15,842 20,000,000 10,093 122,467,502 25,936 Total share capital after conversion of the CPS Effect of 3:1 share split as at 31 March 2016 4 Total share capital on issue before the Offer Shares to be issued under the Offer 5 Total share capital after the Offer The above share capital reconciliation table is based on the following assumptions: 1. 766,703 ordinary shares were issued as a result of the exercise of certain options for which cash of $6,121 was received subsequent to 31 December 2015. 2. The CPS on issue are convertible into ordinary shares on a 1:1 basis immediately prior to the quotation of the Shares in the Company on ASX. 3. Convertible Preference Shareholders are entitled to a QDE calculated on the amount invested, multiplied by 8% per annum (compounding monthly), to be settled through the issue of additional ordinary shares, which has been calculated as at, and will be satisfied on, 31 March 2016. 4. On 25 February 2016, the Directors resolved to reconstruct the capital of the Company by way of a 3:1 share split with the effect that all ordinary and CPS holders will hold 3 times the number of shares they held previously as at that date. All Legacy Options on issue will be similarly adjusted in accordance with the terms and conditions of the respective Option Deeds. 5. As the Offer is fully underwritten, the full number of 20 million Shares under the Offer to raise A$10 million have been assumed as allotted. 6. Share capital in NZ$ is rounded to the nearest thousand. This is an impor tant document 45 4 FINANCIAL INFORMATION 4.7 Share-based remuneration The Company has two employee and executive incentive plans in operation. The plans are both option plans. There is a legacy employee share option plan (Legacy ESOP) and a new employee share option plan (New ESOP). The Legacy ESOP The Volpara Group has operated an ownership-based compensation scheme for directors, executives and senior employees of the Company and its subsidiaries since 2009. In accordance with the terms of the plan, as approved by Shareholders at previous annual general meetings, directors, executives and senior employees may be granted options to purchase ordinary shares at exercise prices ranging from $0.001 to $1.40 per ordinary share. Each option converts into one ordinary share on exercise and the options will expire within 10 years of their issue, or on termination of employment within the vesting period, whichever occurs first. The Company has issued a total of 3,542,246 options under the Legacy ESOP. No further options will be issued under the Legacy ESOP. Following the share split on 25 February 2016 the number of Legacy ESOP options on issue is 10,626,738, with a commensurate adjustment to the exercise price as set out in the respective Option Deeds. Full details of the terms and conditions of the Legacy options re set out in section 10.5. The New ESOP The Company has issued a total of 5,325,000 options under the New ESOP, all with an exercise price of A$0.50, being the Offer Price. Each option has certain vesting conditions and an expiry date of 7 years from issue. A summary of the rights and liabilities attaching to the New ESOP options on issue is set out in section 10.5. 4.8 Obligations under operating leases The Volpara Group has the following obligations remaining on a commercial property lease: • The following 12 months: $88,415 • The subsequent 12 months: $66,312 The obligation consists of a property lease agreement for the office space at Level 12, 86 Victoria St., in Wellington, New Zealand. The lease agreement is for a term of 3 years and 2 months starting from 1 August 2014 and the Volpara Group has a right to renewal once this term is complete. An expense of $68,729 was recognised for this lease in the 9-month period ending 31 December 2015. 4.9 Dividends VHT has not historically paid dividends and the Directors do not propose to declare a dividend with respect to the financial year ended 31 March 2016. 4.10 Sources and use of proceeds of the Offer In conjunction with the Offer, VHT will issue new equity of $10.8 million (A$10 million) under the underwritten offer. Proceeds from the Offer will be used as set out in the following table. Table 4: Sources and uses of proceeds of the capital raising SOURCES OF FUNDS 46 NZ$’000 Cash proceeds received for new Shares issued under the Offer 10,800 Total sources 10,800 Volpara Health Technologies Limited | Prospectus | 2016 USES OF FUNDS NZ$’000 Payment of Offer expenses 1,160 Expansion of sales and marketing infrastructure 3,500 Development of VolparaEnterprise and Cloud deployment 2,000 Product and services innovation 1,000 Working capital 3,140 Total uses 10,800 4.11 Capital expenditure Included in the use of funds above, the Company expects to require capital expenditure in operating the business and acquiring other operating assets, as the Directors consider appropriate. Such assets may include, inter alia, technology, servers, development software tools and other capital items. 4.12 Acquisitions The Company has no current intention to make any acquisitions but the directors intend to investigate strategic acquisition opportunities from time to time. The Directors will consider each opportunity on a case-by-case basis to evaluate the ability of the opportunity to enhance the business prospects of the Volpara Group. 4.13 Debt The CPS are considered to be debt as at 31 December 2015, but will convert to equity immediately prior to quotation of the Shares on the ASX so the Company will not have any debt at that time, other than trade and other payables. 4.14 Working capital The Company expects that it will have sufficient working capital at the conclusion of the Offer to meet its current objectives. This is an impor tant document 47 5 48 RISK S Volpara Health Technologies Limited | Prospectus | 2016 5 RISKS 5.1 Introduction VHT is subject to various risk factors. Some of these are specific to VHT’s business activities. Others are of a more general nature. Individually, or in combination, these risk factors may affect the future operating and financial performance of VHT, its investment returns and the value of an investment in the Shares. Each of the risks set out in this Section 5, if they eventuate, could have a material adverse impact on the Volpara Group’s business, financial condition and results of operations. Investors should be aware that this Section 5 does not purport to list every risk that may be associated with an investment in the Shares or the digital health segment in which VHT operates now or in the future. The occurrence or consequences of some of the risks described in this Section 5 are partially or completely outside of the control of VHT, its Directors and its management team. This Section 5 should be read in conjunction with other information disclosed in this Prospectus. There can be no guarantee that VHT will achieve its stated objectives or that any forward-looking statements will be realised or otherwise eventuate. The selection of risks has been based on the assessment of a combination of the probability of the risk occurring, the ability to mitigate the risk and the impact of the risk if it did occur. That assessment is based on the knowledge of the Directors at the Prospectus Date, but there is no guarantee or assurance that the importance of different risks will not change or that other risks will not emerge. Before applying for Shares, investors should satisfy themselves that they have a sufficient understanding of these matters and should consider whether Shares are a suitable investment for them, having regard to their own investment objectives, financial circumstances and taxation position. If investors are unclear in relation to any of the risks outlined in this Section 5 or are uncertain as to whether VHT is a suitable investment for them, they should seek professional guidance from their solicitor, stockbroker, accountant or other independent and qualified professional adviser before deciding whether to invest. 5.2 Risks specific to an investment in VHT The Shares to be issued under the Offer do not guarantee the payment of dividends, return of capital or any increase in their market value. The list of risk factors below should be carefully considered, together with the information contained elsewhere in this Prospectus, before deciding to apply for Shares. TYPE OF RISK DESCRIPTION OF RISK The Company has a limited operating history and may face difficulties encountered by companies early in their commercialisation VHT was established in 2009 and has a limited operating history upon which to evaluate its business and forecast future net sales and operating results. In assessing VHT’s business prospects you should consider the various risks and difficulties frequently encountered by companies early in their commercialisation in competitive markets, particularly companies that develop and sell medical technology. These risks include VHT’s ability to: • implement and execute its business strategy; • expand and improve the productivity of its sales force and marketing programs; • increase awareness of its brand and build loyalty among healthcare professionals; • manage expanding operations; • respond effectively to competitive pressures and developments; • deal with increasing and more complex regulatory oversight in global jurisdictions; and • successfully implement new features to its VolparaDensity product line and, if required, obtain any amendments to regulatory approvals related to the new features. This is an impor tant document 49 5 RISKS TYPE OF RISK DESCRIPTION OF RISK VHT’s current business model depends heavily on the success of VolparaDensity and VHT’s ability to diversify in the future VolparaDensity has obtained the required regulatory approvals in the US, the EU, Canada, Australia and NZ, where the product is already sold and generates revenue. VHT expects to derive the majority of its revenue in the foreseeable future from sales of its VolparaDensity breast imaging technology. VHT’s ability to generate revenue will therefore largely depend on how effectively it can market and distribute the VolparaDensity product range in the above markets and after obtaining any necessary regulatory approvals in other jurisdictions. If the Company is unable to achieve meaningful market penetration with its VolparaDensity product range, its commercial strategy will be unachievable and VHT will need to reconsider its business model. VHT is transitioning from a classic medical device sales model to enterprise-wide management solutions for healthcare professionals, for example through Cloudbased VolparaAnalytics, which are more naturally priced as a subscription service. This switch from upfront to subscription pricing might be difficult and might impact short-term revenues. One of the reasons breast centres are buying VolparaDensity to use it as a gateway to ultrasound for additional screening if the breast is dense. If ultrasound as a screening modality fails to take off, and nothing else takes its place, then this will impact on VHT’s growth plans in the density market and on VHT’s financial performance. VHT’s products are based around analysis of breast x-rays, which have been the mainstay of breast cancer screening for 30 years at least. If a new imaging modality comes out that significantly improves detection of cancer at a lower cost, then VHT will need to diversify or adapt quickly. VHT is not currently aware of any new imaging modality being available in the market. Future profitability uncertain 50 VHT is still in an early sales and commercialisation stage for the Volpara Products. To date, it has funded its operations principally through issuing securities and other domestic capital-raising activities. VHT is not yet profitable and has incurred losses in each year since incorporation. VHT has achieved early revenue principally in the US, however there is no guarantee that VHT will be able to continue to grow in the US or in other key jurisdictions such as the EU. VHT’s ability to operate profitably in the future will depend in part on whether it is able to grow its own direct sales force and/or develop an international distribution network on appropriate terms. If VHT fails to penetrate, or further penetrate, the international markets for its products, VHT may never become profitable. Other factors that will determine VHT’s profitability are its ability to manage its costs, its ability to execute its development and growth strategies, economic conditions in the markets in which it operates, competitive factors and regulatory developments. Accordingly, the extent of future profits, if any, and the time required to achieve a sustained profitability are uncertain. Moreover, the level of any profitability cannot be predicted. Volpara Health Technologies Limited | Prospectus | 2016 TYPE OF RISK DESCRIPTION OF RISK Business Associate Agreements (BAA) and dealing with protected health information VHT’s existing revenue stream is heavily dependent on a number of BAA with hospitals and clinics in the US. In the US this is driven by the requirements of HIPAA, which provides that healthcare providers in the US who deal with PHI, being specific PHI that is governed by HIPAA and its associated regulations) must enter into a BAA with any third parties who receive that PHI in the course of performing services for, or on behalf of, that covered entity. Part of the purpose of the BAA is to ensure that third-party service providers are subject to the same obligations relating to the security of PHI as those that apply directly to covered entities under HIPAA. Under the terms of a BAA it is customary for the hospital or clinic to insist that VHT is liable for any unauthorised access to, or use or disclosure of, PHI while it is under the control of VHT or its employees and contractors. While VHT seeks to limit this liability to a monetary cap in negotiating these contracts, it is not always possible for VHT to do so, and in some cases VHT’s liability is not limited. Following recent changes to HIPAA regulations, VHT can also be found to be directly liable to the US authorities for a breach of obligations under the HIPAA regime. While VHT seeks to mitigate the risk of an inadvertent disclosure of PHI or a breach of privacy relating to PHI by its employees or contractors by putting in place appropriate internal security measures and training, and taking out insurance cover, if a breach were to arise and VHT is found to be liable and subject to a payment of damages, this could have a material adverse effect on the financial performance and reputation of VHT. Further, as VHT moves progressively to a Cloud-based information storage system, new risks for the storage of PHI and the maintenance of confidentiality of PHI will arise. VHT will attempt to mitigate such cyber risks by ensuring that any such Cloud-based system has HIPAA-compliant firewalls, but that in itself may not be sufficient. Any Cloud-based system is subject to cyber-attacks or negligent or malicious action by an employee or contractor, and any inadvertent disclosure of PHI or breach of confidentiality of PHI while under the control of VHT or its employees and contractors could lead to a damages claim and, if the Company is found liable, could have a material adverse effect on VHT’s reputation and financial performance. Brand and reputation risk The reputation and brand of VHT and its products are important in attracting hospitals, medical clinics, large companies and radiologists to use VHT’s products. Any reputation damage or negative publicity around VHT or its products could adversely impact on VHT’s business. VHT is reliant on the acceptance, promotion and usage of its products by healthcare professionals Regulatory approval and clearance of its products, including in Australia and the US, will not guarantee market adoption of VHT’s products. In order to achieve commercial success, VHT is reliant on the acceptance and promotion of its products by healthcare professionals, including radiologists. Reasons that healthcare professionals may be slow to adopt VHT’s products include (but are not limited to): • preference for the products of competitors due to familiarity with those products or for various other reasons; • limited return on investment data illustrating the cost benefits to healthcare professionals of the use of VHT’s products; and • concern over the potential liability risks involved in using a new product. This is an impor tant document 51 5 RISKS TYPE OF RISK DESCRIPTION OF RISK Recruitment and retention of key personnel As a relatively young and relatively closely held company, VHT relies heavily on its existing key management personnel, who have intimate knowledge of the business, its products and its business model. If a member of VHT’s key management personnel were to resign or leave the business this could have an adverse effect on VHT’s performance; and there is no guarantee that VHT could attract a suitably qualified replacement, or if it is able to do so, how long it may take for VHT to attract and employ a suitably qualified replacement. VHT expects to grow its sales and marketing teams in the US, Asia and Europe over time. An inability to attract quality sales and marketing personnel may adversely impact on VHT’s growth plans and its ability to grow revenue. While VHT has a structured incentive program for its key personnel (refer to Section 10 for further details) these measures alone may not be sufficient to retain existing personnel, or to attract new personnel in a timely manner, which could negatively affect VHT’s ability to reach its goals. Potentially adverse effects of healthcare reform legislation in the US and other countries and the impact of advocacy groups and sceptics In recent years, there have been numerous initiatives at the US federal and state levels for comprehensive reforms affecting the payment for, the availability of and reimbursement for healthcare services. Recent legislation and many of the proposed reform bills include funding to assess the comparative effectiveness of medical devices, being the equipment on which VHT Solutions operates. It is unclear what impact the comparative effectiveness analysis will have on VHT’s products or its financial performance. If significant reforms are made to the healthcare system in the US, or in other jurisdictions, those reforms could adversely affect VHT’s financial condition and operating results. Further, the use of breast screening and mammogram is under attack globally by various advocacy groups and sceptics. If governments listen to these groups and decide to restrict or cease funding breast screening altogether, this could have a material adverse impact on VHT’s financial performance. VHT may not be able to pass the regulatory hurdles and gain the necessary approvals and clearances to use its products in certain jurisdictions VHT currently has FDA clearance (FDA 510(k)) for its products VolparaDensity and Volpara Density Map (currently commercially unavailable), and for its quality controls tool. However, as VHT seeks to diversify its product range and develop new products, VHT cannot guarantee that it will receive all necessary regulatory approvals, nor can VHT accurately predict the product approval timelines, cost or other requirements that may be imposed by regulators (e.g. clinical trials or other requirements proving effectiveness of its new products). Further, there may be changes to regulatory standards, which could delay or prevent VHT from obtaining the necessary regulatory approvals. In addition, any future changes to the treatment may require separate clearance or approval. Any delays or barriers to VHT obtaining necessary regulatory clearances would limit the size of the market opportunity for the new products until such time (if any) that VHT was able to obtain such clearances for its new products. 52 Volpara Health Technologies Limited | Prospectus | 2016 TYPE OF RISK DESCRIPTION OF RISK Patent rights The value of VHT’s products depends, in part, on securing rights to the intellectual property VHT develops. Competition in retaining and sustaining protection of intellectual property and the complex nature of intellectual property can lead to expensive and lengthy patent disputes for which there is no guaranteed outcome. VHT is relying on its ability to obtain and maintain patent protection of its products. The granting of a patent does not guarantee that the rights of others are not infringed or that competitors will not develop competing intellectual property that circumvents such patents. The patent position of medical technology companies can be highly uncertain and frequently involves complex legal and scientific evaluation. Therefore, not all patent claims may be allowed and not all patents may be enforceable. There can be no assurance that any patents VHT owns, controls or licenses now or in the future will give VHT commercially significant protection of the intellectual property, or that any of the products that may arise from the intellectual property will have commercial success. Similar to other companies operating in the software industry, VHT could fall victim to attempts by a non-practising entity (commonly referred to as a patent troll) looking to enforce patent rights against VHT with the sole aim of gaining financial reward through settlement, licensing or litigation. For further details on VHT’s current patents, read the IP and Patent Report set out in Section 9. Infringement of thirdparty intellectual property rights VHT does not believe that it is currently infringing any third party’s intellectual property rights. However, in the future VHT may be subjected to infringement claims or litigation arising out of patents and pending applications for patents involving competitors, or additional proceedings initiated by third parties, the US Patent and Trademark Office, the European Patent Office or other intellectual property regulators to re-examine the patentability of licensed or owned patents. VHT itself may be the victim of an infringement of its own patents and other intellectual property rights. The defence and prosecution of intellectual property rights lawsuits, proceedings, and related legal and administrative proceedings are costly and time-consuming to pursue, and their outcome is uncertain. If VHT infringes the rights of third parties, VHT could be prevented from selling its products and be forced to defend litigation and pay damages. Further, there is always a risk of third parties claiming involvement in, or membership of, technological advances contained in VHT’s products and, if any disputes arise, they could adversely affect the financial performance and reputation of VHT. In addition, under a number of commercial contracts, VHT indemnifies both the counterparty to the contract, and an end user of its product, against any claims for an infringement of third-party intellectual property. A successful infringement claim could have substantial financial and reputational implications on VHT. Trade secrets In addition to its patent and licensing activities, VHT also relies on protecting its trade secrets. The protective measures VHT employs may not always be sufficient to protect its trade secrets. This could erode its competitive advantage. VHT also cannot be certain that others will not independently develop similar technologies on their own or gain access to trade secrets or have disclosed to them such technology, or that VHT will otherwise be able to meaningfully protect its trade secrets and unpatented know-how and keep them secret. This could allow competitors to commercialise products in competition with VHT’s products. Although VHT implements reasonable endeavours to protect its trade secrets, these measures may not always be sufficient. VHT has a limited number of sales, marketing and distribution resources VHT currently has limited marketing resources and will need to commit significant resources to developing sales, distribution and marketing capabilities. VHT will need to ensure compliance with all legal and regulatory requirements for sales, marketing and distribution in each relevant market. There is a risk that VHT will be unable to develop sufficient sales, marketing and distribution capacity to fully realise the commercialisation of its products. This is an impor tant document 53 5 RISKS TYPE OF RISK DESCRIPTION OF RISK Industry and competition VHT’s competitors include, and potential competitors may include, companies with substantially greater resources and access to more markets. Therefore, competitors may succeed in developing products that are more effective or otherwise commercially superior to those developed, or being developed, by VHT or which could render VHT’s products obsolete and/or otherwise uncompetitive. In addition, VHT may not be able to compete successfully against current or future competitors where aggressive pricing policies are employed to capture market share. Such competition could result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely impact VHT’s future business, operating results and financial position. VHT may be subject to competition from existing manufacturers of breast screening equipment VHT’s products are designed to operate on most of the leading breast screening equipment manufactured globally, including equipment manufactured by market leaders Hologic, GE and Siemens. However, manufacturers such as Hologic also manufacture their own software, which can be used on their own equipment and possibly on other manufacturers’ equipment. There is a risk that manufacturers such as Hologic make it a condition of the sale of their equipment that Hologic software be used with that equipment, and offer the product for free. This may make it more difficult for healthcare professionals to adopt VHT’s products and use them with their equipment, even though VHT can successfully demonstrate that its products are superior to those being offered by the equipment manufacturers. If this were to happen, VHT is likely to experience pressure on its sales, which would impact on its financial performance. In addition, equipment manufacturers could encrypt the data on their equipment that is needed for the Volpara Products to operate, therefore making it impossible for VHT to process images. This risk is somewhat diminished due to global standards imposed on equipment manufacturers. There may also be legal reasons that would stop manufacturers being able to take this course of action. Further, VHT’s VolparaDensity product produces a radiation dose score for each screening so that the patient is aware of the extent of their exposure to radiation. Each manufacturer’s equipment tends to give a different radiation dose with some doses being higher than others. There is a risk that a manufacturer may make a claim against VHT that its radiation score is not accurate or that it is misleading and that it is damaging the reputation of that manufacturer. While VHT considers this risk to be low given that its product calculates radiation doses based on internationally accepted algorithms, if a claim is made against VHT, VHT may suffer reputational damage as well as damage to its financial performance. Further product development VHT continues to invest in its product development in order to stay ahead of any emerging competition. In addition to its VolparaDensity product range, VHT is developing its VolparaAnalytics product. Development of new products is expensive due to regulatory and quality requirements, which have to be met prior to clinical testing, and it is possible that this expense could hamper VHT’s ability to develop new products. VHT cannot give any guarantee that further product development will be successful, that development milestones will be achieved or that VHT’s intellectual property will be developed into further products that are commercially exploitable. There are many risks inherent in the development of technologies and related products, particularly where the products are in the early stages of development. Projects can be delayed or fail to demonstrate any benefit, or may cease to be viable for a range of scientific and commercial reasons. 54 Volpara Health Technologies Limited | Prospectus | 2016 TYPE OF RISK DESCRIPTION OF RISK Potential clawback of grant funding To date VHT has been the recipient of funding under grant and project agreements that include provisions allowing the funding authority to claim some or all of that funding back if VHT fails to comply with the terms of the relevant agreement or in some cases enters into a contract that would, in the reasonable opinion of the funder, materially reduce the benefit to New Zealand anticipated from the project that was the purpose of the initial grant or funding. VHT is aware of its obligations under its funding agreements and is not currently aware of any action or event that could lead to a funder threatening a clawback. Risks associated with possible future acquisitions As part of its business strategy, in the future VHT may make acquisitions or significant investments in complementary companies, products or technologies. No such acquisitions or investments are currently planned. Any such future transactions would be accompanied by the risks commonly encountered in making acquisitions of companies, products and technologies, including integration risk. VHT may be involved in litigation or other disputes VHT may be involved from time to time in disputes or claims, including medical indemnity, product liability or breach of contract disputes or claims, with current or former customers and/or their patients. These disputes or claims may lead to legal and other proceedings, and may cause VHT to suffer additional costs. If future litigation, or threatened litigation, against VHT were to result in damages being awarded against VHT, it could have an adverse impact on the financial performance, position and future prospects of VHT. VHT may also have disagreements with regulatory bodies in the course of its operations that could result in its accreditations being revoked. This may prevent VHT from claiming benefits from the relevant medical regulator that regulates the various jurisdictions in which VHT operates. 5.3 General risks In addition to the specific risks outlined above, the operating results and profitability of the Company are sensitive to a number of general risk factors including those set out below. The list of risk factors below should be carefully considered, together with the information contained elsewhere in this Prospectus, before deciding to apply for Shares. TYPE OF RISK DESCRIPTION OF RISK Government and regulatory risk Changes in government, fiscal, monetary, environmental, taxation, regulatory policies and other laws may also affect the business of VHT. The market in which VHT provides products or services is subject to significant regulation which may increase or be changed by governmental or other regulatory authorities in the future. Changes to the regulatory framework could impact on VHT and the industry in which it operates generally, and could result in an adverse impact on the financial position, performance, assets and operations of VHT. Tax treatment on an investment in Shares The tax treatment of an investment in Shares will differ depending on each Investor’s personal circumstances. Investors should seek their own taxation advice in respect of the investment into VHT. Capital raising The Directors give no assurances that the objectives of VHT outlined in this Prospectus will be met. The capital raising described in this Prospectus is intended to raise sufficient funds to fund expansion in sales and marketing activities, product and cloud development and working capital. This is an impor tant document 55 5 RISKS TYPE OF RISK DESCRIPTION OF RISK Income and capital risk An investment in the Shares is considered to be speculative in nature and the capital contributed and the returns projected are not guaranteed by VHT, its Directors, officers or any other person. The speculative nature of the investment poses a risk and the capital may not be returned. Taxation VHT is subject to various forms of taxation including but not limited to PAYG, GST and resident and non-resident withholding tax. An increase, change in the application, or introduction of a new tax could materially affect the performance and financial position of VHT. General economic and share market risk The performance of VHT, in common with other companies, is subject to general economic conditions, movements in interest and inflation rates, prevailing global commodity prices and currency exchange rates which may have an adverse effect on VHT’s activities, as well as its ability to fund those activities. Further, share market conditions may affect the value of VHT’s quoted securities regardless of VHT’s operating performance. Share market conditions can be affected by many market factors such as: • general economic outlook; • interest rates and inflation rates; • currency fluctuations; • changes in investor sentiment towards equities or particular market sectors; • political instability; • short selling and other trading activities; • the demand for, and supply of, capital; and • force majeure events. The market price of the Shares can fall as well as rise and may be subject to varied and unpredictable influences on the share market. The trading price of the Shares at any given time may be higher or lower than the price paid under the Offer. Further, you may be unable to sell or realise your investment because the market for Shares may be illiquid. Currency risk Movements in currency exchange rates may have an adverse effect on the Company’s activities, as well as on its ability to fund those activities. In particular, the Company currently sources a significant proportion of its income from the US. VHT’s financial position may be substantially affected by future US$ currency exchange fluctuations as well as currency exchange fluctuations in other jurisdictions in which the Company operates. Product liability insurance VHT is exposed to potential product liability risks that are inherent in the research and development, manufacturing, marketing and use of its products. VHT has product liability and professional indemnity insurance which the Directors consider is adequate at this time. However, there can be no assurance that adequate or necessary insurance coverage will continue to be available at an acceptable cost or in sufficient amounts, if at all, or that product liability or other claims would not materially and adversely affect the business or financial condition of VHT (for instance, because the amount of such claims exceeds the level of insurance). Legal risk 56 VHT is exposed to the risk of changes to the applicable laws and/or the interpretation of existing laws which may have a negative effect on VHT, its investments and/or returns to Shareholders or the risks associated with noncompliance with these laws (including reporting or other legal obligations). Noncompliance may result in financial penalties being levied against VHT. Volpara Health Technologies Limited | Prospectus | 2016 TYPE OF RISK DESCRIPTION OF RISK Dividend risk VHT has not to date paid any dividend on its ordinary shares. There is no certainty that VHT will pay dividends in the future. Force majeure Events may occur within or outside Australia and New Zealand that could impact upon the global and/or Australian and New Zealand economies, the operations of VHT and the price of its Shares. Such events include, but are not limited to, acts of terrorism, cyber hostilities, outbreaks of international hostilities, fire, floods, earthquakes, labour strikes, civil wars, natural disasters, outbreaks of disease or other natural or manmade events or occurrences that can have an adverse effect on the demand for VHT’s products and its ability to conduct business. VHT cannot insure against all risks. The above lists of risk factors should not to be taken as exhaustive of the risks faced by the Company or by Investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the Shares. You should consult your stockbroker, solicitor, accountant, financial adviser or other professional adviser before deciding whether to apply for the Shares. This is an impor tant document 57 6 58 DIREC TOR S , K E Y PEOPLE A ND CORP OR ATE GOVERN A NCE Volpara Health Technologies Limited | Prospectus | 2016 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE 6.1 Board of Directors NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS Roger joined the Board in June 2010 and was appointed Chairman in October 2015. Roger is a highly experienced entrepreneur and investor in early-stage growth companies in Australia and internationally. He built Computer Power Group (CPG) in the 1970s from a small start-up to a worldwide group of 3,000 people operating from 50 offices in 12 countries, listing on the ASX in 1987. In 1996 he co-founded Allen & Buckeridge, an early-stage venture capital fund with offices in Silicon Valley and Australia. He is dedicated to social entrepreneurship, especially to enterprises focused on indigenous economic development and digital health. Roger Allen AM Chairman BA (Hons), FACS Roger has served on two Prime Ministers’ Science and Technology Councils and Advisory Boards, and was Deputy Chairman of Austrade from 1990 to 1997. Currently an adjunct professor in the Business School of the University of Technology Sydney, he has also lectured occasionally at the School of Entrepreneurship at INSEAD. Roger has been awarded the top two lifetime awards in the IT industry (CSIRO Tony Benson award and the Pearcey Medal for lifetime achievement) as well as an Order of Australia Honour for his services to the IT sector through leadership roles, venture capital investment and professional development, and in recognition of his support of the indigenous community and philanthropic interests. He is based in Sydney, Australia. Roger has been an investor in VHT since 2010 and indirectly holds, or has a relevant interest in, 20,467,848 Shares and 300,000 options. Ralph, a founding Director and Shareholder of VHT, has been at the forefront of the digital breast imaging field for over 25 years. Initially a research scientist at the University of Oxford, Ralph’s innovative work in quantitative breast imaging technology led him to form first OXIVA Limited and then Mirada Solutions with Professor Sir John Michael Brady. Under Ralph’s leadership Mirada became the number-one provider of image registration and fusion tools before being acquired by CTI Molecular Imaging Inc. and later Siemens Medical Solutions USA, Inc. Ralph Highnam Executive Director and CEO BSc (Hons) 1st Class, MSc, PhD Before founding VHT in 2009, Ralph consulted for many of the world’s top medical imaging companies, including R2, Siemens, Hologic and Dexela, as well as many leading breast screening programs. During this time, he continued his academic research as part of an international circle of collaborators. Ralph is the author of numerous articles and, with Brady, the seminal book Mammographic Image Analysis. As CEO of VHT, Ralph is dedicated to providing the most accurate measurements possible of breast composition (“breast density”) in order to improve the health outcomes of women around the world. Based in Wellington, New Zealand, in 2015 he was named a Wellingtonian of the Year finalist. Ralph has been an investor in VHT since its formation in 2009 and holds, or has a relevant interest in, 15,632,298 Shares and 3,148,336 options. Mike, a founding Director and Shareholder of VHT, is currently Professor of Oncological Imaging at the University of Oxford, having recently retired after 25 years as Professor of Information Engineering. He served for 20 years as a Non-Executive Director and Deputy Chairman of the FTSE 250 company Oxford Instruments plc and for 10 years as a NonExecutive Director of AEA Technology plc. Professor Sir John Michael (Mike) Brady Non-Executive Director FRS, FREng, FMedSci, HonFIET, FInstP, FBCS, PhD Mike is founding Director of Perspectum Diagnostics, which performs liver image analysis by MRI, and Mirada Medical Limited, which develops medical image analysis software and is installed in almost 2000 hospitals worldwide. He is also Co-Director of the Oxford Cancer Imaging Centre, one of four national cancer imaging centres in the UK. Mike is the author of over 750 articles and 26 patents in computer vision, robotics, medical image analysis and artificial intelligence, and the author or editor of 10 reference books. He is based in Oxford, UK. Mike has been an investor in VHT since its formation in 2009 and holds, or has a relevant interest in, 7,919,211 Shares and 300,000 options. This is an impor tant document 59 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS John joined the VHT board in early 2015 with more than 25 years of medical device experience as an executive and company director, John currently serves as the President and CEO of VytronUS, Inc., a venture-backed start-up using novel catheter technology to treat atrial fibrillation, a cardiac arrhythmia. John Pavlidis Non-Executive Director BS, MS Prior to VytronUS, John was the President and CEO of Endoscopic Technologies, Inc., a leader in minimally invasive and endoscopic treatment of atrial fibrillation. Since 2007, John has also served on the board of directors of several health technology start-up companies, including U-systems, Inc., which pioneered automated breast ultrasound imaging as an adjunct to mammography for breast cancer screening and was acquired by GE Healthcare in 2012. Previously, John served as President and CEO of R2 Technology Inc., the pioneer and leader in computer-aided detection of breast cancer, until Hologic Inc. acquired the company in 2006. Before joining R2 Technology, John was the president of the Ultrasound group at Siemens Healthcare, where he led the acquisition and integration of Acuson and subsequent growth of that company to $1 billion in revenue. He is based in Silicon Valley, California. John holds, or has a relevant interest, in 451,872 options. John is the principal of an Australian CPA firm that provides companies with corporate advisory services. John has extensive knowledge and practical experience in the application of Australian corporations law, ASX Listing Rules, international accounting standards and corporate governance principles. John Diddams Over the past 25 years John has managed the processes to raise capital, perform due diligence and seek ASX listing for a number of enterprises, including IPOs for a wide range of offerings. These include oil and gas interests, food and retail, a fine wool processing plant, an innovative telephony product, a biotech company, an Internet advertising initiative, a dental device for snoring and sleep apnoea, and most recently an indoor skydiving company and the NZ developer of the Martin Jetpack. Non-Executive Director B Com, FCPA, FAICD John is currently a Non-Executive Director of ASX-listed Skydive the Beach Group Limited, an adventure tourism business operating in Australia and New Zealand. John is also a Non-Executive Director and deputy chair of House with No Steps, a notfor-profit organisation that supports 3,000 people to make the most of their abilities. He is based in Sydney, Australia. John holds, or has a relevant interest in, 253,014 Shares and 1,320,000 options. Lyn joined the Board in December 2015. Lyn is a prominent women’s advocate, inspirational speaker and long-standing spokesperson on behalf of Australians personally affected by cancer. Following her own diagnosis and treatment for breast cancer, in 1998 Lyn founded Breast Cancer Network Australia (BCNA), the peak national breast cancer consumer organisation with more than 110,000 members. The creator of the Field of Women concept, Lyn led the development of BCNA’s Seat at the Table program, which provides trained and supported consumer representatives at advisory and decision-making forums nationally. She has been an invited public speaker at medical conferences globally and across Australia. Lyn Swinburne AM Non-Executive Director Hon Doc (Social Sciences) Lyn has received numerous awards for her work: in 2006 she was named an Australian of the Year finalist and appointed a Member of the Order of Australia, and in 2007 she was named Melburnian of the Year. More recently she was awarded an Honorary Doctorate from Swinburne University for advancing the cause of women affected by breast cancer. She has been appointed to a number of boards, including the National Breast and Ovarian Cancer Centre and Cancer Australia, by various national Health Ministers. Lyn retired from her role as CEO of BCNA at the end of 2011 and is currently Chair of the Board of the Royal Women’s Hospital in Melbourne. She is based in Melbourne, Australia. Lyn holds, or has a relevant interest in, 450,000 options. 60 Volpara Health Technologies Limited | Prospectus | 2016 6.2 Senior Management NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS Dr Ralph Highnam See Section 6.1. Chief Executive Officer and Chief Scientist BSc (Hons) 1st Class, MSc, PhD Mark is a medical industry executive who has led companies in the medical imaging, software and medical device space for over 27 years. Mark has extensive commercial experience working with both start-up and established companies, leading high-performance teams and launching new products in domestic and international markets. Mark started his career at GE Healthcare and took on roles of increasing responsibility in marketing and sales, operations and finance. His executive global leadership roles include those at Cardioptimus, Estech, Ziosoft, R2 Technology and Stereotaxis. Mark Koeniguer Chief Commercial Officer BSc, MBA More recently, Mark was Chief Commercial Officer at UL Workplace Health and Safety, a global leader in e-learning and electronic medical record software supporting the occupational healthcare industry. He is based in Nashville, Tennessee. Julian is a breast imaging expert of 30 years’ experience whose breadth of knowledge spans all major areas of the medical imaging industry. Julian Marshall Chief Marketing Officer BS, MS Initially a software developer and consultant for Sun Microsystems, Julian ran Alpine Image Systems for 8 years before joining companies like R2 Technology, acquired by Hologic in 2006. At R2 and Hologic he held leadership roles in software and hardware development, marketing and product management. In this last capacity he continued his work in product innovation for Hologic, where he served in several director-level positions. He led the team responsible for managing all of Hologic’s breast imaging products, including tomosynthesis, before moving to Hologic’s Global Strategic Innovation group. An engineer by training, Julian holds numerous patents in computer-aided detection and breast imaging, including user interface design, and has worked in cardiac ultrasound, digital subtraction angiography, image processing and mammography. He is based in San Francisco, California. David has been a member of the VHT management team since 2011 and has 25 years of experience in the medical device industry. After eight years in Europe in engineering roles for GE Healthcare, David was Director of Product Development for TomoTherapy Incorporated, a US-based start-up that developed a medical linear accelerator (and subsequently was NASDAQ listed and acquired by Accuray). He also worked as a freelance medical device consultant, primarily in the US, helping to bring new devices to market and improving the DICOM capabilities of existing ones. David Murray Chief Technology Officer MSc, PhD David is an expert in medical device integration and the DICOM medical communication standard, serving for over 10 years as chair of DICOM Working Group 7 (Radiation Therapy), an international standards organisation for medical device communication in radiation therapy. He is based in Wellington, New Zealand. This is an impor tant document 61 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS Brian has been a member of the VHT management team since 2010. He has 40 years’ experience in senior financial management, including positions in New Zealand with Hewlett Packard, Spark (previously Telecom New Zealand Limited) and No 8 Ventures Management Limited. Brian Leighs Chief Financial Officer BCA, CA Brian was a member of the Energy Reform Unit of the Victorian State Government during the privatisation program of the electricity and gas industries. He also held roles as Establishment CEO and director of Multinet Gas and Ikon Energy, and was a member of the board of VENcorp. He project managed the sale of Hazelwood Power Station and Loyang A power station. Brian also project managed the establishment of Genesis Energy as part of the disaggregation of Electricity Corporation of New Zealand, setting up its retail operation activities, the largest in New Zealand. He has previously advised the Asian Development Bank on several Asian energy development projects. In addition to his current role at VHT, Brian holds directorships on two other health technology companies. He is based in Wellington, New Zealand. David has nearly 30 years of sales experience in the medical imaging field, specifically in breast imaging and channel sales. Before joining VHT’s management team in 2012, David served as Vice President of Channel Sales for Carestream Health, where he was responsible for channel sales for digital imaging equipment and x-ray film in the US. Previously, he held sales positions with Fuji Medical Systems USA and R2 Technology, the breast computer-aided detection company. He is based in Rochester, New York. David Mezzoprete VP Sales, North America Don is a veteran medical devices professional with over 25 years of experience in international sales and marketing. The former head of Siemens’ Women’s Health business segment in the US, Don innovated a number of industry firsts, including the first PC-based teleradiology, first desktop-based computed radiography, first PC-based 3D workstation, first server-based lung computer-assisted detection and first sales of Siemens digital mammography in the US. He joined VHT’s management team in 2012. Don has also held high-level positions with Asia Pacific Medical Devices and Raytheon Systems (EMED). He is based in northern Thailand. Don Alvarez VP Sales, EMEA and APAC BA, MA Ian has over 20 years of experience in medical devices and diagnostic imaging, including quality management systems. Ian spent 14 years with the UK Department of Health Scientific and Technical Branch, where he undertook commissioning audits of new installations of NHS diagnostic imaging equipment, investigated safety incidents and, under the DHSS Manufacturer Registration Scheme, audited supplier quality management systems. In 1988 Ian became the first Quality Manager for Bureau Veritas Quality International, a major accredited certification body including certified ISO 9001 quality management system. Ian Hendra Quality and Regulatory Manager MCQI, CQP, IEng, FIHEEM In 1992 Ian emigrated to New Zealand to set up the first accredited certification body in the Southern Hemisphere, including substantial client contact as a quality systems auditor. Later he served as Manager Audit Compliance at the Airways Corporation of New Zealand, working in the highly regulated civil aviation sector. Ian now manages his own consultancy and has provided regulatory services to VHT since 2011. He is based in Wellington, New Zealand. 62 Volpara Health Technologies Limited | Prospectus | 2016 NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS Penelope combines qualifications in intellectual property law with over 20 years of commercial experience. She has set up successful enterprises, which involved the creation, acquisition and exploitation of IP rights, and served as Director of an international group, where she pioneered new models for use of IP rights. Penelope is listed among the world’s top IP strategists, her advisory work with highgrowth, technology SMEs cited as “best practice” by the UK government. Penelope Gibson Intellectual Property Manager PhD (law), MPhil, MSc, Certificate of Law, BA Jnt Hons In 2008 Penelope set up QUEDO, a consultancy specialising in management of innovation, intellectual property, investment and international commercialisation; clients now include investors and technology companies in Europe, the US, Australasia, China and Russia. Penelope’s professional memberships include the International Licensing Executives Society (MLESI), Chartered Institute of Linguists and Royal Society (New Zealand). She has been a regular speaker at APEC forums since 2011, and her papers are used in universities in the US and China. Penelope has been an IP consultant to VHT since 2009. She is based in Bordeaux, France. 6.3 Scientific Advisory Board The VHT Scientific Advisory Board was set up in 2010 and comprises Dr Highnam, Professor Brady and two of the original pioneers in breast cancer detection, both of whom were instrumental in the establishment of VHT and remain as Shareholders in the Company today: NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS Nico is one of the pioneers of computer-aided detection and played a key role in its development and adoption. A professor in the Department of Radiology, Radboud University, Nijmegen, the Netherlands, Nico was instrumental in having the Dutch Breast Screening Program incorporate VolparaDensity into a demonstration project, and more recently running the large multi-country EU ASSURE project. Professor Nico Karssemeijer Martin is a world-leading medical physicist who consults for and carries out research with many of the world’s major medical imaging companies. He is responsible for much of the pioneering work on quantitative breast imaging. Well known to radiologists and radiographers around the world, Martin has contributed to VHT by performing crucial work on x-ray physics and providing voluminous medical imaging data. Martin continues to teach at the University of Toronto. Professor Martin Yaffe CM This is an impor tant document 63 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE 6.4 Medical Advisory Board The VHT Medical Advisory Board was set up in 2010 and comprises a number of medical practitioners that are leaders in their field of breast cancer detection. In addition, VHT may draw on a wider set of advisers depending upon the specific question or advice sought. NAME EXPERTISE, EXPERIENCE AND QUALIFICATIONS Professor Harvey, University of Virginia, is a practising breast radiologist and an expert in the evaluation of breast density and breast cancer risk analysis. Professor Jennifer Harvey Dr Schroeder, Greenville, North Carolina, is a leading breast imaging specialist and entrepreneur, constantly innovating and pushing the boundaries with new technology so that women receive the best healthcare possible. Dr Bruce Schroeder Professor den Heeten is recently retired Director of the Dutch National Expert and Training Centre for Breast Cancer Screening. He continues to work at the Amsterdam Medical Center while remaining involved in entrepreneurial activities with small companies in the radiology space. Professor Ard den Heeten Dr Namba is Director of the Breast Cancer Center at Hokuto Healthcare Group in Japan. He is a practising surgeon who also advises on optimal breast healthcare system setups and works on the advisory board of several major companies. Dr Kiyoshi Namba 6.5 Interests and benefits 1.Interests of Directors Other than as set out below or elsewhere in the Prospectus, no Director or proposed Director: a) has as at the Prospectus Date, or had at any time during the two years prior to the Prospectus Date, any interest in: (i) the formation or promotion of the Company; (ii) any property acquired or proposed to be acquired by the Company in connection with its formation or in connection with the Offer; or 64 Volpara Health Technologies Limited | Prospectus | 2016 (iii) the Offer; and b) has been paid or agreed to be paid any amount, or has been given or agreed to be given any other benefit, by any person, either: (i) to induce him or her to become, or to qualify him or her as, a Director; or (ii) for services provided by him or her in connection with the formation or promotion of the Company or in connection with the Offer. 2.Key Executive Remuneration - Ralph Highnam – Chief Executive Officer Ralph Highnam is employed by the Company in the role of both Chief Executive Officer and executive Director. Under Dr Highnam’s employment agreement, his total remuneration will comprise: a) a gross annual salary of NZ$280,000; b) the potential for an annual bonus of up to NZ$150,000, subject to the level of satisfaction of budgeted revenue targets achieved; and c) a one-time grant of 600,000 options which will vest as follows: (i) 240,000 at the date that is 24 months from the granting of the options; (ii) 120,000 at the date that is 36 months from the granting of the options; (iii) 120,000 at the date that is 48 months from the granting of the options; and (iv) 120,000 at the date that is 60 months from the granting of the options. Dr Highnam will not receive any additional payments for performance of his role as an executive Director on the Board. Either the Company or Dr Highnam may terminate the employment by providing 6 months’ written notice. Dr Highnam’s remuneration and performance may be reviewed at the Company’s discretion. The Company may terminate Dr Highnam’s employment immediately for serious misconduct. Dr Highnam may under certain circumstances be subject to a post-employment restraint for a period of up to 6 months. 3.Non-Executive Directors’ remuneration It has been resolved that the total aggregate amount to be paid to the Directors (excluding any Executive Director) is NZ$500,000 per annum. Under the ASX Listing Rules, any increase to that aggregate annual amount will need to be approved by Shareholders. The Company does not utilise that full amount based on its current Board of Directors. The annual remuneration of the Board of Directors to be paid by the Company following admission to the ASX is as follows: Director Remuneration DIRECTOR BOARD FEES (NZ$) COMMITTEE FEES (NZ$) $80,000 $10,000 (Member – Audit Committee) Included in Employment Contract nil Sir John Michael Brady, Non-Executive Director $50,000 n/a John Pavlidis, Non-Executive Director $55,000* n/a John Diddams, Non-Executive Director $50,000 $20,000 (Chair – Audit Committee) Lyn Swinburne, Non-Executive Director $50,000 $10,000 (Member – Audit Committee) Roger Allen, Chairman and Non-Executive Director Ralph Highnam, Executive Director and CEO *John Pavlidis’s contract stipulates US$40,000 per annum. In addition to their annual remuneration, the Directors may also be reimbursed for expenses properly incurred by the Directors in connection with the affairs of the Company including travel and other expenses. There are no retirement benefit schemes for Non-Executive Directors. This is an impor tant document 65 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE 4.Directors’ deeds of indemnity The Company has entered into deeds of indemnity with each Director (the Deeds). In accordance with the Constitution, under the Deeds the Company indemnifies each Director against (i) any “Costs” (as that term is defined in the Deeds) incurred by the Director in any proceeding that relates to liability for any act or omission made by the Director as an officer of the Company or a “Related Company” (as that term is defined in the Deeds) and in which judgment is given in the Director’s favour or in which the Director is acquitted or which is discontinued; (ii) any liability to any third party for any act or omission by the Director as an officer of the Company or a “Related Company” (as that term is defined in the Deeds); and (iii) any “Costs” (as that term is defined in the Deeds) incurred by the Director in defending or settling any claim or proceeding to any Costs or liability of the nature referred to in (i) and (ii). The Directors are indemnified under the Deeds for the entirety of their term as Director and for 7 years from the date of the Director’s retirement or removal or ceasing to hold office. Under the Constitution, the Company may pay a premium for a contract insuring a person who is or has been a Director against costs and certain liabilities incurred by the person as a Director. Under the Deeds, the Company must obtain insurance for a minimum of NZ$3,000,000 during each Director’s period of office and for a period of 7 years after a Director ceases to hold office. 5.Directors’ interests in Shares and other securities As at the Prospectus Date the interests of the Directors or their associates in the Shares and options issued by the Company is set out below: Director Shares and other securities SHARES OPTIONS FINAL EXERCISE DATE EXERCISE PRICE (NZ$) Roger Allen, Chairman and Non-Executive Director (1) 20,467,848 300,000 24/01/2023 $0.54 Ralph Highnam, Executive Director and CEO 2,548,336 06/01/2021 $0.003 15,632,298 600,000 24/01/2023 $0.54 DIRECTOR Sir John Michael Brady, Non-Executive Director 7,919,211 300,000 24/01/2023 $0.54 John Pavlidis, Non-Executive Director nil 451,872 01/02/2025 $0.467 253,014 1,320,000 31/10/2025 $0.0003 nil 450,000 01/01/2026 $0.467 John Diddams, Non-Executive Director (2) Lyn Swinburne, Non-Executive Director Notes: 1. Roger Allen has a relevant interest in Shares held by Patagorang Pty Ltd, an entity controlled by him. 2. John Diddams has a relevant interest in Shares and options held by Whitfield Investments Pty Ltd, an entity controlled by him. 6.Interests of advisers Other than as set out below, no person named in this Prospectus as providing professional or advisory services in connection with the preparation of this Prospectus or any firm in which any such person is a partner: • has or had at any time during the two years preceding the date of the Prospectus, any interest in the formation or promotion of the Company, or in any property acquired or proposed to be acquired by the Company or the Offer; or • has been paid or agreed to be paid any amount or given or agreed to be given any other benefit for services rendered by them in connection with the formation or promotion of the Company or the Offer. 66 Volpara Health Technologies Limited | Prospectus | 2016 Morgans Corporate Limited has acted as Lead Manager to the Offer. VHT has paid, or agreed to pay, the Lead Manager the fees set out in Section 10.8.3 in respect of these services. RSM has acted as the Australian Investigating Accountant to the Company and provided the Investigating Accountant’s Report on Pro Forma Financial Information in Section 8. The Company has paid or agreed to pay an amount of approximately A$53,000 (plus disbursements and GST) in respect of these services. Further amounts may be paid to RSM in accordance with time-based charges. Simmonds Stewart has acted as the New Zealand legal adviser to the Company and performed work in relation to due diligence enquiries on the Company and New Zealand legal matters. The Company has paid or agreed to pay an amount of approximately $160,000 (plus disbursements and GST) in respect of these services. Further amounts may be paid to Simmonds Stewart in accordance with time-based charges. Norton Rose Fulbright Australia has acted as the Australian legal adviser to the Company and performed work in relation to Australian legal matters. The Company has paid or agreed to pay an amount of approximately A$200,000 (plus disbursements and GST) in respect of these services. Further amounts may be paid to Norton Rose Fulbright Australia in accordance with time-based charges. Deloitte has acted as the auditor to the Company. The Company has paid or agreed to pay an amount of approximately $25,000 (plus disbursements and GST) in respect of these services. Further amounts may be paid to Deloitte in accordance with time-based charges. Spruson & Ferguson has provided the IP Report in Section 9. The Company has paid or agreed to pay an amount of approximately A$18,000 (plus disbursements and GST) in respect of these services. 6.6 Corporate governance This Section explains how the Board will oversee the management of the Company’s business. The Board is responsible for the overall corporate governance of the Company. The Board is responsible for, and has the authority to determine, all matters relating to the strategic direction, policies, practices, management goals and the operations of VHT. VHT has in place corporate governance practices which are formally embodied in corporate governance policies and codes adopted by the Board (Policies). The aim of the Policies is to ensure that VHT is effectively directed and managed; risks identified, monitored and assessed; and appropriate disclosures made. The ASX Corporate Governance Council has developed and released corporate governance recommendations for Australian listed entities in order to promote investor confidence and to assist companies to meet stakeholder expectations (ASX Recommendations). The ASX Recommendations are not prescriptions but guidelines. In preparing the Policies, the Directors considered the ASX Recommendations. The Directors incorporated the ASX Recommendations into the Policies to the extent the Directors considered the ASX Recommendations were appropriate taking into account VHT’s size, board structure, resources and activities. Under the ASX Listing Rules, the Company will be required to provide a Corporate Governance Statement on its website or in its annual report disclosing the extent to which it has followed the ASX Recommendations in the reporting period. Where the Company does not follow an ASX Recommendation, it must identify the ASX Recommendation that has not been followed and give reasons for not following it. Except as set out in Section 6.6.10 below, the Board does not anticipate that the Company will depart from the ASX Recommendations, however it may do so in the future if it considers that such a departure would be reasonable. Details of the Policies will be available from Listing at www.volparasolutions.com and are summarised below. 1.Board of Directors Roger Allen, Professor Sir John Michael Brady, John Pavlidis, John Diddams and Lyn Swinburne are Non-Executive Directors who are not a part of the Company’s management. The Board reviews the independence of each Director in light of interests disclosed to the Board from time to time. The Board Charter sets out guidelines of materiality for the purpose of determining independence of Directors in accordance with the ASX Recommendations and includes a definition of independence that is largely based on that set out in the ASX Recommendations. The Board considers qualitative principles of materiality for the purpose of determining “independence” on a case-by-case basis. The Board will consider whether there are any factors or considerations which may mean that the Director’s interest, business or relationship could, or could be reasonably perceived to, materially interfere with the Director’s ability to act in the best interests of the Company. The Board considers that each of John Pavlidis, John Diddams and Lyn Swinburne is free from any business or any other relationship that could materially interfere with, or reasonably be perceived to interfere with, the independent exercise of her or his judgement and each of them is able to fulfil the role of an independent Non-Executive Director for the purpose of the ASX Recommendations. Given the guidelines adopted by the Company regarding the independence of Directors, both Roger Allen and Professor Sir John Michael Brady are not considered by the Board to be independent as they each are taken to be substantial Shareholders in the Company, having an interest in Shares in excess of 5%. Accordingly, as at the date of Official Quotation, the Board will consist of a total of six Directors, including five Non-Executive Directors, of which three are independent Directors. While this does not comply with the ASX corporate governance recommendation for a listed entity to have a majority of independent Directors, This is an impor tant document 67 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE the Board considers the existing Board composition to be appropriate for VHT at this time, taking into account VHT’s size, resources and activities. 2.Board Charter The Board has adopted a Board Charter which sets out the responsibilities of the Board in greater detail. It envisages that the Board should comprise Directors with a range of skills, expertise, experience and diversity which are relevant to the Company’s business and the Board’s responsibilities. The charter provides for the Board to delegate specific matters to senior management, or to committees established by the Board. However, ultimate responsibility for strategy and control rests with the Directors. The composition of the Board, its performance and the appointment of new Directors will be reviewed periodically by the Board, taking advice from external advisers where considered appropriate. 3.Code of Conduct The Board has approved a Code of Conduct to guide compliance with legal and other obligations to the Company’s stakeholders and which sets ethical standards for the Volpara Group personnel and reflects the Directors’ intention to ensure that their duties and responsibilities of all staff to the Company are performed with the utmost integrity. The Company considers its stakeholders to be employees, Shareholders, patients, creditors, customers, suppliers, contractors, consultants, governmental and nongovernmental organisations, the communities where the Company or its subsidiaries operate and other parties that have influence over or are influenced by the Company or its subsidiaries. The Code of Conduct outlines the Company’s employees’ obligations and explains how the code interacts with the Company’s other Policies. Responsibilities include using the Company’s resources in an appropriate manner, protecting confidential information and avoiding conflicts of interest. 4.Board committees In order to better manage its responsibilities, the Board has established an Audit and Risk Committee, which has adopted a charter approved by the Board, setting out its responsibilities. The Board has determined not to establish a Nomination and Remuneration Committee as the Board considers that such a committee is not necessary and would be burdensome at this time given the role such a committee would play and the Board’s current size and composition. The Board considers that it collectively has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively in considering the matters that would otherwise be considered by that committee. The Board will keep this matter under review and, if deemed desirable or necessary, may constitute a Nomination and Remuneration Committee at an appropriate time in the future. 68 Volpara Health Technologies Limited | Prospectus | 2016 Other committees may be established by the Board as and when required. Membership of Board committees will be based on the needs of the Company, relevant legislative and other requirements and the skills and experience of individual Directors. Audit and Risk Committee The purpose of the Audit and Risk Committee is to assist the Board in fulfilling its statutory, corporate governance and oversight responsibilities by monitoring and reviewing the integrity of financial statements; the effectiveness of internal financial controls; the independence, objectivity and performance of external auditors; and the policies on risk oversight and management. The role and responsibilities, composition and membership requirements of the Audit and Risk Committee are documented in an Audit and Risk Committee Charter approved by the Board. The independent auditors will have a direct line of reporting to the Committee and have clear and open access to members of this Committee. The Company does not currently have an internal audit function in place. The Audit and Risk Committee Charter puts in place processes to monitor the Company’s financial and risk management procedures and the Board currently considers these processes appropriate for the size and level of operations of the Company. The Audit and Risk Committee Charter provides that the committee should comprise, to the extent practicable given the size and composition of the Board from time to time, at least three members, each of whom are Non-Executive Directors, and a majority of whom are independent. To the extent practicable, the chair of the committee shall be an independent Non-Executive Director who is not the Chairman. The Audit and Risk Committee is comprised of John Diddams (Chair), Roger Allen and Lyn Swinburne, all of whom are Non-Executive Directors and two of whom, including the Chair, are independent Directors. 5.Risk management policy The identification and proper management of the Company’s risks are an important priority of the Board. The Company has adopted a risk management policy appropriate for its business (which is reflected in the Audit and Risk Committee’s Charter). This policy highlights the risks relevant to the Company’s operations and the Company’s commitment to designing and implementing systems and methods appropriate to minimise and control its risks. The Board is responsible for overseeing and approving risk management strategy and policies. The Board has delegated to the Audit and Risk Management Committee responsibility for identifying major risk areas and monitoring risk management to provide assurance that major business risks are identified, consistently assessed and appropriately addressed. The Company will regularly undertake reviews of its risk management procedures to ensure that it complies with its legal obligations. 6.Continuous Disclosure Policy The Company’s Continuous Disclosure Policy is designed to ensure compliance with the ASX Listing Rules disclosure requirements and imposes obligations and procedures on all Directors and employees of the Company to ensure the timely and balanced disclosure of all material matters concerning the Company. The Board aims to ensure that Shareholders and stakeholders are informed of all major developments affecting the Company’s state of affairs. As such, the Company has adopted this Continuous Disclosure Policy and a Shareholder Communication Policy, which together establish procedures to ensure that Directors and senior management are aware of, and fulfil their obligations in relation to, providing timely, full and accurate disclosure of material information to the Company’s stakeholders and comply with the Company’s disclosure obligations under the ASX Listing Rules. 7.Shareholder Communications Policy The Company’s Shareholder Communication Policy is designed to facilitate full and open communication with its Shareholders, observing the highest standards in corporate governance and shareholder communications. As a publicly listed company, the Company has obligations under the ASX Listing Rules to keep the market fully informed of all information which may have or could be expected to have a material effect on the price or value of its securities. The Shareholder Communication Policy is designed for strict compliance with these requirements. The Board aims to ensure that all Shareholders are kept informed of all material developments affecting VHT’s business. Information will be communicated to Shareholders through announcements to ASX, VHT’s annual report, annual general meetings, half yearly and full year results, and VHT’s website, www.volparasolutions.com. The Company Secretary has been appointed as the person primarily responsible for managing external communications with ASX. As a New Zealand–based company, VHT’s financial reporting year end is 31 March and all financial reports will be designated in NZ$. policy sets out closed periods during which Directors and employees may not trade. The policy also requires that Directors and employees of the Company in possession of price-sensitive information must not at any time deal in securities of the Company, or advise or suggest another person do so, or communicate the price-sensitive information to a person who may deal in securities of the Company. The policy prohibits Directors and key management personnel from engaging in short-term dealing in securities of the Company. Key Management Personnel are not permitted to enter into (directly or indirectly) a margin loan or other financing arrangement where there is a risk that Company securities will be traded pursuant to the terms of the margin loan or financing arrangement (together a Margin Loan), unless they have obtained the prior written consent of the Chairman of the Board to enter into the Margin Loan and disclosed to the Chairman of the Board all relevant information regarding the Margin Loan. 9.Diversity Policy VHT has adopted a diversity policy which sets out VHT’s commitment to diversity and inclusion in the workplace. The diversity policy provides a framework under which the Board, or an appropriate committee of the Board, will set measurable objectives for achieving gender diversity targets and will assess annually both those objectives and VHT’s progress in achieving the objectives that the Company has set itself. The initial key focus of the Board on diversity relates to gender diversity at the Board and senior executive level, and gender and ethnic diversity among employees and consultants. Under the diversity policy VHT recognises other diversity grounds and commits to not discriminate against individuals on a number of grounds including race, impairment, parental status, religious and political beliefs. Under the policy the Company states that, as a principle, it will not tolerate discrimination, harassment, vilification or victimisation in the workplace. The Company intends to report annually against the measurable objectives that it sets regarding diversity. It is expected that financial results for the full year (for the 12 months ending 31 March) will be reported in May each year and the half-year financial results (for the 6 months ending 31 September) will be reported in November. 8.Securities Trading Policy VHT has a Securities Trading Policy for Directors and employees of VHT. The policy requires Directors and key management personnel to obtain approval prior to dealing in VHT securities. The policy sets a trading window of six weeks following the release of annual or half-yearly results, in which staff members covered by the policy may trade in VHT securities. In addition, the This is an impor tant document 69 6 DIRECTORS, KEY PEOPLE AND CORPORATE GOVERNANCE 10. Departures from ASX recommendations ASX PRINCIPLES AND ASX RECOMMENDATIONS 2.1 The Board should have a Nomination Committee. SUMMARY OF POSITION OF VHT The Board has determined not to establish a Nomination Committee at this time. The Board considers that such a committee is not necessary and would be burdensome at this time given the role such a committee would play and the Board’s current size and composition. The Board considers that it collectively has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively in considering the matters that would otherwise be considered by this committee. The Board will keep this matter under review and if deemed desirable or necessary, may constitute a Nomination Committee at an appropriate time in the future. 2.4 A majority of the Board should be independent Directors. The Board comprises 6 Directors, of which 5 are Non-Executive Directors. 3 out of 5 of the Non-Executive Directors are independent. Roger Allen, the Chairman of the Board, is not considered to be independent by virtue of his substantial shareholding in the Company, having been the primary seed capital provider which enabled the VHT technology to be commercialised. Professor Sir John Michael Brady is similarly not considered to be independent by virtue of his substantial shareholding for the same reasons. The Chair of the Audit and Risk Committee is independent, as are 2 other NonExecutive Directors, making 50% of the Board independent. The Board considers its present composition to be appropriate, though it will monitor this composition and, if deemed appropriate, recruit another independent NonExecutive Director. 2.5 The Chair of the Board should be an independent Director. Roger Allen, the Chairman of the Board, is not considered to be independent by virtue of his substantial shareholding in the Company, having been the primary seed capital provider which enabled the VHT technology to be commercialised. 8.1 The Board should have a Remuneration Committee. The Board has determined not to establish a Remuneration Committee at this time. The Board considers that such a committee is not necessary and would be burdensome at this time given the role such a committee would play and the Board’s current size and composition. The Board has an internal process and has used outside consultants to set the level and composition of remuneration for Directors and senior executives, to ensure that such remuneration is appropriate and not excessive. The Board is in the process of formulating a succession plan, with a view to appointing an independent Chair within two years of listing. The Board will keep this matter under review and if deemed desirable or necessary, may constitute a Remuneration Committee at an appropriate time in the future. 70 Volpara Health Technologies Limited | Prospectus | 2016 6.7 Related party transactions Other than as set out below or elsewhere in this Prospectus, there are no existing agreements or arrangements nor any currently proposed transactions in which the Company was, or is to be, a participant and in which any related party of the Company has or will have a direct or indirect material interest in the Company or the Offer: • the compensation arrangements with Directors and executive officers, which are described in Section 6.5; and • the indemnification arrangements with Directors and executive officers which are described in Section 6.5.4. Policy for approval of related party transactions The Company’s Audit and Risk Committee is responsible for reviewing and approving all transactions in which the Company is a participant and in which any parties related to the Company, including its executive officers, Directors, beneficial owners of more than 5% of the Shares, immediate family members of the foregoing persons and any other persons whom the Board determines may be considered related parties of the Company, has or will have a direct or indirect material interest. The Audit and Risk Committee or its Chairperson, as the case may be, will only approve those related party transactions that are determined to be in, or are not inconsistent with, the best interests of the Company and its Shareholders, after taking into account all available facts and circumstances as the Audit and Risk Committee or the Chairperson determines in good faith to be necessary. Transactions with related parties will also be subject to Shareholder approval to the extent required by the ASX Listing Rules. This is an impor tant document 71 7 72 DE TA IL S OF THE OFFER Volpara Health Technologies Limited | Prospectus | 2016 7 DETAILS OF THE OFFER 7.1 Description of the Offer This Prospectus relates to an Offer of 20 million Shares in VHT at an Offer Price of A$0.50 per share to raise A$10 million. The Offer is fully underwritten by the Lead Manager, Morgans Corporate Limited. The total number of Shares on issue at completion of the Offer will be 122,467,502. Shares issued under the Offer will rank equally in all respects with existing Shares on issue. There is no general public offer of Shares – Applications may only be made under the Broker Firm Offer (see Section 7.3). The Offer is made on the terms, and is subject to the conditions, set out in this Prospectus. 7.2 Institutional Offer 1.Invitations to Bid The Institutional Offer consists of an invitation to certain Institutional Investors in Australia and New Zealand to apply for Shares. The Lead Manager has separately advised Institutional Investors of the Application procedures for the Institutional Offer. Offers and acceptances in the Institutional Offer are made under this Prospectus and are at the Offer Price per Share. 2.Institutional Offer Allocation Policy The allocation of Shares among applicants in the Institutional Offer was determined by the Lead Manager in consultation with VHT. The Lead Manager, in consultation with VHT, has absolute discretion regarding the basis of allocation of Shares among other Institutional Investors and there is no assurance that any such Institutional Investor will be allocated any Shares, or the number of Shares for which it has bid. The allocation policy for the invitations referred was influenced by a number of factors including: a) number of Shares bid for by particular bidders; b) the timeliness of the bid by particular bidders; c) VHT’s desire for an informed and active trading market following Official Quotation; d) VHT’s desire to establish a wide spread of institutional Shareholders; e) overall level of demand from Brokers under the Broker Firm Offer and Institutional Offer; f) the size and type of funds under management of particular bidders; g) the likelihood that particular bidders will be long-term Shareholders; and h) other factors that VHT and the Lead Manager considered appropriate. 7.3 Broker Firm Offer 1.Who Can Apply? The Broker Firm Offer is open to persons who have received a firm allocation of Shares from their Broker and who have a registered address in Australia or New Zealand. If you have been offered a firm allocation of Shares by a Broker, you will be treated as an Applicant under the Broker Firm Offer in respect of that allocation. You should contact your Broker to determine whether they may allocate Shares to you under the Broker Firm Offer. 2.How to Apply Applications for Shares may only be made on a Broker Firm Offer Application Form attached to or accompanying this Prospectus or in its electronic copy form which may be downloaded in its entirety from www.volparasolutions.com/investors. If you are an investor applying under the Broker Firm Offer, you should complete and lodge your Broker Firm Offer Application Form with the Broker from whom you received an invitation to participate. Broker Firm Offer Application Forms must be completed in accordance with the instructions given to you by your Broker and the instructions set out on the Broker Firm Offer Application Form. By making an Application, you declare that you were given access to this Prospectus (or any replacement Prospectus), together with a Broker Firm Offer Application Form. The Corporations Act prohibits any person from passing an Application Form to another person unless it is attached to, or accompanied by, a hard copy of this Prospectus or the complete and unaltered electronic version of this Prospectus. The minimum Application under the Broker Firm Offer is A$2,000 (equivalent to 4,000 Shares) and in multiples of A$500 (1,000 Shares) thereafter. There is no maximum value of Shares that may be applied for under the Broker Firm Offer. However, the Company and the Lead Manager reserve the right to aggregate any Applications which they believe may be multiple Applications from the same person or reject or scale back any Applications in the Broker Firm Offer. The Company may determine a person to be eligible to participate in the Broker Firm Offer, and may amend or waive the Broker Firm Offer Application procedures or requirements, in its discretion in compliance with applicable laws. Applicants under the Broker Firm Offer must lodge their Broker Firm Offer Application Form and Application Payment with the relevant Broker in accordance with the relevant Broker’s directions in order to receive their firm allocation. Applicants under the Broker Firm Offer must not send their Broker Firm Offer Application Forms to the Share Registry. The Broker Firm Offer is expected to open on Monday 4th April 2016 and is expected to close on Friday 15th April 2016. The Company and the Lead Manager may elect to extend the Offer or any part of it, or accept late Applications either generally or in particular cases. The Offer, or any part of it, may be closed at any earlier date and time, without further notice. Your Broker may also impose an earlier closing date. Applicants are therefore encouraged to submit their Applications as early as possible. Please contact your Broker for instructions. This is an impor tant document 73 7 DETAILS OF THE OFFER 3.How to Pay Applicants under the Broker Firm Offer must pay their Application Payments in accordance with instructions received from their Broker. Application Payments will be held on trust for Applicants until the issue of Shares to successful Applicants. Application Payments will be refunded if the Offer is withdrawn and/or cancelled, or ASX does not grant permission for Official Quotation within three months after the Prospectus Date. No interest will be payable on refunded amounts. 4.Application monies The Company reserves the right to decline any Application in whole or in part, without giving any reason. Applicants under the Broker Firm Offer whose Applications are not accepted, or who are allocated a lesser number of Shares than the amount applied for, will receive a refund of all or part of their Application Payments, as applicable. Interest will not be paid on any monies refunded. Applicants whose Applications are accepted in full will receive the whole number of Shares calculated by dividing the Application amount by the Offer Price. Where the Offer Price does not divide evenly into the Application amount, the number of Shares to be allocated will be determined by the Applicant’s Broker. Your Application Payment should be for the entire Application amount. Cheque(s) or bank draft(s) must be in Australian Dollars and drawn on an Australian branch of an Australian bank, must be crossed “Not Negotiable” and must be made payable in accordance with the directions of the Broker from whom the Applicant received a firm allocation. Applicants should ensure that sufficient funds are held in the relevant account(s) to cover the amount of the cheque(s) or bank draft(s). If the amount of your cheque(s) or bank draft(s) for Application Payments (or the amount for which those cheque(s) or bank draft(s) clear in time for allocation) is less than the amount specified on your Broker Firm Offer Application Form, you may be taken to have applied for such lower dollar amount of Shares as for which your cleared Application Payments will pay (and to have specified that amount on your Broker Firm Offer Application Form) or your Application may be rejected. 5.Acceptance of Applications An Application in the Broker Firm Offer is an offer by an Applicant to the Company to subscribe for Shares in the amount specified on the Broker Firm Offer Application Form at the Offer Price on the terms and conditions set out in this Prospectus (including any supplementary or replacement prospectus) and the Broker Firm Offer Application Form. To the extent permitted by law, an Application by an Applicant under the Offer is irrevocable. An Application may be accepted by the Company and the Lead Manager in respect of the full number of Shares specified in the Broker Firm Offer Application 74 Volpara Health Technologies Limited | Prospectus | 2016 Form or any of them, without further notice to the Applicant. Acceptance of an Application will give rise to a binding contract. 6.Broker Firm Offer Allocation Policy The apportionment of Shares to Brokers for allocation to Institutional Investors and retail clients will be determined by the Lead Manager, in consultation with the Company. Shares which have been allocated to Brokers for allocation to their Australian or New Zealand resident retail clients will be issued to the Applicants who have received a valid allocation of Shares from those Brokers. It will be a matter for those Brokers as to how they chose to allocate Shares among their retail clients, and they (and not the Company or the Lead Manager) will be responsible for ensuring that retail clients who have received an allocation from them, receive the relevant Shares. 7.4 Underwriting arrangements The Offer is fully underwritten. The Lead Manager and VHT have entered into an underwriting agreement under which the Lead Manager has been appointed as arranger, manager and underwriter to the Offer. The Lead Manager agrees, subject to certain conditions and termination events, to underwrite Applications for all Shares under the Offer. The underwriting agreement sets out a number of circumstances under which the Lead Manager may terminate the agreement and the underwriting obligations. A summary of certain terms of the agreement and underwriting arrangements, including the termination provisions, is provided in Section 10.8.3. 7.5 Shareholding on completion of the Offer On completion of the Offer the number of Shares on issue will be 122,467,502 ordinary shares and all Shares will rank equally in all respects. Details of the Shares on issue before the Offer and at the completion of the Offer are set out below, including details of the expected substantial Shareholders at the completion of the Offer: PRE COMPLETION OF OFFER POST COMPLETION OF OFFER Shares % Shares % Patagorang Pty Ltd, Investor* 20,467,848 20% 20,467,848 17% Ralph Highnam, VHT Director and CEO 15,632,298 15% 15,632,298 13% Tina Jennings, Investor 10,832,892 11% 10,832,892 9% 7,919,211 8% 7,919,211 6% 47,615,253 46% 47,615,253 39% 0% 20,000,000 16% 100% 122,467,502 100% Michael Brady, VHT Director Other Shareholders New Investors under the Offer 102,467,502 *Roger Allen, VHT Director, is the controller of Patagorang Pty Ltd. Note: The interests set out above do not take into account any subscriptions made by existing Shareholders as part of the Offer. 7.6 Escrow arrangements Certain founders and the VHT Directors have agreed with ASX not to dispose of, create any security interest in or transfer effective ownership or control of the Shares or Options that they currently hold (directly or indirectly) amounting to 51.7 million Shares for a period of 24 months from Official Quotation. In addition, the ASX has deemed that the 11.8 million Shares issued to CPS holders in satisfaction of the QDE should be held in escrow for 12 months from the date of conversion of the CPS. A further 33.7 million Shares are subject to voluntary escrow for a period of 12 months from the date of Official Quotation. Each Shareholder subject to voluntary escrow has entered or is expected to enter into an escrow deed in respect of their escrowed Shares, which prevents them from disposing of their respective escrowed Shares until 12 months from the date of Official Quotation. The restriction on “disposing” is broadly defined and includes, among other things, selling, assigning, transferring or otherwise disposing of any interest in the Shares, encumbering or granting a security interest over the Shares, doing, or omitting to do, any act if the act or omission would have the effect of transferring effective ownership or control of any of the Shares or agreeing to do any of those things. Details of the number of Shares to be held in escrow under the ASX Restriction Agreements and the voluntary escrow deeds are as follows: ESCROW FOR 12 MONTHS ESCROW FOR 24 MONTHS TOTAL ESCROW SHARES % OF ISSUED CAPITAL - 51,756,903 51,756,903 42% Other Shareholders 11,864,514 253,011 12,117,525 10% Voluntary Escrow 33,691,878 - 33,691,878 28% 45,556,392 52,009,914 97,566,306 80% Directors and Management This is an impor tant document 75 7 DETAILS OF THE OFFER With respect to the voluntarily escrowed Shareholders, they may be released early from these escrow obligations in certain circumstances including: • to enable the Shareholder to accept an offer under a takeover bid in relation to its Shares if at least half of the holders of the Shares which are the subject of the bid have accepted the takeover bid and the bid becomes unconditional; • to enable the Shares held by the Shareholder to be transferred or cancelled as part of a merger by way of any arrangement or amalgamation in relation to the Shares under Part 13 or Part 15 of the Companies Act; • in the case of a corporate holder, to allow a corporate restructure or reorganisation to occur, or to allow a transfer to a related entity, provided the transferee of the escrowed Shares executes a voluntary escrow deed in similar form for the remainder of the escrow period; • in the case of an individual, to allow a transfer on the death, serious disability or incapacity of the Shareholder; and • to allow the Shareholder to deal in the Shares to the extent the dealing is required by applicable law (including an order of a court of competent jurisdiction). 7.7 Discretion regarding the Offer VHT may withdraw the Offer at any time before the issue of Shares to successful Applicants under the Broker Firm Offer and Institutional Offer. If the Offer, or any part of it, does not proceed, all relevant Application Payments will be refunded (without interest). VHT and the Lead Manager also reserve the right to extend the Offer or any part of it, accept late Applications or bids either generally or in particular cases, reject any Application or bid, or allocate to any Applicant fewer Shares than the amount applied or bid for. 7.8 ASX Listing VHT will apply within seven days of the Prospectus Date for admission to the Official List and Official Quotation. VHT’s ASX code is expected to be VHT. ASX takes no responsibility for this Prospectus or the investment to which it relates. The fact that ASX may admit VHT to the Official List is not to be taken as an indication of the merits of VHT or the Shares offered for subscription. If permission is not granted for Official Quotation within three months of the Prospectus Date (or any later date permitted by law), all Application Payments received by VHT will be refunded without interest as soon as practicable in accordance with the requirements of the Corporations Act. On admission to the Official List VHT will be required to comply with the ASX Listing Rules, subject to any waivers obtained by VHT from time to time. 7.9 CHESS and issued sponsored holdings The Company will apply to participate in the clearing system known as CHESS and operated by ASX 76 Volpara Health Technologies Limited | Prospectus | 2016 Settlement, a wholly owned subsidiary of ASX, in accordance with the ASX Listing Rules and ASX Settlement Operation Rules. On admission to CHESS, the Company will operate an electronic issuersponsored sub-register and an electronic CHESS sub-register. The two sub-registers together will make up the Company’s principal register of securities. Under CHESS, the Company will not issue share certificates to successful Applicants following allotment. Instead, the Company will provide each Shareholder whose address is in Australia or New Zealand with a holding statement which sets out the number of Shares allotted to the Shareholder under this Prospectus. Holding statements are expected to be sent to successful Applicants on or around 21 April 2016. If applicable, the holding statement will also advise Shareholders of their Holder Identification Number (HIN) and Sponsored Issuer Number (SRN). If a shareholding changes during a month, the Shareholder will receive a revised statement at the end of that month. Shareholders will receive a statement at the end of that month. Shareholders may also request statements at any other time (although the Company may charge an administration fee). It is the responsibility of Applicants to determine their allocation prior to the trading of Shares. Applicants who sell their Shares before they receive notice of their allocation do so at their own risk. 7.10 Potential effect of the fundraising on the future of the Company The Directors believe that on Completion, the Company will have sufficient funds available from the cash proceeds of the Offer, and its operations, to fulfil the purposes of the Offer and meet its stated business objectives. 7.11 Restrictions on distribution No action has been taken to register or qualify this Prospectus, the Shares or the Offer or otherwise to permit a public offering of the Shares in any jurisdiction outside Australia and New Zealand. If you are an investor in a jurisdiction outside Australia and New Zealand, you should read Section 10.15 and confirm you comply with the Offer restrictions relating to your jurisdiction. This Prospectus does not constitute an offer or invitation to subscribe for Shares in any jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer or invitation or issue under this Prospectus. This Prospectus may not be released or distributed in the United States, and may only be distributed to persons to whom the Offer may lawfully be made in accordance with the laws of any applicable jurisdiction. This document does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. The Shares have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any state of the United States and may not be offered or sold, directly or indirectly, in the United States except in accordance with an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and any other applicable securities laws. Each Applicant in the Broker Firm Offer, and each person to whom the Institutional Offer is made under this Prospectus, will be taken to have represented, warranted and agreed to VHT and the Lead Manager as follows: 1) U.S. Securities Act or the securities law of any state of the United States and may not be offered, sold or resold in the United States, except in a transaction exempt from, or not subject to, registration under the U.S. Securities Act and any other applicable securities laws; 2) it is not in the United States; 3) it has not and will not send the Prospectus or any other material relating to the Offer to any person in the United States; and 4) it will not offer or sell the Shares in the United States or in any other jurisdiction outside Australia and New Zealand except in transactions exempt from, or not subject to, registration under the U.S. Securities Act and in compliance with all applicable laws in the jurisdiction in which Shares are offered and sold. Authority, Wellington, New Zealand. The Australian and New Zealand regulators will work together to settle your complaint. The taxation treatment of Australian securities is not the same as for New Zealand securities. The offer may involve a currency exchange risk. The currency for the securities is not New Zealand dollars. The value of the securities will go up or down according to changes in the exchange rate between that currency and New Zealand dollars. These changes may be significant. If you expect the securities to pay any amounts in a currency that is not New Zealand dollars, you may incur significant fees in having the funds credited to a bank account in New Zealand in New Zealand dollars. If the securities are able to be traded on a securities market and you wish to trade the securities through that market, you will have to make arrangements for a participant in that market to sell the securities on your behalf. If the securities market does not operate in New Zealand, the way in which the market operates, the regulation of participants in that market and the information available to you about the securities and trading may differ from securities markets that operate in New Zealand. Please speak with your Broker if you have any questions in relation to this. Each Applicant under the Institutional Offer will be required to make certain additional representations, warranties and covenants set out in the confirmation of allocation letter distributed to it. 7.12 New Zealand investors This offer to New Zealand investors is a regulated offer made under Australian and New Zealand law. In Australia, this is Chapter 8 of the Corporations Act 2001 and Regulations. In New Zealand, this is Part 5 of the Securities Act 1978 and the Securities (Mutual Recognition of Securities Offerings – Australia) Regulations 2008. This offer and the content of the offer document are principally governed by Australian rather than New Zealand law. In the main, the Corporations Act 2001 and Regulations (Australia) set out how the offer must be made. There are differences in how securities are regulated under Australian law. For example, the disclosure of fees for collective investment schemes is different under the Australian regime. The rights, remedies, and compensation arrangements available to New Zealand investors in Australian securities may differ from the rights, remedies, and compensation arrangements for New Zealand securities. Both the Australian and New Zealand securities regulators have enforcement responsibilities in relation to this offer. If you need to make a complaint about this offer, please contact the Financial Markets This is an impor tant document 77 8 78 INVE S TIG ATING ACCOUNTA NT ’ S REP ORT Volpara Health Technologies Limited | Prospectus | 2016 8 INVESTIGATING ACCOUNTANT’S REPORT This is an impor tant document 79 8 80 INVESTIGATING ACCOUNTANT’S REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 81 8 82 INVESTIGATING ACCOUNTANT’S REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 83 8 84 INVESTIGATING ACCOUNTANT’S REPORT Volpara Health Technologies Limited | Prospectus | 2016 9 IP A ND PATENT REP ORT This is an impor tant document 85 9 IP AND PATENT REPORT 23 March 2016 86 Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 87 9 88 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 89 9 90 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 91 9 92 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 93 9 94 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 95 9 96 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 97 9 98 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 99 9 100 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 101 9 102 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 103 9 104 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 This is an impor tant document 105 9 106 IP AND PATENT REPORT Volpara Health Technologies Limited | Prospectus | 2016 10 A DDITION A L INFORM ATION This is an impor tant document 107 10 ADDITIONAL INFORMATION 10.1 Registration 10.4 Current capital structure The Company was incorporated on 24 February 2009 and is registered in New Zealand, company number 2206998. The Company was registered as an Australian registered body with ARBN 609 946 867 on 20 January 2016. The issued capital of the Company at the Prospectus Date is set out in the table below: 10.2 Company tax status and accounting standards The Company is a tax resident of New Zealand and not a tax resident of Australia. The proposed Official Quotation in itself does not have a direct effect on the tax residency of the Company. The financial statements of the Company will be prepared in accordance with NZ GAAP. They comply with NZ IFRS, and other applicable Financial Reporting Standards as appropriate for profit-oriented entities. The financial statements of the Company will be made up to 31 March annually. The financial statements of the Company will continue to be audited in accordance with International Standards on Auditing and International Standards on Auditing (New Zealand). NOTES SHARES Ordinary Shares 1 30,056,265 CPS 2 52,474,335 CPS QDE Shares 3 19,936,902 Total Issued Capital Legacy and ESOP Options Total Diluted Share Capital 102,467,502 4 15,951,738 118,419,240 Notes: 1. On 25 February 2016, the Directors resolved to reconstruct the capital of the Company by way of a 3:1 share split with the effect that all ordinary and CPS holders hold 3 times the number of shares they held previously as at that date. 2. The CPS on issue are convertible into ordinary shares on a 1:1 basis immediately prior to the quotation of the Shares on ASX. 3. Convertible Preference Shareholders are entitled to a QDE calculated on the amount invested, multiplied by 8% per annum (compounding monthly), to be settled through the issue of additional ordinary shares, which has been calculated as at 31 March 2016. 4. The Company has two employee and executive incentive plans in operation, being the Legacy ESOP and the New ESOP, details of which are set out in Section 4 and in Section 10.7. 10.3 Corporate structure 10.5 Applicable law VHT and Volpara Solutions Limited are both companies registered in New Zealand. Volpara Solutions Inc. is a company registered under the laws of the State of Delaware in the US. Matakina UK Limited is a company registered under the laws of England and Wales. 1.The Company is a New Zealand company The Company is a company incorporated in New Zealand and is principally governed by New Zealand law, rather than Australian law. In Australia, the Company is registered with ASIC as an Australian registered body. As the Company is not established in Australia, its general corporate activities (apart from any offering of securities in Australia and certain reporting obligations) are not regulated by the Corporations Act or by ASIC but instead are regulated in New Zealand by New Zealand law including the Companies Act, Securities Act, Securities Regulations, Financial Markets Conduct Act, Financial Markets Conduct Regulations, and by the New Zealand Financial Markets Authority and Registrar of Companies. Set out below is information summarising key features of the laws that apply to the Company as a New Zealand company (under New Zealand law, including as modified by exemptions or waivers) compared 108 Volpara Health Technologies Limited | Prospectus | 2016 with the laws that apply to Australian publically listed companies generally. It is important to note that this summary does not purport to be a complete review of all matters of New Zealand law applicable to the Company or all matters of Australian law applicable to Australian publically listed companies or to highlight all provisions that may differ from the equivalent provisions in Australia. Unless otherwise stated, the Corporations Act provisions do not apply to the Company as a foreign company. 2.Concise summary of rights and obligations of security holders, and substantial holdings and takeovers, under New Zealand law. Transactions requiring shareholder approval The principal transactions or actions requiring shareholder approval under the Companies Act include the following: altering the Constitution of the company, appointing or removing a director or auditor, “major transactions”, amalgamations, putting the company into liquidation and changes to the rights attached to Shares. These are broadly comparable to the transactions for which shareholder approval is required under the Corporations Act. However, the Corporations Act also requires shareholder approval for certain transactions affecting share capital (e.g. share buybacks and share capital reductions) and there is no shareholder approval requirement for “major transactions” under the Corporations Act (although certain related party transactions require shareholder approval). Shareholders’ right to request a meeting The rights of shareholders to request a meeting under the Companies Act (shareholders holding shares carrying at least 5% of the voting rights may make such a request) are comparable to such rights under the Corporations Act. The Corporations Act also provides that shareholders with at least 5% of the votes that may be cast at the general meeting may also call and arrange to hold a general meeting at their own expense. Appointment of proxies Shareholders have the right to appoint a proxy to attend and vote at meetings on their behalf under the Companies Act and the Corporations Act. Changing rights attaching to Shares The Companies Act provides that a company must not take action that affects the rights attached to shares unless that action has been approved by a special resolution of each affected interest group. (An “interest group” in relation to an action or proposal affecting the rights attached to shares means a group of shareholders whose affected rights are identical and whose rights are affected by the action or proposal in the same way and who comprise the holders of one or more classes of shares in the company). Under the Corporations Act, if a company’s constitution does not set out a procedure for varying or cancelling rights attached to shares in a certain asset class, such rights may only be varied or cancelled by special resolution of the members of that class or with written consent of members with at least 75% of the votes in that class. Relief from oppressive conduct Under the Companies Act, a shareholder or former shareholder of a company (or any other entitled person) who considers that the affairs of a company have been (or are being, or are likely to be) oppressive, unfairly discriminatory, or unfairly prejudicial to him or her, in any capacity, may apply to the court for relief. The court may, if it thinks it is just and equitable to do so, make such orders as it thinks fit. Shareholders also have statutory remedies under the Corporations Act for oppressive or unfair conduct of the company’s affairs and the court can make any order as it sees appropriate. Legal proceedings on behalf of the Company Under the Companies Act, a court may, on application of a shareholder or director of a company, grant leave to that shareholder or director to bring proceedings in the name and on behalf of the company or any related company, or intervene in proceedings to which the company or any related company is a party, for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company or related company. Leave may only be granted if the court is satisfied that either the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, or it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole. No proceedings brought by a shareholder or director or in which a shareholder or director intervenes with leave of the court (as described above) may be settled or compromised or discontinued without the approval of the court. The position is broadly comparable under the Corporations Act. “Two strikes” equivalent There is no equivalent of a “two strikes” rule in relation to remuneration reports in New Zealand. New Zealand companies are not required to publish remuneration reports so shareholders necessarily cannot vote on them. There is, however, an obligation to state in the company’s annual report, in respect of each director or former director of the company, the total of the remuneration and the value of other benefits received by that director or former director from the company during the relevant accounting period and, in respect of employees or former employees of the company who received remuneration and any other benefits in their capacity as employees during the relevant accounting period, the value of which was or exceeded NZ$100,000 per annum, the number of such employees, stated in bands of NZ$10,000. Takeovers and substantial holdings The New Zealand position under the Takeovers Code (as set out in the Takeovers Code Approval Order 2000) and New Zealand Financial Markets Conduct Act 2013 is broadly comparable to the Australian position in relation to the regulation of takeovers. A 20% threshold applies (under which a person is prevented from increasing the percentage of voting rights held This is an impor tant document 109 10 ADDITIONAL INFORMATION or controlled by them in excess of that threshold or from becoming the holder or controller of an increased percentage of voting rights if they already hold or control more than 20% of the voting rights), subject to certain “compliance options” (including full and partial offers, 5% creep over 12 months in the 50% to 90% range, and acquisitions with shareholder approval). Compulsory acquisitions are permitted by persons who hold or control 90% or more of voting rights in a company. Under New Zealand law and Australian law, there is no requirement for a Shareholder to issue a substantial holding notice of holdings above 5%. However, a Shareholder may voluntarily disclose such information if it chooses to do so. Note: where it is noted that New Zealand law contains comparable provisions to those existing under Australian law, and vice versa, it is emphasised that the summar y only attempts to provide general guidance, and the detailed provisions may contain dif ferences and may also be subject to dif fering interpretation by Australian and New Zealand cour ts. 10.6 Capital structure following the Offer The issued capital of the Company as at the Allotment Date will comprise only ordinary shares and unquoted options over Shares and will be as follows: POST COMPLETION OF OFFER DILUTED Ordinary Shares % % Directors and Management 52,272,372 43% 38% Other Shareholders 50,195,130 41% 36% 20,000,000 16% 14% 122,467,502 100% 88% New Investors under the Offer Legacy and New ESOP Options Total Diluted Share Capital 15,951,738 12% 138,419,240 100% Rights and liabilities attaching to Shares Immediately after issue and allotment, the Shares will be fully paid Shares and the Shares will rank paripassu with the Shares currently on issue. The rights and liabilities attaching to the ownership of the Shares arise from a combination of the Constitution, statute, the ASX Listing Rules and general law. A summary of the significant rights, liabilities and obligations attaching to the Shares and a description of other material provisions of the Constitution are set out below. This summary is not exhaustive nor does it constitute a definitive statement of the rights and liabilities of Shareholders. The summary assumes that the Company is admitted to the Official List. 110 Volpara Health Technologies Limited | Prospectus | 2016 1.Voting at a general meeting At a general meeting of the Company, every Shareholder present in person or by proxy, representative or attorney has one vote on a show of hands and, on a poll, one vote for each Share held. On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote for each Share held. 2.Meetings of members Each Shareholder is entitled to receive notice of, attend and vote at, general meetings of the Company and to receive all notices, accounts and other documents required to be sent to Shareholders under the Constitution, the Companies Act and the Listing Rules. 3.Dividends Currently the Company does not pay dividends. The Board may from time to time resolve to pay dividends to Shareholders and fix the amount of the dividend, the time for determining entitlements to the dividend and the timing and method of payment. 4.Transfer of Shares Subject to the Constitution, Shares may be transferred by a proper transfer effected in accordance with the Listing Rules or the ASX Settlement Operating Rules, by a written instrument of transfer which complies with the Constitution or, subject to compliance with the Listing Rules and the ASX Settlement Operating Rules, by any other form approved by the Directors. The Board may refuse to register a transfer of Shares where permitted to do so under the Companies Act, the ASX Listing Rules or the ASX Settlement Operating Rules. The Board must refuse to register a transfer of Shares when required to by the Companies Act, the ASX Listing Rules or the ASX Settlement Operating Rules. 5.Issue of further Shares Subject to the Companies Act, the Listing Rules, and the Constitution, the Directors may issue and allot, or dispose, of Shares on terms determined from time to time by the Directors at an offer price that the Directors determine from time to time. The Directors’ power under the Constitution includes the power to grant options and performance rights over unissued Shares. 6.Winding up Without prejudice to the rights of the holders of Shares issued on special terms and conditions, if the Company is wound up, the liquidator may, with the sanction of an ordinary resolution of the Company, divide among the Shareholders in kind all or any of the Company’s assets; and for that purpose, determine how it will carry out the division between the different classes of Shareholders, but the liquidator may not require a Shareholder to accept any Shares or other securities in respect of which there is any liability. 7.Non-marketable parcels The Company may sell the Shares of a Shareholder who holds less than a marketable parcel of Shares. 8.Share buy-backs subsidiaries because of a material breach of the Legacy Participant’s employment agreement, retainer, consulting or services agreement, restraint of trade, or under any law during the option exercise period the Company may: Subject to the Companies Act and the ASX Listing Rules, the Company may buy Shares on terms and at times determined by the Board. a) terminate all options granted and not exercised; 9.Variation of class rights c) repurchase the Shares that have been issued to the Legacy Participant pursuant to the exercise of options at the lower of the option exercise price or the market value; and At present, the Company’s only class of Shares on issue is ordinary shares. The rights attached to any class of Shares may be varied in accordance with the Companies Act. 10.Amendment The Constitution may be amended only by special resolution passed by at least three-quarters of the Shareholders entitled to vote and who do vote (in person or by proxy) on the resolution at a general meeting of the Company. The Company must give at least 10 business days’ written notice of a general meeting of the Company. 10.7 Employee and executive incentive plans The Company has two employee and executive incentive plans in operation: the Legacy ESOP and the New ESOP. The plans are both option plans. The Company enters into an option deed directly with each grantee of options. None of the options issued under the Legacy ESOP or the New ESOP will be Officially Quoted. Legacy ESOP The Company has issued a total of 10,626,738 options under the Legacy ESOP. No further options will be issued under the Legacy ESOP. The following is a summary of the rights and liabilities attaching to the options on issue under the Legacy ESOP. 1.Offer The Company may grant options to an existing employee of the Company, or a person who has a service relationship or service contract with the Company or any of its subsidiaries (Legacy Participant). An offer will specify the number of Options to be granted to the Legacy Participant, the vesting period and the exercise price. 2.Exercise A Legacy Participant must give 10 working days’ written notice to the Company stating the whole number of vested options to be exercised and provide payment in full within 20 working days of the date on which notice was given. If at the time of the exercising of vested options the Legacy Participant is not already a Shareholder, the Legacy Participant must execute and deliver to the Company a deed of accession. 3.Termination and Lapse If a Legacy Participant ceases to be employed by or as a consultant with the Company or its b) cancel all other benefits the Legacy Participant is enticed to receive; d) require the Legacy Participant to pay to the Company the proceeds from any sale of Shares issued to the Legacy Participant. If the Legacy Participant ceases to be employed by or as a consultant with the Company or its subsidiaries during the option exercise period because of death or disability, then the personal representatives will be entitled to exercise all options held by that Legacy Participant that had vested at the time the Legacy Participant ceased to be employed by or a consultant with the Company. 4.Reorganisation of capital If, at any time after the issue of options: a) the Shares are consolidated, the number of options immediately prior to such consolidation are consolidated in the same ratio as the ordinary capital of the Company and the option exercise price will be amended in inverse proportion to that ratio; b) the Shares are subdivided, the number of options must be subdivided in the same ratio as the ordinary capital of the Company and the option exercise price will be amended to that ratio; c) the Company reduces the share capital by a pro rata return to holders of part of the share capital in respect of each Share, the number of options shall remain the same but the option exercise price will be reduced by the same amount of share capital returned in respect of each Share; d) the Company reduces its paid up share capital by a cancellation of capital that is either lost or not represented by available assets where no securities are cancelled, the number of options and the option exercise price in respect to such options will remain unchanged; e) the Company cancels it capital proportionately, the number of options must be reduced in the same ratio as the ordinary capital and option exercise price for such options must be amended in inverse proportion to that ratio; and f) there is any other reorganisation or change to the capital of the Company, the number of options, the option exercise price, or both, must be reorganised so the holder of Shares will not receive a benefit that holders of options do not receive. This is an impor tant document 111 10 ADDITIONAL INFORMATION If, after the issue of the options, there is a pro rata issue of Shares to all holders of Shares for which no consideration is payable, then the number of options shall be increased by the same proportion as if the options were Shares. 5.No transfer or dealing with interests then vested); and cancel all other benefits the New Participant may be entitled to receive under this deed. 4.Reorganisation of capital Subject to the ASX Listing Rules, if, at any time after the issue of options: An option is not transferable without the Company’s approval. a) the Shares are consolidated, the numbers of options immediate prior to such consolidation are consolidated in the same ratio as the ordinary capital of the Company and the option exercise price will be amended in inverse proportion to that ratio; 6.Change of Control If: a) the Company resolves to merge with any other company whereby Shareholders of the Company would hold less than 50% of the voting rights of the merged company; b) the Shares are subdivided, the number of options must be subdivided in the same ratio as the ordinary capital of the Company and the option exercise price will be amended to that ratio; b) the Shareholders of the Company approve the disposition of assets which comprise more than 50% of the assets to a third party not controlled by the Company; or c) the Company reduces the share capital by a pro rata return to holders of part of the share capital in respect of each Share, the number of options shall remain the same but the option exercise price will be reduced by the same amount of share capital returned in respect of each Share; c) there is a change in the management of the Company as a result of the acquisition by any party not previously a Shareholder of more than 50% of the Shares; d) the Company reduces its paid up share capital by a cancellation of capital that is either lost or not represented by available assets where no securities are cancelled, the number of options and the option exercise price in respect to such options will remain unchanged; then all vested options must be exercised on or before 30 days from the date that one of the events occur. New ESOP The Company has issued a total of 5,325,000 options under the New ESOP. The following is a summary of the rights and liabilities attaching to the options on issue under the New ESOP. e) the Company cancels it capital proportionately, the number of options must be reduced in the same ratio as the ordinary capital and option exercise price for such options must be amended in inverse proportion to that ratio; and 1.Offer The Company may grant options to any employee of the Company, or a person who is a consultant with the Company or any of its subsidiaries for nil consideration (New Participant). An offer will specify the number of options to be granted to the New Participant, the vesting period, and the exercise price. 2.Exercise A New Participant must give 10 working day’s written notice to the Company stating the whole number of vested options to be exercised and payment in full, of the exercise price within 20 working days of the date on which the notice was given. If the Company considers that the exercise would give rise to a breach of the Company’s Constitution, the listing and/or other rules of any stock exchange on which the Shares of the Company are quoted; or any statute or regulation then such exercise will not be valid. 3.Termination and Lapse If a New Participant ceases to be employed by or a as a consultant with the Company or its subsidiaries due to a material breach of the New Participant’s employment agreement, retainer, consulting or services agreement, restraint of trade, or under and law, then the Company may: terminate all options previously granted to the New Participant and not exercised by the New Participant (whether or not 112 Volpara Health Technologies Limited | Prospectus | 2016 f) there is any other reorganisation or change to the capital of the Company, the number of options, the option exercise price, or both, must be reorganised so the holder of Shares will not receive a benefit that holders of options do not receive. Subject to the ASX Listing Rules, if, after the issue of the options, there is a pro rata issue of Shares to all holders of Shares for which no consideration is payable, then the number of options shall be increased by the same proportion as if the options were Shares. The ASX Listing Rules may require the Board to make further adjustments to the terms of the options, in addition to, or instead of, those listed above in the event of any reconstruction or reorganisation of capital affecting the Shares. 5.No transfer or dealing with interests An option is not transferable without the Company’s approval. 6.Change of control If: a) the Board and Shareholders recommend a takeover bid or approve a scheme of arrangement of the Company where such transaction will not result in the Shareholders holding more than 25% of the voting rights of the Company; b) VHT resolves to amalgamate with any other company where such amalgamation will not result in the Shareholders holding more than 25% of the voting rights of the amalgamated company; c) the Shareholders approve the disposition of assets comprising more than 75% of the value of VHT’s assets to an entity not controlled by, controlling or under common control with VHT or to an entity in which Shareholders do not hold at least 25% of that entity’s voting rights; or d) a change in the management or control of VHT occurs as a result of the acquisition by any party of more than 75% of the total issued Shares carrying voting rights in VHT; then all vested options must be exercised on or before 30 days from the date that one of these events occur. Guidelines for New ESOP The Board has adopted a series of guidelines (Guidelines) in connection with the implementation of the New ESOP that will complement individual option deeds to be entered into between VHT and each New Participant. The grant of options and management of the New ESOP will remain at the absolute discretion of the Board. The Guidelines are intended to set out some principles and parameters with respect to the Board’s use of its discretion and to assist the Board with management of the New ESOP. It is acknowledged that while it is the Board’s current intention to implement the New ESOP in accordance with the Guidelines, there may be instances where the Board, on a case-by-case basis, feels there is a need to grant options under the New ESOP outside one or more of the Guidelines. In that circumstance, the Board will consider whether the Guidelines should be permanently amended or waived and whether disclosure of any such amendment or waiver is required to be given to VHT Shareholders. Material matters dealt with under the Guidelines include: • the purpose of the issue of options to enable contributors to the potential success of VHT to share in that success by giving them options to purchase Shares at an exercise price during a set exercise period; • setting a limit on the issue of options under the New ESOP which when exercised, represent up to approximately 5% of the share capital of VHT on a fully diluted basis. This limit may be reviewed by the Board from time to time, and if considered appropriate based on the purpose of the options, increased. Notice of any increase in the limit will be given to Shareholders; • ensuring that, when granting any options under the New ESOP, the Board must be satisfied that, at the time of issue of any options, the exercise price is fair and reasonable to VHT and its Shareholders (as per section 49 of the Companies Act 1993); and • setting a maximum exercise period of seven years for each tranche of options. 10.8 Material contracts 1.GE Healthcare Software Licence and Distribution Agreement Volpara Solutions Limited (VSL), the Company’s wholly owned subsidiary, has entered into a Software Licence and Distribution Agreement (Distribution Agreement) with the General Electric Company, through and on behalf of its GE Healthcare division (GEHC). The Distribution Agreement outlines the terms on which GEHC has agreed to resell licences to use the Volpara software on the terms of VSL’s end user license agreement (Licences) and installation and training services in connection with those Licences (Services) in certain territories (primarily the EU, Canada, the USA, NZ, India, Singapore and Hong Kong). The initial term of the Distribution Agreement will expire on 26 November 2017. After that date, the Distribution Agreement automatically renews for 1-year periods unless one party elects not to renew the agreement. GEHC may terminate the Distribution Agreement at any time if certain events occur, including: • if VSL is in default of any of the material provisions of the Distribution Agreement and that default is either incapable of remedy or is not remedied within 30 days after being given notice to do so by GEHC; • if VSL is in default of any of the material provisions of the protected health information agreement (PHI Agreement) entered into by VSL and GEHC in connection with the Distribution Agreement (discussed below); • if certain insolvency events occur with respect to VSL; and • if a force majeure event occurs with respect to VSL that (i) lasts more than 30 days; or (ii) VSL is unable to assure GEHC will not result in a delay lasting more than 30 days. There is no minimum purchase guarantee or obligation on GEHC under the Distribution Agreement. The Distribution Agreement is non-exclusive. GEHC may develop, market and sell GEHC products that compete with the Volpara software. VSL may supply any of its software or services to third parties. The Distribution Agreement includes escrow provisions, in connection with which VSL has deposited a copy of the source code for the Volpara software with Iron Mountain Intellectual Property Management Inc. (Iron Mountain). Iron Mountain must hold that source code in escrow on the terms of an escrow agreement VSL has entered into with GEHC and Iron Mountain (Escrow Agreement). Under the Escrow Agreement, Iron Mountain may release that source code to GEHC if VSL (i) is subject to an insolvency event; and (ii) has ceased to comply with VSL’s obligations to provide maintenance and error correction in respect of the Volpara software. Restrictions apply under the Distribution Agreement to GEHC’s use and disclosure of the source code after release. This is an impor tant document 113 10 ADDITIONAL INFORMATION Under the Distribution Agreement, all intellectual property rights relating to the Volpara software, documentation and other proprietary material made available to GEHC (including any modifications) are VSL’s property. VSL indemnifies GEHC and its affiliates against any liability and expenses arising from a claim by a third party that (i) GEHC’s use of the Volpara software, or sale of Licences, in accordance with the Distribution Agreement infringes a third party’s intellectual property rights; or (ii) relates to wilful misconduct, negligence, unauthorised representations or violation of any law by VSL or its personnel. These indemnities are subject to standard exclusions relating to claims arising from a breach by GEHC of the Distribution Agreement, or from unauthorised modifications to VSL’s intellectual property or unauthorised representations made by GEHC in respect of the Volpara software. VSL’s liability in connection with this indemnity is not limited to a monetary cap. However, VSL is excluded from liability for any special, exemplary, indirect, punitive or consequential damages (including lost profits, revenue and business). GEHC purchases the Licences and Services from VSL at the prices agreed between GEHC and VSL under the Distribution Agreement, and resells those Licences and Services at a price determined at GEHC’s discretion. The Distribution Agreement includes most favoured customer pricing provisions in favour of GEHC. VSL is subject to detailed and wide-ranging obligations to establish and maintain administrative, physical and technical safeguards to protect information that VSL receives, and/or that the Volpara software processes, in connection with the Distribution Agreement and the Licences and Services from unauthorised access, use or disclosure. Particularly strict obligations apply where that information relates to an identified or identifiable natural person, including health information (protected health information). These obligations are set out in the Privacy and Data Protection schedule to the Distribution Agreement, and in the PHI Agreement. The Privacy and Data Protection schedule applies generally to all confidential information to which VSL may gain access in connection with the Distribution Agreement, including protected health information. The PHI Agreement applies specifically to protected health information – as further defined in, and as governed by, the United States Health Insurance Portability and Accountability Act of 1996 (HIPAA). The PHI Agreement applies where VSL obtains access to any protected health information from a customer to whom GEHC has sold a Licence, and to whom GEHC is itself providing services that involve handling or disclosing protected health information. The PHI Agreement is intended to ensure that GEHC’s own obligations under HIPAA apply directly to VSL in relation to that protected health information. 114 Volpara Health Technologies Limited | Prospectus | 2016 VSL’s obligations under the schedule and/or the PHI Agreement include: • an obligation to ensure that the information is used only as strictly necessary for the purposes of performing services under the Distribution Agreement, and for no other purpose; • detailed obligations in relation to restricting physical access to VSL sites where the information is processed, and technical access to accounts and systems through which the information may be accessed; • an obligation to notify GEHC in the event of any security incident (i.e., any loss, theft or unauthorised use, access or disclosure of the information); • in respect of protected health information, an obligation to comply with HIPAA generally, and in particular the standards established by the US Department of Health and Human Services under HIPAA relating to the security of electronic protected health information and the privacy of individually identifiable health information; and • an obligation to obtain GEHC’s approval before moving the information, or allowing the information to be moved, outside the GEHCapproved hosting jurisdiction(s). The Privacy and Data Protection schedule requires VSL to bear any losses and costs reasonably and directly incurred by GEHC relating to any security incident experienced by VSL. Under the PHI Agreement, VSL indemnifies GEHC and its personnel against all actual and direct losses, and all liability to third parties, arising in connection with any breach of the PHI Agreement, or any VSL acts or omissions related to the PHI Agreement. In each case, the terms provide for a monetary cap to apply to VSL’s liability, corresponding to the limits of VSL’s insurance coverage set out in the Distribution Agreement (currently set at US$2.4 million per occurrence). VSL has agreed to notify GEHC as soon as commercially reasonable if VSL initiates a formal sales process for its stock or applicable business which would, if completed, result in a change of control of VSL. Any change of control of VSL may be deemed an assignment of the Distribution Agreement, for which GEHC’s consent is required. To avoid doubt, the Offer does not constitute a change of control under the Distribution Agreement. The Distribution Agreement is governed by the laws of the state of New York. 2.Siemens Master Reseller Agreement Volpara Solutions Limited (VSL), the Company’s wholly owned subsidiary, has entered into a Master Reseller Agreement with Siemens Medical Solutions USA, Inc. (Siemens), as amended by agreement between VSL and Siemens (Master Reseller Agreement). Under the Master Reseller Agreement, Siemens may resell the Volpara software and related services (primarily installation and training). There is no minimum purchase guarantee or obligation on Siemens under the Master Reseller Agreement. 3.Underwriting Agreement with Morgans Corporate Limited The initial term of the Master Reseller Agreement expires on 30 June 2018. After that date, the term may be extended for further 1-year periods by mutual consent. The Offer has been underwritten by Morgans Corporate Limited (Lead Manager) pursuant to an underwriting agreement between the Company and the Lead Manager (Underwriting Agreement). Under the Underwriting Agreement, the Lead Manager has agreed to arrange, manage and underwrite the Offer. Siemens may terminate the Master Reseller Agreement at any time if certain events occur, including: • if VSL is in material default of any of the provisions of the Master Reseller Agreement and that default is either incapable of remedy or is not remedied within 30 days after being given notice to do so by Siemens; • if VSL is in default of any of the principles and requirements of the Code of Conduct for Siemens Suppliers which (if capable of remedy) is not remedied within a reasonable period established by Siemens; and • if VSL is in default of the prohibition set out in the Master Reseller Agreement against making any improper payment or gift to any Siemens personnel or agent or representative. The Master Reseller Agreement is non-exclusive. Siemens may market and sell competing products to the Volpara software, and (subject to the non-compete restriction described below) VSL may supply its software and services to third parties. Where Siemens has requested delivery of a Volpara product directly to a Siemens’ customer’s site, VSL may not pursue that customer’s business or directly sell the same products to that customer for 1 year following shipment, unless that customer is a preexisting customer of VSL. Siemens acknowledges under the Master Reseller Agreement that all intellectual property rights in the Volpara software are VSL’s property. Under the Master Reseller Agreement, VSL agrees to indemnify Siemens, and end users to whom Siemens resells Volpara software, against any liability arising from a claim by a third party that the Volpara software infringes a third party’s intellectual property rights. VSL’s liability in connection with this indemnity is not limited to a monetary cap. However, the Master Reseller Agreement provides for VSL to be excluded from liability for any indirect, incidental, special or consequential damages. Siemens purchases the Volpara software and related services the subject of the Master Reseller Agreement from VSL at the prices agreed between VSL and Siemens under the agreement, and resells them to customers at a price determined at Siemens’ discretion. The Master Reseller Agreement includes most favoured customer pricing provisions and provisions that limit VSL’s ability to raise the prices during the term of the Agreement. VSL is also required to work with Siemens to achieve price reduction goals. Fees The Company must pay the Lead Manager management, underwriting and selling fees totalling 4% of the total capital raised under the Offer, together with a further discretionary incentive and performance fee of up to 1%. The Company has agreed to reimburse the Lead Manager for certain costs and expenses incurred in respect of the Offer, including legal costs, travel and other out-of-pocket expenses. Representations, warranties and undertakings The Underwriting Agreement contains certain standard representations, warranties and undertakings by the Company to the Lead Manager. The representations and warranties given by the Company include matters such as the terms of issue of the Shares, restrictions on voting or transfer of the Shares, no breach of applicable laws and the ASX Listing Rules, content of the Offer Documents, the due diligence process for the Offer, the conduct of the Company, no breach of law or action taken against the Company in relation to the Offer or the Prospectus, no misleading or deceptive conduct by the Company in connection with the Offer, no breach of material contracts, and solvency. The undertakings given by the Company include that the Company will not, without the prior written consent of the Lead Manager, issue any further securities until 6 months after Shares have been issued under the Offer, subject to certain exceptions, not breach laws in a material respect and not vary the Constitution until after Shares have been issued under the Offer. The representations and warranties given by the Lead Manager to the Company relate to matters such as due incorporation, capacity and power, and that it has not engaged in, and will not engage in, conduct that is misleading or deceptive (including by omission), or conduct that is likely to mislead or deceive, in relation to the Underwriting Agreement or the Offer, except to the extent that such conduct is caused, induced or contributed to by the acts or omissions of the Company or its respective directors, officers, employees, agents or advisers, or caused by the Lead Manager’s reliance on information contained in an Offer Document or other information provided by or on behalf of the Company, or its directors, officers, employees, agents or advisers in connection with the Offer. The Master Reseller Agreement is governed by the laws of the Commonwealth of Pennsylvania. This is an impor tant document 115 10 ADDITIONAL INFORMATION Indemnity The Company has undertaken to indemnify each of the Lead Manager and certain affiliated persons against all claims and liabilities incurred in connection with the Offer. This indemnity is subject to certain exceptions, including fraud, negligence, wilful misconduct and criminal penalties or fines. Termination events The Lead Manager may terminate the Underwriting Agreement at any time prior to the issue of Shares under the Offer, if certain events occur, including: • the Company fails to lodge the Prospectus with ASIC in a form approved by the Lead Manager; • a statement contained in the Prospectus is misleading or deceptive (including by omission) or likely to mislead or deceive or becomes misleading or deceptive or a material matter is omitted from the Prospectus; • the Prospectus does not comply with the Corporations Act, the ASX Listing Rules or any other applicable law; • unconditional approval (or conditional approval subject only to customary conditions) is refused or not granted by ASX to the Company’s admission to the Official List, or the official quotation of all of the Shares on ASX within a specified time, or if granted, the ASX approval is subsequently withdrawn, qualified (other than by customary conditions) or withheld or ASX indicates to the Company or the Lead Manager that approval is likely to be withdrawn, qualified (other than by customary conditions) or withheld; • the Company withdraws the Prospectus or the Offer; • the Lead Manager reasonably forms the view that a supplementary prospectus must be lodged with ASIC and the Company does not lodge a supplementary prospectus in the form and with the content, and within the time, reasonably required by the Lead Manager; • ASIC applies for an order under sections 1324B or 1325 of the Corporations Act in relation to the Offer, the Prospectus and the Application is not dismissed or withdrawn before the date the Shares are allotted; • ASIC gives notice of intention to hold a hearing in relation to the Offer or the Prospectus under section 739(2) of the Corporations Act or makes an order under section 731 or an interim order under section 739(3); • an application is made by ASIC for an order under Part 9.5 of the Corporations Act in relation to the Offer or the Prospectus or ASIC commences any investigation or hearing under Part 3 of the ASIC Act in relation to the Offer, the Prospectus; • any person gives a notice under section 730 of the Corporations Act in relation to the Prospectus; • at any time before completion of the Offer, the S&P/ASX 200 Index closes at a level that is 10% or more below the level of that index at 5:00 pm (Sydney time) on the trading day immediately prior to the date of the Underwriting Agreement 116 Volpara Health Technologies Limited | Prospectus | 2016 and remains at or below that level for a period of three consecutive trading days at any time before the Settlement Date; • any event set out in the timetable in the Prospectus is delayed for more than three business days after the last date on which the event must be performed, unless the Lead Manager consents to a variation (which consent must not be unreasonably withheld or delayed); • any circumstance arises after lodgement of the Prospectus that results in the Company repaying the Application Payments received from Applicants or offering Applicants an opportunity to withdraw their Applications for Shares and be repaid their Application Payment; • certain insolvency events occur with respect to the Company; • ASIC or any other Government Agency (including the New Zealand Companies Office or the New Zealand Financial Markets Association) commences or threatens to commence any hearing, inquiry, investigation, proceedings or prosecution, or takes any regulatory action or seeks any remedy, in connection with the Company, the Offer or the Prospectus; • the Company does not provide a Certificate as and when required by this Agreement; or • the Company is or becomes unable, for any reason, to issue the Shares on completion of the Offer. The Lead Manager may terminate the Underwriting Agreement at any time prior to the issue of Shares under the Offer, if certain events occur which the Lead Manager believes are reasonably likely to have a material adverse effect on the outcome of the Offer or the condition or financial position of the Company, including: • the Due Diligence Report or any other information supplied by or on behalf of the Company to the Lead Manager in relation to the Due Diligence process, Shares, the Company, the Offer or the Prospectus is or becomes untrue, incorrect, misleading or deceptive (including by omission); • any material adverse change occurs in or affecting the assets, liabilities, financial position or performance, profits, losses, prospects or condition, financial or otherwise of the Company; • a material contract referred to in the Prospectus is, without the prior written consent of the Lead Manager, amended or varied, breached, terminated, or becomes void, voidable, illegal, invalid or unenforceable (other than by reason only of a party waiving any of its rights), is rescinded or avoided or its performance is or becomes illegal; • the introduction of legislation into the parliament of the Commonwealth of Australia, any state or territory of Australia, New Zealand, the United Kingdom, the United States of America, Singapore or the People’s Republic of China (other than any legislation which had been public before the date of the Underwriting Agreement; • the public announcement of prospective legislation or policy by the Australian Federal Government or the government of any Australian state or territory or the Government of New Zealand; • the adoption by ASIC, the New Zealand Companies Office, the New Zealand Financial Markets Association or their delegates or the Reserve Bank of Australia of any regulations or policy which does or is likely to prohibit, restrict or regulate the Offer; • the Company contravenes the Corporations Act, its Constitution, the ASIC Act, any of the ASX Listing Rules, New Zealand securities laws or any other applicable law or regulation; • any of the warranties or representations by the Company in the Underwriting Agreement or the Lead Manager’s mandate are or become materially untrue or incorrect; • the Company is in default of any of the material terms and conditions of the Underwriting Agreement or breaches any undertaking or covenant given or made by it under the Underwriting Agreement and that default or breach is either incapable of remedy or is not remedied within 10 business days after being given notice to do so by the Lead Manager; • without the prior written consent of the Lead Manager, the Company disposes, or agrees to dispose, of the whole, or a substantial part, of its business or property other than as contemplated in the Prospectus, ceases or threatens to cease to carry on business, alters its capital structure (debt or equity), other than as contemplated in the Prospectus; • a general moratorium on commercial banking activities in Australia, New Zealand, the United States of America or the United Kingdom is declared by the relevant authority in any of those countries, or there is a disruption in commercial banking or security settlement or clearance services in any of those countries; • trading in all securities quoted or listed on ASX, NZX, the London Stock Exchange or the New York Stock Exchange is suspended or limited in a material respect for at least one day on which that exchange is open for trading; • any adverse change or disruption to the existing financial markets, political or economic conditions of, or currency exchange rates or controls in, Australia, New Zealand, the United States of America or the United Kingdom, or the international financial markets; • after the date of the Underwriting Agreement, a change or development (which was not publicly known prior to the date of the Underwriting Agreement) involving a prospective adverse change in taxation affecting the Company or the Offer occurs; • there is an outbreak of hostilities (whether or not war or a national emergency has been declared) not presently existing, or a major escalation in existing hostilities occurs, or a major act of terrorism occurs in or involving Australia, New Zealand, the United Kingdom, the United States of America, Japan or the People’s Republic of China; • any of the following occurs: (a) a Director or the CEO of the Company is charged with an indictable offence relating to a financial or corporate matter or is disqualified from managing a corporation under Part 2D.6 of the Corporations Act or any other applicable law; (b) a Director of the CEO of the Company engages in any fraudulent conduct or activity; or (c) any governmental agency or regulatory body commences any public action against the Company, the CEO of the Company or any of its Directors, or announces that it intends to take such action; • other than as disclosed in the Prospectus, a change to the Board or the CEO or CFO of the Company occurs; • other than as disclosed in the Prospectus, the Company charges or agrees to charge or creates any encumbrance over, the whole, or a substantial part of its business or property; • a statement in any certificate is false, misleading, inaccurate or untrue or incorrect; • any person (other than the Lead Manager seeking to rely on this provision) gives a notice under section 733(3) of the Corporations Act or any person who has previously consented to the inclusion of its name in the Prospectus (or any replacement or supplementary prospectus) withdraws that consent; or • a person other than ASIC or any other government agency commences any inquiry, investigation or proceedings, or takes any regulatory action or seeks any remedy, in connection with the Company, the Offer or the Offer Documents. 10.9 Litigation and claims As at the Prospectus Date, so far as the Directors are aware, there is no current or threatened civil litigation, arbitration proceedings or administrative appeals, or criminal or governmental prosecutions of a material nature in which VHT or any of its subsidiaries is directly or indirectly concerned which is likely to have a material adverse impact on the business or financial position of VHT. 10.10 Consents and disclaimers Chapter 6D of the Corporations Act imposes a liability regime on the Company (as the offeror of the Shares), the Directors of the Company, persons named in the Prospectus with their consent as proposed directors of the Company, any underwriters, persons named in the Prospectus with their consent as having made a statement in the Prospectus and persons involved in a contravention in relation to the Prospectus, with regard to misleading or deceptive statements made in the Prospectus. Although the Company bears the primary responsibility for the Prospectus, other parties involved in the preparation of the Prospectus can also be responsible for certain statements made in it. In light of the above, each of the parties referred to below (each a Consenting Party), to the maximum extent permitted by law, expressly disclaims all liabilities in respect of, makes no representations This is an impor tant document 117 10 ADDITIONAL INFORMATION with regard to, and takes no responsibility for, any statements in or omissions from this Prospectus, other than the reference to its name in the form and context in which it is named and a statement or report included in this Prospectus with its consent as specified below. Each of the following parties has given and has not, before the lodgement of the Prospectus with ASIC, withdrawn its written consent to be named in this Prospectus in the form and context in which it is named. None of the following parties referred to below has made any statement that is included in this Prospectus or any statement on which a statement is made in this Prospectus is based, other than as specified below: a) Morgans Corporate Limited; b) Simmonds Stewart; c) Norton Rose Fulbright Australia; d) Boardroom Pty Limited; e) Deloitte; f) Spruson & Ferguson; g) RSM; and h) Craigs Investment Partners Limited. Deloitte has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion in this Prospectus of extracts of its audit report and review report in Section 4 and the statements specifically attributed to it in the text of this Prospectus, in the form and context in which they are included in this Prospectus. RSM has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion in this Prospectus of statements by it, including its Investigating Accountant’s Report in Section 8 and the statements specifically attributed to it in the text of this Prospectus, in the form and context in which they are included in this Prospectus. Spruson & Ferguson has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion in this Prospectus of its IP Report in Section 9 and the statements specifically attributed to it in the text of this Prospectus, in the form and context in which they are included in this Prospectus. 10.11 ASX waivers The Company has applied for and obtained in-principle waivers from ASX Listing Rule 10.14 in connection with the proposed grant of options to the executive director, from ASX Listing Rule 6.10.3 to the extent necessary to set the “specified time” to determine whether a Shareholder is entitled to vote at a Shareholders’ meeting in accordance with the requirements of the relevant New Zealand legislation and from ASX Listing Rule 1.1 (Condition 11) to allow the existing options issued under the Legacy ESOP to continue on issue following the Company’s admission to the Official List despite those options having an exercise price lower than A$0.20. 118 Volpara Health Technologies Limited | Prospectus | 2016 10.12 Investor considerations Before deciding to participate in this Offer, you should consider whether the Shares to be issued are a suitable investment for you. There are general risks associated with any investment in the stock market. The value of Shares listed on the ASX may rise or fall depending on a range of factors beyond the control of the Company. You should carefully read the key risks set out in Section 5. If you are in doubt as to the course you should follow, you should seek advice on the matters contained in this Prospectus from a stockbroker, solicitor, accountant or other professional adviser. The potential tax effects relating to the Offer will vary between investors. Investors are urged to consider the possible tax consequences of participating in the Offer by consulting a professional tax adviser. 10.13 Australian tax considerations The comments below provide a general summary of Australian tax issues for Australian tax resident Shareholders who acquire Shares under this Prospectus. The categories of Shareholders considered in this summary are limited to individuals, companies (other than life insurance companies), trusts, partnerships and complying superannuation funds that hold their Shares on capital account. These comments do not consider the consequences for foreign resident Shareholders, insurance companies, banks, Shareholders that hold their Shares on revenue account or carry on a business of trading Shares or Shareholders who are exempt from Australian tax. These Shareholders should seek independent professional advice. These comments also do not consider the consequences for Shareholders who are subject to Division 230 of the Income Tax Assessment Act 1997 (the Taxation of Financial Arrangements or TOFA regime). Shareholders who are subject to TOFA should obtain their own tax advice as to the implications under TOFA (if any). This summary is based on the Income Tax Assessment Act 1936 (1936 Act), the Income Tax Assessment Act 1997 (1997 Act), the New Tax System (Goods and Services Tax) Act 1999 (GST Act), applicable case law and published Australian Taxation Office rulings, determinations and administrative practice in force at the Prospectus Date. This summary does not take into account the tax law of countries other than Australia. Australian tax laws are complex. The summary is general in nature and is not intended to be an authoritative or complete statement of the applicable law. The precise implications of ownership or disposal of the Shares by Shareholders will depend upon each Shareholder’s specific circumstances. Shareholders should seek their own professional advice on the tax implications of holding or disposing of the Shares, taking into account their specific circumstances. 1.Dividends paid on Shares a) Australian resident individuals and complying superannuation entities Dividends paid by the Company on a Share will constitute assessable income of an Australian tax resident Shareholder. Australian tax resident Shareholders who are individuals or complying superannuation entities should include the dividend in their assessable income in the year the dividend is paid, together with any franking credit attached to that dividend. Such Shareholders should be entitled to a tax offset equal to the franking credit attached to the dividend, subject to being a “qualified person” (refer comments below). Where the tax offset exceeds the tax payable on the investor’s taxable income, such Shareholders should be entitled to a tax refund. To the extent that the dividend paid by the Company is unfranked, the investor will generally be taxed at their prevailing marginal rate on the dividend received with no tax offset. b) Corporate Shareholders Corporate Shareholders are also required to include both the dividend and the associated franking credit in their assessable income. A tax offset is then available up to the amount of the franking credit attached to the dividend. An Australian tax resident Corporate Shareholder should be entitled to a credit in its own franking account to the extent of the franking credit on the dividend received. This allows the Corporate Shareholder to pass on the benefit of the franking credits to their own Shareholders on the payment of dividends. Excess franking credits received by Corporate Shareholders cannot give rise to a refund, however may be converted into carry forward tax losses. c) Trusts and partnerships Shareholders who are trustees (other than trustees of complying superannuation entities) or partnerships should include the dividend and associated franking credit in determining the net income of the trust or partnership. The relevant beneficiary or partner may be entitled to a tax offset equal to the beneficiary or partner’s share of the franking credits included in the net income of the trust or partnership. d) Shares held at risk The benefit of franking credits can be denied where a Shareholder is not a “qualified person”, in which case the Shareholder will not need to include an amount for the franking credits in their assessable income and will not be entitled to a tax offset. Broadly, to be a qualified person, a Shareholder must satisfy the holding period rule and, if necessary, the related payment rule. The holding period rule requires a Shareholder to hold the Shares “at risk” for more than 45 days continuously, measured as the period commencing the day after the Shares were acquired and ending on the 45th day after the Shares become ex-dividend. The dates the Shares are acquired and disposed of are ignored for the purposes of determining the 45-day period. The holding period rule is subject to certain exceptions, including where the total franking offsets of an individual in a year of income do not exceed $5,000. Special rules apply to trusts and beneficiaries. Under the related payment rule, a different testing period applies where the Shareholder has made, or is under an obligation to make, a related payment in relation to the dividend. The related payment rule requires the Shareholder to have held the Shares at risk for the continuous 45-day period as above but within the period commencing on the 45th day before, and ending on the 45th day after the day the Shares become ex-dividend. Investors should seek professional advice to determine if these requirements, as they apply to them, have been satisfied. The Australian Government has recently enacted a specific integrity rule that prevents taxpayers from obtaining a tax benefit from additional franking credits where dividends are received as a result of “dividend washing” arrangements. On 30 June 2014, the measure received royal assent and the new rule will apply to distributions made on or after 1 July 2013. Shareholders should consider the impact of this legislative change and any guidance issued by the Australian Taxation Office in this regard, given their own personal circumstances. 2.Disposal of Shares The disposal of a Share by a Shareholder will be a capital gains tax (CGT) event. A capital gain will arise where the capital proceeds received on disposal exceeds the CGT cost base of the share (broadly the amount paid to acquire the share plus any transaction/ incidental costs). In the case of an arm’s length onmarket sale, the capital proceeds will generally be the cash proceeds received from the sale of Shares. A CGT discount may be available on the capital gain for Shareholders that are individuals, trustees or complying superannuation entitles provided the particular Shares are held for more than 12 months prior to sale. Any current year or carry forward capital losses should offset the capital gain first before the CGT discount can be applied. The CGT discount for individuals and trusts is 50% and for complying superannuation entities is 33%. In relation to trusts, the rules are complex, but this discount may flow up to beneficiaries of the trust. A company is not entitled to a CGT discount. This is an impor tant document 119 10 ADDITIONAL INFORMATION A capital loss will be realised where the capital proceeds on disposal are less than the CGT reduced cost base of the Shares. Capital losses may only be offset against capital gains realised by the Shareholder in the same income year or future income years, subject to certain loss recoupment tests being satisfied. Capital losses cannot be offset against other assessable income. 3.Tax File Numbers A Shareholder is not required to provide their tax file number (TFN) to the Company. However, if TFN or exemption details are not provided, Australian tax may be required to be deducted by the Company from distributions at the top marginal tax rate plus the Medicare levy. A Shareholder that holds Shares as part of an enterprise may quote its Australian Business Number rather than its TFN. 4.Australian Goods and Services Tax (GST) Shareholders should not be liable for GST in respect of their acquisition of the Shares. An Australian resident Shareholder that is registered for GST may not be entitled to claim full input tax credits in respect of GST on expenses they incur that related to the acquisition, redemption or disposal of the Shares (e.g. lawyers’ and accountants’ fees). Shareholders should seek their own advice on the impact of GST in their own particular circumstances. 5.Stamp duty No stamp duty should be payable by Shareholders on the acquisition of Shares. Investors should seek their own advice as to the impact of stamp duty in their own particular circumstances. 10.14 New Zealand tax considerations The following is a summary of the New Zealand tax implications of investing in the Shares if a Shareholder is an individual, a company, or a trust investing in the Shares who is a tax resident in New Zealand. Distributions a Shareholder receives from the Company will generally be taxable dividends for New Zealand tax purposes. Some distributions the Shareholder receives from the Company may not be taxable dividends (for example, non-taxable bonus issues and certain returns of capital). New Zealand operates an imputation regime under which income tax paid by the Company gives rise to credits known as imputation credits. Imputation credits may be attached to dividends the Company pays to its Shareholders. A New Zealand resident Shareholder may use imputation credits attached to dividends to offset their tax liability in respect of the dividends. The maximum ratio at which the Company can attach imputation credits to dividends is 28:72 (that is, $28 of imputation credits to $72 of cash dividend). The Company generally will be required to deduct resident withholding tax (RWT) from dividends it 120 Volpara Health Technologies Limited | Prospectus | 2016 pays to a Shareholder. Currently, the rate of RWT on dividends is 33% less the amount of imputation credits attached to the dividend. Accordingly, where imputation credits are attached to dividends at the maximum permitted ratio (that is, the dividends are fully imputed), RWT equal to 5% of the gross dividend (that is, cash plus imputation credits) will be deducted. Unless the New Zealand resident Shareholder has notified the Company that they hold a valid certificate of exemption from RWT and has provided the Company with a copy of the certificate, RWT is deducted from any dividend to the extent that the dividend is imputed at a rate less than 33%. Filing an income tax return If a New Zealand resident Shareholder is an individual who is not otherwise required to file an income tax return, receiving dividends from the Company generally will not change that. It is noted that the Shareholder may consider filing a tax return if their top marginal tax rate is less than 33%. In such instances the Shareholder may be able to reduce tax on other income or receive a refund of some or all of the RWT deducted from dividends paid to the Shareholder. When filing a tax return, the Shareholder must include in their taxable income not only the cash dividend received, but also the imputation credits attached to, and RWT deducted from, the dividend. The total amount included in taxable income is referred to as the gross dividend. The Shareholder will be able to use attached imputation credits and a credit for RWT deducted to satisfy (or partially satisfy) tax liability on the gross dividend. If the attached imputation credits and RWT deducted exceed the amount of tax on the gross dividend, the Shareholder’s tax liability on other income earned may be reduced as a result of receiving the Company dividend. Tax on sale or disposal of Shares Although New Zealand does not have a general capital gains tax, there are instances where a Shareholder will be subject to New Zealand tax on gains made on the sale or disposal of Shares or be allowed a deduction for any loss made. The Shareholder must consider their individual circumstances to determine whether any gain on the sale or disposal of the Company’s Shares will be taxable (or loss deductible). Generally, a Shareholder will be subject to tax on any gain (or allowed to deduct any loss) arising from the sale or disposal of Shares if the Shareholder: • is in the business of dealing in Shares; • acquires Shares as part of a profit-making undertaking or scheme; or • acquires Shares with a purpose of selling them. The Shareholder’s taxable gain (or tax-deductible loss) will be the difference between the cost of Shares and the amount received on the disposal of these Shares. If the Shareholder has a taxable gain, they will be required to include that gain in a tax return for the tax year in which the sale occurs. The Shareholder will need to pay any tax owing in respect of that gain at the Shareholder’s marginal tax rates. Stamp Duty New Zealand no longer has stamp duty. Consequently, no stamp duty is payable on the issues of Shares or on subsequent transfer of the Shares. GST No New Zealand GST liability should arise either on the issue of the Shares or on the subsequent transfer of the Shares. 10.15 International Offer restrictions 1.Hong Kong WARNING The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has not been registered by the Registrar of Companies in Hong Kong pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32) of the Laws of Hong Kong (CWMO). Accordingly: (i) the Shares may not be offered or sold in Hong Kong by means of any document other than to persons who are “professional investors” as defined in the Securities and Futures Ordinance (Chapter 571) of the Laws of Hong Kong (SFO) and any rules made under the SFO, or in other circumstances which do not result in the document being a “prospectus” as defined in section 2(1) of the CWMO or which do not constitute an offer to the public within the meaning of the CWMO or an invitation to the public within the meaning of the SFO; and (ii) this document must not be issued, circulated or distributed in Hong Kong other than (1) to “professional investors” as defined in the SFO and any rules made under the SFO, (2) to persons and in circumstances which do not result in this document being a “prospectus” as defined in section 2(1) of the CWMO or which do not constitute an offer to the public within the meaning of the CWMO or an invitation to the public within the meaning of the SFO or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFO and CWMO. 2.Singapore This document and any other materials relating to the Offer of the Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document and any other document or materials in connection with the offer or sale, or invitation for subscription or purchase, of Shares, may not be issued, circulated or distributed, nor may the Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than to an “institutional investor” under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a “relevant person” pursuant to Section 275(1), or to any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. In the event that you are not an investor falling within any of the categories set out above, please return this document immediately. You may not forward or circulate this document to any other person in Singapore. Any offer is not made to you with a view to the Shares being subsequently offered for sale to any other party. There are on-sale restrictions in Singapore that may be applicable to investors who acquire Shares. As such, investors are advised to acquaint themselves with the SFA provisions relating to resale restrictions in Singapore and comply accordingly. 3.United Kingdom Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (FSMA)) has been published or is intended to be published in respect of the Shares. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the Shares may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom. Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the Shares has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company. In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (FPO), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. 4.United States This Prospectus has been prepared for publication in Australia and may not be released or distributed in the This is an impor tant document 121 10 ADDITIONAL INFORMATION United States. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. Any securities described in this Prospectus have not been, and will not be, registered under the US Securities Act and may not be offered or sold in the United States except in transactions exempt from, or not subject to, registration under the US Securities Act and applicable US state securities laws. 10.16 Governing law This Prospectus, the Offer and the contracts formed on acceptance of Applications under the Offer are governed by the laws in force in the State of New South Wales, Australia and each Applicant submits to the non-exclusive jurisdiction of the courts of New South Wales, Australia. 10.17 Statement of Directors Each Director has authorised the issue of this Prospectus and consented (and has not withdrawn their consent) to the lodgement of this Prospectus with ASIC. 122 Volpara Health Technologies Limited | Prospectus | 2016 11 GLOSSA RY This is an impor tant document 123 11 GLOSSARY The following terms used in this Prospectus have the following meanings unless the context otherwise requires. 124 TERM DEFINITION Affordable Care Act The US Patient Protection and Affordable Care Act Allotment Date The date the Company anticipates the Shares will be allotted and issued to Applicants Applicant A person who makes an Application for Shares under this Prospectus Application An application to subscribe for Shares under this Prospectus Application Form The application form attached to or accompanying this Prospectus Application Payment The monies payable in connection with an Application ASIC Australian Securities and Investments Commission ASX ASX Limited (ACN 008 624 691) or the financial market it operates, as the context requires ASX Listing Rules The official listing rules of ASX as amended or waived from time to time ASX Settlement ASX Settlement Pty Limited, ABN 49 008 504 532 ASX Settlement Operating Rules The operating rules of ASX Settlement as amended from time to time, except to the extent of any express written waiver by ASX Settlement BAA Business Associate Agreements BI-RADS Breast Imaging-Reporting and Data System Board or Board of Directors The board of directors of the Company Breast Density The percentage of the breast which is not fatty tissue Breast MRI A supplemental breast cancer imaging modality typically used to image women with a very high risk of developing breast cancer Broker Any ASX participating organisation selected by the Lead Manager and the Company to act as Broker to the Offer Broker Firm Offer The offer of Shares under this Prospectus to Australian and New Zealand resident investors who are not Institutional Investors and have received a firm allocation from their Broker, as described in Section 7 CE Conformité Européenne (European Conformity) Cloud An Internet-based globally distributed network of configurable computing resources (networks, servers, storage, applications and services) used for secure information storage and retrieval Companies Act The New Zealand Companies Act 1993 Company Volpara Health Technologies Limited, New Zealand company number 2206998 / ARBN 609 946 867 Completion Settlement and allotment of the Shares under the Offer Constitution The constitution of the Company Volpara Health Technologies Limited | Prospectus | 2016 TERM DEFINITION CPS or Convertible Preference Shares The convertible preference shares of the Company on issue as at the Prospectus Date that will automatically convert to Shares immediately prior to Official Quotation Corporations Act The Australian Corporations Act 2001 (Cth) as amended from time to time Deloitte Deloitte (New Zealand) Digital Breast Tomosynthesis A 3D form of mammography used for screening in the US and assessment outside the US Director or Directors A director or the directors of the Company FDA United States Food and Drug Administration HIPAA The US Health Insurance Portability and Accountability Act of 1996 IFRS The International Financial Reporting Standards Institutional Investors An investor to whom offers or invitations in respect of securities can be made without the need for a lodged prospectus (or other registration or formality, other than a formality which VHT is willing to comply with), including in Australia persons to whom offers or invitations can be made without the need for a lodged prospectus under section 708 of the Corporations Act Institutional Offer The invitation to Institutional Investors under this Prospectus to acquire Shares, as described in Section 7 Lead Manager Morgans Corporate Limited, ABN 49 010 669 726 Legacy ESOP The employee share option plan adopted by the Company prior to 31 January 2016 Mammography X-ray of the breast; standard breast cancer screening protocol Morgans Morgans Corporate Limited, ABN 49 010 669 726 New ESOP The employee share option plan adopted by the Company after 31 January 2016 OEM Original equipment manufacturer Offer The offer of Shares under this Prospectus Offer Documents The documents issued or published by or on behalf of VHT in respect of or relating to the Offer including a Pathfinder Prospectus, this Prospectus, the Application Form and any investor presentation Offer Period The period expected to be from 4 April 2016 to 15 April 2016 during which investors may subscribe for Shares under the Offer Offer Price A$0.50 Official List The official list of ASX Official Quotation Official quotation of securities by ASX PHI Protected health information Prospectus This document (including the electronic copy of this prospectus) and any supplementary or replacement prospectus in relation to this document Prospectus Date 24 March 2016 This is an impor tant document 125 11 126 GLOSSARY TERM DEFINITION QDE Quasi-dividend entitlement, being the distribution available to holders of CPS RSM RSM Financial Services Australia Pty Limited, ABN 22 009 176 354 Securities Act The New Zealand Securities Act 1978 Share A fully paid ordinary share in the capital of the Company Shareholder A person registered from time to time on the Company’s register of Shares as a holder of one or more Shares Share Registry Boardroom Pty Limited, ABN 14 003 209 836 Spruson & Ferguson Spruson & Ferguson Pty Limited, ABN 55 601 269 050 TGA The Therapeutic Goods Act 1989 (Australia) US Securities Act The US Securities Act of 1933 VHT Volpara Health Technologies Limited (New Zealand company number 2206998; ARBN 609 946 867) Volpara Group VHT; Volpara Solutions Limited; Volpara Solutions Inc; and Matakina UK Limited Volpara Products VolparaDensity, VolparaDoseRT, VolparaAnalytics and VolparaServer Whole Breast Ultrasound A supplemental breast cancer screening modality less affected by breast density than mammography Volpara Health Technologies Limited | Prospectus | 2016 12 CORP OR ATE DIREC TORY This is an impor tant document 127 12 CORPORATE DIRECTORY Volpara Health Technologies Limited Level 12, 86 Victoria Street Wellington 6011 Board of Directors Roger Allen AM, Chairman Dr Ralph Highnam, Executive Director, CEO Professor Sir John Michael Brady, Non-Executive Director John Pavlidis, Non-Executive Director John Diddams, Non-Executive Director Lyn Swinburne AM, Non-Executive Director Lead Manager Morgans Corporate Limited Level 29, 123 Eagle Street GPO Box 202 Brisbane QLD 4000 Co-lead Manager Craigs Investment Partners Limited 158 Cameron Road Tauranga 3110 New Zealand Legal Adviser Simmonds Stewart Level 6, 15 Courtenay Place Te Aro, Wellington 6011 Australian Legal Adviser Norton Rose Fulbright Australia Level 18, 225 George Street Sydney NSW 2000 Investigating Accountant RSM Financial Services Australia Pty Limited Level 13, 60 Castlereagh Street Sydney NSW 2000 Auditor Deloitte Deloitte House 10 Brandon Street Wellington 6011 Share Registry Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 128 Volpara Health Technologies Limited | Prospectus | 2016 13 A PPLIC ATION FORM This is an impor tant document 129
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