UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission File Number: 001-40672
RANI THERAPEUTICS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
86-3114789 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
2051 Ringwood Avenue San Jose, California |
95131 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (408) 457-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Class A common stock, par value $0.0001 per share |
|
RANI |
|
The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☒ |
Emerging growth company |
|
☒ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 8, 2022, the registrant had 24,492,016 shares of Class A common stock, $0.0001 par value per share, outstanding, 24,663,752 shares of Class B common stock, $0.0001 par value per share, outstanding and no shares of Class C common stock, $0.0001 par value per share, outstanding. Certain holders of units of the registrant’s consolidated subsidiary, Rani Therapeutics, LLC, who do not hold shares of the registrant’s Class B common stock can exchange their units of Rani Therapeutics, LLC for 1,387,471 shares of the registrant’s Class A common stock.
Table of Contents
|
|
Page |
3 |
||
|
|
|
PART I. |
FINANCIAL INFORMATION |
|
|
|
|
|
RANI THERAPEUTICS HOLDINGS, INC. |
|
Item 1. |
5 |
|
|
5 |
|
|
Condensed Consolidated Statements of Operations and Comprehensive Loss |
6 |
|
7 |
|
|
8 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
38 |
|
Item 4. |
38 |
|
|
|
|
PART II. |
39 |
|
|
|
|
Item 1. |
39 |
|
Item 1A. |
39 |
|
Item 2. |
40 |
|
Item 3. |
40 |
|
Item 4. |
40 |
|
Item 5. |
40 |
|
Item 6. |
41 |
|
42 |
2
Unless otherwise stated or the context otherwise requires, the terms “we,” “us,” and “our,” and similar references refer to Rani Therapeutics Holdings, Inc. (“Rani Holdings”) and its consolidated subsidiaries, Rani Therapeutics, LLC (“Rani LLC”) and Rani Management Systems, Inc. (“RMS”).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and consolidated financial position, business strategy, product candidates, planned preclinical studies and clinical trials, results of clinical trials, research and development costs, manufacturing costs, regulatory approvals, development and advancement of our oral delivery technology, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” “seek,” “aim,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
3
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions described in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, or otherwise.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
4
RANI THERAPEUTICS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
97,181 |
|
|
$ |
117,453 |
|
Prepaid expenses |
|
|
812 |
|
|
|
2,142 |
|
Total current assets |
|
|
97,993 |
|
|
|
119,595 |
|
Property and equipment, net |
|
|
5,352 |
|
|
|
4,612 |
|
Operating lease right-of-use asset |
|
|
999 |
|
|
|
— |
|
Total assets |
|
$ |
104,344 |
|
|
$ |
124,207 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
1,440 |
|
|
$ |
1,080 |
|
Related party payable |
|
|
30 |
|
|
|
126 |
|
Accrued expenses |
|
|
3,221 |
|
|
|
1,434 |
|
Operating lease liability, current portion |
|
|
658 |
|
|
|
— |
|
Total current liabilities |
|
|
5,349 |
|
|
|
2,640 |
|
Operating lease liability, net current portion |
|
|
341 |
|
|
|
— |
|
Total liabilities |
|
|
5,690 |
|
|
|
2,640 |
|
(Note 10) |
|
|
|
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
||
Preferred stock, $0.0001 par value - 20,000 shares authorized; none issued and outstanding as of June 30, 2022 and December 31, 2021 |
|
|
— |
|
|
|
— |
|
Class A common stock, $0.0001 par value - 800,000 shares authorized; 24,494 and 19,712 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively |
|
|
2 |
|
|
|
2 |
|
Class B common stock, $0.0001 par value - 40,000 shares authorized; 24,663 and 29,290 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively |
|
|
3 |
|
|
|
3 |
|
Class C common stock, $0.0001 par value - 20,000 shares authorized; none issued and outstanding as of June 30, 2022 and December 31, 2021 |
|
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
|
69,986 |
|
|
|
55,737 |
|
Accumulated deficit |
|
|
(22,178 |
) |
|
|
(8,331 |
) |
Total stockholders' equity attributable to Rani Therapeutics Holdings, Inc. |
|
|
47,813 |
|
|
|
47,411 |
|
Non-controlling interest |
|
|
50,841 |
|
|
|
74,156 |
|
Total stockholders' equity |
|
|
98,654 |
|
|
|
121,567 |
|
Total liabilities and stockholders' equity |
|
$ |
104,344 |
|
|
$ |
124,207 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
RANI THERAPEUTICS HOLDINGS, INC.
CONDENSED Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share amounts)
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Contract revenue |
|
$ |
— |
|
|
$ |
1,961 |
|
|
$ |
— |
|
|
$ |
2,717 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
9,528 |
|
|
|
3,759 |
|
|
|
17,118 |
|
|
|
7,106 |
|
General and administrative |
|
|
6,319 |
|
|
|
3,460 |
|
|
|
12,509 |
|
|
|
6,067 |
|
Total operating expenses |
|
$ |
15,847 |
|
|
$ |
7,219 |
|
|
$ |
29,627 |
|
|
$ |
13,173 |
|
Loss from operations |
|
|
(15,847 |
) |
|
|
(5,258 |
) |
|
|
(29,627 |
) |
|
|
(10,456 |
) |
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income and other, net |
|
|
35 |
|
|
|
13 |
|
|
|
50 |
|
|
|
60 |
|
Interest expense and other, net |
|
|
— |
|
|
|
(169 |
) |
|
|
— |
|
|
|
(357 |
) |
Change in estimated fair value of preferred unit warrant |
|
|
— |
|
|
|
(70 |
) |
|
|
— |
|
|
|
(286 |
) |
Loss before income taxes |
|
|
(15,812 |
) |
|
|
(5,484 |
) |
|
|
(29,577 |
) |
|
|
(11,039 |
) |
Income tax expense |
|
|
(154 |
) |
|
|
(1 |
) |
|
|
(217 |
) |
|
|
(44 |
) |
Net loss and comprehensive loss |
|
$ |
(15,966 |
) |
|
$ |
(5,485 |
) |
|
$ |
(29,794 |
) |
|
$ |
(11,083 |
) |
Net loss attributable to non-controlling interest |
|
|
(8,342 |
) |
|
|
(5,485 |
) |
|
|
(15,947 |
) |
|
|
(11,083 |
) |
Net loss attributable to Rani Therapeutics Holdings, Inc. |
|
$ |
(7,624 |
) |
|
$ |
|
|
$ |
(13,847 |
) |
|
$ |
|
||
Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc., basic and diluted |
|
$ |
(0.31 |
) |
|
|
|
|
$ |
(0.60 |
) |
|
|
|
||
Weighted-average Class A common shares outstanding—basic and diluted |
|
|
24,371 |
|
|
|
|
|
|
22,930 |
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
RANI THERAPEUTICS HOLDINGS, INC.
CONDENSED Consolidated Statements of Changes in STOCKHOLDERS’ Equity/CONVERTIBLE PREFERRED UNITS AND MEMBERS' Deficit
(in thousands)
(Unaudited)
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Additional Paid In Capital |
|
|
Accumulated Deficit |
|
|
Non-Controlling Interest |
|
|
Total Stockholders' Equity |
|
||||||||
Balance at December 31, 2021 |
|
|
19,712 |
|
|
$ |
2 |
|
|
|
29,290 |
|
|
$ |
3 |
|
|
$ |
55,737 |
|
|
$ |
(8,331 |
) |
|
$ |
74,156 |
|
|
$ |
121,567 |
|
Effect of exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC |
|
|
4,675 |
|
|
|
— |
|
|
|
(4,517 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-controlling interest adjustment for changes in proportionate ownership in Rani LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,928 |
|
|
|
— |
|
|
|
(10,928 |
) |
|
|
— |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,268 |
|
|
|
— |
|
|
|
1,637 |
|
|
|
2,905 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,223 |
) |
|
|
(7,605 |
) |
|
|
(13,828 |
) |
Balance at March 31, 2022 |
|
|
24,387 |
|
|
$ |
2 |
|
|
|
24,773 |
|
|
$ |
3 |
|
|
$ |
67,933 |
|
|
$ |
(14,554 |
) |
|
$ |
57,260 |
|
|
$ |
110,644 |
|
Forfeiture of restricted stock awards |
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
(6 |
) |
Effect of exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC |
|
|
110 |
|
|
|
— |
|
|
|
(110 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-controlling interest adjustment for changes in proportionate ownership in Rani LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
126 |
|
|
|
— |
|
|
|
(126 |
) |
|
|
— |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,930 |
|
|
|
— |
|
|
|
2,052 |
|
|
|
3,982 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,624 |
) |
|
|
(8,342 |
) |
|
|
(15,966 |
) |
Balance at June 30, 2022 |
|
|
24,494 |
|
|
$ |
2 |
|
|
|
24,663 |
|
|
$ |
3 |
|
|
$ |
69,986 |
|
|
$ |
(22,178 |
) |
|
$ |
50,841 |
|
|
$ |
98,654 |
|
|
|
Convertible Preferred |
|
|
|
Common |
|
|
|
|
|
|
|
||||||||||||
|
|
Units |
|
|
Amount |
|
|
|
Units |
|
|
Amount |
|
|
Accumulated |
|
|
Total Members’ |
|
||||||
Balance at December 31, 2020 |
|
|
26,746 |
|
|
$ |
184,714 |
|
|
|
|
46,890 |
|
|
$ |
664 |
|
|
$ |
(114,003 |
) |
|
$ |
(113,339 |
) |
Issuance of Series E preferred units |
|
|
884 |
|
|
|
6,320 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of warrant for common units |
|
|
— |
|
|
|
— |
|
|
|
|
6 |
|
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
453 |
|
|
|
— |
|
|
|
453 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
(5,598 |
) |
|
|
(5,598 |
) |
Balance at March 31, 2021 |
|
|
27,630 |
|
|
$ |
191,034 |
|
|
|
|
46,896 |
|
|
$ |
1,130 |
|
|
$ |
(119,601 |
) |
|
$ |
(118,471 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
282 |
|
|
|
— |
|
|
|
282 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
(5,485 |
) |
|
|
(5,485 |
) |
Balance at June 30, 2021 |
|
|
27,630 |
|
|
$ |
191,034 |
|
|
|
|
46,896 |
|
|
$ |
1,412 |
|
|
$ |
(125,086 |
) |
|
$ |
(123,674 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
RANI THERAPEUTICS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
(29,794 |
) |
|
$ |
(11,083 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
233 |
|
|
|
264 |
|
Equity-based compensation expense |
|
|
6,881 |
|
|
|
735 |
|
Change in fair value of preferred unit warrant liability |
|
|
— |
|
|
|
286 |
|
Non-cash operating lease expense |
|
|
317 |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
124 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Prepaid expenses and other assets |
|
|
1,330 |
|
|
|
2 |
|
Accounts payable |
|
|
209 |
|
|
|
421 |
|
Accrued expenses |
|
|
1,549 |
|
|
|
1,554 |
|
Operating lease liabilities |
|
|
(317 |
) |
|
|
— |
|
Related party payable |
|
|
(96 |
) |
|
|
738 |
|
Deferred revenue |
|
|
— |
|
|
|
(2,717 |
) |
Net cash used in operating activities |
|
|
(19,688 |
) |
|
|
(9,676 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
(633 |
) |
|
|
(235 |
) |
Net cash used in investing activities |
|
|
(633 |
) |
|
|
(235 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from employee stock purchase plan |
|
|
49 |
|
|
|
— |
|
Proceeds from issuance of preferred units, net of issuance costs |
|
|
— |
|
|
|
6,320 |
|
Proceeds from exercise of warrants for common units |
|
|
— |
|
|
|
13 |
|
Payment of deferred offering costs |
|
|
— |
|
|
|
(1,886 |
) |
Principal and interest repayments from related party for note receivable |
|
|
— |
|
|
|
1,720 |
|
Net cash provided by financing activities |
|
|
49 |
|
|
|
6,167 |
|
Net decrease in cash and cash equivalents |
|
|
(20,272 |
) |
|
|
(3,744 |
) |
Cash and cash equivalents, beginning of period |
|
|
117,453 |
|
|
|
73,058 |
|
Cash and cash equivalents, end of period |
|
$ |
97,181 |
|
|
$ |
69,314 |
|
Supplemental disclosures of non-cash investing and financing activities |
|
|
|
|
|
|
||
Property and equipment purchases included in accounts payable and accrued expenses |
|
$ |
340 |
|
|
$ |
— |
|
Exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC |
|
$ |
74,567 |
|
|
$ |
— |
|
Deferred financing costs included in accounts payable and accrued expenses |
|
$ |
— |
|
|
$ |
1,527 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
RANI THERAPEUTICS HOLDINGS, INC.
Notes to THE UNAUDITED CONDENSED Consolidated Financial Statements
1. Organization and Nature of Business
Description of Business
Rani Therapeutics Holdings, Inc. (“Rani Holdings”) was formed as a Delaware corporation in for the purpose of facilitating an initial public offering (“IPO”) of its Class A common stock, and to facilitate certain organizational transactions and to operate the business of Rani Therapeutics, LLC (“Rani LLC”) and its consolidated subsidiary, Rani Management Services, Inc. (“RMS”). Rani Holdings and its consolidated subsidiaries, Rani LLC and RMS are collectively referred to herein as “Rani” or the “Company.”
The Company is a clinical stage biotherapeutics company focusing on advancing technologies to enable the administration of biologics and drugs orally, to provide patients, physicians, and healthcare systems with a convenient alternative to painful injections. The Company is advancing a portfolio of oral therapeutics using its proprietary delivery technology, the RaniPill capsule. The Company is headquartered in San Jose, California and operates in one segment.
Initial Public Offering and Organizational Transactions
In August 2021, the Company closed its IPO and sold 7,666,667 shares of its Class A common stock, including shares issued pursuant to the exercise in full of the underwriters’ option, for cash consideration of $11.00 per share and received approximately $73.6 million in net proceeds, after deducting underwriting discounts, offering costs and commissions. The Company used the proceeds from the IPO to purchase 7,666,667 newly issued economic nonvoting Class A units (“Class A Units”) of Rani LLC.
In connection with the IPO, the Company was party to the following organizational transactions (the “Organizational Transactions”):
The Continuing LLC Owners are entitled to exchange, subject to the terms of the Rani LLC Agreement, the Class A Units they hold in Rani LLC, together with the shares they hold of the Company Class B common stock (together referred to as a "Paired Interest"), in return for shares of the Company’s Class A common stock on a one-for-one basis provided that, at the Company’s election, the Company has the ability to effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed. Any shares of Class B common stock will be cancelled on a one-for-one basis if, at the election of the Continuing LLC Owners, the Company redeems or exchanges such Paired Interest pursuant to the terms of the Rani LLC Agreement. As of June 30, 2022, certain individuals who continue to own interests in Rani LLC but do not hold shares of the Company’s Class B common stock (“non-corresponding Class A Units”) have the ability to exchange their non-corresponding Class A Units of Rani LLC for 1,387,471 shares of the Company’s Class A common stock.
9
Liquidity
The Company has incurred recurring losses since its inception, including net losses of $29.8 million for the six months ended June 30, 2022. As of June 30, 2022, the Company had an accumulated deficit of $22.2 million and for the six months ended June 30, 2022 had negative cash flows from operations of $19.7 million. The Company expects to continue to generate operating losses and negative operating cash flows for the foreseeable future as it continues to develop the RaniPill capsule. The Company expects that its cash and cash equivalents of $97.2 million as of June 30, 2022 will be sufficient to fund its operations through at least twelve months from the date the condensed consolidated financial statements are issued. The Company expects to finance its future operations with its existing cash and through strategic financing opportunities that could include, but are not limited to, future offerings of its equity, collaboration or licensing agreements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders and holders of interests in the Company. The Company will not generate any revenue from product sales unless, and until, it successfully completes clinical development and obtains regulatory approval for the RaniPill capsule. If the Company obtains regulatory approval for the RaniPill capsule, it expects to incur significant expenses related to developing its internal commercialization capability to support manufacturing, product sales, marketing, and distribution.
The Company’s ability to raise additional capital through either the issuance of equity or debt, is dependent on a number of factors including, but not limited to, the market interest of the Company, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. Market volatility resulting from the novel coronavirus disease (“COVID-19”) pandemic or other factors could also adversely impact the Company’s ability to access capital when and as needed.
2. Summary of Significant Accounting Policies
Basis of Presentation
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Company operates and controls all of the business and affairs of Rani LLC, and through Rani LLC and its subsidiary, conducts its business. Because the Company manages and operates the business and controls the strategic decisions and day-to-day operations of Rani LLC and also has a substantial financial interest in Rani LLC, the Company consolidates the financial results of Rani LLC, and a portion of its net loss is allocated to the non-controlling interests in Rani LLC held by the Continuing LLC Owners. All intercompany accounts and transactions have been eliminated in consolidation.
The Organizational Transactions were considered transactions between entities under common control. As a result, the condensed consolidated financial statements for periods prior to the IPO and the Organizational Transactions have been adjusted to combine the previously separate entities for presentation purposes.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and pursuant to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of the Company's operations and cash flows for interim periods in accordance with U.S. GAAP. All such adjustments are of a normal, recurring nature except for the adoption of the new lease accounting standard. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period.
The consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the 2021 consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022.
10
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Estimates include, but are not limited to equity-based compensation expense, accrued research and development costs and, until the occurrence of the Company's IPO, the fair value of Profits Interests and preferred unit warrants. Actual results may differ materially and adversely from these estimates.
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in the audited consolidated financial statements within its Annual Report on Form 10-K for the year ended December 31, 2021. Except as noted below, there have been no material changes in the Company’s significant accounting policies during the six months ended June 30, 2022.
Concentrations of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains accounts in federally insured financial institutions in excess of federally insured limits. The Company also holds money market funds that are not federally insured. However, management believes the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which these deposits are held and of the money market funds and other entities in which these investments are made.
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The extent to which the COVID-19 pandemic will further directly or indirectly impact the Company's results of operation and financial condition has been and will continue to be driven by many factors, most of which are beyond the Company's control and ability to forecast. Because of these uncertainties, the Company cannot estimate how long or to what extent COVID-19 will impact the Company's operations.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The carrying values of the Company’s cash equivalents, prepaid expenses, accounts payable, and accruals approximate their fair value due to their short-term nature.
11
Leases
Prior to January 1, 2022, the Company had one cancelable operating lease agreement for its corporate headquarters and recognized related rent expense on a straight-line basis over the term of the lease. The Company’s lease agreement contained termination and renewal options. The Company did not assume termination nor renewals options in its determination of the lease term unless they were deemed to be reasonably certain at the renewal of the lease. The Company began recognizing rent expense on the date that it obtained the legal right to use and control the leased space.
Subsequent to the adoption of the new leasing standard on January 1, 2022, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. For any arrangement that is considered to be a lease with a term greater than one year, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liabilities in the Company’s condensed consolidated balance sheet as of June 30, 2022.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease contract. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term. In determining the net present value of lease payments, the interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate (“IBR”), which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received and impairment charges if we determine the ROU asset is impaired. The Company considers a lease term to be the noncancelable period during which it has the right to use the underlying asset, including any periods where it is reasonably certain the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.
The operating lease ROU assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component. The lease components resulting in a ROU asset have been recorded on the condensed consolidated balance sheet and amortized as lease expense on a straight-line basis over the lease term.
Tax Receivable Agreement
In August 2021, in connection with the IPO and Organizational Transactions, the Company entered into a tax receivable agreement ("TRA") with certain of the Continuing LLC Owners. The TRA provides that the Company pay to such Continuing LLC Owners, 85% of the amount of tax benefits, if any, it is deemed to realize (calculated using certain assumptions) as a result of (i) increases in the tax basis of assets of Rani LLC resulting from (a) any future redemptions or exchanges of Paired Interests or non-corresponding Class A Units of Rani LLC and (b) payments under the TRA and (ii) certain other benefits arising from payments under the TRA (collectively the “Tax Attributes”).
A liability for the payable to parties subject to the TRA, and a reduction to stockholders’ equity, is accrued when (i) an exchange of a Paired Interest or non-corresponding Class A Units of Rani LLC has occurred and (ii) when it is deemed probable that the Tax Attributes associated with the exchange will be used to reduce the Company’s taxable income based on the contractual percentage of the benefit of Tax Attributes that the Company expects to receive over a period of time (Note 10).
Comprehensive Loss
Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions and other events and/or circumstances from non-owner sources. The Company did not have any other comprehensive loss for any of the periods presented, and therefore comprehensive loss was the same as the Company’s net loss.
12
Net Loss Per Class A Common Share Attributable to Rani Holdings
Basic net loss per Class A common share attributable to Rani Holdings is computed by dividing net loss attributable to the Company by the weighted average number of Class A common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per Class A common share is computed giving effect to all potentially dilutive shares. Diluted net loss per Class A common share for all periods presented is the same as basic loss per share as the inclusion of potentially issuable shares would be antidilutive. Net loss per share is not presented for the three and six months ended June 30, 2021 as the Company did not have any economic interests prior to the date of the IPO and Organizational Transactions through which it was given ownership in Rani LLC. Losses prior to the IPO and Organizational Transactions would have been allocated to the original members of Rani LLC. The basic and diluted net loss per Class A common share attributable to Rani Holdings is applicable only for the periods following the IPO and Organizational Transactions and represents the periods that the Company had Class A common shares outstanding.
Non-Controlling Interest
Non-controlling interest ("NCI") represents the portion of income or loss, net assets and comprehensive loss of the Company's consolidated subsidiary that is not allocable to Rani Holdings based on the Company's percentage of ownership of Rani LLC.
In August 2021, based on the Organizational Transactions, Rani Holdings became the sole managing member of Rani LLC. As of June 30, 2022, Rani Holdings held approximately 48% of the Class A Units of Rani LLC, and approximately 52% of the outstanding Class A Units of Rani LLC are held by the Continuing LLC Owners. Therefore, the Company reports NCI based on the Class A Units of Rani LLC held by the Continuing LLC Owners on its condensed consolidated balance sheet as of June 30, 2022. Income or loss attributed to the NCI in Rani LLC is based on the Class A Units outstanding during the period for which the income or loss is generated and is presented on the condensed consolidated statements of operations and comprehensive income or loss.
Future exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC will result in a change in ownership and reduce or increase the amount recorded as NCI and increase or decrease additional paid-in-capital when Rani LLC has positive or negative net assets, respectively. From the date of the Organizational Transactions to June 30, 2022, there were 4,626,639 exchanges of Paired Interests and 158,051 exchanges of non-corresponding Class A Units of Rani LLC for an equal number of shares of the Company's Class A common stock.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (“Topic 842”), as subsequently amended, to improve financial reporting and disclosures about leasing transactions. The Company adopted this standard on January 1, 2022 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of: 1) whether contracts are or contain leases, 2) lease classification and 3) initial direct costs, where applicable. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio. The Company elected the post-transition practical expedient to not separate lease components from non-lease components for all existing lease classes. The Company also elected a policy of not recording leases on its condensed balance sheets when the leases have a term of twelve months or less and the Company is not reasonably certain to elect an option to purchase the leased asset.
The adoption of this standard resulted in the recognition of a ROU asset and lease liabilities of $1.3 million, respectively. The adoption of the standard had no impact on the Company’s condensed consolidated statements of operations and comprehensive loss or to its cash flows from or used in operating, financing, or investing activities on its condensed consolidated statements of cash flows. No cumulative-effect adjustment within accumulated deficit was required to be recorded as a result of adopting this standard.
13
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, and assuming the Company continues to be considered an emerging growth company, ASU 2016-13 will be effective for the Company on January 1, 2023. The Company has not yet determined the potential effects of ASU 2016-13 on its condensed consolidated financial statements and disclosures.
3. Fair Value Measurements
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of inputs used in such measurements (in thousands):
|
|
As of June 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
94,679 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
94,679 |
|
Total assets |
|
$ |
94,679 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
94,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
115,595 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
115,595 |
|
Total assets |
|
$ |
115,595 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
115,595 |
|
Money market funds are highly liquid and actively traded marketable securities that generally transact at a stable $1.00 net asset value representing its estimated fair value.
There were no transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy for any of the periods presented.
The Company held a Level 3 liability associated with preferred unit warrants that were issued in conjunction with a loan and security Agreement. These preferred unit warrants were settled with Class A common stock as part of the IPO and Organizational Transactions.
The following tables set forth a summary of the changes in the fair value of the Company’s liability measured using Level 3 inputs (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Balance at beginning of period |
|
$ |
— |
|
|
$ |
536 |
|
|
$ |
— |
|
|
$ |
320 |
|
Change in estimated fair value of Series E warrants |
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
286 |
|
Balance at end of period |
|
$ |
— |
|
|
$ |
606 |
|
|
$ |
— |
|
|
$ |
606 |
|
4. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Payroll and related |
|
$ |
2,037 |
|
|
$ |
202 |
|
Accrued preclinical and clinical trial costs |
|
|
464 |
|
|
|
621 |
|
Accrued taxes |
|
|
358 |
|
|
|
3 |
|
Accrued professional fees |
|
|
178 |
|
|
|
213 |
|
Other |
|
|
184 |
|
|
|
395 |
|
Total accrued expenses |
|
$ |
3,221 |
|
|
$ |
1,434 |
|
14
5. Evaluation Agreement
Takeda
Takeda Pharmaceutical Company, Limited ("Takeda") was collaborating with the Company to conduct research on the use of the RaniPill capsule for the oral delivery of factor VIII (“FVIII”) therapy for patients with hemophilia A. The agreement granted Takeda a right of first negotiation to a worldwide, exclusive license under the Company’s intellectual property related to a FVIII-RaniPill therapeutic. Takeda paid the Company up-front payments of $5.9 million upon execution of and subsequent modifications to the agreement. Upon the initial evaluation services being completed, Takeda had an option to pay the Company $3.0 million to perform later stage evaluation services. Takeda also had the ability to terminate the agreement at any time by providing 30 days written notice after the effective date of the agreement. Unless terminated early, the agreement term ended upon the expiration of the right of first negotiation period which is 120 days after the completion of the evaluation services. The Takeda agreement could be terminated for cause by either party based on uncured material breach by the other party or bankruptcy of the other party. Upon early termination, all ongoing activities under the agreement and all mutual collaboration, development and commercialization licenses and sublicenses would terminate.
The Company identified one material promise under the Takeda agreement, the obligation to perform services to evaluate if Takeda’s FVIII therapy can be orally delivered using the RaniPill capsule (“Research and Development Services”), which was concluded to be a single performance obligation.
In May 2021, the Company received written notice from Takeda as to their intent to terminate the contract for convenience. Due to the delivery of the termination notice, the Company determined that there were no further enforceable rights and obligations under the agreement beyond May 2021 and the remaining $2.0 million of deferred revenue was recognized in 2021.
For the six months ended June 30, 2022, no contract revenue related to the Takeda agreement was recognized. For the six months ended June 30, 2021, the Company recognized contract revenue related to the Takeda agreement of $2.7 million. There was no deferred revenue as of June 30, 2022 nor December 31, 2021.
6. Related Party Transactions
InCube Labs, LLC (“ICL”) is wholly-owned by the Company’s founder and Chairman and his family. The founder and Chairman is the father of the Company’s Chief Executive Officer. The Company’s Chief Scientific Officer is also the brother of the founder and Chairman and thus uncle of the Company’s Chief Executive Officer.
Services agreements
In June 2021, Rani LLC entered into a service agreement with ICL effective retrospectively to January 1, 2021, and subsequently amended such agreement in March 2022 (as amended, the "Rani LLC-ICL Service Agreement"), pursuant to which Rani LLC and ICL agreed to provide personnel services to the other upon requests. Under the amendment in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas (“Occupancy Services”) for general office, research and development, and light manufacturing. The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated; except that the Occupancy Services in Milpitas, California have a term until February 2023, with the potential for two annual renewals, subject to approval by the landlord upon a nine months’ notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’ notice of termination. Except for the Occupancy Services, Rani LLC or ICL may terminate services under the Rani LLC-ICL Service Agreement upon 60 days' notice to the other party. The Rani LLC-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services. Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively.
15
In June 2021, RMS entered into a service agreement with ICL (the “RMS-ICL Service Agreement”) effective retrospectively to January 1, 2021, pursuant to which ICL agreed to rent a specified portion of its facility in San Jose, California to RMS. Additionally, RMS and ICL agreed to provide personnel services to the other upon requests based on rates specified in the RMS-ICL Service Agreement. In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC. The RMS-ICL Service Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless terminated. Rani LLC or ICL may terminate services under the RMS-ICL Service Agreement upon 60 days' notice to the other party, except for occupancy which requires six months’ notice. The RMS-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services. Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively, as well as allocations of expenses based upon Rani LLC’s utilization of ICL’s facilities and equipment.
The table below details the amounts charged by ICL for services and rent, net of the amount that the Company charged ICL, which is included in the condensed consolidated statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Research and development |
|
$ |
286 |
|
|
$ |
123 |
|
|
$ |
526 |
|
|
$ |
156 |
|
General and administrative |
|
|
53 |
|
|
|
184 |
|
|
|
116 |
|
|
|
366 |
|
Total |
|
$ |
339 |
|
|
$ |
307 |
|
|
$ |
642 |
|
|
$ |
522 |
|
Prior to April 2022, the Company’s eligible employees were permitted to participate in ICL’s 401(k) Plan (“401(k) Plan”). Participation in the 401(k) Plan was offered for the benefit of the employees, including the Company’s named executive officers, who satisfied certain eligibility requirements. In April 2022, the Company established its own 401(k) Plan, with participation offered for the benefit of the employees, including the Company’s named executive officers, who satisfy certain eligibility requirements.
As of June 30, 2022, all of the Company's facilities are owned or leased by an entity affiliated with the Company’s Chairman (Note 7). The Company pays for the use of these facilities through its services agreements with ICL.
Financing activity
From inception to the first half of 2017, the Company advanced funds to ICL, and ICL made payments directly to certain vendors on behalf of Rani, Rani has reimbursed ICL for all such payments at cost on a monthly basis.
In March 2021, an outstanding notes receivable balance totaling $1.7 million, including all accrued interest, was fully repaid by ICL.
During 2020 and 2021, a related party of the Company, and its affiliates, purchased 2,100,800 common units of Rani LLC and 7,880,120 Series E Preferred Units of Rani LLC. As part of the Organizational Transactions the common units and Series E Preferred Units were exchanged for 5,277,729 shares of the Company's Class A common stock. In connection with the IPO and subsequent thereto, the same related party purchased an additional 6,458,904 shares of the Company’s Class A common stock for total gross proceeds of $71.1 million.
Exclusive License, Intellectual Property and Common Unit Purchase Agreement
The Company, through Rani LLC, and ICL entered into an exclusive license and an intellectual property agreement and common unit purchase agreement in 2012. Pursuant to the common unit purchase agreement, the Company issued 46.0 million common units to ICL in return for rights to exclusive commercialization, development, use and sale of certain products and services related to the RaniPill capsule technology. ICL also granted the Company a fully-paid, royalty-free, sublicensable, exclusive license under the intellectual property made by ICL during the course of providing services to the Company related to the RaniPill capsule technology. Such rights were not recorded on the Company’s condensed consolidated balance sheet as the transaction was considered a common control transaction.
In June 2021, ICL and the Company, through Rani LLC, entered into an Amended and Restated Exclusive License Agreement which replaced the 2012 Exclusive License Agreement between ICL and Rani LLC, as amended in 2013, and terminated the 2012 Intellectual Property Agreement between ICL and Rani LLC, as amended in June 2013. Under the Amended and Restated Exclusive License Agreement, the Company has a fully paid, exclusive license under certain scheduled patents related to optional features of the device and certain other scheduled patents to exploit products covered by those patents in the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine. The Company covers patent-related expenses and, after a certain period, the Company will have the right to acquire four specified United
16
States patent families from ICL by making a one-time payment of $0.3 million to ICL for each United States patent family that the Company desires to acquire, up to $1.0 million in the aggregate. This payment will not become an obligation until the fifth anniversary of the Amended and Restated Exclusive License Agreement. The Amended and Restated Exclusive License Agreement will terminate when there are no remaining valid claims of the patents licensed under the Amended and Restated Exclusive License Agreement. Additionally, the Company may terminate the Amended and Restated Exclusive License Agreement in its entirety or as to any particular licensed patent upon notification to ICL of such intent to terminate.
Non-Exclusive License Agreement between Rani and ICL (“Non-Exclusive License Agreement”)
In June 2021, the Company, through Rani LLC, entered into the Non-Exclusive License Agreement with ICL, a related party, pursuant to which the Company granted ICL a non-exclusive, fully-paid license under specified patents that were assigned from ICL to the Company. Additionally, the Company agreed not to license these patents to a third party in a specific field outside the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine, if ICL can prove that it or its sublicensee has been in active development of a product covered by such patents in that specific field. ICL may grant sublicenses under this license to third parties only with the Company’s prior approval. The Non-Exclusive License Agreement will continue in perpetuity unless earlier terminated.
Intellectual Property Agreement with Mir Imran (the “Mir Agreement”)
In June 2021, the Company, through Rani LLC, entered into the Mir Agreement, pursuant to which the Company and Mir Imran agreed that the Company would own all intellectual property conceived (a) using any of the Company’s people, equipment, or facilities or (b) that is within the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine. Neither the Company nor Mir Imran may assign the Mir Agreement to any third party without the prior written consent of the other party. The initial term of the Mir Agreement is three years, which can be extended upon mutual consent of the parties. The Mir Agreement may be terminated by either party for any reason within the initial three year term upon providing three months’ notice to the other party.
Secondary Sales Transactions
In February 2021, one of the Company's named executive officers and then member of the Board of Managers of Rani LLC, and a current member of the Board of Managers of Rani LLC sold a total of 210,000 common units to a third-party investor at $7.1471 per unit. The Company determined that the sales price was above fair value of such units and as a result recorded equity-based compensation expense of $0.5 million for which $0.2 million was recorded as general and administrative expense and $0.3 million was recorded as research and development expense. The $0.5 million represents the difference between the sales price and fair value of the common units.
Tax Receivable Agreement
Certain parties to the TRA, entered into in August 2021 pursuant to the IPO and Organizational Transactions are related parties of the Company. The TRA provides that the Company pay to such entities and individuals 85% of the amount of tax benefits, if any, it is deemed to realize from exchanges of Paired Interests (Note 2). During the six months ended June 30, 2022, these parties to the TRA exchanged 2,309,490 Paired Interests that resulted in tax benefits subject to the TRA (Note 10).
Registration Rights Agreement
In connection with the IPO, the Company entered into a Registration Rights Agreement. ICL and its affiliates are parties to this agreement. The Registration Rights Agreement provides certain registration rights whereby, at any time following the IPO and the expiration of any related lock-up period, ICL and its affiliates can require the Company to register under the Securities Act of 1933, as amended (the “Securities Act”) shares of Class A common stock issuable to ICL and its affiliates upon, at the Company’s election, redemption or exchange of their Paired Interests. The Registration Rights Agreement also provides for piggyback registration rights. In March 2022, certain holders of our Class A common stock considered to be related parties were made parties to the Registration Rights Agreement.
Rani LLC Agreement
The Company operates its business through Rani LLC and its subsidiary. In connection with the IPO, the Company and the Continuing LLC Owners, including ICL and its affiliates, entered into the Rani LLC Agreement. The governance of Rani LLC, and the rights and obligations of the holders of LLC Interests, are set forth in the Rani LLC Agreement. As Continuing LLC Owners,
17
ICL and its affiliates are entitled to exchange, subject to the terms of the Rani LLC Agreement, Paired Interests for Class A common stock of the Company; provided that, at the Company’s election, the Company may effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed.
During the six months ended June 30, 2022, certain parties to the Rani LLC Agreement exchanged 2,309,490 Paired Interests for an equal number of shares of the Company's Class A common stock.
7. Leases
The Company pays for the use of its office, laboratory and manufacturing facility in San Jose, California as part of the RMS-ICL Service Agreement. In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC. The RMS-ICL Service Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless Rani LLC or ICL terminate occupancy under the RMS-ICL Service Agreement upon six months’ notice. As of June 30, 2022, the Company determined it to be reasonably certain that it would exercise its renewal option for a successive twelve-month period and this has been considered in the determination of the right-of-use assets and lease liabilities associated with the RMS-ICL Service Agreement. At June 30, 2022, the RMS-ICL Service Agreement had a remaining term of 1.5 years.
Under the Rani LLC-ICL Service Agreement amended in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas for general office, research and development, and light manufacturing. The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated; except that the Occupancy Services in Milpitas, California have a term until February 2023, with the potential for two annual renewals, subject to approval by the landlord upon a nine months’ notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’ notice of termination. As of June 30, 2022, the renewal option for the facility in Milpitas, California was not deemed reasonably certain to be exercised and the Occupancy Services were considered short term.
The Company's leases are accounted for as operating leases and require certain fixed payments of real estate taxes and insurance in addition to future minimum lease payments, and certain variable payments of common area maintenance costs and building utilities. Variable lease payments are expensed in the period in which the obligation for those payments is incurred. These variable lease costs are payments that vary in amount beyond the commencement date, for reasons other than passage of time. Total operating lease expense incurred with ICL was $0.7 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively. Short term lease expense are included in the total operating lease expense and not immaterial for the periods presented. Variable lease payments are excluded in the total operating lease expense and immaterial for the periods presented.
The Company used its IBR as the discount rate when measuring operating lease liabilities. The discount rate associated with the RMS-ICL Service Agreement is 5.0%.
Supplemental information on the Company’s condensed consolidated balance sheet and statements of cash flow as of June 30, 2022 related to leases was as follows (in thousands):
|
|
June 30, |
|
|
|
|
2022 |
|
|
Balance sheet |
|
|
|
|
Operating lease right-of-use assets |
|
$ |
999 |
|
|
|
|
|
|
Operating lease liability, current portion |
|
$ |
658 |
|
Operating lease liability, net current portion |
|
|
341 |
|
Total operating lease liability |
|
$ |
999 |
|
|
|
June 30, |
|
|
|
|
2022 |
|
|
Cash flows |
|
|
|
|
Cash paid for amounts included in lease liabilities: |
|
|
|
|
Operating cash flows used for operating leases |
|
$ |
345 |
|
18
As of June 30, 2022, minimum annual rental payments under the Company’s operating lease agreement is as follows (in thousands):
Year ending December 31, |
|
|
|
|
2022 (remaining six months) |
|
$ |
345 |
|
2023 |
|
|
690 |
|
Total undiscounted future minimum lease payments |
|
$ |
1,035 |
|
Less: Imputed interest |
|
|
(36 |
) |
Total operating lease liability |
|
$ |
999 |
|
Less: Operating lease liability, current portion |
|
|
658 |
|
Operating lease liability, net current portion |
|
$ |
341 |
|
Operating lease in the table above includes future minimum lease payments for the RMS-ICL Service Agreement. Future minimum lease payments of the Rani LLC-ICL Service Agreement for fiscal years 2022 (remaining six months) and 2023 totaled $0.3 million and $0.1 million, respectively.
8. Stockholders’ Equity / Members’ Deficit
Prior to the Organizational Transactions, Rani LLC was authorized to issue 101,000,000 common units, of which 10,850,000 had been reserved for issuance as Profits Interests and 32,620,000 were reserved for six separate classes, the Series A convertible preferred units (the “Series A units”), the Series B convertible preferred units (the “Series B units”), the Series C convertible preferred units (the “Series C units”), the Series C-1 convertible preferred units (the “Series C-1 units”), the Series D convertible preferred units (the “Series D units”), and the Series E convertible preferred units (the “Series E units”), collectively the “Preferred Units”.
The members of the Rani LLC who held these common and Preferred Units were not liable, solely by reason of being a member, for the debts, obligations, or liabilities of the Company whether arising in contract or tort; under a judgment, decree, or order of a court; or otherwise. The members were also not obligated to make capital contributions to Rani LLC and Rani LLC would have dissolved only upon a written consent of a majority of the members.
The Company’s Profits Interests were subject to either a combination of service, market, or performance vesting conditions. Vested Profits Interests were treated as common units for purposes of distributions.
For the six months ended June 30, 2022, certain of the Continuing LLC Owners executed an exchange of 4,626,639 Paired Interests and 158,051 non-corresponding Class A Units of Rani LLC in return for an equal number of shares of the Company’s Class A common stock. The corresponding shares of the Company’s Class B common stock included in the exchange of Paired Interests were subsequently cancelled and retired pursuant to the terms of the Rani LLC Agreement.
9. Equity-Based Compensation
Stock Options
A summary of stock option activity during the periods indicated is as follows:
|
|
Number of Stock Option Awards |
|
|
Weighted Average Exercise Price |
|
|
Weighted |
|
|
Aggregate Intrinsic Value (in thousands) |
|
||||
Balance at December 31, 2021 |
|
|
2,300,819 |
|
|
$ |
14.12 |
|
|
|
9.55 |
|
|
$ |
976 |
|
Granted |
|
|
1,427,285 |
|
|
$ |
12.80 |
|
|
|
9.75 |
|
|
$ |
— |
|
Forfeited |
|
|
(40,290 |
) |
|
$ |
17.08 |
|
|
|
|
|
|
|
||
Balance at June 30, 2022 |
|
|
3,687,814 |
|
|
$ |
13.57 |
|
|
|
9.33 |
|
|
$ |
1,079 |
|
Exercisable at June 30, 2022 |
|
|
596,276 |
|
|
$ |
12.93 |
|
|
|
9.09 |
|
|
$ |
315 |
|
Nonvested at June 30, 2022 |
|
|
3,091,538 |
|
|
$ |
13.70 |
|
|
|
9.37 |
|
|
$ |
764 |
|
As of June 30, 2022, there was $27.7 million of unrecognized equity-based compensation expense related to stock options which is expected to be recognized over a weighted-average period of approximately 2.9 years.
19
Restricted Stock Units
A summary of RSU activity during the periods indicated is as follows:
|
|
Number of Restricted Stock Units |
|
|
Weighted Average Grant-Date Fair Value per Share |
|
||
Balance at December 31, 2021 |
|
|
596,500 |
|
|
$ |
19.56 |
|
Granted |
|
|
443,400 |
|
|
$ |
13.21 |
|
Forfeited |
|
|
(69,800 |
) |
|
$ |
18.20 |
|
Balance at June 30, 2022 |
|
|
970,100 |
|
|
$ |
16.76 |
|
As of June 30, 2022, there was $11.6 million of unrecognized equity-based compensation expense related to RSUs which is expected to be recognized over a weighted-average period of approximately 2.3 years.
Restricted Stock Awards
A summary of RSA activity during the periods indicated is as follows:
|
|
Number of Restricted Stock Awards |
|
|
Weighted Average Grant-Date Fair Value per Share |
|
||
Balance at December 31, 2021 |
|
|
113,173 |
|
|
$ |
6.15 |
|
Vested |
|
|
(25,170 |
) |
|
$ |
6.16 |
|
Forfeited |
|
|
(2,374 |
) |
|
$ |
6.36 |
|
Balance at June 30, 2022 |
|
|
85,629 |
|
|
$ |
6.14 |
|
As of June 30, 2022, there was $0.2 million of unrecognized equity-based compensation expense related to RSAs which is expected to be recognized over a weighted-average period of approximately 1.3 years. The total fair value of the RSAs that vested in 2022 was approximately $0.4 million.
2021 Employee Stock Purchase Plan
The Company recognized stock-based compensation expense related to the 2021 Employee Stock Purchase Plan (the “ESPP”) that was not significant during the three and six months ended June 30, 2022. There was no stock-based compensation expense related to the ESPP recognized during the three and six months ended June 30, 2021. As of June 30, 2022, contributions withheld from employees were not significant and recorded as a component of accrued expenses in the condensed consolidated balance sheet. As of June 30, 2022, total unrecognized compensation costs related to the ESPP was $0.1 million, which will be amortized over a weighted average vesting term of 0.4 years.
Equity-Based Compensation Expense
The following table summarizes the components of equity-based compensation expense resulting from the grant of stock options, RSUs, RSAs, the ESPP, and a secondary sales transaction entered into in February 2021, recorded in the Company’s condensed consolidated statement of operations and comprehensive loss (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Research and development |
|
$ |
1,638 |
|
|
|
61 |
|
|
$ |
2,886 |
|
|
$ |
287 |
|
General and administrative |
|
|
2,338 |
|
|
|
221 |
|
|
|
3,995 |
|
|
|
448 |
|
Total equity-based compensation |
|
$ |
3,976 |
|
|
|
282 |
|
|
$ |
6,881 |
|
|
$ |
735 |
|
20
10. Commitments and Contingencies
Legal Proceedings
In the ordinary course of business, the Company may be subject to legal proceedings, claims and litigation as the Company operates in an industry susceptible to patent legal claims. The Company accounts for estimated losses with respect to legal proceedings and claims when such losses are probable and estimable. Legal costs associated with these matters are expensed when incurred. The Company is currently involved in several opposition proceedings at the European Patent Office, all of which were asserted against it by Novo Nordisk AS. The ultimate outcome of this matter as a loss is not probable nor is there any amount that is reasonably estimable. However, the outcome of the opposition proceedings could impact the Company’s ability to commercialize its products in Europe.
Tax Receivable Agreement
The Company is party to a TRA with certain of the Continuing LLC Owners (Note 2). As of June 30, 2022, the Company has not recorded a liability under the TRA related to the income tax benefits originating from the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC as it is not probable that the Company will realize such tax benefits. To the extent the Company is able to realize the income tax benefits associated with the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC subject to the TRA, the TRA payable would range from zero to $20.4 million at June 30, 2022.
The amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future. Should the Company determine that the payment of the TRA liability becomes probable at a future date based on new information, any changes will be recorded on the Company's condensed consolidated statement of operations and comprehensive loss at that time.
11. Income Taxes
The Company is the managing member of Rani LLC and, as a result, consolidates the financial results of Rani LLC and its taxable subsidiary RMS in the condensed consolidated financial statements. Rani LLC is a pass-through entity for United States federal and most applicable state and local income tax purposes following the IPO and Organizational Transactions. As an entity classified as a partnership for tax purposes, Rani LLC is not subject to United States federal and certain state and local income taxes. Any taxable income or loss generated by Rani LLC is passed through to, and included in the taxable income or loss of, its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated to it, based on its economic interest in Rani LLC. The Company's tax provision also includes the activity of RMS, which is taxed as a corporation for United States federal and state income tax purposes.
The Company’s effective income tax rate was (0.51)% and (0.21)% for the six months ended June 30, 2022 and 2021, respectively. As a result of the exchanges for the six months ended June 30, 2022 (Note 8), the Company recorded a $18.3 million deferred tax asset related to income tax benefit associated with the basis of the net assets of Rani LLC. Because of the Company’s history of operating losses, the Company believes that recognition of the deferred tax assets arising from such future income tax benefits is currently not likely to be realized and, accordingly, has recognized a full valuation allowance on its deferred tax assets.
There were no material changes to uncertain tax positions for the six months ended June 30, 2022 and 2021, and the Company does not anticipate material changes within the next 12 months.
21
12. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per Class A common share attributable to Rani Holdings (in thousands, except per share data):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended |
|
||
|
|
2022 |
|
|
2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc. |
|
$ |
(7,624 |
) |
|
$ |
(13,847 |
) |
Denominator: |
|
|
|
|
|
|
||
Weighted average Class A common share outstanding—basic and diluted |
|
|
24,371 |
|
|
|
22,930 |
|
Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc.—basic and diluted |
|
$ |
(0.31 |
) |
|
$ |
(0.60 |
) |
The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per Class A common share attributable to Rani Holdings:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended |
|
||
|
|
2022 |
|
|
2022 |
|
||
Paired Interests |
|
|
24,663,752 |
|
|
|
24,663,752 |
|
Stock options |
|
|
3,687,814 |
|
|
|
3,687,814 |
|
Class A Units of Rani LLC exchangeable for Class A common stock |
|
|
1,387,471 |
|
|
|
1,387,471 |
|
Restricted stock units |
|
|
970,100 |
|
|
|
970,100 |
|
Restricted stock awards |
|
|
85,629 |
|
|
|
85,629 |
|
Shares issuable pursuant to the ESPP |
|
|
30,558 |
|
|
|
30,558 |
|
|
|
|
30,825,324 |
|
|
|
30,825,324 |
|
Shares of Class B common stock do not share in the Company’s earnings and are not participating securities. Accordingly, separate presentation of loss per share of Class B common stock under the two-class method has not been provided. The outstanding shares of Class B common stock were determined to be anti-dilutive for the six months ended June 30, 2022. Therefore, they are not included in the computation of net loss per Class A common share attributable to Rani Holdings.
13. Subsequent Events
Lease
In July 2022, the first annual extension period under the RMS-ICL Service Agreement was approved by the landlord for Occupancy Services in Milpitas, California, for an additional twelve month lease term. The future aggregate minimum lease payments associated with the additional Occupancy Services total $0.4 million.
Loan Agreement
In August 2022, the Company entered into a loan and security agreement and related supplement (the “Loan Agreement”) with Avenue Venture Opportunities Fund, L.P (the “Lender”). The Loan Agreement provides for term loans (the “Loans”) in an aggregate principal amount up to $45.0 million. A Loan of $30.0 million is committed at closing, with $15.0 million funded immediately and $15.0 million available to be drawn between October 1, 2022 and December 31, 2022. The remaining $15.0 million of Loans (“Tranche 2”) is uncommitted and is subject to certain conditions and approval by the Lender. The purpose of the Loans is for general corporate purposes.
Pursuant to the Loan Agreement, the maturity date for the Loans is August 1, 2026 (the “Maturity Date”). The Loan principal is repayable in equal monthly installments beginning September 2024 (extendable to March 2025 under certain conditions. The Loans bear interest at a variable rate per annum equal to the greater of (A) the prime rate, as published by the Wall Street Journal from time to time plus 5.60% or (B) 10.35%.
22
Pursuant to the Loan Agreement, beginning on the first anniversary of the closing, the Company is subject to a financial covenant that requires the Company to have at least two drug products utilizing its oral delivery technology in clinical development at all times. The financial covenant does not apply if the Company has a market capitalization above $650.0 million. The Loan Agreement also contains various covenants and restrictive provisions that, among other things, limit the Company’s ability to (i) incur additional debt, guarantees or liens; (ii) pay any dividends; (iii) enter into certain change of control transactions; (iv) sell, transfer, lease, license, or otherwise dispose of certain assets; (v) make certain investments or loans; and (vi) engage in certain transactions with related persons. The Loan Agreement is collateralized by substantially all of the Company’s assets, in which the Lender is granted continuing security interests.
In connection with the Loan Agreement, the Company issued to the Lender warrants to purchase 76,336 shares of the Company's Class A common stock, as may be adjusted for certain anti-dilution adjustments, dividends, stock splits, and reverse stock splits, at an exercise price per share equal to $11.79.
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission ("SEC"). Some of the information contained in this discussion and analysis or set forth elsewhere in this document, includes forward looking statements that involve risks, uncertainties, and assumptions. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. Please also see the section titled “Forward Looking Statements.”
The following discussion contains references to calendar year 2021 and the six months ended June 30, 2022 and 2021, respectively, which represents the condensed consolidated financial results of Rani Therapeutics Holdings, Inc. (the "Company") and its subsidiaries for the year ended December 31, 2021 and the six months ended June 30, 2022 and 2021, respectively. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” and “Rani” and similar references refers to the Company and its consolidated subsidiaries.
Overview
We are a clinical stage biotherapeutics company focusing on advancing technologies to enable the administration of biologics and drugs orally, to provide patients, physicians, and healthcare systems with a convenient alternative to painful injections. We are advancing a portfolio of oral therapeutics using our proprietary delivery technology.
We are developing and clinically testing a drug-agnostic oral delivery platform, the RaniPill capsule, which is designed to deliver a wide variety of drugs, including large molecules such as peptides, proteins, and antibodies. The current RaniPill capsule is designed to deliver up to a 3 mg dose of drug with high bioavailability. We are also developing a high-capacity version known as the RaniPill HC, which is in preclinical stage and which is intended to enable delivery of drug payloads up to 20 mg with high bioavailability. Our current RaniPill capsule is optimized to orally deliver a variety of therapeutics and we are advancing development of the RaniPill HC to address biologics and drugs with higher dosing requirements. Together, we believe that the current RaniPill capsule and RaniPill HC could enable us to deliver most biologics currently on the market via a convenient, oral daily dose.
Since our inception in 2012, we have devoted the majority of our resources to research and development, manufacturing automation and scaleup, and establishing our intellectual property portfolio. To date, we have financed our operations primarily through an initial public offering ("IPO"), private placements of preferred units, issuance of convertible promissory notes, and contract revenue generated from our evaluation agreements.
We do not have any products approved for sale, and we have not yet generated any revenue from sales of a commercial product. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development of the RaniPill capsule, which we expect will take a number of years. Given our stage of development, we have not yet established a commercial organization or distribution capabilities, and we have no experience as a company in marketing drugs or a drug-delivery platform. When, and if, any of our product candidates are approved for commercialization, we plan to develop a commercialization infrastructure for those products in the United States, Europe, Asia, and potentially in certain other key markets. We may also rely on partnerships to provide commercialization infrastructure, including sales, marketing, and commercial distribution.
24
As is common with biotechnology companies, we rely on third-party suppliers for the supply of raw materials and active pharmaceutical ingredients ("APIs") and drug substances required for the production of our product candidates. In addition, we work with third parties to manufacture and develop biologics and drugs for inclusion in the current RaniPill capsule and RaniPill HC. Design work, prototyping and pilot manufacturing are performed in-house, and we have utilized third-party engineering firms to assist with the design of manufacturing lines that support our supply of the current RaniPill capsule and RaniPill HC. Certain of our suppliers of components and materials are single source suppliers. We believe our vertically integrated manufacturing strategy will offer significant advantages, including rapid product iteration, control over our product quality and the ability to rapidly scale our manufacturing capacity. This capability also allows us to develop future generations of products while maintaining the confidentiality of our intellectual property. Our vertically integrated manufacturing strategy will result in material future capital outlays and fixed costs related to constructing and operating a manufacturing facility. We have and plan to continue to invest in automated manufacturing production lines for the current RaniPill capsule and RaniPill HC. Those assets deemed to have an alternative future use have been capitalized as property and equipment while those projects related to our assets determined to not have an alternative future use have been expensed as research and development costs.
Clinical Update
We completed the single-ascending dose portion (part 1) of our Phase 1 clinical study of RT-102, a RaniPill capsule containing a proprietary formulation of human parathyroid hormone (PTH) analog PTH (1-34) for the potential treatment of osteoporosis (“Study Part 1”). The Study Part 1 achieved all of its endpoints, with RT-102 being generally well-tolerated and demonstrating high oral bioavailability of our PTH analog. We have also initiated part 2 of the clinical study which will involve 7-day repeat dosing of RT-102 in healthy volunteers.
The single-center, open label, Study Part 1 of RT-102 was conducted in Australia, and evaluated the safety, tolerability, and pharmacokinetics (PK) of RT-102 in healthy adult female volunteers. Of the 39 participants, 15 were administered RT-102 containing a single 20μg dose of PTH and 14 were administered RT-102 containing a single 80μg dose of PTH, while a control group of 10 participants received a single 20μg subcutaneous (SC) injection of Forteo® (teriparatide), a commercial formulation of PTH for SC administration.
The endpoints of the Study Part 1 were safety and tolerability, and measurements of serum concentrations of RT-102 in healthy adult female volunteers.
Phase 1 Topline Results
Safety Data
Per protocol, in instances where the RaniPill capsule did not exit the stomach within 7 hours, participants were excluded from the study. Based on the exclusion criteria, three participants were excluded from Study Part 1, one of whom experienced bloating, and one additional subject was excluded due to vomiting the capsule intact. The two events were assessed as probably related and possibly related to the RaniPill, respectively. In all instances, the capsule remnants passed from all participants who ingested the RaniPill capsule.
Across our two clinical studies of the RaniPill platform (Phase 1 clinical study of RT-101, a RaniPill capsule containing ocreotide, and Study Part 1 of RT-102), 81 subjects have received the RaniPill capsule and no RaniPill-related AEs were observed in participants included in the studies.
Pharmacokinetics
25
|
Forteo SC 20μg |
RT-102 20μg |
RT-102 80μg |
Cmax (pg/mL) |
128 ± 20 |
98 ± 10 |
971 ± 223 |
Tmax (hr) |
0.217 |
1.13 |
0.994 |
AUC (h*pg/mL) |
126 ± 64 |
342 ± 36 |
2600 ± 649 |
Relative BA (5) |
N/A |
~300% |
~400% |
Device Performance
The device performance analysis does not include participants excluded from the study per protocol, as drug delivery was not measured in such participants.
Rodent Study
In addition to Study Part 1 of RT-102, we also conducted a 6-week pharmacodynamic (PD) study of the RT-102 drug substance (DS) PTH (1-34) to evaluate the effect of daily RT-102 DS intraperitoneal (IP) injections on bone mineral density (BMD) in a rodent model of osteoporosis. The study compared two control groups of rodents undergoing sham surgery (N=10) and ovariectomy (OVX) (N=10) receiving no drug, to three OVX groups each dosed with 5 mcg/kg per day of either RT-102 DS (N=10), teriparatide (N=10), or abaloparatide (N=10).
The study found that, following six weeks of treatment:
Part 2 of the RT-102 Clinical Study
Part 2 of our Phase 1 clinical study of RT-102 is ongoing and will evaluate the safety, tolerability and PK of RT-102 in healthy women, 18-65 years of age, or healthy post-menopausal or surgically sterile with bilateral oophorectomy women, with once-a-day repeat dosing with 20µg dose of RT-102 for 7 days.
COVID-19 Business Impact
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. We believe that, as a result of the COVID-19 pandemic, we have experienced delays due to the unavailability of vendors or delays in their availability with respect to research and development activities due to high demand or disruption to their business, delays in certain shipments of materials for our manufacturing, increases in prices charged by third parties for goods and services due to additional processes or costs resulting from COVID-19 procedures, disruption to travel which affects our ability to establish and maintain business relationships, and disruption to employee work schedules. While we have not experienced material impacts through June 30, 2022, the extent to which the COVID-19 pandemic will further directly or indirectly impact our results of operation and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast. Because of these uncertainties, we cannot estimate how long or to what extent COVID-19 will impact our operations.
26
Organizational Transactions
The Company was incorporated in April 2021 and formed for the purpose of facilitating an IPO of its Class A common stock, and to facilitate certain organizational transactions (“Organizational Transactions”) and to operate the business of Rani Therapeutics, LLC (“Rani LLC”) and its consolidated subsidiary. In connection with the IPO, we established a holding company structure with the Company as the holding company and its principal asset being the Class A common units (“Class A Units”) of Rani LLC that it owns. As the sole managing member of Rani LLC, the Company operates and controls all of Rani LLC’s operations, and through Rani LLC and its subsidiary, conducts all of Rani LLC’s business and the financial results of Rani LLC and its consolidated subsidiary are included in the condensed consolidated financial statements of the Company.
Rani LLC has been, and after the IPO continues to be, treated as a pass-through entity for U.S. federal and state income tax purposes and accordingly has not been subject to U.S. federal or state income tax. The wholly owned subsidiary of Rani LLC, Rani Management Services, Inc. (“RMS”), which was incorporated in 2019, is taxed as a corporation for U.S. federal and most applicable state, local income tax and foreign tax purposes. As a result of its ownership of interests in Rani LLC ("LLC Interests"), the Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of Rani LLC and will be taxed at the prevailing corporate tax rates. In addition to tax expenses, we also incur expenses related to our operations and may be required to make payments under the Tax Receivable Agreement with certain of the individuals and entities that continue to hold interests in Rani LLC after the IPO (the "Continuing LLC Owners"). The Continuing LLC Owners are entitled to exchange, subject to the terms of the Rani LLC Agreement, the Class A Units they hold in Rani LLC, together with the shares they hold of our Class B common stock (together referred to as a "Paired Interest"), in return for shares of our Class A common stock on a one-for-one basis provided that, at our election, we may effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed. Any shares of Class B common stock will be cancelled on a one-for-one basis if, at the election of the Continuing LLC Owners, we redeem or exchange such Paired Interest pursuant to the terms of the Rani LLC Agreement. These exchanges and redemptions may result in increases in the tax basis of the assets of Rani LLC that otherwise would not have been available. Increases in tax basis resulting from such exchanges may reduce the amount of income tax that the Company would otherwise be required to pay in the future. This tax basis may also decrease the gains (or increase the losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. Due to the uncertainty of various factors, we cannot estimate the likely tax benefits we will realize as a result of exchanges, and the resulting amounts we will likely pay out to the Continuing LLC Owners pursuant to the Tax Receivable Agreement; however, we estimate that such payments may be substantial in the event we are profitable. Certain individuals who continue to own interests in Rani LLC but do not hold shares of the Company’s Class B common stock (“non-corresponding Class A Units”) have the ability to exchange their non-corresponding Class A Units of Rani LLC for 1,387,471 shares of the Company’s Class A common stock.
Recent Developments
In August 2022, we entered into a loan and security agreement and related supplement (the “Loan Agreement”) with Avenue Venture Opportunities Fund, L.P (the “Lender”). The Loan Agreement provides for term loans (the “Loans”) in an aggregate principal amount up to $45.0 million. A Loan of $30.0 million is committed at closing, with $15.0 million funded immediately and $15.0 million available to be drawn between October 1, 2022 and December 31, 2022. The remaining $15.0 million of Loans (“Tranche 2”) is uncommitted and is subject to certain conditions and approval by the Lender. The purpose of the Loans is for general corporate purposes.
Pursuant to the Loan Agreement, the maturity date for the Loans is August 1, 2026 (the “Maturity Date”). The Loan principal is repayable in equal monthly installments beginning September 2024 (extendable to March 2025 under certain conditions. The Loans bear interest at a variable rate per annum equal to the greater of (A) the prime rate, as published by the Wall Street Journal from time to time plus 5.60% or (B) 10.35%.
Pursuant to the Loan Agreement, beginning on the first anniversary of the closing, the Company is subject to a financial covenant that requires the Company to have at least two drug products utilizing its oral delivery technology in clinical development at all times. The financial covenant does not apply if the Company has a market capitalization above $650.0 million. The Loan Agreement also contains various covenants and restrictive provisions that, among other things, limit the Company’s ability to (i) incur additional debt, guarantees or liens; (ii) pay any dividends; (iii) enter into certain change of control transactions; (iv) sell, transfer, lease, license, or otherwise dispose of certain assets; (v) make certain investments or loans; and (vi) engage in certain transactions with related persons. The Loan Agreement is collateralized by substantially all of the Company’s assets, in which the Lender is granted continuing security interests.
In connection with the Loan Agreement, the Company issued to the Lender warrants to purchase 76,336 shares of its Class A common stock, as may be adjusted for certain anti-dilution adjustments, dividends, stock splits, and reverse stock splits, at an exercise price per share equal to $11.79.
27
The additional capital provided by the Loans strengthens our financial position and balances our near-term capital requirements to support the continued advancement of the RaniPill platform, including the RaniPill HC (high-capacity) device, and ongoing development of RT-102 and the Company’s product pipeline.
Components of Results of Operations
Contract Revenue
To date, we have not generated any revenue from commercial product sales and do not expect to generate any revenue from the sale of commercial products in the foreseeable future. Our only revenue to date has been derived from evaluation agreements, which has been recorded as contract revenue. As of June 30, 2022, we had no active evaluation agreements, and therefore we expect that our revenue for the next several years will be derived from any new agreements that may be executed in the future.
Our ability to generate commercial product revenue and to become profitable will depend upon our ability to successfully develop, obtain regulatory approval for and commercialize the RaniPill capsule and RaniPill HC. Because of the numerous risks and uncertainties associated with product development, regulatory approval and commercialization, we are unable to predict the amount, timing or whether we will be able to generate any commercial product revenue.
Operating Expenses
Our operating expenses consisted of research and development and general and administrative activities.
Research and Development Expense
Research and development expense consists primarily of direct and indirect costs incurred in connection with our research and development activities to develop the RaniPill capsule and RaniPill HC. These expenses include:
External expenses, consisting of:
Internal expenses, consisting of:
We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered. Until future commercialization is considered probable and the future economic benefit is expected to be realized, we do not capitalize pre-launch inventory costs.
Costs of property and equipment related to scaling-up our manufacturing capacity for clinical trials and to support commercialization are capitalized as property and equipment unless the related asset does not have an alternative future use. The historical focus of our research and development has been on the RaniPill delivery platform and not tracked costs on a project-by-project basis associated with different drug compounds.
28
At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, the RaniPill capsule and RaniPill HC. We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in activities related to testing and developing the RaniPill capsule and RaniPill HC, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for the RaniPill capsule and RaniPill HC upon successful completion of clinical trials, and incur expenses associated with hiring additional personnel to support the research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, the successful development of the RaniPill capsule and RaniPill HC is highly uncertain, and we may never succeed in achieving regulatory approval for the RaniPill capsule and RaniPill HC.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, equity-based compensation, and benefits) for personnel in executive, finance, accounting, legal, corporate and business development, and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters, professional fees paid for accounting, auditing, consulting, tax, and administrative consulting services, insurance costs, travel, and facilities, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We anticipate that our general and administrative expenses will increase significantly in the foreseeable future as additional administrative personnel and services are required to manage and support the development of the RaniPill capsule and RaniPill HC. We also anticipate that we will incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer liability insurance, and investor and public relations.
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income earned on our cash and cash equivalents.
Non-Controlling Interest
Non-controlling interest ("NCI") represents the portion of income or loss, net assets and comprehensive loss of our consolidated subsidiary that is not allocable to the Company based on its percentage of ownership of Rani LLC.
In August 2021, based on the Organizational Transactions, the Company became the sole managing member of Rani LLC. As of June 30, 2022, the Company held approximately 48% of the Class A Units of Rani LLC, and approximately 52% of the outstanding Class A Units of Rani LLC are held by the Continuing LLC Owners. Therefore, we report NCI based on the Class A Units of Rani LLC held by the Continuing LLC Owners on our condensed consolidated balance sheet as of June 30, 2022. Income or loss attributed to the NCI in Rani LLC is based on the Class A Units outstanding during the period for which the income or loss is generated and is presented on the condensed consolidated statements of operations and comprehensive income or loss.
Future exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC will result in a change in ownership and reduce or increase the amount recorded as NCI and increase or decrease additional paid-in-capital when Rani LLC has positive or negative net assets, respectively. From the date of the Organizational Transactions to June 30, 2022, there were 4,626,639 exchanges of Paired Interests and 158,051 exchanges of non-corresponding Class A Units of Rani LLC for an equal number of shares of our Class A common stock.
Tax Receivable Agreement
In August 2021, in connection with the IPO and Organizational Transactions, we entered into a tax receivable agreement ("TRA") with certain of the Continuing LLC Owners. The TRA provides that we pay to such Continuing LLC Owners, 85% of the amount of tax benefits, if any, it is deemed to realize (calculated using certain assumptions) as a result of (i) increases in the tax basis of assets of Rani LLC resulting from (a) any future redemptions or exchanges of Paired Interests or non-corresponding Class A Units of Rani LLC and (b) payments under the TRA and (ii) certain other benefits arising from payments under the TRA (collectively the “Tax Attributes”).
A liability for the payable to parties subject to the TRA, and a reduction to stockholders’ equity, is accrued when (i) an exchange of a Paired Interest or non-corresponding Class A Units of Rani LLC has occurred and (ii) when it is deemed probable that the Tax Attributes associated with the exchange will be used to reduce our taxable income based on the contractual percentage of the benefit of Tax Attributes that we expect to receive over a period of time.
29
Relationship with InCube Labs, LLC
Services Agreements
In June 2021, Rani LLC entered into a service agreement with InCube Labs, LLC (“ICL”) effective retrospectively to January 1, 2021, and subsequently amended such agreement in March 2022 (as amended, the "Rani LLC-ICL Service Agreement"), pursuant to which Rani LLC and ICL agreed to provide personnel services to the other upon requests. Under the amendment in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas (“Occupancy Services”) for general office, research and development, and light manufacturing. The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated; except that the Occupancy Services in Milpitas, California have a term until February 2023, with the potential for two annual renewals, subject to approval by the landlord upon a nine months’ notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’ notice of termination. Except for the Occupancy Services, Rani LLC or ICL may terminate services under the Rani LLC-ICL Service Agreement upon 60 days' notice to the other party. The Rani LLC-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services. Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively.
In June 2021, RMS entered into a service agreement with ICL (the “RMS-ICL Service Agreement”) effective retrospectively to January 1, 2021, pursuant to which ICL agreed to rent a specified portion of its facility in San Jose, California to RMS. Additionally, RMS and ICL agreed to provide personnel services to the other upon requests based on rates specified in the RMS-ICL Service Agreement. In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC. The RMS-ICL Service Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless terminated. Rani LLC or ICL may terminate services under the RMS-ICL Service Agreement upon 60 days' notice to the other party, except for occupancy which requires six months’ notice. The RMS-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services. Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively, as well as allocations of expenses based upon Rani LLC’s utilization of ICL’s facilities and equipment.
The table below details the amounts charged by ICL for services and rent, net of the amount charged to ICL under the RMS-ICL Service Agreement, which is included in the condensed consolidated statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Research and development |
|
$ |
286 |
|
|
$ |
123 |
|
|
$ |
526 |
|
|
$ |
156 |
|
General and administrative |
|
|
53 |
|
|
|
184 |
|
|
|
116 |
|
|
|
366 |
|
Total |
|
$ |
339 |
|
|
$ |
307 |
|
|
$ |
642 |
|
|
$ |
522 |
|
Prior to April 2022, our eligible employees were permitted to participate in ICL’s 401(k) Plan (“401(k) Plan”). Participation in the 401(k) Plan was offered for the benefit of our employees, including our named executive officers, who satisfied certain eligibility requirements. In April 2022, the Company established its own 401(k) Plan, with participation offered for the benefit of the employees, including the Company’s named executive officers, who satisfy certain eligibility requirements.
As of June 30, 2022, all of our facilities are owned or leased by an entity affiliated with our Chairman. Rani LLC pays for the use of these facilities through our services agreements with ICL.
Financing activity
In March 2021, an outstanding notes receivable balance totaling $1.7 million, including all accrued interest, was fully repaid by ICL.
Exclusive License Agreement
In June 2021, we and ICL entered into an Amended and Restated Exclusive License Agreement which replaces the 2012 Exclusive License Agreement, as amended in 2013, and terminates the Intellectual Property Agreement, as amended in June 2013. Under the Amended and Restated Exclusive License Agreement, we have a fully paid, exclusive license under certain scheduled patents related to optional features of the device and certain other scheduled patents to exploit products covered by those patents in the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine. We will cover patent-related expenses and, after a certain period, we will have the right to acquire four specified
30
United States patent families from ICL by making a one-time payment of $0.3 million to ICL for each United States patent family that we desire to acquire, up to $1.0 million in the aggregate. This payment will not become an obligation until the fifth anniversary of the Amended and Restated Exclusive License Agreement. The Amended and Restated Exclusive License Agreement will terminate when there are no remaining valid claims of the patents licensed under the Amended and Restated Exclusive License Agreement. Additionally, we may terminate the Amended and Restated Exclusive License Agreement in its entirety or as to any particular licensed patent upon notification to ICL of such intent to terminate.
Non-Exclusive License Agreement between Rani and ICL (“Non-Exclusive License Agreement”)
In June 2021, we entered into the Non-Exclusive License Agreement with ICL, pursuant to which we granted ICL a non-exclusive, fully-paid license under specified patents that were assigned from ICL to us. Additionally, we agreed not to license these patents to a third party in a specific field outside the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine, if ICL can prove that it or its sublicensee has been in active development of a product covered by such patents in that specific field. ICL may grant sublicenses under this license to third parties only with our prior approval. The Non-Exclusive License Agreement will continue in perpetuity unless terminated.
Intellectual Property Agreement with Mir Imran (the “Mir Agreement”)
In June 2021, we entered into the Mir Agreement, pursuant to which we and Mir Imran agreed that we would own all intellectual property conceived (a) using any of our people, equipment, or facilities or (b) that is within the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine. Neither us nor Mir Imran may assign the Mir Agreement to any third party without the prior written consent of the other party. The initial term of the Mir Agreement is three years, which can be extended upon mutual consent of the parties. The Mir Agreement may be terminated by either party for any reason within the initial three year term upon providing three months’ notice to the other party.
Tax Receivable Agreement
ICL is party to the TRA, entered into in August 2021 pursuant to the IPO and Organizational Transactions. The TRA provides that we pay to such entities and individuals 85% of the amount of tax benefits, if any, it is deemed to realize from exchanges of Paired Interests. During the six months ended June 30, 2022, these parties to the TRA exchanged 2,309,490 Paired Interests that resulted in tax benefits subject to the TRA.
Registration Rights Agreement
In connection with the IPO, we entered into a Registration Rights Agreement with the Continuing LLC Owners, including ICL. The Registration Rights Agreement provides the Continuing LLC Owners certain registration rights whereby, at any time following the IPO and the expiration of any related lock-up period, the Continuing LLC Owners can require us to register under the Securities Act shares of Class A common stock issuable to them upon, at our election, redemption or exchange of their LLC Interests. The Registration Rights Agreement also provides for piggyback registration rights for the Continuing LLC Owners.
Rani LLC Agreement
We operate our business through Rani LLC and its subsidiary. In connection with the IPO, we and the Continuing LLC Owners, including ICL, entered into the Fifth Amended and Restated LLC Agreement of Rani LLC (the “Rani LLC Agreement”). The governance of Rani LLC, and the rights and obligations of the holders of LLC Interests, are set forth in the Rani LLC Agreement. As a Continuing LLC Owner, ICL is entitled to exchange, subject to the terms of the Rani LLC Agreement, Paired Interests for our Class A common stock; provided that, at our election, we may effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed.
During the six months ended June 30, 2022, these parties to the Rani LLC Agreement exchanged 2,309,490 Paired Interests for the Company's Class A common stock.
31
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. For information with respect to recent accounting pronouncements that are of significance or potential significance to us, see “Note 2. Summary of Significant Accounting Policies” in the “Notes to the Unaudited Condensed Consolidated Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Comparison of the three months ended June 30, 2022 and 2021
The following table summarizes our results of operations (in thousands):
|
|
Three Months Ended June 30, |
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|||||
Contract revenue |
|
$ |
— |
|
|
$ |
1,961 |
|
|
* |
|
% |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
9,528 |
|
|
|
3,759 |
|
|
|
153.5 |
|
|
General and administrative |
|
|
6,319 |
|
|
|
3,460 |
|
|
|
82.6 |
|
|
Total operating expenses |
|
$ |
15,847 |
|
|
$ |
7,219 |
|
|
|
119.5 |
|
% |
Loss from operations |
|
|
(15,847 |
) |
|
|
(5,258 |
) |
|
|
201.4 |
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
35 |
|
|
|
13 |
|
|
|
169.2 |
|
|
Interest expense and other, net |
|
|
— |
|
|
|
(169 |
) |
|
* |
|
|
|
Change in estimated fair value of preferred unit warrant |
|
|
— |
|
|
|
(70 |
) |
|
* |
|
|
|
Loss before income taxes |
|
|
(15,812 |
) |
|
|
(5,484 |
) |
|
|
188.3 |
|
|
Income tax expense |
|
|
(154 |
) |
|
|
(1 |
) |
|
|
15,300.0 |
|
|
Net loss and comprehensive loss |
|
$ |
(15,966 |
) |
|
$ |
(5,485 |
) |
|
|
191.1 |
|
% |
Net loss attributable to non-controlling interest |
|
|
(8,342 |
) |
|
|
(5,485 |
) |
|
|
52.1 |
|
|
Net loss attributable to Rani Therapeutics Holdings, Inc. |
|
$ |
(7,624 |
) |
|
$ |
— |
|
|
* |
|
% |
* No comparable result in the period
Contract Revenue
For the three months ended June 30, 2022, the Company did not have any contract revenue. For three months ended June 30, 2021, the Company recognized contract revenue related to the Takeda agreement of $2.0 million.
Research and Development Expenses
The following table reflects our research and development costs by nature of expense (in thousands):
|
|
Three Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Payroll, equity-based compensation and related benefits |
|
$ |
6,206 |
|
|
$ |
2,679 |
|
Third-party services |
|
|
1,667 |
|
|
|
173 |
|
Facilities, materials and supplies |
|
|
1,547 |
|
|
|
853 |
|
Other |
|
|
108 |
|
|
|
54 |
|
Total |
|
$ |
9,528 |
|
|
$ |
3,759 |
|
Research and development expenses were $9.5 million for the three months ended June 30, 2022, compared to $3.8 million for the three months ended June 30, 2021. The change in research and development expense was attributed to an increase of $3.5 million in salaries and related benefit costs due to higher headcount, which includes $1.6 million of equity-based compensation an increase in third-party services of $1.5 million, facility costs of $0.7 million and materials and laboratory supplies of $0.1 million.
General and Administrative Expenses
General and administrative expenses were $6.3 million for the three months ended June 30, 2022, compared to $3.5 million for the three months ended June 30, 2021. During the three months ended June 30, 2022, the change in general and administrative expenses was attributed to an increase of $2.7 million in salaries and related benefit costs due to higher headcount,
32
which includes $2.1 million of equity-based compensation. Additionally, facility costs increased $0.6 million attributable to property insurance, other costs increased $0.5 million due to patent litigation related costs, and professional and consulting services expense decreased by $0.9 million attributable to non-recurring costs associated with the Company's IPO and Organizational Transactions.
Other Income (Expense), Net
Other expense, net, was not significant for the three months ended June 30, 2022. Other expense, net, was $0.2 million for the three months ended June 30, 2021, which was primarily due to $0.1 million in interest expense on debt incurred and $0.1 million due to the increase in the estimated fair value of the Series E preferred unit warrants.
Comparison of the six months ended June 30, 2022 and 2021
The following table summarizes our results of operations (in thousands):
|
|
Six Months Ended June 30, |
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|||||
Contract revenue |
|
$ |
— |
|
|
$ |
2,717 |
|
|
* |
|
% |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
17,118 |
|
|
|
7,106 |
|
|
|
140.9 |
|
|
General and administrative |
|
|
12,509 |
|
|
|
6,067 |
|
|
|
106.2 |
|
|
Total operating expenses |
|
$ |
29,627 |
|
|
$ |
13,173 |
|
|
|
124.9 |
|
% |
Loss from operations |
|
|
(29,627 |
) |
|
|
(10,456 |
) |
|
|
183.3 |
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
50 |
|
|
|
60 |
|
|
|
(16.7 |
) |
|
Interest expense and other, net |
|
|
— |
|
|
|
(357 |
) |
|
* |
|
|
|
Change in estimated fair value of preferred unit warrant |
|
|
— |
|
|
|
(286 |
) |
|
* |
|
|
|
Loss before income taxes |
|
|
(29,577 |
) |
|
|
(11,039 |
) |
|
|
167.9 |
|
|
Income tax expense |
|
|
(217 |
) |
|
|
(44 |
) |
|
|
393.2 |
|
|
Net loss and comprehensive loss |
|
$ |
(29,794 |
) |
|
$ |
(11,083 |
) |
|
|
168.8 |
|
% |
Net loss attributable to non-controlling interest |
|
|
(15,947 |
) |
|
|
(11,083 |
) |
|
|
43.9 |
|
|
Net loss attributable to Rani Therapeutics Holdings, Inc. |
|
$ |
(13,847 |
) |
|
$ |
— |
|
|
* |
|
% |
* No comparable result in the period
Contract Revenue
For the six months ended June 30, 2022, the Company did not have any contract revenue. For six months ended June 30, 2021, the Company recognized contract revenue related to the Takeda agreement of $2.7 million.
Research and Development Expenses
The following table reflects our research and development costs by nature of expense (in thousands):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Payroll, equity-based compensation and related benefits |
|
$ |
11,629 |
|
|
$ |
4,874 |
|
Third-party services |
|
|
2,734 |
|
|
|
359 |
|
Facilities, materials and supplies |
|
|
2,509 |
|
|
|
1,536 |
|
Other |
|
|
246 |
|
|
|
337 |
|
Total |
|
$ |
17,118 |
|
|
$ |
7,106 |
|
Research and development expenses were $17.1 million for the six months ended June 30, 2022, compared to $7.1 million for the six months ended June 30, 2021. The change in research and development expense was attributed to an increase of $6.8 million in salaries and related benefit costs due to higher headcount, which includes $2.9 million of equity-based compensation, an increase in third-party services of $2.4 million, facility costs of $0.7 million and materials and laboratory supplies of $0.2 million.
33
General and Administrative Expenses
General and administrative expenses were $12.5 million for the six months ended June 30, 2022, compared to $6.1 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, the change in general and administrative expenses was attributed to an increase of $5.1 million in salaries and related benefit costs due to higher headcount, which includes $3.5 million of equity-based compensation. Additionally, facility costs increased $1.3 million attributable to property insurance, other costs increased $0.5 million due to patent litigation related costs, and professional and consulting services expense decreased by $0.5 million attributable to non-recurring costs associated with the Company's IPO and Organizational Transactions.
Other Income (Expense), Net
Other expense, net, was $0.1 million for the six months ended June 30, 2022, which was primarily due to interest income earned. Other expense, net, was $0.6 million for the six months ended June 30, 2021, which was primarily due to $0.4 million in interest expense on debt incurred and $0.3 million due to the increase in the estimated fair value of the Series E preferred unit warrants.
Liquidity and Capital Resources
Source of Liquidity
We have not generated any revenue from commercial product sales and have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any products, and we do not expect to generate revenue from sales of commercial products for several years, if at all. We anticipate that we will continue to incur net losses for the foreseeable future. Since our inception, we have devoted substantially all of our resources on organizing and staffing our company, business planning, research and development activities, including the RaniPill platform design, drug formulation, preclinical studies, clinical trials, manufacturing automation and scale up, establishing our intellectual property portfolio, and providing general and administrative support for these operations. To date, we have financed our operations primarily through an IPO, private placements of Rani LLC preferred units and the issuance of convertible promissory notes, with aggregate gross proceeds of $282.4 million, as well as contract revenue generated from evaluation agreements. In August 2021, we raised net proceeds of $73.6 million from the IPO. As of June 30, 2022, we had cash and cash equivalents of $97.2 million. In August 2022, we entered into the Loan Agreement with the Lender for the Loans in an aggregate principal amount up to $45.0 million (See “—Recent Developments” above for a discussion of the Loan Agreement).
Since our inception, we have incurred significant losses and negative cash flows from operations. Our net losses were $29.8 million and $11.1 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $22.2 million. We expect to continue to incur significant losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned research and development activities. Until such time as we can generate sufficient revenue from commercial product sales, if ever, we expect to finance our operations through a combination of equity offerings and debt financings, or other capital sources, which may include strategic collaborations or other arrangements with third parties. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. If we are unable to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.
Tax Receivable Agreement
We entered into a Tax Receivable Agreement with certain of the Continuing LLC Owners in August 2021 in connection with the IPO. The Tax Receivable Agreement provides for our payment to certain of the Continuing LLC Owners of 85% of the amount of tax benefits, if any, that we are deemed to realize as a result of any basis adjustments and certain other tax benefits arising from payments under the Tax Receivable Agreement. We will have in effect an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of LLC Interests for shares of our Class A common stock or cash occurs. These Tax Receivable Agreement payments are not conditioned upon any continued ownership interest in either the Company or Rani LLC by such Continuing LLC Owners. The rights of such Continuing LLC Owners under the Tax Receivable Agreement are assignable to transferees of their LLC Interests (other than us as transferee pursuant to subsequent redemptions (or exchanges) of the transferred LLC Interests). We expect to benefit from the remaining 15% of tax benefits, if any, that we may realize.
34
As of June 30, 2022, we have not recorded a liability under the TRA related to the income tax benefits originating from the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC as it is not probable that the Company will realize such tax benefits. To the extent the Company is able to realize the income tax benefits associated with the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC subject to the TRA, the TRA payable would range from zero to $20.4 million at June 30, 2022.
The amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future. Should the Company determine that the payment of the TRA liability becomes probable at a future date based on new information, any changes will be recorded on the Company's condensed consolidated statement of operations and comprehensive loss at that time.
Future Funding Requirements
Based on our current operating plan, we estimate that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the development of the RaniPill capsule and RaniPill HC and because the extent to which we may enter into strategic collaborations or other arrangements with third parties for development of the RaniPill capsule and RaniPill HC is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.
To date, we have not generated any commercial product revenue. We do not expect to generate any commercial product revenue unless and until we obtain regulatory approval and commercialize any of our commercial product candidates, and we do not know when, or if at all, that will occur. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. Our primary uses of cash are to fund our operations, which consist primarily of research and development expenses related to our programs, manufacturing automation and scaleup, and general and administrative expenses. We expect our expenses to continue to increase in connection with our ongoing activities as we continue to advance the RaniPill capsule and RaniPill HC. In addition, we expect to incur additional costs operating as a public company.
We may seek to raise capital through equity offerings or debt financings, collaboration agreements, or other arrangements with other companies, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our consolidated financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:
35
If we raise additional capital through debt financing, we may be subject to covenants that restrict our operations including limitations on our ability to incur liens or additional debt, pay dividends, make certain investments, and engage in certain merger, consolidation, or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us. If we raise funds through collaborations, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. In addition, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash used in operating activities |
|
$ |
(19,688 |
) |
|
$ |
(9,676 |
) |
Net cash used in investing activities |
|
|
(633 |
) |
|
|
(235 |
) |
Net cash provided by financing activities |
|
|
49 |
|
|
|
6,167 |
|
Net decrease in cash and cash equivalents |
|
$ |
(20,272 |
) |
|
$ |
(3,744 |
) |
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2022 was $19.7 million, which was primarily attributable to a net loss of $29.8 million, partially offset by the equity-based compensation expense of $6.9 million and non-cash operating lease expense of $0.3 million. Additionally there was a decrease of $1.3 million in prepaid expenses and other assets due to amortization of director and officer liability insurance, as a result of becoming a publicly traded company, and an increase in accrued expenses of $1.5 million.
Net cash used in operating activities for the six months ended June 30, 2021 was $9.7 million, which was primarily attributable to a net loss of $11.1 million, non-cash depreciation and amortization of $0.3 million, change in the fair value of preferred unit warrant liability of $0.3 million, and equity-based compensation expense of $0.7 million.
Investing Activities
For the six months ended June 30, 2022 and 2021, net cash used in investing activities was $0.6 million and $0.2 million, respectively, consisting solely of purchases of property and equipment.
Financing Activities
For the six months ended June 30, 2022, there were no significant financing activities.
For the six months ended June 30, 2021, cash provided by financing activities was approximately $6.2 million, consisting of the proceeds from the sale and issuance of our Series E Preferred Units for net proceeds of $6.3 million, and $1.7 million of principal payments received from our related party note receivable, partially offset by deferred offering costs of $1.9 million.
36
Contractual Obligations and Other Commitments
Rani LLC pays for the use of our facilities through the Rani LLC-ICL Service Agreement and RMS-ICL Service Agreement. As of June 30, 2022, the future aggregate minimum lease payments associated with our service agreements with ICL for fiscal years 2022 (remaining six months) and 2023 totaled $0.6 million and $0.7 million, respectively. Subsequently, in July 2022, the Company's notice of renewal was approved by the landlord for Occupancy Services in Milpitas, California, for an additional twelve month lease term. The future aggregate minimum lease payments associated with the additional Occupancy Services total $0.4 million.
In addition, we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice.
See “—Recent Developments” above for a discussion of the Loan Agreement, which we entered into in August 2022.
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results of operation is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For further information on our significant accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.
Recently Adopted Accounting Standards
For a description of the expected impact of recent accounting pronouncements, see “Note 2. Summary of Significant Accounting Policies” in the “Notes to the Unaudited Condensed Consolidated Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Other Information
JOBS Act Accounting Election
We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are electing to use this extended transition period and we will therefore comply with new or revised accounting standards on the earlier of (i) when they apply to private companies; or (ii) when we lose our emerging growth company status. As a result, our financial statements may not be comparable with companies that comply with public company effective dates for accounting standards. We also rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we cease to be an emerging growth company.
We will remain an emerging growth company until the earliest of (1) December 31, 2026 (the last day of the fiscal year following the fifth anniversary of the closing of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our Class A common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15(d)-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.
38
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Other than as described below, management believes that there have been no significant changes to the risk factors associated with our business as compared to those disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated by reference herein.
Our European patents are presently being challenged in Europe
Our patent portfolio includes numerous issued European patents and pending European patent applications directed to various technical aspects of our business. The European Patent Office (“EPO”) provides for an opposition proceeding that could result in revocation of or amendment to a European patent. We are presently involved in opposition proceedings involving four of our European patents at the EPO, all of which opposition proceedings were asserted against us by Novo Nordisk AS.
The first opposition proceeding involves European Patent No. 2515992, which is generally directed to an ingestible device. In July 2021, the EPO issued a decision resulting in an amendment to the claims of the patent. We subsequently filed a notice of appeal with the EPO Appeal Board and we are awaiting a final decision.
The second opposition proceeding involves European Patent No. 2544668, which is generally directed to a therapeutic agent preparation. In December 2021, the EPO issued a decision resulting in revocation of the patent. We subsequently filed a notice of appeal with the EPO Appeal Board and we are awaiting a final decision.
The third opposition proceeding involves European Patent No. 3461478, which is in the same family as European Patent No. 2515992 noted above. In April 2022, the EPO issued a decision resulting in an amendment to the claims of the patent. We plan to file a notice of appeal with the EPO Appeal Board.
The fourth opposition proceeding involves European Patent No. 3653223, which is generally directed to a swallowable device. We are preparing an initial response to the EPO.
While we own numerous issued European patents and pending European patent applications, including several in the same patent families as the four patents noted above and which are not currently the subject of opposition proceedings, there is a risk that one or more of our issued European patents will be revoked, or have its claims amended, through an opposition process. If this were to happen to one of our European patents, the corresponding national patent in each European country in which the European patent was validated would similarly be revoked or have its claims amended. We believe that our current patent portfolio provides us with meaningful protection of the RaniPill technology in Europe even apart from the four European patents which are the subject of the current opposition proceedings. However, if the current or future opposition proceedings result in the revocation or amendment of one or more of our European patents that cover important aspects of our technology, it could have a material adverse impact on our ability to commercialize in Europe and/or a material adverse impact on our ability to defend against potential competitors in Europe.
There is a risk that we may face additional oppositions in Europe as additional European patents grant.
Our existing indebtedness contains restrictions that limit our flexibility in operating our business. In addition, we may be required to make a prepayment or repay our outstanding indebtedness earlier than we expect.
In August 2022, we entered into a Loan and Security Agreement and related Supplement (collectively, the “Loan Agreement”) with the lenders party thereto from time to time (the “Lenders”), and Avenue Capital Management II, L.P., as administrative agent and collateral agent for the Lenders (the “Agent”), which provides for term loans of up to $45.0 million in the aggregate available in two tranches. The Loan Agreement contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
39
The restrictive covenants in the Loan Agreement could prevent us from pursuing business opportunities that we or our stockholders may consider beneficial.
A breach of any of these covenants could result in an event of default under the Loan Agreement. An event of default will also occur if, among other things, a material adverse effect in our business, operations, or condition occurs, which could potentially include a material impairment of the prospect of our repayment of any portion of the amounts we owe under the Loan Agreement. In the case of a continuing event of default under the Loan Agreement, the Lenders could elect to declare all amounts outstanding to be immediately due and payable, proceed against the collateral in which we granted the Lenders a security interest under the Loan Agreement, or otherwise exercise the rights of a secured creditor. Amounts outstanding under the Loan Agreement are secured by substantially all of our existing and future assets, including intellectual property.
At closing, we drew on $15.0 million of the $30.0 million available to us as part of the first tranche. The Loan Agreement also gives us the ability to access an additional $15.0 million, which may be drawn in an additional tranche with the approval of the Agent and the Lenders and subject to the other terms and conditions set forth in the Loan Agreement. If we are unable to satisfy these or other required conditions, or if the Agent and Lenders do not consent, as applicable, we would not be able to draw down the remaining tranche of financing and may not be able to obtain alternative financing on commercially reasonable terms or at all, which could adversely impact our business.
We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to repay or refinance our indebtedness at the time any such repayment is required. In such an event, we may be required to delay, limit, reduce, or terminate our product development or commercialization efforts. Our business, financial condition, and results of operations could be materially adversely affected as a result.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
40
Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
Exhibit Number |
|
Description |
3.1 |
|
|
3.2 |
|
|
4.1 |
|
|
4.2* |
|
|
10.1*+ |
|
|
10.2*+ |
|
|
10.3* |
|
|
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* |
Filed herewith. |
|
The certifications attached as Exhibit 32.1 which accompanies this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. |
+ |
Schedules and certain portions of the exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of such schedules, or any section thereof, to the SEC upon request. |
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Rani Therapeutics Holdings, Inc. |
|
|
|
|
|
Date: August 10, 2022 |
|
By: |
/s/ Talat Imran |
|
|
|
Talat Imran |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: August 10, 2022 |
|
By: |
/s/ Svai Sanford |
|
|
|
Svai Sanford |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
42
Exhibit 4.2
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act of 1934
The following is a description of the Class A common stock, par value $0.0001 per share (the “Class A common stock”) of Rani Therapeutics Holdings, Inc. (“Rani”, the “Company”, “we”, “our” or “us”) which is our only class of security registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The following also contains a description of our Class B common stock, par value $0.0001 per share of the Company (the “Class B common stock”), which is not registered pursuant to Section 12 of the Exchange Act but Class B common stockholders who are members of Rani Therapeutics, LLC (“Rani LLC”) have the right to exchange their membership interests of Rani LLC (the “LLC Interests”) (with automatic cancellation of an equal number of shares of Class B common stock) for shares of our Class A common stock. The description of the Class B common stock is necessary to understand the material terms of the Class A common stock. The following also contains a description of our Class C common stock, par value $0.0001 per share (the “Class C common stock”) and our preferred stock, par value $0.0001 per share (the “preferred stock”). As of March 28, 2022, there are no shares of Class C common stock and no shares of preferred stock outstanding. The description of the Class C common stock and the preferred stock is necessary to understand the terms of the Class A common stock as the issuance of Class C common stock or preferred stock could have an adverse impact on the market price of the Class A common stock.
The following summary description of our capital stock is based on the provisions of our amended and restated certificate of incorporation, as currently in effect, as well as our amended and restated bylaws, as currently in effect, and the applicable provisions of the Delaware General Corporation Law (the “DGCL”). This information is qualified entirely by reference to the applicable provisions of our amended and restated certificate of incorporation, amended and restated bylaws, and the DGCL. Our amended and restated certificate of incorporation and amended and restated bylaws have previously been filed as exhibits with the Securities and Exchange Commission.
Authorized Capital Stock
Our authorized capital stock consists of 800,000,000 shares of Class A common stock, par value $0.0001, 40,000,000 shares of Class B common stock, par value $0.0001 per share, 20,000,000 shares of Class C common stock, par value $0.0001 per share and 20,000,000 shares of preferred stock, par value $0.0001 per share.
Class A Common Stock
Voting Rights
Holders of our Class A common stock are entitled to cast one vote per share. Holders of our Class A common stock will not be entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all holders of Class A common stock and Class B common stock present in person or represented by proxy, voting together as a single class. Except as otherwise provided by law, amendments to the amended and restated certificate of incorporation must be approved by a majority or, in some cases, a super-majority of the combined voting power of all shares of Class A common stock and Class B common stock, voting together as a single class.
Dividends and Other Distributions
Subject to preferences that may be applicable to any then outstanding preferred stock, any dividend or distribution paid or payable to the holders of shares of Class A common stock shall be paid pro rata, on an equal priority, pari passu basis; provided, however, that if a dividend or distribution is paid in the form of Class A common stock (or rights to acquire shares of Class A common stock), then the holders of the Class A common stock shall receive Class A common stock (or rights to acquire shares of Class A common stock).
Distribution on Dissolution
In the event of our liquidation, dissolution or winding up, upon the completion of the distributions required with respect to any series of redeemable convertible preferred stock that may then be outstanding, our remaining assets legally available for distribution to stockholders shall be distributed on an equal priority, pro rata basis to the holders of Class A common stock and Class C common stock, unless different treatment is approved by the majority of the voting power of the outstanding shares of Class A common stock and Class B common stock.
Rights and Preferences
No shares of Class A common stock are subject to redemption or have preemptive rights to purchase additional shares of Class A common stock. Holders of shares of our Class A common stock do not have subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the Class A common stock. The rights, preferences and privileges of the holders of our Class A common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.
Class B Common Stock
Shares of Class B common stock will only be issued in the future to the extent necessary to maintain a one-to-one ratio between the number of LLC Interests held by our Class B common stockholders who are members of Rani LLC (the “Continuing LLC Owners”) and the number of shares of Class B common stock issued to the Continuing LLC Owners. Shares of Class B common stock are transferable only together with LLC Interests. Shares of Class B common stock will be cancelled on a one-for-one basis if we, at the election of the Continuing LLC Owners, redeem or exchange their LLC Interests pursuant to the terms of the amended and restated limited liability company agreement of Rani LLC, as currently in effect (the “Rani LLC Agreement”), a copy of which has previously been filed as an exhibit with the Securities and Exchange Commission.
Voting Rights
Holders of Class B common stock are entitled to cast 10 votes per share until the date on which the holders of at least two-thirds (2/3) of the voting power of the Class B common stock, voting as a single class, affirmatively vote to retire all outstanding shares of Class B common stock (the “Final Conversion Date”) and thereafter, one vote per share, with the number of shares of Class B common stock held by each Continuing LLC Owner being equivalent to the number of LLC Interests held by such Continuing LLC Owner. Holders of our Class B common stock are not entitled to cumulate their votes in the election of directors. The voting power afforded to Continuing LLC Owners by their shares of Class B common stock will be automatically and correspondingly reduced as they redeem their LLC Interests because an equal number of their shares of Class B common stock will be cancelled.
Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all Class A and Class B stockholders present in person or represented by proxy, voting together as a single class. Except as otherwise provided by law, amendments to the amended and restated certificate of incorporation must be approved by a majority or, in some cases, a super-majority of the combined voting power of all shares of Class A common stock and Class B common stock, voting together as a single class. There will be a separate vote of the Class B common stock in the following circumstances:
Dividend Rights and Other Distributions
Pursuant to our amended and restated certificate of incorporation, each share of Class B common stock will be retired, and all rights with respect to such shares shall cease and terminate, automatically upon the earlier to occur of (a) the occurrence of a Transfer (as defined therein), other than a Permitted Transfer (as defined therein) of such share of Class B common stock and (b) on the Final Conversion Date.
Distribution on Dissolution
On our liquidation, dissolution or winding up, holders of Class B common stock will not be entitled to receive any distribution of our assets.
Transfers
Pursuant to the Rani LLC Agreement, each holder of Class B common stock agrees that: (i) the holder will not transfer any shares of Class B common stock to any person unless the holder transfers an equal number of LLC Interests to the same person; and (ii) in the event the holder transfers any LLC Interests to any person, the holder will transfer an equal number of shares of Class B common stock to the same person.
Rights and Preferences
No shares of Class B common stock have preemptive rights to purchase additional shares of Class B common stock. Holders of shares of our Class B common stock do not have subscription, redemption or conversion rights. There will be no redemption or sinking fund provisions applicable to the Class B common stock.
Class C Common Stock
Voting Rights
Holders of our Class C common stock are not entitled to vote on any matter that is submitted to a vote of the stockholders, except as otherwise required by law.
Dividend Rights and Other Distributions
Any dividend or distribution paid or payable to the holders of shares of Class C common stock shall be paid pro rata, on an equal priority, pari passu basis; provided, however, that if a dividend or distribution is paid in the form of Class C common stock (or rights to acquire shares of Class C common stock), then the holders of the Class C common stock shall receive Class C common stock (or rights to acquire shares of Class C common stock).
Distribution on Dissolution
In the event of our liquidation, dissolution or winding-up, upon the completion of the distributions required with respect to any series of redeemable convertible preferred stock that may then be outstanding, our remaining assets legally available for distribution to stockholders shall be distributed on an equal priority, pro rata basis to the holders of Class A common stock and Class C common stock, unless different treatment is approved by the majority of the voting power of the outstanding shares of Class A common stock and Class B common stock.
Preferred Stock
Our amended and restated certificate of incorporation provides that our board of directors has the authority, without action by the stockholders other than as described under the heading “Class B Common Stock” above, to designate and issue up to 20,000,000 shares of preferred stock in one or more classes or series and to fix the powers, rights, preferences, privileges and restrictions of each class or series of preferred stock, including dividend rights, conversion rights, voting rights, redemption privileges, liquidation preferences and the number of shares constituting any class or series, which may be greater than the rights of the holders of the common stock.
The issuance of preferred stock could have the effect of making it more difficult for a third-party to acquire, or could discourage a third-party from seeking to acquire, a majority of our outstanding voting stock. Additionally, the issuance of preferred stock may adversely affect the holders of our Class A common stock by restricting dividends on the Class A common stock, diluting the voting power of the Class A common stock or subordinating the
liquidation rights of the Class A common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our Class A common stock.
Anti-Takeover Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
Certain provisions of Delaware law and certain provisions that are included in our amended and restated certificate of incorporation and amended and restated bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter, or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.
Preferred Stock
Our amended and restated certificate of incorporation contains provisions that permit our board of directors to issue, without any further vote or action by the stockholders, shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting rights (if any) of the shares of the series and the powers, preferences, or relative, participation, optional, and other special rights, if any, and any qualifications, limitations, or restrictions, of the shares of such series.
Classified Board
Our amended and restated certificate of incorporation provides that from and after the Final Conversion Date, our board of directors be divided into three classes, designated Class I, Class II and Class III. Each class is an equal number of directors, as nearly as possible, consisting of one-third of the total number of directors constituting the entire board of directors. The term of initial Class I directors shall terminate on the first annual meeting of the stockholders after the Final Conversion Date, the term of the initial Class II directors shall terminate on the second annual meeting of the stockholders after the Final Conversion Date, and the term of the initial Class III directors shall terminate on the third annual meeting of the stockholders after the Final Conversion Date. At each annual meeting of stockholders beginning after the Final Conversion Date, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term.
Removal of Directors
Our amended and restated certificate of incorporation provides that stockholders may only remove a director for cause by a vote of no less than a majority of the total voting power of the shares present in person or by proxy at the meeting and entitled to vote.
Director Vacancies
Our amended and restated certificate of incorporation authorizes only our board of directors to fill vacant directorships.
No Cumulative Voting
Our amended and restated certificate of incorporation provides that stockholders do not have the right to cumulate votes in the election of directors.
Special Meetings of Stockholders
Our amended and restated certificate of incorporation and amended and restated bylaws provide that, except as otherwise required by law, special meetings of the stockholders may be called only (i) prior to the Final Conversion Date, by the holders of at least 25% of the voting power of our Class A common stock and Class B common stock, voting together as a single class; (ii) by a resolution adopted by a majority of our board of directors; (iii) by the chairperson of our board of directors; or (iv) by our Chief Executive Officer.
Advance Notice Procedures for Director Nominations
Our amended and restated bylaws provides that stockholders seeking to nominate candidates for election as directors at an annual or special meeting of stockholders must provide timely notice thereof in writing. To be timely, a
stockholder’s notice generally will have to be delivered to and received at our principal executive offices before notice of the meeting is issued by the secretary of the Company, with such notice being served not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting. Although the amended and restated bylaws does not give the board of directors the power to approve or disapprove stockholder nominations of candidates to be elected at an annual meeting, the amended and restated bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company.
Action by Written Consent
Our amended and restated certificate of incorporation and amended and restated bylaws provide that, after the Final Conversion Date, any action to be taken by the stockholders must be affected at a duly called annual or special meeting of stockholders and may not be affected by written consent.
Authorized but Unissued Shares
Our authorized but unissued shares of Class A common stock and preferred stock will be available for future issuances without stockholder approval, except as required by the listing standards of the Nasdaq Stock Market, and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Class A common stock and preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger, or otherwise.
Choice of Forum
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, or other employees to us or our stockholders; (iii) any action or proceeding asserting a claim against us or any of our current or former directors, officers, or other employees, arising out of or pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; (iv) any action or proceeding to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; (v) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and (vi) any action asserting a claim against us or any of our directors, officers, or other employees governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act of 1933, as amended (the “Securities Act”), creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the exclusive forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could seriously harm our business.
Business Combinations with Interested Stockholders
We have elected not to be subject to or governed by Section 203 of the DGCL. Subject to certain exceptions, Section 203 of the DGCL prohibits a public Delaware corporation from engaging in a business combination (as defined in such section) with an “interested stockholder” (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless: (i) prior to such time the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon the closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock of such corporation outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (A) by persons who are directors and also officers of such corporation and (B) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) at or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders (and not by written consent) by the affirmative vote of at least 66 2/3% of the outstanding voting stock of such corporation not owned by the interested stockholder.
Listing
Our Class A common stock is listed on The Nasdaq Global Market under the trading symbol “RANI.”
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock is American Stock Transfer & Trust Company, LLC.
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
Dated as of August 8, 2022
among
RANI THERAPEUTICS, LLC,
a California limited liability company,
as “Borrower”,
RANI MANAGEMENT SERVICES, INC.,
a Delaware corporation, and
as a guarantor
RANI THERAPEUTICS HOLDINGS, INC.,
a Delaware corporation,
as a guarantor (together with Rani Management Services, each, individually, a “Guarantor,” and collectively, the “Guarantors”),
and
AVENUE VENTURE OPPORTUNITIES FUND, L.P.,
a Delaware limited partnership,
as a lender (together with other lenders from time to time party hereto, each, individually, a “Lender” and collectively, the “Lenders”), and as administrative agent and collateral agent (“in such capacity, Agent“)
LOAN AND SECURITY AGREEMENT
Borrower, Guarantors, Lenders and Agent anticipate entering into one or more transactions pursuant to which each Lender agrees to make available to Borrower a loan facility governed by the terms and conditions set forth in this document and one or more Supplements executed by Borrower, Guarantors, Lenders and Agent which incorporate this document by reference. Each Supplement constitutes a supplement to and forms part of this document, and will be read and construed as one with this document, so that this document and the Supplement constitute a single agreement among the parties (collectively referred to as this “Agreement”).
Accordingly, the parties agree as follows:
1
2
Each Loan Party represents and warrants that, except as set forth in the Supplement or the Schedule of Exceptions hereto, if any, as of the Closing Date and each Borrowing Date:
3
4
5
6
During the term of this Agreement and until its performance of all Obligations (other than inchoate indemnity obligations), the applicable Loan Party will:
7
8
9
During the term of this Agreement and until the performance of all Obligations (other than inchoate indemnity obligations), no Loan Party will:
10
11
12
13
14
15
16
17
18
First, to Agent, the aggregate amount of all documented costs, expenses, indemnities and other amounts required to be reimbursed to Agent, in its capacity as such, until paid in full;
Second, to Agent, for the ratable benefit of Lenders (in accordance with the portion funded by each Lender), the aggregate amount of all Obligations arising on account of payments made by Agent in accordance with Section 8.2, until repaid in full;
19
Third, to Lenders, ratably in accordance with principal amount of the Loans held by each Lender, an amount equal to the aggregate costs, expenses, indemnities or other amounts then required to be reimbursed to such Lender, until paid in full;
Fourth, to Lenders, ratably in accordance with aggregate amount of any fees, premiums or similar payments due to each Lender in respect of the Loans held by such Lender, an amount equal to the aggregate fees, premiums or other similar such payments due to such Lender in respect of the Loans, until paid in full;
Fifth, to Lenders, ratably in accordance with accrued and unpaid interest in respect of the Loans and the other Obligations due to each Lender, an amount equal to the aggregate accrued and unpaid interest on the Loans and other Obligations then due, until paid in full;
Sixth, to Lenders, ratably in accordance outstanding principal due to each Lender in respect of the Loans, an amount equal to the aggregate principal outstanding in respect of the Loans then due, until paid in full;
Seventh, to Agent and each Lender, ratably in accordance with any other Obligations due to such Lender, an amount equal to all other Obligations due and payable to Agent and each Lender, until paid in full; and
Last, the balance, if any, to the applicable Loan Party or as otherwise required by applicable law.
20
21
22
23
10.1 Appointment. Each Lender hereby irrevocably appoints Avenue Venture Opportunities Fund, L.P. to act on its behalf as the administrative agent hereunder and under the other Loan Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.
10.2 Indemnity. Each Lender agrees to indemnify the Agent in its capacity as such (to the extent not reimbursed by a Loan Party and without limiting the obligation of a Loan Party to do so), according to its respective Commitment percentage in effect on the date on which indemnification is sought under this Section 10.2, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, this Agreement, a Supplement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing. The agreements in this Section shall survive the payment of each Loan and all other amounts payable hereunder. Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of any Lender or as Agent shall believe in good faith shall be necessary, under the circumstances or (ii) in the absence of its own gross negligence or willful misconduct.
10.3 Agent in Its Individual Capacity. The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent and the term “Lender” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each such Person serving as Agent hereunder in its individual capacity.
24
10.5 Duties. Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent.
10.6 Reliance by Agent. Agent may rely, and shall be fully protected in acting, or refraining to act, upon, any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of its gross negligence or willful misconduct, Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to Agent and conforming to the requirements of the Loan Agreement or any of the other Loan Documents. Agent may consult with counsel, and any opinion or legal advice of such counsel shall be full and complete authorization and protection in respect of any action taken, not taken or suffered by Agent hereunder or under any Loan Documents in accordance therewith. Agent shall have the right at any time to seek instructions concerning the administration of the Collateral from any court of competent jurisdiction. Agent shall not be under any obligation to exercise any of the rights or powers granted to Agent by this Agreement and the other Loan Documents at the request or direction of Lenders unless Agent shall have been provided by Lenders with adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction.
10.7 Collateral Agent. The Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders hereby irrevocably appoints and authorizes the Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by a Loan Party to secure any of the Obligations. Each Lender hereby authorizes Agent, on behalf of and for the ratable benefit of Lenders, in its capacity as collateral agent, to enter into any of the Loan Documents as secured party for purposes of acquiring, holding and enforcing all Liens on Collateral (and any other collateral from time to time securing the Obligations), and as Agent for and representative of Lender thereunder, and each Lender agrees to be bound by the terms of each such document. All powers, rights and remedies under the Loan Documents may be exercised solely by Agent for the benefit of Lenders and Agent in accordance with the terms thereof. In the event of a foreclosure on any of the Collateral pursuant to a public or private sale, either Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Agent, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Required Lenders shall otherwise agree in writing) shall be entitled (subject to the proviso at the end of this sentence), for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Collateral payable by Agent at such sale; provided however, that neither Agent nor any Lender shall “credit bid” at any foreclosure and/or other public or private sale absent the consent of the Required Lenders. Without limiting the generality of the foregoing, Agent is hereby expressly authorized to execute any and all documents (including releases) that bind Lenders with respect to (i) the Collateral and the rights of Lenders with respect thereto, as contemplated by and in accordance with the provisions of the Loan Documents, and (ii) any other subordination agreement with respect to any Subordinated Debt.
10.8 Successor Agents. Agent may resign upon thirty (30) days’ written notice to the Lenders and Borrower. If Agent shall resign in its capacity under this Agreement and the other Loan Documents, then the Required Lenders shall appoint a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of Agent in its capacity, and the term “Agent” shall mean such successor agent effective upon such appointment and approval, and the former Agent’s rights, powers and duties as Agent in its capacity shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any Lender. If no applicable successor agent has accepted appointment as such Agent in its capacity by the date that is twenty (20)
25
days following such retiring Agent’s notice of resignation, such retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of such Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Agent’s resignation as Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement and the other Loan Documents.
11.1 Guaranty. Each Guarantor hereby absolutely and unconditionally guarantees, jointly and severally (as applicable), as a guaranty of payment and performance and not merely as a guaranty of collection, to Lenders and Agent the prompt payment in full when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all of the Obligations, whether for principal, interest, premiums, fees, indemnities, damages, costs, expenses or otherwise, and whether arising hereunder or under any other Loan Document (other than the Warrant), including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, reasonable attorneys’ fees and expenses incurred by the Agent in connection with the collection or enforcement thereof. The Agent’s books and records showing the amount of the Obligations shall be admissible in evidence in any action or proceeding, and shall be binding absent manifest error upon each Guarantor, and conclusive for the purpose of establishing the amount of the Obligations. This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Obligations or any instrument or agreement evidencing any Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Obligations which might otherwise constitute a defense to the obligations of any Guarantor under this Guaranty, and each Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing.
11.2 Rights of Lenders. Each Guarantor consents and agrees that Agent and Lenders may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of such Guarantor’s Obligations under this Article 11 or any other Obligations; (c) apply such security and direct the order or manner of sale thereof as Agent and Lenders in their sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Obligations. Without limiting the generality of the foregoing, each Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of such Guarantor under this the provisions of this Article 11 or which, but for this provision, might operate as a discharge of such Guarantor.
11.3 Certain Waivers. Each Guarantor waives (a) any defense arising by reason of any disability or other defense of the Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of Agent or Lenders) of the liability of the Borrower or any other guarantor; (b) any defense based on any claim that such Guarantor’s obligations exceed or are more burdensome than those of Borrower or any other guarantor; (c) the benefit of any statute of limitations affecting any Guarantor’s liability hereunder; (d) any right to proceed against Borrower or any other guarantor, proceed against or exhaust any security for the Obligations, or pursue any other remedy in the power of Agent whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by any Agent; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties, including without limitation by reason of Sections 2787 to 2855, inclusive, of the California Civil Code. Each Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Obligations. Each Guarantor absolutely, unconditionally, knowingly, and expressly waives any right to revoke this Guaranty as to future Indebtedness and, in light thereof, all protection afforded such Guarantor under Section 2815 of the California Civil Code. Each Guarantor fully realizes and understands that, upon execution of this Agreement, such Guarantor will not have any right to revoke this Guaranty as to any future Indebtedness and, thus, may have no control over such Guarantor's ultimate responsibility for the Indebtedness. If, contrary to the express intent of this Agreement, any such revocation is effective notwithstanding the foregoing waiver, each Guarantor acknowledges and agrees that: (a) no such revocation shall be effective until written notice thereof has been received by Lenders; (b) no such revocation shall apply to any
26
Indebtedness in existence on such date (including any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof); (c) no such revocation shall apply to any Indebtedness made or created after such date to the extent made or created pursuant to a legally binding commitment of Lenders which is, or is believed in good faith by Lenders to be, in existence on the date of such revocation; (d) no payment by Borrower, or from any other source, prior to the date of such revocation shall reduce the obligations of such Guarantor hereunder; and (e) any payment by Borrower or from any source other than such Guarantor, subsequent to the date of such revocation, shall first be applied to that portion of the Obligations, if any, as to which the revocation by such Guarantor is effective (and which are not, therefore, guarantied by such Guarantor hereunder), and, to the extent so applied, shall not reduce the obligations of such Guarantor hereunder.
11.4 Obligations Independent. The obligations of each Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Obligations and the obligations of any other guarantor, and a separate action may be brought against such Guarantor to enforce this Guaranty whether or not the Borrower or any other person or entity is joined as a party.
11.5 Subrogation. No Guarantor shall exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Obligations and any amounts payable under this Guaranty have been indefeasibly paid in cash and performed in full and the Commitments are terminated. If any amounts are paid to any Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of Agent and Lenders and shall forthwith be paid to the Agent and Lenders to reduce the amount of the Obligations, whether matured or unmatured
11.6 Termination; Reinstatement. This Guaranty is a continuing and irrevocable guaranty of all Obligations now or hereafter existing and shall remain in full force and effect until all Obligations and any other amounts payable under this Guaranty are indefeasibly paid in full in cash and the Commitments are terminated. Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrower or any Guarantor is made, or any of Agent or Lenders exercises its right of setoff, in respect of the Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by any of Agent or Lenders in their discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any bankruptcy or insolvency laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Agent or Lenders are in possession of or have released this Guaranty and regardless of any prior revocation, rescission, termination or reduction. The obligations of each Guarantor under this paragraph shall survive termination of this Guaranty.
11.7 Subordination. Except for payments permitted in connection with Indebtedness of the type permitted under Section 6.1 hereof, provided no Event of Default has occurred, is continuing, or would exist immediately after the payment is made, each Guarantor hereby subordinates the payment of all obligations and indebtedness of the Borrower or any Subsidiary owing to such Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of the Borrower to such Guarantor as subrogee of Agent and Lenders or resulting from such Guarantor’s performance under this Guaranty, to the indefeasible payment in full in cash of all Obligations. If Agent or Lenders so request, any such obligation or indebtedness of the Borrower to such Guarantor shall be enforced and performance received by such Guarantor as trustee for Agent and the proceeds thereof shall be paid over to Agent on account of the Obligations, but without reducing or affecting in any manner the liability of such Guarantor or any other guarantor under this Guaranty.
11.8 Stay of Acceleration. If acceleration of the time for payment of any of the Obligations is stayed, in connection with any case commenced by or against any Guarantor or the Borrower under any bankruptcy or insolvency laws or otherwise, or otherwise, all such amounts shall nonetheless be payable by such Guarantor immediately upon demand by Agent or Lenders.
11.9 Condition of Borrower. Each Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrower and any other guarantor such information concerning the financial condition, business and operations of the Borrower and any such other guarantor as such Guarantor requires, and that none of Agent or Lenders has any duty, and such Guarantor is not relying on any of Agent or Lenders at any time, to disclose to such Guarantor any information relating to the business, operations or financial condition of the
27
Borrower or any other guarantor (such Guarantor waiving any duty on the part of Agent and Lenders to disclose such information and any defense relating to the failure to provide the same).
The definitions appearing in this Agreement or any Supplement shall be applicable to both the singular and plural forms of the defined terms:
“Account” means any “account,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to such Loan Party (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by the Loan Party or from any other transaction, whether or not the same involves the sale of goods or services by the Loan Party (including, without limitation, any such obligation that may be characterized as an account or contract right under the UCC) and all of such Loan Party’s rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of the Loan Party’s rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller’s rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to the Loan Party under all purchase orders and contracts for the sale of goods or the performance of services or both by the Loan Party or in connection with any other transaction (whether or not yet earned by performance on the part of the Loan Party), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.
“Affiliate” means any Person which directly or indirectly controls, is controlled by, or is under common control with a Loan Party. “Control,” “controlled by” and “under common control with” mean direct or indirect possession of the power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided, that control shall be conclusively presumed when any Person or affiliated group directly or indirectly owns ten percent (10%) or more of the securities having ordinary voting power for the election of directors of a corporation.
“Agreement” means this Loan and Security Agreement and each Supplement thereto, as each may be amended or supplemented from time to time.
“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended.
“Basic Interest” means the rate of interest payable on the outstanding balance of each Loan at the applicable Designated Rate.
“Borrowing Date” means the Business Day on which the proceeds of a Loan are disbursed by any Lender.
“Borrowing Request” means a written request from Borrower in substantially the form of Exhibit “B” to the Supplement, requesting the funding of one or more Loans on a particular Borrowing Date.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close.
“Change of Control” means: (a) any sale, license, or other disposition of all or substantially all of the assets of a Loan Party except as permitted by this Agreement; (b) any consolidation, merger or other combination involving a Loan Party except as permitted by this Agreement; or (c) any transaction or series of related transactions in which any Person or two or more Persons acting in concert (in each case, other than InCube Labs, LLC and its affiliates) shall have acquired by contract or otherwise, the power to control the management of Parent, or to control the equity interests of Parent entitled to vote for members of the Board of Directors or equivalent governing body of the Loan Party on a fully-diluted basis (and taking into account all such securities that such Person or Persons have the right to
28
acquire pursuant to any option right) representing 50% or more of the combined voting power of such securities (other than in connection with sale to recognized investors in a transaction or series of transactions effected by Parent for financing purposes, so long as the Parent identifies to Required Lenders the investors prior to the closing of the transaction and provides Required Lenders with a description of the material terms of such transaction).
“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
“Closing Date” means the date of this Agreement.
“Collateral” means the assets described on Annex I and Annex II attached hereto.
“Commitment” means the obligation of each Lender to make Loans to Borrower up to the aggregate principal amount set forth in the Supplement.
“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“Copyrights” means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) all registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any State thereof or any other country; (iii) all continuations, renewals or extensions thereof; and (iv) any registrations to be issued under any pending applications.
“Default” means an event which with the giving of notice, passage of time, or both would constitute an Event of Default.
“Default Rate” means the applicable Designated Rate plus five percent (5%) per annum.
“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“Designated Rate” means the rate of interest per annum described in the Supplement as being applicable to an outstanding Loan from time to time.
“Documents” means any “documents,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
“Dollars” or “$” means lawful currency of the United States.
“Environmental Laws” means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, or safety matters.
“Equipment” means any “equipment,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto.
“Event of Default” means any event described in Section 7.1.
“Fixtures” means any “fixtures,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
29
“GAAP” means generally accepted accounting principles and practices consistent with those principles and practices promulgated or adopted by the Financial Accounting Standards Board and the Board of the American Institute of Certified Public Accountants, their respective predecessors and successors. Subject to Section 9.6, each accounting term used but not otherwise expressly defined herein shall have the meaning given it by GAAP.
“General Intangibles” means any “general intangibles,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest that Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, websites, domain names, and all applications therefor and reissues, extensions, or renewals thereof, other items of, and rights to, Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, money, cash or cash equivalents, deposit, checking and other bank accounts, rights to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification.
“Goods” means any “goods,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
“Indebtedness” of any Person means at any date, without duplication and without regard to whether matured or unmatured, absolute or contingent: (i) all obligations of such Person for borrowed money; (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business; (iv) all obligations of such Person as lessee under capital leases (other than operating leases); (v) all obligations of such Person to reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance, or similar instrument, whether drawn or undrawn; (vi) all obligations of such Person to purchase securities which arise out of or in connection with the sale of the same or substantially similar securities; (vii) all obligations of such Person to purchase, redeem, exchange, convert or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, except to the extent that such obligations remain performable solely at the option of such Person; (viii) all obligations to repurchase assets previously sold (including any obligation to repurchase any accounts or chattel paper under any factoring, receivables purchase, or similar arrangement); (ix) obligations of such Person under interest rate swap, cap, collar or similar hedging arrangements; and (x) all obligations of others of any type described in clause (i) through clause (ix) above guaranteed by such Person.
“Insolvency Proceeding” means with respect to a Person (a) any case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding‑up or relief of debtors with respect to such Person, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of such Person’s creditors generally or any substantial portion of its creditors, undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code, but in each case, excluding any avoidance or similar action against such Person commenced by an assignee for the benefit of creditors, bankruptcy trustee, debtor in possession, or other representative of another Person or such other Person’s estate.
“Instruments” means any “instrument,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
“Intellectual Property” means all of Borrower’s Copyrights, Trademarks, Patents, Licenses, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials, records and goodwill associated with the foregoing.
30
“Intellectual Property Security Agreement” means any Intellectual Property Security Agreement executed and delivered by Borrower in favor of Agent, as the same may be amended, supplemented, or restated from time to time.
“Inventory” means any “inventory,” as such term is defined in the UCC, wherever located, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property that are held by or on behalf of a Loan Party for sale or lease or are furnished or are to be furnished under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in the Loan Party’s business, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the same is in transit or in the constructive, actual or exclusive possession of the Loan Party or is held by others for the Loan Party’s account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all such property that may be in the possession or custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other Persons.
“Investment Property” means any “investment property,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
“Letter-of-Credit Rights” means any “letter-of-credit rights,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest, including any right to payment under any letter of credit.
“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.
“Loan” has the meaning specified in the Supplement.
“Loan Documents” means, individually and collectively, this Agreement, each Supplement, each Note, the Intellectual Property Security Agreement, and any other security or pledge agreement(s), any Warrant issued by Parent in connection with this Agreement, and all other contracts, instruments, addenda and documents executed in connection with this Agreement or the extensions of credit which are the subject of this Agreement.
“Loan Party” means, individually and collectively, each Borrower and each Guarantor.
“Material Adverse Effect” or “Material Adverse Change” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, or financial condition of a Loan Party; (b) a material impairment of the ability of the applicable Loan Party to perform under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document.
“Maturity Date” has the meaning specified in the Supplement.
“Note” means a promissory note substantially in the form attached to the Supplement as Exhibit “A”, executed by Borrower evidencing each Loan.
“Obligations” means all debts, obligations and liabilities of Borrower and each Guarantor to each Lender or Agent now or hereafter made, incurred or created under, pursuant to or in connection with this Agreement or any other Loan Document (other than the Warrant), whether voluntary or involuntary and however arising or evidenced, whether direct or acquired by such Lender or Agent by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrower or any such Guarantor
31
may be liable individually or jointly, or whether recovery upon such debt may be or become barred by any statute of limitations or otherwise unenforceable; and all renewals, extensions and modifications thereof; and all attorneys’ fees and costs incurred by each Lender and Agent in connection with the collection and enforcement thereof as provided for in any such Loan Document. Notwithstanding the foregoing, the Loan Parties’ obligations under any warrants (including the Warrants) issued to Lender or its designated affiliate shall not be “Obligations” hereunder.
“Operating Agreement” means Fifth Amended and Restated Limited Liability Company Agreement adopted by all the members of Borrower, dated as of August 3, 2021.
“Parent” means RANI THERAPEUTICS HOLDINGS, INC., a Delaware corporation.
“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“Patents” means all of the following property now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) all letters patent of, or rights corresponding thereto in, the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in, the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to be issued under any such applications.
“Permitted Acquisitions” means the acquisition by a Loan Party or any of its Subsidiaries of all or substantially all of the assets of another Person or a division or line of business of another Person, all or substantially all of the capital stock of another Person or a merger, consolidation or other combination with another Person, provided that each of the following shall be applicable to any such acquisition: (a) no Event of Default shall have occurred and be continuing or would result from the consummation of such acquisition; (b) the assets acquired in such acquisition are used or useful in the same or similar line of business as the Loan Parties and their Subsidiaries is in as of the Effective Date or reasonably related thereto and are free and clear of Liens other than Permitted Liens; (c) if such acquisition is structured as a stock acquisition, then the Person so acquired shall either (i) become a wholly-owned Subsidiary of a Loan Party and the Loan Party shall comply, or cause such Subsidiary to be joined as a Loan Party to this Agreement or (ii) such Person shall be merged with and into a Loan Party (with the Loan Party being the surviving entity); (d) Borrower shall provide Bank with written notice of the proposed acquisition at least five (5) Business Days prior to the anticipated closing date of the proposed acquisition; (e) after giving effect to the consummation of such acquisition on a pro forma basis, the Loan Parties shall have a consolidated cash and cash equivalent balance of at least two times the aggregate outstanding principal amount of the Loans at the time such acquisition is consummated; (f) such acquisition shall have been approved by the board of directors or other legally governing body of the Person selling such assets; and (g) the cash consideration for all such acquisitions shall not exceed $2,500,000 per year.
“Permitted Lien” means:
32
“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof).
“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to a Loan Party from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to a Loan Party from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to a Loan Party from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of a Loan Party against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.
33
“Receivables” means all of a Loan Party’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, and letters of credit and Letter-of-Credit Rights.
“Records” means all a Loan Party’s computer programs, software, hardware, source codes and data processing information, all written documents, books, invoices, ledger sheets, financial information and statements, and all other writings concerning the Loan Party’s business.
“Related Person” means any Affiliate of a Loan Party, or any officer, employee, manager, or director of Borrower or any Affiliate.
“Required Lenders” (and each a “Required Lender”) means, as of any date of determination, Lenders holding at least 51% of the outstanding principal balance of the total principal amount of Loans then outstanding.
“Rights to Payment” means all of a Loan Party’s accounts, instruments, contract rights, documents, chattel paper and all other rights to payment, including, without limitation, the Accounts, all negotiable certificates of deposit and all rights to payment under any Patent License, any Trademark License, or any commercial or standby letter of credit.
“Security Documents” means this Agreement, the Supplement hereto, the Intellectual Property Security Agreement, and any and all account control agreements, collateral assignments, chattel mortgages, financing statements, amendments to any of the foregoing and other documents from time to time executed or filed to create, perfect or maintain the perfection of Agent’s Liens on the Collateral.
“Shares” means: (a) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by a Loan Party in any Subsidiary that is not a controlled foreign corporation (as defined in the Internal Revenue Code), and (b) 65% of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or held of record by a Loan Party in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code).
“Subordinated Debt” means Indebtedness (i) approved by Required Lenders; and (ii) where the holder’s right to payment of such Indebtedness, the priority of any Lien securing the same, and the rights of the holder thereof to enforce remedies against a Loan Party following default have been made subordinate to the Liens of Agent and to the prior payment to each Lender of the Obligations, either (A) pursuant to a written subordination agreement approved by Required Lenders in their sole but reasonable discretion or (B) on terms otherwise approved by Required Lenders in their sole but reasonable discretion.
“Subsidiary” means any Person a majority of the equity ownership or voting stock of which is directly or indirectly now owned or hereafter acquired by a Guarantor, Borrower or by one or more other Subsidiaries.
“Supplement” means that certain supplement to the Loan and Security Agreement, dated as of August 8, 2022, as the same may be amended or restated from time to time, and any other supplements entered into among Borrower, Guarantors and each Lender, as the same may be amended or restated from time to time.
“Supporting Obligations” means any “supporting obligations,” as such term is defined in the UCC, now owned or hereafter acquired by a Loan Party or in which a Loan Party now holds or hereafter acquires any interest.
“Tax Receivable Agreement” means the Tax Receivable Agreement, dated August 3, 2021, by and among Rani Therapeutics Holdings, Inc., Borrower and the persons named therein.
“Termination Date” has the meaning specified in the Supplement.
“Threshold Amount” has the meaning specified in the Supplement.
“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
34
“Trademarks” means all of the following property now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) reissues, extensions or renewals thereof.
“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of California; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC.
“Warrant” has the meaning specified in the Supplement.
[Signature page follows]
35
[Signature page to Loan and Security Agreement]
[Schedules to Loan and Security Agreement follow]
Annex I to
Loan and Security Agreement
dated as of August 8, 2022
among
Rani Therapeutics, LLC, as Borrower
Rani Therapeutics Holdings, Inc., as a Guarantor
Rani Management Services, Inc., as a Guarantor
and
Avenue Venture Opportunities Fund, L.P., as a Lender, and as Agent
Description of Collateral
The Collateral consists of all of Borrower’s right, title and interest in and to the following property, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles (including all Intellectual Property); (e) all Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all Shares; (i) all other Goods and personal property of Borrower, whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; (j) all Records; and (k) all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.
Notwithstanding the foregoing the term “Collateral” shall not include: (i) more than sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or held of record by Borrower in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code), provided that the Collateral shall include one hundred percent (100%) of the issued and outstanding non-voting capital stock of such Subsidiary; (ii) “intent-to-use” trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, but only to the extent the granting of a security interest in such “intent to use” trademarks would be contrary to applicable law; (iii) any property (including any accessions, additions, replacements or substitutions)subject to a Lien that constitutes a Permitted Lien under clause (c) of the definition of Permitted Liens if Borrower is prohibited from granting a security interest in such property provided, that immediately upon the lapse or termination of any such provision, the term “Collateral” shall include, and Borrower shall be deemed to have granted a security interest in, all its rights, title and interests in and to such property; (iv) any contract, Instrument or Chattel Paper in which Borrower has any right, title or interest if and to the extent such contract, Instrument or Chattel Paper includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Borrower therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such contract, Instrument or Chattel Paper to enforce any remedy with respect thereto; or (v) the Excluded Accounts; provided, however, that the foregoing exclusions in clauses (iii) and (iv) shall not apply if (A) such prohibition has been waived or such other person has otherwise consented to the creation hereunder of a security interest in such contract, Instrument or Chattel Paper, or (B) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code or principles of equity); provided, further, that immediately upon the ineffectiveness, lapse or termination of any such provision, the term “Collateral” shall include, and Borrower shall be deemed to have granted a security interest in, all its rights, title and interests in and to such contract, Instrument or Chattel Paper as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Lender’s unconditional continuing security interest in and to all rights, title and interests of Borrower in or to any payment obligations or other rights to receive monies due or to become due under any such contract, Instrument or Chattel Paper and in any such monies and other proceeds of such contract, Instrument or Chattel Paper.
Annex II to
Loan and Security Agreement
dated as of August 8, 2022
among
Rani Therapeutics, LLC, as Borrower
Rani Therapeutics Holdings, Inc., as a Guarantor
Rani Management Services, Inc., as a Guarantor
and
Avenue Venture Opportunities Fund, L.P., as a Lender, and as Agent
Description of Collateral
The Collateral consists of all of Guarantor’s right, title and interest in and to the following property, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles (including all Intellectual Property); (e) all Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all Shares; (i) all other Goods and personal property of Guarantor, whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Guarantor and wherever located; (j) all Records; and (k) all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.
Notwithstanding the foregoing the term “Collateral” shall not include: (i) more than sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or held of record by Guarantor in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code), provided that the Collateral shall include one hundred percent (100%) of the issued and outstanding non-voting capital stock of such Subsidiary; (ii) “intent-to-use” trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, but only to the extent the granting of a security interest in such “intent to use” trademarks would be contrary to applicable law; (iii) any property (including any accessions, additions, replacements or substitutions)subject to a Lien that constitutes a Permitted Lien under clause (c) of the definition of Permitted Liens if Guarantor is prohibited from granting a security interest in such property provided, that immediately upon the lapse or termination of any such provision, the term “Collateral” shall include, and Guarantor shall be deemed to have granted a security interest in, all its rights, title and interests in and to such property; (iv) any contract, Instrument or Chattel Paper in which Guarantor has any right, title or interest if and to the extent such contract, Instrument or Chattel Paper includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Guarantor therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such contract, Instrument or Chattel Paper to enforce any remedy with respect thereto; or (v) the Excluded Accounts; provided, however, that the foregoing exclusions in clauses (iii) and (iv) shall not apply if (A) such prohibition has been waived or such other person has otherwise consented to the creation hereunder of a security interest in such contract, Instrument or Chattel Paper, or (B) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code or principles of equity); provided, further, that immediately upon the ineffectiveness, lapse or termination of any such provision, the term “Collateral” shall include, and Guarantor shall be deemed to have granted a security interest in, all its rights, title and interests in and to such contract, Instrument or Chattel Paper as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Lender’s unconditional continuing security interest in and to all rights, title and interests of Guarantor in or to any payment obligations or other rights to receive monies due or to become due under any such contract, Instrument or Chattel Paper and in any such monies and other proceeds of such contract, Instrument or Chattel Paper.
Exhibit 10.2
SUPPLEMENT
to the
Loan and Security Agreement
dated as of August 8, 2022
between
Rani Therapeutics, LLC (“Borrower”)
and
Rani Management Services, Inc. , as a guarantor
and
Rani Therapeutics Holdings, Inc., as a guarantor (together with Rani Management Services, Inc., each, individually, a “Guarantor,” and collectively, “Guarantors”))
and
Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership,
as a lender (together with other lenders from time to time party hereto, each, individually, a “Lender” and collectively, the “Lenders”), and as administrative agent and collateral agent (“in such capacity, “Agent”)
This is a Supplement identified in the document entitled Loan and Security Agreement, dated as of August 8, 2022 (as amended, restated, supplemented and modified from time to time, the “Loan and Security Agreement”), by and among Borrower, Guarantor, Lenders and Agent. All capitalized terms used in this Supplement and not otherwise defined in this Supplement have the meanings ascribed to them in Article 12 of the Loan and Security Agreement, which is incorporated in its entirety into this Supplement. In the event of any inconsistency between the provisions of the Loan and Security Agreement and this Supplement, this Supplement is controlling.
In addition to the provisions of the Loan and Security Agreement, the parties agree as follows:
“Amortization Period” means the period commencing on the first day of the first full calendar month following the end of the Interest-only Period and continuing until the Maturity Date.
“Commitment” means, subject to the terms and conditions set forth in the Loan and Security Agreement and this Supplement, Lenders’ commitment to make Growth Capital Loans to Borrower in the aggregate original principal amount of Thirty Million Dollars ($30,000,000), of which Fifteen Million Dollars ($15,000,000) shall be funded on the Closing Date (“Tranche 1A”) and, subject to the conditions in Sections 1(b) and 1(c) of Part 2, up to Fifteen Million Dollars ($15,000,000) to be funded between the Tranche 1B Start Date and on or before the Tranche 1B End Date (“Tranche 1B”). At the request of the Borrower, Lenders may make additional Growth Capital Loans to Borrower of up to an additional ($15,000,000) (the “Discretionary Tranche 2 Additional Availability Amount”), to be funded between the Discretionary Tranche 2 Start Date and on or before the Discretionary Tranche 2 End Date as Borrower and Lenders may mutually agree, subject to Borrower’s full draw-down of Tranche 1B, achievement of the Milestone Study and the Discretionary Tranche 2 Milestone and approval of Lenders’ Investment Committees, in their sole discretion, provided that, as of the Closing Date, the Discretionary Tranche 2 Additional Availability Amount shall not be considered, and is not, committed hereunder by any Lender. Notwithstanding the above, as to any Lender, the obligation of such Lender to make Growth Capital Loans subject to the terms and conditions set forth in the Loan and Security Agreement and this Supplement shall not exceed the amount set forth under the heading Tranche 1A Commitment or Tranche 1B Commitment, as applicable, opposite such Lender’s name on Schedule 1 to this Supplement.
“Designated Rate” means, for each Growth Capital Loan, a variable rate of interest per annum equal to the greater of (i) ten and thirty-five one hundredths percent (10.35%) and (ii) the Prime Rate plus the sum of five and
six-tenths percent (5.60%). Changes to the Designated Rate based on changes to the Prime Rate shall be effective as of the next scheduled interest payment date immediately following such change.
“Discretionary Tranche 2 End Date” means the last day of the Interest-only Period.
“Discretionary Tranche 2 Milestone” means Borrower’s receipt after the Closing Date of at least Fifty Million Dollars ($50,000,000.00) in net cash proceeds from the sale and issuance of Borrower’s equity securities and/or upfront licensing proceeds; in each case, subject to written evidence of the same, in form and content reasonably acceptable to Lenders.
“Discretionary Tranche 2 Start Date” means the (a) the date of Borrower’s completion of the Milestone Study, (b) the date of Borrower’s achievement of the Discretionary Tranche 2 Milestone, or (c) the date Lenders’ Investment Committees, in their sole discretion, approve the issuance of Discretionary Tranche 2, whichever occurs last.
“FDA” means the U.S. Food and Drug Administration or any successor thereto.
“Final Payment” means a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) equal to five and one-half percent (5.50 %) of the aggregate amount of funded Loans.
“Growth Capital Loan” means any Loan requested by Borrower and funded by a Lender under its Commitment for general corporate purposes of Borrower.
“IDE” means an investigational device exemption issued by the FDA.
“Interest-only Milestone” means Borrower has achieved successful completion of the Milestone Study, as determined by Borrower in good faith.
“Interest-only Period” means the period commencing on the Closing Date and continuing until the twenty-four (24) month anniversary of the Closing Date; provided, however, that such period shall be extended for six (6) months if as of the last day of the Interest-only Period then in effect, Borrower has achieved Borrower has achieved the Interest-only Milestone; provided, further, however, that the Interest-only Period shall not exceed thirty (30) months.
“Loan” or “Loans” mean, as the context may require, individually a Growth Capital Loan, and collectively, the Growth Capital Loans.
“Loan Commencement Date” means, with respect to each Growth Capital Loan: (a) the first day of the first full calendar month following the Borrowing Date of such Loan if such Borrowing Date is not the first day of a month; or (b) the same day as the Borrowing Date if the Borrowing Date is the first day of a month.
“Maturity Date” means August 1, 2026.
“Milestone Study” means the IDE study or similar repeat dose study or phase 2 clinical study with Borrower’s oral delivery technology, whether conducted by or on behalf of Borrower, an Affiliate, a third-party license or development collaborator or otherwise.
“Prepayment Fee” means, with respect to any prepayment of the Loans:
2
“Primary Operating Account” shall be the bank account set forth in Section 6 below, unless and until such account is changed in accordance with Section 5.10 of the Loan and Security Agreement.
“Prime Rate” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Supplement; and provided further that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Agent, the “Prime Rate” shall mean the rate of interest per annum announced by Silicon Valley Bank as its prime rate in effect at its principal office in the State of California (such announced Prime Rate not being intended to be the lowest rate of interest charged by such institution in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Supplement.
“Termination Date” means the earlier of: (i) the date Lenders may terminate making Growth Capital Loans or extending other credit pursuant to the rights of Lenders under Article 7 of the Loan and Security Agreement; and (ii) the last day of the Interest-only Period.
“Threshold Amount” means Five Hundred Thousand Dollars ($500,000.00).
“Tranche 1A” means the initial Growth Capital Loan funded on the Closing Date in the amount of Fifteen Million Dollars ($15,000,000)
“Tranche 1A Commitment” means, as to any Lender, subject to the terms and conditions set forth in the Loan and Security Agreement and this Supplement, the obligation of such Lender, if any, to make Growth Capital Loans to the Borrower on the Closing Date in a principal amount not to exceed the amount set forth under the heading Tranche 1A Commitment opposite such Lender’s name on Schedule 1 hereto.
“Tranche 1B” means the Growth Capital Loans funded beginning on the Tranche 1B Start Date and ending on the Tranche 1B End Date in the aggregate amount of up to Fifteen Million Dollars ($15,000,000).
“Tranche 1B Commitment” means, as to any Lender, subject to the terms and conditions set forth in the Loan and Security Agreement and this Supplement, the obligation of such Lender, if any, to make Growth Capital Loans to the Borrower beginning on the Tranche 1B Start Date to be funded on or before the Tranche 1B End Date, subject to the conditions in Section 1(b) of Part 2 in a principal amount not to exceed the amount set forth under the heading Tranche 1B opposite such Lender’s name on Schedule 1 hereto.
“Tranche 1B End Date” means December 31, 2022.
“Tranche 1B Start Date” means October 1, 2022.
“Warrant” is defined in Part 2, Section 3 hereof.
3
4
Institution Name: |
|
Address: |
|
ABA No.: |
|
Contact Name: |
|
Phone No.: |
|
E-mail: |
|
Account Title: |
|
Account No.: |
|
5
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Agent in writing of its legal inability to do so.
Borrower represents and warrants that as of the Closing Date and, subject to any written updates of the information set forth below by Borrower to each Lender and Agent, each Borrowing Date:
6
Institution Name: |
|
Address: |
|
ABA No.: |
|
Contact Name: |
|
Phone No.: |
|
E-mail: |
|
Account Title: |
|
Account No.: |
|
Institution Name: |
|
Address: |
|
ABA No.: |
|
Contact Name: |
|
Phone No.: |
|
E-mail: |
|
Account Title: |
|
Account No.: |
|
Institution Name: |
|
Address: |
|
ABA No.: |
|
Contact Name: |
|
Phone No.: |
|
E-mail: |
|
Account Title: |
|
Account No.: |
|
7
Institution Name: |
|
Address: |
|
ABA No.: |
|
Contact Name: |
|
Phone No.: |
|
E-mail: |
|
Account Title: |
|
Account No.: |
|
Form of Promissory Note |
Exhibit “A” |
Form of Borrowing Request |
Exhibit “B” |
Form of Compliance Certificate |
Exhibit “C” |
|
|
Lender Commitments |
Schedule 1 |
[Remainder of this page intentionally left blank; signature page follows]
8
[Signature page to Supplement to Loan and Security Agreement]
IN WITNESS WHEREOF, the parties have executed this Supplement as of the date first above written.
|
BORROWER: |
||
|
|
|
|
|
RANI THERAPEUTICS, LLC |
||
|
|
|
|
|
By: |
|
/s/ Svai Sanford |
|
Name: |
|
Svai Sanford |
|
Title: |
|
Chief Financial Officer |
|
|
||
Address for Notices: |
2051 Ringwood Ave |
||
|
San Jose, CA 95131 |
||
|
Attn: |
|
Svai Sanford, CFO |
|
Email: |
|
|
|
Phone # |
|
|
|
GUARANTOR: |
||
|
|
|
|
|
RANI THERAPEUTICS HOLDINGS, INC. |
||
|
|
|
|
|
By: |
|
|
|
Name: |
|
Svai Sanford |
|
Title: |
|
Chief Financial Officer |
|
|
||
Address for Notices: |
2051 Ringwood Ave |
||
|
San Jose, CA 95131 |
||
|
Email: |
|
|
|
Phone # |
|
|
|
Phone # |
|
|
|
RANI MANAGEMENT SERVICES, INC. |
||
|
|
|
|
|
By: |
|
/s/ Svai Sanford |
|
Name: |
|
Svai Sanford |
|
Title: |
|
Chief Financial Officer |
|
|
||
Address for Notices: |
2051 Ringwood Ave |
||
|
San Jose, CA 95131 |
||
|
Email: |
|
|
|
Phone # |
|
|
|
Phone # |
|
|
[Signature page to Supplement to Loan and Security Agreement—continued]
|
AGENT: |
||
|
|
||
|
AVENUE VENTURE OPPORTUNITIES FUND, L.P. |
||
|
|
|
|
|
By: |
|
Avenue Venture Opportunities Partners, LLC |
|
Its: |
|
General Partner |
|
|
|
|
|
By: |
|
/s/ Sonia Gardner |
|
Name: |
|
Sonia Gardner |
|
Title: |
|
Member |
|
|
|
|
Address for Notices: |
11 West 42nd Street, 9th Floor |
||
|
New York, New York 10036 |
||
|
Attn: |
|
Todd Greenbarg, Senior Managing Director |
|
Email: |
|
|
|
Phone: |
|
|
|
LENDER: |
||
|
|
||
|
AVENUE VENTURE OPPORTUNITIES FUND, L.P. |
||
|
|
|
|
|
By: |
|
Avenue Venture Opportunities Partners, LLC |
|
Its: |
|
General Partner |
|
|
|
|
|
By: |
|
/s/ Sonia Gardner |
|
Name: |
|
Sonia Gardner |
|
Title: |
|
Member |
|
|
|
|
Address for Notices: |
11 West 42nd Street, 9th Floor |
||
|
New York, New York 10036 |
||
|
Attn: |
|
Todd Greenbarg, Senior Managing Director |
|
Email: |
|
|
|
Phone: |
|
|
EXHIBIT “A”
FORM OF PROMISSORY NOTE
|
|
|
|
[Note No. X‑XXX] |
$ |
|
|
|
|
|
|
|
|
[________], 20__ |
The undersigned (“Borrower”) promises to pay to ________________ (“Lender”), at such place as Lender may designate in writing, in lawful money of the United States of America, the principal sum of ______________________________ Dollars ($__________), with interest thereon from the date hereof until maturity, whether scheduled or accelerated, at a variable rate per annum equal to the greater of (i) ten and thirty-five one hundredths percent (10.35%) and (ii) the Prime Rate plus the sum of five and six-tenths percent (5.60%) (the “Designated Rate”), according to the payment schedule described herein, except as otherwise provided herein. In addition, on the Maturity Date, the Borrower promises to pay to the order of Lender (i) all principal and accrued interest then remaining unpaid and (ii) the Final Payment (as defined in the Supplement to the Loan Agreement (as defined herein)).
This Note is one of the Notes referred to in, and is entitled to all the benefits of, a Loan and Security Agreement, dated as of August 8, 2022, among Borrower, Lender, the other lender party(ies) thereto and Agent (as the same may be amended, restated or supplemented from time to time, the “Loan Agreement”). Each capitalized term not otherwise defined herein shall have the meaning set forth in the Loan Agreement. The Loan Agreement contains provisions for the acceleration of the maturity of this Note upon the happening of certain stated events.
Principal of and interest on this Note shall be payable as provided under Section 1(d) of Part 2 of the Supplement to the Loan Agreement.
This Note was issued with “original issue discount” within the meeting of Sections 1272, 1273 and 1275 of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. Please contact [Chief Financial Officer], Rani Therapeutics, LLC, 2051 Ringwood Ave., San Jose, CA 95131, [telephone number], to obtain information regarding issue price, the amount of original issue discount and the yield to maturity.
This Note may be prepaid only as permitted under Section 2 of Part 2 of the Supplement to the Loan Agreement.
Any unpaid payments of principal or interest on this Note shall bear interest from their respective maturities, whether scheduled or accelerated, at a rate per annum equal to the Default Rate, compounded monthly. Borrower shall pay such interest on demand.
Interest, charges and fees shall be calculated for actual days elapsed on the basis of a 360‑day year, which results in higher interest, charge or fee payments than if a 365‑day year were used. In no event shall Borrower be obligated to pay interest, charges or fees at a rate in excess of the highest rate permitted by applicable law from time to time in effect.
If Borrower is late in making any scheduled payment under this Note by more than five (5) days, Borrower agrees to pay a “late charge” of five percent (5%) of the installment due, but not less than fifty dollars ($50) for any one such delinquent payment. This late charge may be charged by Lender for the purpose of defraying the expenses incidental to the handling of such delinquent amounts. Borrower acknowledges that such late charge represents a reasonable sum considering all of the circumstances existing on the date of this Note and represents a fair and reasonable estimate of the costs that will be sustained by Lender due to the failure of Borrower to make timely payments. Borrower further agrees that proof of actual damages would be costly and inconvenient. Such late charge shall be paid without prejudice to the right of Lender to collect any other amounts provided to be paid or to declare a default under this Note or any of the other Loan Documents or from exercising any other rights and remedies of Lender.
1
[Signature page to Promissory Note]
This Note shall be governed by, and construed in accordance with, the laws of the State of California, excluding those laws that direct the application of the laws of another jurisdiction.
Borrower’s execution and delivery of this Note via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) shall constitute effective execution and delivery of this Note and agreement to and acceptance of the terms hereof for all purposes. The fact that this Note is executed, signed, stored or delivered electronically shall not prevent the assignment or transfer by Lender of this Note pursuant to the terms of the Loan Agreement or the enforcement of the terms hereof. Physical possession of the original of this Note or any paper copy thereof shall confer no special status to the bearer thereof. In no event shall an original ink-signed paper copy of this Note be required for any exercise of Lender’s rights hereunder.
RANI THERAPEUTICS, LLC |
|||
|
|||
By: |
|
|
|
Name: |
|
|
|
Its: |
|
|
|
2
EXHIBIT “B”
FORM OF BORROWING REQUEST
[__], 202__
Avenue Venture Opportunities Fund, L.P. 11 West 42nd Street, 9th Floor New York, New York 10036
|
|
Re: |
RANI THERAPEUTICS, LLC |
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement, dated as of August 8, 2022 (as amended, restated or supplemented from time to time, the “Loan Agreement”; the capitalized terms used herein as defined therein), among AVENUE VENTURE OPPORTUNITIES FUND, L.P., as administrative agent and collateral agent (“Agent”), and as a lender (in such capacity, and together with other lenders from time to time party to the Loan Agreement, collectively, “Lenders”, and each a “Lender”).
The undersigned is the ____________________ of Borrower and hereby requests on behalf of Borrower a Loan under the Loan Agreement, and in that connection certifies as follows:
(i) Lender will wire $[_________] less fees and expenses to be deducted on the Borrowing Date of (a) [$___] in respect to the Commitment Fee, of which [$___] has been paid to Lender prior to the date hereof, (b) $[_________] in respect to the interest fee, and (c) $[_________] in respect to the legal fees for net proceeds of $[___________].
to Borrower pursuant to the following wire instructions:
1
Institution Name: |
|
Address: |
|
ABA No.: |
|
Contact Name: |
|
Phone No.: |
|
E-mail: |
|
Account Title: |
|
Account No.: |
|
Institution Name: |
|
ABA No.: |
|
Account Title: |
|
Account No.: |
|
Reference: |
|
Confirm remittance: |
|
Remainder of this page intentionally left blank; signature page follows
1 To be included in the Borrowing Request on the Closing Date. The executed Borrowing Request must be delivered 2 Business Days prior to the Closing Date.
2
[Signature page to Borrowing Request]
Borrower shall notify you promptly before the funding of the Loan if any of the matters to which I have certified above shall not be true and correct on the Borrowing Date.
Very truly yours, |
|
|
|
RANI THERAPEUTICS, LLC |
|
|
|
By: |
|
Its: |
|
|
|
By: |
|
Name: |
|
Title:* |
|
* Must be executed by Borrower’s Chief Financial Officer or other executive officer.
EXHIBIT “C”
FORM OF
COMPLIANCE CERTIFICATE
Avenue Venture Opportunities Fund, L.P. 11 West 42nd Street, 9th Floor New York, New York 10036
|
|
Re: |
RANI THERAPEUTICS, LLC |
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement, dated as of August 8, 2022 (as the same has been and may be supplemented, amended and modified from time to time, the “Loan Agreement,” the capitalized terms used herein as defined therein), among AVENUE VENTURE OPPORTUNITIES FUND, L.P., as administrative agent and collateral agent (“Agent”), and as a lender (in such capacity, and together with other lenders from time to time party to the Loan Agreement, collectively, “Lenders”, and each a “Lender”), and RANI THERAPEUTICS, LLC (“Borrower”), RANI THERAPEUTICS HOLDINGS, INC., as a guarantor, and RANI MANAGEMENT SERVICES, INC. (collectively, with Rani Therapeutics Holdings, Inc., “Guarantors”, and each a “Guarantor”).
The undersigned authorized representative of Borrower and Guarantors hereby certifies in such capacity that in accordance with the terms and conditions of the Loan Agreement, (i) no Default or Event of Default has occurred and is continuing, except as noted below, and (ii) Borrower is in compliance for the financial reporting period ending ____________________________ with all required financial reporting under the Loan Agreement, except as noted below. Attached herewith are the required documents supporting the foregoing certification. The undersigned authorized representative of Borrower further certifies in such capacity that: (a) the accompanying financial statements have been prepared in accordance with Borrower’s and Guarantors’ past practices applied on a consistent basis, or in such manner as otherwise disclosed in writing to Agent, throughout the periods indicated; and (b) the financial statements fairly present in all material respects the financial condition and operating results of Borrower, Guarantors and their Subsidiaries, if any, as of the dates, and for the periods, indicated therein, subject to the absence of footnotes and normal year-end audit adjustments (in the case of interim monthly financial statements), except as explained below.
Please provide the following requested information and
indicate compliance status by circling (or otherwise indicating) Yes/No/N/A under “Included/Complies”:
REPORTING REQUIREMENT |
REQUIRED |
INCLUDED/COMPLIES |
Balance Sheet, Income Statement & Cash Flow Statement |
Monthly, within 30 days |
YES / NO / N/A |
Operating Budgets, 409(A) Valuations & Updated Capitalization Tables |
As modified |
YES / NO / N/A |
|
|
|
Annual Financial Statements |
Annually, within 120 day of fiscal year-end |
YES / NO / N/A |
|
|
|
Board Packages |
As modified |
YES / NO / N/A |
1
Date of most recent Board-approved |
|
||
|
budget/plan |
|
Any change in budget/plan since version most recently delivered to Agent |
YES / NO / N/A |
|
|
If Yes, please attach |
|
FINANCIAL COVENANT |
|
REQUIRED ACTUAL |
INCLUDED/COMPLIES |
Number of Drug Products in clinical development (commencing on first anniversary of Closing Date) |
2 |
|
YES / NO / N/A |
EQUITY & CONVERTIBLE NOTE FINANCINGS
Please provide the following information (if applicable) regarding Borrower’s most-recent equity and/or convertible note financing each time this Certificate is delivered to Agent
Date of Last Round Raised: |
|
Has there been any new financing since the last Compliance Certificate submitted? YES / NO
If “YES” please attach a copy of the Capitalization Table
Date Closed: |
|
|
Series: |
|
|
Per Share Price: $ |
|
Amount Raised: |
|
|
|
Any stock splits since date of last report? |
YES / NO |
If yes, please provide any information on stock splits which would affect valuation: |
|
|
Any dividends since date of last report? |
YES / NO |
If yes, please provide any information on dividends which would affect valuation: |
|
|
Any unusual terms? (i.e., Anti-dilution, multiple preference, etc.) |
YES / NO |
If yes, please explain: |
|
|
ACCOUNT CONTROL AGREEMENTS
Pursuant to Section 6.11 of the Loan Agreement, Borrower represents and warrants that: (i) as of the date hereof, it maintains only those deposit and investment accounts set forth below; and (ii) to the extent required by Section 6.11 of the Loan Agreement, a control agreement has been executed and delivered to Agent with respect to each such account [Note: If Borrower has established any new account(s) since the date of the last compliance certificate, please so indicate].
Deposit Accounts2
|
Name of Institution |
|
Account Number |
Control Agt. In place? |
Complies |
New Account |
1.) |
Silicon Valley Bank |
|
3303743034 |
YES / NO |
YES / NO |
YES / NO |
2.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
2 Company: Please complete with existing accounts.
2
Investment Accounts
|
Name of Institution |
|
Account Number |
Control Agt. In place? |
Complies |
New Account |
1.) |
Silicon Valley Bank |
|
19-SV2186 |
YES / NO |
YES / NO |
YES / NO |
2.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
3.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
4.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
AGREEMENTS WITH PERSONS IN POSSESSION OF TANGIBLE COLLATERAL
Pursuant to Section 5.9(e) of the Loan Agreement, Borrower represents and warrants that: (i) as of the date hereof, tangible Collateral is located at the addresses set forth below; and (ii) to the extent required by Section 5.9(e) of the Loan Agreement, a Waiver has been executed and delivered to Agent, or such Waiver has been waived by Agent, [Note: If Borrower has located Collateral at any new location since the date of the last compliance certificate, please so indicate].
|
Location of Collateral |
Value of Collateral at such Locations |
Waiver In place? |
Complies? |
New Location? |
|
1.) |
2051 Ringwood, San Jose, CA |
$ |
|
YES / NO |
YES / NO |
YES / NO |
2.) |
518 Sycamore, Milpitas, CA |
$ |
|
YES / NO |
YES / NO |
YES / NO |
3.) |
12500 Network, Suite 112, San Antonio, TX |
$ |
|
YES / NO |
YES / NO |
YES / NO |
4.) |
|
$ |
|
YES / NO |
YES / NO |
YES / NO |
SUBSIDIARIES AND OTHER PERSONS
Pursuant to Section 6.14(a) of the Loan Agreement, Borrower represents and warrants that: (i) as of the date hereof, it has directly or indirectly acquired or created, or it intends to directly or indirectly acquire or create, each Subsidiary or other Person described below; and (ii) such Subsidiary or Person has been made a co-borrower under the Loan Agreement or a guarantor of the Obligations [Note: If Borrower has acquired or created any Subsidiary since the date of the last compliance certificate, please so indicate].
|
Name: |
|
Jurisdiction of formation or organization:3 |
Co-borrower or guarantor? |
Complies? |
New Subsidiary or Person? |
1.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
2.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
3.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
4.) |
|
|
|
YES / NO |
YES / NO |
YES / NO |
EXPLANATIONS
|
|
|
|
[Remainder of this page intentionally left blank; signature page follows]
3 Under the “Explanations” heading (see below) please include a description of such Subsidiary’s or Person’s fully diluted capitalization and Borrower’s purpose for its acquisition or creation of such Subsidiary if such information has not been previously furnished to Agent.
3
[Signature page to Compliance Certificate]
Very truly yours, |
||
|
||
RANI THERAPEUTICS, LLC |
||
|
||
By: |
|
|
Its: |
|
|
|
|
|
|
|
|
By: |
|
|
Name: |
|
|
Title:* |
|
|
* Must be executed by Borrower’s Chief Financial Officer or other executive officer.
SCHEDULE 1
LENDER COMMITMENTS
TRANCHE 1A COMMITMENTS
Lenders
|
Tranche 1A Commitment |
Tranche 1A Commitment Percentage
|
Avenue Venture Opportunities Fund, L.P.
|
$15,000,000 |
100% |
|
|
|
TOTAL COMMITMENTS |
$15,000,000 |
100% |
TRANCHE 1B COMMITMENTS
Lenders
|
Tranche 1B Commitment |
Tranche 1B Commitment Percentage
|
Avenue Venture Opportunities Fund, L.P.
|
$___ |
__% |
[Lender]
|
$___ |
__% |
[Lender]
|
$___ |
__% |
|
|
|
TOTAL COMMITMENTS |
$15,000,000 |
100% |
Exhibit 10.3
THIS WARRANT AND THE UNDERLYING SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE AND DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) REGISTRATION UNDER THE SECURITIES ACT, (B) AN OPINION OF COUNSEL IN A FORM REASONABLY ACCEPTABLE TO RANI THERAPEUTICS HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED DUE TO AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (C) RANI THERAPEUTICS HOLDINGS, INC. OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS COMPLIANT WITH SUCH LAWS.
Date of Issuance: August 8, 2022
WARRANT TO PURCHASE
SHARES OF CLASS A COMMON STOCK OF
RANI THERAPEUTICS HOLDINGS, INC.
(Void after August 8, 2027)
This certifies that AVENUE VENTURE OPPORTUNITIES FUND, L.P., a Delaware limited partnership, or its permitted assigns (“Holder”), for value received and subject to the terms and conditions hereinafter set forth, is entitled to purchase from RANI THERAPEUTICS HOLDINGS, INC. a Delaware corporation (“Company”), the Applicable Number (hereinafter defined) of fully paid and nonassessable shares of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”), for cash, at a purchase price per share equal to the Stock Purchase Price (hereinafter defined). Holder may also exercise this Warrant on a cashless or “net issuance” basis as described in Section 1(b) below, and this Warrant shall be deemed to have been exercised in full on such basis on the Expiration Date (hereinafter defined), to the extent not fully exercised prior to such date and pursuant to Section 1(b) below. For the avoidance of doubt, Company can settle the exercise of this Warrant in unregistered shares of the Common Stock. This Warrant is issued in connection with that certain Loan and Security Agreement and Supplement thereto, both of even date herewith (as amended, restated and supplemented from time to time, the “Loan Agreement” and the “Supplement”, respectively), among Company, as a guarantor, Rani Therapeutics, LLC, a California limited liability company, as borrower, Rani Management Services, Inc., as a guarantor, Holder, as a lender, and as administrative agent and collateral agent. Capitalized terms used herein and not otherwise defined in this Warrant shall have the meaning(s) ascribed to them in the Loan Agreement and the Supplement, unless the context would otherwise require.
“Applicable Number” means 76,336 shares of Common Stock.
“Stock Purchase Price” means $11.79 per share of Common Stock. Subject to Sections 4.3 and 4.8, this Warrant may be exercised at any time or from time to time up to and including 5:00 p.m. (Pacific time) on August 8, 2027 (the “Expiration Date”), upon surrender to Company at its principal office at 2051 Ringwood Avenue, San Jose, CA 95131 (or at such other location as Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly completed and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to further adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
Where: X |
= |
the number of shares of Common Stock to be issued to Holder. |
|
|
|
Y |
= |
the number of shares of Common Stock that Holder would otherwise have been entitled to purchase hereunder pursuant to Section 1(a) (or such lesser number of shares as Holder may designate in the case of a partial exercise of this Warrant). |
|
|
|
A |
= |
the closing price on the last trading day prior to exercise of the Warrant. |
|
|
|
B |
= |
the Stock Purchase Price then in effect. |
Election to exercise under this Section 1(b) may be made by delivering a signed form of subscription to Company via facsimile, to be followed by delivery of this Warrant. Notwithstanding anything to the contrary contained in this Warrant, if as of the close of business on the last business day preceding the Expiration Date this Warrant remains unexercised as to all or a portion of the shares of Common Stock purchasable hereunder, then effective as 9:00 a.m. (Pacific time) on the Expiration Date, Holder shall be deemed, automatically and without need for notice to Company, to have elected to exercise this Warrant in full pursuant to the provisions of this Section 1(b), and upon surrender of this Warrant shall be entitled to receive that number of shares of Common Stock computed using the above formula, provided that the application of such formula as of the Expiration Date yields a positive number for “X”.
2
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE AND DISTRIBUTION THEREOF. NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH ANY OF THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) REGISTRATION UNDER THE SECURITIES ACT, (B) AN OPINION OF COUNSEL IN A FORM REASONABLY ACCEPTABLE TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED DUE TO AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (C) RANI THERAPEUTICS HOLDINGS, INC. OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS COMPLIANT WITH SUCH LAWS.
3
then and in each such case, Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had it been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
4
then, in any one or more of said cases, Company shall give Holder, pursuant to Section 12, (i) at least 10 days’ prior written notice of the date on which the books of Company shall close or a record shall be taken for such dividend, distribution or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 10 days’ written notice of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend or distribution rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
5
6
7
8
[Remainder of this page intentionally left blank; signature page follows]
9
[Signature Page to Warrant]
IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed by its officer, thereunto duly authorized as of the date of issuance set forth on the first page hereof.
RANI THERAPEUTICS HOLDINGS, INC. |
|
|
|
By: |
|
Name: |
Svai Sanford |
Title: |
Chief Financial Officer |
[Signature Page to Warrant]
AGREED AND ACCEPTED: |
|
|
|
HOLDER: |
|
|
|
AVENUE VENTURE OPPORTUNITIES FUND, L.P. |
|
|
|
By: |
Avenue Venture Opportunities Partners, LLC |
Its: |
General Partner |
|
|
|
|
By: |
|
Name: |
Sonia Gardner |
Title: |
Member |
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: RANI THERAPEUTICS HOLDINGS, INC.
The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 17 of this Warrant and by its signature below hereby makes such representations and warranties to Company.
Dated |
|
|
Holder: |
|
|
By: |
|
|
Its: |
|
|
(Address) |
|
|
1 Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be issuable upon exercise.
ASSIGNMENT
Pursuant to the terms of this Warrant, this Warrant (or securities issuable upon exercise hereof, or securities issuable, directly or indirectly, upon conversion of such securities, if any) may not be transferred any competitor of Company, as determined in good faith by the Board, without the prior written consent of Company.
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth herein below, unto:
Name of Assignee |
Address |
No. of Shares |
Dated |
|
|
|
|
|
Holder: |
|
|
|
|
|
By: |
|
|
|
|
|
Its: |
|
|
EXHIBIT “A”
[On letterhead of Company]
Reference is hereby made to that certain Warrant, dated August 8, 2022, issued by RANI THERAPEUTICS HOLDINGS, INC., a Delaware corporation (the “Company”), to AVENUE VENTURE OPPORTUNITIES FUND, L.P., a Delaware limited partnership (the “Holder”).
Notice is hereby given pursuant to Section 4.5 of the Warrant that the following adjustment(s) have been made to the Warrant: [describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based].
This certifies that, subject to the terms and conditions of the Warrant, the Holder is entitled to purchase from Company, at the Holder’s option, either (i) (____________) fully paid and nonassessable shares of Company’s _________ Stock at a price of _________________________ Dollars ($__________) per share or (ii) (____________) fully paid and nonassessable shares of Company’s _________ Stock at a price of _________________________ Dollars ($__________) per share. The applicable Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment as provided in Section 4 of the Warrant.
Executed this ___ day of ________________, 20___.
RANI THERAPEUTICS HOLDINGS, INC. |
|
||
|
|
|
|
By: |
|
|
|
|
|
|
|
Name: |
|
|
|
|
|
|
|
Title: |
|
|
|
Exhibit 31.1
CERTIFICATION
I, Talat Imran, certify that:
Date: August 10, 2022
/s/ Talat Imran
Talat Imran
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Svai Sanford, certify that:
Date: August 10, 2022
__/s/ Svai Sanford__________
Svai Sanford
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Talat Imran, Chief Executive Officer of Rani Therapeutics Holdings, Inc. (the “Company”), and Svai Sanford, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
Dated: August 10, 2022
In Witness Whereof, the undersigned have set their hands hereto as of the 10th day of August, 2022.
/s/ Talat Imran /s/ Svai Sanford
Talat Imran Svai Sanford
Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Rani Therapeutics Holdings, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.