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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on August 27, 2014
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DERMIRA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
2834
(Primary Standard Industrial Classification Code Number) |
27-3267680
(I.R.S. Employer Identification Number) |
2055 Woodside Road
Redwood City, California 94061
(650) 421-7200
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Thomas G. Wiggans
Chief Executive Officer and Chairman of the Board
2055 Woodside Road
Redwood City, California 94061
(650) 421-7200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||||
Douglas Cogen, Esq. Michael A. Brown, Esq. Robert A. Freedman, Esq. Fenwick & West LLP 801 California Street Mountain View, CA 94041 (650) 988-8500 |
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Andrew L. Guggenhime Chief Operating Officer and Chief Financial Officer 2055 Woodside Road Redwood City, California 94061 (650) 421-7200 |
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Andrew S. Williamson, Esq. David G. Peinsipp, Esq. Charles S. Kim, Esq. Cooley LLP 101 California Street, 5 th Floor San Francisco, CA 94111 (415) 693-2000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer
ý
(Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
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||||
Title of each class of securities
to be registered |
Proposed maximum
aggregate offering price(1)(2) |
Amount of
registration fee |
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---|---|---|---|---|
Common Stock, $0.001 par value per share |
$75,000,000 | $9,660 | ||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 27, 2014
PRELIMINARY PROSPECTUS
Shares
Dermira, Inc.
Common Stock
$ per share
This is an initial public offering of shares of our common stock. We are selling shares of common stock in this offering. We currently expect the initial public offering price to be between $ and $ per share of common stock. Concurrently with the closing of this offering, entities affiliated with UCB Pharma S.A. will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial public offering price.
We have granted the underwriters an option to purchase up to additional shares of common stock to cover over-allotments.
We have applied to list our common stock on The NASDAQ Global Market under the symbol "DERM."
Investing in our common stock involves risks. See "Risk Factors" beginning on page 13.
We are an "emerging growth company" under applicable Securities and Exchange Commission rules and will be eligible for reduced public company disclosure requirements. See "SummaryImplications of Being an Emerging Growth Company."
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Share | Total | ||
---|---|---|---|---|
Public Offering Price | $ | $ | ||
Underwriting Discount(1) | $ | $ | ||
Proceeds to Dermira (before expenses) | $ | $ |
The underwriters expect to deliver the shares to purchasers on or about , 2014 through the book-entry facilities of The Depository Trust Company.
Citigroup | Leerink Partners | |
Guggenheim Securities |
|
Needham & Company |
, 2014
We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
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This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our common stock, you should read this summary together with the more detailed information, including our consolidated financial statements and the accompanying notes, provided elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the sections entitled "Risk Factors," "Selected Consolidated Financial Data," our consolidated financial statements and the accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case included elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements."
We are a specialty biopharmaceutical company focused on bringing innovative and differentiated medical dermatology products to dermatologists and their patients. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our strategy is to leverage this experience to in-license, acquire, develop and commercialize products that we believe can be successful in the dermatology marketplace. Our portfolio of five product candidates targets significant market opportunities and includes three late-stage product candidates, Cimzia (certolizumab pegol), which we are developing in collaboration with UCB Pharma S.A. for the treatment of moderate-to-severe plaque psoriasis, DRM04, which we are developing for the treatment of hyperhidrosis, or excessive sweating, and DRM01, which we are developing for the treatment of acne.
Medical dermatology focuses on therapeutic solutions to treat serious skin conditions, such as psoriasis, acne, atopic dermatitis, commonly known as eczema, and hyperhidrosis. These diseases impact millions of people worldwide and can have significant, multidimensional effects on patients' quality of life, including their physical, functional and emotional well-being. Furthermore, according to multiple published studies, patients report that medical dermatology conditions affect quality of life in ways comparable to other serious diseases, such as cancer, heart disease, diabetes, epilepsy, asthma and arthritis.
We believe that medical dermatology represents a particularly attractive segment of the biopharmaceutical industry for multiple reasons:
We believe that these industry dynamics present an opportunity for us to establish our company as a leader in dermatology product development and commercialization, and we plan to capitalize on that opportunity for the benefit of patients and dermatologists.
Dermira was founded by Thomas G. Wiggans, Eugene A. Bauer, M.D., Christopher M. Griffith and Luis C. Peña with the vision of building a leading dermatology company. Several members of our management team, including Mr. Wiggans, Dr. Bauer and Mr. Peña, have extensive experience within the dermatology field, including having served in executive roles at leading dermatology companies such
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as Connetics Corporation, Peplin, Inc. and Stiefel Laboratories, Inc., a GlaxoSmithKline LLC Company, or Stiefel. This experience brings us significant insight into product and commercial opportunities, as well as a broad network of relationships with leaders within the industry and medical community.
Our three late-stage product candidates are:
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symptoms of acne. Based on the results of this Phase 2a clinical trial, we intend to file an IND with the FDA and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015.
In addition, we have two early-stage programs in preclinical development for the treatment of inflammatory skin diseases and acne.
Our strategy is to in-license, acquire, develop and commercialize innovative and differentiated medical dermatology products that we believe can be successful in the dermatology marketplace. The key components of our strategy are to:
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exceptional opportunity to build relationships with opinion leaders, advocacy groups and medical practitioners. We intend to take advantage of this opportunity in order to accelerate the identification, in-licensing, acquisition, development and commercialization of product candidates and products that we believe can be successful in the dermatology marketplace.
Key Markets for Our Product Candidates
The Moderate-to-Severe Plaque Psoriasis Market
Psoriasis is a chronic, complex, immune-mediated disease that requires long-term treatment. It is commonly considered the most prevalent autoimmune disease in the world. According to Decision Resources, the diagnosed prevalence of psoriasis in the United States was approximately 9.3 million people, or approximately 2.8% of the population, in 2012.
According to Decision Resources, U.S. sales of psoriasis prescriptions accounted for $3.6 billion in 2012. In the same year, U.S. sales of biologic therapies for moderate-to-severe plaque psoriasis were $2.9 billion, of which $2.3 billion were from TNF inhibitors. According to data provided by IMS Health National Prescription Audit and National Sales Perspectives, between 2009 and 2012, sales of biologic therapies attributable to U.S. dermatologists grew at an average annual rate of 20% and sales of TNF inhibitors attributable to U.S. dermatologists grew at an average annual rate of 9%.
We believe that there is a substantial opportunity for continued expansion of the market for biologic psoriasis therapies. Even with the significant recent growth in the market, penetration of biologics into the addressable population of moderate-to-severe plaque psoriasis patients remains relatively low, particularly in comparison to other large biologics markets. We believe that penetration into the psoriasis patient population may continue to increase as dermatologists become more familiar with available biologic therapies, particularly, the established safety record of TNF inhibitors, and as new biologic products reach the market. Decision Resources projects that U.S. sales of branded, systemic psoriasis therapies will increase from approximately $3.1 billion in 2012 to $5.7 billion by 2022.
The Hyperhidrosis Market
Hyperhidrosis is a condition of excessive sweating beyond what is physiologically required to maintain normal thermal regulation. Primary hyperhidrosis, which is excessive sweating without a known cause, can affect the underarms, palms of the hands, soles of the feet, face and other areas. Several studies have demonstrated that excessive sweating often impedes normal daily activities and can result in occupational, emotional, psychological, social and physical impairment. In the United States, based on the most recent data available, the prevalence of hyperhidrosis was estimated in 2003 to be 2.8% of the population, or roughly 7.8 million people. According to published studies, approximately half of hyperhidrosis sufferers have axillary hyperhidrosis.
The market for products to control sweating is large and highly underpenetrated by prescription pharmaceutical products. Despite the limited efficacy of over-the-counter, or OTC, antiperspirants for the alleviation of hyperhidrosis symptoms, according to a 2003 survey, only 38% of hyperhidrosis patients had discussed their condition with a healthcare professional. We believe that this is largely a result of the lack of effective, well-tolerated, convenient prescription treatment options. Patients who seek treatment from a physician most commonly receive prescription topical antiperspirants. While these topical antiperspirants generate over 500,000 prescriptions annually in the United States, their use is limited by modest efficacy and skin irritation, particularly in patients with more severe disease. We believe that the market opportunity for a new, effective, well-tolerated topical hyperhidrosis treatment is substantially larger than the current market for prescription topical antiperspirants because such a therapy could further penetrate the segment of patients who seek treatment from a physician and encourage more patients to seek treatment.
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The Acne Market
Acne is one of the most common skin diseases. It is characterized by clogging of the pores and associated local skin lesions. Acne lesions are believed to result from an interaction of multiple pathogenic, or contributing, factors, including excessive sebum production. Acne can significantly impact patients' quality of life, resulting in social, psychological and emotional impairments that are comparable to those reported by patients with epilepsy, asthma, diabetes or arthritis. According to widely-cited data, it is estimated that acne affected more than 85% of teenagers globally in 1994, 150 million people globally as of 2008 and 40 to 50 million Americans as of 1998. Acne is one of the most common reasons for visiting a dermatologist. In 2007, acne represented about one-fourth of U.S. dermatologists' patient volume.
According to VisionGain, acne accounted for approximately $3.7 billion in global pharmaceutical sales in 2012. In the same year, each of the three major prescription pharmaceutical product classes that are predominantly used to treat acne generated between approximately $670 million and $1.9 billion in U.S. sales, according to data provided by Symphony Health Solutions, Pharmaceutical Audit Suite. These three product classes have been available for over 30 years, and we believe that growth in this market recently has been significantly limited by a lack of innovation in new product development.
We believe that there is a substantial unmet need and commercial opportunity for a topical acne therapy that targets sebum production. Acne treatment guidelines published by the Global Alliance to Improve Outcomes in Acne recommend that acne treatment be directed toward as many pathogenic factors as possible. Accordingly, patients are often treated with combination regimens that incorporate agents with complementary mechanisms of action targeting different pathogenic factors. The vast majority of acne patients are treated with topical therapies, and all of the four primary pathogenic factors except for excessive sebum production can be targeted with available topical treatments. While systemic therapies may be used to effectively inhibit sebum production, their use is limited by significant, systemic side effects. As a result, we believe that the introduction of a topical acne treatment that targets sebum production could establish a new product class and expand the acne market.
Selected Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, but are not limited to, the following:
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Concurrently with the closing of this offering, entities affiliated with UCB will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial offering price.
We were incorporated in the State of Delaware in August 2010 under the name Skintelligence, Inc. We changed our name to Dermira, Inc. in September 2011. Our principal executive offices are located at 2055 Woodside Road, Redwood City, California 94061, and our telephone number is (650) 421-7200. Our website address is www.dermira.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.
Unless the context indicates otherwise, as used in this prospectus, the terms "Company," "Dermira," "Registrant," "we," "us" and "our" refer to Dermira, Inc., a Delaware corporation, and its sole subsidiary taken as a whole, unless otherwise noted.
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We have registered the trademark "Dermira" in Australia, the European Union, Japan and Switzerland and have a trademark application for the trademark "Dermira" pending with the U.S. Patent and Trademark Office and the Canadian Intellectual Property Office. The Dermira logo and all product names are our common law trademarks. All other service marks, trademarks and tradenames appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and tradenames referred to in this prospectus appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an "emerging growth company" as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. We would cease to be an emerging growth company upon the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a "large accelerated filer," with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of this offering.
The JOBS Act also permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies and thereby allows us to delay the adoption of those standards until those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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Shares of common stock offered by us |
shares | |
Over-allotment option to be offered by us |
shares |
|
Shares of common stock sold in the concurrent private placement |
Concurrently with the closing of this offering, entities affiliated with UCB will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial public offering price. We will receive the full proceeds from the sale and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of these shares to entities affiliated with UCB will not be registered in this offering. We refer to the private placement of these shares of common stock as the concurrent private placement. |
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Shares of common stock to be outstanding immediately after this offering and the concurrent private placement |
shares ( shares if the over-allotment option is exercised in full) |
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Use of proceeds |
We estimate that the net proceeds from the sale of our common stock sold in this offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We also expect to receive $7.5 million from the sale by us of common stock in the concurrent private placement, at a price per share equal to the initial public offering price. We currently intend to use the net proceeds from this offering and the concurrent private placement for external research and development expenses associated with the development of our Cimzia, DRM04 and DRM01 product candidates, with the balance primarily used to fund internal research and development expenses associated with all of our product candidates, working capital, capital expenditures and other general corporate purposes. See "Use of Proceeds." |
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Risk factors |
You should read the "Risk Factors" section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
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Proposed NASDAQ symbol |
"DERM" |
The number of shares of our common stock to be outstanding following this offering and the concurrent private placement is based on 64,038,986 shares of our common stock outstanding as of June 30, 2014. This number assumes the conversion of all outstanding shares of our convertible
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preferred stock, which will occur automatically in connection with the completion of this offering, and excludes:
Unless otherwise noted, the information in this prospectus reflects and assumes the following:
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Summary Consolidated Financial Data
The following summary consolidated financial data should be read with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
The following tables summarize our consolidated financial data. We derived our summary consolidated statements of operations data for the years ended December 31, 2012 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations data for the six months ended June 30, 2013 and 2014 and our summary consolidated balance sheet data as of June 30, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair presentation of our consolidated financial position as of June 30, 2014 and our consolidated results of operations for the six months ended June 30, 2013 and 2014. Our historical results are not necessarily indicative of the results to be expected in the future, and the results for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year or any other period. You should read the following summary consolidated financial data in conjunction with the sections entitled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
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As of June 30, 2014 | |||||||||
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Actual | Pro Forma(1) |
Pro Forma
As Adjusted(2) |
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(in thousands, unaudited)
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ | 9,774 | $ | 58,587 | ||||||
Working capital |
3,921 | 52,794 | ||||||||
Total assets |
16,530 | 65,343 | ||||||||
Convertible preferred stock warrant liability |
60 | | ||||||||
Bank term loan, current and non-current |
1,931 | 1,931 | ||||||||
Convertible preferred stock |
64,588 | | ||||||||
Additional paid-in capital |
1,283 | 114,655 | ||||||||
Accumulated deficit |
(68,075 | ) | (68,075 | ) | ||||||
Total stockholders' (deficit) equity |
(66,787 | ) | 46,674 |
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exercisable for 65,404 shares of common stock in connection with this offering; and (d) the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws, as if our restated certificate of incorporation was filed and our restated bylaws had become effective on June 30, 2014.
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Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the consolidated financial statements, the notes thereto and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.
Risks Related to Development, Regulatory Approval and Commercialization
Our business is dependent on the successful development, regulatory approval and commercialization of our product candidates, primarily Cimzia, which we are developing in collaboration with UCB Pharma S.A., DRM04 and DRM01.
Our portfolio of five product candidates includes three late-stage product candidates, Cimzia (certolizumab pegol), an injectable biologic tumor necrosis factor-alpha inhibitor, or TNF inhibitor, for the treatment of moderate-to-severe plaque psoriasis, DRM04, a topical treatment for hyperhidrosis, or excessive sweating, and DRM01, a topical sebum inhibitor for the treatment of acne. We are also developing DRM02, a topical treatment targeting phosphodiesterase-4 for inflammatory skin diseases, and DRM05, a topical photodynamic therapy for acne. The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of our late-stage product candidates. The successful development and commercialization of Cimzia is subject to a number of risks under our development and commercialization agreement with UCB, or the UCB agreement. For more information about these risks, see "Risks Related to Our Collaboration with UCB." In the future, we may also become dependent on one or more of our early-stage product candidates or any future product candidates that we may in-license, acquire or develop. The clinical and commercial success of our product candidates will depend on a number of factors, including the following:
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If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays or an inability to obtain regulatory approvals or commercialize our product candidates. Even if regulatory approvals are obtained, we may never be able to successfully commercialize any of our product candidates. Accordingly, we cannot assure you that we will be able to generate sufficient revenue through the sale of our product candidates or any future product candidates to continue our business.
We have had significant and increasing operating expenses and we will require substantial additional financing to achieve our goals, which we may not be able to obtain when needed and on acceptable terms, or at all. We have a history of losses and may not be able to achieve or maintain profitability, which could cause our business and operating results to suffer.
We are a clinical-stage specialty biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We are not profitable and have incurred losses in each year since we commenced operations in August 2010. We have incurred net losses of $20.3 million, $22.4 million and $17.3 million for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2014, respectively. As of June 30, 2014, we had an accumulated deficit of $68.1 million.
We have financed our operations primarily through the sale of equity securities and convertible debt securities. Since our inception, most of our resources have been dedicated to the preclinical and clinical development of our product candidates. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue, if any. Revenue from our current and potential future collaborations is uncertain because milestones or other contingent payments under our agreements may not be achieved or received.
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As of June 30, 2014, we had capital resources consisting of cash and cash equivalents of $9.8 million and in August 2014, we issued shares of our Series C convertible preferred stock and received related net proceeds of $48.8 million. We will continue to expend substantial cash resources for the foreseeable future for the clinical development of our product candidates and development of any other indications and product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, manufacturing and supply, as well as marketing and selling any products approved for sale. In particular, our Phase 3 clinical programs for our product candidates will require substantial funds to complete. We plan to finance the development and commercialization of Cimzia in part through milestone payments made by UCB under the UCB agreement. In addition, other unanticipated costs may arise. Because the conduct and results of any clinical trial are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current and any future product candidates.
We believe that the net proceeds from this offering and the concurrent private placement and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations through at least the next 12 months. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available capital resources much faster than we currently expect or require more capital to fund our operations than we currently expect. Our currently anticipated expenditures for the development of our lead product candidates, Cimzia, DRM04 and DRM01, exceed the net proceeds from this offering and the concurrent private placement and our existing cash and cash equivalents. We will need to raise additional capital following this offering to fund our operations and continue to support our planned research and development and commercialization activities. We have substantial contractual obligations to UCB. For more information about our collaboration with UCB, see "BusinessCollaborations and License AgreementsCollaboration with UCB." In the event we are unable to raise sufficient capital to fund our development and commercialization obligations to UCB, we will face significant contractual liability.
The amount and timing of our future funding requirements will depend on many factors, including:
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We cannot be certain that additional funding will be available on acceptable terms, or at all. Our current loan and security agreement contains negative covenants that restrict our ability to obtain additional debt financing. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans.
In order to fund the development and potential commercialization of our product candidates, we may also need to enter into collaboration agreements with pharmaceutical and biotechnology companies. Our ability to establish and maintain these collaborations is highly uncertain and subject to a number of variables. Under these arrangements, we may be responsible for substantial costs in connection with the clinical development, regulatory approval or the commercialization of a partnered product candidate. Furthermore, the payments we could receive from our potential collaboration partners may be subject to numerous conditions and may ultimately be insufficient to cover the cost of this development and commercialization.
If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts, or other aspects of our business plan. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.
The UCB agreement requires us to pay substantial development costs in order for UCB to seek approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis from the FDA, the European Medicines Agency and the Canadian federal department for health. Our inability to fund our obligations under the UCB agreement would harm our business and operating results.
The UCB agreement requires us to pay all development costs in order for UCB to seek approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis from the FDA, the European Medicines Agency, or the EMA, as established by Regulation (EC) 2309/93 and Regulation (EC) 726/2004, and the Canadian federal department for health, or Health Canada, up to a specified amount greater than $75.0 million and less than $95.0 million, with any development costs in excess of this amount to be shared equally by us and UCB. Delays in the commencement, enrollment and completion of clinical trials, including as a result of regulatory requirements, could substantially increase our product development costs. We do not know whether our planned clinical trials will begin on time or will be completed on budget or on schedule, or at all. While UCB is obligated to pay us if certain development and regulatory approval milestones are met, these milestone payments will not increase
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even if our development costs increase, so we would be required to bear a greater portion of any increased costs, which would adversely impact our financial position. The costs associated with product development can increase for a variety of reasons, including:
In addition, a clinical trial may be suspended or terminated by us, UCB, the FDA, the EMA, Health Canada or other regulatory authorities due to a number of factors, including:
Clinical drug development for our product candidates is very expensive, time-consuming and uncertain. Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.
Clinical drug development for our product candidates is very expensive, time-consuming, difficult to design and implement and its outcome is inherently uncertain. Before obtaining regulatory approval for the commercial sale of a product candidate, we must demonstrate through clinical trials that a product candidate is both safe and effective for use in the target indication. Most product candidates that commence clinical trials are never approved by regulatory authorities for commercialization. Our product candidates are in various stages of development. We expect that clinical trials for these product candidates will continue for several years, but may take significantly longer than expected to complete. In addition, we, any partner with which we currently or may in the future collaborate, the FDA, an
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IRB or other regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including:
In the case of our topical product candidates, we are seeking to deliver sufficient concentrations of the active pharmaceutical ingredient, or API, through the skin barrier to the targeted dermal tissue to achieve the intended therapeutic effect. As a result, safety and efficacy can be difficult to establish. The topical route of administration may involve new dosage forms, which can be difficult to develop and manufacture and may raise novel regulatory issues and result in development or review delays. For
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example, the dosage form for DRM04 is an API-saturated wipe, and we are not aware of previous FDA approvals of prescription drug wipes.
We or any partner with which we may collaborate may suffer significant setbacks in our clinical trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. In the event that we or our potential partners abandon or are delayed in the clinical development efforts related to our product candidates, we may not be able to execute on our business plan effectively and our business, financial condition, operating results and prospects would be harmed. In particular, for Cimzia, if we experience delays in the completion of, or if we terminate, clinical trials, our ability to receive development-, regulatory- or sales-based milestone payments and royalties under the UCB agreement will be reduced, delayed or prevented.
We may be unable to obtain regulatory approval for Cimzia, DRM04, DRM01 or our early-stage product candidates under applicable regulatory requirements. The FDA and foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would adversely impact commercialization, our potential to generate revenue, our business and our operating results.
We currently have no products approved for sale, and we may never obtain regulatory approval to commercialize any of our current or future product candidates. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to our drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign countries, and such regulations differ from country to country. We are not permitted to market any of our current product candidates in the United States until we receive approval of a new drug application, or NDA, or biologics license application, or BLA, or other applicable regulatory filing from the FDA. We are also not permitted to market any of our current product candidates in any foreign countries until we receive the requisite approval from the applicable regulatory authorities of such countries.
To gain approval to market a biologic product such as Cimzia or a new drug such as DRM04 or DRM01, the FDA and foreign regulatory authorities must receive preclinical and clinical data that adequately demonstrate the safety, purity, potency, efficacy and compliant manufacturing of the product for the intended indication applied for in an NDA, BLA or other applicable regulatory filing. The development and approval of biologic and new drug products involves a long, expensive and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in clinical trials, including in Phase 3 clinical development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we or our partners may conduct. For example, in our Phase 2 clinical trial for Cimzia in moderate-to-severe plaque psoriasis, a six-point physical global assessment, or PGA, scale was used, and we intend to use a five-point PGA scale in the Phase 3 clinical trials. As a result, data from our Phase 2 clinical trial may not accurately predict Phase 3 results. In addition, for DRM04, the results of our Phase 2a and Phase 2b clinical trials may not accurately predict results in our Phase 3 clinical trials that will have larger numbers of patients. Even for a drug such as Cimzia that has been approved for multiple indications, regulatory review processes are lengthy and uncertain.
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The FDA and foreign regulatory bodies have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons, including:
Of the large number of drugs, including biologics, in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. For example, the FDA may not agree with our Phase 3 clinical trial protocols for Cimzia. In addition, our product candidates may not be approved by the FDA or applicable foreign regulatory agencies even though they meet specified endpoints in our clinical trials. The FDA or applicable foreign regulatory
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agencies may ask us to conduct additional costly and time-consuming clinical trials in order to obtain marketing approval or approval to enter into an advanced phase of development, or may change the requirements for approval even after such agency has reviewed and commented on the design for the clinical trials. In our collaboration with UCB, we are required to pursue development in support of UCB seeking approval from each of the FDA, the EMA and Health Canada, although we have the right to abandon pursuit of regulatory approval in Canada. If UCB is unable to obtain and retain regulatory approval for the marketing of Cimzia for psoriasis, we could lose our ability to receive royalties and regulatory- and sales-based milestone payments, which would adversely affect our financial position and business.
Any delay in obtaining, or inability to obtain, applicable regulatory approval for any of our product candidates would delay or prevent commercialization of our product candidates and would harm our business, financial condition, operating results and prospects.
UCB substantially controls the governance of our collaboration, and may make decisions regarding product development, regulatory strategy and commercialization that may not be in our best interests.
To oversee the parties' activities in the collaboration, the UCB agreement provides for the establishment of a joint steering committee, joint development team, joint development committee, joint commercialization team and joint commercialization committee on which we each have representation, and while the parties have agreed to make committee decisions by consensus, UCB has final decision-making authority for the overall regulatory, development and commercialization strategy for Cimzia, market access activities, pricing and reimbursement activities, promotion, distribution, packaging, sales and safety and pharmacovigilance.
In exercising its final decision-making authority, UCB may make decisions regarding product development or regulatory strategy based on its determination of how to best preserve and extend regulatory approvals for Cimzia in indications other than psoriasis, which may delay or prevent achieving regulatory approval for Cimzia for the treatment of psoriasis.
If Cimzia does receive regulatory approval for the treatment of psoriasis in the United States or Canada, UCB could use its final decision-making authority to direct our market access, promotional or medical affairs activities to dermatologists in ways that would adversely impact sales attributable to dermatologists, including due to a concern that such activities could adversely impact sales of Cimzia attributable to physicians other than dermatologists, for which UCB is not required to pay us royalties or milestone payments. If such limitations resulted in reduced sales of Cimzia to dermatologists, the royalties and sales-based milestone payments we could receive under the UCB agreement would be adversely affected, negatively impacting our financial performance.
We have never conducted a Phase 3 clinical trial before, and may be unable to successfully do so for any of our product candidates.
The conduct of a Phase 3 clinical trial is a complicated process. Although our employees have conducted Phase 3 clinical trials in the past while employed at other companies, we as a company have not conducted a Phase 3 clinical trial before, and as a result may require more time and incur greater costs than we anticipate. For example, we intend to commence Phase 3 clinical trials for Cimzia in the first half of 2015, as more fully described in "BusinessOur Product CandidatesCimzia." Failure to commence or complete, or delays in, our planned clinical trials, would prevent us from or delay us in obtaining regulatory approval of and commercializing our product candidates and could prevent us from or delay us in receiving development- or regulatory-based milestone payments and commercializing Cimzia for the treatment of psoriasis, which would adversely impact our financial performance.
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Even if our current product candidates or any future product candidates obtain regulatory approval, they may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.
The commercial success of any of our current or future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications, and may not be commercially successful. The degree and rate of physician and patient adoption of our current or future product candidates, if approved, will depend on a number of factors, including:
If any of our current or future product candidates are approved for use but fail to achieve the broad degree of physician and patient adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.
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Enbrel, Humira and Stelara, injectable biologics for the treatment of moderate-to-severe plaque psoriasis, achieved aggregate sales of $4.0 billion in 2012 and we are uncertain whether this market, including off-label use of other injectable biologics for the treatment of psoriasis, has peaked or may still grow and whether we could displace any existing market share if Cimzia is approved for the treatment of moderate-to-severe plaque psoriasis. In particular, Cimzia's administration schedule may not be perceived as advantageous and its theoretical advantages may not lead to a perception of Cimzia being safer or comparably effective to Humira or Enbrel. Even if approved for moderate-to-severe plaque psoriasis, we may not be able to utilize directly comparative head-to-head data on the clinical performance of Cimzia relative to other TNF inhibitors or biologics in our marketing materials and may not be able to promote any theoretical advantages that are not in our approved product labeling.
Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of health care products competitive with those that we are developing. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, clinical trial expertise, intellectual property portfolios, experience in obtaining patents and regulatory approvals for product candidates and other resources than us. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. In addition, certain of our product candidates, if approved, may compete with other dermatological products, including over-the-counter treatments, for a share of some patients' discretionary budgets and for physicians' attention within their clinical practices.
Many pharmaceutical companies currently offer products, and continue to develop additional alternative product candidates and technologies, for indications similar to those targeted by our product candidates, including AbbVie Inc., Actavis plc, Allergan, Inc., Amgen Inc., Anacor Pharmaceuticals, Inc., Astellas Pharma US, Inc., Bayer HealthCare AG (formerly Intendis, Inc.), Eisai Co., Ltd., Galderma S.A., GlaxoSmithKline LLC, or GSK, Janssen Biotech, Inc., Johnson & Johnson, LEO Pharma A/S, Maruho Co., Ltd., Merck & Co., Inc., Miramar Labs, Inc., Mitsubishi Tanabe Pharma Corporation, Mylan Inc., Pfizer Inc., Regeneron Pharmaceuticals, Inc., Revance Therapeutics, Inc., Takeda Pharmaceutical Company Limited, Teva Pharmaceutical Industries Ltd. and Valeant Pharmaceuticals International. The markets for dermatological therapies are competitive and are characterized by significant technological development and new product introduction. We anticipate that, if we obtain regulatory approval of our product candidates, we will face significant competition from other approved therapies. If approved, our product candidates may also compete with unregulated, unapproved and off-label treatments. Certain of our product candidates, if approved, will present novel therapeutic approaches for the approved indications and will have to compete with existing therapies, some of which are widely known and accepted by physicians and patients. To compete successfully in this market, we will have to demonstrate that the relative cost, safety and efficacy of our approved products, if any, provide an attractive alternative to existing and other new therapies. Such competition could lead to reduced market share for our product candidates and contribute to downward pressure on the pricing of our product candidates, which could harm our business, financial condition, operating results and prospects. For more information about the competition we face, see "BusinessCompetition."
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Due to less stringent regulatory requirements in certain foreign countries, there are many more dermatological products and procedures available for use in those international markets than are approved for use in the United States. In certain international markets, there are also fewer limitations on the claims that our competitors can make about the effectiveness of their products and the manner in which they can market them. As a result, we expect to face more competition in these markets than in the United States.
Cimzia faces intense competition and most of our competitors have significantly greater resources than we do.
If approved for the treatment of psoriasis, Cimzia will face direct competition from numerous other injected products such as Enbrel, Humira, Remicade and Stelara, and the existence of these products may limit the market size for Cimzia. In addition, Cimzia will compete against oral systemic treatments for psoriasis, which include acitretin, methotrexate and cyclosporine, and against a number of approved topical treatments for psoriasis, including branded drugs and generic versions where available. There are a number of other treatments used for psoriasis, including light-based treatments, topical corticosteroids and non-prescription topical treatments. Certain alternative treatments offered by competitors may be available at a lower price and may offer greater efficacy or a better safety profile.
Additional products and treatments, including numerous injectable biological products currently in clinical trials, may also receive regulatory approval in one or more territories in which we compete, and these existing and new products may be more effective, more widely used and less costly than ours, which may reduce the sales on which we receive royalties and sales-based milestone payments under the UCB agreement. Even if a generic product or an over-the-counter product is less effective than our product candidates, a less effective generic or over-the-counter product may be more quickly adopted by health insurers, physicians and patients than our competing product candidates based upon cost or convenience.
Cimzia may face competition from biosimilars, which may have an adverse impact on future sales.
Even if Cimzia for the treatment of psoriasis achieves regulatory approval, we may face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products that are demonstrated to be "highly similar," or "biosimilar," to or "interchangeable" with an FDA-approved biological product. This new pathway could allow competitors to reference the FDA's prior determinations regarding innovative biological products and to obtain approval of a biosimilar application 12 years after the time of approval of the innovative biological product. The 12-year exclusivity period does not prevent another company from developing a product that is highly similar to the innovative product, generating all the data necessary for a full BLA and seeking approval. Exclusivity only assures that another company cannot rely on the FDA's prior determinations in approving a BLA for an innovator's biological product to support the biosimilar product's approval. In his proposed budget for fiscal year 2014, President Obama proposed to reduce this 12-year period of exclusivity to seven years and proposed to prohibit additional periods of exclusivity due to minor changes in product formulations, a practice often referred to as "evergreening." It is possible that Congress may take these or other measures to reduce or eliminate periods of exclusivity. The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have an adverse effect on the future commercial prospects for Cimzia. If competitors are able to obtain marketing approval for biosimilars referencing Cimzia or other branded biologic products against which Cimzia competes, Cimzia may become subject to competition from such biosimilars. Such competition could lead to off-label use of the biosimilar for psoriasis or reduced market share and contribute to downward pressure on pricing and reduced profit margins.
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We expect to face generic competition for our product candidates, which could adversely affect our business, financial condition, operating results and prospects.
Upon the expiration or loss of any patent protection for any of our product candidates that are approved, or upon the "at-risk" launch, despite pending patent infringement litigation against the generic product, by a generic competitor of a generic version of any of our product candidates that are approved, which may be sold at significantly lower prices than our approved product candidates, we could lose a significant portion of sales of that product in a short period of time, which would adversely affect our business, financial condition, operating results and prospects. In particular, our DRM04 product candidate faces competition from generic oral and compounded topical anticholinergic agents. In addition, we may be subject to additional competition from third parties pursuing topical formulations of other anticholingeric agents for hyperhidrosis.
Use of patient-reported outcome assessments, or PROs, in our DRM04 clinical trials may delay the development of DRM04 or increase our development costs.
Due to the difficulty of objectively measuring the symptoms of hyperhidrosis, PROs will have an important role in the development and regulatory approval of our DRM04 product candidate. PROs involve patients' subjective assessments of efficacy, and this subjectivity increases the uncertainty of determining clinical endpoints. Such assessments can be influenced by factors outside of our control, and can vary widely from day to day for a particular patient, and from patient to patient and site to site within a clinical trial. Furthermore, we intend to use a new PRO in our Phase 2 clinical program and pursue the use of the new PRO to measure efficacy in our planned Phase 3 clinical program for DRM04. It is possible that the FDA will not accept the new PRO or will require changes in the PRO, potentially delaying clinical development of DRM04, increasing our costs and making additional clinical trials necessary.
Any product candidates that we commercialize, or that any partner with which we may collaborate commercializes, will be subject to ongoing and continued regulatory review.
Even after we or our partners achieve U.S. regulatory approval for a product candidate, if any, we or our partners will be subject to continued regulatory review and compliance obligations. For example, with respect to our product candidates, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate's approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials or a REMS, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for our product candidates. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP requirements and with the FDA's good clinical practice, or GCP, requirements and good laboratory practice, or GLP, requirements, which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical and preclinical development, and for any clinical trials that we conduct post-approval. To the extent that a product candidate is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
In addition, manufacturers of drug and biologic products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians, withdrawal of the product from the market or suspension of manufacturing.
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If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
The regulations, policies or guidance of the FDA and other applicable government agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
We have conducted and may in the future conduct clinical trials for our product candidates outside the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials.
We have conducted and may in the future choose to conduct one or more of our clinical trials outside the United States, including in Canada and Europe. For example, our Phase 3 clinical trials for Cimzia that we intend to commence in the first half of 2015 will be conducted in multiple countries. Although the FDA or applicable foreign regulatory authority may accept data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study data by the FDA or applicable foreign regulatory authority may be subject to certain conditions. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is
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able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.
Our product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in post-approval regulatory action.
Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. Undesirable side effects caused by product candidates could cause us, any partners with which we may collaborate or regulatory authorities to interrupt, modify, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities. For example, if we obtain regulatory approval for Cimzia for the treatment of moderate-to-severe plaque psoriasis, we expect that regulatory authorities will require us to include the same box warning regarding increased risk of serious infections that may lead to hospitalization or death and a potential association with increased cancer risk in TNF inhibitors, of which Cimzia is one, that is currently included in labeling for Cimzia for the treatment of other indications. Results of clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us, or our potential partners, to cease further development of or deny approval of product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval or other products with the same or related active ingredients, a number of potentially negative consequences could result, including:
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Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us or our potential partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.
We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases.
In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:
We have obtained product liability insurance coverage for clinical trials. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will be costly, and we may be unable to obtain this
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increased product liability insurance on commercially reasonable terms, or at all. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, financial condition, operating results and prospects.
If any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug and biologic products. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies as reflected in the product's approved labeling and comparative safety or efficacy claims cannot be made without direct comparative clinical data. For example, if Cimzia is approved for use in the United States for the treatment of moderate-to-severe plaque psoriasis, due to the design of our Phase 3 clinical trial comparing Cimzia to Enbrel, the prescribing information may not include data comparing the clinical performance of Cimzia and Enbrel and we may not be able to utilize directly comparative head-to-head data on the clinical performance of Cimzia to Enbrel in our marketing materials. Similarly, although our DRM04 product candidate, if approved, may appeal to individuals who have not been diagnosed with hyperhidrosis, we will only be able to promote DRM04 for its approved indication. If we are found to have promoted off-label uses of any of our product candidates, we may receive warning or untitled letters and become subject to significant liability, which would materially harm our business. Both federal and state governments have levied large civil and criminal fines against companies for alleged improper promotion and have enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management's attention could be diverted from our business operations, significant legal expenses could be incurred and our brand and reputation could be damaged. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.
We cannot, however, prevent a physician from using our product candidates outside of those indications for use when in the physician's independent professional medical judgment he or she deems appropriate. Physicians may also misuse our product candidates or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by physicians or their patients. Furthermore, the use of our product candidates for indications other than those cleared by the FDA may not effectively treat such conditions, which could harm our reputation among physicians and patients.
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We may choose not to continue developing or commercializing any of our product candidates other than Cimzia at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
At any time, we may decide to discontinue the development of any of our product candidates other than Cimzia or not to continue commercializing one or more of our approved product candidates other than Cimzia for a variety of reasons, including the appearance of new technologies that make our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses. We are, however, required to develop and commercialize Cimzia in accordance with our obligations to UCB regardless of our potential return on our investment with respect to Cimzia.
We or our current and prospective partners may be subject to product recalls in the future that could harm our brand and reputation and could negatively affect our business.
We or our current and prospective partners may be subject to product recalls, withdrawals or seizures if any of our product candidates, if approved for marketing, fail to meet specifications or are believed to cause injury or illness or if we are alleged to have violated governmental regulations including those related to the manufacture, labeling, promotion, sale or distribution. Any recall, withdrawal or seizure in the future could materially and adversely affect consumer confidence in our brands and lead to decreased demand for our approved products. In addition, a recall, withdrawal or seizure of any of our approved products would require significant management attention, would likely result in substantial and unexpected expenditures and would harm our business, financial condition and operating results.
If the FDA does not conclude that certain of our product candidates satisfy the requirements under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or Section 505(b)(2), or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.
We are currently developing one product candidate, DRM04, for which we intend to seek FDA approval through the Section 505(b)(2) regulatory pathway. DRM04 is a topical formulation of an anticholinergic agent that has been approved for systemic administration in other indications. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference. Reliance on safety findings made by the FDA in approving the anticholinergic agent we intend to reference in our NDA could expedite the development program for our product candidates by potentially decreasing the amount of preclinical or clinical data that we would need to generate in order to obtain FDA approval. DRM04 differs from the approved product we intend to reference in chemical structure, route of administration, dosage form and indication, and, as a result, the FDA may not permit us to use this approach to regulatory approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, if the Section 505(b)(2) regulatory pathway fails to significantly decrease the amount of testing we must conduct, we may need to conduct additional preclinical or clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this was to occur, the time and financial resources required to obtain FDA approval for DRM04, or any other product candidate for which we seek approval pursuant to the Section 505(b)(2) regulatory pathway in the future, and complications and
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risks associated with these product candidates, would likely substantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.
In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA's interpretation of Section 505(b)(2). If the FDA's interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved referenced product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to faster product development or earlier approval.
If we or any partners with which we may collaborate are unable to achieve and maintain coverage and adequate levels of reimbursement for any of our product candidates for which we receive regulatory approval, or any future products we may seek to commercialize, their commercial success may be severely hindered.
For any of our product candidates that become available only by prescription, successful sales by us or by any partners with which we may collaborate depend on the availability of coverage and adequate reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. If any of our product candidates do not demonstrate attractive efficacy profiles, they may not qualify for coverage and reimbursement. In addition, certain currently approved therapies for the treatment of hyperhidrosis have received limited or no reimbursement coverage by insurers and, accordingly, coverage for DRM04, if approved, may not be available. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
In addition, the market for our product candidates will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.
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Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects.
Healthcare reform measures could hinder or prevent the commercial success of our products and product candidates.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future revenue and profitability and the future revenue and profitability of any partner with which we may collaborate. Federal and state lawmakers regularly propose and, at times, enact legislation that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, President Obama signed one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which are expected to impact existing government healthcare programs and result in the development of new programs. The Affordable Care Act, among other things, (1) increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to certain individuals enrolled in Medicaid managed care organizations, (2) established annual fees on manufacturers of certain branded prescription drugs and (3) enacted a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals and imaging centers.
More recently, the Protecting Access to Medicare Act of 2014, signed into law in April 2014, provides for a 0.5% change from 2013 federal payment rates under the Medicare Physician Fee Schedule through 2014 and a 0% update from January 1 until April 1, 2015. Congressional failure to intervene to prevent these changes in payment rates may adversely affect our revenue and operating results.
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We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.
We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We are subject to regulation by both the federal government and the states in which we or our partners conduct our business. The laws and regulations that may affect our ability to operate include:
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commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
Our business involves the use of hazardous materials and we and our third-party suppliers and manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
The manufacturing activities of our third-party suppliers and manufacturers involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our suppliers' or manufacturers' facilities pending use and disposal. We and our suppliers and manufacturers cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our service providers and others and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party suppliers and manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage.
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Our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional, reckless or negligent conduct or unauthorized activity that violates: laws or regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations, and serious harm to our reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our operating results.
Risks Related to Our Collaboration with UCB
The UCB agreement is terminable by UCB if we consummate a change of control with a significant number of competitor companies, which may adversely impact the likelihood that we will be acquired.
If we consummate a change of control with a third party that is clinically developing or commercializing a biologic TNF inhibitor, UCB has the right to terminate the UCB agreement. If such termination occurs prior to the grant of regulatory approval for Cimzia for the treatment of psoriasis, we would be obligated to pay the remaining costs for which we would be responsible under the agreed development plan reduced by the amount of development milestone payments that would have been payable upon achievement of applicable development milestones if and when such milestones are achieved. This could make an acquisition of us by any such company economically unattractive, potentially prohibitively so. Among the companies that we are aware are currently clinically developing or commercializing biologic TNF inhibitors are AbbVie, Actavis, Amgen, Baxter International Inc., Boehringer Ingelheim, Biogen Idec Inc., Eisai, GSK, Hospira, Inc., Johnson & Johnson, Merck, Mitsubishi Tanabe Pharma Corporation, Mylan, Novartis AG, Pfizer, Ranbaxy Laboratories Limited, Sandoz Inc., Stiefel Laboratories, Inc., a GSK Company, Takeda and Teva. Additional companies may develop or commercialize a biologic TNF inhibitor in the future. The resulting unlikelihood of an acquisition of us by these companies may reduce our future strategic options and the likelihood of our stockholders participating in a company sale transaction that could be financially attractive to them.
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In addition, UCB has the right to terminate the UCB agreement with the same economic consequences if we consummate a change of control with a company that is not clinically developing or commercializing a biologic TNF inhibitor but that otherwise does not meet all of the following requirements:
It is therefore possible that other potential acquirers, even though not developing or commercializing a biologic TNF inhibitor, would not meet one or more of these criteria, making an acquisition of us by such a company unlikely, further reducing the ability of our stockholders to participate in a transaction that could be financially attractive to them.
We could have significant disputes with UCB over our collaboration, which could adversely impact our ability to obtain any of its intended benefits.
We cannot ensure that UCB will fulfill its obligations under the UCB agreement. We may assert that UCB has not fulfilled its obligations, which UCB may dispute. UCB may assert that we have not fulfilled our obligations under the UCB agreement, which we may dispute. If UCB asserts that we have materially breached the UCB agreement and seeks to terminate the UCB agreement, our ability to realize the anticipated or any benefits from this collaboration would be adversely affected. Any disputes we have with UCB could lead to delays in, or termination of, the development and commercialization of Cimzia for the treatment of psoriasis and time-consuming and expensive arbitration. In any such dispute, UCB will have considerably more resources than we will to pursue such dispute, which may make it less likely that we will prevail in any such dispute, regardless of the relative merit of our position.
We are dependent on UCB for product supply.
Under the UCB agreement, UCB is solely responsible for supplying sufficient quantities of Cimzia as well as the comparator drugs and placebo to be used in our planned Phase 3 clinical trials and any post-approval studies that are conducted. We are not permitted to obtain these materials from any other source. If we experience any interruption in product supply, potentially due to UCB's own dependencies on its suppliers, or due to damage to or destruction of its or its suppliers' facilities or equipment or noncompliance with regulatory requirements, or if we incorrectly forecast our product supply requirements or UCB incorrectly plans its manufacturing production, or if UCB were to allocate supplies of Cimzia to its commercial sales rather than to our development program, it could impact our ability to timely supply our clinical sites, and cause potentially serious delays in the timing of our clinical studies and substantially increased costs if studies need to be adjusted or re-performed.
UCB is also solely responsible for and controls all aspects of the manufacture, distribution and supply of Cimzia for commercialization, including providing any product samples that we may use in our marketing and promotion activities as well as the product that will be sold from which we would
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derive royalties and any sales-based milestone payments. If UCB experiences any interruption in product supply for any of the reasons described in the prior paragraph, or if UCB were to allocate its supplies of Cimzia to commercial sales attributable to physicians other than dermatologists, it could adversely impact the sales from which we derive such royalties and payments, and our financial results.
We have agreed with UCB to a scope of exclusivity that will prevent us from developing and commercializing a material category of products, which could harm our current and future business prospects, including the likelihood that we will be acquired.
We have agreed that, during the term of the UCB agreement, except in limited circumstances, we and our affiliates will not clinically develop, seek regulatory approval for or commercialize a biologic TNF inhibitor other than Cimzia, or promote any other biologic TNF inhibitor to any dermatologist in the United States or Canada. If, during the term of the UCB agreement, we acquire or are acquired by a third party that is clinically developing or commercializing a biologic TNF inhibitor, in addition to UCB's termination rights described above, we have agreed to either cease such clinical development or commercialization or divest such product candidate. These exclusivity obligations may inhibit our business opportunities by excluding an important class of products, TNF inhibitors, from potential development or commercialization by us. In addition, any acquirer of us would also be subject to these exclusivity obligations, which will potentially exclude companies that are or would consider developing or commercializing TNF inhibitors from acquiring us, which may reduce the likelihood of our being acquired in a transaction that could be beneficial to our stockholders.
UCB may determine that further development of Cimzia for the treatment of psoriasis poses a significant safety risk and terminate the UCB agreement, which would adversely affect our business.
The UCB agreement is terminable by UCB if it determines that a validated safety signal is established, the magnitude of which UCB determines constitutes a significant patient risk so that the development or commercialization of Cimzia should cease. In such event, while UCB would be obligated to reimburse us for certain costs we have incurred by paying to us royalties on sales of Cimzia in the United States and Canada, such reimbursement will likely take years, and if sales of Cimzia cease in all indications, we will likely never recoup such costs. In any event, if the UCB agreement were to be terminated for safety reasons, we would not be able to develop a dermatology-focused sales force using Cimzia as our initial commercial product or realize any royalties or sales-based milestones, and therefore our principal strategic and financial objectives in pursuing this collaboration would not be achieved.
UCB has made very limited representations, warranties and indemnities to us regarding its ownership of and the validity of the intellectual property related to Cimzia, and that its and our activities in our collaboration will not infringe the intellectual property rights of third parties.
In the UCB agreement, UCB has made very limited representations, warranties and indemnities to us that the development of Cimzia for the treatment of psoriasis and the sale and promotion of Cimzia for the treatment of psoriasis and psoriatic arthritis will not infringe a patent or other intellectual property right of a third party, or that UCB's intellectual property related to Cimzia is valid. If third parties bring claims that the intellectual property relevant to the collaboration and Cimzia infringes the intellectual property rights of such third party, we or UCB could be enjoined from performing our activities under the UCB agreement, exposed to substantial damages or required to pay royalties to such third party, or any combination of these adverse effects. Any third-party royalties that would need to be paid in connection with the activities under our collaboration would be included in our cost of goods and therefore could reduce the financial benefits that we receive from sales of Cimzia. In addition, if a claim is made against us in connection with our collaboration, UCB may control the
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defense of such claim, and may make different decisions than we would make, potentially exposing us to increased liability.
Risks Related to Our Dependence on Third Parties other than UCB
We have in the past relied and expect to continue to rely on third-party CROs and other third parties to conduct and oversee our clinical trials and other aspects of product development. If these third parties do not meet our requirements or otherwise conduct the trials as required, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our product candidates when expected or at all.
We have in the past relied and expect to continue to rely on third-party CROs to conduct and oversee our clinical trials and other aspects of product development. We also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA's regulations and GCPs, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security and recordkeeping for drug and biologic products. These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical trials and preclinical studies, and control only certain aspects of their activities. We and our CROs and other third-party contractors are required to comply with GCP and GLP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP and GLP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP and GLP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authority may require us to perform additional clinical trials before approving our or our partners' marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical or preclinical trials complies with applicable GCP and GLP requirements. In addition, our clinical trials must generally be conducted with product produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative CROs or clinical trial sites, or do so on commercially reasonable terms. In addition, if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.
We rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers, we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.
We do not currently have, nor do we plan to acquire, the infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products.
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Our ability to develop our product candidates depends and our ability to commercially supply our products will depend, in part, on our ability to successfully obtain the APIs and other substances and materials used in our product candidates from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates.
We do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. Although we are ultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our contract suppliers and manufacturers for day-to-day compliance with cGMPs for production of both APIs and finished products. Facilities used by our contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. If the safety of any product or product candidate or component is compromised due to a failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, clinical trials or regulatory submissions or approvals of our product candidates, and could entail higher costs or result in our being unable to effectively commercialize our approved products on a timely basis, or at all.
We also rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture. UCB is solely responsible for and controls all aspects of the manufacture, distribution and supply of Cimzia. For more information about risks related to the manufacture of Cimzia, see "Risks Related to Our Collaboration with UCB." Some of the APIs and other substances and materials used in our product candidates are currently available only from one or a limited number of domestic or foreign suppliers and foreign manufacturers and certain of our finished product candidates are manufactured by one or a limited number of contract manufacturers. In the event an existing supplier fails to supply product on a timely basis or in the requested amount, supplies product that fails to meet regulatory requirements, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or if we or our manufacturers are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we likely would incur added costs and delays in identifying or qualifying replacement manufacturers and materials and there can be no assurance that replacements would be available to us on a timely basis, on acceptable terms or at all. We are currently in the process of transitioning the manufacture of certain of our APIs and product candidates to new contract manufacturers, which creates risks of additional cost and delay. In certain cases we may be required to get regulatory approval to use alternative suppliers, and this process of approval could delay production of our products or development of product candidates indefinitely. In particular, we are dependent on our current suppliers of the nonwoven material and foil in our DRM04 product candidate, and any need to find and qualify new suppliers for these materials would adversely affect our business. We and our manufacturers do not currently maintain inventory of these APIs and other substances and materials. Any interruption in the supply of an API or other substance or material or in the manufacture of a finished product could have a material adverse effect on our business, financial condition, operating results and prospects.
In addition, these contract manufacturers are engaged with other companies to supply and manufacture materials or products for such companies, which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, failure
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to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier's or manufacturer's facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval of or market our product candidates, if approved.
To date, our drug substances and product candidates have been manufactured in small quantities for preclinical studies and early-stage clinical trials. As we prepare for later-stage clinical trials and potential commercialization, we will need to take steps to increase the scale of production of our drug substances and product candidates, which may include transferring production to new third-party suppliers or manufacturers. In order to conduct larger or late-stage scale clinical trials for our product candidates and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, our contract manufacturers and suppliers will need to produce our drug substances and product candidates in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. These third-party contractors may not be able to successfully increase the manufacturing capacity for any of such drug substance and product candidates in a timely or cost-effective manner or at all. Significant scale up of manufacturing may require additional processes, technologies and validation studies, which are costly, may not be successful and which the FDA and foreign regulatory authorities must review and approve. In addition, quality issues may arise during those scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging process, or during shipping and storage of the APIs or the finished product. If our third-party contractors are unable to successfully scale up the manufacture of any of our product candidates in sufficient quality and quantity and at commercially reasonable prices, and we are unable to find one or more replacement suppliers or manufacturers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and we are unable to successfully transfer the processes on a timely basis, the development of that product candidate and regulatory approval or commercial launch for any resulting products may be delayed, or there may be a shortage in supply, either of which could significantly harm our business, financial condition, operating results and prospects.
We expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future. Our supply and manufacturing agreements, if any, do not guarantee that a contract supplier or manufacturer will provide services adequate for our needs. We and our contract suppliers and manufacturers continue to improve production processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. While we attempt to build in certain contractual obligations on such third-party suppliers and manufacturers, we may not be able to ensure that such third parties comply with these obligations. Depending on the extent of any difficulties encountered, we could experience an interruption in clinical or commercial supply, with the result that the development, regulatory approval or commercialization of our product candidates may be delayed or interrupted. In addition, third-party suppliers and manufacturers may have the ability to increase the price payable by us for the supply of the APIs and other substances and materials used in our product candidates, in some cases without our consent.
Additionally, any damage to or destruction of our third-party manufacturers' or suppliers' facilities or equipment may significantly impair our ability to have our product candidates manufactured on a timely basis. Furthermore, if a contract manufacturer or supplier becomes financially distressed or insolvent, or discontinues our relationship beyond the term of any existing agreement for any other reason, this could result in substantial management time and expense to identify, qualify and transfer processes to alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply.
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Our reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information.
In addition, the manufacturing facilities of certain of our suppliers are located outside of the United States. This may give rise to difficulties in importing our products or product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation or defective packaging.
Manufacturing and supply of the APIs and other substances and materials used in our product candidates and finished drug products is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after products have been manufactured and distributed.
Manufacturing and supply of APIs, other substances and materials and finished drug products is technically challenging. Changes beyond our direct control can impact the quality, volume, price and successful delivery of our product candidates and can impede, delay, limit or prevent the successful development and commercialization of our product candidates. Mistakes and mishandling are not uncommon and can affect successful production and supply. Some of these risks include:
Any of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals or commercialization of our products, which could harm our business, financial condition, operating results and prospects.
If we are not able to establish and maintain collaborations, we may have to alter our development and commercialization plans.
The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. In order to fund further development of our product candidates, we may collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. We face significant competition in seeking appropriate partners. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the partner's resources and experience, the terms and conditions of the proposed collaboration and the proposed partner's evaluation of a number of factors. Those
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factors may include the design or results of clinical trials; the likelihood of approval by the FDA or other regulatory authorities; the potential market for the subject product candidate; the costs and complexities of manufacturing and delivering such product candidate to patients; the potential of competing products; any uncertainty with respect to our ownership of our intellectual property; and industry and market conditions generally. The partner may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential partners. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future partners.
Collaborations typically impose detailed obligations on each party, such as those required under the UCB agreement. If we were to breach our obligations, we may face substantial consequences, including potential termination of the collaboration, and our rights to our partners' product candidates, in which we have invested substantial time and money, would be lost.
We may not be successful in our efforts to implement collaborations or other alternative arrangements for the development of our product candidates. When we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish to the third party some or all of the control over the future success of that product candidate. Our collaboration partner may not devote sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical and initial clinical development of a partnered product candidate or research program, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
Risks Related to Our Business and Financial Operations
We will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing any growth.
Our management, personnel, systems and facilities currently in place are not adequate to support our business plan and future growth. We will need to further expand our scientific, sales and marketing, managerial, operational, financial and other resources to support our planned research, development and commercialization activities.
Our need to manage our operations, growth and various projects effectively requires that we:
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In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to perform a number of tasks for us, including tasks related to preclinical and clinical testing. Our growth strategy may also entail expanding our use of consultants to implement these and other tasks going forward. We rely on consultants for certain functions of our business and will need to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively manage our growth and expand our organization by hiring new employees and expanding our use of consultants, we might be unable to implement successfully the tasks necessary to execute effectively on our planned research, development and commercialization activities and, accordingly, might not achieve our research, development and commercialization goals.
If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize our product candidates or otherwise implement our business plan.
Our ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified managerial, scientific, medical, sales and marketing and other personnel. We are highly dependent on our management and scientific personnel, including: our Chief Executive Officer and Chairman of the Board, Thomas G. Wiggans; our Chief Medical Officer and a member of our board of directors, Eugene A. Bauer, M.D.; our Chief Operating Officer and Chief Financial Officer, Andrew L. Guggenhime; our Executive Vice President, Product Development, Luis C. Peña; and our Vice President, Corporate Development and Strategy, Christopher M. Griffith. The loss of the services of any of these individuals could impede, delay or prevent the successful development of our product pipeline, completion of our planned clinical trials, commercialization of our product candidates or in-licensing or acquisition of new assets and could negatively impact our ability to successfully implement our business plan. If we lose the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We do not maintain "key man" insurance policies on the lives of these individuals or the lives of any of our other employees. We employ all of our executive officers and key personnel on an at-will basis and their employment can be terminated by us or them at any time, for any reason and without notice. In order to retain valuable employees at our company, in addition to salary and cash incentives, we provide stock options that vest over time. The value to employees of stock options that vest over time will be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract offers from other companies.
We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Francisco Bay Area where we are headquartered. We could have difficulty attracting experienced personnel to our company and may be required to expend
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significant financial resources in our employee recruitment and retention efforts. Many of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will harm our ability to implement our business strategy and achieve our business objectives.
In addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.
We currently have limited marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize our product candidates, if approved, or generate product revenue.
We currently have limited marketing capabilities and no sales organization. To commercialize our product candidates, if approved, in the United States, Canada, the European Union and other jurisdictions we seek to enter, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. Although our employees have experience in the marketing, sale and distribution of pharmaceutical products from prior employment at other companies, we as a company have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. To commercialize Cimzia, we also intend to leverage the commercial infrastructure of our partner UCB in selected areas such as managed care and patient access, which will provide us with resources and expertise in these areas that are greater than we could initially build ourselves. If we are unable to utilize UCB's resources and expertise in this way, the cost, time and complexity involved in developing our own commercial infrastructure will likely increase. We may choose to collaborate with additional third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. The inability to successfully commercialize our product candidates, either on our own or through collaborations with one or more third parties, would harm our business, financial condition, operating results and prospects.
Our failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.
We intend to in-license, acquire, develop and market additional products and product candidates. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.
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The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.
We intend to in-license and acquire product candidates and may in-license and acquire commercial-stage products or engage in other strategic transactions, which could impact our liquidity, increase our expenses and present significant distractions to our management.
Our strategy is to in-license and acquire product candidates and we may in-license and acquire commercial-stage products or engage in other strategic transactions. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions entail numerous potential operational and financial risks, including:
Accordingly, there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business, financial condition, operating results and prospects. We have no current plan, commitment or obligation to enter into any transaction described above.
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The terms of our credit facility place restrictions on our operating and financial flexibility and if we fail to comply with the covenants and other obligations under our credit facility, the lenders may be able to accelerate amounts owed under the facility and may foreclose upon the assets securing our obligations.
At any time when we have the ability to obtain a term loan or we have outstanding borrowings under our loan and security agreement with Square 1 Bank, we will be required to maintain certain deposit accounts with Square 1 Bank and we will be prohibited from engaging in significant business transactions without the prior consent of Square 1 Bank, including a change of control, the acquisition by us of another company, incurring additional indebtedness or engaging in new business activities other than those reasonably related or incidental to our current business activities. These restrictions could significantly limit our ability to respond to changes in our business or competitive activities or take advantage of business opportunities that may create value for our stockholders. As part of the credit facility, we granted to Square 1 Bank a first priority lien on all our assets other than our intellectual property, subject to certain limited exceptions. In addition, in the event of a default under this agreement, our repayment obligations may be accelerated in full and, in the event that we do not have sufficient capital to repay the amounts then owed, Square 1 Bank may foreclose on the assets securing our obligations under the credit facility. In addition, the terms of our loan and security agreement restrict our ability to pay dividends. Furthermore, if we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations.
Our operations to date have been primarily limited to researching and developing our product candidates and undertaking preclinical studies and clinical trials of our product candidates. We have not yet obtained regulatory approvals for any of our product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. From time to time, we may enter into collaboration agreements and license agreements with other companies that include development funding and significant upfront and milestone expenditures and payments, and we expect that amounts earned from or paid pursuant to these agreements will be a significant source of our capital expenditures and an important source of our revenue. Accordingly, our revenue and profitability will depend on development funding and the achievement of development and clinical milestones under the UCB agreement, as well as any potential future collaboration and license agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by our board of directors, and recognize the cost as an expense over the employee's requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
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Our operating results and liquidity needs could be negatively affected by market fluctuations and economic downturn.
Our operating results and liquidity could be negatively affected by economic conditions generally, both in the United States and elsewhere around the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions. Some patients may consider certain of our product candidates to be discretionary, and if full reimbursement for such products is not available, demand for these products may be tied to the discretionary spending levels of our targeted patient populations. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our operating results and liquidity could be adversely affected by those factors in many ways, including weakening demand for certain of our products and making it more difficult for us to raise funds if necessary, and our stock price may
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decline. Additionally, although we plan to market our products primarily in the United States, our partners have extensive global operations, indirectly exposing us to risk.
The report of our independent registered public accounting firm on our 2013 consolidated financial statements contains an explanatory paragraph regarding going concern, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern.
Since inception, we have experienced recurring operating losses and negative cash flows and we expect to continue to generate operating losses and consume significant cash resources in the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern without additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2013 consolidated financial statements with respect to this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time obtaining financing.
We have prepared our consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our 2013 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Our ability to utilize our net operating loss, or NOL, carryforwards and research and development income tax credit carryforwards may be limited.
As of December 31, 2013, we had NOL carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $43.8 million, $43.8 million and $3.0 million, respectively. If not utilized, the federal and California NOL carryforwards will begin expiring during the year ended December 31, 2031 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2029. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three year period, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that, with our initial public offering and other transactions that have occurred over the past three years, we may have triggered an "ownership change" limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
We may be adversely affected by natural disasters and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters are located in Redwood City, California, near major earthquake and fire zones. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as enterprise financial systems, manufacturing resource planning or enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Our contract manufacturers' and suppliers' facilities are located in multiple locations, where other natural disasters or similar events, such as blizzards, tornadoes, fires, explosions or large-scale accidents or power outages, could severely disrupt our operations and have a material
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adverse effect on our business, financial condition, operating results and prospects. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the businesses of our partners, manufacturers or the economy as a whole. All of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our partners' or manufacturers' disaster recovery plans prove to be inadequate. To the extent that any of the above should result in delays in the regulatory approval, manufacture, distribution or commercialization of our product candidates, our business, financial condition, operating results and prospects would suffer.
Our business and operations would suffer in the event of failures in our internal computer systems.
Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing activities, development programs and our business operations. For example, the loss of manufacturing records or clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further commercialization and development of our products and product candidates could be delayed.
Risks Related to Our Intellectual Property
We may not be able to obtain or enforce patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
Our success with respect to our product candidates and technologies will depend in part on our ability to obtain and maintain patent protection in both the United States and other countries, to preserve our trade secrets and to prevent third parties from infringing upon our proprietary rights. Our ability to protect any of our product candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents.
Our patent portfolio includes patents and patent applications in the United States and foreign jurisdictions where we believe there is a market opportunity for our products. The covered technology and the scope of coverage vary from country to country. For those countries where we do not have granted patents, we may not have any ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors. Further, in countries where we do not have granted patents, third parties may be able to make, use or sell products identical to or substantially similar to, our product candidates.
The patent application process, also known as patent prosecution, is expensive and time-consuming, and we and our current or future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If our current licensors, or any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or
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enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and operating results.
Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any existing patents or any patents we might obtain or license may not cover our product candidates, or may not provide us with sufficient protection for our product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents have issued or will issue, we cannot guarantee that the claims of these patents are or will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us.
Competitors in the field of dermatologic therapeutics have created a substantial amount of prior art, including scientific publications, patents and patent applications. Our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Although we believe that our technology includes certain inventions that are unique and not duplicative of any prior art, we do not have outstanding issued patents covering all of the recent developments in our technology and we are unsure of the patent protection that we will be successful in obtaining, if any. Even if the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of such issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. In particular, due to the extensive prior art relating to anticholingeric agents to control hyperhidrosis and because DRM04 is a form of a generic anticholinergic agent, the patent protection available for DRM04 may not prevent competitors from developing and commercializing similar products. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our product candidates.
The laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property in foreign jurisdictions, our business prospects could be substantially harmed. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.
The degree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates. Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market a product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates. The issued U.S. patents relating to DRM04 will expire between 2020 and 2029. The issued U.S. patents relating to Cimzia will expire between 2014 and 2024.
Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual property protection agreements with certain employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our suppliers, manufacturers and other third parties. There can be no assurance that binding agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the scope and value of patents, once obtained.
For our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or USPTO, is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of our business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business. An important change introduced by the AIA is that, as of March 16, 2013, the United States
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transitioned to a "first-to-file" system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors' ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement on infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have an adverse effect on our business.
If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business.
We are a party to certain license agreements that impose various diligence, milestone, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the respective licensors may have the right to terminate the license, in which event we may not be able to develop or market the affected product candidate. The loss of such rights could materially adversely affect our business, financial condition, operating results and prospects. For more information about these license arrangements, see "BusinessCollaborations and License Agreements."
If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation could have a material adverse effect on our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We cannot assure you that marketing and selling such candidates and using such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our product candidates, technologies or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents cover various drugs, biologics, drug delivery systems or their methods of use, and which of these patents may be valid and enforceable. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
In addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our product candidates or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file, patent applications covering our product candidates or technology similar to ours. Any such patent application may have priority over our own and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. If
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another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an interference proceeding to determine priority of invention.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates or proprietary technologies infringe such third parties' intellectual property rights, including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug and this type of litigation can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents or the patents asserted against us are ultimately established as invalid. There is a risk that a court would decide that we are infringing the third party's patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party's patents.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. To date, no litigation asserting infringement claims has ever been brought against us. If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including:
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our ability to raise additional funds or otherwise adversely affect our business, financial condition, operating results and prospects.
Because we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners is sued for infringing a third party's intellectual property rights, our business, financial condition, operating results and prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify certain third-party licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered or may enter into cost-sharing agreements with some our licensors and partners that could require us to pay some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than would be assumed just on the basis of our technology.
The occurrence of any of the foregoing could adversely affect our business, financial condition or operating results.
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We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied. An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated, interpreted narrowly or amended such that they do not cover our product candidates. Moreover, such adverse determinations could put our patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope to cover our product candidates or to prevent others from marketing similar products.
Interference, derivation or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or potential partners. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or potential partners, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their former employers or their former or current customers.
As is common in the biotechnology and pharmaceutical industries, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our products and product candidates, many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims. Even if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties and may potentially result in an unfavorable outcome.
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Risks Related to this Offering, the Securities Markets and Ownership of Our Common Stock
There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline and you may not be able to resell your shares at or above the initial public offering price.
There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock might not develop upon the closing of this offering or, if it does develop, it might not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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In addition, the stock markets, and in particular The NASDAQ Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with the fiscal year ending December 31, 2015. However, for as long as we are an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls
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could detect problems that our management's assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
We will incur significantly increased costs as a result of and devote substantial management time to operating as a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and The NASDAQ Global Market, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and operating results. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. We will also need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and will need to establish an internal audit function. We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. This could also make it more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
Future sales of our common stock or securities convertible into our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock or securities convertible into our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering and the concurrent private placement, we will have outstanding shares of common stock, based on the number of shares outstanding as of , 2014, that may be sold after the expiration of lock-up agreements at least 180 days after the date of this prospectus, unless held by an affiliate of ours, as more fully described in the section entitled "Shares Eligible for Future Sale." Moreover, we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described above and in the section entitled "Shares Eligible for Future SaleLock-Up/Market Standoff
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Agreements." If a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common stock and impede our ability to raise future capital. Citigroup Global Markets Inc. and Leerink Partners LLC, however, may permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the end of the lock-up period.
Our directors, executive officers and principal stockholders will continue to have substantial control over us after this offering and the concurrent private placement and could delay or prevent a change of corporate control.
Upon completion of this offering and the concurrent private placement, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, % of our outstanding common stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our common stock by:
See "Principal Stockholders" below for more information regarding the ownership of our outstanding stock by our executive officers, directors and holders of more than 5% of our common stock, together with their affiliates.
Delaware law and provisions in our restated certificate of incorporation and restated bylaws that will be in effect at the closing of our initial public offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
Following the closing of our initial public offering, the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change of control by prohibiting us from engaging in a business combination with stockholders owning in excess of 15% of our outstanding voting stock for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws that will be in effect at the closing of our initial public offering will contain provisions that may make the acquisition of our company more difficult, including the following:
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These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing so as to cause us to take certain corporate actions you desire.
We qualify as an "emerging growth company" as defined in the JOBS Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We qualify as an "emerging growth company" as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including certain reduced financial statement reporting obligations, reduced disclosure obligations about our executive compensation arrangements, exemptions from the requirement that we solicit non-binding advisory votes on executive compensation or golden parachute arrangements and exemption from the auditor's attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We will remain an "emerging growth company" until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of $1 billion or more, (2) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering, (3) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Because management has broad discretion as to the use of the net proceeds from this offering and the concurrent private placement, you may not agree with how we use them, and such proceeds may not be applied successfully.
Our management will have considerable discretion over the use of proceeds from this offering and the concurrent private placement. We currently intend to use the net proceeds from this offering and the concurrent private placement for external research and development expenses associated with the development of our Cimzia, DRM04 and DRM01 product candidates, with the balance primarily used to fund internal research and development expenses associated with all of our product candidates, working capital, capital expenditures and other general corporate purposes. In addition, a portion of the net proceeds may also be used to acquire or in-license, as applicable, product candidates, technologies, compounds, other assets or complementary businesses. However, our management will have broad discretion in the application of the net proceeds from this offering and the concurrent private placement and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock, or that you otherwise do not agree with. You will be relying on the judgment of our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used
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appropriately. The failure of our management to apply these funds effectively could, among other things, result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.
If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share after giving effect to this offering and the concurrent private placement of $ per share as of June 30, 2014, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased shares of our capital stock. You will experience additional dilution upon exercise of the outstanding warrant and outstanding stock options and other equity awards that may be granted under our equity incentive plans, and when we otherwise issue additional shares of our common stock. For more information, see "Dilution."
The sale of shares to entities affiliated with UCB in the concurrent private placement will reduce the available public float for our shares.
Entities affiliated with UCB have agreed to purchase shares of our common stock with an aggregate purchase price of $7.5 million in the concurrent private placement at the price offered to the public in this offering, or shares based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. As of August 18, 2014, entities affiliated with UCB beneficially owned approximately 8.4% of our outstanding capital stock. The sale of these shares to entities affiliated with UCB will not be registered in this offering. Following this offering and the concurrent private placement, the number of shares beneficially owned by entities affiliated with UCB after this offering will be as set forth in the beneficial ownership table in "Principal Stockholders" elsewhere in this prospectus. In addition, the concurrent private placement will reduce the available public float for our shares because these entities will be restricted from selling the shares pursuant to lock-up agreements they have entered into with the underwriters in this offering and pursuant to restrictions under applicable securities laws. As a result, the sale of shares in the concurrent private placement will reduce the liquidity of our common stock relative to what it would have been had these shares been sold in this offering and been purchased by investors that were not affiliated with us.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, the terms of our loan and security agreement currently restrict our ability to pay dividends. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future consolidated results of operations and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "potentially," "continue," "anticipate," "intend," "expect," "could," "would," "project," "plan" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our consolidated financial condition, consolidated results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the "Risk Factors" section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or revised expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the markets for our products. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications that is included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds from our sale of shares of our common stock in this offering, excluding the proceeds from the concurrent private placement, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million. If the underwriters' over-allotment option is exercised in full, we estimate that we will receive additional net proceeds of $ million. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. We also expect to receive $7.5 million from the sale by us of shares of our common stock in the concurrent private placement, at the initial public offering price, for an aggregate amount to be raised by us in this offering and the concurrent private placement of $ million, assuming an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. For more information, please see "Certain Relationships and Related Party TransactionsConcurrent Private Placement."
The principal purposes of this offering are to create a public market for our common stock, obtain additional capital, facilitate our future access to the public equity markets and increase awareness of our company.
As of June 30, 2014, we had cash and cash equivalents of $9.8 million and received an additional $48.8 million in net proceeds from the sale of shares of our Series C convertible preferred stock in August 2014. We currently intend to use the net proceeds we receive from this offering and the concurrent private placement, together with our existing cash and cash equivalents, as follows:
Additionally, we may use a portion of the net proceeds from this offering and the concurrent private placement to expand our current business by in-licensing or acquiring, as the case may be, commercial products, product candidates, technologies, compounds, other assets or complementary businesses, using cash or shares of our common stock. However, we have no current plans, commitments or obligations to do so.
We believe that the net proceeds from this offering and the concurrent private placement, together with our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least the next 12 months, including for the initiation of Phase 3 clinical trials for Cimzia and a Phase 2b clinical program for DRM01, and through the receipt of data from our ongoing Phase 2b
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clinical trial for DRM04. This expected use of the net proceeds from this offering and the concurrent private placement represents our intentions based upon our current plans and business conditions. We cannot specify with certainty all of the particular uses of the net proceeds that we will receive from this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures will depend on numerous factors, including the ongoing status of and results from clinical trials and other studies, as well as any strategic collaborations that we may enter into with third parties for our product candidates, any in-licensing transactions or acquisitions, any unforeseen cash needs and the performance of our investments.
We will have broad discretion over the uses of the net proceeds of this offering and the concurrent private placement and investors will be relying on the judgment of our management regarding the application of the proceeds. Pending these uses, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.
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We have never declared or paid cash dividends on our capital stock. We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings, if any, will be used for the operation and growth of our business. Any future determination to declare cash dividends would be subject to the discretion of our board of directors and would depend upon various factors, including our results of operations, financial condition and capital requirements, restrictions that may be imposed by applicable law and our contracts and other factors deemed relevant by our board of directors. In addition, the terms of our loan and security agreement with Square 1 Bank currently restrict our ability to pay dividends.
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The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2014 on:
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You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and our consolidated financial statements and related notes included elsewhere in this prospectus.
|
As of June 30, 2014 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Actual | Pro Forma |
Pro Forma
As Adjusted(1) |
|||||||
|
(in thousands, except share and per share amounts)
(unaudited) |
|||||||||
Cash and cash equivalents |
$ | 9,774 | $ | 58,587 | $ | |||||
| | | | | | | | | | |
| | | | | | | | | | |
Convertible preferred stock warrant liability |
$ | 60 | $ | | $ | |||||
| | | | | | | | | | |
Bank term loan, current and non-current |
1,931 | 1,931 | ||||||||
| | | | | | | | | | |
Convertible preferred stock, $0.001 par value: 62,063,595 shares authorized, 58,775,299 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted |
64,588 | | ||||||||
| | | | | | | | | | |
Stockholders' deficit |
||||||||||
Preferred stock, $0.001 par value: no shares authorized, issued and outstanding, actual; shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted |
| | ||||||||
Common stock, $0.001 par value: 139,000,000 shares authorized, 5,263,687 shares issued and outstanding, actual; shares authorized, 94,761,872 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted |
5 | 94 | ||||||||
Additional paid-in capital |
1,283 | 114,655 | ||||||||
Accumulated deficit |
(68,075 | ) | (68,075 | ) | ||||||
| | | | | | | | | | |
Total stockholders' (deficit) equity |
(66,787 | ) | 46,674 | |||||||
| | | | | | | | | | |
Total capitalization |
$ | (208 | ) | $ | 48,605 | $ | ||||
| | | | | | | | | | |
| | | | | | | | | | |
The number of shares of our common stock to be outstanding following this offering and the concurrent private placement is based on 64,038,986 shares of our common stock outstanding as of June 30, 2014. This number assumes the conversion of all outstanding shares of our convertible
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preferred stock, which will occur automatically in connection with the completion of this offering, and excludes:
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If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after our initial public offering and the concurrent private placement.
As of June 30, 2014, our pro forma net tangible book value was $42.4 million, or $0.45 per share of common stock. Pro forma net tangible book value per share represents the amount of our tangible assets less our liabilities divided by the total number of shares of our common stock outstanding, after giving effect (1) the issuance of 30,722,886 shares of our Series C convertible preferred stock that were issued after June 30, 2014 and receipt of the related net proceeds of $48.8 million, (2) the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock effective immediately upon the completion of this offering, (3) the automatic conversion of an outstanding warrant exercisable for 65,404 shares of our Series B convertible preferred stock into a warrant exercisable for 65,404 shares of common stock in connection with this offering and (4) the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws, as if our restated certificate of incorporation was filed and our restated bylaws had become effective on June 30, 2014.
Our pro forma as adjusted net tangible book value as of June 30, 2014 was $ million, or $ per share of common stock. Pro forma as adjusted net tangible book value per share reflects the pro forma adjustments described above and the sale by us of shares of our common stock in this offering and the concurrent private placement, at our initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders and immediate dilution of $ per share to new investors purchasing shares in the offering and the concurrent private placement.
The following table illustrates this per share dilution to new investors:
Assumed initial public offering price per share |
$ | ||||||
Pro forma net tangible book value per share as of June 30, 2014 |
$ | 0.45 | |||||
Increase in pro forma net tangible book value per share attributable to new investors in this offering and the concurrent private placement |
|||||||
| | | | | | | |
Pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement |
|||||||
| | | | | | | |
Dilution per share to new investors in this offering and the concurrent private placement |
$ | ||||||
| | | | | | | |
| | | | | | | |
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement by $ , assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the dilution to new investors by $ per share or $ per share, respectively, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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If the underwriters exercise their over-allotment option in full, our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement would be $ per share, and the dilution in pro forma net tangible book value per share to new investors in this offering and the concurrent private placement would be $ per share of common stock.
The following table summarizes, on a pro forma as adjusted basis as of June 30, 2014, the differences between the number of shares of common stock purchased from us by existing stockholders, by investors in the concurrent private placement and by new investors participating in this offering, the total cash consideration and the average price per share paid to us by existing stockholders, by investors in the concurrent private placement and by new investors purchasing shares in this offering, at the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses:
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of our common stock, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by new investors by $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions.
If the underwriters exercise their over-allotment option in full, the number of shares of common stock held by existing stockholders will be reduced to % of the total number of shares of common stock to be outstanding after this offering and the concurrent private placement, and the number of shares of common stock held by investors participating in this offering and the concurrent private placement will be further increased to shares, or % of the total number of shares of common stock to be outstanding after this offering and the concurrent private placement.
The table and discussion above are based on 64,038,986 shares of our common stock outstanding as of June 30, 2014. This number assumes the conversion of all outstanding shares of our convertible preferred stock, which will occur automatically in connection with the completion of this offering, and excludes:
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
We derived our selected consolidated statements of operations data for the years ended December 31, 2012 and 2013 and our selected consolidated balance sheet data as of December 31, 2012 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our selected consolidated statements of operations data for the six months ended June 30, 2013 and 2014 and our selected consolidated balance sheet data as of June 30, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair presentation of our consolidated financial position as of June 30, 2014 and our consolidated results of operations for the six months ended June 30, 2013 and 2014. Our historical results are not necessarily indicative of the results to be expected in the future, and the results for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year or any other period. You should read the following selected consolidated financial data in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and is qualified in its entirety by our consolidated financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
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|
As of
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of
June 30, 2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
(in thousands, unaudited)
|
|||||||||
Consolidated Balance Sheet Data: |
||||||||||
Cash and cash equivalents |
$ | 7,872 | $ | 22,144 | $ | 9,774 | ||||
Working capital |
3,647 | 17,973 | 3,921 | |||||||
Total assets |
12,514 | 26,871 | 16,530 | |||||||
Convertible preferred stock warrant liability |
| 61 | 60 | |||||||
Bank term loan, current and non-current |
| 1,919 | 1,931 | |||||||
Convertible preferred stock |
35,089 | 59,588 | 64,588 | |||||||
Additional paid-in capital |
674 | 966 | 1,283 | |||||||
Accumulated deficit |
(28,424 | ) | (50,774 | ) | (68,075 | ) | ||||
Total stockholders' (deficit) equity |
(27,745 | ) | (49,803 | ) | (66,787 | ) |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those forward-looking statements. Factors that could cause or contribute to such differences include those identified below and those discussed in the section entitled "Risk Factors" included elsewhere in this prospectus.
Overview
We are a specialty biopharmaceutical company focused on bringing innovative and differentiated medical dermatology products to dermatologists and their patients. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our strategy is to leverage this experience to in-license, acquire, develop and commercialize products that we believe can be successful in the dermatology marketplace. Our portfolio of five product candidates targets significant market opportunities and includes three late-stage product candidates, Cimzia (certolizumab pegol), which we are developing in collaboration with UCB Pharma S.A., for the treatment of moderate-to-severe plaque psoriasis, DRM04, which we are developing for the treatment of hyperhidrosis, or excessive sweating, and DRM01, which we are developing for the treatment of acne.
Since our founding in 2010, we have executed three significant transactions resulting in a portfolio of five product candidates. In August 2011, we acquired Valocor Therapeutics, Inc., which gave us rights to a portfolio of intellectual property and product candidates to treat acne and inflammatory skin diseases. In April 2013, we entered into agreements with Rose U LLC and Stiefel Laboratories, Inc., a GlaxoSmithKline LLC Company, or Stiefel, to obtain rights to intellectual property related to DRM04 for the treatment of hyperhidrosis. In March 2014, we entered into an agreement to collaborate with UCB to develop and commercialize Cimzia in dermatology.
Our three late-stage product candidates are:
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by blocking the action of acetylcholine, a molecule that transmits signals within the nervous system that are responsible for a range of bodily functions, including the activation of sweat glands. DRM04 is a topical formulation of a novel form of an anticholinergic agent that has been approved for systemic administration in other indications, and it is designed to inhibit sweat production by blocking the activation of sweat glands following topical administration. Two randomized, double-blind, vehicle-controlled Phase 2 clinical trials, including a 198-patient, multi-center Phase 2b clinical trial and a 38-patient Phase 2a clinical trial, have demonstrated significant reductions in the signs and symptoms of primary axillary, or underarm, hyperhidrosis in patients treated with a topical formulation of the anticholinergic agent that has been approved for systemic administration in other indications, which we call the topical formulation of the reference agent. In addition, we are currently conducting a Phase 2b clinical trial in patients with primary axillary hyperhidrosis in which we are comparing DRM04 to the topical formulation of the reference agent. We expect data from this trial in the first half of 2015. If successful, we intend to commence a Phase 3 clinical program, which would include one or more Phase 3 clinical trials.
In addition, we have two early-stage programs in preclinical development:
Since our inception, we have devoted substantially all of our efforts to developing our product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. We do not have any approved products and have never generated any revenue from product sales or otherwise. We have financed our operations primarily through the sale of equity securities and convertible debt securities, from which we raised $64.6 million of net cash from our inception through June 30, 2014 and raised an additional $48.8 million of net cash in August 2014.
We have never been profitable and, as of June 30, 2014, we had an accumulated deficit of $68.1 million. We incurred net losses of $20.3 million and $22.4 million in the years ended December 31, 2012 and 2013, respectively, and $11.0 million and $17.3 million for the six months ended June 30, 2013 and 2014, respectively. We expect to continue to incur net losses for the foreseeable future as we advance our current and potential additional product candidates through clinical development, seek regulatory approval for them and prepare for and proceed to commercialization. We expect to incur significant commercialization costs in advance of any of our product candidates receiving regulatory approval. As a result, we will need substantial additional funding to support our operating activities. Adequate funding may not be available to us on acceptable terms, or at all. We currently anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. Our failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business, results of operations and financial condition.
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Financial Operations Overview
Revenue
To date, we have not generated any revenue. Under our development and commercialization agreement with UCB, or the UCB agreement, we may generate revenue from development-, regulatory- and sales-based milestone payments and royalties. Under our Right of First Negotiation Agreement with Maruho Co., Ltd., or Maruho, if we enter into an exclusive license to develop and commercialize any of our product candidates with Maruho, we may generate license revenue. Other than the revenue we may generate in connection with these agreements, we do not expect to generate any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaborative agreements with third parties.
Research and Development Expenses
We expense both internal and external research and development expenses to operations as they are incurred. We track the external research and development costs incurred for each of our product candidates. We do not track our internal research and development costs by product candidate, as these costs are typically spread across multiple product candidates.
External research and development expenses consist primarily of costs incurred for the development of our product candidates and include:
Internal research and development costs include:
During the year ended December 31, 2012, development work was ongoing for DRM01, DRM02 and DRM05. During this period, external costs associated with DRM05 totaled $8.2 million, or 48% of our total research and development expenses, and external costs associated with DRM01 and DRM02, combined, totaled $4.9 million, or 29% of our total research and development expenses.
During the year ended December 31, 2013, external costs associated with DRM05 totaled $3.7 million, or 21% of our total research and development expenses, a decrease of $4.5 million from the prior year. During the year ended December 31, 2013, external costs associated with DRM01 and DRM02, combined, totaled $5.7 million, or 32% of our total research and development expenses, an increase of $0.8 million from the prior year. This increase was due to both product candidates moving forward to Phase 2a clinical trials. The addition of our DRM04 product candidate in April 2013, which we obtained through our licensing agreement with Rose U, and subsequent research and development activities, resulted in external costs of $3.8 million, or 21% of our total research and development expenses, during the year ended December 31, 2013.
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For the six months ended June 30, 2013, external costs associated with DRM05 were $2.9 million, or 33% of our total research and development expenses. External costs associated with DRM01 and DRM02, combined, were $3.0 million, or 34% of our total research and development expenses.
For the six months ended June 30, 2014, external costs associated with DRM04 were $5.8 million, or 43% of our total research and development expenses, reflecting the advancement of DRM04 into Phase 2b clinical trials. Total external costs associated with DRM01 and DRM02, combined, were $3.8 million, or 27% of our total research and development expenses, and reflected the continuation of the Phase 2a clinical trials.
For each of the above periods, the balance of our research and development expenses were comprised primarily of internal costs.
We expect that our future research and development efforts will be focused on our late-stage clinical programs, Cimzia, DRM04 and DRM01. We expect UCB to file an IND for Cimzia in the second half of 2014 and we expect to initiate Phase 3 clinical trials in the first half of 2015. For DRM04, we are currently conducting a Phase 2b clinical trial and expect data from this trial in the first half of 2015. If successful, we intend to initiate a Phase 3 clinical program. For DRM01, we have completed a Phase 2a clinical trial that demonstrated significant reductions in the signs and symptoms of acne. Based on the results of this clinical trial, we intend to file an IND and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015. We also expect to continue to evaluate our early-stage product candidates, DRM02 and DRM05, to determine which, if any, we would advance into later stages of development.
We expect our research and development expenses to increase substantially in the future as we continue development of our product candidates. In particular, we expect to incur substantial research and development expenses associated with Cimzia beginning in the second half of 2014 to prepare for Phase 3 clinical trials that we intend to initiate in the first half of 2015.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation and travel expenses, for personnel in our executive, finance, corporate development and other administrative functions. Other general and administrative expenses include allocated depreciation and facility-related costs, legal costs of pursuing patent protection of our intellectual property, and professional services fees for auditing, tax and general legal services.
We expect our general and administrative expenses to increase substantially in the future as we expand our operating activities and prepare for potential commercialization of our product candidates, increase our headcount, and support our operations as a public company, including increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors' and officers' liability insurance premiums and investor relations activities.
Interest and Other Income (Expense), Net
Interest income consists primarily of interest received or earned on our cash and cash equivalents balances. Other income (expense) primarily includes gains and losses from the remeasurement of our convertible preferred stock warrant liability and gains and losses on our foreign currency transactions.
We will continue to record adjustments to the estimated fair value of our convertible preferred stock warrant liability until such time as the instrument is exercised, expires or converts into a warrant to purchase shares of our common stock. At that time, our convertible preferred stock warrant liability will be reclassified to additional paid-in capital, a component of stockholders' (deficit) equity, and we
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will no longer record any related periodic fair value adjustments. See also "Critical Accounting Policies and Significant EstimatesEstimated Fair Value of Convertible Preferred Stock Warrant."
Interest Expense
Interest expense consists of cash and non-cash interest costs related to our bank term loan. The non-cash interest costs consist of the amortization of the fair value of the warrant that was issued to the lender in connection with our bank term loan, with the initial fair value of the warrant being amortized to interest expense over the term of the governing agreement.
Results of Operations
Comparison of the Six Months Ended June 30, 2013 and 2014
|
Six Months
Ended June 30, |
Change | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2014 | $ | % | |||||||||
|
(Unaudited)
|
|
|
||||||||||
|
(in thousands, except percentages)
|
||||||||||||
Operating expenses: |
|||||||||||||
Research and development |
$ | 8,778 | $ | 13,648 | $ | 4,870 | 55 | % | |||||
General and administrative |
2,205 | 3,552 | 1,347 | 61 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
10,983 | 17,200 | 6,217 | 57 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(10,983 | ) | (17,200 | ) | (6,217 | ) | 57 | ||||||
Interest and other income (expense), net |
12 | (34 | ) | (46 | ) | 383 | |||||||
Interest expense |
| (67 | ) | (67 | ) | * | |||||||
| | | | | | | | | | | | | |
Net loss |
$ | (10,971 | ) | $ | (17,301 | ) | $ | (6,330 | ) | 58 | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Research and Development. Research and development expenses increased $4.9 million, or 55%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. This increase was due to a $5.2 million increase in external costs related to our DRM04 product candidate, a $1.2 million increase in internal costs related primarily to headcount growth and additional consulting fees and a $0.7 million increase in external costs related to our DRM01 and DRM02 product candidates. These increases in research and development expenses were partially offset by a $2.3 million decrease in external costs associated with our DRM05 product candidate.
General and Administrative. General and administrative expenses increased $1.3 million, or 61%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. This increase reflects $0.8 million of legal and consulting services incurred in the evaluation, due diligence and negotiations associated with the UCB collaboration transaction in the first quarter of 2014, a $0.6 million increase in personnel expenses and a $0.4 million increase in audit and accounting consultation expenses, which were partially offset by a transaction advisory fee of $0.5 million incurred in the first quarter of 2013 in connection with the agreement we entered into with Maruho.
Interest and Other Income (Expense), Net. Amounts recorded in interest and other income (expense), net for both periods were primarily related to foreign currency exchange gains relating to our Canadian subsidiary and payments made to non-U.S. third-party service providers.
Interest Expense. The increase in interest expense was due to interest incurred on borrowings of $2.0 million under the bank term loan we entered into in December 2013.
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Comparison of the Years Ended December 31, 2012 and 2013
|
Year Ended
December 31, |
Change | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | $ | % | |||||||||
|
(in thousands, except percentages)
|
||||||||||||
Operating expenses: |
|||||||||||||
Research and development |
$ | 17,055 | $ | 17,937 | $ | 882 | 5 | % | |||||
General and administrative |
3,148 | 4,366 | 1,218 | 39 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
20,203 | 22,303 | 2,100 | 10 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(20,203 | ) | (22,303 | ) | (2,100 | ) | 10 | ||||||
Interest and other income (expense), net |
(51 | ) | (38 | ) | 13 | (25 | ) | ||||||
Interest expense |
| (9 | ) | (9 | ) | * | |||||||
| | | | | | | | | | | | | |
Net loss |
$ | (20,254 | ) | $ | (22,350 | ) | $ | (2,096 | ) | 10 | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Research and Development. Research and development expenses increased $0.9 million, or 5%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was due to increases in external costs of $3.6 million related to our DRM04 product candidate and $0.8 million related to our DRM01 and DRM02 product candidates, and internal costs of $1.0 million, partially offset by a decrease in external costs of $4.5 million related to our DRM05 product candidate.
The increase in external costs of $3.6 million related to our DRM04 product candidate was primarily due to our preparation for, and commencement of, one Phase 2b clinical trial that we initiated for this product candidate in the fourth quarter of 2013. The increase in external costs of $0.8 million related to our DRM01 and DRM02 product candidates was primarily due to our commencement of Phase 2a clinical trials in 2013. The increase in internal costs of $1.0 million was primarily due to an increase in headcount. The decrease in external costs of $4.5 million related to our DRM05 product candidate was primarily due to the completion of clinical trials in mid-2013, a decrease in costs associated with the development and manufacture of the device used as part of the photodynamic therapy, and $1.0 million in milestone-related expenses related to a licensing agreement with QLT, Inc. that were incurred in 2012 but not in 2013.
General and Administrative. General and administrative expenses increased $1.2 million, or 39%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was primarily due to the transaction advisory fee of $0.5 million incurred in the first quarter of 2013 related to the Maruho agreement we entered into in March 2013, professional services fees of $0.5 million related to higher audit and legal fees, and increases in consulting and legal expenses of $0.2 million related to the evaluation, due diligence and negotiations associated with the UCB agreement.
Interest and Other Income (Expense), Net. The $13,000 decrease in interest and other income (expense), net for the year ended December 31, 2013 compared to the year ended December 31, 2012 was due primarily to lower foreign currency exchange losses incurred by us in 2013 relating to our Canadian subsidiary and lower payments made to our non-U.S. third-party service providers.
Interest Expense. The increase in interest expense was due to interest incurred on borrowings of $2.0 million under the bank term loan we entered into in December 2013.
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Liquidity and Capital Resources
Since our inception through June 30, 2014, we have financed our operations primarily with $64.6 million in net proceeds from the issuance and sale of equity securities and convertible debt securities. In addition, we received $10.0 million related to our agreement with Maruho entered into in March 2013, and $2.0 million in bank financing under a $7.5 million bank loan agreement entered into in December 2013. As of June 30, 2014, we had $9.8 million of cash and cash equivalents. Our cash and cash equivalents are held in a variety of interest-bearing instruments, including money market accounts and obligations of U.S. government agencies. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.
Our primary use of cash is to fund our operating expenses, which consist principally of research and development expenditures. As of March 31, 2014, we had an accumulated deficit of $59.3 million and there was substantial doubt about our ability to continue as a going concern if we did not secure additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2013 consolidated financial statements with respect to this uncertainty.
As of June 30, 2014, we had an accumulated deficit of $68.1 million. In August 2014, we issued 30,722,886 shares of Series C convertible preferred stock at a price of $1.66 per share for aggregate net proceeds of $48.8 million. In addition, we are entitled to borrow $5.5 million under our Term Loan B as more fully described in "Loan and Security Agreement." We expect to incur additional losses in the future as we conduct research and development and pre-commercialization activities, and potential commercialization and marketing activities, and to support the administrative and reporting requirements of a public company. Therefore, we will need to raise additional capital to fund our operations. We cannot ensure that additional financing will be available to us in the amounts we need or that such financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to products or product candidates that we would otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available.
We believe that our estimated net proceeds from this offering and the concurrent private placement of our common stock, together with our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
Cash Flows
The following table shows a summary of our cash flows for each of the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (in thousands):
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Net cash (used in) provided by: |
|||||||||||||
Operating activities |
$ | (17,253 | ) | $ | (12,157 | ) | $ | (2,388 | ) | $ | (17,340 | ) | |
Investing activities |
(36 | ) | (50 | ) | (24 | ) | (37 | ) | |||||
Financing activities |
12,064 | 26,479 | 24,499 | 5,007 | |||||||||
| | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents |
$ | (5,225 | ) | $ | 14,272 | $ | 22,087 | $ | (12,370 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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Operating Activities. Net cash used in operating activities was $2.4 million for the six months ended June 30, 2013 and consisted primarily of our net loss of $11.0 million and a $1.5 million decrease in accounts payable and accrued liabilities primarily due to higher disbursements, partially offset by a $10 million increase in deferred revenue related to our agreement with Maruho. Net cash used in operating activities was $17.3 million for the six months ended June 30, 2014 and consisted primarily of our net loss of $17.3 million and a $0.6 million decrease in accounts payable due to higher disbursements, partially offset by a $0.9 million increase in accrued liabilities related primarily to higher research and development accruals.
Net cash used in operating activities was $17.3 million for the year ended December 31, 2012 and consisted primarily of our net loss of $20.3 million, partially offset by increases in accounts payable and accrued liabilities of $1.2 million and $1.5 million, respectively. The increases in accounts payable and accrued liabilities were primarily due to higher clinical trial expenses. Net cash used in operating activities was $12.2 million for the year ended December 31, 2013 and consisted primarily of our net loss of $22.4 million, partially offset by a $10.0 million increase in deferred revenue related to our agreement with Maruho.
Investing Activities. Net cash used in investing activities for the six months ended June 30, 2013 and 2014 was $24,000 and $37,000, respectively. The amounts were for purchases of property and equipment.
Net cash used in investing activities for the years ended December 31, 2012 and 2013 was $36,000 and $50,000, respectively. The amounts were for purchases of property and equipment.
Financing Activities. Net cash provided by financing activities was $24.5 million for the six months ended June 30, 2013 and consisted of the net proceeds from the sale of our Series B convertible preferred stock in March 2013. Net cash provided by financing activities was $5.0 million for the six months ended June 30, 2014 and related primarily to the net proceeds from the sale of shares of our Series B convertible preferred stock in April 2014.
Net cash provided by financing activities was $12.1 million for the year ended December 31, 2012 and consisted of the net proceeds from the sale of our Series A convertible preferred stock in August 2012. Net cash provided by financing activities was $26.5 million for the year ended December 31, 2013 and consisted primarily of the net proceeds of $24.5 million from the sale of our Series B convertible preferred stock in March 2013 and borrowings of $2.0 million under our bank term loan.
Operating and Capital Expenditure Requirements
We have incurred losses since our inception. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Additionally, as a public company, we will incur significant audit, legal and other expenses that we did not incur as a private company. We believe that our estimated net proceeds from this offering and the concurrent private placement of our common stock, together with our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. We cannot assure you that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.
Please see "Risk Factors" for additional risks associated with our substantial capital requirements.
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Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31, 2013:
|
Payments Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
|
Less than
One Year |
1 - 3 Years | 3 - 5 Years |
More than
5 Years |
|||||||||||
|
(in thousands)
|
|||||||||||||||
Debt obligations(1) |
$ | 2,055 | $ | 133 | $ | 1,600 | $ | 322 | $ | | ||||||
Interest expense payments(2) |
255 | 123 | 129 | 3 | | |||||||||||
Operating lease obligations(3) |
168 | 168 | | | | |||||||||||
| | | | | | | | | | | | | | | | |
Total contractual obligations |
$ | 2,478 | $ | 424 | $ | 1,729 | $ | 325 | $ | | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
In March 2014 and May 2014, we entered into sublease agreements for additional office space at our current location in Redwood City, California. The sublease agreements terminate in November 2014 and the total estimated cost for this space is $165,000 over the full term of the subleases. These amounts are not included in the table above.
In July 2014, we entered into a lease agreement for a facility totaling approximately 18,833 square feet in Menlo Park, California and intend to relocate our corporate headquarters to this facility in the fourth quarter of 2014. The term of the lease commences December 2014 and terminates November 2019. The total estimated lease payments for this facility over the five-year term of the lease are approximately $8 million. This amount is not included in the table above.
Pursuant to the UCB agreement, we are responsible for paying all development costs specified under the UCB agreement and incurred in connection with the development plan up to a specified amount greater than $75.0 million and less than $95.0 million, plus our internal development costs. Any development costs in excess of this amount or for any required clinical trials in pediatric patients will be shared equally. Development costs for any EMA-specific post-approval studies will be borne solely by UCB. UCB is obligated to pay us up to an aggregate of $36.0 million if certain development milestones are met, and up to an additional aggregate of $13.5 million upon the grant of regulatory approval, including pricing and reimbursement approval, in certain European countries. These amounts are not included in the table above.
In addition to the amounts set forth in the table above, we have certain obligations under licensing agreements with third parties contingent upon achieving various development, regulatory and commercial milestones. Pursuant to our license agreement with Rose U and related agreement with Stiefel with respect to our DRM04 product candidate, we are required to pay additional amounts totaling up to $4.6 million upon the achievement of specified development, commercialization and other milestones under these agreements. In addition, we are obligated to pay Rose U low-to-mid single-digit royalties on net product sales and low double-digit royalties on sublicense fees and certain milestone, royalty and other contingent payments received from sublicensees, to the extent such amounts are in excess of the milestone and royalty payments we are obligated to pay Rose U directly upon the events or sales triggering such payments. In the future, we may owe milestone- and royalty-based payments under our license agreements for two of our early-stage product candidates, DRM02 and DRM05.
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Loan and Security Agreement
In December 2013, we entered into a loan and security agreement, or the Loan Agreement, with Square 1 Bank, or the Bank, which provides for two term loans available to us of $2.0 million and $5.5 million, respectively. Borrowings under the term loans bear interest at the greater of: (1) 5.10% above the treasury rate in effect on the date that a term loan is funded; or (2) 5.50%, which rate will be fixed on the date of funding of the term loan. Upon final repayment of the amounts borrowed, we are required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed. We may prepay borrowings without paying a penalty or premium.
On the closing date of the Loan Agreement, we borrowed $2.0 million under the first term loan, or Term Loan A. Borrowings under Term Loan A mature in April 2017 and are secured by all of our assets other than our intellectual property, subject to certain limited exceptions, and bear interest at a rate of 5.77% per annum. Borrowings under Term Loan A are to be repaid over a period of 40 months as follows: (1) commencing on January 11, 2014, 10 monthly payments of interest only; and (2) commencing on November 1, 2014, 30 equal monthly payments of $66,666.67, plus interest. Upon final repayment of Term Loan A, we are required to pay the Bank a fee of $55,000. We are accruing this fee monthly over the loan term on a straight-line basis and are recording it as interest expense in our consolidated statement of operations.
The second term loan, or Term Loan B, of $5.5 million is available to us any time between the date on which our board of directors determines that we have achieved certain positive top-line Phase 2 clinical trial results and October 31, 2014. As of June 30, 2014, we had no borrowings under Term Loan B and were not entitled to borrow funds under Term Loan B. Subsequent to June 30, 2014, our board of directors has determined that we achieved positive top-line Phase 2 clinical trial results from two of our Phase 2 programs, which satisfied the condition to our ability to borrow funds under Term Loan B. As a result, we are now entitled to borrow funds under Term Loan B. Borrowings, if any, under Term Loan B would be repaid over a period of months as follows: (1) commencing on the 11 th day following the date of Term Loan B, monthly payments of interest only to the earlier of (a) December 31, 2014 or (b) six months following the date of Term Loan B; and (2) commencing on the last day of the month immediately following the interest only end date, equal monthly payments of principal, plus interest, to the maturity date of June 30, 2017. Upon final repayment of Term Loan B, we would be required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed under Term Loan B.
The Loan Agreement is subject to certain representations and warranties, certain affirmative and negative covenants, certain conditions and events of default that are customarily required for similar financings. As of December 31, 2013 and June 30, 2014, the Company was in compliance with all of the covenants.
In connection with the Loan Agreement, we agreed to issue the Bank a warrant to purchase up to 103,270 shares of our Series B convertible preferred stock, with an exercise price of $1.4525 per share. The number of shares issuable pursuant to the warrant at any date is 51,635 shares plus 1% of the amount drawn through that date under the Loan Agreement divided by 1.4525. Following the entry into the Loan Agreement and the concurrent funding of Term Loan A, and as of December 31, 2013 and June 30, 2014, the warrant was exercisable for 65,404 shares of Series B convertible preferred stock, consisting of the 51,635 initial shares related to the Loan Agreement and an additional 13,769 shares related to the draw-down of Term Loan A.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
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JOBS Act
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. The JOBS Act permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies and thereby allows us to delay the adoption of those standards until those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign exchange sensitivities as follows:
Interest Rate Risk
As of June 30, 2014, we had cash and cash equivalents of $9.8 million, which consisted of bank deposits, money market funds and obligations of U.S. government agencies. These interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant. All of our outstanding debt obligations carry fixed interest rates.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
Foreign Exchange Risk
Our operations are primarily conducted in the United States using the U.S. dollar. However, we conduct operations in Canada, primarily to fund our Canadian subsidiary, and engage in contracts with third-party clinical and regulatory suppliers that are denominated in currencies other than U.S. dollars, whereby settlement of our obligations for these activities are denominated in the local currency. Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction with the resulting assets and liabilities being translated into the U.S. dollar at exchange rates prevailing at the balance sheet date. The resulting foreign exchange (gains) losses, which were $57,000, $43,000, $(7,000) and $40,000 for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014, respectively, are included in interest and other income (expense), net in our consolidated statements of operations and comprehensive loss. We do not use currency forward exchange contracts to offset the related effect on the underlying transactions denominated in a foreign currency.
A hypothetical 10% change in foreign exchange rates during any of the preceding periods presented would have had an insignificant effect on our consolidated financial statements.
Critical Accounting Polices and Significant Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results
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could differ significantly from management's estimates. To the extent that there are material differences between these estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations and cash flows will be affected.
While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported consolidated financial results, as these policies relate to the more significant areas involving management's judgments and estimates.
Accrued Research and Development Expenses
We record accruals for estimated costs of research, preclinical and clinical studies, and drug and process manufacturing development, which are a significant component of our research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers, including CROs. Our contracts with CROs generally include pass-through fees for regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with the respective agreements. In the event we make advance payments, the payments are recorded as a prepaid asset and recognized as the services are performed. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.
We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. To date, there have been no material differences from our accrued estimated expenses to the actual expenses. However, variations in the assumptions used to estimate accruals, including variations in the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our estimates, resulting in adjustments to research and development expenses in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our financial condition and results of operations.
Common Stock Valuation and Stock-Based Compensation
We maintain an equity incentive plan to provide long-term incentive for employees, officers, directors, consultants and advisors. The plan allows for the issuance of incentive stock options to employees and nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to employees, officers, directors, consultants and advisors.
We are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards made to employees and directors, including employee stock options. We recognize this expense over the requisite service period. In addition, we recognize stock-based compensation expense in the consolidated statements of operations and comprehensive loss based on awards expected to vest and, therefore, the amount of expense has been reduced for estimated forfeitures. We use the straight-line method for expense attribution.
Under the applicable accounting guidance for equity incentive awards granted to non-employees, the measurement date at which the fair value of the equity incentive awards is measured is equal to the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity
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instrument is reached and (2) the date at which the counterparty's performance is complete. We recognize stock-based compensation expense for the fair value of the vested portion of the equity incentive awards in the consolidated statements of operations and comprehensive loss. We remeasure the fair value of options granted to consultants as the options vest.
The valuation model we used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model, or the Black-Scholes model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term weighted-average period of time that the options granted are expected to be outstanding, the volatility of our common stock, an assumed risk-free interest rate and an estimated forfeiture rate. We use the "simplified method" to determine the expected term of the stock option. Volatility is based on an average of the historical volatilities of the common stock of publicly traded companies with characteristics similar to us. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. Potential forfeitures of awards are estimated based on our historical forfeiture experience and an analysis of similar companies. The estimate of forfeitures will be adjusted over the service period to the extent that actual forfeitures differ, or are expected to differ, from prior estimates.
The following table summarizes the assumptions we used to determine the fair value of employee stock options:
|
Year Ended
December 31, 2013 |
Six Months Ended
June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
|
|
(Unaudited)
|
|||||
Expected term (years) |
6.1 | 6.0 | |||||
Expected volatility |
76.0 | % | 76.0 | % | |||
Risk-free interest rate |
1.3 | % | 1.9 | % | |||
Expected dividend rate |
0.0 | % | 0.0 | % |
Fair Value of Common Stock. As discussed below, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors. Because there has been no public market for our common stock, our board of directors has determined the fair value of our common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of our convertible preferred stock, our operating and financial performance, the lack of liquidity of our convertible preferred stock, and general and industry-specific economic outlooks.
Expected Term. The expected term of stock options represents the weighted-average period that our stock options are expected to remain outstanding. Since we have insufficient historical information regarding our stock options to provide a basis for estimate of expected term, we use the simplified method, which is the average of the weighted-average vesting period and contractual term of the option, to estimate the expected life of our stock option awards.
Expected Volatility. Since there has been no public market for our common stock and lack of company specific historical volatility, we have determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, we consider factors such as industry, stage of life cycle and size.
Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.
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Expected Dividend Rate. We assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so.
Estimated Forfeitures. We are required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data and the experience of other companies in the same industry to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, we record the difference as a cumulative adjustment in the period that the estimates are revised.
Service Period. We amortize all stock-based compensation over the requisite service period of the awards, which is generally the same as the vesting period of the awards. We amortize the fair value cost on a straight-line basis over the expected service periods. We estimate when and if performance-based grants will be earned. If we consider the award to be probable, we recognize expense over the estimated service period, which would be the estimated period of performance. If we do not consider the awards probable of achievement, we recognize no amount of stock-based compensation.
If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. We currently estimate when and if performance-based grants will be earned. If we do not consider the awards probable of achievement, we recognize no amount of stock-based compensation. If we consider the award to be probable, we record expense over the estimated service period. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will change.
Our intent has been to grant all options with an exercise price not less than the fair value of our common stock underlying those options on the date of grant. We have determined the estimated fair value of our common stock at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including developments at our company, market conditions and contemporaneous independent third-party valuations.
For all option grant dates through June 30, 2014, our board determined the enterprise value based on the Market Approach using the Option Pricing Method, or OPM, and the Income Approach using the Probability Weighted Expected Return Method, or PWERM.
Under the Market Approach, we estimate the value based upon analysis of similar companies. We then apply these derived multiples or values to our financial metrics to estimate our market value. The Income Approach, or Discounted Cash Flow Method, estimates value based on the expectation of future net cash flows, which are then discounted back to the present using a rate of return derived from companies of similar type and risk profile. The allocation of these enterprise values to each part of our capital structure, including our common stock, was done under the Market Approach based on OPM. OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. OPM derives the implied equity value of a company from a recent transaction involving the company's own securities issued on an arms-length basis. Under the PWERM, the value is estimated based upon analysis of future values for the enterprise under varying scenarios, and probabilities are ascribed to these scenarios based on expected future outcomes.
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For valuations completed following the closing of this initial public offering, the fair value of our common stock will be determined based on the closing price of our common stock as reported on The NASDAQ Global Market on the date of grant.
The following table summarizes by grant date the number of shares of common stock subject to options granted from January 1, 2013 through August 25, 2014, the per share exercise price of the award, the fair value of our common stock on each grant date:
Grant Date
|
Number of
Shares Granted |
Exercise
Price Per Share |
Estimated
Fair Value Per Share of Common Stock |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
January 4, 2013 |
2,946,778 | $ | 0.21 | $ | 0.21 | |||||
July 11, 2013 |
1,683,241 | 0.30 | 0.30 | |||||||
October 3, 2013 |
10,000 | 0.30 | 0.30 | |||||||
December 10, 2013 |
135,000 | 0.30 | 0.30 | |||||||
January 13, 2014 |
75,000 | 0.30 | 0.30 | |||||||
February 7, 2014 |
35,000 | 0.30 | 0.30 | |||||||
February 9, 2014 |
60,000 | 0.30 | 0.30 | |||||||
June 5, 2014 |
2,926,979 | 0.95 | 0.95 |
We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods likely will increase.
Estimated Fair Value of Convertible Preferred Stock Warrant
Our outstanding convertible preferred stock warrant is classified as a liability on our consolidated balance sheets at fair value as it is contingently redeemable because it may obligate us to transfer assets to the holders at a future date under certain circumstances, such as a deemed liquidation event. We remeasure our convertible preferred stock warrant to fair value at each balance sheet date and record the corresponding gain or loss from the adjustment in our consolidated statements of operations and comprehensive loss as interest income and other income (expense), net. We will continue to record adjustments to the fair value of the convertible preferred stock warrant until it is exercised, converted into a warrant to purchase common stock or expires, at which time the warrant will no longer require remeasurement.
We estimate the fair values of our convertible preferred stock warrant using an option-pricing model or a hybrid of the option-pricing model and the probability-weighted expected return method. The option-pricing model is based on inputs as of the valuation measurement dates, including our estimates regarding the equity value at the valuation measurement dates, the volatility of the price of our convertible preferred stock, the remaining contractual term of the warrant, and the risk-free interest rates. The hybrid methodology is applied to various exit scenarios and each scenario is weighted based on our estimate of the probability of the scenario occurring.
Impairment of Long-Lived Assets
We assess changes in the performance of our product candidates in relation to our expectations, and industry, economic, and regulatory conditions and make assumptions regarding estimated future cash flows in evaluating the value of our property and equipment, goodwill and in-process research and development, or IPR&D.
We periodically evaluate whether current facts or circumstances indicate that the carrying values of our long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets is compared to the carrying value to determine whether impairment exists. If the asset is determined to be impaired, the loss is
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measured based on the difference between the asset's fair value and its carrying value. If quoted market prices are not available, we will estimate fair value using a discounted value of estimated future cash flows approach.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired in connection with the acquisition of Valocor. We test goodwill for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the goodwill is less than its carrying amount. Some of the factors considered in the assessment include general macro-economic conditions, conditions specific to the industry and market, and the successful development of our product candidates. If we conclude it is more likely than not that the fair value of the goodwill is less than its carrying amount, a quantitative fair value test is performed.
IPR&D represents the fair value assigned to incomplete research projects that we acquired through the acquisition of Valocor which, at the time of acquisition, had not reached technological feasibility. The amount was capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the project. We test IPR&D for impairment at least annually, or more frequently, if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D intangible asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value is performed.
We have not recorded any impairment of our long-lived assets to date.
Net Operating Loss Carryforwards
We use the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We establish a valuation allowance when necessary to reduce deferred tax assets to the amount we expect to be realizeable. Financial statement effects of uncertain tax positions are recognized when it is more likely than not, based on the technical merits of the position, that they will be sustained upon examination. If the tax positions are not more likely than not to be sustained upon examination, we record reserves against those positions. Interest and penalties related to unrecognized tax benefits are included within our provision for income tax.
As of December 31, 2013, we had net operating loss, or NOL, carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $43.8 million, $43.8 million and $3.0 million, respectively. The federal and California NOL carryforwards will begin expiring during the year ended December 31, 2031 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2029. The NOL carryforwards related to deferred tax assets do not include excess tax benefits from employee stock option exercises.
As of December 31, 2013, we also had research and development credit carryforwards of $0.2 million, $0.3 million and $0.5 million available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes, respectively. The federal and Canadian credit carryforwards will begin expiring in 2032 and the California state credit carryforwards have no expiration date.
Our future utilization of our NOL carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Section 382, as a result of ownership changes that may have occurred previously or that could occur in the future.
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Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, or ASU 2013-11, that provides for disclosure requirements related to unrecognized tax benefits in certain situations. We adopted ASU 2013-11 in the first quarter of 2014 and adoption of this standard did not have material impact on our consolidated results of operations or financial position.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers , or ASU 2014-09, which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. This guidance is effective for the fiscal years and interim reporting periods beginning after December 15, 2016. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and related disclosures.
On June 10, 2014, the FASB issued ASU 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, or ASU 2014-10, which eliminates the definition of a development stage entity, eliminates the development stage presentation and disclosure requirements under Accounting Standards Codification, or ASC, 915 Development Stage Entities , or ASC 915, and amends provisions of existing variable interest entity guidance under ASC 810 Consolidation . As a result of the changes, entities which meet the former definition of a development stage entity will no longer be required to: (1) present inception-to-date information in the statements of income, cash flows, and stockholder equity; (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged; and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. Furthermore, ASU 2014-10 clarifies disclosures about risks and uncertainties under ASC Topic 275, Risks and Uncertainties, that apply to companies that have not commenced planned principal operations. Finally, variable interest entity rules no longer contain an exception for development stage entities and, as a result, development stage entities will have to be evaluated for consolidation in the same manner as non-development stage entities.
Under ASU 2014-10, entities are no longer required to apply the presentation and disclosure provisions of ASC 915 during annual periods beginning after December 15, 2014. In addition, the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015 for public entities and are effective for annual periods beginning after December 15, 2016 for nonpublic entities. Early adoption is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities).
We have adopted ASU 2014-10 effective as of its issuance date. Adoption of this standard had no impact on our financial position, results of operations, or cash flows; however, the presentation of the consolidated financial statements and related disclosures in the notes to the consolidated financial statements has been changed to eliminate the disclosures that are no longer required.
We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the consolidated financial statements as a result of future adoption.
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Overview
We are a specialty biopharmaceutical company focused on bringing innovative and differentiated medical dermatology products to dermatologists and their patients. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our strategy is to leverage this experience to in-license, acquire, develop and commercialize products that we believe can be successful in the dermatology marketplace. Our portfolio of five product candidates targets significant market opportunities and includes three late-stage product candidates, Cimzia (certolizumab pegol), which we are developing in collaboration with UCB Pharma S.A. for the treatment of moderate-to-severe plaque psoriasis, DRM04, which we are developing for the treatment of hyperhidrosis, or excessive sweating, and DRM01, which we are developing for the treatment of acne.
Medical dermatology focuses on therapeutic solutions to treat serious skin conditions, such as psoriasis, acne, atopic dermatitis, commonly known as eczema, and hyperhidrosis. These diseases impact millions of people worldwide and can have significant, multidimensional effects on patients' quality of life, including their physical, functional and emotional well-being. Furthermore, according to multiple published studies, patients report that medical dermatology conditions affect quality of life in ways comparable to other serious diseases, such as cancer, heart disease, diabetes, epilepsy, asthma and arthritis.
We believe that medical dermatology represents a particularly attractive segment of the biopharmaceutical industry for multiple reasons:
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sizes, patients can be rapidly enrolled in clinical trials and the cost of monitoring study populations treated with topical, as opposed to systemic, therapies can be relatively low. In many dermatology indications, product development is further streamlined by well-established regulatory pathways. In addition, the same or similar efficacy endpoints can often be used to measure success in early- and late-stage clinical trials, which increases the predictability of late-stage clinical trial outcomes based on early-stage results. We believe that the development of our product candidates may benefit from one or more of these efficiencies.
We believe that these industry dynamics present an opportunity for us to establish our company as a leader in dermatology product development and commercialization, and we plan to capitalize on that opportunity for the benefit of patients and dermatologists.
Dermira was founded by Thomas G. Wiggans, Eugene A. Bauer, M.D., Christopher M. Griffith and Luis C. Peña with the vision of building a leading dermatology company. Several members of our management team, including Mr. Wiggans, Dr. Bauer and Mr. Peña, have extensive experience within the dermatology field, including having served in executive roles at leading dermatology companies such as Connetics Corporation, Peplin, Inc. and Stiefel Laboratories, Inc., a GSK Company, or Stiefel. This experience brings us significant insight into product and commercial opportunities, as well as a broad network of relationships with leaders within the industry and medical community. Our team has extensive experience with products representing a variety of therapeutic modalities, including biologics and small molecules, and routes of administration, including systemic and topical products. At Connetics, members of our senior management team secured five marketing approvals for new dermatology products from the U.S. Food and Drug Administration, or the FDA, within seven years and successfully built a new product category across a number of highly competitive markets characterized by extensive branded and generic competition. For more information on our management, see "ManagementExecutive Officers and Directors."
Since our founding in 2010, we have executed three significant transactions resulting in a portfolio of five product candidates. In August 2011, we acquired Valocor Therapeutics, Inc., which gave us rights to a portfolio of intellectual property and product candidates to treat acne and inflammatory skin diseases. In April 2013, we entered into agreements with Rose U LLC and Stiefel to obtain rights to intellectual property related to DRM04 for the treatment of hyperhidrosis. In March 2014, we entered into an agreement to collaborate with UCB to develop and commercialize Cimzia in dermatology.
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Our three late-stage product candidates are:
In addition, we have two early-stage programs in preclinical development:
Our Strategy
Our strategy is to in-license, acquire, develop and commercialize innovative and differentiated medical dermatology products that we believe can be successful in the dermatology marketplace. The key components of our strategy are to:
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clinical trial within 16 months of licensing intellectual property related to DRM04 from Rose U and Stiefel. We produced positive Phase 2a clinical trial results within one year of initiating our first clinical trial of DRM01 and intend to commence a Phase 2b clinical program in the first half of 2015. We believe that our team's expertise in designing and executing product development programs in dermatology, combined with the relative efficiencies of dermatology product development, will enable us to rapidly develop our late-stage product candidates.
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We have an exclusive license to market Cimzia to dermatologists in the United States and Canada following regulatory approval of Cimzia for the treatment of psoriasis in these countries. We plan to leverage the infrastructure of our partner, UCB, to support our marketing of Cimzia in the United States and Canada.
Overview of the Dermatology Market
Skin is the largest and fastest-growing organ in the human body. There are over 3,000 different skin conditions and diseases, many of which have profound effects on patients' lives. Dermatologists work with patients to find solutions for their skin concerns. These solutions fall broadly into either medical dermatology, which focuses on the treatment of diseases such as psoriasis, atopic dermatitis, hyperhidrosis and acne, or aesthetics, which focuses on improving the patient's appearance, most frequently the signs of aging.
We focus on the medical dermatology market, which addresses many highly prevalent conditions. These conditions can have significant, multidimensional effects on patients' quality of life, including their physical, functional and emotional well-being. For example, psoriasis has been shown to affect a patient's quality of life to an extent similar to that seen in other chronic diseases such as cancer, arthritis, hypertension, heart disease, diabetes and depression. Acne patients have equated their condition as comparable to other serious diseases, such as diabetes, epilepsy, asthma and arthritis. Studies have found hyperhidrosis impedes normal daily activities and can result in occupational, emotional, psychological, social and physical impairment.
According to VisionGain, the medical dermatology market was valued at over $21 billion in global pharmaceutical sales in 2012. According to the 2010 National Ambulatory Medical Care Survey, there are 56 million annual office visits for medical dermatology conditions in the United States alone. In 2009, there were an estimated 34 million office visits to U.S. dermatologists. Inflammatory skin diseases and acne account for a significant proportion of the market for prescription medical dermatology products. Inflammatory skin diseases, such as psoriasis, an autoimmune disease that can be associated with a wide range of skin symptoms, atopic dermatitis, a disorder involving disruption in the skin's ability to insulate the body from exposure to external substances, and rosacea, a condition characterized by redness and often disfiguration of the central face, collectively represent the largest market in medical dermatology, accounting for over $9.5 billion in global pharmaceutical sales in 2012. Acne accounted for approximately $3.7 billion of global pharmaceutical sales in 2012. According to widely-cited data, it is estimated that acne affected more than 85% of teenagers globally in 1994, 150 million people globally as of 2008 and 40 to 50 million Americans as of 1998.
In light of the overall lack of innovation in the research and development of new dermatology treatments, the medical dermatology market includes a large number of marginally differentiated products with relatively modest sales. However, there are a number of examples of truly innovative topical, oral and injectable products that have created large markets. These include Elidel and Protopic, topical calcineurin inhibitors for the treatment of atopic dermatitis that achieved aggregate peak sales of over $500 million in 2004, Accutane, an oral retinoid for the treatment of acne that achieved peak sales of approximately $760 million in 2000, and Enbrel, Humira and Stelara, injectable biologics that
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achieved aggregate sales of $4.0 billion in 2012 for the treatment of moderate-to-severe plaque psoriasis.
There were approximately 10,800 dermatologists practicing in the United States in 2012. We believe that dermatologists generally share three characteristics that are relevant to the marketing of dermatology products. First, dermatologists, as a specialty, tend to be particularly focused on the safety of pharmaceutical products because, while skin diseases can have profound effects on patients' quality of life, few are life-threatening. As a result, dermatologists, as well as their patients, often prefer to use topical treatments when possible to limit the risk of systemic side effects. If systemic treatments are required, many dermatologists favor products with well-established safety profiles relative to newer treatments with less safety experience, even if newer treatments may be more effective. Second, dermatologists, who are in relatively short supply in comparison with the demand from patients in the United States, tend to place a high level of emphasis on products that are easy to use because they often manage high volumes of patients. This contributes to their general preference for topical treatments, as well as systemic treatments with well-established safety profiles and limited monitoring requirements. Third, dermatologists tend to engage with sales and medical affairs personnel from the biopharmaceutical industry regarding the scientific evidence supporting dermatology products and the challenges experienced by physicians and patients in the use of these products. Dermatologists often rely on trusted relationships with scientifically competent, customer-focused sales representatives who can provide them with the necessary information to support their use of appropriate treatments.
Our Product Candidates
Our portfolio of product candidates is summarized in the following table:
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Cimzia
Cimzia is our late-stage product candidate for the treatment of moderate-to-severe plaque psoriasis. Moderate-to-severe plaque psoriasis is a chronic, inflammatory skin disease characterized by excessive growth of certain skin cells and a wide range of symptoms, including redness, scaling, itching and burning. Cimzia is an injectable biologic TNF inhibitor that was launched by UCB in 2008 and has been used in tens of thousands of patients. It is approved for numerous indications spanning multiple medical specialties, including rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis and Crohn's disease, in multiple countries, including the United States. In 2013, Cimzia generated worldwide sales of over $800 million, an increase of 27% compared to 2012. In March 2014, we entered into an agreement to collaborate with UCB to develop Cimzia for the treatment of moderate-to-severe plaque psoriasis in the United States, Canada and the European Union and, upon regulatory approval for marketing of the psoriasis indication, to market Cimzia to dermatologists in the United States and Canada.
UCB has conducted two Phase 2 clinical trials, including a 176-patient, randomized, multi-center, double-blind, placebo-controlled trial, that demonstrated significant reductions in the signs and symptoms of moderate-to-severe plaque psoriasis. As the Phase 2 psoriasis clinical trials were conducted in France and Germany, they were not covered by an IND. In June 2014, we and UCB conducted an end-of-Phase 2 meeting with the FDA during which we requested and received feedback from the FDA regarding certain elements of our proposed clinical development plan for Cimzia in psoriasis, including the design and size of Phase 3 clinical trials. We intend to work with UCB to file an IND for the treatment of moderate-to-severe plaque psoriasis with the FDA in the second half of 2014 and commence Phase 3 clinical trials in the first half of 2015. If the results of the Phase 3 clinical trials are positive, we plan to work with UCB to secure approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis and market the product to dermatologists in the United States and Canada.
The Moderate-to-Severe Plaque Psoriasis Market
Psoriasis is a chronic, complex, immune-mediated disease that requires long-term treatment. It is commonly considered the most prevalent autoimmune disease in the world. According to Decision Resources, the diagnosed prevalence of psoriasis in the United States was approximately 9.3 million people, or approximately 2.8% of the population, in 2012. In the same year, U.S. sales of psoriasis prescriptions accounted for $3.6 billion, of which $2.9 billion were from biologic therapies and $2.3 billion were from biologic TNF inhibitors alone.
Approximately 80% of psoriasis patients have plaque psoriasis. These patients typically have symmetrically distributed plaques of thickened, inflamed, red skin covered with silvery scales located on portions of the body including the elbows, knees, scalp or back. Approximately 20% of plaque psoriasis patients have moderate-to-severe disease. The National Psoriasis Foundation classifies moderate-to-severe plaque psoriasis as affecting at least 3% of the body surface area, although other factors, such as the location of lesions and their impact on quality of life, are also considered in assessing disease severity.
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BIOPHOTO ASSOCIATES/Photo Researchers/Getty Images
Moderate-to-Severe Plaque Psoriasis
The symptoms of psoriasis are not limited to the skin, and evidence increasingly suggests that skin symptoms of psoriasis are a dermal manifestation of a systemic autoimmune disorder. Psoriasis often presents with one or more comorbidities associated with inflammatory etiology, such as joint disease or cardiovascular disease. Psoriatic arthritis, which is psoriasis with concomitant joint disease, develops in up to 40% of psoriasis patients, according to the International Federation of Psoriasis Associations. Recent studies have found that psoriasis is also associated with a significantly increased risk of major adverse cardiovascular events, including heart attack, stroke and cardiovascular mortality. A population-based study conducted from 1987 to 2002 of approximately 18,000 patients concluded that patients with psoriasis requiring systemic or light-based therapy had an average lifespan six years shorter than that of the control population. As a result, there is increasing interest in treating psoriasis with products that can address the systemic manifestations of the disease.
Moderate-to-Severe Plaque Psoriasis Treatments: Options and Limitations
Psoriasis treatments are chosen based on factors including disease severity, comorbidities, patient preference and insurance coverage. Topical treatments, such as steroids, vitamin D derivatives and retinoids, are typically insufficient for patients with moderate-to-severe disease. For decades, moderate-to-severe plaque psoriasis has been treated with traditional light-based or systemic therapies, which are moderately effective and have significant limitations. Light-based therapies are time-consuming and inconvenient and have been associated with accelerated damaging of the skin and increased risk of cancer. Traditional systemic therapies, such as oral and injectable methotrexate, oral cyclosporine and oral acitretin, have well-documented side effects, such as liver and kidney toxicity, increases in blood fats and birth defects, that require intensive monitoring by the prescribing physician.
The treatment of moderate-to-severe plaque psoriasis has been transformed by the introduction of biologic TNF inhibitors over the past decade. TNF is a naturally occurring molecule that promotes inflammation in the body. In psoriasis and many other inflammatory diseases, such as rheumatoid arthritis and psoriatic arthritis, TNF promotes inflammation in certain areas of the body that leads to clinical manifestations of the disease, such as excessive growth of skin cells in psoriasis, damage to joint tissue in rheumatoid arthritis and both of these manifestations in psoriatic arthritis. Consistent with its role in a number of inflammatory conditions that involve organs other than the skin, it is thought that
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TNF may play a role in comorbidities of psoriasis that are associated with inflammatory etiology, such as rheumatoid arthritis and psoriatic arthritis, joint disease and cardiovascular disease. TNF inhibitors treat psoriasis and other inflammatory conditions by binding to and suppressing the biological activity of TNF.
In psoriasis and many other inflammatory diseases, such as rheumatoid arthritis and psoriatic arthritis, TNF inhibitors offer improved efficacy over traditional systemic therapies that have more frequent side effects and require more intensive monitoring. Since their launch into the rheumatology market in the late 1990s, TNF inhibitors have grown to become one of the largest-selling product classes in the pharmaceutical industry. According to published sources, U.S. sales of TNF inhibitors were approximately $14.6 billion in 2012. In the same year, U.S. sales of TNF inhibitors for the treatment of psoriasis were $2.3 billion, according to Decision Resources.
The TNF inhibitor class has become established as the most frequently used biologic therapy for moderate-to-severe plaque psoriasis. The two self-administered TNF inhibitors approved for marketing in psoriasis are Enbrel and Humira.
The only other TNF inhibitor approved for psoriasis in the United States and Canada is Remicade, which is an intravenously administered TNF-binding antibody. According to Decision Resources, U.S. sales of Remicade for the treatment of psoriasis were approximately $110 million in 2012.
While most moderate-to-severe plaque psoriasis patients are initially treated with traditional systemic therapies, according to Decision Resources, dermatologists increasingly express a preference to use TNF inhibitors as first-line systemic therapy because of their efficacy, especially in the presence of concomitant psoriatic arthritis, and improved safety profile relative to conventional systemic agents.
Based on the significant therapeutic and commercial success of TNF inhibitors, new systemic therapies for psoriasis have been and are in the process of being developed. Stelara, a biologic product that inhibits two other important inflammatory molecules called interleukin 12 and interleukin 23, was launched in 2009. Notwithstanding its efficacy and convenient administration profile, we believe that Stelara is currently being used primarily as an alternative option for patients who have previously received TNF inhibitors because of its more limited long-term safety data and insurance coverage. According to Decision Resources, U.S. sales of Stelara for the treatment of psoriasis were approximately $630 million in 2012.
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While these approved biologics have become useful therapeutic options for dermatologists and their psoriasis patients, they suffer from limitations, including the fact that some patients fail to respond, experience reduced response over time or experience side effects. Accordingly, patients treated with TNF inhibitors and other biologics may rotate between different products, including multiple TNF inhibitors. According to an analysis of survey data collected by the National Psoriasis Foundation published in JAMA Dermatology, roughly half of moderate-to-severe plaque psoriasis patients remain unsatisfied with their treatment options.
The Cimzia Solution
Cimzia is a product comprising the TNF-binding portion, or fragment, of an antibody linked to a polymer called polyethylene glycol, or PEG. Attachment of PEG to pharmaceuticals, a process termed pegylation, improves the stability of the pharmaceutical product in the systemic circulation, resulting in more sustained pharmacological activity following administration to the patient. Cimzia is typically injected by the patient every two to four weeks. It is the only pegylated antibody fragment approved for marketing within the TNF inhibitor class.
We believe that Cimzia's molecular structure may offer pharmacological advantages relative to other TNF inhibitors. From an efficacy standpoint, it has been shown in animal studies that Cimzia preferentially accumulates in inflamed tissue to a greater extent than Humira. It is also thought that pegylation may reduce the immunogenicity of Cimzia, which could lead to more durable efficacy. From a safety standpoint, because Cimzia is not a complete antibody, it, like Enbrel, lacks certain biological activities that could potentially lead to toxicity. We believe that these characteristics support a clinical safety and efficacy profile that would be attractive to dermatologists.
Cimzia has demonstrated an attractive efficacy, safety, tolerability and convenience profile across a range of indications, including psoriasis. Based on a cross-study comparison of efficacy data we have compiled from the placebo-controlled Phase 2 clinical trial of Cimzia and published reports regarding the largest pivotal Phase 3 clinical trials conducted with Enbrel and Humira, we believe that Cimzia has an attractive efficacy profile in comparison to these market-leading TNF inhibitors in psoriasis. A comparison of efficacy across these three separate clinical trials on the basis of the most widely accepted efficacy endpoints is shown below.
Cross-study comparison of Cimzia, Enbrel and Humira
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In each of these studies, patients with moderate-to-severe plaque psoriasis received at least 12 weeks of therapy. In the Cimzia Phase 2 clinical trial, 176 patients were randomized to receive either (1) an initial dose of 400 milligrams, or mg, of Cimzia, followed by Cimzia at a dose of 200 mg once every two weeks, or q2w, (2) Cimzia at a dose of 400 mg q2w, or (3) placebo. In the Enbrel Phase 3 clinical trial, 407 patients were randomized to receive either (1) Enbrel at a dose of 50 mg twice weekly, or biw, which is the recommended dose for the first three months of treatment in the U.S. prescribing information, or (2) placebo. In the Humira Phase 3 clinical trial, 1,212 patients were randomized to receive either (1) Humira at an initial dose of 80 mg, followed by Humira at a dose of 40 mg q2w starting one week later, which is the recommended dosing regimen in the U.S. prescribing information, or (2) placebo.
Response rates were reported in terms of the proportion of treated patients who achieved a 75% improvement in the clinical grading scale called the Psoriasis Area and Severity Index, or PASI 75, the endpoint most widely used to measure treatment success in clinical psoriasis trials, and the proportion of patients who achieved clearing or near clearing of psoriasis, as rated by the investigator on a scale called the Physician's Global Assessment, or PGA, 12 weeks following the start of therapy. While there were some differences in the patient populations, particularly in terms of sample size, disease severity, weight and the proportions who had previously used biologic therapies, as well as the PGA scales used to assess efficacy, that make it difficult to draw conclusions from this cross-study comparison, and while this cross-study comparison will not be used to support regulatory filings for Cimzia, we believe that this comparison suggests that Cimzia will have an attractive efficacy profile in comparison to the leading TNF inhibitors in the psoriasis market today. We believe that the efficacy of Cimzia will be particularly attractive to dermatologists as they continue to become more comfortable with the safety profile of the TNF inhibitor class and more interested in improved efficacy.
In addition to efficacy, we believe that Cimzia has other attributes that will be attractive to dermatologists and their patients. Based on accumulated experience in psoriasis and other indications, we believe that the safety profile of Cimzia is consistent with that of other TNF inhibitors. The most frequent adverse events associated with Cimzia are upper respiratory infections, rash and urinary tract infections. As observed with other TNF inhibitors, the most serious adverse reactions are serious infections, heart failure and, possibly, cancer. In addition, we believe that administration every two weeks would be a more convenient dosing regimen for patients than once or twice weekly dosing of Enbrel.
The Market Opportunity
The market for systemic psoriasis therapies is large and growing, and we expect this market growth to continue as dermatologists continue to increase their use of biologic therapies and new products reach the market. We believe that the TNF inhibitor class will continue to represent a significant segment of this market and that Cimzia will be positioned to compete effectively within the market for systemic psoriasis therapies.
According to Decision Resources, U.S. sales of psoriasis prescriptions accounted for $3.6 billion in 2012. In the same year, U.S. sales of biologic therapies for moderate-to-severe plaque psoriasis were $2.9 billion, of which $2.3 billion were from TNF inhibitors. We believe that dermatologists write a significant majority of the prescriptions for biologics in psoriasis. While the same data are not available for sales of TNF inhibitors in psoriasis, data provided by IMS Health National Prescription Audit and National Sales Perspectives indicate that dermatologists accounted for 75% of U.S. sales of Stelara in the first half of 2013, when Stelara was only approved for the treatment of moderate-to-severe plaque psoriasis.
Since the launch of Stelara in 2009 and through 2012, sales of biologic treatments attributable to U.S. dermatologists grew at an average annual rate of 20%. Over the same period, sales of TNF
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inhibitors attributable to U.S. dermatologists grew at an average annual rate of 9%. This indicates that, since the introduction of Stelara, the market for biologics in psoriasis has been expanding beyond that attributable to the continuing growth of the TNF inhibitor class.
We believe that there is a substantial opportunity for continued expansion of the market for biologic psoriasis therapies. Even with the significant recent growth in the market, penetration of biologics into the addressable population of moderate-to-severe plaque psoriasis patients remains relatively low, particularly in comparison to other large biologics markets. In the United States in 2012, according to Decision Resources, only 10.5% of treated moderate-to-severe psoriasis patients received biologics, and 21.7% of treated rheumatoid arthritis patients received biologics. We believe that penetration into the psoriasis patient population may continue to increase as dermatologists become more familiar with available biologic therapies, particularly, the established safety record of TNF inhibitors, and as new biologic products reach the market. Decision Resources projects that U.S. sales of branded, systemic psoriasis therapies will increase from approximately $3.1 billion in 2012 to $5.7 billion by 2022.
We believe that the TNF inhibitor class is, and will continue to be, well positioned within the psoriasis market for a number of reasons:
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Stelara and other potential competing non-TNF inhibitor therapies that target fewer indications and smaller aggregate patient populations.
Accordingly, while there are a number of other systemic products under development for psoriasis by large pharmaceutical companies, including late-stage product candidates representing biologic and oral therapies with alternative mechanisms of action, as well as biosimilar versions of TNF inhibitors, we believe that the branded TNF inhibitor class is well positioned within the psoriasis market because of its longstanding role in the treatment of the disease, its established safety record within the safety-oriented dermatology specialty, its strong efficacy profile in skin symptoms and systemic aspects of the disease and preferred access accorded to products in the class by insurance companies in light of their widespread use across numerous indications. Many of the products and product candidates under late-stage development in psoriasis suffer from one or more potential limitations, such as relatively unproven safety profiles, limited or unproven activity in systemic aspects of the disease, and limited or unproven utility in other indications, that could represent significant disadvantages relative to TNF inhibitors. As a result, we expect the market for TNF inhibitors in psoriasis to remain substantial over the long-term.
In light of its molecular properties and clinical profile, we believe that if successfully developed in psoriasis, Cimzia presents an opportunity to offer dermatologists a product that delivers the strong efficacy of a TNF-binding antibody product such as Humira with the potential safety advantages of a non-antibody product such as Enbrel. We believe that this is a compelling proposition that can be communicated particularly effectively by a dermatology-focused company like ours that is committed to providing the highest level of scientific expertise to dermatologists. In addition, our collaboration with UCB will enable us to utilize the substantial infrastructure UCB has developed to support commercialization of Cimzia in other indications and markets, including established manufacturing and distribution capabilities. We also believe that Cimzia's significant commercial business in other indications will contribute to contracting leverage with insurers that represents a potential advantage relative to competing products with other mechanisms of action that may experience more limited use outside of psoriasis. Within the context of the advantages of the TNF inhibitor class relative to other available and potentially emerging new therapies, we believe that Cimzia, if successfully developed in psoriasis, will be well positioned to compete in the large, growing market for branded, systemic psoriasis therapies.
Clinical Development
Phase 2 Clinical Trials. Clinical development of Cimzia to date has been conducted by UCB. In addition to a number of studies in other indications, UCB has completed two Phase 2 clinical trials evaluating Cimzia in adults with moderate-to-severe plaque psoriasis. The first Phase 2 clinical trial demonstrated that Cimzia improved the signs and symptoms of psoriasis, with up to 82.8% of patients achieving a PASI 75 response. The second Phase 2 clinical trial demonstrated that patients who relapsed after withdrawal of Cimzia therapy achieved a similar response after subsequent treatment with Cimzia.
The first Phase 2 clinical trial was a multi-center, double-blind, placebo-controlled study in which 176 patients were randomized to receive 12 weeks of therapy in accordance with one of three regimens: (1) an initial loading dose of 400 mg of Cimzia, followed by Cimzia at a dose of 200 mg q2w, or Cimzia 200 mg; (2) Cimzia at a dose of 400 mg q2w, or Cimzia 400 mg; or (3) placebo. At the end of the 12-week treatment period, patients entered a follow-up period of 12 to 24 weeks. The co-primary efficacy endpoints were the proportion of patients achieving a PASI 75 response and the proportion of patients achieving a score of "clear" or "almost clear" on a six-point PGA scale 12 weeks after the start of therapy. Results for these endpoints are presented below.
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Primary Endpoint: PASI 75 at Week 12
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90. Intention to treat (ITT) population shown = all randomized patients (n=176).
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Primary Endpoint: PGA at Week 12
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90. Intention to treat (ITT) population shown = all randomized patients (n=176).
At week 12, a PASI 75 response was observed in 6.8% of patients (4/59) who received placebo, 74.6% of patients (44/59) who received Cimzia 200 mg and 82.8% of patients (48/58) who received Cimzia 400 mg. A PGA response was observed in 1.7% of patients (1/59) who received placebo, 52.5% of patients (31/59) who received Cimzia 200 mg and 72.4% of patients (42/58) who received Cimzia 400 mg. Both Cimzia dosing regimens demonstrated meaningful and statistically significant improvements relative to placebo for both co-primary efficacy endpoints.
The second Phase 2 clinical trial was a re-treatment extension study, in which patients who achieved a PASI 75 response 12 weeks after the start of therapy in the first Phase 2 clinical trial and subsequently relapsed during the follow-up period began receiving the same treatment as they did in the first Phase 2 clinical trial. Relapse was defined as a loss of more than 50% of the maximum PASI improvement achieved in the first Phase 2 clinical trial. The primary efficacy endpoint was a comparison between the median PASI score achieved 12 weeks after the start of therapy in the first Phase 2 clinical trial and the median PASI score achieved 12 weeks after the start of re-treatment in the second Phase 2 clinical trial. At the end of the 12-week re-treatment period, improvements in PASI score were once again observed for both Cimzia treatment regimens. No significant difference was observed between the median PASI score achieved 12 weeks after the start of therapy in the first Phase 2 clinical trial and the median PASI score achieved 12 weeks after the start of re-treatment in the second Phase 2 clinical trial. According to the authors who published the results, efficacy observed
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during the second Phase 2 clinical trial was similar to that observed during the first Phase 2 clinical trial. Efficacy results are presented below.
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90. Actual values taken from UCB (Study C87040 CSR 2008. Table 14.2.2:7).
According to the authors who published the results of these Phase 2 clinical trials in the British Journal of Dermatology, the safety profile of Cimzia in these Phase 2 clinical trials in psoriasis was consistent with that observed in previous Cimzia clinical trials in other indications, as well as in clinical trials of other TNF inhibitors. A summary of treatment-emergent adverse events, or TEAEs, is presented in the following table.
|
First treatment study |
|
Re-treatment study(a) | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Patients, n (% of patients)
|
Placebo
(n = 58) |
Cimzia
200 mg (n = 60) |
Cimzia
400 mg (n = 57) |
All
(n = 175) |
Cimzia
200 mg (n = 34) |
Cimzia
400 mg (n = 37) |
All
(n = 71) |
|||||||||||||||
Total AEs, n |
133 | 156 | 125 | 414 | 36 | 36 | 72 | |||||||||||||||
Any AE |
41 (71% | ) | 43 (72% | ) | 40 (70% | ) | 124 (71% | ) | 14 (41% | ) | 18 (49% | ) | 32 (45% | ) | ||||||||
Led to permanent discontinuation |
3 (5% | ) | 2 (3% | ) | 2 (4% | )(b) | 7 (4% | )(b) | 0 | 0 | 0 | |||||||||||
Serious AEs |
1 (2% | ) | 2 (3% | ) | 3 (5% | )(c) | 6 (3% | )(c) | 0 | 0 | 0 | |||||||||||
Infections |
0 | 1 (2% | ) | 2 (4% | ) | 3 (2% | ) | 0 | 0 | 0 |
Adapted from Reich K et al. Br J Dermatol. 2012; 167(1): 180-90.
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Most adverse events were mild or moderate. In the first Phase 2 clinical trial, which was placebo-controlled, no meaningful differences in the incidence of TEAEs were observed among treatment groups. The most frequently reported TEAEs were nasal congestion, headache and itching. Excluding pregnancies reported as serious adverse events leading to permanent discontinuation of treatment in two patients receiving Cimzia 400 mg, serious adverse events were reported in six patients, including (1) one patient who received placebo and experienced hemorrhagic diarrhea, (2) two patients who received Cimzia 200 mg, comprising one who experienced a contusion related to a motor vehicle accident and one who experienced a urinary tract infection and gastroenteritis, and (3) three patients who received Cimzia 400 mg, comprising one who experienced disseminated tuberculosis, one with anxiety and gastroenteritis and one with psoriasis. The patient who developed tuberculosis had previously received an attenuated, live tuberculosis vaccine and had good resolution of tuberculosis following treatment with anti-tuberculosis medication. In the second Phase 2 clinical trial, a lower proportion of patients reported TEAEs in comparison to the first Phase 2 clinical trial, and there were no serious adverse events or permanent discontinuations from treatment due to adverse events.
Phase 3 Clinical Program. Based on the results of these two Phase 2 clinical trials, we and UCB conducted an end-of-Phase 2 meeting with the FDA and a scientific advice procedure with the European Medicines Agency, or the EMA, in June 2014 during which we requested and received feedback from the FDA and EMA regarding certain elements of our proposed clinical development plan for Cimzia in psoriasis, including the design and size of Phase 3 clinical trials. As the Phase 2 psoriasis clinical trials were conducted in France and Germany, they were not covered by an IND. We intend to work with UCB to file an IND for the treatment of moderate-to-severe plaque psoriasis with the FDA in the second half of 2014 and commence Phase 3 clinical trials in the first half of 2015.
Our planned Phase 3 clinical program consists of three randomized, multi-center, blinded Phase 3 clinical trials that will be conducted in multiple countries. In these trials, we plan to enroll a total of approximately 1,000 moderate-to-severe plaque psoriasis patients, including patients who have and patients who have not previously been treated with biologic products, such as TNF inhibitors. The program comprises two clinical trials designed to demonstrate the superiority of treatment with Cimzia relative to placebo, which we call the placebo-controlled Phase 3 clinical trials, and one clinical trial designed to demonstrate the superiority of treatment with Cimzia relative to placebo and relative to treatment with Enbrel, which we call the active-controlled Phase 3 clinical trial. We expect that these trials will be designed as follows:
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regimens for up to an additional 36 weeks in order to assess secondary endpoints and other measures pertaining to the safety and efficacy of longer-term treatment, including evaluation of the optimal regimen for maintenance therapy, as well as the effect of Cimzia treatment in patients who were initially treated with Enbrel. Thereafter, some patients will receive Cimzia on an open-label basis for up to an additional 96 weeks in order to gather additional data on the long-term use of Cimzia in moderate-to-severe plaque psoriasis.
We and UCB anticipate that marketing applications for Cimzia in moderate-to-severe plaque psoriasis will be based on the data collected through 48 weeks after the start of treatment in each of the three Phase 3 clinical trials, including the results of the primary endpoints at either 12 or 16 weeks and additional results collected during this 48-week period. We believe that if these results are positive, data on 48 weeks of treatment would be sufficient to support an initial marketing application for the treatment of a chronic disease such as moderate-to-severe plaque psoriasis. For the purpose of seeking FDA approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis, we intend to use the results of the initial 16-week treatment period in the placebo-controlled Phase 3 clinical trials to establish efficacy. In addition, we intend to submit the results obtained from weeks 16 through 48 of the active-controlled Phase 3 clinical trial in order to support dosing recommendations for long-term use.
If the results of the Phase 3 clinical trials are positive, we plan to work with UCB to secure approval of Cimzia for the treatment of moderate-to-severe plaque psoriasis and market the product to dermatologists in the United States and Canada.
DRM04
DRM04 is our late-stage product candidate for the treatment of hyperhidrosis, or excessive sweating. DRM04, a topical formulation of a novel form of a small-molecule anticholinergic agent that has been approved for systemic administration in other indications, is designed to inhibit sweat production by blocking the activation of sweat glands following topical administration. The products currently approved for the treatment of hyperhidrosis suffer from limitations such as moderate efficacy, significant side effects or cumbersome or invasive administration regimens. We believe that, if approved, DRM04 would be a convenient, effective and well-tolerated topical prescription therapy for this disease. In light of the limitations of available hyperhidrosis therapies, we believe that the introduction of such a product could expand the hyperhidrosis market by further penetrating the segment of patients who seek treatment from physicians and encouraging more patients to seek treatment.
Two randomized, double-blind, vehicle-controlled Phase 2 clinical trials, including a 198-patient, multi-center Phase 2b clinical trial and a 38-patient Phase 2a clinical trial, have demonstrated significant reductions in the signs and symptoms of primary axillary, or underarm, hyperhidrosis in patients treated with a topical formulation of the anticholinergic agent that has been approved for systemic administration in other indications, which we call the topical formulation of the reference agent. In addition, we are currently conducting a Phase 2b clinical trial in patients with primary axillary hyperhidrosis in which we are comparing DRM04 to the topical formulation of the reference agent. We have conducted the two Phase 2b clinical trials under an IND that was originally filed by Stiefel and that we reactivated in November 2013. We expect data from our ongoing Phase 2b clinical trial in the first half of 2015. If successful, we intend to commence a Phase 3 clinical program, which would include one or more Phase 3 clinical trials.
The Hyperhidrosis Market
Hyperhidrosis is a condition of excessive sweating beyond what is physiologically required to maintain normal thermal regulation. Sweat is produced by glands in the skin and released to the skin
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surface through ducts. Sweat gland activity is controlled by the nervous system. The nervous system transmits signals to the sweat glands through acetylcholine, which is known as a neurotransmitter. Primary hyperhidrosis, which is excessive sweating without a known cause, is localized and characteristically symmetric. It can affect the underarms, palms of the hands, soles of the feet, face and other areas. Several studies have demonstrated that excessive sweating often impedes normal daily activities and can result in occupational, emotional, psychological, social and physical impairment.
In the United States, based on the most recent data available, the prevalence of hyperhidrosis was estimated in 2003 to be 2.8% of the population, or roughly 7.8 million people. According to published studies, approximately half of hyperhidrosis sufferers have axillary hyperhidrosis, and approximately one third of axillary hyperhidrosis sufferers, or 1.3 million Americans, have severe disease that is barely tolerable and frequently interferes or is intolerable and always interferes with daily activities.
The market for products to control sweating is large and highly underpenetrated by prescription pharmaceutical products. Despite the limited efficacy of over-the-counter, or OTC, antiperspirants for the alleviation of hyperhidrosis symptoms, according to a 2003 survey, only 38% of hyperhidrosis patients had discussed their condition with a healthcare professional. In addition, patients may suffer from excessive sweating for years before seeking treatment. One study analyzing data from 1993-2005 indicated that patients experienced an average duration of untreated symptoms of 8.9 years. We believe that this is largely a result of the lack of effective, well-tolerated, convenient prescription treatment options. Patients who seek treatment from a physician most commonly receive prescription topical antiperspirants. While these topical antiperspirants generate over 500,000 prescriptions annually in the United States, their use is limited by modest efficacy and skin irritation, particularly in patients with more severe disease. We believe that the market opportunity for a new, effective, well-tolerated topical hyperhidrosis treatment is substantially larger than the current market for prescription topical antiperspirants because such a therapy could further penetrate the segment of patients who seek treatment from a physician, as well as encourage more patients to seek treatment.
Current Hyperhidrosis Treatments: Options and Limitations
Current treatment options for hyperhidrosis generally fall into one of three categories:
Use of these treatments is determined by factors that include affected area and severity of disease.
For decades, topical antiperspirants containing metal salts have been the most widely-used treatment option for hyperhidrosis. OTC antiperspirants contain low concentrations of metal salts and are generally well-tolerated but limited in efficacy. Prescription antiperspirants containing higher concentrations of metal salts are typically recommended as the treatment of choice when OTC antiperspirants are not effective. However, these prescription antiperspirants are only moderately more effective, and their tolerability is limited by skin irritation associated with increased metal salt concentrations, which react with water to form irritating hydrochloric acid.
Therapeutic options for patients who are unsatisfied with topical antiperspirants are largely limited to more cumbersome or invasive treatment strategies directed to blocking the activation of, destroying or removing the sweat glands. Intradermal injections of botulinum toxin, or Botox, a neurotoxin that blocks the release of acetylcholine, are effective but can be painful and must be administered by a physician, on average through 20 to 30 injections every six to nine months. A microwave device designed to overheat and destroy sweat glands is an alternative option, but treatment can be painful,
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requires multiple physician visits and is generally not covered by insurance. These treatments are time-consuming and require a significant investment of training and administration time and, in the case of microwave treatment, capital investment by the treating physician, limiting their potential reach to physicians. They are also not approved or well suited for application to the hands or feet. Iontophoresis, which involves soaking the hands or feet in water through which an electrical current is passed, can be performed in a physician's office or at home but requires repeated, time-consuming treatments, is irritating and is not well suited to treatment of the axillae. Patients with severe disease may be treated with surgical techniques that involve removal of sweat glands or destruction of nerves that transmit activating signals to the glands. Surgery is a significant undertaking that can be associated with a number of severe side effects, including increased sweat production in other body areas. As a result of the shortcomings of these treatment options, they are used much less frequently than topical treatments.
Oral anticholinergics, which block the interaction of acetylcholine with cholinergic receptors responsible for sweat gland activation, have demonstrated efficacy in small clinical hyperhidrosis studies. Although they are not currently approved by the FDA for the treatment of hyperhidrosis, they are sometimes used off-label. However, well-known systemic side effects, such as dry mouth, blurred vision, urinary retention and increased heart rate, often limit their use at doses required for efficacy in hyperhidrosis.
As a result of the limitations of available treatments, we believe that there is a significant unmet need for a new, effective, well-tolerated, self-administered, topical hyperhidrosis therapy that can be used across the range of body areas that can be affected by the disease.
The DRM04 Solution
DRM04 is a topical formulation of a novel form of a small-molecule anticholinergic agent that has been approved for systemic administration in other indications. Our initial target indication is the treatment of primary axillary hyperhidrosis. We believe that, if approved, DRM04 would be a convenient, effective and well-tolerated topical prescription therapy for this disease.
DRM04 is designed to block sweat production by inhibiting the interaction between acetylcholine and the cholinergic receptors responsible for sweat gland activation. The concept of inhibiting sweat production by blocking acetylcholine neurotransmission has been clinically validated in studies of Botox and anticholinergics for the treatment of hyperhidrosis. We believe that local, topical administration of DRM04 may offer advantages over oral administration of an anticholinergic by limiting uptake into the systemic circulation and thereby reducing the likelihood and severity of systemic side effects. We believe that it may also offer advantages over the injectable administration of Botox by providing a self-administered, non-invasive, more convenient alternative.
Clinical Development
Our initial target indication for DRM04 is primary axillary hyperhidrosis. Our development strategy involves two parts. First, we have assessed the safety, efficacy and tolerability of a topical formulation of the reference agent. Based on the results of this evaluation, we are currently assessing the profile of DRM04 compared to that of the topical formulation of the reference agent. We intend to develop DRM04 under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or the 505(b)(2) pathway. Under the 505(b)(2) pathway, the FDA may allow us to leverage findings made by the FDA with regard to safety in approving the systemic administration of the reference agent in other indications and thereby reduce the amount of additional data we need to generate to support marketing approval of DRM04. The degree to which we can leverage such findings will be dependent upon the similarity between DRM04 in hyperhidrosis and the reference agent in its approved dosage forms and indications. Key differences, such as chemical form, route of administration, dosage form
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and indication, may affect the amount of additional data we will be required to generate. Our Phase 2 development program includes two completed Phase 2 clinical trials of the topical formulation of the reference agent and one ongoing Phase 2b clinical trial comparing DRM04 to the topical formulation of the reference agent.
Phase 2a Clinical Trial. The completed Phase 2a clinical trial was a randomized, double-blind study in 38 patients with severe primary axillary hyperhidrosis. In six cohorts of six to seven patients each, two concentrations of the reference agent (2% and 4%) in each of two topical formulations (A and B) were compared with their respective vehicles, which contain no active ingredient. These cohorts are summarized below.
|
Formulation A | Formulation B | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Concentration of reference agent |
4% | 2% | 0% (vehicle) | 4% | 2% | 0% (vehicle) | ||||||
| | | | | | | | | | | | |
Number of patients enrolled |
6 | 6 | 7 | 6 | 6 | 7 |
Patients were instructed to apply the study product once daily for four weeks using wipes saturated with either the topical formulation of the reference agent or vehicle only. Efficacy was evaluated based on axillary sweat production and disease severity. Assessments were conducted approximately weekly during the four-week treatment period and two weeks after the end of this treatment period. Disease severity was measured using a widely-used patient-reported outcome tool called the Hyperhidrosis Disease Severity Scale, or HDSS, wherein patients rate the severity of their disease on a four-point scale. Patients who rate the severity of their disease as a three or a four on the HDSS are considered to have severe disease, while those who rate it as a one or a two are considered to have mild or moderate disease. All 38 patients enrolled in the clinical trial rated the severity of their disease as a three or a four on the HDSS prior to the start of treatment. Trial inclusion criteria required that, prior to the start of treatment, all patients produce at least 50 mg of sweat in each axilla over a five-minute period.
Overall, more patients in the groups treated with the topical formulations of the reference agent than in the vehicle-only groups experienced a reduction in axillary sweating and a reduction in disease severity over the four-week treatment period. Of the 38 patients enrolled in the study, 19 patients received one of the two formulations and 19 patients received the other formulation. Of the 19 who received the formulation selected for further development, which we refer to as Formulation A, all completed at least two weeks of treatment with the exception of one who received vehicle only. This patient withdrew due to an adverse event of dry mouth after one day of treatment with vehicle only and was excluded from the efficacy analysis.
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Presented below are efficacy data for the 18 patients in whom the efficacy of Formulation A was assessed, including 12 who received the reference agent and six who received the vehicle only.
Nine of 12 patients treated with the reference agent reported an improvement in their perception of disease severity, as assessed using the HDSS, from severe to mild or moderate at the first on-treatment assessment, which was conducted approximately one week after the start of therapy. By the second weekly assessment, all 12 severe hyperhidrosis patients treated with the reference agent reported their disease severity as mild or moderate, in comparison with one of six patients who received the vehicle only. In weeks three and four, five out of six patients in each of the 2% and 4% treatment groups reported on their disease severity. Of those patients who reported assessments, patients treated with the reference agent continued to report disease severity as mild or moderate in all reported assessments through the end of the four-week treatment period, except one patient who discontinued treatment after two weeks at the 4% dose who was therefore counted as a non-responder at weeks three and four.
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Among the 14 patients treated with Formulation A whose sweat production was measured at the end of the four-week treatment period, sweat production in the nine patients treated with the reference agent was on average 61% lower than at the start of therapy, in comparison with an average 1% increase in sweat production in the five patients who received vehicle only. The effect of the reference agent on sweating and disease severity appeared to be reversible, as a trend toward a return to levels reported at the start of therapy was observed two weeks following cessation of therapy.
Adverse events observed across all 38 patients enrolled in the trial are summarized below. The proportions of patients enrolled in each cohort in which selected types of adverse events were reported are shown in parentheses.
|
Formulation A | Formulation B | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Concentration of reference agent |
4% | 2% |
0%
(vehicle) |
4% | 2% |
0%
(vehicle) |
||||||
| | | | | | | | | | | | |
Number of patients enrolled |
6 | 6 | 7 | 6 | 6 | 7 | ||||||
Number of patients reporting any adverse event (% of patients enrolled) |
4 (67%) | 4 (67%) | 5 (71%) | 5 (83%) | 3 (50%) | 4 (57%) | ||||||
Number of patients reporting any treatment-related adverse event (% of patients enrolled) |
2 (33%) | 3 (50%) | 5 (71%) | 3 (50%) | 3 (50%) | 3 (43%) | ||||||
Number of treatment-related adverse events |
6 | 4 | 6 | 9 | 4 | 3 |
Across all 38 patients enrolled in the trial, the most common TEAEs were dry mouth and upper respiratory tract infection. No serious adverse events were reported. The occurrence of systemic adverse events appeared to be dependent on dose, regardless of the formulation used.
This Phase 2a clinical trial was designed to demonstrate proof-of-concept for the treatment of hyperhidrosis with the topical formulation of the reference agent and was not powered to demonstrate the statistical significance of any of the results. While we believe that the results demonstrated proof-of-concept for the treatment of hyperhidrosis with the topical formulation of the reference agent, the absence of any demonstration of statistical significance increases the possibility that the observations occurred by chance.
Phase 2b Clinical Program. Based on the Phase 2a data, we are conducting a Phase 2b clinical program in patients with primary axillary hyperhidrosis. Our Phase 2b clinical program comprises two Phase 2b clinical trials:
Both are randomized, multi-center, double-blind, vehicle-controlled trials in which the topical formulation of the reference agent, DRM04 or vehicle only, as applicable, is administered once daily for four weeks and efficacy is evaluated based on the HDSS and assessments of sweat production. In addition to the HDSS, in Study DRM04-HH02 we are using a patient-reported outcome assessment we have developed that we believe may enable a more specific assessment of disease severity relative to the HDSS.
Study DRM04-HH01. In Study DRM04-HH01, 198 patients with severe primary axillary hyperhidrosis were randomized to receive a topical formulation containing one of four concentrations of the reference agent (1%, 2%, 3% or 4%) or vehicle only. As in the Phase 2a clinical trial, patients were instructed to apply the study product once daily for four weeks using wipes saturated with either
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the topical formulation of the reference agent or vehicle only, and efficacy was evaluated based on axillary sweat production and the HDSS. Assessments were conducted approximately weekly during the four-week treatment period and the two-week period after the end of this treatment period. All 198 patients enrolled in the clinical trial rated the severity of their disease as a three or a four on the four-point HDSS prior to the start of treatment. Trial inclusion criteria required that prior to the start of treatment, all patients produce at least 50 mg of sweat in each axilla over a five-minute period.
The two primary efficacy endpoints evaluated in this trial were (1) the proportion of patients achieving an improvement of at least two points from baseline in HDSS score and (2) the average absolute change from baseline in sweat production, each as measured at the end of the four-week treatment period. For the purpose of the primary endpoint pertaining to sweat production, sweat production was assessed in each patient as the average of the amounts of sweat produced in each axilla during a five-minute period.
As outlined below, the topical formulation of the reference agent demonstrated dose-dependent and, at certain doses, statistically significant improvements relative to vehicle in both primary efficacy endpoints. The following chart summarizes the impact of the reference agent on disease severity, assessed as the proportion of patients achieving an improvement of at least two points in HDSS score from baseline to the end of the four-week treatment period.
Primary Endpoint: HDSS Response Rate at Week Four
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
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ITT population shown = all randomized patients dispensed study product (n = 198). Patients with missing data points were considered non-responders.
At the end of the four-week treatment period, 36.8% to 52.5% of patients in each cohort treated with the reference agent achieved an improvement of at least two points in HDSS score, in comparison with 22.5% of patients who received the vehicle only. Based on these results, patients treated with the reference agent were between 63% and 133% more likely, depending on the concentration of the reference agent they received, to achieve an improvement of at least two points in HDSS score than patients who received the vehicle only.
The following chart summarizes the impact of the reference agent on sweat production, assessed as the average absolute change in sweat production from baseline to the end of the four-week treatment period.
Primary Endpoint: Average Absolute Change in Sweat Production at Week Four
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
ITT population shown = all randomized patients dispensed study product (n = 198). The last available on-treatment observation was used to estimate missing data points.
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From baseline to week four, patients in each cohort treated with the reference agent achieved an average reduction in sweat production of 56.6 to 91.4 mg, or 54.4% to 71.7%, in comparison with a reduction of 55.8 mg, or 43.2% in patients who received the vehicle only. The percentage reduction from baseline in sweat production was one of several non-primary efficacy analyses conducted in this trial.
In this trial, the most common TEAEs were dry mouth, upper respiratory tract infection, dry skin and blurred vision. Dry mouth, dry skin and blurred vision are well-known, reversible side effects of anticholinergic agents and were generally observed more frequently in patients who received higher concentrations of the reference agent. Upper respiratory tract infections were observed at similar frequencies in patients receiving the reference agent and patients receiving the vehicle only. Patients treated with the reference agent withdrew from the study due to adverse events rates of 2.6% in the 1% cohort (1/38), 5.0% in the 2% cohort (2/40), 2.5% (1/40) in the 3% cohort, and 20.0% (8/40) in the 4% cohort. None of the patients who received the vehicle only withdrew due to an adverse event. No treatment-related serious adverse events were reported.
Study DRM04-HH02. In our ongoing Study DRM04-HH02, we are comparing the topical formulation of the reference agent to DRM04. In this trial, we are randomizing approximately 100 patients with severe primary axillary hyperhidrosis into five cohorts of approximately 20 patients each. Each of the five cohorts is assigned to receive one of the following: a topical formulation containing one of two concentrations of the reference agent, DRM04 containing one of two concentrations of the novel form of the reference agent, or vehicle only. The vehicle in the topical formulation of the reference agent is the same as in DRM04.
Patients are instructed to apply the study product once daily for four weeks using wipes saturated with the topical formulation of the reference agent, DRM04 or vehicle only. We are evaluating efficacy based on axillary sweat production, the HDSS and the patient-reported outcome assessment we have developed that we believe may enable a more specific assessment of disease severity relative to the HDSS. As in Study DRM04-HH01, assessments are to be scheduled approximately weekly during the four-week treatment period and the two-week period after the end of this treatment period. As in the Phase 2a clinical trial and Study DRM04-HH01, we are enrolling patients in Study DRM04-HH02 who, prior to the start of treatment, rate the severity of their disease as a three or a four on the HDSS and produce at least 50 mg of sweat in each axilla over a five-minute period.
We began enrolling patients in Study DRM04-HH02 in April 2014 and expect to complete enrollment and obtain the results of this clinical trial in the first half of 2015. Data from all three of our Phase 2 clinical trials will be used to support dose selection for potential Phase 3 clinical trials. We intend to pursue the use of our patient-reported outcome assessment as a measurement of efficacy in our Phase 3 clinical program.
DRM01
DRM01 is our late-stage product candidate for the treatment of acne. It is a novel, small-molecule prodrug designed to inhibit the production of sebum by delivering a widely-studied lipid synthesis inhibitor to the skin following topical administration. If approved for marketing, DRM01 could add an attractive new mechanism of action to the set of treatment strategies available to dermatologists and their acne patients. We believe that the introduction of such a product could establish a new product class and expand the acne market.
In June 2014, we completed a 108-patient, randomized, multi-center, double-blind, vehicle-controlled Phase 2a clinical trial that demonstrated significant reductions in the signs and symptoms of acne. As this Phase 2a clinical trial was conducted in Canada, it was not covered by an IND. Based on the results of this trial, we intend to file an IND with the FDA and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015.
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The Acne Market
Acne is a common skin disease characterized by clogging of the pores and associated local skin lesions that usually appear on the face, chest or back. Acne lesions are believed to result from an interaction of four primary pathogenic factors:
Clogged pores can become enlarged and inflamed as sebum and its breakdown products accumulate, resulting in visible lesions that can be unsightly and cause permanent scarring. Acne can significantly impact patients' quality of life, resulting in social, psychological and emotional impairments that are comparable to those reported by patients with epilepsy, asthma, diabetes or arthritis. Effective treatment can dramatically improve acne patients' quality of life.
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|
Acne
Acne is one of the most common skin diseases. According to widely-cited data, it is estimated that acne affected more than 85% of teenagers globally in 1994, 150 million people globally as of 2008 and 40 to 50 million Americans as of 1998. Acne is one of the most common reasons for visiting a dermatologist. In 2007, acne represented about one-fourth of U.S. dermatologists' patient volume.
According to VisionGain, acne accounted for approximately $3.7 billion in global pharmaceutical sales in 2012. In the same year, each of the three major prescription pharmaceutical product classes that are predominantly used to treat acne generated between approximately $670 million and $1.9 billion in U.S. sales, according to data provided by Symphony Health Solutions, Pharmaceutical Audit Suite. These three product classes have been available for over 30 years, and we believe that growth in this market recently has been significantly limited by a lack of innovation in new product development. While the acne market includes a large number of marginally differentiated products with relatively modest sales, which we believe is a result of the lack of innovation in new product development, there are examples of products that have created large markets in acne. These include Accutane, an oral retinoid that achieved peak sales of approximately $760 million in 2000, and Solodyn, an oral antibiotic that achieved peak sales of approximately $400 million in 2010. We believe that the
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introduction of a topical treatment with a new mechanism of action could establish a new product class and expand the acne market.
Current Acne Treatments: Options and Limitations
Acne is commonly treated with topical and oral therapies, often in combination. As for many other skin diseases, dermatologists and their patients often prefer to use topical products that can act locally in the skin while limiting the risk of systemic side effects. As a result, the vast majority of acne patients are treated with topical therapies. For patients with more severe disease, oral treatments are used, usually in combination with topical products. Many patients receive combination therapies comprising two or more topical agents with or without an oral agent.
Acne treatment guidelines published by the Global Alliance to Improve Outcomes in Acne recommend that acne treatment be directed toward as many of the four primary pathogenic factors as possible. Accordingly, patients are often treated with combination regimens that incorporate multiple agents with complementary mechanisms of action targeting different pathogenic factors. All of the four primary pathogenic factors except for excessive sebum production can be targeted with available topical treatments. While systemic therapies may be used to effectively inhibit sebum production, their use is limited by significant, systemic side effects. As a result, we believe that there is an unmet need for a topical treatment that targets excessive sebum production.
For decades, the same four prescription pharmaceutical product classes have been used to treat acne:
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While these available acne treatments are effective in many patients, an unmet need remains for effective therapies that are not associated with antibiotic resistance or treatment-limiting side effects, particularly therapies with novel mechanisms of action. In the context of guidelines recommending that acne therapy be directed to as many of the four primary pathogenic factors as possible, the absence of an available topical treatment that targets excessive sebum production, the systemic side effects associated with oral treatments that target this pathogenic factor and the overall preference for topical products in dermatology, we believe that there is a substantial unmet need and commercial opportunity for a new product class that targets sebum production following topical administration.
The DRM01 Solution
DRM01 is a novel, small-molecule prodrug designed to inhibit the production of sebum by delivering a well-characterized lipid synthesis inhibitor to the skin following topical administration. A prodrug is a medication designed to be converted to its active form in the body, often in order to enhance delivery of the active form to the site of action by improving the pharmaceutical properties of the molecule administered to the patient. DRM01 is designed to be converted in the body to a lipid synthesis inhibitor that was originally discovered and evaluated in preclinical studies as a potential systemic lipid-lowering treatment and was later found to inhibit sebum production in sebum-producing cells. The lipid synthesis inhibitor targets acetyl coenzyme-A carboxylase, an enzyme that plays an important role in the synthesis of fatty acids, a type of lipid that represents an essential component of the majority of sebum lipids. While systemic administration of the lipid synthesis inhibitor to animals was found to effectively reduce systemic lipid levels and enabled characterization of its preclinical safety profile, the molecule did not reduce sebum production in animals following topical administration. DRM01 is the result of a drug discovery program directed to leveraging the well-characterized nature of the lipid synthesis inhibitor by identifying a prodrug that effectively reduces sebum production when administered topically.
We have completed a 108-patient, randomized, multi-center, double-blind, vehicle-controlled Phase 2a clinical trial that was designed in accordance with published FDA draft guidance regarding the development of acne drugs. In this trial, patients treated with DRM01 achieved significant improvements relative to baseline and relative to patients who received vehicle only in the measures of acne severity that are most widely accepted by clinicians and the FDA as primary endpoints supporting the approval, labeling and use of prescription acne products. We believe that the overall efficacy, safety and tolerability profile observed in our Phase 2a clinical trial of DRM01 compares favorably to the profiles of the leading products in the acne market today, including topical and systemic therapies. This attractive clinical profile is supported by preclinical studies demonstrating that DRM01 inhibits, in a dose-dependent manner, the production of key sebum components in sebum-producing cells and reduces sebaceous gland size in animals.
Clinical Development
We are developing DRM01 in accordance with published FDA draft guidance regarding the development of acne drugs. This draft guidance sets forth the FDA's recommendations regarding the design, conduct and analysis of clinical trials intended to support marketing approval for new acne
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products. We believe that this published draft guidance streamlines the process of acne drug development by defining the FDA's expectations regarding the design, conduct and analysis of clinical trials. This presents an opportunity to design initial clinical trials that are similar in design to the Phase 3 clinical trials that would be conducted to support regulatory approval if the initial clinical trials are successful, which we believe enhances the predictability of late-stage clinical trial outcomes based on earlier-stage results. In addition, we believe that the principles set forth in the published FDA draft guidance can be used, in the context of guidance obtained from foreign regulatory authorities, to inform the design of a development program that can support marketing approval of a new acne product in jurisdictions outside the United States.
We have completed a Phase 1 clinical trial and a Phase 2a clinical trial to assess the efficacy, safety and tolerability of DRM01. Both trials were conducted in Canada.
Phase 1 Clinical Trial. In the Phase 1 clinical trial, six healthy volunteers applied topical DRM01 gel to the face for seven days. All subjects completed dosing, and no adverse events were reported.
Phase 2a Clinical Trial. The FDA recommends that the principal clinical trials used to demonstrate safety and efficacy in support of marketing approval be randomized, multi-center, blinded trials designed to demonstrate superiority of the investigational product relative to a vehicle or placebo control following a treatment duration of at least 12 weeks. Our Phase 2a clinical trial was a randomized, multi-center, double-blind, vehicle-controlled study designed in accordance with the published FDA draft guidance. In this trial, 108 patients with moderate or severe acne were instructed to apply either DRM01 gel or vehicle gel to the face twice daily for 12 weeks. DRM01 gel was formulated at a concentration of 7.5%. Of the 108 patients enrolled in the trial, 53 were randomized to receive DRM01, and the other 55 were randomized to receive vehicle only.
Three primary efficacy endpoints recommended in the published FDA draft guidance were used as primary efficacy endpoints in this trial:
In our trial, lesions were counted by the investigators, and a successful improvement in IGA score was defined as a reduction from baseline of at least two points on the IGA scale. As is standard practice in acne clinical trials, the primary efficacy endpoints were assessed at the end of the 12-week treatment period.
As outlined below, DRM01 demonstrated statistically significant improvements relative to vehicle in all three primary efficacy endpoints. The following chart summarizes the impact of DRM01 on acne lesion counts.
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Primary Endpoints: Absolute Changes in Lesion Counts at Week 12
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
As recommended in the published FDA draft guidance regarding the development of acne drugs, data are presented from the ITT population, defined as all randomized patients who were dispensed study product, and the last available on-treatment observation is used to estimate missing data points. The average lesion count at baseline includes all 108 patients in the ITT population. Missing data for one patient in the vehicle cohort for whom no on-treatment efficacy assessment was available are excluded from the patient population observed the end of the 12-week treatment period.
From baseline to week 12, the number of inflammatory lesions in patients treated with DRM01 was reduced by an average of 19.3, or 63.9%, in comparison with 13.3, or 45.9%, in patients who received the vehicle only. Over the same time period, the number of non-inflammatory lesions in patients treated with DRM01 was reduced by an average of 19.9, or 48.1%, in comparison with 11.2, or 28.8%, in patients who received the vehicle only. Based on these results, patients treated with DRM01 achieved a 45% greater average absolute reduction in inflammatory lesion count and a 78% greater average absolute reduction in non-inflammatory lesion count than patients who received vehicle only.
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The percentage reductions in inflammatory and non-inflammatory lesion counts were two of several secondary analyses conducted in this clinical trial.
The following chart summarizes the impact of DRM01 on the proportion of patients who achieved a successful improvement the severity of their disease, as assessed using the IGA.
Primary Endpoint: IGA Response Rate at Week 12
P-values are an indication of statistical significance reflecting the probability of an observation occurring due to chance alone. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the p-value of the results. Under this method, a p-value of 0.05 or less typically represents a statistically significant result.
As recommended in the published FDA draft guidance regarding the development of acne drugs, data are presented from the ITT population, defined as all randomized patients who were dispensed study product. In this analysis, patients with missing data points were considered non-responders.
At the end of the 12-week treatment period, 24.5% of patients (13/53) who received DRM01 achieved a successful improvement in the IGA score, in comparison with 7.3% of patients (4/55) who received the vehicle only. Based on these results, patients treated with DRM01 were more than three times more likely than patients who received vehicle only to achieve a successful improvement in IGA score.
When analyzing the Phase 2a study data looking at per-protocol patients, a population that is smaller in size and thus has lower statistical power, although the IGA and inflammatory lesion count
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results are statistically significant (p = 0.0314 and p = 0.0128, respectively), the non-inflammatory lesion count results do not reach statistical significance (p = 0.1263).
Adverse events observed in this clinical trial are summarized below. The proportion of patients enrolled in each of the two cohorts in which selected types of adverse events were reported are shown in parentheses.
Cohort
|
DRM01 | Vehicle | |||||
---|---|---|---|---|---|---|---|
Number of patients enrolled |
53 | 55 | |||||
Number of patients reporting any adverse event (% of patients enrolled) |
35 (66.0% | ) | 38 (69.1% | ) | |||
Number of patients reporting any treatment-related adverse event (% of patients enrolled) |
12 (22.6% | ) | 8 (14.5% | ) |
The most common TEAEs were upper respiratory tract infections, which were considered unrelated to treatment, and application-site conditions, which are frequently observed in most clinical trials of topical products. No treatment-related serious adverse events were reported.
Phase 2b Clinical Program. Based on the attractive efficacy, safety and tolerability profile observed in the Phase 2a clinical trial, including significant improvements in the measures of acne severity that are most widely accepted by clinicians and the FDA as primary endpoints supporting the approval, labeling and use of prescription acne products, we intend to file an IND and commence a Phase 2b clinical program, which would include one or more clinical trials, in the first half of 2015. We expect that our Phase 2b clinical program will include a dose-ranging Phase 2b clinical trial comparing multiple DRM01 administration regimens to vehicle only. If the results of these trial(s) are positive, we intend to use them to support dose selection for Phase 3 development. As with our completed Phase 2a clinical trial, we intend to design our Phase 2b clinical program and any Phase 3 clinical trials in accordance with the published FDA draft guidance regarding the development of acne drugs.
The Market Opportunity
According to VisionGain, acne accounted for approximately $3.7 billion in global pharmaceutical sales in 2012. In the same year, each of the three major prescription pharmaceutical product classes that are predominantly used to treat acne generated between approximately $670 million and $1.9 billion in U.S. sales, according to data provided by Symphony Health Solutions, Pharmaceutical Audit Suite. These three product classes have been available for over 30 years, and we believe that growth in this market recently has been significantly limited by a lack of innovation in new product development. We believe that the introduction of a topical treatment with a new mechanism of action could establish a new product class and expand the acne market.
We believe that the profile of DRM01, including its novel mechanism of action and the overall efficacy, safety and tolerability profile observed in our Phase 2a clinical trial, compares favorably to the profiles of the leading products in the acne market today, including topical and systemic therapies. Based on a cross-study comparison of efficacy data we have compiled from the Phase 2a clinical trial of DRM01 and the U.S. prescribing information describing the largest pivotal Phase 3 clinical trials conducted with the leading products in the U.S. market, as measured by annual U.S. sales in 2012, across the four principal prescription pharmaceutical product classes labeled to treat acne with the exception of oral isotretinoin, which is only indicated for severe, recalcitrant, nodular acne, we believe that DRM01 may have an attractive efficacy profile in comparison to these leading products. A comparison of efficacy across these six separate clinical trials on the basis of the measures of acne severity that are most widely accepted by clinicians and the FDA as primary endpoints supporting the approval, labeling and use of prescription acne products is shown below.
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Cross-study comparison of DRM01 and leading acne products in the U.S. market
In each of these studies, acne patients received at least 12 weeks of therapy. In the DRM01 Phase 2a clinical trial, 108 patients were randomized to receive either topical treatment with DRM01 gel twice daily or vehicle gel. In the Aczone Phase 3 clinical trial, 1,525 patients were randomized to receive either topical treatment with Aczone gel twice daily, which is the labeled administration regimen in the United States, or vehicle gel. In the Differin Phase 3 clinical trial, 392 patients were randomized to receive either topical treatment with Differin gel once daily, which is the labeled administration regimen in the United States, or vehicle gel. In the Epiduo Phase 3 clinical trial, 833 patients were randomized to receive either topical treatment with Epiduo gel once daily, which is the labeled administration regimen in the United States, or vehicle gel. In the Solodyn Phase 3 clinical trial, 473 patients were randomized to receive either oral treatment with Solodyn once daily or placebo. In this clinical trial, Solodyn was administered in accordance with the labeled administration regimen in the United States, except that the dose range of 0.76 to 1.5 mg per kilogram of body weight was wider than the labeled dose range of 0.92 to 1.11 mg per kilogram of body weight. In the Yaz Phase 3 clinical trial, 458 patients were randomized to receive either oral treatment with Yaz once daily, which is the labeled administration frequency in the United States, or placebo.
Efficacy data are presented in terms of the average reductions in the numbers of inflammatory and non-inflammatory acne lesions from baseline, expressed as a percentage of the corresponding numbers of lesions present at baseline, as well as the proportions of patients who achieved a successful improvement in the severity of their acne, as rated by the investigator, or PGA success. Data are reported at 12 weeks following the start of therapy except in the case of Yaz, for which data are reported in the U.S. prescribing information at 155 days, or approximately 22 weeks, following the start of therapy. As Solodyn is only approved for the treatment of inflammatory acne, reductions in non-inflammatory lesion counts are not reported in the U.S. prescribing information for this product. While there were some differences in the patient populations, particularly in terms of sample size, disease severity, age and sex, as well as differences in each of the scales and definitions used to assess PGA success, that make it difficult to draw conclusions from this cross-study comparison, and while this
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cross-study comparison will not be used to support regulatory filings for DRM01, we believe that DRM01 may have an attractive efficacy profile in comparison to these leading products in the U.S. acne market today, though without direct comparative efficacy data, we will not be able to make comparative efficacy claims.
In addition to its efficacy, we believe that DRM01 has other attributes that would be attractive to dermatologists and their patients. If the safety and tolerability profile observed in our Phase 2a clinical trial is confirmed in Phase 3 clinical trials, we believe that topical administration of DRM01 would offer physicians an attractive avenue to incorporate targeting of sebum production into acne treatment without the risk of the systemic side effects associated with oral isotretinoin and hormonal therapies, which are currently the only approved pharmaceutical products that effectively inhibit sebum production. In the context of guidelines published by the Global Alliance to Improve Outcomes in Acne recommending that acne treatment be directed toward as many pathogenic factors as possible and the overall preference for topical products in dermatology, we believe that as a topical sebum inhibitor with a mechanism of action that we believe is complementary to all available topical acne treatments, DRM01 would be well-positioned in the acne market.
Early-Stage Development Programs
We are developing one product candidate, DRM02, for the topical treatment of inflammatory skin diseases, and one product candidate, DRM05, for the topical treatment of acne.
DRM02
DRM02 is a novel, topical PDE4 inhibitor under preclinical development for the treatment of inflammatory skin diseases. PDE4 is an enzyme that plays an important role in promoting inflammation. Both systemically and topically administered PDE4 inhibitors have demonstrated efficacy in the treatment of psoriasis and atopic dermatitis in clinical trials. However, systemic treatment has resulted in dose-limiting side effects, including nausea, vomiting and gastric acid production. We believe that a topical PDE4 inhibitor such as DRM02 may offer the advantage of local anti-inflammatory action within the skin, while limiting uptake into the systemic circulation, thereby reducing the risk of systemic side effects observed with oral PDE4 inhibitors.
Preclinical studies have demonstrated that in animal models, DRM02 inhibits the response to a variety of inflammatory stimuli, as well as the production of a range of inflammatory mediators implicated in inflammatory skin diseases. We have completed a Phase 1 clinical trial and a Phase 2a proof-of-concept clinical program exploring the preliminary safety, tolerability and efficacy of DRM02 in patients with inflammatory skin diseases. Initial clinical efficacy data indicate that DRM02 gel was not more effective than vehicle-only gel. We are determining next steps for this product candidate.
DRM05
DRM05 is a novel, topical PDT under preclinical development for the treatment of acne. PDT is an approach to selectively eliminate target tissue by administering a photosensitizing agent to the target tissue, then exposing the tissue to light to activate the photosensitizing agent. PDT is performed in a physician's office and has been approved for the treatment of other skin conditions, such as actinic keratosis. Topical PDT has shown promising efficacy in acne, but has been limited by painful, visible side effects. We believe that there is currently no approved PDT for the treatment of acne.
DRM05 is designed to treat acne by selectively ablating sebaceous glands. We believe that if we are able to selectively target the distribution of our novel photosensitizer to the sebaceous glands and limit distribution to surrounding tissues, DRM05 could be associated with fewer side effects than available topical PDT. Our development program is focused on demonstrating proof-of-concept for DRM05 in animals. If we are successful, we intend to advance DRM05 into clinical development.
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Competition
Our industry is highly competitive and subject to rapid and significant change. While we believe that our development and commercialization experience, scientific knowledge and industry relationships provide us with competitive advantages, we face competition from pharmaceutical and biotechnology companies, including specialty pharmaceutical companies, and generic drug companies, academic institutions, government agencies and research institutions.
Many of our competitors have significantly greater financial, technical and human resources than we have. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel therapies that are more effective, safer or less costly than our current or future product candidates, or obtain regulatory approval for their products more rapidly than we may obtain approval for our product candidates. Our success will be based in part on our ability to identify, develop and manage a portfolio of product candidates that are safer and more effective than competing products.
Moderate-to-Severe Plaque Psoriasis
If approved for the treatment of moderate-to-severe plaque psoriasis, we anticipate that Cimzia would compete with other approved psoriasis therapeutics, including:
In addition to approved moderate-to-severe plaque psoriasis treatments, there are also several pharmaceutical product candidates under development that could potentially be used to treat psoriasis and compete with Cimzia. Products for which applications for marketing in psoriasis are under review by the FDA include Otezla, which is marketed by Celgene Corporation in psoriatic arthritis, and secukinumab, which is being developed by Novartis. In addition, product candidates in Phase 3 clinical trials include Xeljanz, which is marketed in rheumatoid arthritis by Pfizer, ixekizumab from Eli Lilly and Company, brodalumab from Amgen and tildrakizumab from Merck. There are multiple biosimilar versions of TNF inhibitors under development, including late-stage biosimilar versions of Humira from Amgen, Sandoz and Boehringer Ingelheim and other biosimilar versions of TNF inhibitors in development by companies, including Baxter International Inc. and Hospira, Inc.
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Hyperhidrosis
If approved for the treatment of primary axillary hyperhidrosis, we anticipate that DRM04 would compete with other therapies used for hyperhidrosis, including:
In addition to approved hyperhidrosis treatments, there are also several treatments under development that could potentially be used to treat hyperhidrosis and compete with DRM04, including a laser-based procedure from Cynosure, Inc., an ultrasound device from Ulthera, Inc., topical forms of botulinum toxin A from Revance Therapeutics, Inc. and Anterios, Inc., and topical anticholinergic product candidates from Brickell Biotech, Inc. and GlaxoSmithKline LLC, or GSK.
Acne
If approved for the treatment of acne, we anticipate that DRM01 and DRM05 would compete with other approved prescription acne products, including:
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norgestimate and ethinyl estradiol, such as Ortho Tri-Cyclen, marketed by Janssen, TriNessa, marketed by Actavis, and Tri-Sprintec, marketed by Teva.
In addition to approved prescription acne therapies, a number of prescription products are used off-label for the treatment of acne, including branded and generic products containing the oral hormonal therapy spironolactone, such as Aldactone, marketed by G.D. Searle LLC, a division of Pfizer.
In addition to prescription acne therapies, a wide range of OTC and device products are used to treat acne, including OTC benzoyl peroxide products and skin cleansers, such as Proactiv, marketed by Guthy-Renker LLC, as well as light-based therapies, such as Blu-U, marketed by Dusa Pharmaceuticals, Inc., a division of Sun Pharmaceutical Industries, Inc.
In addition to commercially available products, there are several product candidates in development that could potentially be used to treat acne and compete with DRM01 or DRM05. Late-stage product candidates include topical antimicrobials in development by Galderma, Valeant and Maruho Co., Ltd., and light-based therapies in development by Photocure ASA, LEO Pharma and KLOX Technologies, Inc. Early-stage product candidates are in development by Androscience Corporation, Valeant, Galderma, Braintree Laboratories, Inc., Novan, Inc., Anterios and Foamix, Ltd.
Inflammatory Skin Diseases
If approved for the treatment for one or more inflammatory skin diseases, we anticipate that DRM02 would compete with other therapies approved for the same or similar indications, as well as potential product candidates for such indications. Currently approved therapies include topical corticosteroids, which are widely available and mostly generic; topical calcineurin inhibitors, antimicrobials, vasoconstrictors, vitamin D derivatives, and retinoids; oral antihistamines, antibiotics and retinoids; and injectable biologics. There are several product candidates in development for the potential treatment of inflammatory skin diseases from competitors including Allergan, Anacor Pharmaceuticals, Inc., Astellas Pharma US, Inc., Bayer, Pfizer, Galderma, GSK, LEO Pharma, McNeil-PPC, Inc., Regeneron Pharmaceuticals, Inc., Sanofi and Valeant.
Commercial Operations
We intend to build a commercial infrastructure in the United States and Canada to support the commercialization of our product candidates, if and when we believe that a regulatory approval of the first of such product candidates appears likely in the near term. We intend to build a targeted sales force to establish relationships with dermatologists. We expect that our sales force will be supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure, we will have to invest significant financial and management resources, some of which will be committed prior to any confirmation that our product candidates will be approved, and we could invest resources and then later learn that a particular product candidate is not being approved. To commercialize Cimzia, we also intend to leverage the commercial infrastructure of our partner, UCB, in selected areas, such as manufacturing, distribution, managed care and patient access, which would provide us with additional resources and expertise in these areas. We may also partner with third parties to help us reach other geographic markets or therapeutic specialties.
Intellectual Property
Our success depends in large part upon our ability to obtain and maintain proprietary protection for our products and technologies, and to operate without infringing the proprietary rights of others. We seek to avoid the latter by monitoring patents and publications that may affect our business, and to the extent we identify such developments, evaluate and take appropriate courses of action. With respect to the former, our policy is to protect our proprietary position by, among other methods, filing for
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patent applications on inventions that are important to the development and conduct of our business with the U.S. Patent and Trademark Office, or USPTO, and its foreign counterparts.
As of August 19, 2014, we own or have an exclusive license to 23 issued U.S. patents and 88 issued foreign patents, which include granted European patent rights that have been validated in various EU member states, and 10 pending U.S. patent applications and 37 pending foreign patent applications. Of these patents and patent applications:
In addition, we have patents and patent applications not included in the figures noted above related to Cimzia licensed to us under the UCB agreement, including six issued U.S. patents and two issued Canadian patents. These patents cover the Cimzia TNF inhibitor and related molecules for making them, and will expire between 2014 and 2024.
Altogether, our issued U.S. and foreign patents and pending U.S. and foreign patent applications, if issued, for our lead product candidates, Cimzia, DRM04 and DRM01, will expire between 2014 and 2034.
We also use other forms of protection, such as trademark, copyright, and trade secret protection, to protect our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable. We aim to take advantage of all of the intellectual property rights that are available to us and believe that this comprehensive approach will provide us with proprietary positions for our product candidates, where available.
Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.
We also protect our proprietary information by requiring our employees, consultants, contractors and other advisors to execute nondisclosure and assignment of invention agreements upon
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commencement of their respective employment or engagement. Agreements with our employees also prevent them from bringing the proprietary rights of third parties to us. In addition, we also require confidentiality or service agreements from third parties that receive our confidential information or materials.
Collaborations and License Agreements
Collaboration with UCB
In March 2014, we entered into a development and commercialization agreement with UCB, or the UCB agreement, which provides that we will develop Cimzia for the treatment of psoriasis in order for UCB to seek regulatory approval from the FDA, the European Medicines Agency, or the EMA, and the Canadian federal department for health, or Health Canada, and upon the grant of regulatory approval in the United States and Canada, that we will promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada. Unless earlier terminated, the term of the UCB agreement is 12.5 years following the first commercial launch following regulatory approval of Cimzia for the treatment of psoriasis in the United States and Canada. In connection with the UCB agreement, UCB purchased $5.0 million of shares of our Series B convertible preferred stock in April 2014, purchased $7.5 million of shares of our Series C convertible preferred stock in August 2014 and concurrently with this offering will purchase from us in a private placement shares of our common stock with an aggregate purchase price of approximately $7.5 million, at a price per share equal to the initial public offering price.
We have agreed with UCB on a development plan to obtain regulatory approval from the FDA, EMA and Health Canada, which may be amended as necessary to meet the requirements of these regulatory authorities for approval. We are responsible for paying all development costs specified under the UCB agreement and incurred in connection with the development plan up to a specified amount greater than $75.0 million and less than $95.0 million, plus our internal development costs. Any development costs in excess of this amount or for any required clinical trials in pediatric patients will be shared equally. Development costs for any EMA-specific post-approval studies will be borne solely by UCB. UCB is obligated to pay us up to an aggregate of $36.0 million if certain development milestones are met, and up to an additional aggregate of $13.5 million upon the grant of regulatory approval, including pricing and reimbursement approval, in certain European countries.
Under the terms of the UCB agreement, we will have the exclusive rights upon regulatory approval of the psoriasis indication to promote Cimzia to dermatologists in the United States and Canada. Following such regulatory approval, UCB will book sales and is obligated to pay us royalties representing a percentage of the annual gross margin (after subtracting the costs of certain commercialization support services to be provided by UCB) from Cimzia sales attributed to dermatologists for all indications in the United States and Canada. In each year, the royalties will be payable quarterly and are tiered based upon increasing levels of annual net sales attributed to dermatologists in such year, with UCB retaining between 10% and, above $150.0 million of such annual net sales in such year, 50%, and Dermira receiving the balance, of such annual gross margin. In addition, UCB is obligated to pay us up to an aggregate of $40.0 million upon the achievement of tiered milestones based on annual net sales of Cimzia attributed to dermatologists in the United States and Canada.
We have decision-making authority for the level of commercial and medical affairs activities we conduct and are responsible for the costs and expenses that we incur in connection with such activities. We have agreed to make minimum annual numbers of promotional presentations to dermatologists in the United States or that a minimum portion of the incentive compensation paid to our sales force will be based on sales of Cimzia attributable to dermatologists in the United States.
The UCB agreement provides for the establishment of a joint steering committee, joint development committee and joint commercialization committee to oversee and coordinate the parties'
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activities under the UCB agreement. We and UCB have agreed to make committee decisions by consensus and although UCB has final decision-making authority for development, regulatory and commercialization strategy (including product pricing), except as required by regulatory authorities, UCB cannot amend the agreed development plan or increase the development budget without our approval.
We have agreed that, during the term of the UCB agreement, except in limited circumstances, we and our affiliates will not clinically develop, seek regulatory approval for or commercialize a biologic TNF inhibitor other than Cimzia, or promote any other biologic TNF inhibitor to any dermatologist in the United States or Canada. UCB has agreed that during the term of the UCB agreement, except in limited circumstances, it and its affiliates will not clinically develop, seek regulatory approval for or commercialize a biologic TNF inhibitor other than Cimzia for the treatment of psoriasis or psoriatic arthritis in the United States or Canada, or promote any other biologic TNF inhibitor to any dermatologist in the United States or Canada.
If during the term of the UCB agreement, we acquire or are acquired by a third party that is clinically developing or commercializing a biologic TNF inhibitor, UCB has the right to terminate the agreement if we do not either cease such clinical development or commercialization or divest such product. If we consummate a change of control with a third party that is clinically developing or commercializing a biologic TNF inhibitor, UCB has the right to terminate the UCB agreement. The sale, transfer, exclusive license or other disposition of our assets will be considered a change of control only if it constitutes all or substantially all of our assets and includes our rights to develop and/or commercialize Cimzia under the UCB agreement.
UCB does not have the right to terminate the UCB agreement if we consummate a change of control with a third party that is not clinically developing or commercializing a biologic TNF inhibitor, which we refer to as a non-competitor company, so long as (1) the non-competitor company either (a) is engaged in the development or commercialization of a pharmaceutical product or (b) will maintain us as an operating entity and will maintain at least 50% of our executive management team for at least 12 months, (2) the non-competitor company has sufficient working capital to continue and complete our development obligations under the UCB agreement (taking into consideration any milestone payments to be made by UCB) and has the ability to obtain sufficient funding to perform the commercial and medical affairs activities and other obligations for which we are responsible under the UCB agreement and (3) if the change of control occurs prior to the date of the grant of first regulatory approval for Cimzia for the treatment of psoriasis in the United States, Canada or the European Union, the non-competitor company agrees in writing to complete such development obligations. If we consummate a change of control with a non-competitor company that does not meet all of these requirements, then UCB has the right to terminate the UCB agreement.
Without the prior written consent of UCB, we are not permitted to assign or transfer our rights or obligations under the UCB agreement other than to our affiliates or a non-competitor company that meets the requirements described in the prior paragraph or in the event UCB elects not to terminate the UCB agreement in connection with a change of control having had the right to do so.
If during the term of the UCB agreement UCB acquires or is acquired by, a third party that is clinically developing or commercializing a biologic TNF inhibitor for the treatment of psoriasis or targeting dermatologists for the treatment of psoriatic arthritis, in either case, in the United States or Canada, we have the right to terminate the agreement if UCB does not either cease such clinical development or commercialization or divest such product.
The UCB agreement is terminable by UCB if we commit an uncured material breach of the UCB agreement, in the event of our insolvency, or following our change of control with a competitor company or with a non-competitor company that does not meet the requirements described above. In these events, we are obligated to transition to UCB at our expense our activities under the UCB
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agreement and if such termination occurs prior to the grant of regulatory approval for Cimzia for the treatment of psoriasis, we are obligated to pay the remaining costs for which we would be responsible under the agreed development plan reduced by the amount of development milestone payments that would have been payable upon achievement of applicable development milestones when such milestones are achieved. UCB will remain responsible for its share of the development costs above the agreed amount and for pediatric clinical studies and its sole responsibility to fund any EMA-specific post-approval studies. If we comply with these development funding obligations, UCB is obligated to reimburse us for the development costs we incur less any applicable development milestone deductions, and if the termination occurs following regulatory approval, less any royalty payments and sales-based milestone payments made, by paying to us a low single-digit royalty on the net sales received by UCB from the sale of Cimzia in the United States and Canada in all indications until all such costs we have incurred have been reimbursed.
The UCB agreement is also terminable by UCB if it determines that a validated safety signal is established the magnitude of which UCB determines constitutes a significant patient risk so that the development or commercialization of Cimzia should cease. In this event, UCB is obligated to reimburse us for the development, commercial and medical affairs costs we have incurred in accordance with the UCB agreement by paying to us a low single-digit royalty on the net sales received by UCB from the sale of Cimzia in the United States and Canada in all indications until all costs have been reimbursed. Upon such a termination, UCB is obligated to no longer develop or commercialize Cimzia for the treatment of psoriasis anywhere in the world.
The UCB agreement is terminable by us if UCB commits an uncured material breach of the UCB agreement or in the event of UCB's insolvency. In such events, UCB is obligated to pay us an amount equal to the fair market value of the UCB agreement to us subject, if termination occurs before we and UCB have received the complete data set used to assess the primary efficacy endpoint of the first Phase 3 clinical trial of Cimzia for the treatment of psoriasis, to a minimum amount equal to a multiple of more than one time but less than two times the sum of the development, commercial and medical affairs costs we have incurred, the costs we incur transitioning development and commercialization to UCB and the costs, which we refer to as disruption and transition costs, that we incur as a result of termination, including terminating employees, reducing or disposing facilities and equipment and terminating or modifying agreements with third parties. The fair market value of the UCB agreement is the amount that a willing buyer would pay to a willing seller in an arm's length transaction for all of our rights under the UCB agreement, plus the disruption and transition costs. UCB is obligated to increase the payments to be made to us described in this paragraph by a tax gross-up equal to the income and other taxes incurred by us with respect to the receipt of such payments and the receipt of such gross-up amount, and if the payment to us is based on the minimum amount calculated above, instead of the determination of the fair market value of the UCB agreement, UCB may offset such payment by the aggregate amount of all development milestone payments that UCB previously paid to us. We and UCB have agreed to cooperate to minimize the amount of such taxes and if the resulting transaction structure results in taxation either to us, our affiliates or our stockholders, then the tax gross-up payment will also include an amount to be paid to such persons sufficient to cause their net tax costs to be no greater than the taxes they would have paid had the consideration received in such transaction been taxed net of basis at the long-term capital gains rate.
The UCB agreement is also terminable by us after we and UCB have received the complete data set used to assess the primary efficacy endpoint of the first Phase 3 clinical trial of Cimzia for the treatment of psoriasis. In this event, we are obligated to pay the costs of winding down all then-ongoing clinical studies or, if UCB elects to continue the development and commercialization of Cimzia for the treatment of psoriasis, continue to pay the costs for which we would have been responsible under the agreed development plan up to the completion, or the date of termination by UCB, of all then-ongoing clinical studies, reduced by the amount of development milestone payments that would have been payable upon achievement of applicable development milestones when such milestones are achieved.
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UCB will remain responsible for its share of development costs above the agreed amount and for pediatric clinical studies and its sole responsibility to fund any EMA-specific post-approval studies. If we comply with these development funding obligations and Cimzia is approved for the treatment of psoriasis, UCB is obligated to reimburse us for the net development costs we incur by paying to us a low single-digit royalty on the net sales received by UCB from the sale of Cimzia in the United States and Canada in all indications until all such costs we have incurred have been reimbursed.
Agreements with Rose U and Stiefel
In April 2013, we entered into an exclusive license agreement with Rose U pursuant to which we obtained a worldwide exclusive license within a field of use including hyperhidrosis to practice, enforce and otherwise exploit certain patent rights, know-how and data related to DRM04. The license agreement with Rose U included a sublicense of certain data and an assignment of certain regulatory filings which Rose U had obtained from Stiefel. In connection with the license agreement we entered into a letter agreement with Stiefel pursuant to which we assumed Rose U's obligation to pay Stiefel approximately $2.5 million in connection with the commercialization of products developed using the licensed data and to indemnify Stiefel for claims arising from the use, development or commercialization of products developed using the Stiefel data. The agreements require us to use commercially reasonable efforts to develop and commercialize products using the licensed patent rights, know-how and data.
Pursuant to these agreements with Rose U and the related agreement with Stiefel with respect to our DRM04 product candidate, we are required to pay additional amounts totaling up to $4.6 million upon the achievement of specified development, commercialization and other milestones under these agreements. In addition, we are obligated to pay Rose U low-to-mid single-digit royalties on net product sales and low double-digit royalties on sublicense fees and certain milestone, royalty and other contingent payments received from sublicensees, to the extent such amounts are in excess of the milestone and royalty payments we are obligated to pay Rose U directly upon the events or sales triggering such payments.
We are permitted to grant sublicenses to the licensed rights and may assign the agreements upon an acquisition of us or our assets that relate to the license agreement, provided that in the event of an acquisition of our assets we must first pay to Stiefel the commercialization payment we are obligated to make on behalf of Rose U, if such amount has not already been paid. We may terminate the license agreement if Rose U experiences certain insolvency events or if Rose U commits a material breach of the license agreement, subject to applicable cure provisions, and we may terminate the license agreement if we determine that development results or market dynamics do not justify further development or commercialization of licensed products. Rose U may terminate the license in certain circumstances if we experience certain insolvency events or if we commit a material breach of the license agreement or if we cause Rose U to be in material breach of its license agreement with Stiefel, subject in each case to applicable cure provisions. Subject to earlier termination, the license agreement remains in effect until 15 years following the first commercial sale of a licensed product have elapsed or, if later, the date that the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned. As of July 25, 2014, the last-to-expire issued patent relating to DRM04 that we license under the license agreement with Rose U expires in 2029.
Government Regulation
FDA Drug Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and
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reporting, sampling and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, or NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (1) in compliance with federal regulations; (2) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; and (3) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval at each site at which the clinical trial will be conducted. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. For dermatology products, Phase 2 usually involves trials in a limited patient population to determine metabolism, pharmacokinetics, the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 clinical trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most
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cases the FDA requires two adequate and well-controlled Phase 3 clinical trials with statistically significant results to demonstrate the efficacy of the drug. A single Phase 3 clinical trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of an effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and sponsor under an approved new drug application are also subject to annual product and establishment user fees. These fees are typically increased annually.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of new drug applications. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current good manufacturing practice, or cGMP, is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
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Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant's product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as "generic equivalents" to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product's listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then commence a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Exclusivity
Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approval an ANDA for a generic drug that includes the change.
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An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and, thus, no ANDA may be filed before the expiration of the exclusivity period.
Section 505(b)(2) New Drug Applications
Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2), or 505(b)(2), NDA, which enables the applicant to rely, in part, on the FDA's previous approval of a similar product, or published literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
Biologics
Cimzia is a biological product. Biological products used for the prevention, treatment or cure of a disease or condition of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of NDAs. Biological products are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a Biologics License Application, or BLA. However, the application process and requirements for approval of BLAs and BLA supplements, including review timelines, are very similar to those for NDAs and NDA supplements, and biologics are associated with similar approval risks and costs as drugs. To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of
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the manufacturer's tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing and are subject to periodic inspection after approval.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form and strength, and that there be no meaningful differences between the biological product and the reference product in terms of safety, purity and potency. Biosimilarity must be shown through analytical studies, animal studies and at least one clinical study, absent a waiver by the Secretary. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. No biosimilar or interchangeable products have been approved under the BPCIA to date. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation which are still being evaluated by the FDA.
A reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other biologics for the same condition of use for the lesser of (1) one year after first commercial marketing of the first interchangeable biosimilar, (2) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (3) 18 months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or (4) 42 months after the first interchangeable biosimilar's application has been approved if a patent lawsuit is ongoing within the 42-month period.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. The allowable patent term extension is calculated as half of the drug's testing phase, the time between IND application and NDA submission, and all of the review phase, the time between NDA submission and approval, up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
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Post-Approval Requirements
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, risk evaluation and mitigation strategies, or REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
Pediatric Information
Under the Pediatric Research Equity Act, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data.
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivity, patent or non-patent, for a drug if certain conditions are met. Conditions for exclusivity include the FDA's determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.
Regulation Outside of the United States
In addition to regulations in the United States, we will be subject to regulations of other countries governing any clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory
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authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. Certain countries outside of the United States have a process similar to the FDA's that requires the submission of a clinical trial application, or CTA, much like the IND prior to the commencement of human clinical trials. In the European Union, for example, a CTA must be submitted to each country's national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country's requirements, clinical trial development may proceed. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and is optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Anti-Kickback, False Claims Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry. These laws include, among others, anti-kickback statutes, false claims statutes and other statutes pertaining to healthcare fraud and abuse. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. The Patient Protection and Affordable Care Act, or PPACA, as amended, amended the intent element of the federal anti-kickback statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exceptions or safe harbor.
Federal false claims laws prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal
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programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate federal false claims laws. Additionally, PPACA amended the federal healthcare program anti-kickback statute such that a violation of that statute can serve as a basis for liability under certain federal false claims laws.
The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the healthcare fraud and false statements statutes, which prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations, or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items, or services.
Violations of these federal healthcare fraud and abuse laws are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs.
Other Federal and State Regulatory Requirements
The Centers for Medicare & Medicaid Services, or CMS, has issued a final rule pursuant to PPACA that requires certain manufacturers of prescription drugs to annually collect and report information on payments or transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Manufacturers were required to begin collecting information on August 1, 2013, with the first reports due March 31, 2014. The reported data is expected to be posted in searchable form on a public website beginning September 30, 2014. Failure to submit required information may result in civil monetary penalties.
In addition, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners and entities in these states. Other states prohibit various other marketing-related activities. Still other states require the posting of information relating to clinical studies and their outcomes. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies to implement compliance programs and marketing codes. Several additional states are considering similar proposals. Some of the state laws are broader in scope than federal laws. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.
Reimbursement
Sales of any of our product candidates that are approved will depend, in part, on the extent to which the costs of our approved products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If any
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of our products are approved and these third-party payors do not consider our approved products to be cost-effective compared to other therapies, they may not cover our approved products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our approved products on a profitable basis.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our approved products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The ARRA provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to the U.S. Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any approved product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor's product could adversely affect the sales of our product candidates. If third-party payors do not consider our approved products to be cost-effective compared to other available therapies, they may not cover our approved products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our approved products on a profitable basis.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, enacted in March 2010, is expected to have a significant impact on the health care industry. The ACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the impact of the ACA on pharmaceutical companies, as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred. In addition, although the U.S. Supreme Court upheld the constitutionality of most of the ACA, some states have indicated that they intend to not implement certain sections of the ACA, and some members of the U.S. Congress are still working to repeal parts of the ACA. These challenges add to the uncertainty of the legislative changes enacted as part of ACA.
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In addition, in some non-U.S. jurisdictions, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Manufacturing and Supply
We currently contract with third parties for the manufacture of our small-molecule drug substances and drug products for preclinical studies and clinical trials and intend to continue doing so in the future. All of our clinical drug product manufacturing activities are in compliance with cGMP. We have assembled a team of experienced employees and consultants to provide the necessary technical, quality and regulatory oversight over the contract manufacturing organizations, or CMOs, with which we contract. We rely on third-party cGMP manufacturers for scale-up and process development work and to produce sufficient quantities of development product candidates for use in clinical and preclinical trials. We currently have development contracts and quality agreements with four CMOs for the manufacturing of our four small-molecule drug substances and three additional CMOs for the manufacturing of our four topical drug products. We anticipate that these CMOs will have capacity to support commercial scale, but we do not have any formal agreements at this time with any of these CMOs to cover commercial production. We also may elect to pursue other CMOs for manufacturing supplies for later-stage trials and for commercialization. We currently have no plans to establish a manufacturing capability, but rather plan to continue to rely on third-party cGMP manufacturers for any future trials and commercialization of the small-molecule compounds for which we retain manufacturing responsibility. Under the UCB agreement, UCB retains all responsibilities for the manufacture of Cimzia.
Employees
As of June 30, 2014, we had 25 regular full-time employees, including 17 in research and development. We had one employee located outside of the United States as of June 30, 2014. From time to time, we also retain independent contractors to support our organization. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Facilities
Our corporate headquarters are located in Redwood City, California, where we occupy facilities totaling approximately 14,700 square feet, consisting of approximately 8,500 square feet under lease agreements that expire in November 2014 and approximately 6,200 square feet under a month-to-month lease. In July 2014, we entered into a lease agreement for a facility totaling approximately 18,833 square feet in Menlo Park, California. We intend to relocate our corporate headquarters to this facility in the fourth quarter of 2014. The term of the lease commences December 2014 and terminates November 2019, with an option to renew for an additional three-year term. We use our current facilities and intend to use our future facility for our research and development and general and administrative personnel. We believe that our current and future facilities are adequate to meet our needs for the immediate future.
Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.
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The following table provides information regarding our executive officers and directors as of August 18, 2014:
Name
|
Age | Position | |||
---|---|---|---|---|---|
Executive Officers: |
|||||
Thomas G. Wiggans |
62 | Chief Executive Officer and Chairman of the Board | |||
Eugene A. Bauer, M.D. |
72 | Chief Medical Officer and Director | |||
Christopher M. Griffith |
38 | Vice President, Corporate Development & Strategy | |||
Andrew L. Guggenhime |
46 | Chief Operating Officer and Chief Financial Officer | |||
Luis C. Peña |
52 | Executive Vice President, Product Development | |||
Non-Employee Directors: |
|||||
David E. Cohen, M.D., M.P.H.(1)(4) |
49 | Director | |||
Fred B. Craves, Ph.D.(2)(4) |
68 | Director | |||
Matthew K. Fust(1)(3) |
50 | Director | |||
Wende S. Hutton(3) |
54 | Director | |||
Mark D. McDade |
59 | Director | |||
Jake R. Nunn(4) |
44 | Director | |||
William R. Ringo(1)(3) |
68 | Director |
Executive Officers
Thomas G. Wiggans founded our company in August 2010, has served as our Chief Executive Officer and a member of our board of directors since August 2010 and has served as the Chairman of our board of directors since April 2014. Mr. Wiggans has served on the boards of various industry organizations, educational institutions and private and public companies, including service on the boards of directors of Onyx Pharmaceuticals, Inc., a biopharmaceutical company, from March 2005 until its acquisition by Amgen Inc. in October 2013, Sangamo Biosciences, Inc. from June 2008 until June 2012, Somaxon Pharmaceuticals, Inc. from June 2008 until May 2012 and as chairman of the board of directors of Excaliard Pharmaceuticals, Inc. from October 2010 until its acquisition by Pfizer Inc. in December 2011. From October 2007, Mr. Wiggans served as Chairman of the board of directors of Peplin, Inc., a biotechnology company, and in August 2008, he became its Chief Executive Officer, and he served in these positions until Peplin's acquisition by LEO Pharma A/S in November 2009. Previously, Mr. Wiggans served as Chief Executive Officer of Connetics Corporation, a biotechnology company, from 1994, and as Chairman of the board of directors of Connetics from January 2006, and he served in these positions until December 2006 when Connetics was acquired by Stiefel Laboratories, Inc. From 1992 to 1994, Mr. Wiggans served as President and Chief Operating Officer of CytoTherapeutics Inc., a biotechnology company. From 1980 to 1992, Mr. Wiggans served at Ares-Serono S.A. in various management positions including President of its U.S. pharmaceutical operations and Managing Director of its U.K. pharmaceutical operations. Mr. Wiggans began his career with Eli Lilly and Company, a pharmaceutical company. Mr. Wiggans is a member of the board of directors of one private company. In addition, Mr. Wiggans is Chairman of the Biotechnology Institute, a non-profit educational organization, and is a member of the board of trustees of the University of Kansas Endowment Association. Mr. Wiggans holds a B.S. in pharmacy from the University of Kansas
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and an M.B.A. from Southern Methodist University. Our board of directors believes that Mr. Wiggans' depth of senior management experience and his track record of new product development and commercialization as well as his experience serving on the boards of directors of public and private companies in the life sciences industry, qualify him to serve as the Chairman of our board of directors.
Eugene A. Bauer, M.D. founded our company in August 2010, has served as a member of our board of directors since August 2010 and has served as our Chief Medical Officer since October 2011. Dr. Bauer has served on the boards of directors of a number of public and private companies, including the boards of directors of Patient Safety Technologies, Inc. from January 2010 until June 2010 and Vyteris, Inc. from February 2010 until June 2012. From June 2006, Dr. Bauer served as a member of Peplin's board of directors, and in October 2008, he became its President and Chief Medical Officer, and he served in these positions until Peplin's acquisition by LEO Pharma in November 2009. From November 2004 to October 2008, Dr. Bauer was Chief Executive Officer of Neosil Inc., a dermatology company that was acquired by Peplin in October 2008. In 1993, Dr. Bauer co-founded Connetics, where he served as a member of the board of directors until October 2005. Dr. Bauer served as Dean of the Stanford University School of Medicine from 1995 to 2001 and as Chair of the Department of Dermatology at the Stanford University School of Medicine from 1988 to 1995. Dr. Bauer is a Lucy Becker Professor, Emeritus, in the School of Medicine at Stanford University, a position he has held since 2002. In addition, he is a member of the boards of directors of Medgenics, Inc., Dr. Tattoff, Inc., First Wave Technologies, Inc., Cerecor, Inc., and Kadmon Corporation, LLC. Dr. Bauer previously served as a member of the boards of directors of Protalex, Inc., Vyteris, Peplin, PetDRx, Inc., Arbor Vita Corp., Patient Safety Technologies, Inc., MediSync Bioservices and Modigene Inc. (now PROLOR Biotech, Inc.). Dr. Bauer was a U.S. National Institutes of Health, or NIH, funded investigator for 25 years and has served on review groups for the NIH. Dr. Bauer has been elected to several societies, including the Institute of Medicine of the National Academy of Sciences. Dr. Bauer received a B.S. in medicine and an M.D. from Northwestern University. Our board of directors believes that Dr. Bauer's educational and scientific background and his product development and management experience at a number of dermatology companies, as well as his experience serving on the boards of directors of public and private companies in the life sciences industry, qualify him to serve on our board of directors.
Christopher M. Griffith founded our company in August 2010 and has served as our Vice President of Corporate Development and Strategy since August 2011, after previously serving as our Head of Corporate Development and Strategy since September 2010. From July 2005 to September 2010, Mr. Griffith worked in corporate development at Gilead Sciences, Inc., most recently as Associate Director of Corporate Development. From May 2004 to August 2004, Mr. Griffith worked in the bio-oncology strategy group at Genentech, Inc., a biotechnology company. From 2001 to 2003, Mr. Griffith worked at Bay City Capital. Mr. Griffith received B.S. and M.S. degrees in biological sciences from Stanford University and an M.B.A. degree from Harvard Business School.
Andrew L. Guggenhime has served as our Chief Operating Officer and Chief Financial Officer since April 2014. From September 2011 to April 2014, Mr. Guggenhime served as Chief Financial Officer for CardioDx, Inc., a molecular diagnostics life sciences company, where he currently serves as a director. From September 2010 to April 2011, Mr. Guggenhime served as Chief Financial Officer for Calistoga Pharmaceuticals, Inc., a biotechnology company acquired in April 2011 by Gilead. From December 2008 to June 2010, Mr. Guggenhime served as Senior Vice President and Chief Financial Officer for Facet Biotech Corporation, a biotechnology company acquired in April 2010 by Abbott Laboratories. Facet Biotech Corporation was spun off from PDL BioPharma, Inc., a biopharmaceutical company, at which Mr. Guggenhime served as Chief Financial Officer from April 2006 to December 2008. From October 2000 to March 2006, Mr. Guggenhime served as Senior Vice President and Chief Financial Officer for Neoforma, Inc., a provider of supply-chain management solutions for the healthcare industry, and from January to October 2000 he served as its Vice President, Corporate Development.
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Mr. Guggenhime began his career in financial services at Merrill Lynch & Co. and Wells Fargo & Company. Mr. Guggenhime holds an M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.A. in international politics and economics from Middlebury College.
Luis C. Peña is a co-founder and has served as our Executive Vice President of Product Development since July 2013, after previously serving as our Vice President of Product Development since June 2011. From November 2010 to June 2011, Mr. Peña served as a consultant to our company. Mr. Peña served as Vice President, Head of Global Prescription Development at Stiefel, a GSK company, from January 2010 to March 2011 and, from January 2007 to December 2009, Mr. Peña served as Senior Vice President Portfolio Planning and Management at Stiefel Laboratories, prior to its acquisition by GlaxoSmithKline LLC. From 2005 to 2007, Mr. Peña served as Vice President of Portfolio Planning and Management of Connetics. From 2001 to 2005, Mr. Peña served as Vice President of Product Development of Nuvelo, Inc., a biopharmaceutical company. Previously, Mr. Peña served as Senior Director of Project Planning and Management for Theravance, Incorporated, a pharmaceutical company, and held various positions in manufacturing, research and development at Genentech, Inc., a biotechnology company. Mr. Peña currently serves as an advisor to the SPARK program for the Stanford University School of Medicine where he has been an advisor since 2012. Mr. Peña holds a B.S. in biochemistry from San Francisco State University.
Non-Employee Directors
David E. Cohen, M.D., M.P.H. has been a director of our Company since June 2014. Dr. Cohen previously served us as a scientific advisor from July 2010 to June 2014. Since 1993, Dr. Cohen has held positions at the New York University School of Medicine, including as Chief of Allergy and Contact Dermatitis since 1994, Director of Occupational and Environmental Dermatology since 1994, Associate Professor of Dermatology since 2005, Vice Chairman of Clinical Affairs since 2008, and the Charles C. and Dorothea E. Harris Professor of Dermatology since May 2013. Dr. Cohen has also served as a lecturer of Environmental Sciences at the Columbia University School of Public Health since 1993. In addition, he has been an attending physician at the Ronald O. Perelman Department of Dermatology at the Tisch Hospital at New York University Medical Center and at Bellevue Hospital Center since 1994. Dr. Cohen served on the boards of directors of Vyteris from June 2011 to January 2012 and Connetics from December 2005 until its sale to Stiefel Laboratories in December 2006. Dr. Cohen has served as a clinical consultant to numerous companies. Dr. Cohen has also served on the boards and committees of a number of professional organizations, including as President of the American Contact Dermatitis Society, as a founding board member of the American Acne and Rosacea society, as President of the Dermatology Section for the New York Academy of Medicine and on several committees of the American Academy of Dermatology and the American College of Allergy, Asthma, and Immunology. Dr. Cohen is also a member of the editorial board of Journal of Drugs in Dermatology and the editorial advisory boards of Dermatitis and Skin and Allergy News. Dr. Cohen earned a B.S. in biomedical science from the City University of New York, an M.D. from State University of New York at Stony Brook School of Medicine and an M.P.H. in environmental science from Columbia University School of Public Health. Our board of directors believes that Dr. Cohen's extensive experience in dermatology research and treatment as well as his understanding of dermatology from the physician's perspective qualify him to serve on our board of directors.
Fred B. Craves, Ph.D. has been a director of our company since August 2010. Dr. Craves is an investment partner, a Managing Director and a co-founder of Bay City Capital, or BCC, and has served as a member of the board of directors and Chairman of the executive committee of BCC since June 1997. Prior to founding BCC in 1996, Dr. Craves founded Burrill & Craves, a merchant bank focused on biotechnology and emerging pharmaceutical companies, in 1994. Dr. Craves served as Executive Vice President of Schering Berlin, Inc., a pharmaceutical company, and Chief Executive Officer and President of Berlex Laboratories, Inc., a research, development and manufacturing organization, from
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1990 to 1993. Dr. Craves was also the founding Chairman of the board of directors and Chief Executive Officer of Codon, Inc. and co-founder of Creative Biomolecules, both biotechnology companies. Dr. Craves is a member of the boards of directors of several privately held companies. Dr. Craves previously served as a member of the board of directors of VIA Pharmaceuticals, Inc. from August 2004 to September 2011 and Poniard Pharmaceuticals, Inc. from June 1993 to September 2013. He also serves as a member of The J. David Gladstone Institutes' Advisory Council and is a member of the board of trustees of Loyola Marymount University in Los Angeles. Dr. Craves earned a B.S. degree in biology from Georgetown University, an M.S. in biochemical pharmacology from Wayne State University and a Ph.D. in pharmacology and experimental toxicology from the University of California, San Francisco. Our board of directors believes that Dr. Craves' investment experience and extensive knowledge of the life sciences industry qualify him to serve on our board of directors.
Matthew K. Fust has been a director of our company since April 2014. Mr. Fust was Executive Vice President and Chief Financial Officer at Onyx from January 2009 until its acquisition by Amgen in October 2013. Mr. Fust continued as an employee of Amgen until January 2014. Prior to joining Onyx, Mr. Fust was Senior Vice President and Chief Financial Officer at Jazz Pharmaceuticals, Inc., a biopharmaceutical company, from May 2003 to December 2008. From May 2002 to May 2003, Mr. Fust was Chief Financial Officer at Perlegen Sciences, Inc., a pharmacogenomics company. Previously, he was Senior Vice President and Chief Financial Officer at ALZA Corporation, a biopharmaceutical company, where he was an executive from June 1996 to January 2002. From 1991 until 1996, Mr. Fust was a manager in the healthcare strategy practice at Andersen Consulting. Mr. Fust serves as a member of the board of directors of MacroGenics, Inc., Sunesis Pharmaceuticals, Inc., and Ultragenyx Pharmaceutical, Inc., each of which are publicly-traded biotechnology companies. Mr. Fust holds a B.A. in accounting from the University of Minnesota and an M.B.A. from the Stanford Graduate School of Business. Our board of directors believes that Mr. Fust's financial expertise, with its focus on the pharmaceutical and biopharmaceutical industries, qualifies him to serve on our board of directors.
Wende S. Hutton has been a director of our company since August 2011. Ms. Hutton has been a Partner at Canaan Partners, a global venture capital firm, since 2004, and is currently a General Partner. Ms. Hutton served on the board of directors of Chimerix, Inc. from February 2012 until June 2014 and currently sits on the boards of directors of a number of private companies. From 2002 to 2003, Ms. Hutton was a General Partner at Spring Ridge Partners and from 1994 to 2001, Ms. Hutton was a General Partner at Mayfield Fund after having served as a venture partner from 1993 to 1994. Her prior experience includes general management at GenPharm International and business development and marketing positions at Nellcor Inc. Ms. Hutton earned an A.B. in human biology from Stanford University and an M.B.A. from Harvard Business School. Our board of directors believes that Ms. Hutton's experience in finance and expertise in the drug development, medical device, pharmaceutical and diagnostics fields qualify her to serve on our board of directors.
Mark D. McDade has been a director of our company since August 2014. Mr. McDade has been the Executive Vice President, Global Operations of UCB S.A., a biopharmaceutical company, since February 2013 after previously serving as UCB's Executive Vice President, Established Brands from April 2008 to February 2013. From November 2002 until October 2007, Mr. McDade served as Chief Executive Officer and on the board of directors of PDL BioPharma, Inc. From December 2000 until November 2002, Mr. McDade served as Chief Executive Officer of Signature BioScience Inc., a drug discovery company. Prior to that, he co-founded and served as Chief Operating Officer at Corixa Corporation, a biopharmaceutical company, from September 1994 until December 1998, and as President and Chief Operating Officer from January 1999 to November 2000. Previously, Mr. McDade was Chief Operating Officer of Boehringer Mannheim Therapeutics, the biopharmaceutical division of Corange Limited, and held numerous business development and general management positions at Sandoz Ltd. He has been a director of Five Prime Therapeutics, Inc., a biotechnology company, since July 2006. From April 2005 to July 2009, he served on the board of directors of Cytokinetics,
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Incorporated, a biotechnology company. Mr. McDade received a B.A. from Dartmouth College and an M.B.A. from Harvard Business School. Pursuant to our development and commercialization agreement with UCB, or the UCB agreement, UCB is entitled to designate one member of our board of directors and has designated Mr. McDade. In addition, our board of directors believes that Mr. McDade's executive leadership experience, extensive business development and operations experience, and service on the boards of directors of companies in the biopharmaceutical industry qualify him to serve on our board of directors.
Jake R. Nunn has been a director of our company since May 2011. Mr. Nunn has been a Partner at New Enterprise Associates, Inc., a venture capital firm, since June 2006. From January 2001 to June 2006, Mr. Nunn served as a Partner and an analyst for the MPM BioEquities Fund, a life sciences fund at MPM Capital, L.P., a private equity firm. Previously, Mr. Nunn was a healthcare research analyst and portfolio manager at Franklin Templeton Investments and an investment banker with Alex, Brown & Sons. Mr. Nunn currently serves on the boards of directors of Hyperion Therapeutics, Inc., Transcept Pharmaceuticals, Inc., Trevena, Inc. and TriVascular Technologies, Inc. and on the board of directors of one private company. Mr. Nunn received his A.B. in economics from Dartmouth College and his M.B.A. from the Stanford Graduate School of Business. Mr. Nunn also holds the Chartered Financial Analyst designation, and is a member of the C.F.A. Society of San Francisco. Our board of directors believes that Mr. Nunn's experience investing in life sciences, specialty pharmaceuticals, biotechnology and medical device companies, as well as his business and financial background, qualify him to serve on our board of directors.
William R. Ringo has been a director of our company since July 2014. Mr. Ringo has served as a senior advisor to Barclays Healthcare Group and as a strategic advisor to Sofinnova Ventures, a venture capital firm, since June 2010. From April 2008 until his retirement in April 2010, Mr. Ringo was Senior Vice President of Business Development and Corporate Strategy at Pfizer Inc., a pharmaceutical company. Prior to joining Pfizer, he served as an executive in residence at Warburg Pincus and Sofinnova Ventures. From August 2004 to April 2006, Mr. Ringo was President and Chief Executive Officer of Abgenix, Inc., a biotechnology firm. Previously, Mr. Ringo held a number of senior positions in the oncology and critical care, internal medicine, infection disease and sales and marketing divisions at Eli Lilly & Company from 1973 until 2001. Mr. Ringo is currently a member of the boards of directors of Assembly Biosciences, Inc., Immune Design Corp., Mirati Therapeutics, Inc. and Sangamo Biosciences, Inc. Mr. Ringo previously served as a member of the boards of directors of Onyx Pharmaceuticals, Inc. from 2011 to 2013. Mr. Ringo received a B.S. in industrial management and an M.B.A. from the University of Dayton. Our board of directors believes that Mr. Ringo's extensive senior executive experience and service on the boards of directors of a number of private and public biotechnology and pharmaceutical companies in the life sciences industry qualify him to serve on our board of directors.
Election of Officers
Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.
Board of Directors
Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of nine members. Our current certificate of incorporation and voting agreement among certain investors provide for two directors to be elected by holders of our common stock, three directors to be elected by holders of our Series A convertible preferred stock and all other directors to be elected by the holders of our common stock and preferred stock voting together as a single class on an as-converted to common stock basis. Ms. Hutton, Dr. Craves and Mr. Nunn are the designees of our Series A convertible preferred stock, Mr. Wiggans
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and Dr. Bauer are the designees of our common stock and Dr. Cohen and Messrs. Fust, McDade and Ringo are designees of our common stock and preferred stock voting together.
The voting agreement and the provisions of our certificate of incorporation by which Ms. Hutton, Drs. Bauer and Craves and Messrs. McDade, Nunn and Wiggans were elected will terminate in connection with our initial public offering. Pursuant to the UCB agreement, UCB is entitled to designate one member of our board of directors, currently Mr. McDade, and we have agreed not to remove the UCB designee prior to, and to renominate the UCB designee for election at each annual meeting of stockholders taking place prior to the earliest of the date that (1) Dermira has terminated the UCB agreement for certain breaches of UCB, (2) UCB has terminated the UCB agreement for certain breaches of Dermira, (3) UCB ceases to own 50% of the shares of Dermira that it has purchased directly from Dermira, (4) Dermira consummates a change of control, (5) specified time periods after the termination of the UCB agreement other than for a breach and (6) the later of the date on which (a) all valid claims under a patent relevant to the UCB agreement have expired or the last unexpired valid claim of this patent is declared invalid and (b) the net sales of Cimzia to dermatologists in a calendar year during the term of the UCB agreement are less than a specified percentage of the net sales of Cimzia to dermatologists in any prior calendar year during the term of the UCB agreement. Other than the foregoing provisions of the UCB agreement, there will be no contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.
Classified Board of Directors
Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows.
Each director's term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering authorize only our board of directors to fill vacancies on our board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
The classification of our board of directors may have the effect of delaying or preventing changes in control of our company. See "Description of Capital StockAnti-Takeover ProvisionsRestated Certificate of Incorporation and Restated Bylaws Provisions."
Director Independence
Our common stock will be listed on The NASDAQ Global Market, or NASDAQ. Under NASDAQ rules, independent directors must comprise a majority of a listed company's board of directors within a specified period of the completion of this offering. In addition, NASDAQ rules
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require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent. Under NASDAQ rules, a director will only qualify as an "independent director" if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 within the one year transition period provided by Rule 10A-3 and current NASDAQ rules.
Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that Ms. Hutton, Drs. Cohen and Craves and Messrs. Fust, Nunn and Ringo, representing six of our nine directors, are "independent directors" as defined under the applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and the listing requirements and rules of NASDAQ. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director's business and personal activities and relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section titled "Certain Relationships and Related Party Transactions." In particular, our board of directors considered each of the following:
Board Leadership Structure
Our board of directors believes that it should maintain flexibility to select the Chairman of our board of directors and adjust our board leadership structure from time to time. In April 2014, our board determined that appointing Mr. Wiggans, our Chief Executive Officer, as the Chairman of our board and establishing a Lead Independent Director was in our best interests and those of our stockholders. Our board of directors determined that having our Chief Executive Officer also serve as the Chairman of our board provides us with optimally effective leadership. Mr. Wiggans founded and has led our company since its inception. Our board believes that Mr. Wiggans' strategic vision for our business, his in-depth knowledge of our products and operations, the dermatology field and life sciences industry, and his experience serving as the Chairman of the board of directors and chief executive officer of other successful public companies make him well qualified to serve as both chairman of our board and Chief Executive Officer.
The role given to the Lead Independent Director helps ensure a strong independent and active board of directors. Our Lead Independent Director's duties include, among other things, presiding at all meetings of our board of directors in the absence of the Chairman of our board, presiding at all
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executive sessions of the independent directors, serving as a liaison between the Chairman of our board and the independent directors of our board, consulting with the Chairman of our board regarding the agenda for meetings of our board and the information sent to our board in connection with its meetings, having authority to call meetings of our board and meetings of the independent directors and such other duties and responsibilities as our board may from time to time authorize. In April 2014, our board selected Dr. Craves to serve as lead independent director.
Committees of Our Board of Directors
Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below as of the closing of our initial public offering. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee will operate under a charter approved by our board of directors. Following this offering, copies of each committee's charter will be posted on the investor relations section of our website.
Audit Committee
Our audit committee is comprised of Matthew K. Fust, David E. Cohen and William R. Ringo. Mr. Fust is the chairperson of our audit committee. Messrs. Fust and Ringo and Dr. Cohen each meet the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Mr. Fust is an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
Compensation Committee
Our compensation committee is comprised of Wende S. Hutton, Matthew K. Fust and William R. Ringo. Ms. Hutton is the chairperson of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Each member of this committee is (1) an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code,
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and (2) a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things:
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of Jake R. Nunn, David E. Cohen and Fred B. Craves. Mr. Nunn is the chairperson of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things:
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the year ended December 31, 2013.
In August 2011 and August 2012, we sold shares of our Series A convertible preferred stock to Mr. Wiggans, Dr. Bauer and entities affiliated with each of Ms. Hutton, Dr. Craves and Mr. Nunn. We have described the amounts of these sales and purchases in more detail under the section entitled "Certain Relationships and Related Party TransactionsSeries A Convertible Preferred Stock Financing." In March 2013, we sold shares of our Series B convertible preferred stock to entities affiliated with each of Ms. Hutton, Dr. Craves and Mr. Nunn and in April 2014, we sold shares of our Series B convertible preferred stock to entities affiliated with Dr. Craves and Mr. McDade. We have described the amounts of these sales and purchases in more detail under the section entitled "Certain Relationships and Related Party TransactionsSeries B Convertible Preferred Stock Financing." In August 2014, we sold shares of our Series C convertible preferred stock to entities affiliated with each of Ms. Hutton, Dr. Craves and Messrs. McDade, Nunn and Wiggans. We have described the amounts of these sales and purchases in more detail under the section entitled "Certain Relationships and Related Party TransactionsSeries C Convertible Preferred Stock Financing."
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In connection with the sales of our preferred stock, we entered into agreements that grant customary preferred stock rights to all of our major preferred stock investors. These rights include registration rights, rights of first refusal, co-sale rights with respect to certain stock transfers, information rights and other similar rights. All of these rights, other than the registration rights, will terminate upon the closing of this offering. For a description of the registration rights, see "Description of Capital StockRegistration Rights."
Mr. Fust served as an executive officer of Onyx from January 2009 until Onyx's acquisition by Amgen Inc. in October 2013, during which time Mr. Wiggans served as a member of Onyx's board of directors and as a member of its compensation committee.
Codes of Business Conduct and Ethics
Our board of directors has adopted codes of business conduct and ethics that apply to all of our employees, officers and directors. The full text of our codes of conduct will be posted on the investor relations section of our website. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our codes of conduct, or waivers of these provisions, on our website or in public filings.
Non-Employee Director Compensation
We did not pay any compensation, reimburse any expenses (other than customary expenses in connection with the attendance of meetings of our board of directors) or grant any equity awards in the year ended December 31, 2013 to any non-employee member of our board of directors.
In August 2014, our board of directors adopted a compensation program for non-employee directors to apply following the closing of this offering.
Each of our non-employee directors will receive an annual cash retainer of $35,000 and our Lead Independent Director will receive an additional annual cash retainer of $15,000. The chairs of our audit committee, our compensation committee and our nominating and corporate governance committee will receive annual cash retainers of $15,000, $10,000 and $7,500, respectively. Each member of our audit committee, our compensation committee and our nominating and corporate governance committee will receive annual cash retainers of $7,500, $5,000 and $3,500, respectively. We do not pay fees to directors for attendance at meetings of our board of directors and its committees.
Each non-employee director who becomes a member of our board of directors after this offering will be granted an initial option to purchase 120,000 shares of our common stock upon election to our board of directors vesting and becoming exercisable as to one-third of the shares each anniversary of the grant date over three years. On the date of each annual stockholder meeting subsequent to this offering, each non-employee director who continues to serve on our board of directors immediately following such meeting will automatically be granted an option to purchase 60,000 shares of our common stock, subject to proration on a monthly basis in the event the non-employee director has not served an entire year on our board of directors since his or her last stock option grant, vesting and becoming exercisable as to 100% of the shares on the first anniversary following the grant date. Each option will have an exercise price equal to the fair market value of our common stock on the date of grant, will have a ten-year term and will accelerate as to all then-unvested shares immediately prior to the effectiveness of a change of control.
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The following tables and accompanying narrative disclosure set forth information about the compensation provided to our executive officers during the year ended December 31, 2013. These executive officers, who include our principal executive officer and the two most highly-compensated executive officers (other than our principal executive officer) who were serving as executive officers as of December 31, 2013, the end of our last completed fiscal year, were:
We refer to these individuals in this section as our "Named Executive Officers."
Summary Compensation Table
The following table presents summary information regarding the total compensation that was awarded to, earned by or paid to our Named Executive Officers for services rendered in all capacities during the year ended December 31, 2013.
Name and
Principal Position |
Salary
($) |
Option
Awards ($)(1) |
Non-Equity
Incentive Plan Compensation ($)(2) |
All Other
Compensation ($)(3) |
Total
($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Thomas G. Wiggans |
$ | 360,062 | $ | 263,156 | $ | 103,013 | | $ | 726,231 | |||||||
Chief Executive Officer and Chairman of the Board |
||||||||||||||||
Eugene A. Bauer |
325,000 | 117,929 | 77,391 | $ | 3,684 | 524,004 | ||||||||||
Chief Medical Officer |
||||||||||||||||
Luis C. Peña |
267,475 | 124,482 | 74,000 | | 465,957 | |||||||||||
Executive Vice President, Product Development |
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Employment Agreements and Offer Letters
We have entered into employment agreements or offer letters with each of our Named Executive Officers. The employment agreements or offer letters generally provide for at-will employment, the initial terms and conditions of employment of each Named Executive Officer, including base salary, annual bonus opportunity, eligibility to participate in our employee benefit plans and, in certain cases, an initial equity award. Each of these arrangements was approved by our then current Chief Executive Officer or our board of directors. The material terms of these employment agreements and offer letters are summarized below. These summaries are qualified in their entirety by reference to the actual text of the employment agreements and offer letters, which are filed as exhibits to the registration statement of which this prospectus is a part. In addition, each of our Named Executive Officers has executed a form of our standard employee intellectual property protection agreement.
Mr. Wiggans' Employment Agreement
On August 18, 2010, we entered into an employment agreement with Mr. Wiggans in connection with his appointment as our Chief Executive Officer, which we subsequently amended and restated on August 4, 2011. The terms and conditions of his amended employment agreement provided for an annual base salary of $350,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and other employee benefits as we establish for our employees from time to time. His original employment agreement provided for the opportunity to purchase 1,000,000 shares of our common stock, with a purchase price of $0.001 per share. In satisfaction of the terms of the employment agreement, Mr. Wiggans purchased 1,000,000 shares of our common stock in August 2010.
Dr. Bauer's Employment Agreement
On November 1, 2010, we entered into an employment agreement with Dr. Bauer in connection with his appointment as our Chief Medical Officer, which we subsequently amended and restated on August 4, 2011. The terms and conditions of his amended employment agreement provided for an annual base salary of $162,500 based on Dr. Bauer devoting 50% of his business time, attention and effort to the affairs of our company, subject to adjustment from time to time, and eligibility for an annual bonus, reimbursement for health insurance coverage and other employee benefits as we establish for our employees from time to time. Dr. Bauer currently devotes 100% of his business time, attention and effort to the affairs of our company, and in connection with his transition to full-time service to our company, his base salary was increased to $325,000.
Mr. Peña's Employment Offer Letter
On June 1, 2011, we entered into an employment offer letter with Mr. Peña in connection with his appointment as our Vice President of Product Development, which we subsequently amended and restated on August 3, 2011 and July 17, 2012. The terms and conditions of his amended and restated employment offer letter provided for an annual base salary of $260,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and other employee benefits as we establish for our employees from time to time. His original employment offer letter provided for the grant of an option to purchase 550,000 shares of our common stock, with a purchase price to be established following our initial equity financing, and his 2012 amended and restated employment offer letter provided for an additional option grant to purchase a number of shares to be determined following the closing of the second tranche of our Series A convertible preferred stock financing. In satisfaction of the terms of the offer letter, Mr. Peña received an option grant to purchase 550,000 shares of our common stock in October 2011 and an additional option grant to purchase 188,538 shares in January 2013.
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Potential Payments upon Termination or Change of Control
If we terminate the employment of any of our Named Executive Officers without cause (as defined in the applicable employment agreement or offer letter), or such Named Executive Officer resigns for good reason (as defined in the applicable employment agreement or offer letter), and such Named Executive Officer returns all of our property and delivers a release of claims agreement in a form satisfactory to us, such Named Executive Officer would be entitled to severance in the amount of six months of his then current annual base salary. For Mr. Peña, such amount would be paid on a monthly basis and, for Mr. Wiggans and Dr. Bauer, such amount would be paid either in a lump sum or on a monthly basis for six months at the option of the applicable Named Executive Officer.
If, (1) within 12 months following a change of control, we terminate a Named Executive Officer's employment without cause or (2) such Named Executive Officer voluntarily resigns for good reason, where such good reason occurs within 12 months following a change of control and such resignation occurs within 90 days following such good reason, then, in addition to the severance benefits described above, such Named Executive Officer would be entitled to accelerated vesting of any then-unvested shares subject to equity awards granted to him after the date of the applicable agreement (or, in the case of Mr. Peña, any equity awards) and the release of such shares from any repurchase option, right of forfeiture or similar right. In the event of a Named Executive Officer's death or disability (as defined in the applicable employment agreement or offer letter), for any outstanding equity grant that is not at least 25% vested at such time, any shares subject to such equity awards granted to such Named Executive Officer after the date of the applicable agreement (or, in the case of Mr. Peña, any equity awards) shall become vested such that, after such acceleration, the total number of shares subject to such outstanding equity grants shall be 25% vested and released from any repurchase option, right of forfeiture or similar right, as applicable. In addition, in the event of a change of control in which the successor or acquiring entity (if any) or its parent does not assume, convert, replace or substitute a Named Executive Officer's outstanding equity awards as provided in the 2010 Equity Incentive Plan, or the 2010 Plan, or any comparable term of any similar equity incentive plan, in a manner that preserves the material terms and conditions of such equity awards, then, notwithstanding the terms of the applicable plan, all of such Named Executive Officer's outstanding equity awards will, prior to the effectiveness of the change of control, immediately become fully vested and released from any repurchase option, right of forfeiture or similar right.
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Outstanding Equity Awards at Fiscal Year-End Table
The following table presents, for each of the Named Executive Officers, information regarding outstanding stock options held as of December 31, 2013.
|
Option Awards | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of
Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Option
Exercise Price ($) |
Option
Expiration Date |
|||||||||
Mr. Wiggans |
796,859 | (1) | 674,267 | $ | 0.17 | 10/3/2021 | |||||||
|
| (2) | 1,069,227 | 0.21 | 1/3/2023 | ||||||||
|
| (2) | 570,897 | 0.30 | 7/10/2023 | ||||||||
Dr. Bauer |
346,948 | (1) | 293,572 | 0.17 | 10/3/2021 | ||||||||
|
87,083 | (2) | 102,917 | 0.17 | 2/8/2022 | ||||||||
|
| (2) | 848,159 | 0.21 | 1/3/2023 | ||||||||
Mr. Peña |
18,500 | (1) | 5,500 | 0.001 | 11/15/2020 | ||||||||
|
343,750 | (2) | 206,250 | 0.17 | 10/3/2021 | ||||||||
|
| (2) | 188,538 | 0.21 | 1/3/2023 | ||||||||
|
| (2) | 488,712 | 0.30 | 7/10/2023 |
Employee Benefit and Stock Plans
2010 Equity Incentive Plan
Our board of directors adopted the 2010 Plan in October 2010 and our stockholders subsequently approved it in October 2010. We subsequently amended the 2010 Plan in August 2011, March 2013, July 2013, April 2014 and August 2014. Our board of directors, or a committee thereof appointed by our board of directors, administers the 2010 Plan and the awards granted under it. The plan administrator has the authority to modify outstanding awards under the 2010 Plan. The 2010 Plan provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and nonstatutory stock options, as well as for the issuance of shares of restricted stock awards, or RSAs, restricted stock units, or RSUs, and stock appreciation rights, or SARs. We may grant incentive stock options only to our employees and employees of our majority-owned subsidiaries. We may grant nonstatutory stock options, RSAs, RSUs and SARs to our employees, directors and consultants and employees, directors and consultants of our majority-owned subsidiaries. The exercise price of each stock option must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under the 2010 Plan is 10 years, except that the maximum permitted term of incentive stock options granted to 10% stockholders is five years. In the event of an acquisition (as defined in the 2010 Plan), the 2010 Plan provides that, unless the applicable option agreement provides otherwise or our board of directors or compensation committee takes certain actions, such as accelerating the vesting of the awards or providing for the assumption,
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conversion or replacement of the option by an acquirer, awards held by current employees, directors and consultants will terminate if not vested or exercised prior to the effective time of the acquisition.
As of June 30, 2014, we had reserved 13,499,356 shares of our common stock for issuance under the 2010 Plan. As of June 30, 2014, options to purchase 36,000 shares had been exercised (none of which have been repurchased and returned to the pool of shares available for issuance under the 2010 Plan), options to purchase 13,138,983 shares remained outstanding and 324,373 shares remained available for future grant. In August 2014, our board of directors and stockholders approved an increase of 750,000 shares of our common stock for issuance under the 2010 Plan, which resulted in an aggregate of 14,249,356 shares of common stock reserved for issuance under the 2010 Plan. The options outstanding as of June 30, 2014 had a weighted-average exercise price of $0.37 per share. We will cease issuing awards under the 2010 Plan upon the implementation of the 2014 Equity Incentive Plan, or the 2014 Plan. The 2014 Plan will be effective on the date immediately prior to the date of this prospectus. As a result, we will not grant any additional options under the 2010 Plan following that date, and the 2010 Plan will terminate at that time. However, any outstanding options granted under the 2010 Plan will remain outstanding, subject to the terms of the 2010 Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms. Options granted under the 2010 Plan have terms similar to those described below with respect to options to be granted under the 2014 Plan.
2014 Equity Incentive Plan
We have adopted the 2014 Plan that will become effective on the date immediately prior to the date of this prospectus and will serve as the successor to the 2010 Plan. We reserved shares of our common stock to be issued under the 2014 Plan. The number of shares reserved for issuance under the 2014 Plan will increase automatically on of each of our fiscal years beginning through by the number of shares equal to % of the total outstanding shares of our common stock and common stock equivalents as of the immediately preceding December 31. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. In addition, the following shares of our common stock will be available for grant and issuance under the 2014 Plan:
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The 2014 Plan authorizes the award of stock options, RSAs, SARs, RSUs, performance awards and stock bonuses. No person will be eligible to receive more than shares in any calendar year under the 2014 Plan other than a new employee of ours, who will be eligible to receive no more than shares under the plan in the calendar year in which the employee commences employment.
The 2014 Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret the 2014 Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.
The 2014 Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant.
We anticipate that, in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under the 2014 Plan is 10 years.
An RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of an RSA will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares will be forfeited to or repurchased by us.
SARs provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price at grant up to a maximum amount of cash or number of shares. SARs may vest based on time or achievement of performance conditions.
RSUs represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the RSU shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash. We anticipate that, in general, RSUs will vest over a four-year period.
Performance awards cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement due to termination of employment or failure to achieve the performance conditions.
Stock bonuses may be granted as additional compensation for service or performance, and therefore, may not be issued in exchange for cash.
The 2014 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on income tax deductibility imposed by Section 162(m) of the Code. Our compensation committee may structure awards so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period.
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Our compensation committee may establish performance goals by selecting from one or more of the following performance criteria: (1) profit before tax; (2) billings; (3) revenue; (4) net revenue; (5) earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings); (6) operating income; (7) operating margin; (8) operating profit; (9) controllable operating profit or net operating profit; (10) net profit; (11) gross margin; (12) operating expenses or operating expenses as a percentage of revenue; (13) net income; (14) earnings per share; (15) total stockholder return; (16) market share; (17) return on assets or net assets; (18) our stock price; (19) growth in stockholder value relative to a pre-determined index; (20) return on equity; (21) return on invested capital; (22) cash flow (including free cash flow or operating cash flows); (23) cash conversion cycle; (24) economic value added; (25) individual confidential business objectives; (26) contract awards or backlog; (27) overhead or other expense reduction; (28) credit rating; (29) strategic plan development and implementation; (30) succession plan development and implementation; (31) improvement in workforce diversity; (32) customer indicators; (33) new product invention or innovation; (34) attainment of research and development milestones; (35) improvements in productivity; (36) bookings; (37) attainment of objective operating goals and employee metrics; and (38) any other metric that is capable of measurement as determined by our compensation committee.
Our compensation committee may establish performance goals on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless otherwise specified by our compensation committee (1) in the award agreement at the time the award is granted or (2) in such other document setting forth the performance goals at the time the performance goals are established, our compensation committee will make adjustments, if it determines appropriate in its sole discretion, in the method of calculating the attainment of the performance goals as follows: (a) to exclude restructuring and other nonrecurring charges; (b) to exclude exchange rate effects; (c) to exclude the effects of changes to U.S. generally accepted accounting principles, or U.S. GAAP; (d) to exclude the effects of any statutory adjustments to corporate tax rates; (e) to exclude the effects of any "extraordinary items" as determined under U.S. GAAP; (f) to exclude the dilutive effects of acquisitions or joint ventures; (g) to assume that any business divested by our company achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (h) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (i) to exclude the effects of stock-based compensation and the award of bonuses under our bonus plans; (j) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under U.S. GAAP; (k) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under U.S. GAAP; and (l) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item.
In the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to the number of shares reserved under the 2014 Plan, the maximum number of shares that can be granted in a calendar year and the number of shares and exercise price, if applicable, of all outstanding awards under the 2014 Plan.
Awards granted under the 2014 Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee's guardian or legal representative. Options granted under the 2014 Plan generally may be exercised for a period of three months after the termination of the optionee's service to us, for a period of 12 months in the case of death or for a
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period of six months in the case of disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of employment for cause.
If we are party to a merger or consolidation, sale of all or substantially all assets or similar change in control transaction, outstanding awards, including any vesting provisions, may be assumed or substituted by the successor company. In the alternative, outstanding awards may be cancelled in connection with a cash payment. Outstanding awards that are not assumed, substituted or cashed out will accelerate in full and expire upon the closing of the transaction. In the event of specified change in control transactions, our compensation committee may accelerate the vesting of awards (1) immediately upon the occurrence of the transaction, whether or not the award is continued, assumed, substituted or replaced by a surviving corporation or its parent in the transaction or (2) in connection with a termination of a participant's service following such transaction.
The 2014 Plan will terminate 10 years from the date our board of directors approved it, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate the 2014 Plan at any time. If our board of directors amends the 2014 Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.
2014 Employee Stock Purchase Plan
We have adopted a 2014 Employee Stock Purchase Plan, or the 2014 ESPP, in order to enable eligible employees to purchase shares of our common stock at a discount following the date of this offering. Purchases will be accomplished through participation in discrete offering periods. The 2014 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. We initially reserved shares of our common stock for issuance under the 2014 ESPP. The number of shares reserved for issuance under the 2014 ESPP will increase automatically on of each of our fiscal years beginning through by the number of shares equal to the greater of % of the total outstanding shares of our common stock and common stock equivalents as of the immediately preceding December 31. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of the 2014 ESPP will not exceed shares of our common stock.
Our compensation committee will administer the 2014 ESPP. Our employees generally are eligible to participate in the 2014 ESPP. Our compensation committee may in its discretion elect to exclude employees who work fewer than 20 hours per week or five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in the 2014 ESPP, are ineligible to participate in the 2014 ESPP. We may impose additional restrictions on eligibility. Under the 2014 ESPP, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible employees will be able to select a rate of payroll deduction between % and % of their eligible cash compensation. We will also have the right to amend or terminate the 2014 ESPP at any time. The 2014 ESPP will terminate on the tenth anniversary of the effective date of this offering, unless it is terminated earlier by our board of directors.
When an initial purchase period commences, our employees who meet the eligibility requirements for participation in that purchase period will automatically be granted a nontransferable option to purchase shares in that purchase period. For subsequent purchase periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent purchase periods. Except for the first offering period, each offering period will run for no more than 24 months, with purchases occurring every six months. The first offering period will begin upon the effective date of this offering and will end on . Except for the first purchase period, each purchase period will be for six months, commencing each and . The purchase
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periods under the first offering period will end on , , and . An employee's participation automatically ends upon termination of employment for any reason.
No participant will have the right to purchase shares of our common stock in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year, that have a fair market value of more than $ , determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than shares during any one purchase period or a lesser amount determined by our compensation committee. The purchase price for shares of our common stock purchased under the 2014 ESPP will be % of the lesser of the fair market value of our common stock on (1) the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period.
If we experience a change in control transaction, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and the 2014 ESPP will then terminate on the closing of the proposed change in control.
401(k) Plan
We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(a) of the Code, containing a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. U.S. employees who have attained at least 21 years of age are generally eligible to participate in the plan on the first day of the calendar month following the employees' date of hire, subject to certain eligibility requirements. Participants may make pre-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Pre-tax contributions by participants and the income earned on those contributions are generally not taxable to participants until withdrawn. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee's interest in his or her pre-tax deferrals is 100% vested when contributed. Although the plan provides for a discretionary employer matching contribution, to date we have not made such a contribution on behalf of employees. The Plan permits all eligible Plan participants to contribute between 1% and 100% of eligible compensation, on a pre-tax basis, into their accounts.
Limitations on Liability and Indemnification Matters
Our restated certificate of incorporation that will become effective in connection with the closing of this offering contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the Delaware General Corporation Law, or DGCL. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
Our restated certificate of incorporation and our restated bylaws that will become effective in connection with the closing of this offering require us to indemnify our directors and officers to the
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maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted.
We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers and certain of our key employees, in addition to the indemnification provided for in our restated certificate of incorporation and restated bylaws. These agreements, among other things, require us to indemnify our directors, officers and key employees for certain expenses, including attorneys' fees, judgments, penalties, fines and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which these individuals provide services at our request. Subject to certain limitations, our indemnification agreements also require us to advance expenses incurred by our directors, officers and key employees for the defense of any action for which indemnification is required or permitted.
We believe that provisions of our restated certificate of incorporation, bylaws and indemnification agreements are necessary to attract and retain qualified directors, officers and key employees. We also maintain directors' and officers' liability insurance.
The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the executive officer and director compensation arrangements discussed above under "ManagementNon-Employee Director Compensation" and "Executive Compensation," below we describe transactions since January 1, 2011 to which we have been or will be a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Series C Convertible Preferred Stock Financing
In August 2014, we sold an aggregate of 30,722,886 shares of our Series C convertible preferred stock at a purchase price of $1.66 per share for an aggregate purchase price of approximately $51.0 million. Each share of our Series C convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The purchasers of our Series C convertible preferred stock are entitled to specified registration rights. For additional information, see "Description of Capital StockRegistration Rights." The following table summarizes the Series C convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series C convertible preferred stock. Please refer to the section titled "Principal Stockholders" for more details regarding the shares held by these entities.
Name of Stockholder
|
Shares of
Series C Convertible Preferred Stock |
Total
Purchase Price |
|||||
---|---|---|---|---|---|---|---|
Apple Tree Partners IV, L.P. |
6,024,096 | $ | 9,999,999 | ||||
Entities affiliated with Fidelity Investments |
6,024,096 | 9,999,999 | |||||
UCB S.A.(1) |
4,518,072 | 7,500,000 | |||||
Entities affiliated with Bay City Capital(2) |
2,220,477 | 3,685,992 | |||||
New Enterprise Associates 13, Limited Partnership(3) |
2,220,477 | 3,685,992 | |||||
Canaan VIII L.P.(4) |
1,583,141 | 2,628,014 | |||||
Wiggans Living Trust dated 5/14/02(5) |
150,602 | 249,999 |
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Series B Convertible Preferred Stock Financing
In two closings in March 2013 and April 2014, we sold an aggregate of 20,654,046 shares of our Series B convertible preferred stock at a purchase price of $1.4525 per share for an aggregate purchase price of approximately $30.0 million. Each share of our Series B convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The purchasers of our Series B convertible preferred stock are entitled to specified registration rights. For additional information, see "Description of Capital StockRegistration Rights." The following table summarizes the Series B convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series B convertible preferred stock. Please refer to the section titled "Principal Stockholders" for more details regarding the shares held by these entities.
Name of Stockholder
|
Shares of
Series B Convertible Preferred Stock |
Total
Purchase Price |
|||||
---|---|---|---|---|---|---|---|
Maruho Co., Ltd. |
6,884,682 | $ | 10,000,001 | ||||
Entities affiliated with Bay City Capital(1) |
3,800,864 | 5,520,755 | |||||
New Enterprise Associates 13, Limited Partnership(2) |
3,800,863 | 5,520,754 | |||||
UCB S.A. |
3,442,341 | 5,000,000 | |||||
Canaan VIII L.P.(3) |
2,725,296 | 3,958,492 |
Series A Convertible Preferred Stock Financing
In two closings in August 2011 and August 2012, we sold an aggregate of 38,121,253 shares of our Series A convertible preferred stock for an aggregate purchase price of approximately $34.0 million, consisting of (1) 33,597,207 shares purchased in cash for a price of $0.9250 per share and (2) 4,524,046 shares purchased pursuant to the conversion of secured convertible promissory notes at a price of $0.6475 per share, a 30% discount on the cash price per share of the Series A convertible preferred stock. Each share of our Series A convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering.
The purchasers of our Series A convertible preferred stock are entitled to specified registration rights. For additional information, see "Description of Capital StockRegistration Rights." The following table summarizes the Series A convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. Other than with respect to the discounted price per share for shares purchased upon conversion of promissory notes, as set forth in the preceding paragraph, the terms of these purchases were the same for all purchasers of our
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Series A convertible preferred stock. Please refer to the section titled "Principal Stockholders" for more details regarding the shares held by these entities.
Name of Stockholder
|
Shares of
Series A Convertible Preferred Stock |
Total
Purchase Price |
|||||
---|---|---|---|---|---|---|---|
Entities affiliated with New Enterprise Associates(1) |
13,816,392 | $ | 12,218,181 | ||||
Entities affiliated with Bay City Capital(2) |
13,816,391 | 12,218,181 | |||||
Canaan VIII L.P.(3) |
9,906,634 | 9,163,636 | |||||
Thomas G. Wiggans(4) |
475,855 | 330,616 | |||||
Eugene A. Bauer(5) |
105,981 | 76,123 |
Convertible Note Financing
In September 2010, we entered into a Note Purchase Agreement pursuant to which we issued and sold to investors secured convertible promissory notes with an aggregate principal amount of $1.0 million. In May 2011, we amended the Note Purchase Agreement to, among other things, issue and sell to investors additional secured convertible promissory notes with an aggregate principal amount of $1.8 million. These notes were secured by our assets and accrued interest at an annual rate of 10%, compounded monthly. The aggregate principal amount of these notes, together with unpaid accrued interest thereon, was converted into shares of our Series A convertible preferred stock in August 2011 at a price per share of $0.6475, a 30% discount on the cash price per share of the Series A convertible preferred stock. None of these notes remain outstanding.
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The following table summarizes the secured convertible promissory notes purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our secured convertible promissory notes.
Name of Note Purchaser
|
Principal
Amount |
Shares of Series A
Convertible Preferred Stock Received Upon Conversion |
|||
---|---|---|---|---|---|
Entities affiliated with Bay City Capital(1) |
$ | 1,216,028 | 2,025,159 | ||
New Enterprise Associates 13, Limited Partnership(2) |
1,283,972 | 2,025,159 | |||
Thomas G. Wiggans(3) |
250,000 | 394,774 | |||
Eugene A. Bauer(4) |
50,000 | 78,954 |
Agreement with UCB
In March 2014, we entered into a development and commercialization agreement with UCB Pharma S.A., or UCB, pursuant to which we will develop Cimzia in order for UCB to seek regulatory approval from the U.S. Food and Drug Administration, the European Medicines Agency and the Canadian federal department for health for the treatment of psoriasis, and upon the grant of regulatory approval in the United States and Canada, for us to promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada.
In April 2014, UCB purchased 3,442,341 shares of our Series B convertible preferred stock for an aggregate purchase price of approximately $5.0 million. In August 2014, UCB purchased 4,518,072 shares of our Series C convertible preferred stock for an aggregate purchase price of approximately $7.5 million. As of August 18, 2014 and prior to this offering and the concurrent private placement, UCB owned approximately 8.4% of our outstanding capital stock.
For more information regarding this agreement, see "BusinessCollaborations and License AgreementsCollaboration with UCB."
Concurrent Private Placement
We have entered into a purchase agreement whereby entities affiliated with UCB have agreed to purchase an aggregate of $7.5 million of shares of our common stock in the concurrent private placement at the same price as the price offered to the public in this offering, or shares based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. As of August 18, 2014, entities affiliated with UCB beneficially owned approximately 8.4% of our outstanding capital stock and immediately following this offering and the concurrent private placement, entities affiliated with UCB will
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beneficially own approximately % of our common stock, which is based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. The sale of these shares to entities affiliated with UCB will not be registered in this offering.
UCB agreed to enter into the purchase agreement providing for the concurrent private placement pursuant to the terms of the Development and Commercialisation Agreement with UCB, discussed more fully in "BusinessCollaborations and License AgreementsCollaboration with UCB."
Agreement with Maruho
In March 2013, we entered into a Right of First Negotiation Agreement with Maruho, pursuant to which we will provide Maruho with certain information and the right to negotiate an exclusive license to develop and commercialize certain of our products in specified territories. In connection with the entry into this agreement, Maruho paid us $10.0 million, which will be credited against certain payments payable by Maruho to us if we enter into an exclusive license for any of our products.
In March 2013, Maruho purchased 6,884,682 shares of our Series B convertible preferred stock for an aggregate purchase price of $10.0 million. As of August 18, 2014 and prior to this offering and the concurrent private placement, Maruho owned approximately 7.3% of our outstanding capital stock.
Other than Maruho's status as a stockholder and our contractual relationship pursuant to the Right of First Negotiation Agreement, we have no other relationship with Maruho.
Amended and Restated Investors' Rights Agreement
We have entered into an amended and restated investors' rights agreement with certain holders of our common stock and holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. These stockholders are entitled to rights with respect to the registration of their shares following our initial public offering under the Securities Act. For a description of these registration rights, see "Description of Capital StockRegistration Rights."
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements, our restated certificate of incorporation and our restated bylaws will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers. For more information regarding these agreements, see "Executive CompensationLimitations on Liability and Indemnification Matters."
Review, Approval or Ratification of Transactions with Related Parties
Our written related party transactions policy and the charters of our audit committee and our nominating and corporate governance committee require that any transaction with a related party that must be reported under applicable rules of the Securities and Exchange Commission (other than compensation-related matters) must be reviewed and approved or ratified by the audit committee, unless the related party is, or is associated with, a member of that committee, in which event the transaction must be reviewed and approved by the nominating and corporate governance committee. These committees have not adopted policies or procedures for review of, or standards for approval of, related party transactions but intend to do so in the future.
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The following table sets forth certain information with respect to the beneficial ownership of our common stock as of August 18, 2014, and as adjusted to reflect the sale of common stock by us in this offering and the concurrent private placement, for:
We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.
Applicable percentage ownership is based on 94,761,872 shares of common stock issued and outstanding as of August 18, 2014 and assumes the conversion of all outstanding shares of preferred stock into an aggregate of 89,498,185 shares of our common stock. For purposes of computing the applicable percentage of shares beneficially owned by a person after this offering in the table below, we have assumed that shares of common stock will be issued by us in our initial public offering and the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently exercisable or that will become exercisable within 60 days of August 18, 2014. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table on the following page is c/o Dermira, Inc., 2055 Woodside Road, Redwood City, California 94061.
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|
Shares Beneficially Owned
Prior to this Offering and the Concurrent Private Placement |
Shares Beneficially
Owned After this Offering and the Concurrent Private Placement |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Number | Percentage | Number | Percentage | |||||||||
5% Stockholders: |
|||||||||||||
Entities affiliated with Bay City Capital(1) |
19,937,732 | 21.0 | % | ||||||||||
Entities affiliated with New Enterprise Associates(2) |
19,937,732 | 21.0 | |||||||||||
Canaan VIII L.P.(3) |
14,215,071 | 15.0 | |||||||||||
UCB S.A.(4) |
7,960,413 | 8.4 | |||||||||||
Maruho Co., Ltd.(5) |
6,884,682 | 7.3 | |||||||||||
Apple Tree Partners IV, L.P.(6) |
6,024,096 | 6.4 | |||||||||||
Entities affiliated with Fidelity Investments(7) |
6,024,096 | 6.4 | |||||||||||
Directors and Named Executive Officers: |
|
|
|
|
|||||||||
Thomas G. Wiggans(8) |
3,375,992 | 3.5 | |||||||||||
Eugene A. Bauer(9) |
1,584,106 | 1.7 | |||||||||||
Luis C. Peña(10) |
717,040 | * | |||||||||||
David E. Cohen (11) |
311,249 | * | |||||||||||
Fred B. Craves (1) |
19,937,732 | 21.0 | |||||||||||
Matthew K. Fust(12) |
18,750 | * | |||||||||||
Wende S. Hutton(13) |
| * | |||||||||||
Mark D. McDade(14) |
| * | |||||||||||
Jake R. Nunn(15) |
| * | |||||||||||
William R. Ringo |
| * | |||||||||||
All executive officers and directors as a group (12 persons)(16) |
40,936,633 | 41.4 |
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address of NEA 13 and NEA Ventures 2011 is 1954 Greenspring Drive, Suite 600, Timonium, MD 21093.
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Upon the closing of this offering and the filing of our restated certificate of incorporation, our authorized capital stock will consist of shares of common stock, $0.001 par value per share, and shares of undesignated preferred stock, $0.001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
Pursuant to the provisions of our certificate of incorporation, all of our outstanding convertible preferred stock will automatically convert into common stock effective immediately upon the completion of this offering. Assuming (1) the issuance of 30,722,886 shares of our Series C convertible preferred stock that were issued after June 30, 2014 and (2) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock, as of June 30, 2014, there were 94,761,872 shares of our common stock issued and outstanding, held by approximately 55 stockholders of record, and no shares of our preferred stock outstanding. Our board of directors is authorized, without stockholder approval, to issue additional shares of our capital stock.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See "Dividend Policy" above.
Voting Rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. Accordingly, holders of a majority of the shares of our common stock will be able to elect all of our directors. Our restated certificate of incorporation establishes a classified board of directors, to be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Preferred Stock
Pursuant to the provisions of our certificate of incorporation, each currently-outstanding share of convertible preferred stock will automatically be converted into one share of common stock effective immediately upon the completion of this offering. Following this offering, no shares of preferred stock will be outstanding.
Following this offering, pursuant to our restated certificate of incorporation, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of their qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
Stock Options
As of June 30, 2014, we had outstanding options to purchase an aggregate of 13,138,983 shares of our common stock, with a weighted-average exercise price of $0.37. In 2014, our compensation committee approved equity awards for an aggregate of shares of our common stock that will be issuable upon the exercise of options to purchase common stock with an exercise price per share equal to the initial public offering price, all of which were granted on the day that the registration statement for this offering was declared effective.
Warrant
We have one outstanding warrant, which was issued to Square 1 Bank in connection with our credit facility. The number of shares of our Series B convertible preferred stock issuable pursuant to the warrant at any date is 51,635 shares plus 1% of the amount of borrowings under our credit facility as of such date divided by 1.4525. The warrant is exercisable for up to a maximum of 103,270 shares of our Series B convertible preferred stock, with an exercise price of $1.4525 per share, and upon the closing of this offering the warrant will become exercisable for the same number of shares of our common stock. As of June 30, 2014, this warrant was exercisable for 65,404 shares of our Series B convertible preferred stock. The exercise price of this warrant may be paid either in cash or by surrendering the right to receive shares of common stock having a value equal to the exercise price.
Registration Rights
Following the completion of this offering, the holders of certain outstanding shares of our common stock and the holders of shares of our common stock issuable upon conversion of our convertible preferred stock, or their permitted transferees, will be entitled to rights with respect to the registration of these shares under the Securities Act. These shares are referred to as registrable securities. Immediately following this offering, there will be approximately 90,998,185 registrable securities outstanding. These rights are provided under the terms of an amended and restated investors' rights agreement between us and the holders of these shares, which was entered into in connection with our preferred stock financings, and include demand registration rights, short-form registration rights and
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piggyback registration rights. In any registration made pursuant to such amended and restated investors' rights agreement, all fees, costs and expenses of underwritten registrations, including fees and disbursements of one special counsel to the selling stockholders not to exceed $50,000, will be borne by us and all selling expenses, including estimated underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.
The registration rights terminate five years following the completion of this offering or, with respect to any particular stockholder, at such time as that stockholder holds less than one percent of our outstanding stock, we have completed this offering and such stockholder can sell all of its shares during any three-month period pursuant to Rule 144 of the Securities Act.
Demand Registration Rights
Under the terms of the amended and restated investors' rights agreement, if we receive a written request, at any time after 180 days following the effective date of this offering, from the holders of at least 66 2 / 3 % of the registrable securities then outstanding that we file a registration statement under the Securities Act covering the registration of outstanding registrable securities, then we will be required to use our reasonable best efforts to register, within 90 days of such written request, all of the shares requested to be registered for public resale, if the amount of registrable securities to be registered will have aggregate gross proceeds (before underwriting discounts and commissions) of at least $10.0 million. We are required to effect only two registrations pursuant to this provision of the amended and restated investors' rights agreement. We may postpone the filing of a registration statement no more than once during any 12-month period for up to 120 days if our board of directors determines that the filing would be detrimental to us and our stockholders. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors' rights agreement.
Form S-3 Registration Rights
The holders of at least 30% of the registrable securities then outstanding can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $5.0 million. The stockholders may require us to effect at most two registration statements on Form S-3 in any 12-month period. We may postpone the filing of a registration statement on Form S-3 no more than once during any 12-month period for up to 120 days if our board of directors determines that the filing would be detrimental to us and our stockholders. We are not required to effect a registration on Form S-3 under certain additional circumstances specified in the amended and restated investors' rights agreement.
Piggyback Registration Rights
In connection with this offering, holders of our registrable securities were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their registrable securities in this offering. If we register any of our securities for public sale in another offering, holders of registrable securities will have the right to include their shares in the registration statement. However, this right does not apply to a demand registration, a registration relating to employee benefit plans, a registration relating to a corporate reorganization, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of registrable securities. The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine in good faith that marketing factors require limitation, in which case the number of shares to be registered will be apportioned, first, to us for our own account and, second, pro rata among the holders of registrable securities requesting inclusion of their registrable securities in such registration statement, according to the total number of
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registrable securities held by each such holder. However, the number of shares to be registered by these holders cannot be reduced below 30% of the total shares covered by the registration statement, other than in the initial public offering.
Anti-Takeover Provisions
The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, regulating corporate takeovers. In general, DGCL Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that DGCL Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
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Restated Certificate of Incorporation and Restated Bylaws Provisions
Our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:
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Exchange Listing
We have applied to list our common stock on The NASDAQ Global Market under the symbol "DERM."
Transfer Agent and Registrar
Upon the completion of this offering, the transfer agent and registrar for our common stock will be American Stock Transfer and Trust Company, LLC. The transfer agent's address is 6201 15 th Avenue, Brooklyn, New York 11219, and its telephone number is (800) 937-5449.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for shares of our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.
Upon the closing of this offering and the concurrent private placement, we will have a total of shares of our common stock outstanding, assuming (1) the issuance of 30,722,886 shares of our Series C convertible preferred stock that were issued after June 30, 2014 and (2) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock, as of June 30, 2014 and based on (x) the 64,038,986 shares of our capital stock outstanding as of June 30, 2014 and (y) an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. Of these outstanding shares, all of the shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, could only be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our common stock, including the shares issued in the concurrent private placement, will be deemed "restricted securities" as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, substantially all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements and the provisions of our amended and restated investors' rights agreement described above under "Description of Capital StockRegistration Rights," subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
Lock-Up/Market Standoff Agreements
All of our directors and officers and all of our security holders are subject to lock-up agreements or market standoff provisions that, subject to exceptions described in the section entitled "Underwriting" below, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options to acquire shares of our common stock or any security or instrument related to our common stock, or entering into any swap, hedge or other arrangement that transfers any of the economic consequences of ownership of our common stock, for a period of 180 days following the date of this prospectus, without
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the prior written consent of Citigroup Global Markets Inc. and Leerink Partners LLC. These agreements are subject to certain exceptions. See "Underwriting."
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Stock Options
In connection with this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. In addition, we intend to file a registration statement on Form S-8 or such other form as may be required under the Securities Act for the resale of shares of our common stock issued upon the exercise of options that were not granted under Rule 701. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will
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not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject.
Registration Rights
We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see "Description of Capital StockRegistration Rights."
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK
This section summarizes the material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of our common stock by "non-U.S. holders" (as defined below) pursuant to this offering. This summary does not provide a complete analysis of all potential U.S. federal income tax considerations relating thereto. The information provided below is based upon provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions currently in effect. These authorities may change at any time, possibly retroactively, or the Internal Revenue Service, or IRS, might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of our common stock could differ from those described below. As a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.
This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below. In addition, this discussion does not address tax considerations applicable to an investor's particular circumstances or to investors that may be subject to special tax rules, including:
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Accordingly, this summary does not address tax considerations
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applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES
Non-U.S. Holder Defined
For purposes of this summary, a "non-U.S. holder" is any holder of our common stock, other than a partnership, that is not:
If you are a non-U.S. citizen that is an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.
Dividends
We do not expect to declare or make any distributions on our common stock in the foreseeable future and the terms of our credit facility currently restrict our ability to pay dividends. If we do pay dividends on shares of our common stock, however, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holder's adjusted tax basis in shares of our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our common stock. See "Sale of Common Stock."
Any dividend paid to a non-U.S. holder on our common stock that is not effectively connected with a non-U.S. holder's conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30% rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of an applicable income tax treaty between the United States and the non-U.S. holder's country of residence. You should consult your tax advisors regarding your entitlement to benefits under a relevant income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a Form W-8BEN or Form W-8BEN-E (or any successor form) or appropriate substitute form to us or our paying agent. If
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the non-U.S. holder holds the stock through a financial institution or other agent acting on the holder's behalf, the holder will be required to provide appropriate documentation to the agent. The holder's agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a partnership or other pass-through entity, the certification requirements generally apply to the partners or other owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners' or other owners' documentation to us or our paying agent. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.
Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder, and if required by an applicable income tax treaty between the United States and the non-U.S. holder's country of residence, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to U.S. withholding tax. To obtain this exemption, a non-U.S. holder must provide us or our paying agent with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to being taxed at graduated tax rates, dividends received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.
Sale of Common Stock
Subject to the discussion below regarding the Foreign Account Tax Compliance Act, non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange or other disposition of our common stock unless:
The FIRPTA rules may apply to a sale, exchange or other disposition of our common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holder's holding period, a "U.S. real property holding corporation," or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of the value of our business assets. We do not believe that we are a USRPHC and we do not anticipate becoming one in the future. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if beneficially owned by a non-U.S. holder that actually or constructively owned more than 5% of our outstanding common stock at some time within the five-year period preceding the disposition.
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If any gain from the sale, exchange or other disposition of our common stock, (1) is effectively connected with a U.S. trade or business conducted by a non-U.S. holder and (2) if required by an applicable income tax treaty between the United States and the non-U.S. holder's country of residence, is attributable to a permanent establishment (or, in certain cases involving individuals, a fixed base) maintained by such non-U.S. holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would be subject also to a "branch profits tax." The branch profits tax rate is 30%, although an applicable income tax treaty between the United States and the non-U.S. holder's country of residence might provide for a lower rate.
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent's country of residence provides otherwise.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by "backup withholding" rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided they establish such exemption.
Payments to non-U.S. holders of dividends on common stock generally will not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim treaty benefits described under "Dividends" will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.
Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding,
185
will apply to a payment of proceeds, even if that payment is made outside of the United States, if you sell our common stock through a non-U.S. office of a broker that is:
unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).
Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act, or FATCA, will impose a U.S. federal withholding tax of 30% on certain "withholdable payments" (including U.S. source dividends and the gross proceeds from the sale or other disposition of U.S. stock) to foreign financial institutions and other non-U.S. entities that fail to comply with certain certification and information reporting requirements. The obligation to withhold under FATCA is currently expected to apply to, among other items, (1) dividends on our common stock that are paid after June 30, 2014 and (2) gross proceeds from the disposition of our common stock paid after December 31, 2016.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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Citigroup Global Markets Inc. and Leerink Partners LLC are acting as joint book-running managers of this offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter's name in the following table.
Underwriters
|
Number of
Shares |
|||
---|---|---|---|---|
Citigroup Global Markets Inc. |
||||
Leerink Partners LLC |
||||
Guggenheim Securities, LLC |
||||
Needham & Company, LLC |
||||
| | | | |
Total |
||||
| | | | |
| | | | |
The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $ per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary accounts.
If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.
We, our officers, directors and holders of all of our securities have agreed that, subject to specified limited exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of the representatives, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our common stock. The representatives, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.
Prior to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares will be determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price will be our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot ensure however, that the price at which the shares will sell in the public market after this offering will not be
187
lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.
We have applied to have our shares listed on The NASDAQ Global Market under the symbol "DERM."
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option.
|
Paid by Dermira, Inc. | ||||||
---|---|---|---|---|---|---|---|
|
No Exercise | Full Exercise | |||||
Per share |
$ | $ | |||||
Total |
$ | $ |
We estimate that our portion of the total expenses of this offering will be $ . We have also agreed to reimburse the underwriters for certain of their expenses as set forth in the underwriting agreement.
In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
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Relationships
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and short positions in such securities and instruments.
In August 2014, Leerink Holdings LLC and Leerink Swann Co-Investment Fund, LLC, each of which is an affiliate of Leerink Partners LLC, purchased an aggregate of 602,409 shares of our Series C convertible preferred stock at a purchase price per share of $1.66 in our Series C convertible preferred stock financing. All such shares are subject to the 180-day lock-up restrictions described above.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus may not be made to the public in that relevant member state other than:
provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an "offer of securities to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
189
The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (1) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, or (2) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a "relevant person"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
Such offers, sales and distributions will be made in France only:
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (2) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a "prospectus" within the
190
meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (1) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (2) in compliance with any other applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (2) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
191
Notice to Prospective Investors in Australia
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia, or the Corporations Act) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission, or ASIC. This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
192
Concurrently with this offering, entities affiliated with UCB Pharma S.A. will purchase from us in a private placement an aggregate of $7.5 million of shares of our common stock at the same price as the price offered to the public in this offering, or shares based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. The sale of these shares to entities affiliated with UCB Pharma S.A. will not be registered in this offering.
The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, San Francisco, California, which beneficially owns an aggregate of 250,000 shares of our common stock, representing approximately 0.39% of our outstanding shares of capital stock as of June 30, 2014. Certain legal matters relating to this offering will be passed upon for the underwriters by Cooley LLP, San Francisco, California.
The consolidated financial statements of Dermira, Inc. at December 31, 2012 and 2013 and for each of the two years in the period ended December 31, 2013 appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the ability of Dermira, Inc. to continue as a going concern as described in Note 1 to the consolidated financial statements) appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon the closing of our initial public offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. A copy of the registration statement and the exhibits filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
193
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders
Dermira, Inc.
We have audited the accompanying consolidated balance sheets of Dermira, Inc. (the Company) as of December 31, 2012 and 2013, and the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity, and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dermira, Inc. at December 31, 2012 and 2013, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that Dermira, Inc. will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company has incurred recurring operating losses and negative cash flows since inception and expects to continue to generate operating losses and consume significant cash resources in the foreseeable future. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The 2013 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Redwood
City, California
June 26, 2014
F-2
DERMIRA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
December 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
June 30,
2014 |
Pro Forma as
of June 30, 2014 |
|||||||||||
|
2012 | 2013 | |||||||||||
|
|
|
(Unaudited)
|
(Unaudited)
|
|||||||||
Assets |
|||||||||||||
Current assets: |
|||||||||||||
Cash and cash equivalents |
$ | 7,872 | $ | 22,144 | $ | 9,774 | |||||||
Prepaid expenses and other current assets |
160 | 344 | 693 | ||||||||||
| | | | | | | | | | | | | |
Total current assets |
8,032 | 22,488 | 10,467 | ||||||||||
Property and equipment, net |
35 | 61 | 79 | ||||||||||
Intangible assets |
3,520 | 3,520 | 3,520 | ||||||||||
Goodwill |
771 | 771 | 771 | ||||||||||
Other assets |
156 | 31 | 1,693 | ||||||||||
| | | | | | | | | | | | | |
Total assets |
$ | 12,514 | $ | 26,871 | $ | 16,530 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities, convertible preferred stock and stockholders' (deficit) equity |
|||||||||||||
Current liabilities: |
|||||||||||||
Accounts payable |
$ | 1,984 | $ | 2,322 | $ | 2,263 | |||||||
Accrued liabilities |
2,401 | 1,999 | 3,690 | ||||||||||
Convertible preferred stock warrant liability |
| 61 | 60 | | |||||||||
Bank term loan, current portion |
| 133 | 533 | ||||||||||
| | | | | | | | | | | | | |
Total current liabilities |
4,385 | 4,515 | 6,546 | ||||||||||
Long-term liabilities: |
|||||||||||||
Deferred revenue |
| 10,000 | 10,000 | ||||||||||
Bank term loan, net of current portion |
| 1,786 | 1,398 | ||||||||||
Deferred tax liability |
785 | 785 | 785 | ||||||||||
| | | | | | | | | | | | | |
Total liabilities |
5,170 | 17,086 | 18,729 | ||||||||||
| | | | | | | | | | | | | |
Commitments and contingencies |
|||||||||||||
Convertible preferred stock, $0.001 par value per share; 47,000,000 shares authorized as of December 31, 2012 and 58,621,253 shares authorized as of December 31, 2013; 38,121,253 shares issued and outstanding as of December 31, 2012, 55,332,957 shares issued and outstanding as of December 31, 2013 and 58,775,299 shares issued and outstanding as of June 30, 2014 (unaudited); (aggregate liquidation value of $35,262 as of December 31, 2012 and $60,262 as of December 31, 2013); no shares issued and outstanding as of June 30, 2014, pro forma (unaudited) |
35,089 |
59,588 |
64,588 |
|
|||||||||
Stockholders' (deficit) equity: |
|
|
|
|
|||||||||
Common stock: $0.001 par value per share; 135,000,000 shares authorized as of December 31, 2013; 5,227,687 shares issued and outstanding as of December 31, 2012 and 2013 and 5,263,687 shares issued and outstanding as of June 30, 2014 (unaudited); 94,761,872 shares issued and outstanding as of June 30, 2014, pro forma (unaudited) |
5 | 5 | 5 | $ | 94 | ||||||||
Additional paid-in capital |
674 | 966 | 1,283 | 114,655 | |||||||||
Accumulated deficit |
(28,424 | ) | (50,774 | ) | (68,075 | ) | (68,075 | ) | |||||
| | | | | | | | | | | | | |
Total stockholders' (deficit) equity |
(27,745 | ) | (49,803 | ) | (66,787 | ) | 46,674 | ||||||
| | | | | | | | | | | | | |
Total liabilities, convertible preferred stock and stockholders' (deficit) equity |
$ | 12,514 | $ | 26,871 | $ | 16,530 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
DERMIRA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Operating expenses: |
|||||||||||||
Research and development |
$ | 17,055 | $ | 17,937 | $ | 8,778 | $ | 13,648 | |||||
General and administrative |
3,148 | 4,366 | 2,205 | 3,552 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
20,203 | 22,303 | 10,983 | 17,200 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(20,203 | ) | (22,303 | ) | (10,983 | ) | (17,200 | ) | |||||
Interest and other income (expense), net |
(51 | ) | (38 | ) | 12 | (34 | ) | ||||||
Interest expense |
| (9 | ) | | (67 | ) | |||||||
| | | | | | | | | | | | | |
Net loss and comprehensive loss |
$ | (20,254 | ) | $ | (22,350 | ) | $ | (10,971 | ) | $ | (17,301 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss per share, basic and diluted |
$ | (4.83 | ) | $ | (4.66 | ) | $ | (2.39 | ) | $ | (3.32 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average common shares used to compute net loss per share, basic and diluted |
4,197,016 | 4,795,289 | 4,585,069 | 5,204,769 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma net loss per share, basic and diluted (unaudited) |
$ | (0.40 | ) | $ | (0.28 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average common shares used to compute pro forma net loss per share, basic and diluted, (unaudited) |
56,072,886 | 62,097,240 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
DERMIRA, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
(in thousands, except share amounts)
|
Convertible
Preferred Stock |
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|
|
|
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Common Stock |
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Additional
Paid-In Capital |
Accumulated
Deficit |
Total
Stockholders' Deficit |
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|
Shares | Amount |
|
Shares | Amount | |||||||||||||||||||
Balance at December 31, 2011 |
25,040,172 | $ | 23,025 | 5,227,687 | $ | 5 | $ | 508 | $ | (8,170 | ) | $ | (7,657 | ) | ||||||||||
Issuance of Series A convertible preferred stock, net of issuance cost of $36 |
13,081,081 | 12,064 | | | | | | |||||||||||||||||
Stock-based compensation |
| | 166 | 166 | ||||||||||||||||||||
Net loss |
| | | | | (20,254 | ) | (20,254 | ) | |||||||||||||||
Balance at December 31, 2012 |
38,121,253 | 35,089 | 5,227,687 | 5 | 674 | (28,424 | ) | (27,745 | ) | |||||||||||||||
Issuance of Series B convertible preferred stock, net of issuance cost of $500 |
17,211,704 | 24,499 | | | | | | |||||||||||||||||
Stock-based compensation |
| | | | 292 | | 292 | |||||||||||||||||
Net loss |
| | | | | (22,350 | ) | (22,350 | ) | |||||||||||||||
Balance at December 31, 2013 |
55,332,957 | 59,588 | 5,227,687 | 5 | 966 | (50,774 | ) | (49,803 | ) | |||||||||||||||
Issuance of Series B convertible preferred stock (unaudited) |
3,442,342 | 5,000 | | | | | | |||||||||||||||||
Exercise of stock options (unaudited) |
| | 36,000 | | 7 | | 7 | |||||||||||||||||
Stock-based compensation (unaudited) |
| | | | 310 | | 310 | |||||||||||||||||
Net loss (unaudited) |
| | | | | (17,301 | ) | (17,301 | ) | |||||||||||||||
Balance at June 30, 2014 (unaudited) |
58,775,299 | $ | 64,588 | 5,263,687 | $ | 5 | $ | 1,283 | $ | (68,075 | ) | $ | (66,787 | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
DERMIRA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Year Ended
December 31, |
Six Months Ended
June 30, |
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|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Cash flows from operating activities |
|||||||||||||
Net loss |
$ | (20,254 | ) | $ | (22,350 | ) | $ | (10,971 | ) | $ | (17,301 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||||||||
Depreciation and amortization |
12 | 22 | 10 | 19 | |||||||||
Stock-based compensation |
166 | 292 | 120 | 310 | |||||||||
Loss on disposal of property and equipment |
| 2 | 1 | | |||||||||
Amortization of bank term loan issuance costs |
| | | 12 | |||||||||
Revaluation of convertible preferred stock warrant liability |
| | | (1 | ) | ||||||||
Changes in assets and liabilities: |
|||||||||||||
Prepaid expenses and other current assets |
119 | (184 | ) | (190 | ) | (349 | ) | ||||||
Other assets |
(11 | ) | 125 | 124 | (393 | ) | |||||||
Accounts payable |
1,199 | 338 | (1,012 | ) | (561 | ) | |||||||
Accrued liabilities |
1,516 | (402 | ) | (470 | ) | 924 | |||||||
Deferred revenue |
| 10,000 | 10,000 | | |||||||||
| | | | | | | | | | | | | |
Net cash used in operating activities |
(17,253 | ) | (12,157 | ) | (2,388 | ) | (17,340 | ) | |||||
| | | | | | | | | | | | | |
Cash flows from investing activities |
|||||||||||||
Purchase of property and equipment |
(36 | ) | (50 | ) | (24 | ) | (37 | ) | |||||
| | | | | | | | | | | | | |
Net cash used in investing activities |
(36 | ) | (50 | ) | (24 | ) | (37 | ) | |||||
| | | | | | | | | | | | | |
Cash flows from financing activities |
|||||||||||||
Net proceeds from issuance of convertible preferred stock |
12,064 | 24,499 | 24,499 | 5,000 | |||||||||
Proceeds from common stock option exercise |
| | | 7 | |||||||||
Net borrowings from bank term loan |
| 1,980 | | | |||||||||
| | | | | | | | | | | | | |
Net cash provided by financing activities |
12,064 | 26,479 | 24,499 | 5,007 | |||||||||
| | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents |
(5,225 | ) | 14,272 | 22,087 | (12,370 | ) | |||||||
Cash and cash equivalents at beginning of period |
13,097 | 7,872 | 7,872 | 22,144 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | 7,872 | $ | 22,144 | $ | 29,959 | $ | 9,774 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Supplemental disclosure of cash flow information |
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Cash paid for interest |
| | | $ | 58 | ||||||||
Supplemental disclosure of noncash financing activities |
|||||||||||||
Issuance of warrants in connection with bank term loan |
| $ | 61 | | | ||||||||
Unpaid deferred offering costs |
| | | $ | 1,269 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Dermira, Inc. (the "Company") was incorporated in the State of Delaware in August 2010 under the name Skintelligence, Inc. The Company changed its name to Dermira, Inc. in September 2011. In August 2010, the Company acquired Valocor Therapeutics, Inc., which was subsequently renamed Dermira (Canada), Inc. ("Dermira Canada") and is the Company's wholly owned subsidiary. The Company is a biopharmaceutical company focused on bringing medical dermatology products to dermatologists and their patients. The Company's management team has experience in product development and commercialization, having served in leadership roles at several dermatology companies. The Company's portfolio of five product candidates includes two late-stage product candidates, Cimzia (certolizumab pegol), which the Company is developing in collaboration with UCB Pharma S.A. for the treatment of moderate-to-severe plaque psoriasis, and DRM04, which the Company is developing for the treatment of hyperhidrosis, or excessive sweating. The Company also has three earlier-stage programs in development for the treatment of acne and inflammatory skin diseases. The Company's corporate headquarters are located in Redwood City, California, where it occupies facilities totaling approximately 14,700 square feet.
Need for Additional Capital
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. In the course of its development activities, the Company has sustained significant operating losses and expects such losses to continue over the next several years. The Company's success depends on the outcome of its research and development activities. Through June 30, 2014, the Company has incurred cumulative net losses of $68.1 million (unaudited). Management expects to incur substantial losses in the future to conduct product research and development and pre-commercialization activities. Additional capital will be needed to undertake these activities and meet the operating requirements of the Company through 2014 and beyond. The Company may raise such capital through the issuance of additional equity, borrowings or strategic alliances with other companies. However, if such financing is not available at adequate levels or on acceptable terms, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its commercialization efforts, enter into a collaboration or other similar arrangement with respect to commercialization rights to any of its product candidates, out-license intellectual property rights to its product candidates or sell unsecured assets, or any combination of the above, any of which may have a material adverse effect on the Company's business, results of operations, financial condition or its ability to fund its scheduled obligations on a timely basis or at all.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and Dermira Canada and have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). All significant intercompany transactions and balances have been eliminated during consolidation. Certain 2012 balances have been reclassified to conform to the current year presentation. The 2012 reclassifications were primarily made to reclassify legal expenses from research and development expense to general and administration expense in the consolidated statements of operations and comprehensive loss.
F-7
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting periods. On an ongoing basis, management evaluates its estimates, including those related to accrued research and development expenses, long-lived assets, fair value of common stock, convertible preferred stock and related warrants, stock-based compensation, and the valuation of deferred tax assets. The Company bases its estimates on its historical experience and also on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.
Unaudited Interim Consolidated Financial Statements
The interim consolidated balance sheet as of June 30, 2014 and the interim consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity and cash flows for the six months ended June 30, 2013 and 2014 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's consolidated financial position as of June 30, 2014 and its consolidated results of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity and cash flows for the six months ended June 30, 2013 and 2014. The financial data and the other financial information disclosed in these notes to the consolidated financial statements related to the six months ended June 30, 2013 and 2014 are also unaudited. The consolidated results of operations and comprehensive loss for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any other future annual or interim period.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information has been prepared assuming immediately upon the closing of the Company's initial public offering ("IPO"): (1) the issuance of 30,722,886 shares of our Series C convertible preferred stock that were issued after June 30, 2014; (2) the conversion of all outstanding shares of convertible preferred stock into shares of common stock and (3) the related reclassification of the convertible preferred stock warrant liability to additional paid-in-capital. The unaudited pro forma financial information does not assume any proceeds from the proposed IPO.
Risks and Uncertainties
The product candidates developed by the Company require approvals from the U.S. Food and Drug Administration ("FDA") and foreign regulatory agencies prior to commercial sales in the United States or foreign jurisdictions, respectively. There can be no assurance that the Company's current and future product candidates will receive the necessary approvals. If the Company is denied approval or approval is delayed, it may have a material adverse impact on the Company's business and its financial condition.
The Company is subject to risks common to early-stage companies in the pharmaceutical industry, including dependence on the clinical and commercial success of its product candidates, ability to obtain
F-8
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
regulatory approval of its product candidates, compliance with regulatory requirements, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and patients, significant competition and ability to manage third party manufacturers, suppliers and contract research organizations ("CROs").
Cash and Cash Equivalents
The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include deposits, money market accounts and obligations of U.S. government agencies. Cash and cash equivalents are recorded at face value or cost, which approximates fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. The Company invests its excess cash in money market funds and obligations of U.S. government agencies. Bank deposits are held by a single financial institution with a strong credit rating and these deposits may at times be in excess of insured limits. The Company is exposed to credit risk in the event of a default by the financial institution holding its cash and cash equivalents and issuers of investments to the extent recorded on the balance sheets. The Company's investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies and places restrictions on maturities and concentration by type and issuer.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company primarily applies the market approach for recurring fair value measurements.
The Company measures certain financial assets and liabilities at fair value based on 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. The carrying amount of the Company's cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued liabilities, and convertible preferred stock warrant liability approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for bank term loans with similar terms, the carrying value of the Company's bank term loan approximates its fair value.
Property and Equipment
Property and equipment are stated at cost, subject to adjustments for impairments, less accumulated depreciation and amortization. Property and equipment consist of computer equipment and furniture. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives for the related assets. The Company has determined the estimated life of assets in property and equipment to be three years. Maintenance and repairs that do not extend the life of or improve an asset are expensed in the period incurred.
F-9
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Impairment of Long-Lived Assets
The Company assesses changes in the performance of its product candidates in relation to its expectations, and industry, economic and regulatory conditions and makes assumptions regarding estimated future cash flows in evaluating the value of its property and equipment, goodwill and in-process research and development ("IPR&D").
The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets is compared to the carrying value to determine whether impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the asset's fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows approach.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired in connection with the acquisition of Valocor. The Company tests goodwill for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the goodwill is less than its carrying amount. Some of the factors considered by the Company in its assessment include general macro-economic conditions, conditions specific to the industry and market, and the successful development of its product candidates. If the Company concludes it is more likely than not that the fair value of the goodwill is less than its carrying amount, a quantitative fair value test is performed.
IPR&D represents the fair value assigned to incomplete research projects that the Company acquired through the acquisition of Valocor which, at the time of acquisition, had not reached technological feasibility. The amount was capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the project. The Company tests IPR&D for impairment at least annually, or more frequently, if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D intangible asset is less than its carrying amount. If the Company concludes it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value is performed.
Deferred Offering Costs (unaudited)
Deferred offering costs, consisting of legal, accounting, filing and other fees related to the Series C convertible preferred stock financing and IPO, are capitalized. The deferred offering costs will be offset against proceeds from the Series C convertible preferred stock financing and IPO upon the closing of the Series C convertible preferred stock financing and the effectiveness of the IPO, respectively. In the event the IPO was terminated, all capitalized deferred offering costs would be expensed. As of June 30, 2014, $1.7 million of deferred offering costs were capitalized, which are included in other assets in the consolidated balance sheet. No amounts were deferred as of December 31, 2013.
Research and Development Expenses
The Company expenses both internal and external research and development expenses to operations as they are incurred. The Company's research and development expenses consist primarily
F-10
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
of costs incurred for the development of its product candidates and include: (1) expenses incurred under agreements with CROs, investigative sites and consultants to conduct clinical trials and preclinical and non-clinical studies; (2) costs to acquire, develop and manufacture supplies for clinical trials and other studies, including fees paid to contract manufacturing organizations ("CMOs"); (3) salaries and related costs, including stock-based compensation and travel expenses, for personnel in research and development functions; (4) costs related to compliance with drug development regulatory requirements; (5) depreciation and other allocated facility-related and overhead expenses; and (6) licensing fees and milestone payments incurred under product license agreements.
Accrued Research and Development Expenses
The Company records accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of the Company's ongoing research and development activities is conducted by third-party service providers, including CROs. The Company's contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on actual work completed in accordance with the respective agreements. In the event the Company makes advance payments, the payments are recorded as a prepaid asset and recognized as the services are performed. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.
The Company makes significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company's understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. The Company's accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. To date, there have been no material differences from the Company's accrued estimated expenses to the actual clinical trial expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to the number of patients enrolled, the rate of patient enrollment, and the actual services performed may vary from the Company's estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to the Company's accruals could materially affect its financial condition and results of operations.
Income Taxes
The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary
F-11
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
to reduce deferred tax assets to the amount expected to be realized. Financial statement effects of uncertain tax positions are recognized when it is more-likely-than-not, based on the technical merits of the position, that it will be sustained upon examination. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax. The Company has not been subject to any interest and penalties through December 31, 2013.
Stock-Based Compensation
The Company maintains an equity incentive plan under which incentive stock options may be granted to employees and nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights may be granted to employees, officers, directors, consultants and advisors.
For stock options granted to employees and directors, the Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The fair value of stock options is determined using the Black-Scholes option-pricing model. The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and the experience of other companies in the same industry, and will continue to evaluate the adequacy of the forfeiture rate assumption based on actual forfeitures, analysis of employee turnover, and other related factors.
Stock-based compensation expense related to stock options granted to nonemployees is recognized based on the fair value of the stock options, determined using the Black-Scholes option-pricing model, as they are earned. The awards vest over the time period during which the nonemployee provides services to the Company.
Convertible Preferred Stock Warrant Liability
The freestanding warrant for shares that are puttable is classified as a liability on the balance sheet and is carried at estimated fair value. At the end of each reporting period, changes in the estimated fair value during the period are recorded in interest and other income (expense), net, in the consolidated statement of operations. The Company will continue to adjust the carrying value of the warrant until the earlier of the exercise of the warrant or the completion of a liquidation event, including the completion of an IPO, at which time the liability will be reclassified to additional paid-in capital in the consolidated statement of stockholders' (deficit) equity.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited), comprehensive loss was equal to net loss.
Net Loss and Unaudited Pro Forma Net Loss Per Share
Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for dilutive potential
F-12
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
shares of common stock. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive.
The unaudited pro forma basic and diluted loss per share for the year ended December 31, 2013 and the six months ended June 30, 2014 were computed using the weighted-average number of shares of common stock outstanding, including the pro forma effect of the conversion of all then-outstanding shares of convertible preferred stock into shares of common stock. Also, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains and losses resulting from remeasurements of the outstanding convertible preferred stock warrant liability through June 30, 2014, as it is assumed that these warrants will either be converted to potentially dilutive shares or be net exercised prior to an IPO and will no longer require periodic revaluation.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows (in thousands, except share and per share amounts):
F-13
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The following outstanding dilutive potential shares of common stock were excluded from the computations of diluted net loss per share for the periods presented as the effect of including such securities would be antidilutive:
|
As of December 31, | As of June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Convertible preferred stock, as converted to common stock |
38,121,253 | 55,332,957 | 55,332,957 | 58,775,299 | |||||||||
Warrant to purchase convertible preferred stock, as converted to a common stock warrant |
| 65,404 | | 65,404 | |||||||||
Options to purchase common stock |
5,337,985 | 10,113,004 | 8,284,763 | 13,138,983 | |||||||||
Common stock subject to repurchase |
675,522 | 56,772 | 597,397 | 16,147 | |||||||||
| | | | | | | | | | | | | |
|
44,134,760 | 65,568,137 | 64,215,117 | 71,995,833 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Unaudited pro forma net loss per share is computed using the weighted-average number of common shares outstanding after giving effect to the conversion of all the outstanding convertible preferred stock into shares of common stock as of the date of issuance.
The following table sets forth the computation of the Company's unaudited pro forma basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
F-14
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11") that provides for disclosure requirements related to unrecognized tax benefits in certain situations. The Company adopted ASU 2013-11 in the first quarter of 2014 and adoption of this standard did not have a material impact on its results of operations or financial position.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. This guidance is effective for the fiscal years and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements and related disclosures.
In June 2014, the FASB issued Accounting Standards Update 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation ("ASU 2014-10"), which eliminates the definition of a development stage entity, eliminates the development stage presentation and disclosure requirements under Accounting Standards Codification ("ASC") 915, Development Stage Entities ("ASC 915"), and amends provisions of existing variable interest entity guidance under ASC 810, Consolidation . As a result of the changes, entities which meet the former definition of a development stage entity will no longer be required to: (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity; (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged; and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. Furthermore, ASU 2014-10 clarifies disclosures about risks and uncertainties under ASC Topic 275, Risks and Uncertainties, that apply to companies that have not commenced planned principal operations. Finally, variable interest entity rules no longer contain an exception for development stage entities and, as a result, development stage entities will have to be evaluated for consolidation in the same manner as non-development stage entities.
Under ASU 2014-10, entities are no longer required to apply the presentation and disclosure provisions of ASC 915 during annual periods beginning after December 15, 2014. In addition, the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015 for public entities and are effective for annual periods beginning after December 15, 2016 for nonpublic entities. Early adoption is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities).
The Company has adopted ASU 2014-10 effective as of its issuance date. Adoption of this standard had no impact on the Company's financial position, results of operations, or cash flows; however, the presentation of the consolidated financial statements has been changed to eliminate the disclosures that are no longer required.
F-15
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or no material effect is expected on the consolidated financial statements as a result of future adoption.
3. Fair Value Measurements
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 should maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance for fair value establishes a three-level hierarchy for disclosure of fair value measurements, as follows:
Level 1Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument's anticipated life.
Level 3Unobservable inputs that are supported by little or no market activity and reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following tables set forth the fair value of the Company's financial instruments that were measured at fair value on a recurring basis as of December 31, 2012 and 2013 and June 30, 2014 (in thousands):
|
As of December 31, 2012 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Financial assets: |
|||||||||||||
Money market funds |
$ | 7,362 | $ | | $ | | $ | 7,362 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-16
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Fair Value Measurements (Continued)
|
As of June 30, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
|
(Unaudited)
|
||||||||||||
Financial assets: |
|||||||||||||
Money market funds |
$ | 1,874 | $ | | $ | | $ | 1,874 | |||||
U.S. government agencies |
7,000 | | 7,000 | ||||||||||
| | | | | | | | | | | | | |
Total financial assets |
$ | 1,874 | $ | 7,000 | $ | | $ | 8,874 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Financial liabilities: |
|||||||||||||
Preferred stock warrant liability |
$ | | $ | | $ | 60 | $ | 60 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Level 3 liabilities comprise convertible preferred stock warrant liability (see Note 10). The following table sets forth a summary of the changes in the estimated fair value of the Company's convertible preferred stock warrant, which were measured at fair value on a recurring basis (in thousands):
Balance as of December 31, 2012 |
$ | | ||
Issuance of preferred stock warrant |
61 | |||
| | | | |
Balance as of December 31, 2013 |
61 | |||
Decrease in fair value included in other income (expense), net (unaudited) |
(1 | ) | ||
| | | | |
Balance as of June 30, 2014 (unaudited) |
$ | 60 | ||
| | | | |
| | | | |
Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades, broker/dealer quotes. The Company classifies obligations of U.S. government agencies as Level 2. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities that are measured at fair value on a recurring basis consist of convertible preferred stock warrant liability.
There were no transfers between Level 1 and Level 2 during the periods presented.
F-17
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Property and Equipment
The following table is a summary of property and equipment (in thousands):
|
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
June 30,
2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
|
|
(Unaudited)
|
|||||||
Computer equipment |
$ | 28 | $ | 55 | $ | 83 | ||||
Office furniture |
21 | 41 | 50 | |||||||
| | | | | | | | | | |
Total property and equipment |
49 | 96 | 133 | |||||||
Less accumulated depreciation and amortization |
(14 | ) | (35 | ) | (54 | ) | ||||
| | | | | | | | | | |
Property and equipment, net |
$ | 35 | $ | 61 | $ | 79 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Property and equipment depreciation and amortization expense was $12,000, $22,000, $10,000, and $19,000 for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited), respectively.
5. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
June 30,
2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
|
|
(Unaudited)
|
|||||||
Accrued compensation |
$ | 677 | $ | 949 | $ | 930 | ||||
Accrued outside research and development services |
1,600 | 596 | 1,623 | |||||||
Accrued professional and consulting services |
118 | 400 | 1,062 | |||||||
Other |
6 | 54 | 75 | |||||||
| | | | | | | | | | |
|
$ | 2,401 | $ | 1,999 | $ | 3,690 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
6. Intangible Assets
In-Process Research and Development
In connection with the acquisition of Valocor in 2011, the Company acquired intangible assets that were associated with IPR&D projects relating to preclinical product candidates. The acquisition-date fair value of these intangible assets was $3.5 million. The Company estimated the fair value of each product candidate using the income approach, which discounts expected future cash flows to present value using discount rates ranging from 15.70% to 26.74% which were based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of Valocor. As of all periods presented, these assets are considered to be indefinite-lived and will not be amortized, but will be tested for impairment on an annual basis, as well as between annual tests if changes in circumstances indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives.
F-18
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Intangible Assets (Continued)
Goodwill
The Company recorded the goodwill resulting from the Valocor acquisition separately on its consolidated balance sheet as of the acquisition date. Goodwill is tested for impairment on an annual basis, as well as between annual tests if there are changes in circumstances that would indicate a reduction in the fair value of the goodwill below its carrying amount.
The net book value of intangible assets and goodwill as of December 31, 2012 and 2013 and June 30, 2014 (unaudited) was as follows (in thousands):
|
Net Book
Value |
|||
---|---|---|---|---|
Intangible assetsIPR&D |
$ | 3,520 | ||
Goodwill |
771 | |||
| | | | |
Total intangible assets with indefinite lives |
$ | 4,291 | ||
| | | | |
| | | | |
7. Loan Agreement
In December 2013, the Company entered into a loan and security agreement (the "Loan Agreement") with Square 1 Bank (the "Bank") that provides for two term loans available to the Company of $2.0 million and $5.5 million, respectively. Borrowings under the term loans bear interest at the greater of: (1) 5.10% above the treasury rate in effect on the date that a term loan is funded; or (2) 5.50%, which rate will be fixed on the date of funding of the term loan. Upon final repayment of the amounts borrowed, the Company is required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed. The Company may prepay borrowings without paying a penalty or premium.
On the closing date of the Loan Agreement, the Company borrowed $2.0 million under the first term loan ("Term Loan A"). The amount borrowed under Term Loan A matures in April 2017 and is secured by all assets of the Company other than the Company's intellectual property, subject to certain limited exceptions, and bears interest at a rate of 5.77% per annum. The amount borrowed under Term Loan A is to be repaid over a period of 40 months as follows: (1) commencing on January 11, 2014, 10 monthly payments of interest only; and (2) commencing on November 1, 2014, 30 equal monthly payments of $66,666.67, plus interest. Upon final repayment of Term Loan A, the Company is required to pay the Bank a fee of $55,000. The Company is accruing this fee monthly over the loan term on a straight-line basis and is recording it as interest expense in the consolidated statement of operations.
The second term loan ("Term Loan B") of $5.5 million is available to the Company any time between the date the Company achieves certain positive top-line Phase 2 clinical trial results and October 31, 2014. As of June 30, 2014 (unaudited), the Company had no borrowings under Term Loan B and was not entitled to borrow funds under Term Loan B. Borrowings, if any, under Term Loan B would be repaid over a period of months as follows: (1) commencing on the 11 th day following the date of Term Loan B, monthly payments of interest only to the earlier of (a) December 31, 2014 or (b) six months following the date of Term Loan B; and (2) commencing on the last day of the month immediately following the interest only end date, equal monthly payments of principal, plus interest, to the maturity date of June 30, 2017. Upon final repayment of Term Loan B, the Company would be
F-19
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Loan Agreement (Continued)
required to pay the Bank a fee equal to 2.75% of the original principal amount borrowed under Term Loan B.
The Loan Agreement is subject to certain representations and warranties, certain affirmative and negative covenants, certain conditions and events of default that are customarily required for similar financings. The affirmative covenants include, among other things, that the Company delivers timely financial statements and reports to the Bank, timely files taxes, maintains certain operating accounts subject to control agreements in favor of the Bank, maintains liability and other insurance, maintains at least two active and ongoing drug development programs and pledges security interests in any ownership interest of a future subsidiary. The negative covenants preclude, among other things, disposing of certain assets, engaging in certain mergers or acquisitions, incurring additional indebtedness, encumbering any collateral, paying dividends or making prohibited investments, in each case, without the prior consent of the Bank. As of December 31, 2013 and June 30, 2014, the Company was in compliance with all of the covenants.
In connection with the Loan Agreement, the Company agreed to issue the Bank a warrant to purchase up to 103,270 shares of the Company's Series B convertible preferred stock, with an exercise price of $1.4525 per share. The number of shares issuable pursuant to the warrant at any date is 51,635 shares plus 1% of the amount of borrowings under the Loan Agreement as of such date divided by 1.4525. Following the entry into the Loan Agreement and the concurrent funding of Term Loan A, and as of December 31, 2013 and June 30, 2014 (unaudited), the warrant was exercisable for 65,404 shares of Series B convertible preferred stock, consisting of the 51,635 initial shares related to the Loan Agreement and an additional 13,769 shares related to Term Loan A. The fair value of the warrant of approximately $61,000 was recorded as a debt discount and amortized to interest expense using the straight-line method over the loan term. The Company recognized interest expense of $0 and $9,000 from the amortization of the warrant-related debt discount for the years ended December 31, 2013 and the six months ended June 30, 2014 (unaudited), respectively. The unamortized debt discount balance was $61,000 and $52,000 as of December 31, 2013 and June 30, 2014 (unaudited), respectively.
As of December 31, 2013, future principal and interest payments under Term Loan A are as follows (in thousands):
|
|
|||
---|---|---|---|---|
Year Ending December 31, |
||||
2014 |
$ | 256 | ||
2015 |
888 | |||
2016 |
841 | |||
2017 |
325 | |||
| | | | |
Total payments |
2,310 | |||
Less: |
||||
Cash interest payments and balloon payment accretion |
(310 | ) | ||
Unamortized bank fees and warrant value issued |
(81 | ) | ||
| | | | |
Total principal payments |
1,919 | |||
Less: current portion |
(133 | ) | ||
| | | | |
Long-term portion of bank term loan |
$ | 1,786 | ||
| | | | |
| | | | |
F-20
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Loan Agreement (Continued)
The Company incurred interest expense in connection with Term Loan A to the Bank totaling $67,000 during the six months ended June 30, 2014 (unaudited).
8. Commitments and Contingencies
Facility Lease
The Company leases its corporate headquarters facility in Redwood City, California under a noncancelable operating lease agreement. The lease agreement was entered into in September 2011, and amended in November 2011 for additional space in the same facility. The lease terminates in November 2014. As of December 31, 2013, the future minimum lease payments for this facility were $168,000.
In December 2013, the Company entered into a lease agreement with respect to additional space in the same facility. The lease commenced January 2014 and is on a month-to-month basis at a rate of $10,000 per month. Monthly rent payments under the lease agreement increase $1,000 per month in each subsequent month the Company rents the space. The Company is required to provide the landlord a 30-day notice of its plan to terminate the lease agreement.
In March 2014 and May 2014 (unaudited), the Company entered into sublease agreements for additional office space in the same facility. The subleases commenced in May 2014 and terminate in November 2014, and the total cost for this space is approximately $165,000 over the full term of the subleases.
Rent expense for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited) was $183,000, $257,000, $112,000 and $224,000, respectively. The terms of the facility leases provide for rental payments on a monthly basis on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company is not subject to any current pending legal matters or claims.
Indemnification
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
F-21
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
No amounts associated with such indemnifications have been recorded to date.
9. Technology Agreements
QLT Agreement
In May 2010, Valocor entered into an asset purchase agreement and an exclusive license agreement with QLT, Inc., a Canadian company, and acquired rights to certain dermatological product candidates, as defined therein. Upon the Company's acquisition of Valocor in August 2011, Valocor became a wholly owned subsidiary of the Company and subsequently the name of the subsidiary was changed to Dermira (Canada), Inc.
Subsequently, the license agreement with QLT was assigned to Valeant Pharmaceuticals International, Inc. ("VPII") and subsequently to VPII's affiliate, Valeant Pharmaceuticals Luxembourg S.a.r.l. ("Valeant") in connection with VPII's acquisition of QLT's Visudyne business. In December 2012, Dermira Canada and Valeant entered into an amendment to the license agreement under which Dermira Canada agreed to pay Valeant $400,000 upon execution of the amendment and $600,000 on July 31, 2013, in return for certain modifications to the license agreement, including the elimination of any further payment obligations to Valeant, VPII or QLT. Both of these amounts were recorded as research and development expenses in the statement of operations for the year ended December 31, 2012. In conjunction with this amendment, in February 2013, Dermira Canada and Valeant obtained the consent of the University of British Columbia ("UBC") to the amendment of obligations of Valeant and Dermira to UBC. As consideration for UBC's consent, and as outlined in a May 2012 agreement with UBC, Dermira Canada paid UBC $50,000 and agreed to pay UBC an additional amount upon the achievement of a specified activity under the May 2012 letter agreement. The Company recorded the $50,000 as research and development expenses in its statement of operations for the year ended December 31, 2012.
Maruho Agreement
In March 2013, the Company entered into a Right of First Negotiation Agreement with Maruho Co., Ltd. Under the terms of the agreement, the Company provided Maruho with certain information and the right to negotiate an exclusive license to develop and commercialize certain of the Company's product candidates in specified territories. In connection with the entry into this agreement, Maruho paid the Company a nonrefundable upfront payment of $10.0 million, which will be credited against certain payments payable by Maruho to the Company if the two parties enter into an exclusive license for any of the Company's products. If the parties do not enter into such an arrangement, the Company will be entitled to keep the funds without further obligation. As of December 31, 2013, the Company recorded the $10.0 million as deferred revenue on its consolidated balance sheet. The revenue will be recognized in connection with and pursuant to a future license arrangement, if any, or at the time the parties decide not to enter into such a license, at which point the entire amount would be recognized as revenue.
F-22
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Technology Agreements (Continued)
In connection with the execution of the Right of First Negotiation Agreement, Maruho purchased 6,884,682 shares of the Company's Series B convertible preferred stock for an aggregate purchase price of $10.0 million.
Rose U Agreement
In April 2013, the Company entered into an exclusive license agreement with Rose U, LLC to license certain patents, patent applications and know-how. This agreement includes a sublicense and assignment of certain know-how licensed and assigned to Rose U by Stiefel Laboratories, Inc., a GSK Company, the prior licensee of such patents. In connection with this agreement, the Company also entered into a letter agreement with Stiefel. The Company paid fees of $0.3 million to Rose U in connection with execution of these agreements and is required to pay additional amounts totaling up to $4.6 million upon the achievement of specified development, commercialization and other milestones under these agreements. In addition, the Company is also obligated to pay Rose U low-to-mid single-digit royalties on net product sales and low double-digit royalties on sublicense fees and certain milestone, royalty and other contingent payments received from sublicensees, to the extent such amounts are in excess of the milestone and royalty payments the Company is obligated to pay Rose U directly upon the events or sales triggering such payments. The initial fee of $0.2 million was recorded to research and development expense in the statement of operations for the year ended December 31, 2013.
UCB Agreement
In March 2014, the Company entered into a development and commercialization agreement with UCB (the "UCB agreement"), for the Company to develop Cimzia in order for UCB to seek regulatory approval from the FDA, European Medicines Agency ("EMA") and the Canadian federal department for health ("Health Canada") for the treatment of psoriasis, and upon the grant of regulatory approval in the United States and Canada, for the Company to promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada. Unless earlier terminated, the term of the UCB agreement is 12.5 years following the first commercial launch following regulatory approval of Cimzia for the treatment of psoriasis in the United States or Canada.
The Company has agreed with UCB on a development plan to obtain regulatory approval from the FDA, the EMA and Health Canada, which may be amended as necessary to meet the requirements of these regulatory authorities for approval. The Company is responsible for development costs under the development plan up to a specified cap greater than $75.0 million and less than $95.0 million, plus its internal development costs. Any development costs in excess of this cap or for any required clinical trials in pediatric patients will be shared equally. Development costs for any EMA-specific post-approval studies will be borne solely by UCB. UCB is obligated to pay the Company up to an aggregate of $36.0 million if certain development milestones are met, and up to an additional aggregate of $13.5 million upon the grant of regulatory approval, including pricing and reimbursement approval, in certain European countries.
Under the terms of the UCB agreement, the Company will have the exclusive rights upon regulatory approval of the psoriasis indication to promote Cimzia to dermatologists in the United States and Canada. Following such regulatory approval, UCB will book sales and is obligated to pay the Company royalties representing a percentage of the annual gross profits (after subtracting the costs of
F-23
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Technology Agreements (Continued)
certain commercialization support services to be provided by UCB) from Cimzia sales attributed to dermatologists in all indications in the United States and Canada. In each year, the royalties payable to the Company are tiered based upon increasing levels of annual net sales attributed to dermatologists in such year, with UCB retaining between 10% and, above $150.0 million of such annual net sales in such year, 50%, and the Company receiving the balance, of such annual gross profits. In addition, UCB is obligated to pay the Company up to an aggregate of $40.0 million upon the achievement of tiered milestones based on annual net sales of Cimzia attributed to dermatologists in the United States and Canada.
In connection with the UCB agreement, UCB purchased $5.0 million of the Company's Series B preferred stock at $1.4525 per share in April 2014. Concurrently with the IPO, entities affiliated with UCB will purchase from the Company in a private placement shares of the Company's common stock with an aggregate purchase price of $7.5 million, at a price per share equal to the initial public offering price. The sale of these shares to entities affiliated with UCB will not be registered in the IPO.
10. Series B Convertible Preferred Stock Warrant
On December 11, 2013, in connection with the Square 1 Bank Term Loan A (see Note 7), the Company issued the Bank a warrant to purchase up to 103,270 shares of the Company's Series B convertible preferred stock with an exercise price of $1.4525 per share and a contractual term of seven years from issuance. The number of shares issuable pursuant to the warrant at any date is 51,635 shares plus 1% of the amount drawn through that date under the Loan Agreement divided by 1.4525. Following the entry into the Loan Agreement and the concurrent funding of Term Loan A, the warrant was exercisable for 65,404 shares of Series B convertible preferred stock. The fair value of the warrant of approximately $61,000 was recorded as debt discount and warrant liability upon issuance. The fair value of the warrant on the date of issue was determined using the Black-Scholes option-pricing model with the following weighted-average assumptions: (1) seven-year contractual term; (2) 66.0% expected volatility; (3) 1.6% risk-free interest rate; and (4) no expected dividend.
The fair value of the outstanding convertible preferred stock warrant was remeasured as of December 31, 2013 using a Black-Scholes option-pricing model with the following assumptions:
Expected term (in years) |
7.0 | |||
Expected volatility |
66.0 | % | ||
Risk-free interest rate |
1.6 | % | ||
Expected dividend rate |
0.0 | % |
Fair Value of Convertible Preferred Stock. The fair value of the shares of the convertible preferred stock underlying the preferred stock warrant has historically been determined by the Company's Board of Directors. Because there has been no public market for the Company's convertible preferred stock, the Board of Directors has determined fair value of the Company's convertible preferred stock at each balance sheet date by considering a number of objective and subjective factors, including valuation of comparable companies, sales of the Company's convertible preferred stock to unrelated third parties, the Company's operating and financial performance, the lack of liquidity of the Company's convertible preferred stock, and general and industry-specific economic outlooks, among other factors.
F-24
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Series B Convertible Preferred Stock Warrant (Continued)
Remaining Contractual Term. The Company derived the remaining contractual term based on the time from the consolidated balance sheet date until the preferred stock warrant's expiration date.
Expected Volatility. Since the Company was a private entity with no historical data regarding the volatility of its preferred stock, the expected volatility used is based on volatility of a group of similar entities. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the remaining contractual term of the warrants.
Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend rate of zero in the valuation model.
As of June 30, 2014 (unaudited), the Company revalued the Series B convertible preferred stock warrant using a hybrid of the option-pricing method and the probability-weighted expected return method. The hybrid method was applied to various exit scenarios and each scenario was weighted based on the Company's estimate of the probability of the scenario occurring. The fair value of the warrant using the hybrid method was $60,000.
11. Common Stock
As of December 31, 2013 and June 30, 2014, the Company was authorized to issue up to 135,000,000 shares and 139,000,000 shares (unaudited), respectively, of common stock, par value $0.001 per share. The Company had reserved shares of common stock, on an as converted basis, for issuance as follows:
|
As of December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of
June 30, 2014 |
|||||||||
|
2012 | 2013 | ||||||||
|
|
|
(Unaudited)
|
|||||||
Share-based payments outstanding under stock incentive plans |
5,337,985 | 10,113,004 | 13,138,983 | |||||||
Conversion of convertible preferred stock |
38,121,253 | 55,332,957 | 58,775,299 | |||||||
Issuances upon exercise of convertible preferred stock warrant |
| 65,404 | 65,404 | |||||||
Shares available for future stock option grants |
7,844,494 | 826,352 | 324,373 | |||||||
| | | | | | | | | | |
|
51,303,732 | 66,337,717 | 72,304,059 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
From August 2010 to October 2010, the Company issued 2,325,000 shares of restricted common stock at $0.001 per share to service providers of the Company under common stock purchase agreements. The shares purchased under the stock purchase agreements vest over time. The unvested shares of common stock are subject to a right of repurchase by the Company in the event of cessation of services. Included in common stock outstanding as of December 31, 2012 and 2013 and as of June 30, 2014 (unaudited) were 675,522, 56,772 and 16,147 shares, respectively, which were subject to the Company's right to repurchase relating to these common stock purchase agreements.
F-25
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Convertible Preferred Stock
As of December 31, 2013 and June 30, 2014, the Company was authorized to issue up to 58,621,253 shares and 62,063,595 shares (unaudited), respectively, of preferred stock, par value $0.001 per share.
As of December 31, 2012, outstanding convertible preferred stock was comprised of the following (in thousands, except share and per share amounts):
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying
Value |
Liquidation
Value per Share |
Liquidation
Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
47,000,000 | 38,121,253 | $ | 35,089 | $ | 0.925 | $ | 35,262 |
As of December 31, 2013, outstanding convertible preferred stock was comprised of the following (in thousands, except share and per share amounts):
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying
Value |
Liquidation
Value per Share |
Liquidation
Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
38,121,253 | 38,121,253 | $ | 35,089 | $ | 0.925 | $ | 35,262 | ||||||||
Series B |
20,500,000 | 17,211,704 | 24,499 | 1.4525 | 25,000 | |||||||||||
| | | | | | | | | | | | | | | | |
|
58,621,253 | 55,332,957 | $ | 59,588 | $ | 60,262 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
As of June 30, 2014 (unaudited), outstanding convertible preferred stock was comprised of the following (in thousands, except share and per share amounts):
|
Shares
Authorized |
Shares
Issued and Outstanding |
Carrying
Value |
Liquidation
Value per Share |
Liquidation
Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
38,121,253 | 38,121,253 | $ | 35,089 | $ | 0.925 | $ | 35,262 | ||||||||
Series B |
23,942,342 | 20,654,046 | 29,499 | 1.4525 | 30,000 | |||||||||||
| | | | | | | | | | | | | | | | |
|
62,063,595 | 58,775,299 | $ | 64,588 | $ | 65,262 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The Company recorded the convertible preferred stock at fair value, net of issuance costs, on the dates of issuance. The Company classifies the convertible preferred stock outside of stockholders' (deficit) equity because the shares contain liquidation features that are not solely within the Company's control. For the six months ended June 30, 2014, the Company did not adjust the carrying values of the convertible preferred stock to the deemed redemption values of such shares since a liquidation event was not probable. Subsequent adjustments to the carrying values to the ultimate redemption values will be made only if and when it becomes probable that such a liquidation event will occur.
The rights, preferences and privileges of the convertible preferred stock are as follows:
Conversion
Each share of Series A and Series B convertible preferred stock is convertible into shares of common stock at an initial conversion price of $0.925 per share and $1.4525 per share, respectively. Each share of convertible preferred stock is convertible, at the option of the holder, at any time into fully paid and nonassessable shares of common stock. Conversion of all shares of convertible preferred stock is automatic upon: (1) affirmative election of the holders of a majority of the shares of
F-26
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Convertible Preferred Stock (Continued)
convertible preferred stock outstanding; or (2) the closing of a firm commitment underwritten public offering of common stock with a price per share of not less than the conversion price of the Series B convertible preferred stock then in effect and gross cash proceeds to the Company of at least $50.0 million (before deduction of underwriters' commissions and expenses).
The number of shares of common stock to which a convertible preferred stockholder is entitled upon conversion of such stockholder's convertible preferred stock is the product obtained by multiplying the convertible preferred stock conversion rate by the number of shares of convertible preferred stock being converted, subject to adjustments as provided in the Company's Restated Certificate of Incorporation. As of December 31, 2012 and 2013 and June 30, 2014 (unaudited), all shares of Series A and Series B convertible preferred stock were convertible into common stock on a one-for-one basis.
The Series A and Series B convertible preferred stock conversion prices are subject to adjustment upon any future stock splits or stock combinations, reclassifications or exchanges of similar shares, or upon a reorganization, merger or consolidation of the Company. In addition, the conversion prices are subject to adjustment upon any issuance of stock below the stated conversion prices for each series of convertible preferred stock, subject to certain exceptions.
Special Mandatory Conversion
At any time prior to the automatic conversion of the convertible preferred stock or conversion of the convertible preferred stock pursuant to a liquidation, dissolution or winding up of the Company or a deemed liquidation event, if certain investors do not participate in a qualified financing by purchasing their pro rata amount (based upon designated commitment percentages) up to a threshold amount, on the terms generally applicable to other investors in the qualified financing, then each share of convertible preferred stock held by those investors will be automatically converted into the number of shares of common stock equal to 50% of the shares of common stock that such investors would be entitled to receive upon an optional conversion at the applicable conversion price for the series of preferred stock in question that is in effect immediately prior to the consummation of such qualified financing. Once each such investor has purchased preferred stock in an amount equal to the threshold amount, such automatic special mandatory conversion provision is no longer applicable as to such investor.
Voting
Stockholders of the Series A and Series B convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock are convertible on the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or written consent is solicited. Holders of convertible preferred stock vote together as one class with the common stock, and have voting rights and powers that differ from the common stock as specified in the Company's Amended and Restated Certificate of Incorporation. For so long as at least 25% of the shares of convertible preferred stock remain outstanding, the approval of convertible preferred stockholders is required for a number of significant changes to the Company, including the creation of a new class or series of shares of capital stock and amendments to the Company's Amended and Restated Certificate of Incorporation and Bylaws.
F-27
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Convertible Preferred Stock (Continued)
So long as at least 25% of the shares of Series A convertible preferred stock remain outstanding, the holders of Series A convertible preferred stock, voting as a separate series, will be allowed to elect three directors of the Company, the holders of the common stock, voting as a separate class, are allowed to elect two directors of the Company.
Liquidation
In the event of a liquidation, dissolution, or winding up of the Company, whether voluntarily or involuntarily, and upon certain other defined events, the holders of the Series A and Series B convertible preferred stock are also entitled to receive liquidation preferences in amounts per share equal to the original issue price of $0.925 and $1.4525, respectively, plus the amount of any declared and unpaid dividends on such shares of convertible preferred stock. Liquidation payments are made in preference to any payments to the holders of common stock. If the funds or assets from the liquidation event are insufficient to permit the payment of Series A and Series B convertible preferred stock holders their full liquidation preferences, then all the funds or assets will be distributed among the holders Series A and Series B convertible preferred stock pro rata, on a pari passu basis, according to their respective liquidation preferences. If there are any funds remaining after the payment of the liquidation preference of $0.925 per share and $1.4525 per share to the holders of the Series A and Series B convertible preferred stock, respectively, then all remaining funds shall be distributed among the holders of the shares of Series A and Series B convertible preferred stock and common stock, pro rata based on the number of shares held by each such holder (on an as-converted to common stock basis), provided, however, that if the aggregate amount the holders of Series A and Series B preferred stock are entitled to receive exceeds $2.775 per share and $4.3575 per share, respectively, then each holder of Series A and Series B convertible preferred stock shall only be entitled to receive the greater of (1) $2.775 per share and $4.3575 per share, respectively, or (2) the amount such holder would have received if all shares of Series A and Series B convertible preferred stock had been converted into common stock immediately prior to a liquidation, dissolution or winding up of the Company.
Dividends
Holders of Series A and Series B convertible preferred stock are entitled to receive dividends out of any assets legally available only when, as, and if declared by the Board of Directors, prior to and in preference to any declaration or payment of any dividend on the common stock. Such dividends shall be noncumulative. The dividend rate for the Series A and Series B convertible preferred stock per share per annum is $0.0740 and $0.1162, respectively. To date, the Board of Directors has not declared any dividends.
Redemption
The convertible preferred stock is not redeemable as it does not have a set redemption date or a date after which the shares may be redeemed by the holders.
13. Stock Option Plan
The Company adopted the 2010 Equity Incentive Plan (the "2010 Plan"), as amended, which provides for the granting of stock options to employees, officers, directors, consultants and advisors of the Company. Options granted under the 2010 Plan may be either incentive stock options or
F-28
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
nonqualified stock options. Incentive stock options ("ISOs") may be granted only to Company employees, including officers and directors who are also employees. Nonqualified stock options ("NSOs") may be granted to Company employees, officers, directors, consultants and advisors. As of December 31, 2013 and June 30, 2014 (unaudited), the Company had reserved 10,939,356 and 13,499,356 shares of common stock for issuance under the 2010 Plan, respectively.
Options to purchase the Company's common stock may be granted at a price not less than the fair value in the case of both NSOs and ISOs, except that an ISO granted to an employee who owns more than 10% of the voting power of all classes of stock of the Company shall have an exercise price of no less than 110% of the fair value per share on the grant date and expire five years from the date of grant. The fair value and vesting terms of options issued are determined by the Board of Directors. Options under the 2010 Plan may be granted for periods of up to 10 years, unless subject to the provisions regarding 10% stockholders. Employee options granted by the Company generally vest over four years at a rate of 25% upon the first anniversary of the issuance date and monthly thereafter.
The following summary of stock option activity for the periods presented is as follows (in thousands, except share and per share amounts):
|
Shares
Available for Grant |
Shares
Subject to Outstanding Options |
Weighted-
Average Exercise Price Per Share |
Weighted-
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options outstanding at December 31, 2011 |
7,624,338 | 5,558,141 | $ | 0.17 | ||||||||||||
Additional shares reserved under plan |
| | | |||||||||||||
Options granted |
(730,000 | ) | 730,000 | 0.17 | ||||||||||||
Options exercised |
| | | |||||||||||||
Options forfeited |
950,156 | (950,156 | ) | 0.17 | ||||||||||||
| | | | | | | | | | | | | | | | |
Options outstanding at December 31, 2012 |
7,844,494 | 5,337,985 | 0.17 | |||||||||||||
Reduction in shares reserved under plan |
(4,897,716 | ) | | | ||||||||||||
Additional shares reserved under plan |
2,654,593 | | | |||||||||||||
Options granted |
(4,775,019 | ) | 4,775,019 | 0.24 | ||||||||||||
Options exercised |
| | | |||||||||||||
Options forfeited |
| | | |||||||||||||
| | | | | | | | | | | | | | | | |
Options outstanding at December 31, 2013 |
826,352 | 10,113,004 | 0.20 | |||||||||||||
Additional shares reserved under plan (unaudited) |
2,560,000 | | | |||||||||||||
Options granted (unaudited) |
(3,096,979 | ) | 3,096,979 | 0.91 | ||||||||||||
Options exercised (unaudited) |
| (36,000 | ) | 0.19 | ||||||||||||
Options forfeited (unaudited) |
35,000 | (35,000 | ) | 0.30 | ||||||||||||
| | | | | | | | | | | | | | | | |
Options outstanding at June 30, 2014 (unaudited) |
324,373 | 13,138,983 | $ | 0.37 | 8.4 | $ | 11,297 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Vested and expected to vest as of December 31, 2012 |
4,941,997 | 0.17 | 8.8 | 222 | ||||||||||||
Exercisable as of December 31, 2012 |
1,733,868 | 0.16 | 8.7 | 83 | ||||||||||||
Vested and expected to vest as of December 31, 2013 |
9,185,214 | 0.20 | 8.5 | 905 | ||||||||||||
Exercisable as of December 31, 2013 |
3,126,048 | 0.17 | 7.8 | 420 | ||||||||||||
Vested and expected to vest as of June 30, 2014 (unaudited) |
12,004,178 | 0.36 | 8.4 | 10,401 | ||||||||||||
Exercisable as of June 30, 2014 (unaudited) |
4,878,908 | 0.18 | 7.6 | 5,126 |
F-29
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
The following table summarizes information with respect to stock options outstanding and currently exercisable as of December 31, 2013:
|
Options Outstanding | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Exercise Price
|
Number of
Options |
Weighted-
Average Remaining Contractual Life (In Years) |
Options
Exercisable |
|||||||
$0.001 |
146,000 | 6.9 | 115,583 | |||||||
$0.17 |
5,191,985 | 7.8 | 2,962,757 | |||||||
$0.21 |
2,946,778 | 9.0 | | |||||||
$0.30 |
1,828,241 | 9.6 | 47,708 | |||||||
| | | | | | | | | | |
|
10,113,004 | 3,126,048 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
The following table summarizes information with respect to stock options outstanding and currently exercisable as of June 30, 2014 (unaudited):
|
Options Outstanding | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Exercise Price
|
Number of
Options |
Weighted-
Average Remaining Contractual Life (In Years) |
Options
Exercisable |
|||||||
$0.001 |
146,000 | 6.4 | 133,833 | |||||||
$0.17 |
5,161,985 | 7.3 | 3,536,743 | |||||||
$0.21 |
2,946,778 | 8.5 | 1,043,646 | |||||||
$0.30 |
1,957,241 | 9.1 | 157,186 | |||||||
$0.95 |
2,926,979 | 9.9 | 7,500 | |||||||
| | | | | | | | | | |
|
13,138,983 | 4,878,908 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
Stock Options Granted to Employees
During the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2014 (unaudited), the Company granted stock options to employees and nonemployee directors to purchase shares of common stock with a weighted-average grant date fair value of $0.11, $0.16 and $0.62 per share, respectively, and a weighted-average exercise price of $0.17, $0.24 and $0.91 per share, respectively. As of December 31, 2012 and 2013 and June 30, 2014 (unaudited), there was total unrecognized compensation expense of $0.3 million, $0.7 million and $2.2 million, respectively, to be recognized over a period of approximately 2.77 years, 2.48 years and 2.43 years, respectively.
The Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the
F-30
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
requisite service period of the awards. The fair value of the employee stock options was estimated using the following weighted-average assumptions:
|
Year Ended
December 31, |
Six Months
Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Expected term (years) |
6.0 | 6.1 | 6.1 | 6.0 | |||||||||
Expected volatility |
71.0 | % | 76.0 | % | 76.0 | % | 76.0 | % | |||||
Risk-free interest rate |
1.1 | % | 1.3 | % | 1.1 | % | 1.9 | % | |||||
Expected dividend rate |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
Fair Value of Common Stock. The fair value of the shares of the Company's common stock underlying the stock options has historically been determined by the Company's Board of Directors. Because there has been no public market for the Company's common stock, its Board of Directors has determined the fair value of the Company's common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of the Company's convertible preferred stock, the Company's operating and financial performance, the lack of liquidity of the Company's capital stock, and the general and industry-specific economic outlooks.
Expected Term. The expected term of stock options represents the weighted-average period that the stock options are expected to remain outstanding. Since the Company has insufficient historical information regarding its stock options to provide a basis for estimate of expected term, the Company uses the simplified method, which is the average of the weighted-average vesting period and contractual term of the option, to estimate the expected life of its stock option awards.
Expected Volatility. Since there has been no public market for the Company's common stock and lack of specific historical volatility, the Company has determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the options.
Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend rate of zero in the valuation model.
Estimated Forfeitures. The Company is required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses its historical forfeiture experience and the experience of other companies in the same industry to estimate pre-vesting option forfeitures and record stock based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference is recorded as a cumulative adjustment in the period that the estimates are revised.
F-31
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Stock Option Plan (Continued)
Stock Options Granted to Nonemployees
Stock-based compensation expense related to stock options granted to nonemployees is recognized as the stock options are earned. During the year ended December 31, 2012, the Company granted options to purchase 20,000 shares of common stock to a nonemployee with an exercise price of $0.17 per share. During the year ended December 31, 2013, the Company granted options to purchase 209,000 shares of common stock to nonemployees with an exercise price of $0.30 per share. During the six months ended June 30, 2014 (unaudited), the Company did not grant any options to purchase shares of common stock to nonemployees.
Compensation expense related to these options during the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited) was approximately $23,000, $38,000, $13,000 and $106,000, respectively.
The Company believes that the fair value of the stock options is more reliably measurable than the fair value of services received. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Expected term (in years) |
9.1 | 8.3 | 8.2 | 7.9 | |||||||||
Expected volatility |
67.0 | % | 72.0 | % | 73.0 | % | 73.0 | % | |||||
Risk-free interest rate |
1.6 | % | 2.4 | % | 1.5 | % | 2.3 | % | |||||
Expected dividend rate |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
Total Stock-Based Compensation
Total stock-based compensation expense related to options granted to employees and nonemployees was allocated as follows (in thousands):
|
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
|
|
(Unaudited)
|
||||||||||
Research and development: |
$ | 120 | $ | 196 | $ | 80 | $ | 227 | |||||
Sales, general and administrative: |
46 | 96 | 40 | 83 | |||||||||
| | | | | | | | | | | | | |
Total stock-based compensation expense |
$ | 166 | $ | 292 | $ | 120 | $ | 310 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
There were no capitalized stock-based compensation costs or recognized stock-based compensation tax benefits during the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014 (unaudited).
F-32
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Employee Benefit Plan
The Company sponsors a 401(k) defined contribution plan for its employees. This plan provides for tax-deferred salary deductions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company may match employee contributions in amounts to be determined at the Company's sole discretion. The Company has made no contributions to the plan for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2013 and 2014 (unaudited).
15. Income Taxes
There is no provision for income taxes for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2013 and 2014 (unaudited) as the Company has only generated pretax losses since inception.
Significant components of the Company's deferred tax assets and liabilities as of December 31, 2012 and 2013 consisted of the following (in thousands):
|
Year Ended December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2012 | 2013 | |||||
Deferred tax assets: |
|||||||
Net operating loss carryforwards |
$ | 9,468 | $ | 18,192 | |||
Depreciation and amortization |
584 | 565 | |||||
Research and development tax credits |
601 | 921 | |||||
Accruals and stock-based compensation expense |
96 | 139 | |||||
Fixed assets |
1 | 2 | |||||
| | | | | | | |
Total deferred tax assets |
10,750 | 19,819 | |||||
Deferred tax asset valuation allowance |
(10,750 | ) | (19,819 | ) | |||
| | | | | | | |
Net deferred tax assets |
| | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Acquired IPR&D |
(785 | ) | (785 | ) | |||
| | | | | | | |
Net deferred tax assets prior to valuation allowance |
(785 | ) | (785 | ) | |||
| | | | | | | |
Net deferred tax liabilities |
$ | (785 | ) | $ | (785 | ) | |
| | | | | | | |
| | | | | | | |
F-33
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
Reconciliations of the statutory federal income tax (benefit) rate to the Company's effective tax for the years ended December 31, 2012 and 2013 are as follows:
|
Year Ended December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2012 | 2013 | |||||
Tax (benefit) at statutory federal rate |
34.0 | % | 34.0 | % | |||
State tax (benefit), net of federal benefit |
5.8 | % | 5.8 | % | |||
Foreign tax, net of federal benefit |
(4.5 | )% | (1.1 | )% | |||
Permanent differences |
(0.2 | )% | (0.4 | )% | |||
Research and development credits |
0.4 | % | 0.9 | % | |||
Change in valuation allowance |
(35.5 | )% | (39.3 | )% | |||
| | | | | | | |
Provision for income taxes |
0.0 | % | 0.0 | % | |||
| | | | | | | |
| | | | | | | |
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset net deferred tax assets as of December 31, 2012 and 2013 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. The Company's valuation allowance increased by approximately $8.0 million and $9.1 million for the years ended December 31, 2012 and 2013, respectively.
As of December 31, 2013, the Company had net operating loss ("NOL") carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $43.8 million, $43.8 million and $3.0 million, respectively. The federal and California NOL carryforwards will begin expiring during the year ended December 31, 2031 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2029. The NOL carryforwards related to deferred tax assets do not include excess tax benefits from employee stock option exercises.
As of December 31, 2013, the Company also had research and development credit carryforwards of $0.2 million, $0.3 million and $0.5 million available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes, respectively. The federal and Canadian credit carryforwards will begin expiring in 2032 and the California state credit carryforwards has no expiration date.
The Company recorded approximately $122,000 in tax refunds in connection with qualified research and development costs incurred in Canada. This amount is reflected in other assets on the Company's consolidated balance sheet as of December 31, 2012. The tax refund was collected during the year ended December 31, 2013.
In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change NOL carryforwards is subject to an annual limitation under Section 382 of the Internal Revenue Code (California has similar laws). The annual limitation generally is determined by multiplying the value of the Company's stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The ability of the Company to use its remaining NOL carryforwards
F-34
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
may be further limited if the Company experiences a Section 382 ownership change in connection with this offering or as a result of future changes in its stock ownership.
The Company recognizes uncertain tax positions when it is more likely than not, based on the technical merits, that the position will not be sustained upon examination. The guidance also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosure regarding unrecognized tax benefits. The Company's policy is to include interest and penalties, if any, related to unrecognized tax benefits within the Company's provision for income taxes.
As the Company has a full valuation allowance against its deferred tax assets, the unrecognized tax benefits will reduce the deferred tax assets and the valuation allowance in the same amount. The Company does not expect the amount of unrecognized tax benefits to change in the next 12 months. A reconciliation of the of the unrecognized tax benefits is as follows (in thousands):
Balance as of December 31, 2011 |
$ | 72 | ||
Addition based on tax position related to current year |
50 | |||
| | | | |
Balance as of December 31, 2012 |
122 | |||
Addition based on tax position related to current year |
155 | |||
Increases related to tax positions taken during a prior period |
53 | |||
| | | | |
Balance as of December 31, 2013 |
$ | 330 | ||
| | | | |
| | | | |
The Company files income tax returns in the United States, California and Canada. The Company is not currently under examination by income tax authorities in federal, state, Canadian or other jurisdictions. All tax returns for 2010 and later will remain open for examination by the federal, state and Canadian authorities for three, four and four years, respectively, from the date of utilization of any net operating loss or credits.
16. Subsequent Events (unaudited)
For the purposes of the consolidated financial statements as of December 31, 2013 and the year then ended, the Company has evaluated subsequent events through June 26, 2014, the date the audited annual consolidated financial statements were confidentially submitted to the U.S. Securities and Exchange Commission ("SEC") in a registration statement on Form S-1. For the purposes of the unaudited interim consolidated financial statements as of June 30, 2014 and the six-month period then ended, such evaluation of subsequent events has been performed through August 27, 2014. Except as described below, the Company has concluded that no subsequent event has occurred that requires disclosure.
Lease Agreement
On July 24, 2014, the Company entered into a lease agreement for a facility totaling approximately 18,833 square feet in Menlo Park, California and intends to relocate its corporate headquarters to this facility in the fourth quarter of 2014. The term of the lease is five years, commencing December 2014 and terminating November 2019, with an option to renew for an additional three-year term. The base rent is approximately $98,873 per month during the first year of the lease and increases by three percent annually. Rent expenses include the base rent plus additional fees to cover the Company's
F-35
DERMIRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Subsequent Events (unaudited) (Continued)
share of certain facility expenses, including utilities, property taxes, insurance and maintenance. The estimated amount of these additional fees is approximately $22,600 per month during the first year of the lease. The total estimated lease payments for this facility over the five-year term of the lease are approximately $8 million.
In addition, the Company is required to issue the lessor of the building either a security deposit or a letter of credit of $500,000 that may be used by or drawn upon by the lessor in the event of default of certain terms under the lease agreement. If there is no event of default under the agreement after the 30 th month of the lease term, the letter of credit may be reduced to $250,000. On August 13, 2014, the Company provided a letter of credit to the lessor in the amount of $500,000, which is collateralized by a certificate of deposit. The collateralized certificate of deposit is restricted cash and recorded in the Company's consolidated balance sheet as other assets.
Increase in Shares of Common Stock under 2010 Equity Incentive Plan
On August 14, 2014, the Company's board of directors and stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 13,499,356 shares to 14,249,356 shares.
Restated Certificate of Incorporation
On August 14, 2014, the Company restated its Restated Certificate of Incorporation to, among other things, (1) decrease its authorized shares of common stock from 139,000,000 to 126,000,000 shares, (2) increase its authorized shares of convertible preferred stock from 62,063,595 to 89,601,458 shares, of which 30,722,889 shares are designated as Series C convertible preferred stock, and (3) set forth the rights, preferences and privileges of the Series C convertible preferred stock.
Sales of Series C Convertible Preferred Stock
On August 15, 2014, the Company issued 30,722,886 shares of Series C convertible preferred stock to seven new investors and five current investors at a purchase price of $1.66 per share for net proceeds of $48.8 million.
Approval of the Ability to Borrow Funds under Term Loan B.
On August 26, 2014, the Company's board of directors determined that the Company achieved positive top-line Phase 2 clinical trial results from two of its Phase 2 programs, which satisfied the condition to the Company's ability to borrow funds under Term Loan B. As a result, the Company is now entitled to borrow funds under Term Loan B.
F-36
Shares
Dermira, Inc.
Common Stock
PRELIMINARY PROSPECTUS
, 2014
Citigroup Leerink Partners Guggenheim Securities Needham & Company |
Through and including , 2014 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and The NASDAQ Global Market listing fee:
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, the Registrant's restated certificate of incorporation to be effective in connection with the closing of this offering contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
As permitted by the Delaware General Corporation Law, the Registrant's restated bylaws to be effective upon the closing of this offering, provide that:
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Prior to the closing of this offering, the Registrant has entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's restated certificate of incorporation and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the Registrant for which indemnification is sought. Reference is also made to Section 8 of the underwriting agreement to be filed as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's restated certificate of incorporation, restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant's directors and executive officers for liabilities arising under the Securities Act.
The Registrant currently carries liability insurance for its directors and officers.
Three of the Registrant's directors (Fred B. Craves, Wende S. Hutton and Jake R. Nunn) are also indemnified by their employers with regard to their service on the Registrant's board of directors.
Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
Exhibit Document
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Number | |||
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Form of Underwriting Agreement |
1.1 | |||
Form of Restated Certificate of Incorporation to be effective upon the closing of this offering |
3.2 | |||
Form of Restated Bylaws to be effective upon the closing of this offering |
3.4 | |||
Amended and Restated Investors Rights Agreement dated March 28, 2013, as amended, among the Registrant and certain of its stockholders |
4.2 | |||
Form of Indemnification Agreement |
10.1 |
Item 15. Recent Sales of Unregistered Securities.
Since August 19, 2011 and through August 18, 2014, the Registrant has issued and sold the following securities:
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price of approximately $12.1 million to six purchasers, each of whom represented to the Registrant that it was a sophisticated accredited investor or a qualified institutional buyer. This transaction was exempt from the registration requirements of the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and the Registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing transactions either received adequate information about the Registrant or had access, through their relationships with the Registrant, to such information. Furthermore, the Registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit
Number |
Description of Document | ||
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1.1 | * | Form of Underwriting Agreement. | |
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3.1 |
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Restated Certificate of Incorporation. |
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3.2 |
* |
Form of Restated Certificate of Incorporation to be effective upon closing of this offering. |
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3.3 |
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Bylaws, as currently in effect. |
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3.4 |
* |
Form of Restated Bylaws to be effective upon closing of this offering. |
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4.1 |
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Form of Common Stock Certificate. |
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4.2 |
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Amended and Restated Investors' Rights Agreement, dated August 15, 2014, by and among the Registrant and certain of its stockholders. |
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5.1 |
* |
Opinion of Fenwick & West LLP. |
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(b) Financial Statement Schedule.
No financial statement schedules are provided because the information called for is not required or is shown either in the consolidated financial statements or notes.
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The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood City, State of California, on this 27th day of August, 2014.
DERMIRA, INC. | ||||
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By: |
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/s/ THOMAS G. WIGGANS Thomas G. Wiggans Chief Executive Officer and Chairman of the Board |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Thomas G. Wiggans and Andrew L. Guggenhime, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ THOMAS G. WIGGANS
Thomas G. Wiggans |
Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | August 27, 2014 | ||
/s/ ANDREW L. GUGGENHIME Andrew L. Guggenhime |
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Chief Operating Officer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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August 27, 2014 |
/s/ EUGENE A. BAUER Eugene A. Bauer |
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Chief Medical Officer and Director |
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August 27, 2014 |
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Signature
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Title
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Date
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/s/ DAVID E. COHEN
David E. Cohen |
Director | August 27, 2014 | ||
/s/ FRED B. CRAVES Fred B. Craves |
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Director |
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August 27, 2014 |
/s/ MATTHEW K. FUST Matthew K. Fust |
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Director |
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August 27, 2014 |
/s/ WENDE S. HUTTON Wende S. Hutton |
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Director |
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August 27, 2014 |
/s/ MARK D. MCDADE Mark D. McDade |
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Director |
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August 27, 2014 |
/s/ JAKE R. NUNN Jake R. Nunn |
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Director |
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August 27, 2014 |
/s/ WILLIAM R. RINGO William R. Ringo |
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Director |
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August 27, 2014 |
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Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
DERMIRA, INC.
Dermira, Inc., a Delaware corporation, hereby certifies that:
1. The name of the corporation is Dermira, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was August 18, 2010, under the name of Skintelligence, Inc. The corporation filed a restated certificate of incorporation on August 3, 2011, a certificate of amendment to the restated certificate of incorporation on September 9, 2011, a restated certificate of incorporation on March 27, 2013 and a certificate of amendment to the restated certificate of incorporation on April 10, 2014.
2. This Restated Certificate of Incorporation of the corporation attached hereto as Exhibit A , which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation, has been duly adopted by the corporations Board of Directors and a majority of the stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the corporations stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF , said corporation has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.
Dated: August 14, 2014 |
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Dermira, Inc. |
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By: |
/s/ Thomas Wiggans |
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Name: |
Thomas Wiggans |
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Title: |
Chief Executive Officer |
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
DERMIRA, INC.
ARTICLE I: NAME
The name of the corporation is Dermira, Inc.
ARTICLE II: REGISTERED AGENT
The address of the registered office of the corporation in the State of Delaware is 32500 South Dupont Highway, City of Dover, County of Kent, Delaware 19901. The name of the corporations registered agent at such address is Incorporating Services, Ltd.
ARTICLE III: PURPOSE
The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV: AUTHORIZED SHARES
This corporation is authorized to issue two classes of shares, designated Common Stock and Preferred Stock . The total number of shares of Common Stock authorized to be issued is 126,000,000 shares, $0.001 par value per share. The total number of shares of Preferred Stock authorized to be issued is 89,601,458 shares, $0.001 par value per share, 38,121,253 of which are designated as Series A Preferred Stock , and 20,757,316 of which are designated as Series B Preferred Stock and 30,722,889 of which are designated as Series C Preferred Stock .
ARTICLE V: TERMS OF CLASSES AND SERIES
The rights, preferences, privileges and restrictions granted to and imposed on the Preferred Stock and the Common Stock are as follows:
1. Definitions . For purposes of this Article V, the following definitions apply (except as otherwise provided for herein):
1.1 Board shall mean the Board of Directors of the Corporation.
1.2 Common Stock shall mean the Common Stock, $0.001 par value per share, of the Corporation.
1.3 Common Stock Dividend shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock.
1.4 Corporation shall mean this corporation.
1.5 Distribution shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a
dividend in shares of Corporations stock). A Permitted Repurchase (defined below) is not a Distribution.
1.6 Dividend Rate shall mean $0.0740 per share per annum for the Series A Preferred Stock, $0.1162 per share per annum for the Series B Preferred Stock and $0.13 per share per annum for the Series C Preferred Stock (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like, with respect to each such series of Preferred Stock).
1.7 Fully Diluted Basis shall mean all shares of Common Stock and all shares of Preferred Stock and all Convertible Securities as if such shares had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of Common Stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible)
1.8 Original Issue Date shall mean the date on which the first share of Series C Preferred Stock is issued by the Corporation.
1.9 Original Issue Price shall mean $0.9250 per share for the Series A Preferred Stock, $1.4525 per share for the Series B Preferred Stock and $1.66 per share for the Series C Preferred Stock. The Original Issue Price shall be as adjusted for any stock splits or combinations of such Preferred Stock, stock dividends on such Preferred Stock, recapitalizations of such Preferred Stock or the like with respect to such Preferred Stock.
1.10 Permitted Repurchases shall mean (a) the repurchase by the Corporation of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Corporation or a subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Corporation has the option to repurchase such shares, at cost, upon the occurrence of certain events, such as the termination of employment or services, and (b) the repurchase of shares pursuant to the Co-Sale Agreement (as defined in that certain Series C Preferred Stock Purchase Agreement, dated as of the Original Issue Date, as may be amended, restated or modified from time to time, by and among the Corporation and certain stockholders of the Corporation (the Purchase Agreement )).
1.11 Preferred Stock shall mean the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
1.12 Series A Preferred Stock shall mean the Series A Preferred Stock, $0.001 par value per share, of the Corporation.
1.13 Series B Preferred Stock shall mean the Series B Preferred Stock, $0.001 par value per share, of the Corporation.
1.14 Series C Preferred Stock shall mean the Series C Preferred Stock, $0.001 par value per share, of the Corporation.
1.15 Securities Act shall mean the Securities Act of 1933, as amended.
1.16 Subsidiary shall mean any corporation of which at least 50% of the outstanding voting stock is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations.
2. Dividend Rights .
2.1 Non-Cumulative Preferred Stock Dividend Preference . Holders of Preferred Stock, in preference to the holders of Common Stock, may receive, but only out of funds that are legally available therefor, cash dividends at the Dividend Rate per annum on each outstanding share of Preferred Stock. Such dividends shall be payable only when, as and if declared by the Board and shall be non-cumulative. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) in any calendar year unless (in addition to the obtaining of any consents required elsewhere in this Restated Certificate of Incorporation ( Restated Certificate )) the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, out of funds legally available therefor, a dividend on each outstanding share of Preferred Stock as set forth in Section 2.1.
2.2 Non-Cash Dividends . Whenever a dividend or Distribution provided for in this Section 2 shall be payable in property other than cash, the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board.
3. Liquidation Rights . In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets that may be legally distributed to the Corporations stockholders (the Available Funds and Assets ) shall be distributed to stockholders in the following manner.
3.1 Liquidation Preference . The holders of each share of Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the Original Issue Price of such series of Preferred Stock, plus the amount of any declared and unpaid dividends on such share of Preferred Stock, for each such series of Preferred Stock (such amount per share, the Liquidation Preference Per Share ). If upon any liquidation, dissolution or winding up of the Corporation the Available Funds and Assets shall be insufficient to permit the payment to holders of the Preferred Stock of their full preferential amounts described in this Section 3.1, then all the remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Preferred Stock pro rata, on an equal priority, pari passu basis, according to their respective liquidation preferences as set forth herein.
3.2 Remaining Assets . If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the shares of Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for the purpose of the participation rights under this Section 3.2 all shares of Preferred Stock as if they had been converted to Common Stock pursuant to the terms of this Restated Certificate immediately prior to such dissolution, liquidation or winding up of the Corporation; provided , however , that if the aggregate amount the holders of a series of Preferred Stock are entitled to receive under Sections 3.1 and 3.2 shall exceed three times the Original Issue Price of such series of Preferred Stock (the Maximum Participation Amount ), each holder of such series of Preferred Stock shall only be entitled to receive upon such liquidation, dissolution or winding up of the Corporation the greater of (a) the Maximum Participation Amount or (b) the amount such holder would have received if all shares of such series of Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution or winding up of the Corporation.
3.3 Deemed Liquidation Events . Unless otherwise approved by the vote of both (1) the holders of a majority of the then-outstanding shares of Preferred Stock, voting together as a separate
class on an as-converted basis, and (2) the holders of at least 60% of the then-outstanding shares of Series C Preferred Stock, voting as a separate class, each of the following transactions (each a Deemed Liquidation Event ) shall be deemed to be a liquidation, dissolution or winding up of the Corporation as those terms are used in this Section 3:
(a) any reorganization by way of share exchange, consolidation or merger (each, a combination transaction ) in which the Corporation is a constituent corporation or is a party with another entity if, as a result of such combination transaction, the voting securities of the Corporation that are outstanding immediately prior to the consummation of such combination transaction ( other than any such securities that are held by an Acquiring Stockholder, as defined below) do not represent, or are not converted into or exchange for, securities of the surviving corporation of such combination transaction (or such surviving corporations parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such combination transaction, together possess a majority of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such combination transaction, including securities of such surviving corporation (or its parent corporation, if applicable) that are held by the Acquiring Stockholder;
(b) a sale of all or substantially all of the assets of the Corporation, that is followed by the distribution of the proceeds to the Corporations stockholders; or
(c) any voluntary sale, conveyance, exchange or transfer to another person, in a single transaction or a series of related transactions, of shares representing 50% or more of the outstanding shares of the Corporation (other than in connection with a bona fide equity financing of the Corporation (including the sale of Series C Preferred Stock), change of jurisdiction, or similar transaction involving the Corporation). For purposes of this Section 3.3, an Acquiring Stockholder means a stockholder or stockholders of the Corporation prior to a consolidation or merger described above that (i) merges or combines with the Corporation in such combination transaction or (ii) owns or controls a majority of another corporation that merges or combines with the Corporation in such combination transaction (or is under common control with such entity).
3.4 Allocation of Escrow . In the event of a Deemed Liquidation Event pursuant to Section 3.3, if any portion of the consideration payable to the stockholders of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the definitive agreement governing the Deemed Liquidation Event shall provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the Initial Consideration ) shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 3.1 and 3.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any additional consideration which becomes payable to the stockholders of the Corporation upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 3.1 and 3.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction.
3.5 Non-Cash Consideration . Subject to Section 3.4 above, if any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined by the Board, in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:
(a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:
(i) unless otherwise specified in a definitive agreement for the acquisition of the Corporation, if the securities are then traded on a national securities exchange, then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30 day period ending three days prior to the distribution; and
(ii) if (i) above does not apply but the securities are actively traded over-the-counter, then, unless otherwise specified in a definitive agreement for the acquisition of the Corporation, the value shall be deemed to be the average of the closing bid prices over the 30 calendar day period ending three trading days prior to the distribution; and
(iii) if there is no active public market as described in clauses (i) or (ii) above, then the value shall be the fair market value thereof, as determined in good faith by the Board.
(b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in Section 3.5(a)(i), (a)(ii) or (a)(iii) to reflect the approximate fair market value thereof, as determined in good faith by the Board.
3.6 Notice of Deemed Liquidation Event . The Corporation shall give each holder of record of Preferred Stock and Common Stock written notice of any impending Deemed Liquidation Event not later than 10 days prior to the stockholders meeting called to approve such Deemed Liquidation Event, or 10 days prior to the closing of such Deemed Liquidation Event, whichever is earlier, and shall also notify such holders in writing of the final approval of such Deemed Liquidation Event. The first of such notices shall describe the material terms and conditions of the impending Deemed Liquidation Event and the provisions of this Section 3, and the Corporation shall thereafter give such holders prompt notice of any material changes. Unless such notice requirements are waived, the Deemed Liquidation Event shall not take place sooner than 10 days after the Corporation has given the first notice provided for herein or sooner than 10 days after the Corporation has given notice of any material changes provided for herein. Notwithstanding the other provisions of this Restated Certificate, all notice periods or notice requirements in this Article V, Section 3 may be shortened or waived, either before or after the action for which notice is required, upon the written consent of the holders of at least a majority of the Preferred Stock, voting as a separate class on an as-converted basis, that are entitled to such notice rights.
4. Redemption . The Preferred Stock shall not be redeemable.
5. Voting Rights .
5.1 Common Stock . The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Restated Certificate ) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law and without a separate class vote of the holders of the Common Stock.
5.2 Preferred Stock . Each holder of shares of Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stock could be converted pursuant to the provisions of Section 6 below at the record date for
the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited.
5.3 General . Subject to the other provisions of this Restated Certificate, each holder of Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders meeting in accordance with the bylaws of the Corporation (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except as may be otherwise provided by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes.
5.4 Board of Directors Election and Removal .
(a) Election of Directors . (i) For so long as at least 25% of the Series A Preferred Stock outstanding as of the Original Issue Date remains outstanding, the holders of the Series A Preferred Stock, voting as a separate series, shall be entitled to elect three directors of the Corporation (together the Series A Directors ); (ii) the holders of a majority of the Common Stock, voting as a separate class, shall be entitled to elect two directors of the Corporation (together the Common Directors ); and (iii) a majority of the outstanding shares of Common Stock and Preferred Stock, voting together as a single class and on an as-converted to Common Stock basis, shall be entitled to elect any remaining directors.
(b) Quorum; Required Vote .
(i) Quorum . At any meeting held for the purpose of electing directors, the presence in person or by proxy (A) of the holders of a majority of the shares of the Series A Preferred Stock or Common Stock then outstanding, respectively, shall constitute a quorum for the election of directors to be elected solely by the holders of the Series A Preferred Stock or Common Stock, respectively, and (B) of holders of a majority of the voting power of all the then-outstanding shares of Preferred Stock and Common Stock shall constitute a quorum for the election of any directors to be elected jointly by the holders of the Preferred Stock and the Common Stock.
(ii) Required Vote . With respect to the election of any director or directors by the holders of the outstanding shares of a specified series, class or classes of stock given the right to elect such director or directors pursuant to Section 5.4(a) above (the Specified Stock ), that candidate or those candidates (as applicable) shall be elected who either: (A) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes (on an as-converted basis) of the outstanding shares of such Specified Stock, up to the number of directors to be elected by such Specified Stock; or (B) in the case of any such vote taken by written consent without a meeting, are elected by the written consent of the holders of a majority of outstanding shares of such Specified Stock.
(c) Vacancy . If there shall be any vacancy in the office of a director elected or to be elected by the holders of any Specified Stock, then a director to hold office for the unexpired term of such directorship may be elected by the required vote of holders of the shares of such Specified Stock specified in Section 5.4(b)(ii) above that are entitled to elect such director, and, until any such vote has occurred (or if no such vote occurs), may be elected by a majority of the remaining director or directors (if any) in office that were so elected by the holders of such Specified Stock, by the affirmative vote of a majority of such directors (or by the sole remaining director elected by the holders of such Specified Stock if there be but one).
(d) Removal . Subject to Section 141(k) of the Delaware General Corporation Law, any director who shall have been elected to the Board by the holders of any Specified Stock, or by any director or directors elected by holders of any Specified Stock as provided in Section 5.4(c), may be removed during his or her term of office, without cause, by, and only by, the affirmative vote of shares representing a majority of the voting power, on an as-converted basis, of all the outstanding shares of such Specified Stock entitled to vote, given either at a meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders without a meeting, and any vacancy created by such removal may be filled only in the manner provided in Section 5.4(c).
(e) Procedures . Any meeting of the holders of any Specified Stock, and any action taken by the holders of any Specified Stock by written consent without a meeting, in order to elect or remove a director under this Section 5.4, shall be held in accordance with the procedures and provisions of the Corporations Bylaws, the Delaware General Corporation Law and applicable law regarding stockholder meetings and stockholder actions by written consent, as such are then in effect (including but not limited to procedures and provisions for determining the record date for shares entitled to vote).
(f) Board Size . The number of directors which will constitute the whole Board shall be designated in the Bylaws of the Corporation.
(g) Termination . Notwithstanding anything in this Section 5.4 to the contrary, the provisions of this Section 5.4 shall cease to be of any further force or effect upon the earliest to occur of: (i) a Deemed Liquidation Event, or (ii) upon the election of the Corporation to windup its affairs and dissolve.
5.5 Vote by Ballot . Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
6. Conversion Rights . The outstanding shares of Preferred Stock shall be convertible into Common Stock as follows:
6.1 Optional Conversion .
(a) At the option of the holder thereof, each share of Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein.
(b) Each holder of Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. If a conversion election under this Section 6.1 is made in connection with an underwritten offering of the Corporations securities pursuant to the Securities Act (which underwritten offering does not cause an automatic conversion pursuant to Section 6.2 to take place), the conversion may, at the option of the holder tendering shares of
Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Corporations securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Common Stock upon conversion of their Preferred Stock shall not be deemed to have converted such shares of Preferred Stock until immediately prior to the closing of such sale of the Corporations securities in the offering.
6.2 Automatic Conversion .
(a) Each share of Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein: (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act, covering the offer and sale of Common Stock for the account of the Corporation in which the per share price is not less than the Conversion Price of the Series C Preferred Stock in effect immediately prior to the closing of such public offering (as adjusted for stock splits, recapitalizations, stock dividends, combinations and the like) and aggregate gross proceeds to the Corporation equals or exceeds $50,000,000 (before deduction of underwriters commissions and expenses) (a Qualified IPO ); or (ii) upon the Corporations receipt of the written consent of the holders of a majority of the then outstanding shares of Preferred Stock to the conversion of all then outstanding shares of Preferred Stock under this Section 6.2, provided that, in the event of any conversion pursuant to this Section 6.2(a)(ii) in connection with a Deemed Liquidation Event in which the holders of shares of Series C Preferred Stock receive or would, at the time of such conversion, be reasonably expected to receive as a result of such Deemed Liquidation Event an amount per share of Series C Preferred Stock less than the Original Issue Price for the Series C Preferred Stock, such conversion shall require the written consent of the holders of a majority of the then outstanding shares of Series C Preferred Stock. For the avoidance of doubt, the holders of a majority of the then outstanding shares of Preferred Stock may elect to convert all outstanding shares of Preferred Stock into Common Stock pursuant to Section 6.2(a)(ii) in connection with or contemplation of the Companys initial public offering, even if such initial public offering would not result in a Qualified IPO. No waiver of any of the provisions of this Section 6.2(a) shall be effected unless such amendment or waiver shall have been approved by at least 60% of the shares of Series C Preferred Stock then outstanding.
(b) Upon the occurrence of any event specified in Section 6.2(a) above, the outstanding shares of Preferred Stock shall be converted into Common Stock automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided , however , that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Preferred Stock, the holders of Preferred Stock shall surrender the certificates representing such shares at the office of the Corporation or any transfer agent for the Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred.
6.3 Special Mandatory Conversion .
(a) Definitions . For purposes of this Section 6.3, the following definitions shall apply.
(i) Affiliate shall mean, with respect to any holder of shares of Preferred Stock, any person, entity or firm that, directly or indirectly, controls, is controlled by or is under common control with such holder, including, without limitation, any entity of which the holder is a partner or member, any partner, officer, director, member or employee of such holder and any venture capital fund now or hereafter existing of which the holder is a partner or member which is controlled by or under common control with one or more general partners of such holder or shares the same management company with such holder.
(ii) Commitment Percentage shall mean (a) with respect to New Enterprise Associates 13, Limited Partnership and NEA Ventures 2011, Limited Partnership, and their Affiliates (together, NEA ), 36.36%, (b) with respect to Bay City Capital Fund V, L.P. and Bay City Capital V Co-Investment Fund, LP., and their Affiliates, (together, Bay City ), 36.36%, and (c) with respect to Canaan VIII L.P. and its Affiliates (together, Canaan ), 27.27%.
(iii) Offered Securities shall mean the equity securities (or convertible debt securities or instruments) of the Corporation offered for sale, or sold, in connection with a Qualified Financing.
(iv) Pro Rata Amount shall mean, with respect to any holder of Preferred Stock, the aggregate number (or principal amount, in the case of debt securities) of Offered Securities that are allocated by the Corporation for issuance to existing stockholders of the Corporation multiplied by such holders Commitment Percentage; provided , that , if such holder is limited by the Corporation to purchasing only up to a stated maximum number of Offered Securities in such Qualified Financing, which limitation has been approved by the Board and applied on a pro rata basis to all holders of Preferred Stock, then such holders Pro Rata Amount shall not exceed such maximum amount.
(v) Qualified Financing shall mean any transaction involving the issuance or sale (or deemed issuance or sale pursuant to Section 6.9(c)) of Additional Shares of Common Stock that is approved by a majority of the shares of Preferred Stock, voting as a separate class; provided that for purposes of this definition, clauses (I) and (J) of Section 6.9(b)(i) shall be disregarded.
(vi) Threshold Amount shall mean (a) with respect to NEA, $30 million, (b) with respect to Bay City, $30 million, and (c) with respect to Canaan, $22.5 million.
(b) Automatic Conversion if Not Participating . At any time prior to the conversion of the Preferred Stock pursuant to Section 6.2, a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, in the event that NEA, Bay City or Canaan does not participate in a Qualified Financing by purchasing in the aggregate in such Qualified Financing (within the time period specified by the Corporation upon sending to each holder of Preferred Stock at least 30 days written notice of, and the opportunity to purchase its Pro Rata Amount of, the Qualified Financing), such entitys Pro Rata Amount, on the terms generally applicable to other investors in the Qualified Financing, then each share of Preferred Stock held by such entity and its Affiliates shall automatically, and without any further action on the part of such entity, its Affiliates or the Corporation, be converted into the number of shares of Common Stock equal to 50% of the shares of Common Stock such entity and its Affiliates would be entitled to receive upon conversion pursuant to Section 6.1 at the applicable Conversion Price (as defined below) for the series of Preferred Stock in question that is in effect immediately prior to the consummation of such Qualified Financing. For purposes of determining the number of shares of Preferred Stock owned by any such entity and its Affiliates, and for determining the number of Offered Securities any such entity has purchased in a Qualified Financing, all shares of Preferred Stock held by Affiliates of such entity shall be aggregated with such holders shares and all Offered Securities purchased by Affiliates of such entity shall be aggregated with the Offered Securities purchased by such entity. Such conversion is referred to as a Special Mandatory Conversion .
Notwithstanding the foregoing, an entity shall not be subject to Special Mandatory Conversion (and this Section 6.3 shall not apply to such entity and its Affiliates) if, prior to any date of determination (which shall take into account any and all purchases in any such Qualified Financing), such entity and its Affiliates have together purchased Preferred Stock and any other Offered Securities for an aggregate purchase price to the Corporation that is equal to or greater than such entitys Threshold Amount.
(c) Voluntary Conversion Not Effective . Notwithstanding anything to the contrary in Section 6.1, in the event that a holder of Preferred Stock converts any shares of Preferred Stock into Common Stock pursuant to Section 6.1 hereof within 90 days prior to the date of closing of a Qualified Financing that would have resulted in a Special Mandatory Conversion of such shares of Preferred Stock had they not been converted, such Preferred Stock instead shall be deemed to have been converted in a Special Mandatory Conversion pursuant to this Section 6.3 (and the Corporation may cancel and deem no longer outstanding any shares of Common Stock issued on such conversion in excess of that number of shares that would have been issued in a Special Mandatory Conversion).
(d) Procedural Requirements . Upon a Special Mandatory Conversion, each holder of shares of Preferred Stock converted pursuant to Section 6.3(b) shall be sent written notice of such Special Mandatory Conversion and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 6.3 and Section 8.3. Upon receipt of such notice, each holder of such shares of Preferred Stock shall surrender such holders certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice in accordance with the procedure specified in Section 6.2(b) for an automatic conversion.
(e) Amendment . No amendment to, or waiver of, any of the provisions of this Section 6.3 shall be effected unless such amendment or waiver shall have been approved by at least 80% of the shares of Preferred Stock then outstanding.
6.4 Conversion Price . Each share of Preferred Stock shall be convertible in accordance with Section 6.1 or Section 6.2 above into the number of shares of Common Stock which results from dividing the Original Issue Price for such series of Preferred Stock by the conversion price for such series of Preferred Stock that is in effect at the time of conversion (the Conversion Price ). The initial Conversion Price for each such series of Preferred Stock shall be the Original Issue Price for such series of Preferred Stock. The Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as provided below. Following each adjustment of the Conversion Price, such adjusted Conversion Price shall remain in effect until a further adjustment of such Conversion Price hereunder.
6.5 Adjustment Upon Common Stock Event . Upon the happening of a Common Stock Event (as hereinafter defined), the Conversion Price of each such series of Preferred Stock shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price of such series of Preferred Stock in effect immediately prior to such Common Stock Event by a fraction, (a) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (b) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price for such series of Preferred Stock. The Conversion Price for a series of Preferred Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term the Common Stock Event shall mean at any time or from time to time after the Original Issue Date, (x) the issue by the Corporation of additional shares of Common Stock as a dividend or other distribution on outstanding
Common Stock, (y) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (z) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock.
6.6 Adjustments for Other Dividends and Distributions . If at any time or from time to time after the Original Issue Date the Corporation pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Corporation, other than an event constituting a Common Stock Event, then in each such event provision shall be made so that the holders of the Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Corporation which they would have received had their Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 6 with respect to the rights of the holders of the Preferred Stock or with respect to such other securities by their terms.
6.7 Adjustment for Reclassification, Exchange and Substitution . If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise ( other than by a Common Stock Event or a stock dividend, reorganization, merger, or consolidation provided for elsewhere in this Section 6), then in any such event each holder of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.
6.8 Reorganizations, Mergers and Consolidations . If at any time or from time to time after the Original Issue Date there is a reorganization of the Corporation (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 6) or a merger or consolidation of the Corporation with or into another corporation (except an event which is governed under Section 3.3), then, as a part of such reorganization, merger or consolidation, provision shall be made so that the holders of the Preferred Stock thereafter shall be entitled to receive, upon conversion of the Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of such successor corporation resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the holders of the Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 6 (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of the Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This Section 6.8 shall similarly apply to successive reorganizations, mergers and consolidations. Notwithstanding anything to the contrary contained in this Section 6, if any reorganization, merger or consolidation is approved by the vote of stockholders required by Section 7 hereof, then such transaction and the rights of the holders of Preferred Stock and Common Stock pursuant to such reorganization, merger or consolidation will be governed by the documents entered into in connection with such transaction and not by the provisions of this Section 6.8.
6.9 Sale of Shares Below Conversion Price .
(a) Adjustment Formula . If at any time or from time to time after the Original Issue Date the Corporation issues or sells, or is deemed by the provisions of this Section 6.9 to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), otherwise than in connection with a Common Stock Event as provided in Section 6.5, a dividend or distribution as provided in Section 6.6 or a recapitalization, reclassification or other change as provided in Section 6.7, or a reorganization, merger or consolidation as provided in Section 6.8, for an Effective Price (as hereinafter defined) that is less than the Conversion Price for a series of Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for such series of Preferred Stock shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issuance or sale of Additional Shares of Common Stock plus (B) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Corporation for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding immediately prior to such issuance or sale of Additional Shares of Common Stock plus (B) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold).
(b) Certain Definitions . For the purpose of making any adjustment required under this Section 6.9:
(i) The Additional Shares of Common Stock shall mean any shares of Common Stock issued by the Corporation, or deemed issued as provided in Section 6.9(c) below, whether or not subsequently reacquired or retired by the Corporation, other than the following (each of which shall constitute Excluded Securities ):
A. shares of Common Stock to be issued upon the conversion of Preferred Stock;
B. shares of Common Stock (and/or notes, options, warrants or rights therefor) granted or issued hereafter to employees, officers, directors, contractors, consultants or advisors to, the Corporation or any subsidiary pursuant to incentive agreements, stock purchase, stock option plans, stock bonuses or awards, or warrants, contracts or other written arrangements approved by the Board;
C. shares of Common Stock or Preferred Stock (and/or notes, options, warrants or rights therefor) issued or issuable to strategic partners, including to actual or potential customers, lessors, landlords, suppliers and contract partners, in connection with an actual or potential commercial relationship, in each case, approved by the Board; provided , that , such issuances, together with issuances described in Section 6.9(b)(i)(D) and all issuances under this Section 6.9(b)(i)(C) prior to the date of measurement, do not exceed more than 2% of the shares of the Corporation on a Fully Diluted Basis as of the date of any such issuance;
D. shares of Common Stock or Preferred Stock (and/or notes, options, warrants or rights therefor) issued or issuable to banks or other financial institutions in connection with leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar transactions, in each case, approved by the Board; provided , that , such issuances, together with issuances
described in Section 6.9(b)(i)(C) and all issuances under this Section 6.9(b)(i)(D) prior to the date of measurement, do not exceed more than 2% of the shares of the Corporation on a Fully Diluted Basis as of the date of any such issuance;
E. shares of Common Stock or Preferred Stock (and/or notes, options, warrants or rights therefor) issued or issuable to entities in connection with bona fide acquisitions (whether by merger, consolidation, purchase of assets, sale or exchange of stock or otherwise or other similar reorganization), or other strategic transactions, including licensing arrangements and joint ventures, in each case, approved by the Board;
F. shares of Common Stock or Preferred Stock (and/or notes, options, warrants or rights therefor) issued pursuant to the conversion or exercise of currently outstanding convertible or exercisable securities;
G. shares of Common Stock or Preferred Stock (and/or notes, options, warrants or rights therefor) issued in connection with any stock split, stock dividend, recapitalization or similar transactions that is subject to Sections 6.6, 6.7 or 6.8 of this Restated Certificate;
H. shares of Common Stock issued or issuable in a Qualified IPO;
I. shares of Preferred Stock issued or issuable pursuant to the Purchase Agreement; and
J. shares of Common Stock or Preferred Stock (and/or options, warrants or rights therefor) issued in a transaction not otherwise described herein which are excluded from this provision by the approval of the Board and a majority of the holders of the then outstanding shares of Preferred Stock on an as-converted basis; provided, however, with respect to the rights of the holders of Series C Preferred Stock set forth in this Section 6.9, no such issuance of Common Stock or Preferred Stock (or options, warrants or rights therefor) shall be excluded from the definition of Additional Shares of Common Stock pursuant to this clause J, unless such exclusion has been approved by the vote of the holders of at least 60% of the then outstanding Series C Preferred Stock, voting as a separate class.
(ii) The Aggregate Consideration Received by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, discounts, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options.
(iii) The Common Stock Equivalents Outstanding shall mean the number of shares of Common Stock that is equal to the sum of (A) all shares of Common Stock of the Corporation that are outstanding at the time in question, plus (B) all shares of Common Stock of the Corporation issuable upon conversion of all shares of Preferred Stock or other Convertible Securities that
are outstanding at the time in question, plus (C) all shares of Common Stock of the Corporation that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Common Stock of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities into or for Common Stock.
(iv) The Convertible Securities shall mean stock or other securities convertible into or exchangeable for shares of Common Stock.
(v) The Effective Price of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this Section 6.9, into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this Section 6.9, for the issue of such Additional Shares of Common Stock; and
(vi) The Rights or Options shall mean notes, warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities.
(c) Deemed Issuances . For the purpose of making any adjustment to the Conversion Price of any series of Preferred Stock required under this Section 6.9, if the Corporation issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price then in effect for a series of Preferred Stock, then the Corporation shall be deemed to have issued (each a Deemed Issuance ), at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Corporation upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that :
(i) if the minimum amounts of such consideration cannot be ascertained in such Deemed Issuance, but are a function of antidilution or similar protective clauses, then the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the Corporation upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock so issued were the shares of Common Stock, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock.
6.10 Conversion of Dividends . In addition, upon conversion of any shares of Preferred Stock for which dividends have been declared but not paid, the holder of such shares may elect to convert any declared and unpaid dividends on the shares of Preferred Stock being converted into shares of Common Stock at the Conversion Price in accordance with the provisions of this Section 6. If the holders do not so elect, the Corporation shall promptly pay in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Conversion Price as of the date of such conversion), any declared and unpaid dividends on the shares of Preferred Stock being converted.
6.11 Fractional Shares . No fractional shares of Common Stock shall be issued upon any conversion of Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay the holder cash equal to the product of such fraction multiplied by the Common Stocks fair market value as determined in good faith by the Board as of the date of conversion.
6.12 Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
7. Restrictions and Limitations .
7.1 Class Protective Provisions . For so long as at least 25% of the shares of Preferred Stock outstanding as of the Original Issue Date remain outstanding (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like, with respect to each such series of Preferred Stock), the Corporation shall not (whether by amendment, merger, consolidation or otherwise), without the approval, by vote or written consent, of the holders of a majority of the Preferred Stock then outstanding, voting as a single class on an as-converted to Common Stock basis:
(a) alter, modify or change the preferences, privileges or other special rights of Preferred Stock;
(b) increase or decrease the authorized number of shares of Common Stock or Preferred Stock (or any class or series thereof);
(c) create (by reclassification or otherwise), authorize, designate or issue any new class or series of capital stock, including any security convertible into or exercisable for any such new class or series of capital stock, (or permit any subsidiary to create, authorize, designate or issue any such new class or series of capital stock or such convertible security) having rights, preferences or privileges senior to or being on a parity with any series of Preferred Stock in right of redemption, liquidation preference, voting or dividends; other than the issuance of any authorized but unissued shares of Series C Preferred Stock pursuant to the terms of and in accordance with the Purchase Agreement;
(d) redeem (or permit any subsidiary to purchase or redeem) any shares of Common Stock or Preferred Stock other than (i) the repurchase of shares of Common Stock or Preferred Stock from certain stockholders in accordance with Section 3 of the Co-Sale Agreement, or (ii) purchases upon termination of service or the exercise by the Corporation of contractual rights of first refusal over such shares;
(e) increase in excess of 14,249,356 the number of shares of Common Stock reserved for issuance in connection with the Corporations 2010 Equity Incentive Plan or establish any similar plan;
(f) issue any additional shares of Preferred Stock or other equity security, other than Excluded Securities;
(g) consummate or effect any Deemed Liquidation Event;
(h) authorize the liquidation, dissolution or winding-up of the Corporation;
(i) increase or decrease the authorized number of directors constituting the Board of Directors, unless approved by the Board, including a majority of the Series A Directors;
(j) amend, alter, restate, waive or repeal any provision of the Restated Certificate or the Bylaws of the Corporation (other than to change the name of the Corporation);
(k) incur, create or guarantee (i) any indebtedness (or permit any subsidiary to incur, create or guarantee any indebtedness) that individually or in the aggregate exceeds $500,000, unless approved by the Board, or (ii) any indebtedness or issue any convertible debt securities in a Qualified Financing that individually or in the aggregate exceeds $20,000,000; or
(l) enter into any transaction with a related person as defined in Item 404 of Regulation S-K of the Securities Act, unless approved by the Board (including a disinterested majority of the Board).
7.2 Series C Preferred Stock Protective Provisions . For so long as at least 25% of the shares of Series C Preferred Stock outstanding as of the Original Issue Date remain outstanding (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like, with respect to the Series C Preferred Stock), the Corporation shall not (whether by amendment, merger, consolidation or otherwise), without the approval, by vote or written consent, of the holders of at least 60% of the Series C Preferred Stock then outstanding, voting as a separate class:
(a) take any action that adversely and in a manner different than any other series of Preferred Stock, alters or changes the rights, preferences, privileges or restrictions of the Series C Preferred Stock set forth in this Restated Certificate; provided , that for clarity it is acknowledged that
(i) proportional differences in the applicable Original Issue Price or Liquidation Preference Per Share, as applicable, of each series of Preferred Stock shall not be deemed to affect the Series C Preferred Stock differently from other series of Preferred Stock; and (ii) the authorization or issuance of new series of Preferred Stock by the Corporation shall not, on its own, be deemed to be an adverse alteration or change in or waiver of the rights, preferences, privileges or restrictions of the Series C Preferred Stock; or
(b) increase or decrease the authorized number of shares of Series C Preferred Stock.
8. Miscellaneous .
8.1 No Reissuance of Preferred Stock . No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.
8.2 Preemptive Rights . No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and one or more stockholders.
8.3 Notices . Except as otherwise provided herein, any notice required or permitted by the provisions of this Article V to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation for such holder, given by the holder to the Corporation for the purpose of notice or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission. If no such address appears or is given, notice shall be deemed given at the place where the principal executive office of the Corporation is located.
ARTICLE VI: AMENDMENT OF BYLAWS
Except as otherwise provided in this Restated Certificate, the Board of the Corporation shall have the power to adopt, amend or repeal Bylaws of the Corporation.
ARTICLE VII: DIRECTOR LIABILITY
To the fullest extent permitted by law, no director of the Corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment, repeal or modification of this Article VII, nor the adoption of any provision of this Restated Certificate that is inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal, modification or adoption of such inconsistent provision.
ARTICLE VIII: INDEMNIFICATION
To the fullest extent permitted by law, the Corporation shall provide indemnification of (and advancement of expenses to) directors and officers of the Corporation. To the fullest extent permitted by law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) agents of the Corporation (and any other persons to which General Corporation Law of Delaware permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law of Delaware.
Neither any amendment, repeal or modification of this Article VIII, nor the adoption of any provision of this Restated Certificate that is inconsistent with this Article VIII, shall eliminate, reduce or otherwise adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal, modification or adoption of such inconsistent provision.
ARTICLE IX: DIRECTORS AND CORPORATE OPPORTUNITIES
Pursuant to Section 122(17) of the Delaware General Corporation Law, the Corporation hereby renounces any interest or expectancy of the Corporation or any subsidiary of the Corporation in, or in being offered an opportunity to participate in, any and all business opportunities that are presented to the holders of Preferred Stock or their Affiliates other than holders who are employees of the Corporation (including, without limitation, any representative or affiliate of such holders of Preferred Stock serving on the Board or the board of directors or other governing body of any subsidiary of the Corporation (each, a Board of Directors ), (collectively, the Investor Parties ), provided that such business opportunities are not presented to the Investor Parties in their capacity as members of the Board of Directors of the Corporation. Without limiting the foregoing renunciation, but subject to the proviso therein, the Corporation on behalf of itself and its subsidiaries (a) acknowledges that the Investor Parties are in the business of making investments in, and have or may have investments in, other businesses similar to and that may compete with the businesses of the Corporation and its subsidiaries ( Competing Businesses ) and (b) agrees that the Investor Parties shall have the unfettered right to make investments in or have relationships with other Competing Businesses independent of their investments in the Corporation. By virtue of an Investor Party holding capital stock of the Corporation or by having persons designated by or affiliated with such Investor Party serving on or observing at meetings of any Board of Directors or otherwise, no Investor Party shall have any obligation to the Corporation, any of its subsidiaries or any other holder of capital stock or securities of the Corporation to refrain from competing with the Corporation and any of its subsidiaries, making investments in or having relationships with Competing Businesses, or otherwise engaging in any commercial activity and none of the Corporation, any of its subsidiaries or any other holder of capital stock or securities of the Corporation shall have any right with respect to any investment or activities undertaken by such Investor Party provided that such transaction or opportunity was not presented to such Investor Party in its capacity as a member of the Board of Directors of the Corporation. Without limitation of the foregoing, each Investor Party may engage in or possess any interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Corporation or any of its subsidiaries, and none of the Corporation, any of its subsidiaries or any other holder of capital stock or securities of the Corporation shall have any rights or expectancy by virtue of such Investor Parties relationships with the Corporation, or otherwise in and to such independent ventures or the income or profits derived therefrom; and the pursuit of any such ventures, even if such investment is in a Competing Business, shall not for any purpose be deemed wrongful or improper provided that such venture was not presented to such Investor Party in its capacity as a member of the Board of Directors of the Corporation. No Investor Party shall be obligated to present any particular investment opportunity to the Corporation
or its subsidiaries even if such opportunity is of a character that, if presented to the Corporation or such subsidiary, could be taken by the Corporation or such subsidiary, and each Investor Party shall continue to have the right for its own respective account or to recommend to others any such particular investment opportunity.
ARTICLE X: STOCK REPURCHASES
Subject to any approvals otherwise required by this Restated Certificate, any repurchases by the Corporation of shares of its capital stock may be made without regard to any preferential dividends arrears amount or any preferential rights amount (as such terms are defined in Section 500(b) of the Corporations Code of the State of California).
* * * * * *
TABLE OF CONTENTS
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Page |
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ARTICLE I |
OFFICES |
1 |
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Section 1. |
Registered Office |
1 |
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Section 2. |
Other Offices |
1 |
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ARTICLE II |
STOCKHOLDERS MEETINGS |
1 |
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Section 1. |
Place of Meetings |
1 |
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Section 2. |
Annual Meeting |
1 |
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Section 3. |
Special Meetings |
1 |
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Section 4. |
Notice of Meetings |
1 |
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Section 5. |
Quorum |
2 |
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Section 6. |
Adjournment and Notice of Adjourned Meetings |
2 |
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Section 7. |
Voting Rights |
3 |
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Section 8. |
List of Stockholders |
3 |
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Section 9. |
Joint Owners of Stock |
3 |
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Section 10. |
Action Without Meeting |
4 |
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Section 11. |
Organization |
5 |
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ARTICLE III |
DIRECTORS |
5 |
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Section 1. |
Number and Term of Office |
5 |
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Section 2. |
Powers |
5 |
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Section 3. |
Term of Directors |
5 |
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Section 4. |
Vacancies |
5 |
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Section 5. |
Resignation |
6 |
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Section 6. |
Removal |
6 |
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Section 7. |
Meetings |
6 |
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Section 8. |
Quorum and Voting |
7 |
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Section 9. |
Action Without Meeting |
7 |
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Section 10. |
Fees and Compensation |
7 |
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Section 11. |
Committees |
8 |
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Section 12. |
Organization |
9 |
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ARTICLE IV |
OFFICERS |
9 |
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Section 1. |
Officers Designated |
9 |
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TABLE OF CONTENTS
(continued)
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Page |
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Section 2. |
Tenure and Duties of Officers |
9 |
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Section 3. |
Delegation of Authority |
10 |
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Section 4. |
Resignations |
10 |
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Section 5. |
Removal |
10 |
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ARTICLE V |
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE COMPANY |
10 |
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Section 1. |
Execution of Corporate Instruments |
10 |
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Section 2. |
Voting of Securities Owned by the Company |
11 |
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ARTICLE VI |
SHARES OF STOCK |
11 |
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Section 1. |
Form and Execution of Stock Certificates |
11 |
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Section 2. |
Lost, Stolen or Destroyed Certificates |
11 |
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Section 3. |
Transfers |
12 |
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Section 4. |
Fixing Record Dates |
12 |
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Section 5. |
Registered Stockholders |
13 |
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ARTICLE VII |
OTHER SECURITIES OF THE COMPANY |
13 |
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Section 1. |
Execution of Other Securities |
13 |
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ARTICLE VIII |
DIVIDENDS |
13 |
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Section 1. |
Declaration of Dividends |
13 |
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Section 2. |
Dividend Reserve |
14 |
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ARTICLE IX |
FISCAL YEAR |
14 |
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Section 1. |
Fiscal Year |
14 |
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ARTICLE X |
INDEMNIFICATION |
14 |
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Section 1. |
Right to Indemnification |
14 |
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ARTICLE XI |
NOTICES |
17 |
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Section 1. |
Notices |
17 |
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ARTICLE XII |
AMENDMENTS |
17 |
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Section 1. |
Amendments |
17 |
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BYLAWS
OF
SKINTELLIGENCE, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1. Registered Office . The registered office of Skintelligence, Inc. (the Company ) in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices . The Company shall also have and maintain an office or principal place of business at such place as may be fixed by its Board of Directors of the Company (the Board ) and may also have offices at such other places, both within and without the State of Delaware, as the Board may from time to time determine or the business of the Company may require.
ARTICLE II
STOCKHOLDERS MEETINGS
Section 1. Place of Meetings. Meetings of the stockholders of the Company may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board. The Board may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the General Corporation Law of the State of Delaware (the DGCL ).
Section 2. Annual Meeting . The annual meeting of the stockholders of the Company, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held at such place, on such date and such time, as the Board shall fix. Nominations of persons for election to the Board and proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Companys notice of meeting of stockholders, or (ii) by or at the direction of the Board.
Section 3. Special Meetings . Special meetings of the stockholders of the Company may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board, pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption) or (iv) by the holders of stock entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board shall fix.
Section 4. Notice of Meetings. Except as otherwise provided by the DGCL, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at any such meeting, and, in
the case of a special meeting, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the Company. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or waived by electronic transmission by such person, either before or after such meeting, and will be waived by any such person by his or her attendance thereat in person, by remote communication, if applicable, or by proxy, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any such person so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice or any waiver by electronic transmission. Any notice by electronic transmission shall be subject to Section 232 of the DGCL.
Section 5. Quorum. At all meetings of stockholders, except where otherwise provided by the DGCL, the Certificate of Incorporation of the Company, as amended and restated from time to time (the Certificate of Incorporation ), or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized and executed, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of any business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the person who is the chair of the meeting or by the vote of the holders of a majority of the shares present or represented thereat, but no other business shall be transacted at such meeting until a quorum shall be present. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by the DGCL, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by duly authorized and executed proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by the DGCL, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by duly authorized and executed proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the DGCL, the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by duly authorized and executed proxy, shall constitute a quorum entitled to take action with respect to that vote on the matter, and the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by duly authorized and executed proxy at the meeting shall be the act of such class or classes or series.
Section 6. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the person who is the chair of the meeting or by the vote of a majority of the shares present in person, by
remote communication, if applicable, or represented by duly authorized and executed proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 7. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock ledger of the Company on the record date, as determined by the process described in Article VI, Section 4 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting shall have the right to do so either in person, by remote communication, if applicable, or may authorize an agent or agents to act for such stockholder by proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period.
Section 8. List of Stockholders. The Secretary of the Company shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in these Bylaws shall require the Company to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that, the information required to gain access to such list is provided in the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Company. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. The list shall be open to examination of any stockholder during the time of the meeting as provided by the DGCL.
Section 9. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Company is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) vote, such persons act binds all; (b) if more than one (1) vote, the act of the majority so voting binds all; (c) if more than one (1) vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or any person voting the shares, or a beneficiary, if any, may apply to the Delaware Court of Chancery for relief as provided in Section 217(b) of the DGCL. If the instrument so filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose of this Article II, Section 9 shall be a majority or even split in interest.
Section 10. Action Without Meeting .
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by the DGCL to be taken at any annual or special meeting of the stockholders, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing or by telegram, cablegram or other electronic transmission (hereinafter electronic transmission ), setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Company by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Company having custody of the book in which proceedings of meetings of stockholders are recorded; provided , however , that action by written consent to elect directors, if less than unanimous, shall be in lieu of holding an annual meeting only if all the directorships to which directors could be elected at an annual meeting only if all the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action. Delivery made to the Companys registered office shall be by hand or by certified or registered mail, return receipt requested.
(b) Every written consent or electronic transmission under this Article II, Section 10 shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Company in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the Company by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Company having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Companys registered office shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents or electronic transmissions signed by a sufficient number of stockholders to take action were delivered to the Company as provided in Section 228(c) of the DGCL.
(d) An electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Article II, Section 10, provided that any such electronic transmission sets forth or is delivered with information from which the Company can determine (i) that the electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (ii) the date on which such stockholder,
proxyholder or authorized person or persons transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Company by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Company having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Companys registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by electronic transmission may be otherwise delivered to the principal place of business of the Company or to an officer or agent of the Company having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
Section 11. Organization . At every meeting of stockholders, the Chief Executive Officer, or if Chief Executive Officer is absent, the President, or if the President is absent, the Treasurer, or if the Treasurer is absent, a chairman of the meeting chosen by a majority of the stockholders entitled to vote, present in person, by remote communication, if applicable or represented by duly authorized and executed proxy, shall preside over the meeting and act as chairman. The Secretary, or, in his or her absence, any designee of the Secretary, shall act as secretary of the meeting.
ARTICLE III
DIRECTORS
Section 1. Number and Term of Office . The authorized number of directors of the Company shall be fixed from time to time by resolution of the Board. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting or by written consent as provided in the DGCL, they may be elected as soon thereafter as convenient.
Section 2. Powers. The powers of the Company shall be exercised, its business conducted and its property controlled by the Board, except as may be otherwise provided by the DGCL or by the Certificate of Incorporation.
Section 3. Term of Directors. Directors shall be elected at each annual meeting of stockholders or by written consent as provided in the DGCL for a term of one (1) year or until such directors successor is elected and qualified or until such directors earlier death, resignation or removal. Each director shall serve until such directors successor is duly elected and qualified or until such directors death, resignation, disqualification, removal or other causes resulting in a vacancy or vacancies on the Board. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.
Section 4. Vacancies. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the authorized
number of directors elected by all of the stockholders having the right to vote as a single class shall, unless the Board determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum of the directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. A vacancy in the directors shall be deemed to exist under this Article III, Section 4 in the case of the death, resignation, disqualification, removal or other causes resulting in such vacancy.
Section 5. Resignation. Any director may resign at any time upon notice given in writing or by electronic transmission to the Secretary of the Company, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board. If no such specification is made, it shall be deemed effective at the pleasure of the Board. Unless otherwise provided in the Certificate of Incorporation, when one (1) or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until such successor shall have been duly elected and qualified.
Section 6. Removal. Subject to any limitations imposed by applicable law, the entire Board or any director may be removed at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the Company entitled to vote generally at an election of directors or (ii) without cause by the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the voting power of all then-outstanding shares of capital stock of the Company, entitled to vote generally at an election of directors.
Section 7. Meetings.
(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board may be held at any time or date and at any place within or without the State of Delaware designated by the Board and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for a regular meeting of the Board.
(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board may be held at any time and place within or without the State of Delaware whenever called by the Chief Executive Officer, the President or any director.
(c) Meetings by Electronic Communications Equipment. Any member of the Board, or of any committee designated by the Board in accordance with Article III, Section 11, may participate in a meeting of such Board or committee by means of conference telephone or other communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board shall be made either orally or in writing, by telephone, including a voice-messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means at least twenty-four (24) hours before the date and time of the special meeting. If such notice is sent by United States mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the special meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the special meeting and will be waived by any director by attendance thereat in person, by conference telephone or other remote communication, if applicable, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) Waiver of Notice. The transaction of any business at any meeting of the Board, or any committee designated by the Board in accordance with Article III, Section 11, however called or noticed, or wherever held, shall be as valid as though the meeting was duly held after proper call and notice, if a quorum be present, and if, either before or after the meeting, each of the directors not present who did not receive any call or notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting of the Board.
Section 8. Quorum and Voting. At all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the DGCL or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, or by electronic transmission and such writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 10. Fees and Compensation. Directors shall be entitled to compensation for their services as may be approved by the Board by resolution of the Board, including, if so approved, a fixed sum and expenses of attendance, if any, at each regular or special meeting of the Board and at any meeting of a committee of the Board. Nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 11. Committees .
(a) Executive Committee. The Board may appoint an Executive Committee to consist of one (1) or more members of the Board. The Executive Committee, to the extent permitted by the DGCL and as provided in the resolution of the Board shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the Company.
(b) Other Committees. The Board may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board shall consist of one (1) or more members of the Board and shall have such powers and perform such duties as may be permitted by the DGCL or prescribed by the resolution or resolutions of the Board creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term. The Board, subject to the foregoing provisions of this Bylaw, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of such committee members death, voluntary resignation or removal from the committee or from the Board. The Board may at any time for any reason remove any individual committee member, and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Article III, Section 11 may be held at any time and place within or without the State of Delaware as determined by the Board, or by any such committee, and when notice thereof has been given to each member of such committee in the manner provided in these Bylaws for the giving of notice to the members of the Board, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided in these Bylaws for the giving of notice to members of the Board of the time and place of special meetings of the Board. Notice of any special meeting of any committee may be waived in writing or by electronic transmission at any time before or after the special meeting and will be waived by any director by attendance thereat in person, by conference telephone or other remote communication, if applicable, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board in the resolution or resolutions authorizing
the creation of the committee, a majority of the exact number of members of any such committee fixed from time to time by the Board, pursuant to a resolution or resolutions of the Board, shall constitute a quorum for the transaction of business of the committee, and the act of a majority of those present at any committee meeting at which a quorum is present shall be the act of such committee.
Section 12. Organization. At every meeting of the directors, the Chief Executive Officer, or if the Chief Executive Officer is absent, the President, or if the President is absent, the Treasurer, or if the Treasurer is absent, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting and act as the chairman. The Secretary, or in his or her absence, any designee of the Secretary, shall act as secretary of the meeting.
ARTICLE IV
OFFICERS
Section 1. Officers Designated.
(a) General. The officers of the Company shall include, if and when designated by the Board, the Chief Executive Officer, the President, the Treasurer, the Secretary and any other officer duly appointed by the Board, all of whom shall be elected at the annual organizational meeting of the Board. The Board may also appoint a Chief Operating Officer, one (1) or more Vice Presidents, an Assistant Secretary, a Controller, an Assistant Treasurer and such other officers and agents with such powers and duties as it shall deem necessary or appropriate. The Board may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the Company at any one time unless specifically prohibited therefrom by the Certificate of Incorporation or the DGCL. The salaries and other compensation of the officers of the Company shall be fixed by or in the manner designated by the directors.
Section 2. Tenure and Duties of Officers. All officers of the Company shall hold office at the pleasure of the Board until their successors shall have been duly elected and qualified until such officers earlier death, resignation or removal. Any officer elected or appointed by the Board may be removed at any time by the Board. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board. The officers of the Company shall have such powers and duties as may be prescribed by the Board.
(a) Duties of Chairman of the Board of Directors. The Chairman of the Board, when present and chosen by the Board in accordance with these Bylaws, shall preside at all meetings of the stockholders and the Board. The Chairman of the Board shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board shall designate from time to time.
(b) Duties of the Chief Executive Officer and the President. The Chief Executive Officer and/or the President shall preside at all meetings of the stockholders and at all meetings of the Board, unless the Chairman of the Board has been appointed and is present. The Chief Executive Officer and or the President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board shall designate from time to time.
(c) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board and shall record all acts and proceedings thereof in the minute book of the Company. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board shall designate from time to time. The Chief Executive Officer may direct any officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each such officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board or the Chief Executive Officer shall designate from time to time.
(d) Duties of Treasurer. The Treasurer shall keep or cause to be kept the books of account of the Company in a thorough and proper manner and shall render statements of the financial affairs of the Company in such form and as often as required by the Board or the Chief Executive Officer. The Treasurer, subject to the order of the Board, shall have the custody of all funds and securities of the Company. The Treasurer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board or the Chief Executive Officer shall designate from time to time. The Chief Executive Officer may direct any officer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each such officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board or the Chief Executive Officer shall designate from time to time.
Section 3. Delegation of Authority . The Board may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 4. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the directors, the Chief Executive Officer, the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the Company under any contract with the resigning officer.
Section 5. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officer upon whom such power of removal may have been conferred by the directors.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE COMPANY
Section 1. Execution of Corporate Instruments. The Board may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Company any corporate instrument, certificate or document, or to
sign on behalf of the Company the corporate name without limitation, or to enter into contracts and agreements on behalf of the Company, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Company. All checks and drafts drawn on banks or other depositaries on funds to the credit of the Company or in special accounts of the Company shall be signed by such person or persons as the Board shall authorize so to do. Unless expressly authorized or ratified by the Board in a resolution by the Board or within the agency power of an officer or director authorized or ratified by the Board, no officer, director, agent employee or other person shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 2. Voting of Securities Owned by the Company. All stock and other securities of other corporations owned or held by the Company for itself, or for other persons in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board, or, in the absence of such authorization, by the Chief Executive Officer, the President or the Treasurer.
ARTICLE VI
SHARES OF STOCK
Section 1. Form and Execution of Stock Certificates. Certificates for the shares of stock of the Company shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Company shall be entitled to have a stock certificate signed by, or in the name of the Company by the Chief Executive Officer or the President and the Treasurer or the Secretary, representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Company with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Company shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this Bylaw or otherwise required by law or with respect to this Bylaw a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Lost, Stolen or Destroyed Certificates. A new certificate or certificates of the Companys stock shall be issued in place of any certificate or certificates theretofore issued by the Company alleged to have been lost, stolen, or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate or certificates of stock to be lost, stolen, or destroyed. The Company may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owners legal representative, to agree to indemnify the Company in such manner as it shall require or to give the Company a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Company on account of the certificate or certificates alleged to have been lost, stolen, or destroyed or the issuance of new certificate or certificates.
Section 3. Transfers . Transfers of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
Section 4. Fixing Record Dates .
(a) In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for the adjourned meeting.
(b) In order that the Company may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary of the Company, request the Board to fix a record date. The Board shall promptly, but in any event within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by the DGCL, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Company having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Companys registered office in Delaware shall be by hand or by certified or registered mail, return receipt requested. If no record date has been
fixed by the Board and prior action by the Board is required by the DGCL, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.
(c) In order that the Company may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
Section 5. Registered Stockholders. The Company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of the Companys stock entitled to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the DGCL.
ARTICLE VII
OTHER SECURITIES OF THE COMPANY
Section 1. Execution of Other Securities . All bonds, debentures, notes and other corporate securities of the Company, other than stock certificates (covered in Article VI), may be signed by the Chief Executive Officer or the Treasurer, or such other person as may be authorized by the Board. Interest coupons appertaining to any such bond, debenture, note or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Secretary or the Treasurer or such other person as may be authorized by the Board, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture, note or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture, note or other corporate security so signed or attested shall have been delivered, such bond, debenture, note or other corporate security nevertheless may be adopted by the Company and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Company.
ARTICLE VIII
DIVIDENDS
Section 1. Declaration of Dividends. Dividends upon the capital stock of the Company, subject to the restrictions contained in the Certificate of Incorporation and the DGCL, if any, may be declared by the Board pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 2. Dividend Reserve. Before payment of any dividend, there may be set apart out of any funds of the Company available for dividends such sum or sums as the Board from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Company, or for such other purpose as the Board shall think conducive to the interests of the Company, and the Board may modify or abolish any such reserve.
ARTICLE IX
FISCAL YEAR
Section 1. Fiscal Year. The fiscal year of the Company shall be fixed by resolution of the Board.
ARTICLE X
INDEMNIFICATION
Section 1. Right to Indemnification.
(a) Any person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including employee benefit plans) (hereinafter an indemnitee ), shall be indemnified and held harmless by the Company to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification than permitted prior thereto), against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such indemnitee in connection with such action, suit or proceeding, if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding, whether by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had reasonable cause to believe such conduct was unlawful.
(b) Any indemnitee shall be indemnified and held harmless by the Company to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification than permitted prior thereto), against expenses (including attorneys fees) actually and reasonably incurred by such indemnitee in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such indemnitee shall have been adjudged to be liable to the Company unless
and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought, shall determine, upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such indemnitee is fairly and reasonably entitled to indemnity for such expenses, which such Court of Chancery or such other court shall deem proper.
(c) In connection with any claim for indemnification, the Company shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the Company to indemnify the indemnitee for the amount claimed.
(d) Notwithstanding the foregoing, unless otherwise determined pursuant to the DGCL, no indemnification or advancement of expenses shall be made by the Company to an indemnitee in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders.
(e) To the extent that a present or former director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this Bylaw, or in defense of any claim, issue or matter therein, such director or officer shall be indemnified against all expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith. The Company may advance to any director or officer of the Company, prior to the final disposition of the proceeding, promptly following request therefor, all expenses (including attorneys fees) incurred by any such director or officer in connection with the defense and settlement of such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses actually and reasonably incurred by such director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Company of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified by the Company for such expenses as authorized by the DGCL, this Bylaw or otherwise.
(f) Without the necessity of entering into an express contract, all rights to indemnification and advancement of expenses conferred in this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Company and the indemnitee.
(g) The rights to indemnification and to advancement of expenses conferred in this Bylaw shall not be exclusive of any other right which any indemnitee may have or hereafter acquire under any statute, the Certificate of Incorporation or Bylaws of the Company, agreement, vote of stockholders or disinterested directors or otherwise.
(h) The indemnification and advancement of expenses provided by this Bylaw shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such indemnitee.
(i) To the fullest extent permitted by the DGCL or any other applicable law, the Company, upon approval by the Board, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to these Bylaws.
(j) Any repeal or modification of this Article X shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Company.
(k) For the purposes of this Bylaw, the following definitions shall apply:
(1) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the Company shall include, in addition to the this Company, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a director , officer , employee , or agent of the Company shall include, without limitation, situations where such person is serving at the request of the Company as, respectively, a director, officer, employee, trustee or agent of another corporation, partnership, trust or other entity.
(5) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the Company shall include any service as a director, officer, employee or agent of the Company or any corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Company as referred to in this Article X.
ARTICLE XI
NOTICES
Section 1. Notices .
(a) Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Article II, Section 4 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex, or by electronic mail or other electronic means.
(b) Notice to Directors. Any notice required to be given to any director may be given by any method stated in subsection (a) of this Article XI, Section 1, or as provided for in Article III of these Bylaws. If such notice is not delivered pursuant to these Bylaws, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the Company or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of the DGCL, the Certificate of Incorporation or the Bylaws of the Company, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting that shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Company is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
ARTICLE XII
AMENDMENTS
Section 1. Amendments. The Board is expressly empowered to adopt, amend or repeal any Bylaw of the Company. The stockholders shall also have power to adopt, amend or repeal any Bylaw of the Company; provided , however , that, in addition to any vote of the holders
of any class or series of stock of the Company required by the DGCL or by the Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class or series, shall be required to adopt, amend or repeal any provision of the Bylaws of the Company.
CERTIFICATE OF SECRETARY
I HEREBY CERTIFY THAT:
I am the duly elected and acting Secretary of SKINTELLIGENCE, INC., a Delaware corporation (the Company ); and
Attached hereto is a complete and accurate copy of the Bylaws of the Company as duly adopted by the Board of Directors by Unanimous Written Consent dated as of August 18, 2010, and said Bylaws are presently in effect.
IN WITNESS WHEREOF, I have hereunto subscribed my name of the Company on August 18, 2010.
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/s/ Thomas Wiggans |
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THOMAS WIGGANS, SECRETARY |
Exhibit 4.1
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DM INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE This certifies that CUSIP 24983L 10 4 SEE REVERSE FOR CERTAIN DEFINITIONS is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE, OF DERMIRA, INC. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: PRESIDENT SECRETARY DELAWARE SEAL DERMIRA, INC. CORPORATE August 18, 2010 COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC (NEW YORK, NY) TRANSFER AGENT AND REGISTRAR BY: AUTHORIZED SIGNATURE |
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The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporations Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common TEN ENT as tenants by the entireties JT TEN as joint tenants with right of survivorship and not as tenants in common COM PROP as community property UNIF GIFT MIN ACT Custodian (Cust) (Minor) under Uniform Gifts to Minors Act (State) UNIF TRF MIN ACT Custodian (until age) (Cust) under Uniform Transfers (Minor) to Minors Act (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) shares of the capital stock represented by within Certificate, and do hereby irrevocably constitute and appoint attorney-in-fact to transfer the said stock on the books of the within named Corporation with full power of the substitution in the premises. Dated X X NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. Signature(s) Guaranteed: By THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. SIGNATURE GUARANTEES MUST NOT BE DATED. |
Exhibit 4.2
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
This AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (this Agreement ) is made and entered into as of August 15, 2014, by and among Dermira, Inc. (f/k/a Skintelligence, Inc.), a Delaware corporation (the Company ), the parties listed on Exhibit A attached hereto (the Investors ) and the parties listed on Exhibit B attached hereto (the Stockholders ).
RECITALS
WHEREAS , certain of the Investors (the Prior Investors ) have purchased from the Company shares of the Companys Series A Preferred Stock (the Series A Stock ) and/or shares of the Companys Series B Preferred Stock (the Series B Stock ), and, in connection therewith, the Company, the Prior Investors and the Stockholders entered into an Amended and Restated Investors Rights Agreement, dated as of March 28, 2013, as amended on April 11, 2014 (the Prior Agreement ).
WHEREAS , concurrently herewith, certain of the Investors (the Purchasers ) are purchasing from the Company shares of the Companys Series C Preferred Stock (the Series C Stock and, together with the Series A Stock and the Series B Stock, the Purchased Shares ) on the terms and conditions set forth in that certain Series C Preferred Stock Purchase Agreement, dated as of even date herewith, between the Company and the Purchasers, as amended from time to time (the Purchase Agreement ).
WHEREAS , to induce the Purchasers to purchase the Series C Stock from the Company and to enter into the Purchase Agreement, the Investors, the Stockholders and the Company desire to amend and replace the Prior Agreement in its entirety to grant the Investors certain information and registration rights and rights of first refusal, all as more fully set forth herein.
WHEREAS , Section 4.2 of the Prior Agreement provides that the Prior Agreement may be amended by (i) the Company, (ii) Investors holding at least a majority of the Registrable Securities (as defined in the Prior Agreement) then outstanding and (iii) Stockholders holding at least a majority of the issued and outstanding shares of Common Stock (as defined in the Prior Agreement) which are then held by the Stockholders, and the undersigned Prior Investors and undersigned Stockholders are holders of sufficient shares to amend the Prior Agreement in accordance with its terms.
AGREEMENT
NOW THEREFORE , in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. INFORMATION RIGHTS .
1.1 Basic Financial Information . The Company shall deliver to each Investor (or transferee of an Investor) that (i) holds at least 1,000,000 Purchased Shares (or common stock of the Company (the Common Stock ) issued upon conversion thereof, and as adjusted for subsequent stock splits, stock dividends, combinations and other recapitalizations) or (ii) is a registered investment company under the Investment Company Act of 1940, as amended (such an Investor, a Major Investor ):
(a) Annual Reports . Within 150 days after the end of each fiscal year of the Company, a consolidated Balance Sheet, a consolidated Statement of Income and a consolidated Statement of Cash Flows of the Company and its subsidiaries for such year, all prepared in accordance with United States generally accepted accounting principles ( GAAP ), consistently applied and audited and certified by independent certified public accountants of nationally recognized standing selected by the Company unless otherwise approved by the Board (as defined below); and
(b) Quarterly Reports . Within 45 days after the end of each fiscal quarter of the Company (except the last quarter of the Companys fiscal year), quarterly unaudited financial statements, including an unaudited Balance Sheet, an unaudited Statement of Income and an unaudited Statement of Cash Flows of the Company and its subsidiaries for such period, all prepared in accordance with GAAP, consistently applied, subject to changes resulting from normal year-end audit adjustments, compared against the annual operating plan and budget provided in Section 1.2 hereof.
1.2 Annual Operating Plan and Budget Financial Information . At least 20 days prior to the beginning of each fiscal year of the Company, the Company shall deliver to such Major Investor an annual operating plan and budget, prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow of the Company and its subsidiaries for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company, for the next fiscal year.
1.3 Suspension or Termination . Notwithstanding anything else in this Section 1 to the contrary but subject to Section 6.15, the Company may cease providing the information set forth in this Section 1 during the period starting with the date 90 days before the Companys good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC (as defined below) rules applicable to such registration statement and related offering; provided , that , the Companys covenants under this Section 1 shall be reinstated at such time as the Company is no longer actively employing its reasonable efforts to cause such registration statement to become effective.
1.4 Confidentiality . Each Major Investor agrees to hold all information received pursuant to this Section 1 in strict confidence and will not disclose, divulge or use for any purpose (other than to monitor its investment in the Company), and not to use or disclose any of such information to any third party, except (i) to the extent such information has previously been made publicly available (other than as a result of a breach of this Section 1.3 by such Major Investor), or (ii) is or has been made known or disclosed to the Major Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided , however , a Major Investor may disclose confidential information (a) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, (b) to any existing or prospective Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Major Investor in the ordinary course of business, provided that such Major Investor informs such Person that such information is confidential and such Person is contractually required to maintain the confidentiality of such information; or (c) as may otherwise be required by law, provided that, to the extent permitted by applicable law, the Major Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure; provided , further , that such Major Investor informs such Person (as defined in Section 6.14) that such information is confidential and directs such Person to maintain the confidentiality of such information.
1.5 Inspection Rights . The Company shall permit each Major Investor, at such Major Investors expense, to visit and inspect the Companys properties, to examine its books of account and records and to discuss the Companys affairs, finances and accounts with its officers, all at such reasonable times as may be requested by such Major Investor.
1.6 Termination of Certain Rights . The Companys obligations under Sections 1.1, 1.2 and 1.5 above will terminate upon the earlier of (a) the Companys first underwritten public offering of its Common Stock (an IPO ) and (b) a Deemed Liquidation Event (as such term is defined in the Companys Restated Certificate of Incorporation, as amended from time to time (the Restated Certificate )).
2. REGISTRATION RIGHTS .
2.1 Definitions . For purposes of this Section 2:
(a) Affiliate . For purposes of this Agreement, an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity shall be deemed an Affiliate of an Investor who, directly or indirectly, controls, is controlled by or is under common control with such Investor, including, without limitation, any partner, officer, director, member, manager or employee of such Investor and any venture capital fund now or hereafter existing that is controlled by or under common control with one or more managers or general partners of or shares the same management company with such Investor, or with respect to an individual, any member of the Investors immediate family.
(b) Form S-3 . The term Form S-3 means such form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC (as defined below) which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
(c) Holder . The term Holder means any person owning of record Registrable Securities (as defined below) or any assignee of record of such Registrable Securities to whom rights set forth herein have been duly assigned in accordance with this Agreement; provided , that , the Company shall in no event be obligated to register Purchased Shares and Holders of Registrable Securities will not be required to convert their Purchased Shares into Common Stock in order to exercise the registration rights granted hereunder until immediately before the closing of the offering to which the registration relates.
(d) Qualified IPO . The term Qualified IPO shall have the meaning set forth in the Restated Certificate.
(e) Registration . The terms register , registration and registered refer to a registration affected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement.
(f) Registrable Securities . The term Registrable Securities means:
(1) all shares of Common Stock of the Company originally issued by the Company to the Stockholders, including any shares that may have been transferred from the Stockholders directly or indirectly to a member of the Immediate Family (as defined in that certain Right of First Refusal and Co-Sale Agreement, dated as of even date herewith, by and among the Company and the Major Stockholders (as defined therein) (the Co-Sale Agreement )) of such Stockholder or the beneficial owners thereof, or any trust or other entity beneficially owned by any such person;
(2) all the shares of Common Stock of the Company issued or issuable upon the conversion of any outstanding shares of Purchased Shares, excluding any Common Stock issued upon conversion of the Purchased Shares pursuant to the Special Mandatory Conversion provisions of the Restated Certificate, or any Common Stock, or Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date hereof; and
(3) any shares of capital stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, all such shares of Common Stock described in clause (1) of this Section 2.1(e); excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which rights under this Section 2 are not assigned in accordance with this Agreement or any Registrable Securities with respect to which, pursuant to Section
2.11 hereof, the holders are no longer entitled to registration rights pursuant to Sections 2.2, 2.3 or 2.4 hereof.
(g) Registrable Securities then Outstanding . The number of shares of Registrable Securities then outstanding shall mean the number of shares of Common Stock which are Registrable Securities that are then (1) issued and outstanding or (2) issuable pursuant to the exercise or conversion of then outstanding and then exercisable and qualifying options, warrants or convertible securities.
(h) SEC . The term SEC means the U.S. Securities and Exchange Commission.
(i) Securities Act . The term Securities Act means the Securities Act of 1933, as amended.
2.2 Demand Registration .
(a) Request by Holders . If the Company shall receive at any time after the date 180 days following the effective date of a Qualified IPO, a written request from the Holders of at least 66 2/3% of the Registrable Securities then outstanding, voting together as a single class on an as-converted basis, that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 2.2, then the Company shall, within 20 days after the receipt of such written request (except if Section 2.2(d)(4) is applicable), give written notice of such request (the Request Notice ) to all Holders, and use its reasonable best efforts to effect, the registration under the Securities Act of all Registrable Securities which Holders request to be registered and included in such registration by written notice given by such Holders to the Company within 90 days after receipt of the Request Notice, subject only to the limitations of this Section 2; provided , that , the Registrable Securities requested to be registered pursuant to such request must have aggregate gross proceeds (before any underwriting discounts and commissions) that equals or exceeds $10,000,000.
(b) Underwriting . If the Holders initiating the registration request under this Section 2.2 (the Initiating Holders ) intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.2 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include his, her, or its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement with the managing underwriter or underwriters selected for such underwriting by the Company and approved by the Investors (such approval not be unreasonably withheld). Notwithstanding any other provision of this Section 2.2, if the underwriter(s) advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten, then the Company shall so advise all Holders of Registrable Securities that would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then outstanding held by each Holder requesting registration (including the Initiating Holders); provided , however , that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded and withdrawn from such underwriting shall be withdrawn from the registration. For any Holder that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to
be a single Holder, and any pro rata reduction with respect to such Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such Holder, as defined in this sentence.
(c) Maximum Number of Demand Registrations . The Company shall in no event be obligated to effect more than two such registration statements pursuant to this Section 2.2.
(d) Restrictions . The Company shall not be obligated to effect any registrations:
(1) during the 180 day period after the effective date of a Qualified IPO;
(2) if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 2.4 hereof;
(3) if the Company shall furnish to the Holders a certificate signed by the President, Chief Executive Officer or Chief Financial Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company (the Board ), it would be detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer the filing of such registration statement no more than once during any 12 month period for a period of not more than 120 days after receipt of the request of the Initiating Holders;
(4) if the Company, within 30 days of receipt of the request of such Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the SEC within 120 days of receipt of such request (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145); provided , that , the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective;
(5) during the period starting with the date 30 days prior to the Companys good faith estimate of the date of the filing of and ending on a date 90 days following the effective date of a Company-initiated registration subject to Section 2.3; provided , that , the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or
(6) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
(e) Expenses . All expenses incurred in connection with a registration pursuant to this Section 2.2, including without limitation all registration and qualification fees, printers and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders, such counsels fees and disbursements not to exceed $50,000, in the aggregate, who may also be counsel for the Company (but excluding underwriters discounts and commissions), shall be borne by the Company. Each Holder participating in a registration pursuant to this Section 2.2 shall bear such Holders proportionate share (based on the number of shares sold by such Holder over the total number of shares included in such registration at the time it is declared effective) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to this Section 2.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities
to be registered, unless the Holders of a majority of the Registrable Securities then outstanding agree to forfeit their right to one demand registration pursuant to this Section 2.2 (in which case such right shall be forfeited by all Holders of Registrable Securities).
2.3 Piggyback Registrations . The Company shall notify all Holders of Registrable Securities in writing at least 20 days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2.4 of this Agreement or to any employee benefit plan or a corporate reorganization or other transaction covered by Rule 145 promulgated under the Securities Act, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities), and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within 10 days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting . If a registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holders Registrable Securities to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first , to the Company and second to Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the number of Registrable Securities held by each such Holder. Notwithstanding the foregoing, however, (1) the right of the underwriters to exclude shares from the registration and underwriting as described above shall be restricted so that the number of Registrable Securities included in any such registration is not reduced in the aggregate below 30% of the shares included in the registration, except for a registration relating to an IPO, from which all Registrable Securities may be excluded, and (2) no shares held by stockholders of the Company that are not Registrable Securities shall be included in any such registration without the consent of holders of a majority of the Registrable Securities, if the requested registration of such shares would reduce the number of shares includable by the Holders of Registrable Securities. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice, given in accordance with Section 6.1 hereof, to the Company and the underwriter, delivered at least 20 days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder that is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single Holder, and any pro rata reduction with respect to
such Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such Holder, as defined in this sentence.
(b) Expenses . All expenses incurred in connection with a registration pursuant to this Section 2.3, including without limitation all registration and qualification fees, printers and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders, such counsels fees and disbursements not to exceed $50,000, in the aggregate, who may also be counsel for the Company (but excluding underwriters discounts and commissions), shall be borne by the Company. Each Holder participating in a registration pursuant to this Section 2.3 shall bear such Holders proportionate share (based on the number of shares sold by such Holder over the total number of shares included in such registration at the time it goes effective) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering.
(c) Right to Terminate Registration . The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.3(a) hereof.
2.4 Form S-3 Registration . In case the Company shall receive from any Holder or Holders holding at least 30% of Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will do the following:
(a) Notice . Promptly give written notice of the proposed registration and the Holders or Holders request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities.
(b) Registration . As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such offering;
(2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose, at the time of filing of the registration statement, to sell Registrable Securities at an aggregate price to the public of less than $5,000,000;
(3) if the Company shall furnish to the Holders a certificate signed by the President, Chief Executive Officer or Chief Financial Officer of the Company stating that in the good faith judgment of the Board, it would be detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 no more than once during any 12 month period for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 2.4;
(4) if the Company has, within the 12 month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 2.4;
(5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance;
(6) if the Company, within 30 days of receipt of the request of such Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the SEC within 120 days of receipt of such request (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145); provided , that , the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or
(7) during the period starting with the date 30 days prior to the Companys good faith estimate of the date of the filing of and ending on a date 90 days following the effective date of a Company-initiated registration subject to Section 2.3 above; provided , that , the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective.
(c) Expenses . Subject to the foregoing, the Company shall file a Form S-3 covering the Registrable Securities and other securities so requested to be registered pursuant to this Section 2.4 as soon as practicable after receipt of the request or requests of the Holders for such registration. The Company shall pay all expenses incurred in connection with the first two registrations requested pursuant to this Section 2.4, (excluding underwriters discounts and commissions), including without limitation all filing, registration and qualification, printers and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders, such counsels fees and disbursements not to exceed $50,000, in the aggregate, and counsel for the Company, which may be the same counsel. Each Holder participating in a registration pursuant to this Section 2.4 shall bear such Holders proportionate share (based on the number of shares sold by such Holder over the total number of shares included in such registration at the time it goes effective) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering.
(d) Not Demand Registration . Form S-3 registrations shall not be deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company . Whenever required to effect the registration of any Registrable Securities under this Agreement, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 90 days.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement and, in connection with any registration on Form S-3 pursuant to Section 2.4 above, use reasonable, diligent efforts to timely file all reports required under the Securities Exchange Act of 1934, as amended from time to time, (the Exchange Act ) in order to maintain the right to continue to use such Form and to maintain such registration in effect.
(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration.
(d) Use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided , that , the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting hereby agrees to also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
(g) Use its commercially reasonable efforts to cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
2.6 Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to timely effect the registration of their Registrable Securities.
2.7 Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
2.8 Indemnification . In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company . To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, the Violations and, individually, a Violation ):
(1) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, any free-writing prospectus as defined in Rule 405 promulgated under the Securities Act or any amendments or supplements thereto; or
(2) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or
(3) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any federal or state securities law in connection with the offering covered by such registration statement.
The Company will reimburse each such Holder, partner, member, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, within three months after a request for reimbursement has been received by the Company, in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the indemnity agreement contained in this subsection 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, member, officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders . To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter and any other Holder selling securities under such registration statement or any of such other Holders partners, directors or officers or any person who controls such Holder within the meaning of the Securities Act or any rule or regulation promulgated thereunder or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, partner or director, officer, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration. Each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, member, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action within three months after a request for reimbursement has been received by the indemnifying Holder, provided , however , that the indemnity agreement contained in this subsection 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further , that the total amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises.
(c) Notice . Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under
this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof. The indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8.
(d) Contribution . If the indemnification provided for in this Section 2.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying the indemnified party, shall contribute to the amount paid or payable by such indemnified party with respect to such loss, liability, claim, damage or expense in the proportion that is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In any such case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.
(e) Conflict with Underwriting Agreement. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement will control.
(f) Survival . The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise.
2.9 [Reserved] .
2.10 Rule 144 Reporting . With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to:
(a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;
(b) File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to the reporting requirements of the Exchange Act), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Holder to sell any such securities without registration (at any time after the Company has become subject to the reporting requirements of the Exchange Act).
2.11 Termination of the Companys Obligations . The Company shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to: (a) any request or requests for registration made by any Holder on a date (i) more than five (5) years after the closing date of a Qualified IPO or (ii) following a Deemed Liquidation Event; and (b) any Registrable Securities proposed to be sold by a Holder in a registration pursuant to Sections 2.2, 2.3 or 2.4 if (i) the Holder holds less than one percent of the outstanding voting equity securities of the Company, and (ii) all such Registrable Securities proposed to be sold by a Holder may be sold in a three (3) month period without registration under the Securities Act pursuant to Rule 144.
2.12 Limitations on Subsequent Registration Rights; Most Favored Nation Terms . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the Registrable Securities then outstanding, voting together as a single class on an as-converted basis, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 2.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such holders or prospective holders securities will not reduce the amount of the Registrable Securities of the Holders which is included, or (b) to make a demand registration (other than on Form S-3); provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Subsection 6.9. In the event that the Company shall enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to include such securities in any registration filed under Section 2.3 hereof, on terms that are more favorable to such holder than the terms of this Section 2, then the Company shall so notify the Holders and shall offer to enter into an amendment to this Section 2 to provide such more favorable terms to the Holders.
3. RIGHT OF FIRST OFFER .
3.1 General . Each Investor and any party to whom such Investors rights under this Section 3 have been duly assigned in accordance with Section 4.1(b) ( each such Investor or assignee being hereinafter referred to as a Rights Holder ) has the right of first offer to purchase such Rights Holders Pro Rata Share (as defined below), of all (or any part) of any New Securities (as defined in Section 3.2) that the Company may from time to time issue after the date of this Agreement; provided , however , such Rights Holder shall have no right to purchase any such New Securities if such Rights Holder cannot demonstrate to the Companys reasonable satisfaction that such Rights Holder is at the time of the proposed issuance of such New Securities an accredited investor as such term is defined in Regulation D under the Securities Act. Each Rights Holder shall be entitled to assign or apportion the right of first offer hereby granted it among itself and its Affiliates (as defined in Section 6.6 below) in such proportions as it deems appropriate. A Rights Holders Pro Rata Share for purposes of this right
of first offer is the ratio of (a) the total number of shares of Preferred Stock and Common Stock held by such Rights Holder, on an as-converted basis, immediately prior to the issuance of New Securities to- (b) a number of shares of common stock of the Company equal to the sum of (1) the total number of shares of common stock of the Company then outstanding, including all outstanding options, warrants and other securities exercisable for or convertible into common stock, plus (2) the total number of shares of common stock of the Company into which all then outstanding shares of Preferred Stock of the Company are then convertible, including all outstanding options, warrants and other securities exercisable for or convertible into Preferred Stock.
3.2 New Securities . New Securities shall mean any Common Stock or Preferred Stock, whether now authorized or not, and rights, options or warrants to purchase such Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Common Stock or Preferred Stock; provided , however , that the term New Securities does not include any securities excluded from the definition of Additional Shares of Common Stock under Section 6.9(b)(i) of the Restated Certificate.
3.3 Procedures . In the event that the Company proposes to undertake an issuance of New Securities, it shall give to each Rights Holder a written notice of its intention to issue New Securities (the Notice ), describing the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities given in accordance with Section 6.1 hereof. Each Rights Holder shall have 30 days (or such shorter period as may be agreed to by holders of at least 80% of the then outstanding shares of Preferred Stock and Common Stock then held by the Investors, voting together as a single class on an as-converted basis) from delivery of such Notice to agree in writing to purchase such Rights Holders Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holders Pro Rata Share). If any Rights Holder fails to so agree in writing within such 30 day period to purchase such Rights Holders full Pro Rata Share of an offering of New Securities (a Nonpurchasing Holder ), then such Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of his, her or its Pro Rata Share of such New Securities that he, she or it did not so agree to purchase and the Company shall promptly give each Rights Holder who has timely agreed to purchase his, her or its full Pro Rata Share of such offering of New Securities (a Purchasing Holder ) written notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing Holders full Pro Rata Share of such offering of New Securities (the Overallotment Notice ). Each Purchasing Holder shall have a right of overallotment such that such Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders unpurchased Pro Rata Shares of such offering on a pro rata basis according to the relative Pro Rata Shares of the Purchasing Rights Holders, at any time within 10 days after receiving the Overallotment Notice. If the consideration for any New Securities is in a form other than cash, each Rights Holder shall be entitled to pay cash equal to the fair market value of such consideration to exercise such Rights Holders rights hereunder.
3.4 Failure to Exercise . In the event that the Rights Holders fail to exercise in full the right of first offer within such original 30 day period plus the 10 day period for the right of overallotment, then the Company shall have 90 days thereafter to sell the New Securities with respect to which the Rights Holders rights of first offer hereunder were not exercised, at a price and upon general terms not materially more favorable to the purchasers thereof than specified in the Notice. In the event that the Company has not issued and sold the New Securities within such 90 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination . This right of first offer shall terminate upon the earliest to occur of (a) the closing of an IPO or (b) a Deemed Liquidation Event.
4. ASSIGNMENT AND AMENDMENT .
4.1 Assignment . Notwithstanding anything herein to the contrary:
(a) Information Rights; Rights of First Refusal. The rights of an Investor under Sections 1 and 3 hereof may be assigned to Affiliates of such Investor and, in the case of Investors that are natural persons, members of such Investors immediate family and trusts and partnerships for the benefit of members of such Investors immediate family.
(b) Registration Rights . The registration rights of a Holder under Section 2 hereof may be assigned only to a party who acquires at least 50% of a Holders Registrable Securities then outstanding; provided , however that no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; provided , further , that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 4. Notwithstanding the foregoing, assignments of the rights in Section 2 hereof may be made without the Companys consent or acquiring the minimum number of shares of Registrable Securities noted above if the assignment is to an Affiliate of the Holder.
4.2 Amendment and Waiver of Rights . Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (a) the Company, (b) Investors holding at least a majority of the Registrable Securities then outstanding and (c) Stockholders holding at least a majority of the issued and outstanding shares of Common Stock which are then held by the Stockholders; provided, however, the consent of the Stockholders shall not be required for (1) any amendment or waiver of any section to this Agreement that does not adversely affect any of the rights or obligations, or create any additional obligations, of any of the Stockholders, (2) any amendment or waiver of any section to this Agreement if such amendment or waiver treats affects all parties to this Agreement in the same fashion (in which case, such amendment or waiver need only be approved by Holders holding a majority of the Registrable Securities then outstanding) or (3) any amendment or waiver of Section 1, Section 3, Section 4.1(a) or Section 5 (other than Section 5.2). Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor or Stockholder (solely with respect to amendments and waivers that require Investor or Stockholder consent, as applicable) without the written consent of such Investor or Stockholder, unless such amendment, termination, or waiver applies to all Investors in the same fashion and Stockholders in the same fashion, respectively (it being agreed that a waiver of the provisions of Section 3 with respect to a particular transaction shall be deemed to apply to all Investors and Stockholders in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors and/or Stockholders may nonetheless, by agreement with the Company, purchase securities in such transaction, and that any change in the thresholds for rights under this agreement shall not be deemed to apply to any Investor differently by consequence of such Investors holdings). Any amendment or waiver affected in accordance with this Section 4.2 shall be binding upon each Investor, each Stockholder, each Holder, each permitted successor or assignee of such Investor, Stockholder or Holder and the Company. Notwithstanding anything herein to the contrary, if any amendment to this Agreement is to be made solely for the purpose of adding additional parties as Investors hereunder, then such amendment shall not require the consent, approval or signature of any Stockholder. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Series C Stock after the date hereof pursuant to the Purchase Agreement, any purchaser of such shares of Series C Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and agreeing to be bound by the provisions contained herein, and thereafter shall be deemed an Investors for all purposes hereunder.
5. ADDITIONAL COVENANTS OF COMPANY .
5.1 Stock Option/Stock Issuances . Unless otherwise approved by the Board or the Compensation Committee of the Board, all future employees, consultants, directors, and other service providers to the Company who shall purchase, or receive options or other rights to purchase, shares of Common Stock or equivalents thereof following the date hereof shall be required to execute agreements providing for (a) vesting of shares over a four year period with the first 25% of such shares vesting following 12 months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following 36 months thereafter, (b) a market stand-off provision of at least 180 days, (c) the right to repurchase unvested shares of Common Stock at cost, and (d) a right of first refusal on transfers of shares until an IPO, subject to customary exceptions.
5.2 Employee Intellectual Property Protection . Unless otherwise approved by the Board, the Company shall ensure that each future key employee shall enter into an Employee Intellectual Property Protection Agreement in the form provided to counsel to Apple Tree Partners IV, L.P. and providing, inter alia , that such key employee (a) is an at-will employee of the Company, (b) such employee will maintain all Company proprietary information in confidence, (c) such employee will assign all inventions created by him or her as an employee during his or her employment with the Company, and (d) such employee will not disclose any information related to the Companys work force and will not solicit any employees from the Company for a period of 12 months should his, her, or its employment with the Company be terminated for any reason. The Companys standard form of consulting agreement shall contain similar provisions.
5.3 Termination of Certain Rights . The Companys obligations under this Section 5 will terminate upon the earliest to occur of (a) the closing of an IPO or (b) a Deemed Liquidation Event.
5.4 Board Meetings; Reimbursement of Expenses . The Board shall use reasonable efforts to meet at least on a quarterly basis. The Company hereby agrees to reimburse each director for his or her reasonable and documented out-of-pocket expenses incurred in attending the Board meetings and meetings of committees of the Board.
5.5 [Reserved] .
5.6 Interested Party Transactions . The Company will not enter into any transaction with a related person as defined in Item 404 of Regulation S-K of the Securities Act, unless approved by a majority of the disinterested members of the Board.
5.7 Corporate Existence; Insurance . The Company shall take all actions required to maintain its corporate existence, unless otherwise approved by the Board. The Company shall acquire from and maintain general insurance in such amounts and covering such risks as the Company reasonably deems advisable, at levels approved by the Board.
5.8 Directors and Officers Insurance . The Company shall maintain directors and officers insurance with terms and policy limits satisfactory to a majority of the Board.
5.9 Indemnification Matters . The Company hereby acknowledges that the Preferred Directors may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their affiliates (collectively, the Fund Indemnitors ). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Preferred Director are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Preferred Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by
such Preferred Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Preferred Director to the extent legally permitted and as required by the Restated Certificate or the Bylaws of the Company (or any agreement between the Company and such Preferred Director), without regard to any rights such Preferred Director may have against the Fund Indemnitors, and, (c) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of any such Preferred Director with respect to any claim for which such Preferred Director has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Preferred Director against the Company.
6. GENERAL PROVISIONS .
6.1 Notices . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (c) one business day after deposit with an express overnight courier for United States deliveries, or two business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (d) three business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by facsimile or by express courier. Notices by facsimile shall be machine verified as received. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number as follows, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto as follows:
(a) if to an Investor, at such Investors respective address as set forth on Exhibit A hereto.
(b) if to the Company, marked Attention: Chief Executive Officer, at 2055 Woodside Road, Redwood City, California 94061.
With a copy (which shall not constitute notice) to:
Fenwick & West LLP
555 California Street
12 th Floor
San Francisco, CA 94104
Facsimile: (415) 281-1350
Attention: Douglas Cogen and Michael Brown
(c) if to a Stockholder, at such Stockholders address or facsimile number as set forth on Exhibit B hereto.
6.2 Entire Agreement . This Agreement and the documents referred to herein, together with all the Exhibits hereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede any and all prior understandings and
agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including, without limitation, the Prior Agreement.
6.3 Governing Law . This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws. The parties hereto hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of California and the Federal courts of the United States of America located within the County of San Francisco, State of California, in respect of the interpretation and enforcement of the provisions of this Agreement, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a California State or Federal court.
6.4 Severability . If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
6.5 Third Parties . Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement, except that the persons identified on Exhibit C are intended to be beneficiaries of the Companys obligations under Section 5.2.
6.6 Successors And Assigns . Subject to the provisions of Section 4.1, this Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. Notwithstanding anything herein to the contrary, any Investor may assign its rights and obligations hereunder to any Affiliate of such Investor.
6.7 Titles and Headings . The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
6.8 Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
6.9 Costs And Attorneys Fees . In the event that any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover all of such partys costs and attorneys fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom.
6.10 Adjustments for Stock Splits, Etc . Wherever in this Agreement there is a reference to a specific number of shares of common stock or Preferred Stock of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or
series of stock, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the affect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend.
6.11 Aggregation of Stock. All shares held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
6.12 Further Assurances . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
6.13 Facsimile Signatures . This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
6.14 Person . Person shall mean an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity.
6.15 Termination . This Agreement shall terminate upon the earlier of (a) there ceasing to be any obligations pursuant to Sections 1, 2, 3 and 5 and (b) the agreement of (i) the Company, (ii) Investors holding at least a majority of the Registrable Securities then outstanding and (iii) Stockholders holding at least a majority of the issued and outstanding shares of common stock held by the Stockholders and Holders holding at least a majority of the Registrable Securities then outstanding.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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COMPANY : |
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DERMIRA, INC. |
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By: |
/s/ Thomas Wiggans |
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Name: |
Thomas Wiggans |
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Title: |
Chief Executive Officer |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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APPLE TREE PARTNERS IV, L.P. |
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By: ATP III GP, Ltd. as General Partner |
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By: |
/s/ Seth L. Harrison |
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Name: |
Seth L. Harrison |
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Title: |
Director |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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BAY CITY CAPITAL FUND V, L.P. |
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By: Bay City Capital Management V LLC |
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Its: General Partner |
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By: Bay City Capital LLC, |
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Its: Manager |
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By: |
/s/ Fred Craves |
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Name: |
Fred Craves |
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Title: |
Managing Director |
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BAY CITY CAPITAL FUND V CO-INVESTMENT FUND, L.P. |
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By: Bay City Capital Management V LLC |
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Its: General Partner |
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By: Bay City Capital LLC, |
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Its: Manager |
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By: |
/s/ Fred Craves |
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Name: |
Fred Craves |
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Title: |
Managing Director |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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NEW ENTERPRISE ASSOCIATES 13, LIMITED PARTNERSHIP |
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By: NEA Partners 13, Limited Partnership |
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By: NEA 13 GP, LLC |
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By: |
/s/ Louis S. Citron |
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Louis S. Citron, Chief Legal Officer |
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NEA VENTURES 2011, LIMITED PARTNERSHIP |
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By: |
/s/ Louis S. Citron |
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Louis S. Citron, Vice-President |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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CANAAN VIII L.P. |
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By: Canaan Partners VIII LLC |
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By: |
/s/ Wende S. Hutton |
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Wende S. Hutton |
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Member/Manager |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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UCB S.A. |
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By: |
/s/ Detlef Thielgen |
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Name: Detlef Thielgen |
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Title: |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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UCB S.A. |
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By: |
/s/ Mark McDade |
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Name: Mark McDade |
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Title: Executive Vice President, Director |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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AISLING CAPITAL III, LP |
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By: |
/s/ Lloyd Appel |
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Name: |
Lloyd Appel |
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Title: |
Chief Financial Officer |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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Fidelity Select Portfolios: Biotechnology Portfolio |
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By: |
/s/ Stacie M. Smith |
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Name: Stacie M. Smith |
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Title: Deputy Treasurer |
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Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund |
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By: |
/s/ Stacie M. Smith |
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Name: Stacie M. Smith |
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Title: Deputy Treasurer |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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SABBY HEALTHCARE VOLATILITY MASTER FUND, LTD. |
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By: Sabby Management, LLC |
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Its: Investment Manager |
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By: |
/s/ Robert Grundstein |
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Name: Robert Grundstein |
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Title: COO and General Counsel |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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ROCK SPRINGS CAPITAL MASTER FUND LP |
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By: Rock Springs GP LLC |
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Its: General Partner |
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By: |
/s/ Graham McPhail |
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Name: Graham McPhail |
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Title: Authorized Signatory/Managing Director |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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LEERINK HOLDINGS LLC |
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By: |
/s/ Timothy A.G. Gerhold |
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Name: Timothy A.G. Gerhold |
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Title: General Counsel |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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LEERINK SWANN CO-INVESTMENT FUND, LLC |
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By: |
/s/ Jeffrey Leerink |
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Name: Jeffrey Leerink |
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Title: Manager |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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INVESTOR : |
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MONASHEE CAPITAL PARTNERS LP |
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By: |
/s/ Thomas Wynn |
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Name: Thomas Wynn |
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Title: COO |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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STOCKHOLDER AND INVESTOR : |
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WIGGANS LIVING TRUST DATED 5/14/02 |
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By: |
/s/ Thomas Wiggans |
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Name: Thomas Wiggans |
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Title: Trustee |
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ELIZABETH WIGGANS IRREVOCABLE GIFTING TRUST DATED 2/24/11 |
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By: |
/s/ Elizabeth Wiggans |
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Name: Elizabeth Wiggans |
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Title: Trustee |
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AMANDA WIGGANS IRREVOCABLE GIFTING TRUST DATED 2/24/11 |
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By: |
/s/ Amanda Wiggans |
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Name: Amanda Wiggans |
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Title: Trustee |
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[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT as of the date first written above.
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STOCKHOLDER : |
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BAUER FAMILY 1995 TRUST DATED JUNE 15, 1995 |
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By: |
/s/ Eugene A. Bauer |
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Name: Eugene A. Bauer |
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Title: Co-Trustee |
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By: |
/s/ Gloria A. Bauer |
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Name: Gloria A. Bauer |
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Title: Co-Trustee |
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT]
EXHIBIT A
Schedule of Investors
Maruho Co., Ltd.
Bay City Capital Fund V, L.P.
c/o Bay City Capital LLC
Bay City Capital Fund V Co-Investment Fund, L.P.
c/o Bay City Capital LLC
New Enterprise Associates 13, Limited Partnership
NEA Ventures 2011, Limited Partnership
Canaan VIII L.P.
Wiggans Living Trust dated 5/14/02
Bauer Family 1995 Trust Dated June 15, 1995
UCB S.A.
Apple Tree Partners IV, L.P.
Aisling Capital III, L.P.
Mag & Co fbo Fidelity Select Portfolios: Biotechnology Portfolio
Brown Brothers Harriman & Co.
Bangle & Co fbo Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund
State Street Bank & Trust
Sabby Healthcare Volatility Master Fund, Ltd.
c/o Sabby Management, LLC
Rock Springs Capital Master Fund LP
Leerink Holdings LLC
Leerink Swann Co-Investment Fund, LLC
Monashee Capital Partners LP
EXHIBIT B
Schedule of Stockholders
Wiggans Living Trust dated 5/14/02
Elizabeth Wiggans Irrevocable Gifting Trust dated 2/24/11
Amanda Wiggans Irrevocable Gifting Trust dated 2/24/11
Bauer Family 1995 Trust Dated June 15, 1995
Exhibit 10.2
DERMIRA, INC.
2010 EQUITY INCENTIVE PLAN
As Adopted on October 15, 2010
and Amended on August 3, 2011, March 22, 2013, July 11, 2013, April 29, 2014 and August 14, 2014
1. PURPOSE . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries by offering eligible persons an opportunity to participate in the Companys future performance through the grant of Awards covering Shares. Capitalized terms not defined in the text are defined in Section 14 hereof. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan that is required in law only because of Section 25102(o) need not apply if the Committee so provides.
2. SHARES SUBJECT TO THE PLAN .
2.1 Number of Shares Available . Subject to Sections 2.2 and 11 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 14,249,356 Shares. Subject to Sections 2.2, 4.10 and 11 hereof, Shares that are subject to issuance upon exercise of an Option for any reason other than exercise of such Option, Shares that are repurchased by the Company at the original purchase price or forfeited, and shares subject to Awards that are otherwise cancelled, forfeited, settled in cash or that expire by their terms will again be available for grant and issuance in connection with other Awards. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan.
2.2 Adjustment of Shares . In the event that the number of outstanding shares of the Companys Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARS, and (c) the Purchase Prices of and/or number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provide d , however , that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee; and provided , further , that the Exercise Price of any Option or SAR may not be decreased to below the par value of the Shares.
3. PLAN FOR BENEFIT OF SERVICE PROVIDERS
3.1 Eligibility . The Committee will have the authority to select persons to receive Awards. ISOs (as defined in Section 4 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 4 hereof) and all other types of Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction when Rule 701 is to apply to the Award granted for such services. A person may be granted more than one Award under this Plan.
3.2 No Obligation to Employ . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to
continue any other relationship with, the Company or any Parent or Subsidiary or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participants employment or other relationship at any time, with or without Cause.
4. OPTIONS . The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ( ISOs ) or Nonqualified Stock Options ( NQSOs ), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following.
4.1 Form of Option Grant . Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ( Stock Option Agreement ), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.
4.2 Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
4.3 Exercise Period . Options may be exercisable immediately but subject to repurchase pursuant to Section 10 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided , however , that (a) no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and (b) no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary ( Ten Percent Shareholder ) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
4.4 Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted and shall not be less than the Fair Market Value per Share unless expressly determined in writing by the Committee on the Options date of grant; provided that the Exercise Price of an ISO granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 8 hereof.
4.5 Method of Exercise . Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the Exercise Agreement ) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (a) the number of Shares being purchased, (b) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (c) such representations and agreements regarding Participants investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Each Participants Exercise Agreement may be modified by (i) agreement of Participant and the Company or (ii) substitution by the Company, upon becoming a public company, in order to add the payment terms set forth in Section 8.1 that apply to a public company and such other terms as shall be necessary or advisable in order to exercise a public company option. Upon exercise of an Option, Participant shall execute and deliver to the Company the Exercise Agreement then in effect, together with payment in full of the Exercise Price for the number of Shares being purchased and payment of any applicable taxes.
4.6 Termination . Subject to earlier termination pursuant to Sections 11 and 13.1 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following terms and conditions.
4.6.1 Other than Death or Disability or for Cause . If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options.
4.6.2 Death or Disability . If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants Options may be exercised only to the extent that such Options are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such options must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participants death or disability, within the meaning of Section 22(e)(3) of the Code, or (b) twelve (12) months after the Termination Date when the Termination is for Participants disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options.
4.6.3 For Cause . If the Participant is terminated for Cause, the Participant may exercise such Participants Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participants Options shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
4.7 Limitations on Exercise . The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.
4.8 Limitations on ISOs . The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 13.1 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
4.9 Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participants rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 4.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided , however , that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 4.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price; provided , further , that the Exercise Price will not be reduced below the par value of the Shares, if any.
4.10 No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participants ISO under Section 422 of the Code. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise of ISOs exceed 109,393,560 Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the term of the Plan.
5. RESTRICTED STOCK . A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following terms and conditions.
5.1 Form of Restricted Stock Award . All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ( Restricted Stock Purchase Agreement ) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participants execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.
5.2 Purchase Price . The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 8 hereof.
5.3 Restrictions . Restricted Stock Awards may be subject to the restrictions set forth in Sections 9 and 10 hereof or, with respect to a Restricted Stock Award to which Section 25102(o) is to apply, such other restrictions not inconsistent with Section 25102(o).
6. RESTRICTED STOCK UNITS .
6.1 Awards of Restricted Stock Units . A Restricted Stock Unit ( RSU ) is an Award covering a number of Shares that may be settled in cash, or by issuance of those Shares at a date in the future. No Purchase Price shall apply to an RSU settled in Shares other than the payment of the aggregate par value of all Shares issuable upon such settlement. All grants of Restricted Stock Units will be evidenced by an Award Agreement that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
6.2 Form and Timing of Settlement . To the extent permissible under applicable law, the Committee may permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code (or any successor) and any regulations or rulings promulgated thereunder. Payment may be made in the form of cash or whole Shares or a combination thereof, all as the Committee determines.
7. STOCK APPRECIATION RIGHTS .
7.1 Awards of SARs . Stock Appreciation Rights ( SARs ) may be settled in cash, or Shares (which may consist of Restricted Stock or RSUs), having a value equal to the value determined by multiplying the difference between the Fair Market Value on the date of exercise over the Exercise Price and the number of Shares with respect to which the SAR is being settled. All grants of SARs made pursuant to this Plan will be evidenced by an Award Agreement that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
7.2 Exercise Period and Expiration Date . A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The Award Agreement shall set forth the Expiration Date; provided that no SAR will be exercisable after the expiration of ten years from the date the SAR is granted.
7.3 Exercise Price . The Committee will determine the Exercise Price of the SAR when the SAR is granted, and which may not be less than the Fair Market Value on the date of grant and may be settled in cash or in Shares.
7.4 Termination . Subject to earlier termination pursuant to Sections 11 and 13.1 hereof and notwithstanding the exercise periods set forth in the Award Agreement, exercise of SARs will always be subject to the following terms and conditions.
7.4.1 Other than Death or Disability or for Cause . If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants SARs only to the extent that such SARs are exercisable as to vested Shares upon the Termination Date or as otherwise determined by the Committee. SARs must be exercised by the Participant, if at all, as to all or some of the vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee) but in any event, no later than the expiration date of the SARs.
7.4.2 Death or Disability . If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants SARs may be exercised only to the extent that such SARs are exercisable as to vested Shares by Participant on the Termination Date or as otherwise determined by the Committee.
Such SARs must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee) but in any event no later than the expiration date of the SARs.
7.4.3 For Cause . If the Participant is terminated for Cause, the Participant may exercise such Participants SARs, but not to an extent greater than such SARs are exercisable as to vested Shares upon the Termination Date and Participants SARs shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
8. PAYMENT FOR PURCHASES AND EXERCISES .
8.1 Payment in General . Payment for Shares acquired pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the Participant;
(b) by surrender of shares of the Company that are clear of all liens, claims, encumbrances or security interests and: (i) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided , however , that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided , further , that the portion of the Exercise Price or Purchase Price, as the case may be, equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the laws under which the Company is then incorporated or organized;
(d) by waiver of compensation due or accrued to the Participant from the Company for services rendered;
(e) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(f) subject to compliance with applicable law and solely in the discretion of the Committee, by exercising as set forth below, provided that a public market for the Companys Common Stock exists:
(i) through a same day sale commitment from the Participant and a broker-dealer whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price or Purchase Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price or Purchase Price directly to the Company; or
(ii) through a margin commitment from the Participant and a broker-dealer whereby the Participant irrevocably elects to exercise the Award and to pledge the Shares so purchased to the broker-dealer in a margin account as security for a loan from the broker-dealer in the amount of the total Exercise Price or Purchase Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price or Purchase Price directly to the Company; or
(g) by any combination of the foregoing or any other method of payment approved by the Committee.
8.2 Withholding Taxes .
8.2.1 Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy applicable tax withholding requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy applicable tax withholding requirements.
8.2.2 Stock Withholding . When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum tax withholding obligation by electing to have the Company withhold from the Shares to be issued up to the minimum number of Shares having a Fair Market Value on the date that the amount of tax to be withheld is to be determined that is not more than the minimum amount to be withheld; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. Any elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
9. RESTRICTIONS ON AWARDS .
9.1 Transferability . Except as permitted by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the NQSOs are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to family member as that term is defined in Rule 701, and may not be made subject to execution, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participants legal representative and any elections with respect to an Award may be made only by the Participant or Participants legal representative. The terms of an Option shall be binding upon the executor, administrator, successors and assigns of the Participant who is a party thereto.
9.2 Securities Law and Other Regulatory Compliance . Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan which is required in law only because of Section 25102(o) need not apply with respect to a particular Award to which Section 25102(o) will not apply. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect
on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure so do.
9.3 Exchange and Buyout of Awards . The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.
10. RESTRICTIONS ON SHARES .
10.1 Privileges of Stock Ownership . No Participant will have any of the rights of a stockholder with respect to any Shares until such Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased as described in this Section 10.
10.2 Rights of First Refusal and Repurchase . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, provided that such right of first refusal terminates upon the Companys initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act and (b) a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participants Termination at any time.
10.3 Escrow; Pledge of Shares . To enforce any restrictions on a Participants Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificate. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participants obligation to the Company under the promissory note; provided , however , that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participants Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the
Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.
10.4 Securities Law Restrictions . All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.
11. CORPORATE TRANSACTIONS .
11.1 Assumption or Replacement of Awards by Successor or Acquiring Entity . If an Acquisition or Other Combination shall occur, then any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring entity (if any) of such Acquisition or Other Combination (or by any of its Parents, if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, any successor or acquiring entity in such Acquisition or Other Combination (or any of its Parents, if any) may substitute equivalent awards for outstanding Awards or provide substantially similar consideration to Participants in respect of their outstanding Awards as was provided to stockholders of the Company in such Acquisition or Other Combination after taking into account the existing provisions of the outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code). Any successor or acquiring entity in such Acquisition or Other Combination (or any of its Parents, if any) may also substitute by issuing, in place of any Award of outstanding Shares of the Company held by a Participant, substantially similar shares of stock or other property subject to repurchase restrictions and other provisions no less favorable to such Participant than those that applied to such outstanding Shares immediately prior to such Acquisition or Other Combination.
11.2 Awards Not Assumed or Replaced in an Acquisition . If, in the event of an Acquisition, neither the successor or acquiring entity (if any) nor any Parent (if any) of such successor or acquiring entity assumes, converts, replaces or substitutes outstanding Awards as provided above in Section 11.1, then notwithstanding any other provision in this Plan to the contrary, and unless otherwise approved by the Committee or otherwise required by the terms of any Award Agreement or any separate written agreement governing such Award that has been approved by the Board, each such Award that has not already terminated in accordance with the Plan or the applicable Award Agreement shall terminate, without accelerating vesting, immediately prior to the consummation of such Acquisition (or if such Acquisition is an Acquisition by Sale of Assets, immediately prior to the Companys distribution of any funds or assets to the Companys stockholders following such Acquisition by Sale of Assets) at such times and upon such conditions as the Committee may determine.
11.3 Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another entity, whether in connection with an acquisition of such other entity or otherwise, by either (a) granting an Award under this Plan in substitution of such other entitys award or (b) assuming and/or converting such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other entity had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another entity, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option or SAR rather than
assuming an existing option or stock appreciation right, such new Option or SAR may be granted with a similarly adjusted Exercise Price.
12. ADMINISTRATION .
12.1 Committee Authority . This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend, expand, modify and rescind or terminate rules and regulations relating to this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to Awards granted under this Plan;
(f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;
(g) grant waivers of any conditions of this Plan or any Award;
(h) determine the terms of vesting, exercisability and payment of Awards to be granted pursuant to this Plan;
(i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement;
(j) determine whether an Award has been earned;
(k) extend the vesting period beyond a Participants Termination Date; and
(l) make all other determinations necessary or advisable in connection with the administration of this Plan.
12.2 Committee Composition and Discretion . The Board may delegate full administrative authority over the Plan and Awards to a Committee consisting of at least one member of the Board (or such greater number as may then be required by applicable law). Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (a) at the time of grant of the Award, or (b) subject to Section 4.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. To the extent permitted by applicable law, the Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided that each such officer is a member of the Board.
12.3 Nonexclusivity of the Plan . Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options
and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
12.4 Governing Law . This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.
13. EFFECTIVENESS, AMENDMENT AND TERMINATION OF THE PLAN .
13.1 Adoption and Stockholder Approval . This Plan will become effective on the date that it is adopted by the Board (the Effective Date ). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided , however , that: (a) no Option or SAR may be exercised prior to initial stockholder approval of this Plan; (b) no Option or SAR granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards for which only the exemption from Californias securities qualification requirements provided by Section 25102(o) can apply shall be canceled, any Shares issued pursuant to any such Award shall be canceled and any purchase of such Shares issued hereunder shall be rescinded; and (d) Awards (to which only the exemption from Californias securities qualification requirements provided by Section 25102(o) can apply) granted pursuant to an increase in the number of Shares approved by the Board which increase is not approved by stockholders within the time then required under Section 25102(o) shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded.
13.2 Term of Plan . Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, ten (10) years from the date of stockholder approval.
13.3 Amendment or Termination of Plan. Subject to Section 4.9 hereof, the Board may at any time (a) terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan and (b) terminate any and all outstanding Options or SARs upon a dissolution or liquidation of the Company, followed by the payment of creditors and the distribution of any remaining funds to the Companys stockholders; provided , however , that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval pursuant to Section 25102(o) or pursuant to the Code or the regulations promulgated under the Code as such provisions apply to ISO plans.
14. DEFINITIONS . For all purposes of this Plan, the following terms will have the following meanings.
Acquisition , for purposes of Section 11, means:
(a) any consolidation or merger in which the Company is a constituent entity or is a party in which the voting stock and other voting securities of the Company that are outstanding immediately prior to the consummation of such consolidation or merger represent, or are converted into, securities of the surviving entity of such consolidation or merger (or of any Parent of such surviving entity) that, immediately after the consummation of such consolidation or merger, together possess less than fifty percent (50%) of the total voting power of all voting securities of such surviving entity (or of any of
its Parents, if any) that are outstanding immediately after the consummation of such consolidation or merger;
(b) a sale or other transfer by the holders thereof of outstanding voting stock and/or other voting securities of the Company possessing more than fifty percent (50%) of the total voting power of all outstanding voting securities of the Company, whether in one transaction or in a series of related transactions, pursuant to an agreement or agreements to which the Company is a party and that has been approved by the Board, and pursuant to which such outstanding voting securities are sold or transferred to a single person or entity, to one or more persons or entities who are Affiliates of each other, or to one or more persons or entities acting in concert; or
(c) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Company and/or any Subsidiary or Subsidiaries of the Company, of all or substantially all the assets of the Company and its Subsidiaries taken as a whole, (or, if substantially all of the assets of the Company and its Subsidiaries taken as a whole are held by one or more Subsidiaries, the sale or disposition (whether by consolidation, merger, conversion or otherwise) of such Subsidiaries of the Company), except where such sale, lease, transfer or other disposition is made to the Company or one or more wholly owned Subsidiaries of the Company (an Acquisition by Sale of Assets ).
Affiliate of a specified person means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified (where, for purposes of this definition, the term control (including the terms controlling , controlled by and under common control with ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
Award means any award pursuant to the terms and conditions of this Plan, including any Option, Restricted Stock Unit, Stock Appreciation Right or Restricted Stock Award.
Award Agreement means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award as approved by the Committee.
Board means the Board of Directors of the Company.
Cause means Termination because of (a) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participants conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (b) the Participants commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (c) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Participant regarding the terms of the Participants service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (d) Participants disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, or (e) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.
Company means Dermira, Inc., a Delaware corporation, or any successor corporation.
Disability means a disability, whether temporary or permanent, partial or total, as determined by the Committee.
Exercise Price means the price per Share at which a holder of an Option may purchase Shares issuable upon exercise of the Option.
Fair Market Value means, as of any date, the value of a share of the Companys Common Stock determined as follows:
(a) if such Common Stock is then publicly traded on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal ;
(b) if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Committee may determine); or
(c) if none of the foregoing is applicable to the valuation in question, by the Committee in good faith.
Option means an award of an option to purchase Shares pursuant to Section 4 of this Plan.
Other Combination for purposes of Section 11 means any (a) consolidation or merger in which the Company is a constituent entity and is not the surviving entity of such consolidation or merger or (b) any conversion of the Company into another form of entity; provided that such consolidation, merger or conversion does not constitute an Acquisition.
Parent of a specified entity means, any entity that, either directly or indirectly, owns or controls such specified entity, where for this purpose, control means the ownership of stock, securities or other interests that possess at least a majority of the voting power of such specified entity (including indirect ownership or control of such stock, securities or other interests).
Participant means a person who receives an Award under this Plan.
Plan means this 2010 Equity Incentive Plan, as amended from time to time.
Purchase Price means the price at which a Participant may purchase Restricted Stock pursuant to this Plan.
Restricted Stock means Shares purchased pursuant to a Restricted Stock Award under this Plan.
Restricted Stock Award means an award of Shares pursuant to Section 5 hereof.
Restricted Stock Unit or RSU means an award made pursuant to Section 6 hereof.
Rule 701 means Rule 701 et seq promulgated by the Commission under the Securities Act.
SEC means the Securities and Exchange Commission.
Section 25102(o) means Section 25102(o) of the California Corporations Code.
Securities Act means the Securities Act of 1933, as amended.
Shares means shares of the Companys Common Stock, $0.001, par value per share, reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 11 hereof, and any successor security.
Stock Appreciation Right or SAR means an award granted pursuant to Section 7 hereof.
Subsidiary means any entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns stock or other equity securities representing fifty percent (50%) or more of the total combined voting power of all classes of stock or other equity securities in one of the other entities in such chain.
Termination or Terminated means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of sick leave, military leave, or any other leave of absence approved by the Committee; provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Companys Board and issued and promulgated in writing. In the case of any Participant on sick leave, military leave or an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the Termination Date ).
Unvested Shares means Unvested Shares as defined in the Award Agreement for an Award.
Vested Shares means Vested Shares as defined in the Award Agreement.
* * * * * * * * * * *
Option Grant No. [ ]
DERMIRA, INC.
2010 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (the Agreement ) is made and entered into as of the date of grant set forth below (the Date of Grant ) by and between Dermira, Inc., a Delaware corporation (the Company ), and the participant named below (the Participant ). Capitalized terms not defined herein shall have the meaning ascribed to them in the Companys 2010 Equity Incentive Plan (the Plan ).
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o Exempt Employee |
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o Nonexempt Employee |
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o Non-employee |
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o Incentive Stock Option |
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o Nonqualified Stock Option |
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1. GRANT OF OPTION . The Company hereby grants to Participant an option (this Option ) to purchase the total number of shares of common stock, $0.001 par value per share, of the Company ( Common Stock ) set forth above as Total Option Shares (the Shares ) at the Exercise Price Per Share set forth above (the Exercise Price ), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, except that if on the Date of Grant the Participant is not subject to U.S. income tax, then this Option shall be a NQSO. This Option is not transferable.
[ ALTERNATIVE #1 : ONE YEAR CLIFF THEN MONTHLY VESTING SCHEDULE]
2. EXERCISE PERIOD. Only Vested Shares may be purchased pursuant to this Exercise Agreement. Shares that are vested pursuant to the schedule set forth in this Section 2 are Vested Shares . Shares that are not vested pursuant to such schedule are Unvested Shares . On the Date of Grant of the Shares will be Unvested Shares (the Initial Unvested Shares ). Provided Participant continues to provide services to the Company or any Subsidiary or Parent of the Company at all times from the Date of Grant until the First Vesting Date set forth above, then on the First Vesting Date [one-fourth (1/4 th )] of the Initial Unvested Shares will become Vested Shares, and on the same day of each succeeding calendar month thereafter (or if there is no such day in any month, then the last day of such calendar month), an additional [one forty-eighth 1/48 th ] of the Initial Unvested Shares shall vest and become exercisable until (a) all of the Shares are vested, (b) the Termination Date or (c) vesting otherwise terminates pursuant to this Agreement or the Plan. If application of the vesting schedule above causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month this Option shall become vested for the full remainder of the Shares. The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 4 below in accordance with Section 4.6 of the Plan.
[ ALTERNATIVE #2 : MONTHLY VESTING SCHEDULE (1) ]
2. EXERCISE PERIOD. Only Vested Shares may be purchased pursuant to this Exercise Agreement. Shares that are vested pursuant to the schedule set forth in this Section 2 are Vested Shares . Shares that are not vested pursuant to such schedule are Unvested Shares . On the Date of Grant of the Shares will be Unvested Shares (the Initial Unvested Shares ). Provided Participant continues to provide services to the Company or any Subsidiary or Parent of the Company at all times from the Date of Grant until the First Vesting Date set forth above, then on the First Vesting Date [one forty-eighth 1/48 th ] of the Initial Unvested Shares will become Vested Shares, and on the same day of each succeeding calendar month thereafter (or if there is no such day in any month, then the last day of such calendar month), an additional [one forty-eighth 1/48 th ] of the Initial Unvested Shares shall vest and become exercisable until (a) all of the Shares are vested, (b) the Termination Date or (c) vesting otherwise terminates pursuant to this Agreement or the Plan. If application of the vesting schedule above causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month this Option shall become vested for the full remainder of the Shares. The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 4 below in accordance with Section 4.6 of the Plan.
[ ALTERNATIVE #3 : ANNUAL VESTING SCHEDULE]
2. EXERCISE PERIOD . Only Vested Shares may be purchased pursuant to this Exercise Agreement. Shares that are vested pursuant to the schedule set forth in this Section 2 are Vested Shares . Shares that are not vested pursuant to such schedule are Unvested Shares . On the Date of Grant of the Shares will be Unvested Shares (the Initial Unvested Shares ). Provided Participant continues to provide services to the Company or any Subsidiary or Parent of the Company at all times from the Date of Grant until the First Vesting Date set forth above, then on the First Vesting Date [one-fourth 1/4 th ] of the Initial Unvested Shares will become Vested Shares, and on the same day of each succeeding calendar year thereafter, an additional [1/4 th ] of the Initial Unvested Shares shall vest and become exercisable until (a) all of the Shares are vested, (b) the Termination Date or (c) vesting otherwise terminates pursuant to this Agreement or the Plan. If application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each year except for the last year in such vesting period, at the end of which last year this Option shall become vested for the full remainder of the Shares. The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 4 below in accordance with Section 4.6 of the Plan.
3. MANNER OF EXERCISE . To exercise this Option, Participant (or in the case of exercise after Participants death or incapacity, Participants executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A , or in such other form as may be approved by the Committee from time to time (the Exercise Agreement ). If someone other than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option and such person shall be subject to all of the restrictions contained herein as if such person were the Participant. The Option may not be exercised unless such exercise is in compliance with all applicable securities laws, as they are in effect on the date of exercise. The Option may not be exercised as to fewer than one hundred (100) Shares unless it is exercised as to all Shares as to which the Option is then exercisable.
(1) Do not use this alternative for a non-exempt employee. Non-exempt employees must not be able to exercise options for 6 months after grant or the value of the option must be included in base pay when calculating overtime.
4. TERMINATION .
4.1 Termination for Any Reason Except Death, Disability or Cause . If Participant is Terminated for any reason, except death, Disability or for Cause, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the Termination Date, may be exercised by Participant no later than three (3) months after the Termination Date, but in any event no later than the Expiration Date. Any exercise beyond three (3) months after the Termination Date will be deemed the exercise of an NQSO.
4.2 Termination Because of Death or Disability . If Participant is Terminated because of Participants death or Disability (or Participant dies within three (3) months after Termination when Termination is for any reason other than Participants Disability or for Cause), the Option, to the extent that it is exercisable by Participant on the Termination Date, may be exercised by Participant (or Participants legal representative) no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date. Any exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participants death or disability, within the meaning of Section 22(e)(3) of the Code; or (b) twelve (12) months after the Termination Date when the termination is for Participants disability, within the meaning of Section 22(e)(3) of the Code, will be deemed to be the exercise of an NQSO.
4.3 Termination for Cause . If the Participant is terminated for Cause, Participants Options shall expire on the Termination Date, or at such later time and on such conditions as are determined by the Committee.
5. COMPLIANCE WITH LAWS AND REGULATIONS . Although the Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to the Plan that do not qualify for exemption under Rule 701 and Section 25102(o) of the California Corporations Code. Any requirement of this Agreement or the Exercise Agreement that is required in law only because of Section 25102(o) need not apply if the Committee so determines.
6. ENTIRE AGREEMENT . The Plan is incorporated herein by reference. This Agreement, the Exercise Agreement and the Plan constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof.
7. ACCEPTANCE . Participant hereby acknowledges receipt of a copy of the Plan, this Agreement and the Exercise Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of therein. The Exercise Price has been determined by the Committee based upon the best evidence available to the Committee and is intended to equal the Fair Market Value of the Shares as of the date of grant, or in some cases 110% of Fair Market Value, as required by the Code. However, the tax treatment of this Option is not guaranteed. Neither the Company, the Committee nor any of their designees shall be liable for any taxes, penalties or other monetary amounts owed by any Participant, employee, beneficiary or other person as a result of the grant, amendment, modification, exercise and/or payment of, or under, any Award, notwithstanding any challenge made to the determination of Fair Market Value by any taxing authority. By accepting this Option, Participant acknowledges and agrees to the foregoing. Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition.
8. EXECUTION . This Agreement and the Exercise Agreement may be entered into in two or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement. This Agreement and the Exercise Agreement may be executed and delivered by facsimile and, upon such delivery, the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
IN WITNESS WHEREOF , the Company has caused this Stock Option Agreement to be executed by its duly authorized representative and Participant has executed this Stock Option Agreement, effective as of the Date of Grant.
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DERMIRA, INC.
2010 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Stock Option Exercise Agreement (the Exercise Agreement ) is made and entered into as of , by and between Dermira, Inc. a Delaware corporation (the Company ), and the purchaser named below (the Purchaser ). Capitalized terms not defined herein shall have the meanings ascribed to them in the Companys 2010 Equity Incentive Plan (the Plan ).
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1. EXERCISE OF OPTION .
1.1 Agreement to Exercise . Pursuant to exercise of that certain option (the Option ) granted to Purchaser under the Plan and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above (the Shares ) of the Companys Common Stock, $0.001 par value per share, at the Exercise Price Per Share set forth above (the Exercise Price ). As used in this Exercise Agreement, the term Shares refers to the Shares purchased under this Exercise Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits with respect to the Shares, and (c) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.
1.2 Payment . Purchaser hereby delivers payment of the Exercise Price in the manner permitted in the Plan, and as explicitly provided by the Committee, as follows (check and complete as appropriate):
o in cash (by check) in the amount of $ , receipt of which is acknowledged by the Company.
o by cancellation of indebtedness of the Company currently owed to Purchaser in the amount of $ .
o by the waiver hereby of compensation due or accrued for services previously rendered to the Company in the amount of $ .
o by a cashless exercise under the Companys formal cashless exercise program adopted by the Committee in connection with the Plan.
o provided that a public market for the Companys stock exists and subject to compliance with applicable law and solely in the discretion of the Committee: (a) through a same day sale commitment from Purchaser and broker-dealer whereby Purchaser irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay for the total Exercise Price and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company, or (b) through a margin commitment from Purchaser and a broker-dealer whereby Purchaser irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the Dealer in a margin account as security for a loan from the broker-dealer in the amount of the total Exercise Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company.
o the following form of consideration approved by the Committee: .
2. DELIVERY .
2.1 Documents and Payment to be Delivered . Purchaser hereby delivers to the Company at its principal executive offices, Attn: President: (a) this completed and signed Exercise Agreement, (b) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the Stock Powers ), both executed by Purchaser and Purchasers spouse, if any, (c) if Purchaser is married, a Consent of Spouse in the form of Exhibit 2 attached hereto (the Spouse Consent ) executed by Purchasers spouse, and (d) the Exercise Price and payment or other provision for any applicable tax obligations (if paid by check, a copy of such check shall be attached hereto as Exhibit 3 ). Upon its receipt of the Exercise Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, or, if applicable, Purchasers estate, to be placed in escrow as provided in Section 6.2 until expiration or termination of the Companys Refusal Right described in Section 5.
2.2 Tax Withholding . Prior to the issuance of the Shares upon exercise of the Option, Purchaser must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Purchaser may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. In such case, the Company shall issue the net number of Shares to the Purchaser by deducting the Shares retained from the Shares issuable upon exercise.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER . Purchaser represents and warrants to the Company as follows.
3.1 Agrees to Terms of the Plan . Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition.
3.2 Shares Not Registered or Qualified . Purchaser understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act, or with any securities regulatory agency administering any state securities laws, and that, notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws.
3.3 No Transfer Unless Registered or Exempt . Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.
3.4 SEC Rule 701 . The Shares are issued pursuant to SEC Rule 701 promulgated under the Securities Act and may become freely tradable by non-affiliates (under limited conditions regarding the method of sale) ninety (90) days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to the lengthier market standoff agreement contained in Section 4 of this Exercise Agreement or any other agreement entered into by Purchaser. Affiliates must comply with the provisions (other than the holding period requirements) of Rule 144 which permits certain limited sales of unregistered securities. Rule 144 is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that use of a promissory note as payment for the Shares may not be deemed to be full payment of the purchase price within the meaning of Rule 144 unless certain conditions are met and that, accordingly, the Rule 144 holding period of such Shares may not begin to run until such Shares are fully paid for within the meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available.
3.5 Sophistication; Preexisting Relationship . To the extent applicable, Purchaser (a) is a sophisticated investor having such knowledge and experience in financial matters that Purchaser is able to fend for him or her self in connection with an investment in the Company, is capable of evaluating the merits and risks of this investment and is financially capable of bearing a total loss of this investment or (b) has a preexisting personal or business relationship with the Company and/or certain of the Companys officers and/or directors of a nature and duration that is sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors.
3.6 Access to Information . To the extent applicable, Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Companys representatives concerning such matters and this investment.
3.7 Understanding of Risks . To the extent applicable, Purchaser is fully aware of: (a) the highly speculative nature of the investment in the Shares; (b) the financial hazards involved; (c) the lack of liquidity of the Shares and the restrictions on transferability of the Shares ( e.g. , that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (d) the qualifications and backgrounds of the management of the Company; and (e) the tax consequences of investment in the Shares.
3.8 Purchase for Own Account for Investment . To the extent applicable, Purchaser is purchasing the Shares for Purchasers own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.
3.9 No General Solicitation . At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.
3.10 SEC Rule 144 . To the extent applicable, in addition, Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that use of a promissory note as payment for the Shares may not be deemed to be full payment of the purchase price within the meaning of Rule 144 unless certain conditions are met and that, accordingly, the Rule 144 holding period of such Shares may not begin to run until such Shares are fully paid for within the meaning of Rule 144]. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available.
4. MARKET STANDOFF AGREEMENT . Purchaser agrees in connection with any registration of the Companys securities under the Securities Act or other public offering that, upon the request of the Company or the underwriters managing any registered public offering of the Companys securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one hundred eighty (180) days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-stockholders generally. For purposes of this Section 4, the term Company shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing and that such underwriters are express third party beneficiaries of this Section 4.
5. COMPANYS REFUSAL RIGHT . Before any Shares held by Purchaser or any transferee of such Shares (either sometimes referred to herein as the Holder ) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the Offered Shares ) on the terms and conditions set forth in this Section (the Refusal Right ).
5.1 Notice of Proposed Transfer . The Holder of the Offered Shares will deliver to the Company a written notice (the Notice ) stating: (a) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (b) the name and address of each proposed purchaser or other transferee (the Proposed Transferee ); (c) the number of Offered Shares to be transferred to each Proposed Transferee; (d) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price ); and (e) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Refusal Right at the Offered Price as provided for in this Exercise Agreement.
5.2 Exercise of Refusal Right . At any time within thirty (30) days after the date the Notice is effective pursuant to Section 8.2, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
5.3 Purchase Price . The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Companys Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Companys Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
5.4 Payment . The purchase price for the Offered Shares will be paid, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
5.5 Holders Right to Transfer . If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (a) such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice, (b) any such sale or other transfer is effected in compliance with all applicable securities laws, and (c) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such one hundred twenty (120) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the right of first refusal before any Shares held by the Holder may be sold or otherwise transferred.
5.6 Exempt Transfers . Notwithstanding the foregoing, the following transfers of Shares will be exempt from the Refusal Right: (a) the transfer of any or all of the Shares during Purchasers lifetime by gift or on Purchasers death by will or intestacy to Purchasers Immediate Family (as defined below) or to a trust for the benefit of Purchaser or Purchasers Immediate Family, provided that each transferee agrees in a writing satisfactory to the Company that the provisions of this Section 5 will continue to apply to the transferred Shares in the hands of such transferee; (b) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another entity or entities (except that, subject to Section 5.7, unless the agreement of merger or consolidation expressly otherwise provides, the Refusal Right will continue to apply thereafter to such Shares, in which case the surviving entity of such merger or consolidation shall succeed to the rights of the Company under this Section 5); or (c) any transfer of Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Purchasers spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of the Purchaser or the Purchasers spouse, or the spouse of any of the above, or a person registered with the state of his or her residence as a same-sex domestic partner or a person deemed to be a spousal equivalent for whom the following circumstances are true: (a) irrespective of whether or not the Participant and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (b) they intend to remain so indefinitely, (c) neither are married to anyone else, (d) both are at least 18 years of age and mentally competent to consent to contract, (e) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (f) they are jointly responsible for each others common welfare and financial obligations, and (g) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
5.7 Termination of Refusal Right . The Refusal Right will terminate as to all Shares (a) on the effective date of the first sale of Common Stock of the Company to the public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act or, if expressly approved by the Board as terminating the Refusal Right, under the laws of any other country having substantially the same effect (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan) or (b) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another entity or entities if the common stock of the surviving entity or any direct or indirect parent entity thereof is registered under the Securities Exchange Act of 1934, as amended.
6 ADDITIONAL RESTRICTIONS UPON SHARE OWNERSHIP OR TRANSFER .
6.1 Rights as a Stockholder . Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Refusal Right. Upon an exercise of the Refusal Right, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Exercise Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
6.2 Escrow . As security for Purchasers faithful performance of this Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchasers spouse, if any (with the date, name of transferee, stock certificate number and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the Escrow Holder ), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other person or entity) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Exercise Agreement. The Shares will be released from escrow upon termination of the Refusal Right.
6.3 Encumbrances on Shares . Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (a) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Shares after they are acquired by the Company and/or its assignees under this Section; and (b) the provisions of this Section will continue to apply to such Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.
6.4 Restrictions on Transfers . Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than as permitted by this Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Purchaser shall have complied with all requirements of this Exercise Agreement applicable to the disposition of the Shares, including but not limited to the Refusal Right and the Market Standoff; and
(c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any state securities laws, and (ii) all appropriate actions necessary for compliance with the registration and qualification requirements of the Securities Act and any state securities laws, or of any exemption from registration or qualification, available thereunder (including Rule 144) have been taken.
Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Exercise Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Exercise Agreement and that the transferred Shares are subject to the Companys Refusal Right granted in Section 5 and the market stand-off provisions of Section 4, to the same extent such Shares would be so subject if retained by the Purchaser.
6.5 Restrictive Legends and Stop-transfer Orders . Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by applicable laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, INCLUDING THE REFUSAL RIGHT HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S), AND A MARKET STANDOFF AGREEMENT, AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING THE REFUSAL RIGHT AND THE MARKET STANDOFF ARE BINDING ON TRANSFEREES OF THESE SHARES.
Purchaser agrees that, to ensure compliance with the restrictions imposed by this Exercise Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own
records. The Company will not be required (a) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Agreement or (b) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
7. TAX CONSEQUENCES . PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASERS PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT: (a) PURCHASER HAS CONSULTED WITH ANY TAX ADVISER WHO PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (b) PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Set forth below is a brief summary as of the date the Plan was adopted by the Board of some of the U.S. Federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
7.1 Exercise of Incentive Stock Option . If the Option qualifies as an ISO, there will be no regular U.S. Federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise.
7.2 Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular U.S. Federal income tax liability and a California income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Purchaser is a current or former employee of the Company, the Company may be required to withhold from Purchasers compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
7.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares.
7.3.1 Incentive Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for U.S. Federal and California income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.
7.3.2 Nonqualified Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
7.3.3 Withholding . The Company may be required to withhold from the Purchasers compensation or collect from the Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.
7.4 Notice of Disqualifying Disposition of ISO Shares . If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1) year after transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant.
8. GENERAL PROVSIONS .
8.1 Successors and Assigns . The Company may assign any of its rights under this Exercise Agreement, including its rights to purchase Shares under the Refusal Right. Neither Purchaser, nor any of Purchasers successors and assigns, may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Exercise Agreement, except with the prior written consent of the Company. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon Purchaser and Purchasers heirs, executors, administrators, legal representatives, successors and assigns.
8.2 Notices . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Exercise Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Exercise Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) by electronic scan upon its confirmed receipt; (c) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (d) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally or be electronic scan will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Exercise Agreement, or at such other address as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked Attention: President.
8.3 Further Assurances . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement.
8.4 Entire Agreement . The Plan, the Stock Option Agreement and this Exercise Agreement, together with all Exhibits thereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.
8.5 Severability . If any provision of this Exercise Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Exercise Agreement and the remainder of this Exercise Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Exercise Agreement. Notwithstanding the forgoing, if the value of this Exercise Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or
arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
IN WITNESS WHEREOF , the Company has caused this Stock Option Exercise Agreement to be executed by its duly authorized representative, and Purchaser has executed this Stock Option Exercise Agreement, as of the date first set forth above.
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List of Exhibits
Exhibit 1: |
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Stock Power and Assignment Separate from Stock Certificate |
Exhibit 2: |
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Spouse Consent |
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Copy of Purchasers Check |
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise Agreement No. dated as of , , (the Agreement ), the undersigned hereby sells, assigns and transfers unto , shares of the Common Stock $0.001 par value per share, of Dermira, Inc., a Delaware corporation (the Company ), standing in the undersigneds name on the books of the Company represented by Certificate No(s). delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
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Instructions to Purchaser : Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company to acquire the shares to exercise its Refusal Right set forth in the Exercise Agreement without requiring additional signatures on the part of the Purchaser or Purchasers Spouse, if any.
SPOUSE CONSENT
The undersigned spouse of (the Purchaser ) has read, understands, and hereby approves the Stock Option Exercise Agreement (the Agreement ) between Purchaser and Dermira, Inc. (the Company ). In consideration of the Company granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest I may have in the Shares shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.
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Signature of Purchaser |
Exhibit 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this Agreement ) is entered into as of the date executed below by and between Thomas Wiggans ( Employee ), and Skintelligence, Inc., a Delaware corporation (the Company ).
WHEREAS, on August 18, 2010, Employee and the Company (collectively, the parties and individually, a party ) entered into an Employment Agreement (the Prior Agreement ) (i) to establish the terms and conditions of Employees employment with the Company, (ii) to safeguard the Companys proprietary and confidential information and (iii) to protect the Companys investment in its employees, customer relationships and other legitimate business interests.
WHEREAS, pursuant to Section 4(c)(v) of the Prior Agreement, upon completion by the Company of its first acquisition of a business in the field of developing or marketing products for dermatological applications, Employee and the Company would discuss in good faith certain amendments to the Prior Agreement.
WHEREAS, the Company will complete the acquisition of Valocor Therapeutics, Inc. concurrently with the execution of this Agreement.
WHEREAS, in accordance with Section 4(c)(v) of the Prior Agreement, Employee and the Company desire to amend and restate the Prior Agreement in order to amend certain terms therein.
NOW, THEREFORE, in consideration for the promises, mutual covenants and terms of this Agreement, Employee and the Company agree as follows:
1. Employment . Subject to Employees compliance with U.S. immigration and right to work rules, the Company agrees to employ Employee, and Employee agrees to be employed as President and Chief Executive Officer of the Company, commencing August 18, 2010 ( Start Date ), on the terms and subject to the conditions set forth in this Agreement. As of the Start Date, Employee shall also hold the titles of Treasurer and Secretary of the Company, and shall continue to serve in these positions at the pleasure of the Companys Board of Directors ( Board ).
2. Duties and Responsibilities . Employee shall perform such duties as are reasonably assigned to him by the Board, consistent with his position as President and Chief Executive Officer of the Company. Employee shall conduct his duties and responsibilities in a professional manner and shall comply with the policies of the Company. Employee shall conduct himself at all times faithfully, loyally, and to the best of his abilities, and according to the best interests of the Company. Employee shall devote substantially all of his business time, attention and effort to the affairs of the Company and shall not engage in any other business activity focused on the development or marketing of products for dermatological applications without the prior written consent of the Board; provided, however, that the foregoing is not intended to restrict Employees ability to engage in charitable, educational, civic or community activities, or participation as a non-employee member of the boards of directors of other companies, in each case as are not materially engaged in the development or marketing of products for dermatological applications, to the extent that such activities do not materially
interfere with his duties hereunder. The Company further agrees that the activities set forth in Exhibit A shall not be deemed to be prohibited by this Section 2.
3. Employment at Will . Employees employment with the Company is at will, meaning that either the Company or Employee may terminate the employment at any time, with or without Cause, by providing written notice to the other pursuant to Section 9 of this Agreement, subject to the payment by the Company to Employee of any compensation required pursuant to Section 8 of this Agreement.
4. Compensation . As compensation for the services rendered by Employee to the Company, the Company shall provide compensation to Employee as follows:
(a) Salary . Commencing on the date of this Agreement, the Company shall pay Employee a base salary of $350,000 per annum ( Salary ), The Company may adjust Employees Salary thereafter on an annual basis and in the sole discretion of the Board. Employees Salary will be payable on the Companys regular payroll schedule, not less frequently than monthly. The Company shall deduct from the Salary paid to Employee required federal, state and local withholding taxes, as well as any other deductions required by applicable law or authorized by Employee in writing.
(b) [Reserved].
(c) Benefits .
(i) Employee shall be entitled to participate in any of the Companys employee benefit plans or programs that become available to similarly situated employees of the Company; provided , that Employee meets all eligibility requirements under those plans or programs. Unless otherwise provided herein, Employees participation in the employee benefit plans or programs shall be subject to the terms and conditions of said plans or programs including, without limitation, the Companys right to amend, revise, terminate or replace the plans or programs at any time and without notice to participants. Any reduction, alteration or enhancement of the benefit plans and programs shall not be deemed to be a breach of this Agreement by the Company. The parties acknowledge that any programs for the benefit of eligible employees and the nature and design of such employee benefit plans, executive compensation programs and/or incentive arrangements shall be at the sole discretion of the Board. The parties expressly agree that the Companys decision whether or not to adopt any benefit plans, programs or arrangements, or which plans, programs or arrangements, shall not constitute a breach of this Agreement.
(ii) [Reserved].
(iii) [Reserved].
(iv) As of the Start Date, and until the Company adopts a vacation or paid time off policy, Employee shall accrue four weeks of paid vacation per calendar year, prorated for any partial year of employment, and any unused accrued vacation will be carried over from year to year. When the Company adopts a vacation or paid time off policy, Employee
will be entitled to paid vacation on the same terms and to the same extent as similarly situated employees of the Company.
(v) [Reserved].
(d) Bonus . The Employee shall be eligible for an annual performance bonus equal to 30% of Employees then-annual Salary, subject to the Employees achievement of specified performance targets determined by the Board after consultation with the Employee (the Bonus ). Any Bonus for the fiscal year in which employment begins will be prorated, based on the number of days the Employee is employed by the Company. Any bonus for a fiscal year will be paid within 2½ months after the close of that fiscal year, but only if the Employee is still employed by the Company at the time of payment. The determinations of the Board with respect to any bonus will be final and binding.
5. Reimbursement of Expenses . The Company shall reimburse Employee, in accordance with the Companys policies and procedures, for all proper and reasonable expenses approved in advance by company Management, properly substantiated, and incurred by Employee in the performance of his duties. Such expenses will be reimbursed to Employee within thirty (30) days of Employees submission of proper substantiation of eligible expenses. Employee agrees to submit such substantiation by the last day of the month following the month in which the expense was incurred. The parties agree that, consistent with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended, the following rules shall also apply to reimbursement of expenses: (a) in no event shall reimbursements for expenses be paid to Employee or on his behalf later than the last day of the calendar year following the calendar year in which the expense was incurred; (b) the amount of expenses eligible for reimbursement during a calendar year will not affect the expenses eligible for reimbursement in any other calendar year; and (c) Employees right to reimbursement for such expenses is not subject to liquidation or exchange for another benefit.
6. Confidentiality, Non-Solicitation, Intellectual Property Protections . As a condition of this Agreement, Employee is required to comply with the Employee Intellectual Property Protection Agreement (the IP Agreement ) that Employee executed concurrently with the Prior Agreement. Employee agrees that the Company may disclose this Agreement, and/or the IP Agreement, to any person or entity who, at any time during or after the Employment Period, employs or who the Company reasonably believes is considering employing Employee.
7. Termination . Employees employment with the Company may be terminated as set forth below. In the event of termination, all obligations of the Company hereunder, and all rights of Employee to compensation and benefits under this Agreement, shall cease, except as provided in paragraph 8 hereof.
(a) Written Notice . Employees employment shall terminate on the effective date of written notice provided by either party to the other pursuant to Section 9 of this Agreement.
(b) Death . Employees employment under this Agreement shall automatically terminate upon the death of Employee.
(c) Disability . To the extent allowable by law, the Company may, at its option, terminate Employees employment under this Agreement upon written notice to Employee if Employee, because of physical or mental incapacity or disability, is unable to perform the essential functions of his position (if appropriate, with reasonable accommodation) for a continuous period of ninety (90) days, or for an aggregate period of 120 days in any consecutive 12-month period. In the event of any dispute regarding the existence of Employees incapacity hereunder, the matter shall be resolved by the determination of a physician to be mutually selected and agreed upon by the Company and Employee. In the event Employee fails, within ten (10) days of being requested to do so, to accept or reject the physician suggested by the Company, then the physician suggested by the Company shall be deemed agreed upon by the parties. Employee agrees that he will submit to appropriate medical examinations for purposes of such determination.
(d) Dissolution of the Company . Employees employment shall automatically terminate on the date specified by the Board in conjunction with the Boards decision that the Company shall be dissolved.
8. Compensation and Vesting Acceleration Upon Termination .
(a) Upon termination of Employees employment for any reason, Employee shall be entitled to receive (i) payment of all Salary due through the date of termination; (ii) applicable employee benefits to which Employee is entitled through the date of termination, in accordance with the terms of the plans or programs of the Company then in effect; (iii) payment for accrued, unused vacation, if any, through the date of termination; (iv) any unreimbursed business expenses for which Employee submitted proper substantiation, and (v) any acceleration of vesting of stock, and options to purchase stock, as may be set forth in any agreement under which Employee may purchase stock, or be granted an option to purchase stock, and Employee shall not be entitled to any further compensation or benefits or payments of any kind.
(b) In addition, if the Company terminates Employees employment at any time without Cause (as defined below), then it shall provide Employee severance in the amount of six (6) months Salary at the rate in effect at the time of Employees termination, to be paid out in a lump sum or on a monthly basis for six (6) months at the Employees option (the Severance Payment ). Similarly, if Employee resigns his employment for Good Reason, then Employee shall receive the Severance Payment on the terms set forth in this Section 8(b). Employee accepts the Severance Payment in full satisfaction of all rights and entitlements to notice of termination or compensation in lieu under statute or contract law. However, the Company shall not be required to pay any part of the Severance Payment unless Employee (i) has returned all Company property in Employees possession, and (ii) has executed a general release of all claims that Employee may have against the Company or persons affiliated with the Company. The release must be in the form reasonably prescribed by the Company, without alterations. Employee must execute and return the release on or before the date specified by the Company in the prescribed form.
(c) In addition, (i) all shares of the Companys common stock subject to outstanding equity awards granted after the date of this Agreement, including, without limitation, stock options, restricted stock units, stock appreciation rights and restricted stock, granted to or held by Employee shall immediately become fully vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be fully vested, in each case, immediately prior to the occurrence of a Termination Upon Change in Control (as defined below) and (ii) with respect to any outstanding equity grant that is not at least 25% vested, that number of shares of the Companys common stock subject to outstanding equity awards granted after the date of this Agreement, including, without limitation, stock options, restricted stock units, stock appreciation rights and restricted stock, granted to or held by Employee shall immediately become vested and exercisable such that, after such acceleration the total number of shares of the Companys common stock subject to such outstanding equity grant(s) shall be 25% vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be vested, in each case, upon Employees Disability (as defined below) or death. In the event of a Change of Control whereby the successor or acquiring entity (if any) or any Parent (as defined in the 2010 Plan) (if any) of such successor or acquiring entity does not assume, convert, replace or substitute Employees outstanding equity awards as provided in Section 11.1 of the 2010 Plan, then, notwithstanding Section 11.2 of the 2010 Plan, all of Employees outstanding equity awards shall immediately become fully vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be fully vested.
(d) For purposes this Agreement, the 2010 Plan shall mean the Companys 2010 Equity Incentive Plan, as amended from time to time.
(e) For purposes of this Agreement, Cause shall mean the reasonable determination by a majority of the members of the Board of Directors (other than Employee) that one or more of the following conditions exist:
(i) Employee has been convicted of or pled guilty or no contest to any felony;
(ii) Employee has committed one or more acts of fraud, theft, embezzlement or misappropriation against the Company;
(iii) Employee falsified Company records; willfully destroyed Company property; or, while an employee of the Company, engaged in conduct that constitutes harassment or discrimination prohibited by law;
(iv) Employee refused to perform his duties as reasonably directed by the Board, if such refusal is not corrected within ten business days after written notice is given to Employee by the Company; or
(v) Employee has materially breached Employees obligations under this Agreement or the IP Agreement, which breach was not remedied, if remediable, within
thirty (30) days after delivery to Employee by the Company of a written notice specifically identifying the breach that the Company believes has occurred.
(f) For purposes of this Agreement, Change in Control shall mean (i) a sale of substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation in which stockholders immediately before the merger or consolidation have, immediately after the merger or consolidation, a majority of the then-outstanding voting power); (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Companys common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (other than a reverse merger in which shareholders immediately before the merger have, immediately after the merger, a majority of the then-outstanding voting power); or (iv) any transaction or series of related transactions in which in excess of 50% of the Companys voting power is transferred.
(g) For purposes of this Agreement, Disability shall mean a physical or mental incapacity or disability as a result of which Employee becomes unable to perform the essential functions of Employees job at the Company (if appropriate, with reasonable accommodation) for a continuous period of ninety days or for an aggregate period of 120 days in any consecutive 12-month period.
(h) For purposes of this Agreement, Good Reason shall mean:
(i) a material reduction in Employees total target annual compensation as an employee of the Company or a reduction in Employees base salary as an employee of the Company, except (in either case) to the extent that the Company implements an equal percentage reduction applicable to all executive officers and management personnel, or (in either case) reductions which are made with the consent of Employee;
(ii) a material, substantial reduction in Employees duties, responsibilities or authority at the Company (which shall include such duties, responsibilities and authority as are normally held by a chief executive officer and president reporting directly to the board of directors) without Employees prior written consent;
(iii) removing Employee from the position of President or Chief Executive Officer without Employees prior written consent; or
(iv) a change in the geographic location at which Employee must perform services which results in an increase in Employees one-way commute by more than 50 miles.
(i) For purposes of this Agreement, Termination Upon Change of Control shall mean:
(i) any termination of the employment of Employee by the Company without Cause within twelve (12) months following a Change of Control; or
(ii) any resignation by Employee of employment with the Company for Good Reason where (A) such Good Reason occurs within twelve (12) months following the Change of Control and (B) such resignation occurs within ninety (90) days following such Good Reason.
9. Notices . Any notice, demand or communication required or permitted to be given by this Agreement or applicable law shall be made in writing and sent by either first class mail, overnight courier, hand delivery or facsimile; unless waived by the recipient, if such notice is made by facsimile, such facsimile shall be followed within 24 hours by notice in writing sent by first class mail, overnight courier or hand delivery. Charges for any notice shall be prepaid. Notices shall be addressed as follows, or to such other address as such person to whom it is to be addressed may specify by notice to the other party: in the case of Employee, to his place of residence as currently shown on the records of the Company, or in the case of the Company, to 2055 Woodside Road, Suite 290, Redwood City, CA 94061, facsimile: (650) 365-3410, Attention: Thomas Wiggans. Any notice shall be deemed to be delivered, given and received for all purposes as of the date such notice was actually delivered to the recipient or, if sent by first-class mail, five days after the date on which the same was deposited in a receptacle regularly maintained by the United States Postal Service for the deposit of mail, whichever occurs first.
10. Successors and Assigns . This Agreement is personal to Employee and shall not be assignable by Employee. The continuing obligations of Employee under this Agreement shall continue after the termination of his employment regardless of the reason for the cessation of his employment with the Company and shall be binding on Employees heirs, executors, and legal representatives. Such obligations shall inure to the benefit of any successors or assigns of the Company. Employee specifically acknowledges that in the event of a sale of all or substantially all of the assets of the Company, or any other event or transaction resulting in a change of ownership or control of all or a portion of the Companys business, the rights and obligations of the parties hereunder shall inure to the benefit of any transferee, purchaser or future owner. This Agreement may be assigned only by the Company.
11. Amendment; Waiver . No change or modification of this Agreement shall be valid or binding unless in writing and signed by both parties. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against whom the waiver is sought to be enforced. A valid waiver of any provision of this Agreement shall be limited to the instance specified in writing and, unless otherwise expressly stated, shall not be effective as a continuing waiver or repeal of such provision.
12. Governing Law . The validity, performance, construction and effect of this Agreement shall be governed by the substantive laws of the State of California, without regard to the provisions for choice of law thereunder.
13. Severability . If any provision of this Agreement is deemed invalid or unenforceable, the validity of the other provisions of this Agreement shall not be impaired. If any provision of this Agreement shall be deemed invalid as to its scope, then, notwithstanding such invalidity, such provision shall be valid to the fullest extent permitted by law, and the parties agree that, if any court or arbitrator makes such a determination, such court or arbitrator shall have the power to modify the duration, scope and/or area of such provision and/or to delete
specific words and phrases by blue penciling and, in its reduced or blue penciled form, to enforce such provision to the fullest extent permitted by law.
14. Entire Agreement . With respect to the terms addressed in this Agreement, this Agreement (including Exhibits) contains the entire agreement and understanding by and between the Company and Employee. Pursuant to Section 11 of the Prior Agreement, Employee and the Company hereby amend and restate the Prior Agreement to read in its entirety as set forth in this Agreement, such that the Prior Agreement is hereby terminated and entirely replaced and superseded by this Agreement. This Agreement supersedes all prior undertakings and agreements, written or oral, as may have existed prior to the date of execution of the Agreement with regard to the terms addressed in this Agreement, including the Prior Agreement. By the execution of this Agreement, Employee acknowledges that any such superseded understandings and agreements are terminated, and Employee disclaims any and all rights or interest that may have existed with respect thereto. Further, any representations, promises, agreements or understandings, written or oral, with regard to the terms addressed in this Agreement that are not contained in this Agreement shall be of no force or effect.
15. Employee Claims . The existence of any claim or cause of action by Employee against the Company shall not constitute a defense to the enforcement by the Company of Employees covenants, obligations, or undertakings in this Agreement.
16. Construction and Interpretation . Employee and the Company agree that this Agreement shall be construed as drafted by both of them, as parties of equivalent bargaining power, and not for or against either of them as drafter.
17. No Conflicting Obligations . The Company is aware of the Noncompetition Agreement in favor of LEO Pharma A/S and Peplin, Inc. effective November 2009 (the Peplin Agreement ). Employee agrees that he will not, in the performance of his duties with the Company, breach his obligations under the Peplin Agreement. For the avoidance of doubt, breach as used in the prior sentence shall mean that a court of competent jurisdiction shall have determined in a final judgment that Employee has breached his non-competition obligations under the Peplin Agreement as a result of the performance of his duties with the Company. Apart from the Peplin Agreement, Employee hereby expressly and specifically warrants and represents that his execution of this amended and restated Agreement and performance of employment-related obligations and duties for the Company will not cause any breach, default, or violation of any other employment, non-disclosure, confidentiality, non-competition, or other agreement to which he may be a party or otherwise bound. Employee will not use in the performance of employment-related obligations and duties for the Company or otherwise disclose to the Company any trade secrets or confidential information of any person or entity (including any former employer) if and to the extent that such use or disclosure may cause a breach or violation of any obligation or duty owed to such employer, person, or entity under any agreement or applicable law. Employee also expressly and specifically warrants and represents that he is not a party to any agreement which contains restrictions on his ability to compete with any prior employer or any competitor of the Company or to identify, contact, or solicit clients in the pharma industry, except for the Peplin Agreement. Employee further represents, warrants, and agrees that he will not enter into any agreement or other obligation while this Agreement is in effect or during any period during which he has continuing obligations under this Agreement
that would reasonably be expected to conflict with the operation of this Agreement or his obligations hereunder, except such agreements and obligations expressly disclosed to the Company in writing and permitted in writing by the Company.
18. Compliance with Section 409A . Each payment or reimbursement and the provision of each benefit under this Agreement shall be considered to be a separate payment and not one of a series of payments for purposes of Section 409A. To the extent applicable, it is intended that this Agreement comply with the provisions of Section 409A so that the income inclusion provisions of Section 409A(a)(1) do not apply to Employee. This Agreement shall be administered in a manner consistent with this intent. Reference to Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations, or any other formal guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. The Company shall not reimburse Employee for the amount of any tax liability incurred by Employee under Section 409A. Employee acknowledges that he has had a reasonable opportunity to consult with independent legal, tax or other counsel in connection with Section 409A. To the extent that any amounts payable under this Agreement constitute a deferral of compensation subject to Section 409A and if, at the date of his Separation from Service, Employee is a specified employee, within the meaning of Section 409A, of the Company as determined by the Company from time to time, then each such payment that would otherwise be payable to Employee within the six (6) month period following Employees Separation from Service shall be deferred until the earlier of (i) the first day of the seventh month following Employees Separation from Service with the Company, or (ii) Employees death. Any payments or benefits delayed as a result of the preceding sentence shall be accumulated and paid in a lump sum, without interest, as soon as practicable after the first day of the seventh month following Employees Separation from Service or Employees earlier death.
19. Tax Reporting and Withholding . The Company (and any agent of the Company) shall be authorized to report income and to withhold from any payment due the amount of withholding taxes due and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. Neither the Company nor any delegatee shall be held responsible for any taxes, penalties, interest, or other monetary amounts owed by Employee or any other person as a result of amounts subject to this Agreement.
20. [Reserved].
21. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the last date stated below.
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SKINTELLIGENCE, INC. |
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Dated: |
August 4, 2011 |
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/s/ Thomas Wiggans |
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Name: |
Thomas Wiggans |
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Title: |
President and Chief Executive Officer |
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Dated: |
August 4, 2011 |
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/s/ Thomas Wiggans |
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THOMAS WIGGANS |
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT ]
EXHIBIT A
OTHER CURRENT PROFESSIONAL ACTIVITIES
Onyx Pharmaceuticals |
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Emeryville, CA |
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Member of Board of Directors |
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Sangamo Pharmaceuticals |
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Member of Board of Directors |
Richmond, CA |
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Somaxon Pharmaceuticals |
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Member of Board of Directors |
San Diego, CA |
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Victory Pharmaceuticals |
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Member of Board of Directors |
San Diego, CA |
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Institute for Advancing Medical Innovation |
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Member of Advisory Board |
(Research Partnership between the Kauffman |
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Foundation and The University of Kansas Medical Center) |
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Kansas City, Kansas |
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Biotechnology Institute |
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Chairman and Member of Board |
(Not for profit Institute dedicated |
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to advancing K-12 life science education) |
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Washington, DC |
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University of Kansas Endowment |
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Member of Board of Trustees |
Lawrence, Kansas |
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Excaliard Pharmaceuticals |
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Chairman of Board of Directors |
San Diego, CA |
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Lithera |
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Member of Board of Directors |
San Diego, CA |
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Exhibit 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this Agreement ) is entered into as of the date executed below by and between Eugene Bauer ( Employee ), and Skintelligence, Inc., a Delaware corporation (the Company ).
WHEREAS, on August 18, 2010, Employee and the Company (collectively, the parties and individually, a party ) entered into an Employment Agreement (the Prior Agreement ) (i) to establish the terms and conditions of Employees employment with the Company, (ii) to safeguard the Companys proprietary and confidential information and (iii) to protect the Companys investment in its employees, customer relationships and other legitimate business interests.
WHEREAS, pursuant to Section 4(c)(v) of the Prior Agreement, upon completion by the Company of its first acquisition of a business in the field of developing or marketing products for dermatological applications, Employee and the Company would discuss in good faith certain amendments to the Prior Agreement.
WHEREAS, the Company will complete the acquisition of Valocor Therapeutics, Inc. concurrently with the execution of this Agreement.
WHEREAS, in accordance with Section 4(c)(v) of the Prior Agreement, Employee and the Company desire to amend and restate the Prior Agreement in order to amend certain terms therein.
NOW, THEREFORE, in consideration for the promises, mutual covenants and terms of this Agreement, Employee and the Company agree as follows:
1. Employment . Subject to Employees compliance with U.S. immigration and right to work rules, the Company agrees to employ Employee, and Employee agrees to be employed as Chief Medical Officer of the Company, commencing November 1, 2010 ( Start Date ), on the terms and subject to the conditions set forth in this Agreement.
2. Duties and Responsibilities . Employee shall perform such duties as are reasonably assigned to him by the Companys Board of Directors (the Board ), consistent with his position as Chief Medical Officer of the Company. Employee shall conduct his duties and responsibilities in a professional manner and shall comply with the policies of the Company. Employee shall conduct himself at all times faithfully, loyally, and to the best of his abilities, and according to the best interests of the Company. Employee shall devote fifty percent of his business time, attention and effort to the affairs of the Company and shall not engage in any other business activity focused on the development or marketing of products for dermatological applications without the prior written consent of the Board; provided , however , that the foregoing is not intended to restrict Employees ability to engage in charitable, educational, civic or community activities, or participation as a non-employee member of the boards of directors of other companies, in each case as are not materially engaged in the development or marketing of products for dermatological applications, to the extent that such activities do not materially interfere with his duties hereunder. The Company further agrees that the activities set forth in Exhibit A shall not be deemed to be prohibited by this Section 2.
3. Employment at Will . Employees employment with the Company is at will, meaning that either the Company or Employee may terminate the employment at any time, with or without Cause, by providing written notice to the other pursuant to Section 9 of this Agreement, subject to the payment by the Company to Employee of any compensation required pursuant to Section 8 of this Agreement.
4. Compensation . As compensation for the services rendered by Employee to the Company, the Company shall provide compensation to Employee as follows:
(a) Salary . Commencing on the date of this Agreement, the Company shall pay Employee a base salary of $162,500 per annum ( Salary ), The Company may adjust Employees Salary thereafter on an annual basis and in the sole discretion of the Board. Employees Salary will be payable on the Companys regular payroll schedule, not less frequently than monthly. The Company shall deduct from the Salary paid to Employee required federal, state and local withholding taxes, as well as any other deductions required by applicable law or authorized by Employee in writing.
(b) [Reserved] .
(c) Benefits .
(i) Employee shall be entitled to participate in any of the Companys employee benefit plans or programs that become available to similarly situated employees of the Company; provided , that , Employee meets all eligibility requirements under those plans or programs. Unless otherwise provided herein, Employees participation in the employee benefit plans or programs shall be subject to the terms and conditions of said plans or programs including, without limitation, the Companys right to amend, revise, terminate or replace the plans or programs at any time and without notice to participants. Any reduction, alteration or enhancement of the benefit plans and programs shall not be deemed to be a breach of this Agreement by the Company. The parties acknowledge that any programs for the benefit of eligible employees and the nature and design of such employee benefit plans, executive compensation programs and/or incentive arrangements shall be at the sole discretion of the Board. The parties expressly agree that the Companys decision whether or not to adopt any benefit plans, programs or arrangements, or which plans, programs or arrangements, shall not constitute a breach of this Agreement.
(ii) The Company will pay to Employee an amount not to exceed (A) $2,000 per month less (B) the aggregate amounts received by Employee from Medicare and any other amounts paid to Employee for medical coverage, including, without limitation, from Stanford University, as reimbursement for premiums paid, for the premiums paid by Employee to maintain an individual medical insurance policy for himself and his eligible dependents, plus any additional tax costs incurred by Employee resulting from such payment and the payment of such tax costs (collectively, Medical Premium Reimbursement ), provided Employee adequately substantiates, as determined by the Company, the amount and payment of such premiums, plus any additional tax costs incurred by Employee resulting from such payment and the payment of such tax costs. Such Medical Premium Reimbursement will be paid to Employee within thirty (30) days of Employees submission of proper substantiation of eligible premiums.
Employee agrees to submit such substantiation by the last day of the month following the month in which the applicable premium was paid.
(iii) The parties agree that, consistent with the provisions of Section 409A of the Internal Revenue Code ( Section 409A ), the following rules shall also apply to Medical Premium Reimbursement provided to Employee in accordance with Section 4(c)(ii): (A) in no event shall the Medical Premium Reimbursement be paid to Employee or on his behalf later than the last day of the calendar year following the calendar year in which the expense was incurred; (B) the amount of Medical Premium Reimbursement for which Employee is eligible during a calendar year will not affect the amount of Medical Premium Reimbursements for which Employee is eligible in any other calendar year; and (C) Employees right to Medical Premium Reimbursement is not subject to liquidation or exchange for another benefit.
(iv) As of the Start Date, and until the Company adopts a vacation or paid time off policy, Employee shall accrue four weeks of paid vacation per calendar year, prorated for any partial year of employment, and any unused accrued vacation will be carried over from year to year. When the Company adopts a vacation or paid time off policy, Employee will be entitled to paid vacation on the same terms and to the same extent as similarly situated employees of the Company.
(v) [Reserved].
(d) Bonus . The Employee shall be eligible for an annual performance bonus equal to 25% of Employees then-annual Salary, subject to the Employees achievement of specified performance targets determined by the Board after consultation with the Employee (the Bonus ). Any Bonus for the fiscal year in which employment begins will be prorated, based on the number of days the Employee is employed by the Company. Any bonus for a fiscal year will be paid within 2½ months after the close of that fiscal year, but only if the Employee is still employed by the Company at the time of payment. The determinations of the Board with respect to any bonus will be final and binding.
5. Reimbursement of Expenses . The Company shall reimburse Employee, in accordance with the Companys policies and procedures, for all proper and reasonable expenses approved in advance by company Management, properly substantiated, and incurred by Employee in the performance of his duties. Such expenses will be reimbursed to Employee within thirty (30) days of Employees submission of proper substantiation of eligible expenses. Employee agrees to submit such substantiation by the last day of the month following the month in which the expense was incurred. The parties agree that, consistent with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended, the following rules shall also apply to reimbursement of expenses: (a) in no event shall reimbursements for expenses be paid to Employee or on his behalf later than the last day of the calendar year following the calendar year in which the expense was incurred; (b) the amount of expenses eligible for reimbursement during a calendar year will not affect the expenses eligible for reimbursement in any other calendar year; and (c) Employees right to reimbursement for such expenses is not subject to liquidation or exchange for another benefit.
6. Confidentiality, Non-Solicitation, Intellectual Property Protections . As a condition of this Agreement, Employee is required to comply with the Employee Intellectual Property Protection Agreement (the IP Agreement ) that Employee executed concurrently with the Prior Agreement. Employee agrees that the Company may disclose this Agreement, and/or the IP Agreement, to any person or entity who, at any time during or after the Employment Period, employs or who the Company reasonably believes is considering employing Employee.
7. Termination . Employees employment with the Company may be terminated as set forth below. In the event of termination, all obligations of the Company hereunder, and all rights of Employee to compensation and benefits under this Agreement, shall cease, except as provided in paragraph 8 hereof.
(a) Written Notice . Employees employment shall terminate on the effective date of written notice provided by either party to the other pursuant to Section 9 of this Agreement.
(b) Death . Employees employment under this Agreement shall automatically terminate upon the death of Employee.
(c) Disability . To the extent allowable by law, the Company may, at its option, terminate Employees employment under this Agreement upon written notice to Employee if Employee, because of physical or mental incapacity or disability, is unable to perform the essential functions of his position (if appropriate, with reasonable accommodation) for a continuous period of ninety (90) days, or for an aggregate period of 120 days in any consecutive 12-month period. In the event of any dispute regarding the existence of Employees incapacity hereunder, the matter shall be resolved by the determination of a physician to be mutually selected and agreed upon by the Company and Employee. In the event Employee fails, within ten (10) days of being requested to do so, to accept or reject the physician suggested by the Company, then the physician suggested by the Company shall be deemed agreed upon by the parties. Employee agrees that he will submit to appropriate medical examinations for purposes of such determination.
(d) Dissolution of the Company . Employees employment shall automatically terminate on the date specified by the Board in conjunction with the Boards decision that the Company shall be dissolved.
8. Compensation and Vesting Acceleration Upon Termination .
(a) Upon termination of Employees employment for any reason, Employee shall be entitled to receive (i) payment of all Salary due through the date of termination, (ii) applicable employee benefits to which Employee is entitled through the date of termination, in accordance with the terms of the plans or programs of the Company then in effect, (iii) payment for accrued, unused vacation, if any, through the date of termination, (iv) any unreimbursed business expenses for which Employee submitted proper substantiation, and (v) any acceleration of vesting of stock, and options to purchase stock, as may be set forth in any agreement under
which Employee may purchase stock, or be granted an option to purchase stock, and Employee shall not be entitled to any further compensation or benefits or payments of any kind.
(b) In addition, if the Company terminates Employees employment at any time without Cause (as defined below), then it shall provide Employee severance in the amount of six (6) months Salary at the rate in effect at the time of Employees termination, to be paid out in a lump sum or on a monthly basis for six (6) months at the Employees option (the Severance Payment ). Similarly, if Employee resigns his employment for Good Reason, then Employee shall receive the Severance Payment on the terms set forth in this Section 8(b). Employee accepts the Severance Payment in full satisfaction of all rights and entitlements to notice of termination or compensation in lieu under statute or contract law. However, the Company shall not be required to pay any part of the Severance Payment unless Employee (i) has returned all Company property in Employees possession, and (ii) has executed a general release of all claims that Employee may have against the Company or persons affiliated with the Company. The release must be in the form reasonably prescribed by the Company, without alterations. Employee must execute and return the release on or before the date specified by the Company in the prescribed form.
(c) In addition, (i) all shares of the Companys common stock subject to outstanding equity awards granted after the date of this Agreement, including, without limitation, stock options, restricted stock units, stock appreciation rights and restricted stock, granted to or held by Employee shall immediately become fully vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be fully vested, in each case, immediately prior to the occurrence of a Termination Upon Change in Control (as defined below) and (ii) with respect to any outstanding equity award granted after the date of this Agreement that is not then at least 25% vested, that number of shares of the Companys common stock subject to such outstanding equity award(s), including, without limitation, stock options, restricted stock units, stock appreciation rights and restricted stock, granted to or held by Employee shall immediately become vested and exercisable such that, after such acceleration the total number of shares of the Companys common stock subject to such outstanding equity award(s) shall be 25% vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be vested, in each case, upon Employees Disability (as defined below) or death. In the event of a Change of Control whereby the successor or acquiring entity (if any) or any Parent (as defined in the 2010 Plan) (if any) of such successor or acquiring entity does not assume, convert, replace or substitute Employees outstanding equity awards as provided in Section 11.1 of the 2010 Plan, or any comparable term of any similar equity incentive plan, in a manner than preserves the material terms and conditions of such equity awards, then, notwithstanding Section 11.2 of the 2010 Plan, or any comparable term of any similar equity incentive plan, all of Employees outstanding equity awards shall, at least 10 days prior to the effective date of such Change of Control, immediately become fully vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be fully vested.
(d) For purposes this Agreement, the 2010 Plan shall mean the Companys 2010 Equity Incentive Plan, as amended from time to time.
(e) For purposes of this Agreement, Cause shall mean the reasonable determination by a majority of the members of the Board of Directors (other than Employee) that one or more of the following conditions exist:
(i) Employee has been convicted of or pled guilty or no contest to any felony;
(ii) Employee has committed one or more acts of fraud, theft, embezzlement or misappropriation against the Company;
(iii) Employee falsified Company records; willfully destroyed Company property; or, while an employee of the Company, engaged in conduct that constitutes harassment or discrimination prohibited by law;
(iv) Employee refused to perform his duties as reasonably directed by the Board, if such refusal is not corrected within ten business days after written notice is given to Employee by the Company; or
(v) Employee has materially breached Employees obligations under this Agreement or the IP Agreement, which breach was not remedied, if remediable, within thirty (30) days after delivery to Employee by the Company of a written notice specifically identifying the breach that the Company believes has occurred.
(f) For purposes of this Agreement, Change in Control shall mean (i) a sale of substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation in which stockholders immediately before the merger or consolidation have, immediately after the merger or consolidation, a majority of the then-outstanding voting power); (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Companys common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (other than a reverse merger in which shareholders immediately before the merger have, immediately after the merger, a majority of the then-outstanding voting power); or (iv) any transaction or series of related transactions in which in excess of 50% of the Companys voting power is transferred.
(g) For purposes of this Agreement, Disability shall mean a physical or mental incapacity or disability as a result of which Employee becomes unable to perform the essential functions of Employees job at the Company (if appropriate, with reasonable accommodation) for a continuous period of ninety days or for an aggregate period of 120 days in any consecutive 12-month period.
(h) For purposes of this Agreement, Good Reason shall mean:
(i) a material reduction in Employees total target annual compensation as an employee of the Company or a reduction in Employees base salary as an employee of the Company, except (in either case) to the extent that the Company implements an equal percentage reduction applicable to all executive officers and management personnel, or (in either case) reductions which are made with the consent of Employee;
(ii) a material, substantial reduction in Employees duties, responsibilities or authority pursuant to this Agreement without Employees prior written consent;
(iii) removing Employee from the position designated for Employee in this Agreement without Employees prior written consent; or
(iv) a change in the geographic location at which Employee must perform services which results in an increase in Employees one-way commute by more than 50 miles.
(i) For purposes of this Agreement, Termination Upon Change of Control shall mean:
(i) any termination of the employment of Employee by the Company without Cause within twelve (12) months following a Change of Control; or
(ii) any resignation by Employee of employment with the Company for Good Reason where (A) such Good Reason occurs within twelve (12) months following the Change of Control and (B) such resignation occurs within ninety (90) days following such Good Reason.
9. Notices . Any notice, demand or communication required or permitted to be given by this Agreement or applicable law shall be made in writing and sent by either first class mail, overnight courier, hand delivery or facsimile; unless waived by the recipient, if such notice is made by facsimile, such facsimile shall be followed within 24 hours by notice in writing sent by first class mail, overnight courier or hand delivery. Charges for any notice shall be prepaid. Notices shall be addressed as follows, or to such other address as such person to whom it is to be addressed may specify by notice to the other party: in the case of Employee, to his place of residence as currently shown on the records of the Company, or in the case of the Company, to 2055 Woodside Road, Suite 290, Redwood City, CA 94061, facsimile: (650) 365-3410, Attention: Thomas Wiggans. Any notice shall be deemed to be delivered, given and received for all purposes as of the date such notice was actually delivered to the recipient or, if sent by first-class mail, five days after the date on which the same was deposited in a receptacle regularly maintained by the United States Postal Service for the deposit of mail, whichever occurs first.
10. Successors and Assigns . This Agreement is personal to Employee and shall not be assignable by Employee. The continuing obligations of Employee under this Agreement shall continue after the termination of his employment regardless of the reason for the cessation of his employment with the Company and shall be binding on Employees heirs, executors, and legal representatives. Such obligations shall inure to the benefit of any successors or assigns of the Company. Employee specifically acknowledges that in the event of a sale of all or substantially all of the assets of the Company, or any other event or transaction resulting in a change of ownership or control of all or a portion of the Companys business, the rights and obligations of the parties hereunder shall inure to the benefit of any transferee, purchaser or future owner. This Agreement may be assigned only by the Company.
11. Amendment; Waiver . No change or modification of this Agreement shall be valid or binding unless in writing and signed by both parties. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against whom the waiver is sought to be enforced. A valid waiver of any provision of this Agreement shall be limited to the instance specified in writing and, unless otherwise expressly stated, shall not be effective as a continuing waiver or repeal of such provision.
12. Governing Law . The validity, performance, construction and effect of this Agreement shall be governed by the substantive laws of the State of California, without regard to the provisions for choice of law thereunder.
13. Severability . If any provision of this Agreement is deemed invalid or unenforceable, the validity of the other provisions of this Agreement shall not be impaired. If any provision of this Agreement shall be deemed invalid as to its scope, then, notwithstanding such invalidity, such provision shall be valid to the fullest extent permitted by law, and the parties agree that, if any court or arbitrator makes such a determination, such court or arbitrator shall have the power to modify the duration, scope and/or area of such provision and/or to delete specific words and phrases by blue penciling and, in its reduced or blue penciled form, to enforce such provision to the fullest extent permitted by law.
14. Entire Agreement . With respect to the terms addressed in this Agreement, this Agreement (including Exhibits) contains the entire agreement and understanding by and between the Company and Employee. Pursuant to Section 11 of the Prior Agreement, Employee and the Company hereby amend and restate the Prior Agreement to read in its entirety as set forth in this Agreement, such that the Prior Agreement is hereby terminated and entirely replaced and superseded by this Agreement. This Agreement supersedes all prior undertakings and agreements, written or oral, as may have existed prior to the date of execution of the Agreement with regard to the terms addressed in this Agreement, including the Prior Agreement. By the execution of this Agreement, Employee acknowledges that any such superseded understandings and agreements are terminated, and Employee disclaims any and all rights or interest that may have existed with respect thereto. Further, any representations, promises, agreements or understandings, written or oral, with regard to the terms addressed in this Agreement that are not contained in this Agreement shall be of no force or effect.
15. Employee Claims . The existence of any claim or cause of action by Employee against the Company shall not constitute a defense to the enforcement by the Company of Employees covenants, obligations, or undertakings in this Agreement.
16. Construction and Interpretation . Employee and the Company agree that this Agreement shall be construed as drafted by both of them, as parties of equivalent bargaining power, and not for or against either of them as drafter.
17. No Conflicting Obligations . The Company is aware of that certain letter agreement, dated as of May 25, 2010, by and between Peplin Inc. and Eugene Bauer (the Peplin Agreement ). Employees agree that he will not, in the performance of his duties with the Company, breach his obligations under the Peplin Agreement. For the avoidance of doubt, breach as used in the prior sentence shall mean that a court of competent jurisdiction shall have
determined in a final judgment that Employee has breached his non-competition and non-solicitation obligations under the Peplin Agreement as a result of the performance of his duties with the Company. Apart from the Peplin Agreement, Employee hereby expressly and specifically warrants and represents that his execution of this amended and restated Agreement and performance of employment-related obligations and duties for the Company will not cause any breach, default, or violation of any other employment, non-disclosure, confidentiality, non-competition, or other agreement to which he may be a party or otherwise bound. Employee will not use in the performance of employment-related obligations and duties for the Company or otherwise disclose to the Company any trade secrets or confidential information of any person or entity (including any former employer) if and to the extent that such use or disclosure may cause a breach or violation of any obligation or duty owed to such employer, person, or entity under any agreement or applicable law. Employee also expressly and specifically warrants and represents that he is not a party to any agreement which contains restrictions on his ability to compete with any prior employer or any competitor of the Company or to identify, contact, or solicit clients in the pharma industry, except for the Peplin Agreement. Employee further represents, warrants, and agrees that he will not enter into any agreement or other obligation while this Agreement is in effect or during any period during which he has continuing obligations under this Agreement that would reasonably be expected to conflict with the operation of this Agreement or his obligations hereunder, except such agreements and obligations expressly disclosed to the Company in writing and permitted in writing by the Company.
18. Compliance with Section 409A . Each payment or reimbursement and the provision of each benefit under this Agreement shall be considered to be a separate payment and not one of a series of payments for purposes of Section 409A. To the extent applicable, it is intended that this Agreement comply with the provisions of Section 409A so that the income inclusion provisions of Section 409A(a)(1) do not apply to Employee. This Agreement shall be administered in a manner consistent with this intent. Reference to Section 409A is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations, or any other formal guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. The Company shall not reimburse Employee for the amount of any tax liability incurred by Employee under Section 409A. Employee acknowledges that he has had a reasonable opportunity to consult with independent legal, tax or other counsel in connection with Section 409A. To the extent that any amounts payable under this Agreement constitute a deferral of compensation subject to Section 409A and if, at the date of his Separation from Service, Employee is a specified employee, within the meaning of Section 409A, of the Company as determined by the Company from time to time, then each such payment that would otherwise be payable to Employee within the six (6) month period following Employees Separation from Service shall be deferred until the earlier of (a) the first day of the seventh month following Employees Separation from Service with the Company, or (b) Employees death. Any payments or benefits delayed as a result of the preceding sentence shall be accumulated and paid in a lump sum, without interest, as soon as practicable after the first day of the seventh month following Employees Separation from Service or Employees earlier death.
19. Tax Reporting and Withholding . The Company (and any agent of the Company) shall be authorized to report income and to withhold from any payment due the amount of
withholding taxes due and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. Neither the Company nor any delegatee shall be held responsible for any taxes, penalties, interest, or other monetary amounts owed by Employee or any other person as a result of amounts subject to this Agreement.
20. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF , the parties have executed this EMPLOYMENT AGREEMENT as of the last date stated below.
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SKINTELLIGENCE, INC. |
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Dated: |
August 4, 2011 |
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By: |
/s/ Thomas Wiggans |
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Name: |
Thomas Wiggans |
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Title: |
President and Chief Executive Officer |
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Dated: |
August 4, 2011 |
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/s/ Eugene Bauer |
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EUGENE BAUER |
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
EXHIBIT A
OTHER CURRENT PROFESSIONAL ACTIVITIES
Medgenics, Inc. |
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Member of Board of Directors |
San Francisco, CA and Israel |
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Dr. Tattoff |
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Member of Board of Directors |
Beverly Hills, CA |
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WaferGen, Inc. |
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Scientific Advisory Board |
Fremont, CA |
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LEO Pharma A/S |
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Consultant |
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Vyteris, Inc. |
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Member of Board of Directors |
Fair Lawn, NJ |
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Kadmon Holdings |
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Member of Board of Directors |
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Cerecor Inc. |
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Member of Board of Directors |
Baltimore, MD |
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First Wave Technologies, Inc. |
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Member of Board of Directors |
Buffalo, NY |
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Exhibit 10.7
July 17, 2012
Luis Pena
Dear Luis,
This offer letter further amends and restates the offer letter by and between you and Dermira, Inc. (f/k/a Skintelligence, Inc.), a Delaware corporation (the Company ), dated June 1, 2011, as amended and restated on August 3, 2011 (your Prior Offer Letter ).
It is my pleasure to offer you the position of Vice-President of Product Development for the Company. We have very exciting plans to build a premier dermatology company, and we are very excited to have you as part of the team.
The terms of your offer are as follows:
· Title : Vice-President, Product Development
· Start Date : June 1, 2011
· Responsibilities : You will be a key team member in the development and execution of the companys corporate development strategy and activities. You will be responsible for managing the Companys product development strategy and activities by identifying and assessing opportunities and alternatives, and establishing and managing efficient and well-executed product development programs.
· Annual Salary : $260,000
· Stock Option Grant : Subject to the approval of the Companys board of directors, you will be granted an option to purchase 550,000 shares of the Companys common stock at a price equal to the fair market value as established by an independent assessment within 60 days of the closing of the Series A financing.
· Bonus : You will be eligible to participate in the Companys bonus incentive plan, with a target bonus of 30% (pro-rated in any years which you are employed for less than 12 months), which will be authorized by the Companys board of directors in its sole assessment of the companys performance against its goals. Any bonus for a fiscal year will be paid within 2 1 / 2 months after the close of that fiscal year, but only if you are still employed by the Company at the time of payment. The determinations of the Board with respect to any bonus will be final and binding.
· Benefits : You shall be entitled to participate in any of the Companys employee benefit plans or programs that become available to similarly situated employees of the Company.
· Health Insurance : You will be entitled to participate in the companys health insurance programs.
· Severance : If your employment with the Company is terminated for any reason other than for Cause, the Company will pay you your then current monthly salary for a period of six (6) months following your employment termination date as severance (the Severance Payment ). Similarly, if you resign your employment for Good Reason, then you shall receive the Severance Payment on the terms set forth in this paragraph. You accept the Severance Payment in full satisfaction of all rights and entitlements to notice of termination or compensation in lieu under statute or contract law. However, the Company shall not be required to pay any part of the Severance Payment unless you (i) have returned all Company property in your possession, and (ii) have executed a general release of all claims that you may have against the Company or persons affiliated with the Company. The release must be in the form reasonably prescribed by the Company, without alterations. You must execute and return the release on or before the date specified by the Company in the prescribed form.
In addition, (i) all shares of the Companys common stock subject to outstanding equity awards, including, without limitation, stock options, restricted stock units, stock appreciation rights and restricted stock, granted to or held by you shall immediately become fully vested and exercisable, and any such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be fully vested, in each case, immediately prior to the occurrence of a Termination Upon Change in Control (as defined below) and (ii) upon your Disability (as defined below) or death, with respect to any outstanding equity award that is not then at least 25% vested, that number of shares of the Companys common stock subject to such outstanding equity award(s), including, without limitation, stock options, restricted stock units, stock appreciation rights and restricted stock, granted to or held by you shall immediately become vested and exercisable such that, after such acceleration the total number of shares of the Companys common stock subject to such outstanding equity award(s) shall be 25% vested and exercisable, and 25% of such outstanding equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall become vested. In the event of a Change of Control whereby the successor or acquiring entity (if any) or any Parent (as defined in the 2010 Plan) (if any) of such successor or acquiring entity does not assume, convert, replace or substitute your outstanding equity awards as provided in Section 11.1 of the 2010 Plan, or any comparable term of any similar equity incentive plan, in a manner than preserves the material terms and conditions of such equity awards, then, notwithstanding Section 11.2 of the 2010 Plan, or any comparable term of any similar equity incentive plan, all of your outstanding equity awards shall, at least 10 days prior to the effective date of such Change of Control, immediately become fully vested and exercisable, and any such outstanding
equity awards that are subject to a right of repurchase, right of forfeiture, or similar right, shall be released from such right and shall be fully vested.
2010 Plan shall mean the Companys 2010 Equity Incentive Plan, as amended from time to time.
Cause shall mean the determination by the Companys Board of Directors that:
(a) you have been convicted of or pled guilty or no contest to any felony;
(b) you have committed one or more acts of fraud, theft, embezzlement or misappropriation against the Company;
(c) you have falsified Company records; willfully destroyed Company property; or, while an employee of the Company, engaged in conduct that constitutes harassment or discrimination prohibited by law;
(d) you refused to perform your duties as reasonably directed by the Chief Executive Officer or Board of Directors; or
(e) you materially breached your obligations under this agreement, the EIPPA (as defined below), or any other agreement between you and the Company.
Change in Control shall mean (a) a sale of substantially all of the assets of the Company; (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation in which stockholders immediately before the merger or consolidation have, immediately after the merger or consolidation, a majority of the then-outstanding voting power); (c) a reverse merger in which the Company is the surviving corporation but the shares of the Companys common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (other than a reverse merger in which shareholders immediately before the merger have, immediately after the merger, a majority of the then-outstanding voting power); or (d) any transaction or series of related transactions in which in excess of 50% of the Companys voting power is transferred.
Disability shall mean a physical or mental incapacity or disability as a result of which you become unable to perform the essential functions of your job at the Company (if appropriate, with reasonable accommodation) for a continuous period of ninety days or for an aggregate period of 120 days in any consecutive 12-month period,
Good Reason shall mean:
(a) a material reduction in your total target annual compensation as an employee of the Company or a reduction in your base salary as an employee of the Company, except (in either case) to the extent that the Company implements an equal percentage reduction applicable to all executive officers and management personnel, or (in either case) reductions which are made with your consent;
(b) a material, substantial reduction in your duties, responsibilities or authority at the Company without your prior written consent;
(c) removing you from the position designated for you in this offer letter without your prior written consent; or
(d) a change in the geographic location at which you must perform services which results in an increase in Employees one-way commute by more than 50 miles.
Termination Upon Change of Control shall mean:
(a) any termination of your employment by the Company without Cause within twelve (12) months following a Change of Control; or
(b) any resignation of your employment with the Company for Good Reason where (i) such Good Reason occurs within twelve (12) months following the Change of Control and (ii) such resignation occurs within ninety (90) days following such Good Reason.
· Dilution of Shares : The Company shall, within 90 days after the Second Tranche Closing (as defined in that certain Series A Preferred Stock Purchase Agreement, dated as of August 3, 2011, by and among the Company and certain stockholders), grant you an option provided that you are, on the date of grant, then providing services to the Company as an employee, to purchase the number of shares of Common Stock so that the total number of shares issued to or held by, and issuable under options granted to held by, by you represents 1.4% of the Fully Diluted Capitalization of the Company (giving effect to the exercise of all outstanding options and warrants and the conversion of all outstanding convertible securities), at such exercise price as shall be determined by the Companys Board of Directors in good faith to be the fair market value of the common stock on the date of such grant, and on other terms as approved by the Companys Board of Directors including without limitation that such option shall commence vesting no earlier than the date of such grant. Such stock option will be subject to the terms and conditions applicable to options granted generally under the Companys 2010 Equity Incentive Plan. Fully Diluted Capitalization shall mean the sum of (a) the outstanding capital stock of the Company and outstanding options to purchase shares of the Companys common stock and warrants and other convertible securities and instruments (assuming the conversion or exercise of any convertible or exercisable options, warrants, securities or other instruments then outstanding, whether or not currently convertible or exercisable) and (b) the number of shares that are reserved under any compensatory stock plan or other arrangement adopted by the Company and that are not yet issued or subject to an outstanding option, each determined as of the date of this offer letter; provided, that, that for purposes of the calculation of the number of shares issuable, the Fully Diluted Capitalization shall include any shares of the Companys Series A Preferred Stock issued in any Second Tranche Closing.
The Company reserves the right to change or otherwise modify, in its sole discretion, any of the preceding terms of employment, including those relating to salary, bonus plan, if applicable, and benefíts at any time. The foregoing sentence does not change the at-will nature of your employment and the Company may terminate you at any time.
As a condition of your employment, you are required to continue to abide by the terms of the Employee Intellectual Property Protection Agreement that you executed upon commencing employment (the EIPPA ).
The Company reserves the right to change or otherwise modify, in its sole discretion, any of the preceding terms of employment, including those relating to salary, bonus incentive plan, and benefits at any time; provided, however, that so long as you are providing services to the Company in accordance with the terms of your employment, the Company may not reduce your annual salary, benefits or the Health Insurance terms set forth above for a period of one year following your start date; provided, further, that the Company may not change or otherwise modify the paragraph regarding severance without your written consent. The foregoing sentence does not change the at-will nature of your employment and the Company may terminate you at any time, subject to the paragraph above titled Severance.
While we look forward to a long and profitable relationship, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either party for any reason, at any time, with or without prior notice and with or without cause, subject to the paragraph above titled Severance. Any statements or representations to the contrary (and any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock, option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at-will employment status may only occur by way of a written employment agreement signed by you and the Chief Executive Officer of the Company.
Please note that because of employer regulations adopted in the Immigration Reform and Control Act of 1986, within three (3) business days of starting your new position you will need to present documentation demonstrating that you have authorization to work in the United States.
With respect to the terms addressed in this offer letter, this offer letter contains the entire agreement and understanding by and between you and the Company. You and the Company hereby amend and restate your Prior Offer Letter to read in its entirety as set forth in this offer letter, such that the Prior Offer Letter is hereby terminated and entirely replaced and superseded by this offer letter. This offer letter supersedes all prior undertakings and agreements, written or oral, as may have existed prior to the date of execution of this offer letter with regard to the terms addressed in this offer letter, including the Prior Offer Letter. By executing this offer letter, you acknowledge that any such superseded understandings and agreements are terminated, and you disclaim any and all rights or interest that may have existed with respect thereto. Further, any
representations, promises, agreements or understandings, written or oral, with regard to the terms addressed in this offer letter that are not contained in this offer letter shall be of no force or effect.
[Remainder of Page Intentionally Left Blank]
Please let me know if you have additional questions. I Iook forward to finalizing this agreement.
Sincerely, |
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/s/ Tom Wiggans |
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Tom Wiggans |
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Accepted and agreed, this 17 day of July, 2012: |
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/s/ Luis Pena |
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Luis Pena |
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Exhibit 10.8
BASIC LEASE INFORMATION
2055-2075 Woodside Road
The following is a summary of lease information that is referred to in the Lease. To the extent there is any conflict between the provisions of this summary and any more specific provision of the Lease, such more specific provision shall control.
LEASE EFFECTIVE DATE: |
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September 12, 2011 |
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LANDLORD: |
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WOODSIDE ROAD HOLDINGS, LLC, |
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a California limited liability company |
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ADDRESS OF LANDLORD: |
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c/o Nearon Enterprises |
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500 La Gonda Way |
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Suite 210 |
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Danville, CA 94526 |
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With a copy to: |
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Orchard Commercial, Inc. |
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2055 Laurelwood Road, Suite 130 |
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Santa Clara, CA 95054 |
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TENANT: |
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SKINTELLIGENCE, INC., |
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a Delaware corporation |
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ADDRESS OF TENANT: |
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AT THE PREMISES |
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PREMISES: |
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Rentable |
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Suite |
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Square Footage |
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270 |
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2,851 r.s.f. |
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BUILDING: |
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2055-2075 Woodside Road |
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Redwood City, CA 94061 |
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[Square Footage of Building: 28,500 r.s.f.] |
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LEASE TERM: |
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Three (3) years |
2055-2075 WOODSIDE ROAD
SKINTELLIGENCE, INC.
SCHEDULED COMMENCEMENT DATE: |
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The date that is ninety (90) days after the Lease Effective Date. |
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EXPIRATION DATE: |
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The calendar day preceding the third (3 rd ) anniversary of the Commencement Date; provided, however, that if the Commencement Date shall occur on a date other than the first day of a calendar month, the Expiration Date shall be the last day of the calendar month in which the third (3 rd ) anniversary of the Commencement Date occurs. |
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RENT: |
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(i) For the period commencing on the Commencement Date through the day immediately preceding the first anniversary of the Commencement Date (the 1-Year Anniversary); |
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$9,693.40 (per month);
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(ii) For the period commencing on the 1-Year Anniversary through the day immediately preceding the second annual anniversary of the Commencement Date (the 2-Year Anniversary); |
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$9,978.50 (per month);
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(iii) For the period commencing on the 2-Year Anniversary through the Expiration Date. |
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$10,263.60 (per month);
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BASE YEAR: |
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2011 |
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PERMITTED USE: |
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General office use, sales, manufacturing, R&D, storage of materials, and shipping and receiving, to the extent permitted by the City of Redwood City and in accordance with the Project Rules (as defined in Paragraph 8 below). |
TENANTS PERCENTAGE SHARE: |
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Ten percent (10%) |
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SECURITY DEPOSIT: |
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$30,790.80, subject to Paragraph 25 below. |
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UNRESERVED PARKING SPACES: |
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Tenant shall have access to nine (9) unreserved parking spaces on an as-is available basis |
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LANDLORDS BROKER: |
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Cornish & Carey Commercial Newmark Knight Frank |
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TENANTS BROKER: |
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Cornish & Carey Commercial Newmark Knight Frank |
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ATTACHMENTS: |
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Exhibit A |
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Floor Plan |
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Exhibit B |
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Operating Expenses and Taxes |
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Exhibit C |
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Rules And Regulations |
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Exhibit D |
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Tenant Improvements |
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Exhibit E |
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Commencement Memorandum |
TABLE OF CONTENTS
LEASE
1. LEASE EFFECTIVE DATE AND PARTIES.
This Lease (this Lease ) is dated, for reference purposes only, as of the Lease Effective Date provided in the Basic Lease Information. PRIOR TO THE DATE THIS LEASE IS EXECUTED BY LANDLORD AND TENANT, THE TERMS OF THIS LEASE SHALL NOT BE BINDING ON EITHER PARTY. UNTIL SIGNED BY LANDLORD, LANDLORD SHALL HAVE NO OBLIGATION OF ANY KIND HEREUNDER TO ANY OF THE PARTIES INVOLVED IN MAKING THIS OFFER TO LEASE THE PREMISES.
This Lease is made and entered into as of the Lease Effective Date by and between WOODSIDE ROAD HOLDINGS, LLC , a California limited liability company ( Landlord ), and SKINTELLIGENCE, INC., a Delaware corporation ( Tenant ).
2. PREMISES, COMMON AREA AND PARKING.
(a) Landlord does hereby lease to Tenant, and Tenant does hereby lease from Landlord, for the term and subject to the covenants and conditions hereinafter set forth, to all of which Landlord and Tenant agree, those certain premises ( Premises ) identified in the Basic Lease Information and shown on Exhibit A attached to this Lease and hereby made a part hereof, and located in the Building identified in the Basic Lease Information. The term Building shall include adjacent parking structures used in connection therewith. The Premises, the Building, the Common Areas, the land upon which the same are located, along with all other buildings and improvements thereon or thereunder, are herein collectively referred to as the Office Building Project. Tenant shall have the right to use, in common with others (to the extent not otherwise restricted by this Lease), the facilities and indoor and outdoor areas of the Office Building Project that are designated by Landlord in its sole discretion for common use by occupants of the Building (the Common Areas ). The exterior walls of the Building, exterior balconies and any space in the Premises and the ceiling plenum used for shafts, stacks, pipes, conduits, ducts, electric or other utilities, or other Building facilities, and the use thereof and access thereto through the Premises for the purposes of operation, maintenance and repairs, are reserved to Landlord.
(b) Tenants Percentage Share has been determined by taking the quotient arrived at by dividing the number of rentable square feet of the Premises provided in the Basic Lease Information by the number of the rentable square feet of the Building, and multiplying said quotient by 100. The square footage figures contained in this Lease shall be final and binding on the parties; provided, however, Landlord reserves the right to remeasure the Premises, one time during the Term, in connection with a remeasurement of the floor area of the entire Building in accordance with any standard that Landlord applies to the Building on a Building-wide basis.
(c) So long as no uncured Event of Default (as defined in Paragraph 17 below) has been declared hereunder and subject to the Project Rules (as defined in Paragraph 8), Tenant shall be entitled to use its pro rata share of the non-reserved automobile parking spaces located in those portions of the Common Areas designated from time to time by Landlord for parking (the Parking Facility ). Tenant shall not use more parking spaces than its pro rata share. Said
parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles, herein called Permitted Size Vehicles. Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Landlord in the Project Rules. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenants employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described in this Lease or in any Project Rules then in effect, Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. Neither Landlord nor any of Landlords employees, agents or representatives shall have any liability or responsibility to Tenant or any other party parking in the Parking Facility for any loss or damage that may be occasioned by or may arise out of such parking, including, without limitation, loss of property or damage to person or property from any cause whatsoever, other than to the extent arising from the gross negligence or willful misconduct of Landlord. Tenant, in consideration of the parking privileges hereby conferred on Tenant waives, any and all liabilities against Landlord and any of Landlords employees, agents and representative, by reason of occurrences in the Parking Facility and the driveway access and entrances thereto.
3. TERM.
(a) The term of this Lease ( Term ) shall be for the period identified in the Basic Lease Information. The Term shall commence on the date Landlord delivers possession of the Premises with the improvements described in Exhibit D attached hereto substantially complete (subject to punchlist items), and shall end on the Expiration Date.
(b) The Commencement Date shall be the actual date the Term of this Lease commences in accordance with this Paragraph 3 and Paragraph 4(c). Landlord and Tenant shall execute a written statement in the form attached hereto as Exhibit E (the Commencement Memorandum ), setting forth (i) the Commencement Date and the Expiration Date; and (ii) the other matters referenced in such Commencement Memorandum. The enforceability of this Lease shall not be affected and the term of this Lease shall commence on the Commencement Date and end on the Expiration Date whether or not the Commencement Memorandum is executed.
4. DELIVERY OF POSSESSION.
(a) Except as expressly provided in Paragraph 4(c) below, Landlord shall deliver possession of the Premises to Tenant, and Tenant shall accept the same, in its AS IS condition, subject to all recorded matters and governmental regulations, and without any warranties of any kind, including without limitation, any warranty of condition, or compliance with law, or that the Premises or any Building Systems (as defined in Paragraph 11(a) below) are suitable for Tenants use. Tenant agrees that, except as provided in Paragraph 4(c) below, Landlord has no obligation and has made no promise to alter, remodel, improve, or repair the Premises or any part thereof or to repair, bring into compliance with Applicable Laws, or improve any condition existing in the Premises as of the Commencement Date. Tenant agrees that neither Landlord nor any of Landlords employees or agents has made any representation or warranty as to the present or
future suitability of the Premises for the conduct of Tenants business therein. Any improvements or personal property located in the Premises are delivered without any representation or warranty from Landlord, either express or implied, of any kind, including merchantability or suitability for a particular purpose.
(b) In the event of the inability of Landlord to deliver possession of the Premises at the time for the commencement of the Term for any reason whatsoever, neither Landlord nor its agents shall be liable for any damage caused thereby, nor shall this Lease thereby become void or voidable, nor shall the Term be in any way extended, but in such event Tenant shall not be liable for any rent until such time as Landlord can deliver possession. Notwithstanding the foregoing, if the Commencement Date has not occurred on or before December 1, 2011 (the Delivery Deadline) (provided that the Delivery Deadline shall be extended on a day-for-day basis for any accidents, strike, labor troubles, acts of God, or any other cause, whether similar or dissimilar, which is beyond the reasonable control of Landlord, and any Tenant Delays as that term is defined in Exhibit D attached hereto), then Tenant shall have the right to terminate this Lease effective upon thirty (30) days written notice to Landlord. However, if Landlord is able to deliver possession of the Premises in accordance with the terms of this Paragraph 4 on or before the expiration of such thirty (30) day period, then this Lease shall not be terminated and Tenants notice shall be null and void and have no further effect. If Tenant fails to give a termination notice within thirty (30) days after the Delivery Deadline (as the Delivery Deadline may be extended as provided above), then Tenant shall be deemed to have irrevocably waived its right to terminate this Lease. In the event that this Lease is terminated in accordance with this Paragraph 4(b), then neither Landlord nor Tenant shall be liable to the other due to such termination.
(c) Landlord shall construct and install in the Premises the Tenant Improvements provided in, and in accordance with, Exhibit D attached hereto. Landlord shall replace and repair any defect in construction of the Tenant Improvements for a period of one (1) year from the Commencement Date, without charge to Tenant. Thereafter, Landlord shall have no liability or responsibility with respect to any defect in construction of any of the Tenant Improvements. In the event of any Tenant Delays (as that term is defined in Exhibit D ) . the Commencement Date shall be determined by subtracting the number of days of Tenant Delay from the date otherwise determined in accordance with Paragraph 3 hereof.
5. RENT.
(a) Tenant shall pay to Landlord the following amounts as rent for the Premises:
(i) During the Term, commencing on the Commencement Date, Tenant shall pay to Landlord, as base monthly rent, the respective amounts of monthly rent specified in the Basic Lease Information (the Base Rent ) . If the Commencement Date should occur on a day other than the first day of a calendar month, or if the Expiration Date should occur on a day other than the last day of a calendar month, then the Base Rent for such fractional month shall be prorated upon a daily basis based upon a thirty (30) day month. Base Rent is due and payable monthly, in advance, on the first day of each calendar month, except that Base Rent for the first full calendar month of the Term for which Base Rent is payable (the First Month ) shall be paid upon execution of this Lease. If the Commencement Date occurs on a day other than the first day of a calendar month, Base Rent for the period from the Commencement Date through
the end of said calendar month shall be due and payable on the Commencement Date, and the Base Rent payable upon execution of this Lease shall be credited against the Base Rent due for the First Month as of the first day of the First Month.
(ii) During each calendar year or part thereof during the Term subsequent to the Base Year specified in the Basic Lease Information (the Base Year ), Tenant shall pay to Landlord, as additional monthly rent, Tenants Percentage Share (as provided in the Basic Lease Information) of the total dollar increase, if any, in all Operating Expenses (as defined in Exhibit B hereto) paid or incurred by Landlord in such calendar year or part thereof over Operating Expenses paid or incurred by Landlord in the Base Year. Payments on account of Tenants Percentage Share of Operating Expenses, determined in accordance with Paragraph 7(a), are due and payable monthly together with the payment of Base Rent. Any Operating Expenses that are not specifically attributable to a specific building or to the operation, repair and maintenance thereof may, at Landlords option, be equitably allocated by Landlord to all buildings in the Office Building Project.
(iii) During each calendar year or part thereof during the Term subsequent to the Base Year, Tenant shall pay to Landlord, as additional monthly rent, Tenants Percentage Share of the total dollar increase, if any, in all Property Taxes (as defined in Exhibit B hereto) paid or incurred by Landlord in such calendar year or part thereof over the Property Taxes paid or incurred by Landlord in the Base Year. Payments on account of Tenants Percentage Share of Property Taxes, determined in accordance with Paragraph 7(a), are due and payable monthly together with the payment of Base Rent. No offset shall be given for decreases in either Operating Expenses or Property Taxes against the other, and each of Operating Expenses and Property Taxes shall be determined separately. Any Property Taxes that are not specifically attributable to a specific building may, at Landlords option, be equitably allocated by Landlord to all buildings in the Office Building Project.
(iv) Throughout the Term, Tenant shall pay, as additional rent, all other amounts of money and charges required to be paid by Tenant under this Lease, whether or not such amounts of money or charges are designated additional rent. As used in this Lease, rent shall mean and include all Base Rent, additional monthly rent as described in Paragraphs 5(a)(ii) and (iii) above, and any other additional rent payable by Tenant in accordance with this Lease.
(b) Rent shall be paid to Landlord in lawful money of the United States of America at the following address: Orchard Commercial, Inc., 2055 Laurelwood Road, Suite 130, Santa Clara, CA 95054, or at such other place as Landlord may designate in writing in advance, free from all claims, demands, or set-offs against Landlord of any kind or character whatsoever.
(c) Adjustments in Base Rent specified in the Basic Lease Information shall be determined on a Lease Year basis. As used herein, the term Lease Year shall mean a twelve (12) calendar month period; provided, however that the first Lease Year of the Term shall, except as may otherwise be expressly provided in this Lease, commence on the Commencement Date and run through the day immediately preceding the first day of the month in which the one-year anniversary of the Commencement Date occurs, with each successive Lease Year specified in the Basic Lease Information to run for a period of the next succeeding twelve (12) months,
other than and except for the final Lease Year specified in the Base Lease Information which shall commence as hereinabove provided and which shall run through the Expiration Date notwithstanding the actual number of days included in said period.
6. USE.
(a) The Premises shall be used for the purposes identified in the Basic Lease Information (except as limited by Paragraph 6(b) below), and, subject to the terms of this Lease, uses incidental thereto, and shall be used for no other purpose without the prior written consent of Landlord, which consent, provided the same is consistent with the character of the Office Building Project, shall not be unreasonably withheld, but shall otherwise be in the sole discretion of Landlord. Notwithstanding anything in the foregoing to the contrary, in the case of public unrest, a general state of emergency or other circumstances rendering such action advisable in Landlords opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such action as Landlord may deem appropriate, including closing doors and such action shall not relieve Tenant of or result in any abatement of any of Tenants obligations under this Lease.
(b) Tenant shall not use the Premises or permit anything to be done in or about the Premises or the Building which will in any way conflict with any present or future law, statute, ordinance, code, rule regulation, requirement, license, permit, certificate, judgment, decree, order or direction of any present or future governmental or quasi-governmental authority, agency, department, board, panel or court (singularly and collectively Applicable Laws). Tenant shall, at its expense, promptly comply with all Applicable Laws (including, without limitation, the Federal Americans with Disabilities Act as it affects Tenants operations within the Premises), and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to or affecting the condition, use or occupancy of the Premises. It is the intent of the parties to allocate to Tenant the cost of compliance of any and all Applicable Laws, regardless of the existing condition of the Premises, the cost of compliance or the foreseeability of the enactment or application of the Applicable Laws to the Premises. Notwithstanding the foregoing, Tenant shall not be required to make structural changes to the Premises unless they arise or are required because of or in connection with Tenants specific use of the Premises, or the type of business conducted by Tenant in the Premises, or Tenants Alterations, or Tenants acts or omissions.
(c) Supplementing the provisions of Paragraph 6(b) above, Tenant shall not use or permit the generation, possession, storage, use, transportation, or disposal of any Hazardous Substances in, on or from the Premises, other than the use of any ordinary and customary materials in minimal quantities reasonably required to be used by Tenant in the normal course of Tenants business as permitted under the terms of Paragraph 6(a) above, and so long as such use does not expose the Premises, the Building or any other part of the Office Building Project or neighboring properties to any meaningful risk of contamination or damage or expose Landlord to any liability therefor. The term Hazardous Substances as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially
injurious to the public health, safety or welfare, the environment or the Premises, or (ii) regulated or monitored by any federal, state or local governmental or quasi-governmental authority, agency, department, board, panel or court under any Applicable Laws.
(d) Notwithstanding anything contained in this Lease to the contrary, Tenant is not liable or responsible (legally, financially or otherwise) to Landlord for any violation of or non-compliance with any Applicable Law if such violation or non-compliance either consists of violations of applicable building codes of the City of Redwood City, or involves Hazardous Substances, that existed at the Premises as of the Lease Effective Date.
7. ESCALATION.
The additional monthly rent payable pursuant to Paragraphs 5(a)(ii) and (iii) hereof shall be calculated and paid in accordance with the following procedures:
(a) On or before the first day of each calendar year during the Term subsequent to the Base Year, or as soon thereafter as practicable, Landlord shall give Tenant written notice of Landlords reasonable estimate of the amounts payable by Tenant under Paragraphs 5(a)(ii) and (iii) hereof for the ensuing calendar year. On or before the first day of each month during such ensuing calendar year, Tenant shall pay to Landlord one-twelfth of such estimated amounts. If such notice is not given for any calendar year, Tenant shall continue to pay on the basis of the prior years estimate until the month after such notice is given, and subsequent payments by Tenant shall be based on Landlords current estimate, adjusted, as determined by Landlord, so that the subsequent monthly installments payable by Tenant hereunder through the end of the calendar year reimburse Landlord for all amounts payable by Tenant under Paragraphs 5(a)(ii) and (iii) hereof. If at any time it appears to Landlord that the amounts payable under Paragraphs 5(a)(ii) and (iii) hereof for the current calendar year will vary from Landlords estimate, Landlord may, by giving written notice to Tenant, revise Landlords estimate for such year, and subsequent payments by Tenant for such year shall be based on such revised estimate.
(b) On or before April 1 st of each calendar year subsequent to the Base Year or as soon after such date as practicable, Landlord shall give Tenant a written statement of the amounts payable under Paragraphs 5(a)(ii) and (iii) hereof for the prior calendar year certified by Landlord. If such statement shows an amount owing by Tenant that is less than the estimated payments for such calendar year previously made by Tenant, provided no Event of Default shall then exist under this Lease or if this Lease has previously been terminated or the Term expired, no Event of Default shall have existed under this Lease as of said termination or expiration date, Landlord shall, at its option, either refund or credit the excess to Tenant within thirty (30) days of the date of such statement. If such statement shows an amount owing by Tenant that is more than the estimated payments for such calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of such statement and payment of such deficiency shall be a condition precedent to Tenants rights to inspect Landlords books pursuant to Paragraph 7(d) below. Failure by Landlord to give any notice or statement to Tenant under this Paragraph 7 shall not waive Landlords right to receive, or Tenants obligation to pay, the amounts payable by Tenant under Paragraphs 5(a)(ii) and (iii) hereof.
(c) If the Term ends on a day other than the last day of a calendar year, the amounts payable by Tenant under Paragraphs 5(a)(ii) and (iii) hereof applicable to the calendar year in which such Term ends shall be prorated according to the ratio which the number of days in such calendar year to and including the end of the Term bears to three hundred sixty (360). Termination of this Lease shall not affect the obligation of Tenant pursuant to Paragraph 7(b) hereof to be performed after such termination.
(d) So long as no uncured Event of Default has occurred hereunder and not more often than once per calendar year, Tenant shall have the right, at its sole cost and expense, to inspect the books of Landlord directly relating to Operating Expenses and Property Taxes, after giving a minimum of fifteen (15) days prior written notice to Landlord. Tenant shall conduct its inspection of Landlords books during the business hours of Landlord at Landlords office in the Building or at such other location as Landlord may designate, for the purpose of verifying the information in such statement. Tenant shall have no right to copy any of Landlords books or remove such books from the location maintained by Landlord. Tenant shall use a certified public accountant reasonably acceptable to Landlord to conduct its inspection of Landlords books and in no event shall Tenant have the right to pay such accountant on a contingency fee basis. If Tenant shall have availed itself of its right to inspect the books and records, and whether or not Tenant disputes the accuracy of the information set forth in such books and records, Tenant shall nevertheless pay the amount set forth in Landlords statement and continue to pay the amounts required by the provisions of Paragraph 7(b), pending resolution of said dispute. Any default in the payment of such charges by Tenant shall be deemed an Event of Default (as hereinafter defined) under this Lease. If Tenants inspection of Landlords books reveals that the total dollar increase, if any, in the aggregate amount of Operating Expenses paid or incurred by Landlord in the calendar year being audited over the Base Year, plus the total dollar increase, if any, in Property Taxes paid or incurred by Landlord in the calendar year being audited over the Base Year (collectively, the Increased Expenses ) are overstated, then Landlord shall within thirty (30) days after the completion of the inspection elect to either reimburse or credit Tenant for any and all overcharges; or if the Increased Expenses for any calendar year are not overstated, then Tenant shall within thirty (30) days after the completion of the inspection pay to Landlord the amount (if any) by which Tenant has underpaid Tenants Share of Operating Expenses and/or Property Taxes for the calendar year being audited. If Tenant fails to notify Landlord of Tenants election to inspect Landlords books within ninety (90) days of Tenants receipt of Landlords statement, Landlords statement shall be deemed final and binding on Tenant and Tenant shall have no further right to inspect Landlords books with respect to the Operating Expenses and Property Taxes for the calendar year for which the Landlords statement pertains.
8. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the Rules and Regulations attached to this Lease as Exhibit C and made a part hereof, and such other reasonable rules and regulations as Landlord may from time to time adopt for the safety, care and cleanliness of the Office Building Project, the facilities thereof, or the preservation of good order therein (collectively, the Project Rules ) . Landlord reserves the right from time to time in its sole discretion to make all reasonable additions and modifications to the Project Rules. Any additions and modifications to the Project Rules shall be binding on Tenant when delivered to Tenant. Landlord shall not be
liable to Tenant for violation of any such Project Rules, or for the breach of any covenant or condition in any lease, by any other tenant in the Building. In the event of any conflict between this Lease and the Project Rules, the terms of this Lease shall govern. A waiver by Landlord of any rule or regulation for any other tenant shall not constitute nor be deemed a waiver of the rule or regulation for this Tenant. Landlord shall use commercially reasonable efforts to enforce the Project Rules in a non-discriminatoiy manner.
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, mortgage or hypothecate this Lease, or any interest therein, or permit the use of the Premises by any person or persons other than the Tenant, or sublet the Premises, or any part thereof, without the prior written consent of Landlord, which consent, subject to Landlords right of termination in accordance with Paragraph 9(b) below, shall not be unreasonably withheld. For purposes of this Paragraph 9, an assignment shall not include an assignment for security purposes, which shall only be permitted with the prior consent of Landlord in its sole and absolute discretion. Consent to any such assignment or sublease shall not operate as a waiver of the necessity for consent to any subsequent assignment or sublease, and the terms of such consent shall be binding upon any person holding by, under or through Tenant.
(b) If Tenant desires to assign its interest in this Lease or to sublease all or any part of the Premises, Tenant shall notify Landlord in writing at least sixty (60) days in advance of the proposed transaction. This notice shall be accompanied by: (i) a statement setting forth the name and business of the proposed assignee or subtenant; (ii) a copy of the proposed form of assignment or sublease (and any collateral agreements) setting forth all of the material terms and the financial details of the sublease or assignment; and (iii) financial statements and any other information concerning the proposed assignment or sublease which Landlord may reasonably request. If Tenant proposes to assign this Lease or sublet any portion of the Premises, Landlord shall have the right, in its sole and absolute discretion, to terminate this Lease in the event of a proposed assignment, or to terminate the effectiveness of this Lease with respect to any portion of the Premises proposed by Tenant for sublease, on written notice to Tenant within thirty (30) days after receipt of Tenants notice and the information described above or the receipt of any additional information requested by Landlord. If Landlord elects to terminate this Lease, in the event of a proposed assignment, or to terminate the effectiveness of this Lease with respect to any portion of the Premises proposed by Tenant for sublease, this Lease, or the effectiveness of this Lease with respect to any portion of the Premises proposed by Tenant for sublease, shall terminate as of the effective date of the proposed assignment or commencement of the term of the proposed sublease as set forth in Tenants notice, and Landlord shall have the right (but no obligation) to enter into a direct lease with the proposed assignee or subtenant. Tenant may withdraw its request for Landlords consent at any time prior to, but not after, Landlord delivers a written notice of termination.
(c) If Landlord elects not to terminate this Lease, in the event of a proposed assignment, or elects not to terminate the effectiveness of this Lease with respect to any portion of the Premises proposed by Tenant for sublease, pursuant to Paragraph 9(b) above, Landlord shall not unreasonably withhold its consent to an assignment or subletting.
(d) Each permitted assignee, transferee or subtenant, other than Landlord, shall assume and be deemed to have assumed this Lease and shall be and remain liable jointly and severally with Tenant for the payment of the rent and for the due performance or satisfaction of all of the provision, covenants, conditions and agreements herein contained on Tenants part to be performed or satisfied. Regardless of Landlords consent, no subletting or assignment shall release or alter Tenants obligation or primary liability to pay the rent and perform all other obligations under this Lease. No permitted assignment or sublease shall be binding on Landlord unless such assignee, subtenant or Tenant shall deliver to Landlord a counterpart of such assignment or sublease which contains a covenant of assumption by the assignee or subtenant, but the failure or refusal of the assignee or subtenant to execute such instrument of assumption shall not release or discharge the assignee or subtenant from its liability as set forth above.
(e) If Tenant is a partnership, a transfer of the interest of any general partner, a withdrawal of one or more general partner(s) from the partnership, or the dissolution of the partnership, shall be deemed to be an assignment of this Lease. If Tenant is currently a partnership (either general or limited), joint venture, co-tenancy, joint tenancy or an individual, the conversion of the Tenant entity or person into any type of entity which possesses the characteristics of limited liability such as, by way of example only, a corporation, a limited liability company, limited liability partnership, or limited liability limited partnership, shall be deemed an assignment for purposes of this Lease.
(f) Any notice by Tenant to Landlord pursuant to this Paragraph 9 of a proposed assignment or sublease shall be accompanied by a payment of Two Thousand Five Hundred Dollars ($2,500) as a non-refundable fee for the processing of Tenants request for Landlords consent. In addition to said fee, Tenant shall reimburse Landlord for reasonable attorneys fees incurred by Landlord in connection with such review and the preparation of documents in connection therewith. Tenant shall pay to Landlord monthly on or before the first (1st) of each month fifty percent (50%) of the rent or other consideration received from such assignee(s) or subtenant(s) over and above the concurrent underlying rent payable by Tenant to Landlord for that portion of the Premises being assigned or sublet, and after deduction for the amortized portion of the reasonable expenses actually paid by Tenant to unrelated third parties for brokerage commissions, legal fees, tenant improvements to the Premises, or design fees incurred as a direct consequence of the assignment or sublease. Tenant shall furnish Landlord with a true signed copy of such assignment(s) or sublease(s) and any supplementary agreements or amendments thereto, within five (5) days after their respective execution.
10. LIABILITY OF LANDLORD.
It is expressly understood and agreed that the obligations of Landlord under this Lease shall be binding upon Landlord and its successors and assigns and any future owner of the Building only with respect to events occurring during its and their respective ownership of the Building. In the event of any conveyance of title to the Office Building Project (or any portion thereof in which the Building is located), then the grantor or transferor shall be relieved of all liability with respect to Landlords obligations to be performed under this Lease after the date of such conveyance. In addition, Tenant agrees to look solely to Landlords interest in the Building for recovery of any judgment against Landlord arising in connection with this Lease, it being
agreed that neither Landlord nor any successor or assign of Landlord nor any future owner of the Building, nor any partner, shareholder, or officer of any of the foregoing shall ever be personally liable for any such judgment.
11. MAINTENANCE AND REPAIRS.
(a) Subject to reimbursement pursuant to Paragraph 7 hereof, Landlord shall maintain and repair the Common Areas, the roof, structural and exterior elements of the Building and the mechanical, electrical, telecommunication, vertical transportation, plumbing, heating, ventilating, air-conditioning and other equipment, facilities and systems located within or serving the Premises or the Office Building Project (collectively, the Building Systems ), and keep such areas, elements and systems in good order and condition, consistent with the standards of other comparable buildings in the vicinity of the Building. Any damage in or to any such areas, elements or systems caused by Tenant or any agent, officer, employee, contractor, licensee or invitee of Tenant shall be repaired by Landlord at Tenants expense and Tenant shall pay to Landlord, upon billing by Landlord, as additional rent, the cost of such repairs incurred by Landlord.
(b) Tenant shall, at all times during the Term of this Lease and at Tenants sole cost and expense, maintain and repair the Premises and every part thereof and all equipment (including, without limitation, any kitchen equipment), and any fixtures and improvements therein, and keep all of the foregoing clean and in good working order and operating condition, ordinary wear and tear and damage thereto by fire or other casualty excepted. All repairs and replacements made by or on behalf of Tenant shall be made and performed at Tenants cost and expense and at such time and in such manner as Landlord may reasonably designate, by contractors or mechanics reasonably approved by Landlord and so that the same shall be at least equal in quality, value, character and utility to the original work or installation being repaired or replaced. Notwithstanding Landlords obligations under Paragraph 11(a) above, Tenant shall be responsible for payment, as additional rent, for the cost of any maintenance and repair of any Building Systems (wherever located) that serves only Tenant or the Premises. Tenant hereby waives all rights under California Civil Code Section 1941 and all rights to make repairs at the expense of Landlord or in lieu thereof to vacate the Premises as provided by California Civil Code Section 1942 or any other law, statute or ordinance now or hereafter in effect.
(c) Tenant shall not alter, modify, add to or disturb any telecommunications wiring or cabling in the Building other than located exclusively in the Premises, without Landlords prior written consent. By its acceptance of possession of the Premises, Tenant shall be deemed to have agreed that the existing number and type of lines designated for service to or presently serving the Premises, as the case may be, is adequate for Tenants occupancy. Any and all telecommunications equipment and cabling serving Tenant and the Premises and connecting to or from the intermediate distribution frame ( IDF ) shall be located solely in the Premises, and Tenant shall only be permitted to access the IDF with the prior written consent of Landlord and for purposes of confirming interconnection with the Buildings riser facilities. Landlord reserves the right to limit the number of local exchange carriers and competitive alternative telecommunications providers (collectively, TSPs ) having access to the Buildings riser system and infrastructure, to install a cable distribution/riser management system to which
Tenant and all TSPs shall connect, and to charge TSPs for the use of Landlords telecommunications riser system and infrastructure; provided, however, in all cases, Landlord will provide Building and riser access to at least one TSP for dial tone telecommunications service to tenants of the Building.
(d) Tenants installation of telephone lines, cables, and other electronic telecommunications services and equipment shall be subject to the terms and conditions of Paragraph 13 of this Lease. Upon the expiration or earlier termination of this Lease, Tenant shall remove, at its sole cost and expense, all of Tenants telecommunications lines and cabling designated by Landlord for removal.
12. SERVICES.
(a) As an item of Operating Expenses, reimbursable as otherwise provided in this Lease, Landlord shall provide heating, ventilation and air conditioning as reasonably required, reasonable amounts of electricity for normal lighting and office machines, water for reasonable and normal drinking and lavatory use, replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures and unmanned passenger and freight elevator service. Landlord shall make janitorial and cleaning services available to the Premises five (5) days per week and shall provide periodic Building exterior window washing service. Tenant shall pay to Landlord on demand the costs incurred by Landlord for extra cleaning in the Premises required because of misuse or neglect on the part of Tenant or Tenants employees or the use of portions of the Premises for special purposes requiring greater or more difficult cleaning work than office areas.
(b) Except as provided in Paragraph 12(a), Tenant shall pay for all water, gas, heat, light, power, telephone, broadband or cable and other utilities and services specially or exclusively supplied and/or metered exclusively to the Premises or to Tenant, together with any taxes thereon. If any such specially or exclusively supplied services are not separately metered to the Premises, Tenant shall pay a reasonable proportion to be determined by Landlord of all charges jointly metered with other premises in the Building.
(c) Building services and utilities shall be provided during generally accepted business days and hours or such other days or hours as may hereafter be set forth (except for electricity and water, which, subject to the terms of this Lease, shall be provided on a 24-hour per day, 365 days per year basis). Utilities and services required at other times shall be subject to advance request and reimbursement by Tenant to Landlord of Landlords reasonable charges therefor upon demand.
(d) Tenant shall not make connection to utilities except by or through existing outlets and shall not install or use machinery or equipment in or about the Premises that uses excess water, lighting or power, or suffer or permit any act that causes extra burden upon the utilities or services, including but not limited to security services, over standard office usage for the Office Building Project. Landlord shall require Tenant to reimburse Landlord for any excess expenses or costs that may arise out of a breach of this subparagraph by Tenant. Landlord may, in its sole discretion, install at Tenants sole cost and expense supplemental equipment and/or separate metering applicable to Tenants excess usage or loading.
(e) There shall be no abatement of rent and Landlord shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair, in cooperation with governmental request or directions, or any other cause whatsoever, unless caused by the negligence or willful misconduct of Landlord or its employees or agents. Any interruption or discontinuance of service shall not be deemed an eviction or disturbance of Tenants use and possession of the Premises, or any part thereof, nor shall it render Landlord liable to Tenant for any injury, loss or damage by abatement of rent or otherwise, nor shall it relieve Tenant from performance of Tenants obligations under this Lease. Landlord shall, however, exercise reasonable diligence to restore any service so interrupted.
13. ALTERATIONS.
(a) Tenant shall make no alterations, improvements or additions in or to the Premises or any part thereof (individually and collectively, Alterations ) without giving Landlord prior notice of the proposed Alterations and obtaining Landlords prior written consent thereto, which consent, except as hereinafter provided, shall not be unreasonably withheld or delayed; provided, however, Landlord may withhold its consent in its sole discretion if any proposed Alterations would adversely affect any of the structural elements of the Building, the Buildings electrical, plumbing, heating, telecommunications, mechanical or life safety systems, or involve any permanently affixed signage visible from or to be attached to the exterior of the Premises. Any and all work by Tenant shall be performed only by contractors approved by Landlord and, where the prior consent of Landlord is required, upon the approval by Landlord of fully detailed and dimensioned plans and specifications pertaining to the work in question, to be prepared and submitted by Tenant at its sole cost and expense. Landlords approval or consent to any such work shall not impose any liability upon Landlord, and no action taken by Landlord in connection with such approval, including, without limitation, attending construction meetings of Tenants contractors, shall render Tenant the agent of Landlord for purposes of constructing the Alterations.
(b) Tenant shall at its sole cost and expense obtain all necessary approvals and permits pertaining to any Alterations. Tenant shall be responsible for any additional alterations and improvements required by law to be made by Landlord to or in the Building as a result of any alterations, additions or improvements to the Premises made by or for Tenant. All alterations, additions, fixtures (other than trade fixtures) and improvements, including, but not limited to carpeting, other floor coverings, built-in shelving, bookcases, paneling and built-in security systems (excluding any leased system) made in or upon the Premises either by or for Tenant and affixed to or forming a part of the Premises, shall immediately upon installation become Landlords property free and clear of all liens and encumbrances.
(c) Tenant shall keep the Premises and the Building free from any mechanics liens, vendors liens or any other liens arising out of any work performed, materials furnished or obligations incurred by Tenant, and agrees to defend, indemnify and hold harmless Landlord from and against any such lien or claim or action thereon, together with costs of suit and reasonable attorneys fees incurred by Landlord in connection with any such claim or action. Before commencing any work or alteration, addition or improvement to the Premises which
requires Landlords consent, Tenant shall give Landlord at least ten (10) business days written notice of the proposed commencement of work (to afford Landlord an opportunity to post appropriate notices of non-responsibility). In the event that there shall be recorded against the Premises or the Building or the property of which the Premises is a part any claim or lien arising out of any such work performed, materials furnished or obligations incurred by Tenant and such claim or lien shall not be removed, bonded over or discharged by Tenant within ten (10) days of written notice from Landlord, Landlord shall have the right but not the obligation to pay and discharge said lien by bond or otherwise without regard to whether such lien shall be lawful or correct. Any reasonable costs, including attorneys fees incurred by Landlord, shall be paid by Tenant within ten (10) days after demand by Landlord.
(d) Tenant shall pay to Landlord a project administration fee equal to five percent (5%) of the cost of any Alterations to compensate Landlord for the administrative costs incurred and the Building services provided by Landlord in the supervision and coordination of the work.
14. INSURANCE, INDEMNIFICATION AND EXCULPATION.
(a) Tenant shall, at Tenants expense, obtain and keep in force during the Term of this Lease a policy of Commercial General Liability insurance utilizing an Insurance Services Office standard form with Broad Form General Liability Endorsement (CL00011188), or equivalent, in an amount not less than $2,000,000.00 combined single limit per occurrence/aggregate of bodily injury and property damage, or in such greater amount as reasonably determined by Landlord, and shall insure Tenant and Landlord, Landlords property manager, and any lender(s) whose names have been provided to Tenant in writing (as additional insureds) against liability arising out of the use, occupancy or maintenance of the Premises. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an insured contract for the performance of Tenants indemnity obligations under this Lease. Compliance with the above requirements shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. All insurance to be carried by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only.
(b) (i) Tenant at its cost shall either by separate policy or by endorsement to a policy already carried by Tenant, maintain insurance coverage on all of Tenants personal property and Alterations in, on, or about the Premises. Such insurance shall be full replacement cost coverage. Landlord shall be named as a loss payee under said policy. The proceeds from any such insurance shall be used by Tenant for the replacement and/or restoration of Tenants personal property and Alterations.
(ii) Tenant shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Tenant or attributable to prevention of access to the Premises as a result of such perils.
(c) Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a
General Policyholders Rating of at least A-, VII, or such other rating as may be required by Landlord, as set forth in the most current issue of Bests Insurance Guide. Tenant shall cause to be delivered to Landlord, within seven (7) days after the Commencement Date, and from time to time upon Landlords request, certified copies of, or certificates evidencing the existence and amounts of, the insurance required to be maintained by Tenant hereunder, with the insureds and loss payable clauses as required by this Lease. No deductible (including any self-insured retention) under any policy of insurance carried by Tenant shall exceed Two Thousand Five Hundred Dollars ($2,500.00). No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Landlord. Tenant shall at least thirty (30) days prior to the expiration of such policies, furnish Landlord with evidence of renewals or insurance binders evidencing renewal thereof, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand.
(d) Without affecting any other rights or remedies of the parties, Tenant and Landlord each hereby agree to cause the insurance companies issuing their respective first party insurance to waive any subrogation rights that such insurers may have against Landlord and Tenant, respectively, as long as the insurance is not invalidated by such waiver. If such waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant each waive, release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the waiving partys property arising out of or incident to the perils required to be insured against under this Paragraph 14, to the extent that the loss or damage is insured under their respective insurance policies.
(e) Except for instances of the gross negligence or willful misconduct of any of the Landlord Parties (as defined below), Tenant shall indemnify, protect, defend and hold harmless the Premises, Landlord, Landlords master or ground lessor, any lenders, Landlords partners and members, and each of their officers, directors, shareholders, managers, employees, agents and representatives (collectively, Landlord Parties ) from and against any and all third party claims against Landlord Parties based on claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorneys and consultants fees, expenses and/or liabilities arising out of, involving, or in dealing with, (i) the occupancy of the Premises by Tenant, (ii) the conduct of Tenants business, (iii) any act, omission or neglect of Tenant, its agents, contractors, employees or invitees, and/or (iv) any default or breach by Tenant in the performance in a timely manner of any obligation on Tenants part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Landlord) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding is brought against Landlord by reason of any of the foregoing matters, Tenant upon notice from Landlord shall defend the same at Tenants expense by counsel reasonably satisfactory to Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need not have first paid any such claim in order to be so indemnified. The foregoing indemnification obligations shall survive the expiration or earlier termination of this Lease to and until the last date permitted by law for the bringing of any claim with respect to which indemnification may be claimed under this paragraph.
(f) Tenant hereby releases Landlord from, and Landlord shall not be liable to Tenant for, and any all claims for injury or damage to the person or goods, wares, merchandise or other property of Tenant, Tenants employees, contractors, invitees, customers, or any other person in or about the Premises, Building or Office Building Project, from any cause, including, without limitation, the active or passive negligence of Landlord, its agents or contractors, and whether said injury or damage results from conditions arising on the Premises or on other portions of the Building or Office Building Project, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not, unless caused by the gross negligence or willful misconduct of Landlord or any of its employees or agents. Landlord shall not be liable for any damages arising from any act, omission or neglect of any other lessee of Landlord. Notwithstanding Landlords active or passive negligence or breach of this Lease, Landlord shall under no circumstances be liable for injury to Tenants business or for any loss of income or profit therefrom.
15. DESTRUCTION.
(a) In the event of a partial destruction of the Premises during the Term from any cause, Landlord shall forthwith repair the same (except as otherwise provided in this Paragraph 15 as to a casualty occurring during the last twelve (12) months of the Term), provided such repairs can be made within ninety (90) days under the laws and regulations of State, county, federal or municipal authorities, but such partial destruction shall not annul or void this Lease, except that Tenant shall be entitled to a proportional abatement in rent from the date of such destruction to the date the destroyed area is substantially repaired and possession thereof is tendered to Tenant, such proportionate abatement to be based upon the amount of square footage in the Premises damaged and the length of time said area is not either actually being used by Tenant for business purposes or is not in a condition habitable for general office use. If such repairs cannot be made within ninety (90) days of such casualty, or if the casualty occurs during the last twelve (12) months of the Term and would result in any rent abatement for a period greater than thirty (30) days, Landlord may, at its option, elect to make such repairs within a reasonable time, this Lease continuing in full force and effect and the rent to be proportionately abated as provided hereinabove. In the event that Landlord does not so elect to make such repairs which cannot be made in ninety (90) days or which results from a casualty occurring during the last twelve (12) months of the term, within a reasonable time following the casualty (but in no event not less than sixty (60) days), this Lease may be terminated at the option of either party. In respect to any partial destruction which Landlord is obligated to repair or may elect to repair under the terms of this Paragraph, Tenant waives the provisions of California Civil Code Sections 1932(2) and 1933(4). In the event that any portion of the Building other than the Premises is destroyed to the extent of ten percent (10%) or more of the replacement cost of the Building, Landlord may elect to terminate this Lease, whether the Premises be injured or not. A total destruction of the Building shall terminate this Lease.
(b) If the Premises are to be repaired or restored by Landlord under this Paragraph 15, Landlord shall repair or restore, at Landlords cost, the Premises itself and any and all permanently affixed improvements in the Premises constructed or provided by Landlord as of the commencement of the Term, together with any permanently affixed Alterations approved by Landlord (unless at the time of construction Landlord informs Tenant that Tenant will be
required to remove the same at the end of the Term). In no event shall Landlord repair, replace or restore any of Tenants Property.
16. ENTRY.
Landlord, Landlords agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times for the purpose of inspecting the condition of the Premises, performing any services required of Landlord by this Lease, showing the same to prospective purchasers, lenders or lessees, making such alterations, repairs and improvements to the Premises or to the Office Building Project as Landlord may deem reasonable or desirable, and for verifying compliance by Tenant with this Lease. Tenant waives any charges for damages or injuries or interference with Tenants property or business in connection therewith. Any such entry shall be without any rebate of rent to Tenant for any loss of occupancy or quiet enjoyment of the Premises, or damage, injury or inconvenience thereby occasioned.
17. EVENTS OF DEFAULT.
(a) The occurrence of any one or more of the following events (each, an Event of Default ) shall constitute a breach of this Lease by Tenant: (i) if Tenant shall default in its obligation to pay any rent or other payment(s) due hereunder as and when due and payable; or (ii) if Tenant shall fail to perform or observe any other term hereof (except as otherwise provided in this Paragraph) or of the Project Rules described in Paragraph 8 hereof to be performed or observed by Tenant, such failure shall continue for more than ten (10) days after notice thereof from Landlord, and Tenant shall not within such period commence with due diligence and dispatch the curing of such default, or, having so commenced, thereafter shall fail or neglect to prosecute or complete with due diligence the curing of such default; or (iii) any assignment or subletting in violation of the terms of this Lease; or (iv) the failure of Tenant to maintain insurance coverages required by this Lease and/or to provide evidence of such coverages within three (3) business days after request therefor from Landlord; or (v) Tenants failure to timely execute and deliver, when requested, an estoppel certificate in accordance with the terms of this Lease; or (vi) the taking of any action leading to, or the actual dissolution or liquidation of Tenant, if Tenant is other than an individual; or (vii) any guarantor of Tenants obligations under this Lease ( Guarantor ) shall become insolvent, file a petition in bankruptcy, or shall have ceased to pay its debts in the ordinary course of business, or Guarantor shall default, beyond any applicable notice and cure period, under its obligations under said guaranty; or (viii) if within sixty (60) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed or if this Lease or any estate of Tenant hereunder shall be levied upon under any attachment or execution and such attachment or execution is not vacated within thirty (30) days after notice to Tenant.
(b) Any notice required to be given by Landlord under this Lease shall, in each case, be in lieu of, and not in addition to, any notice required to be given under California Code of Civil Procedure Sections 1161 through 1162, or any other applicable unlawful detainer statutes,
to the extent the substance thereof is given in compliance therewith and the notice is served as provided in this Lease, and any time periods provided under such statutes shall run concurrently with the time periods contained in any notice provided under this Lease.
18. TERMINATION UPON DEFAULT.
In any notice given pursuant to any one or more Events of Default, Landlord in its sole discretion may elect to declare a forfeiture of this Lease as provided in Section 1161 of the California Code of Civil Procedure, and provided that Landlords notice states such an election, Tenants right to possession shall terminate and this Lease shall terminate, unless on or before the date specified in such notice all arrears of rent and all other sums payable by Tenant under this Lease, and all costs and expenses incurred by or on behalf of Landlord hereunder, including attorneys fees, incurred in connection with such default, shall have been paid by Tenant and all other breaches of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. Upon such termination, Landlord may recover from Tenant (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rent loss that Tenant proves could reasonably have been avoided; (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rent loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenants failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The worth at the time of award of the amount referred to in clauses (a) and (b) above is computed by allowing interest at the discount rate of the Federal Reserve Bank of San Francisco plus five percent (5%) per annum at date of termination, but in no event in excess of the maximum rate of interest permitted by law. The worth at the time of award of the amount referred to in clause (c) above is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For the purpose of determining unpaid rent under clause (c) above, the monthly rent reserved in this Lease shall be deemed to be the sum of the Base Rent and the amounts last payable by Tenant as reimbursement of expenses pursuant to Paragraphs 5(a)(ii) and (iii) hereof for the calendar year in which Landlord terminated this Lease as provided herein. Tenant waives any rights of redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other applicable present or future law, if Tenant is evicted or Landlord takes possession of the Premises by reason of any Event of Default.
19. CONTINUATION AFTER DEFAULT.
Even though Tenant has breached this Lease and/or abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenants right to possession as provided in Paragraph 18 hereof, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover rent as it becomes due under this Lease. In such event, Landlord may exercise all of the rights and remedies of a landlord under Section 1951.4 of the California Civil Code (which provides that a landlord may continue a lease in effect after a tenants breach and abandonment and recover rent as it becomes due, if the tenant has the right to
sublet or assign, subject only to reasonable limitations), or any successor statute. Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlords interest under this Lease shall not constitute a termination of Tenants right to possession.
20. OTHER RELIEF.
The remedies provided for in this Lease are in addition to any other remedies available to Landlord at law or in equity, by statute or otherwise. Landlords failure to take advantage of any default or breach of covenant on the part of Tenant shall not be, or be construed as a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of Landlord to insist upon the performance by Tenant of any term, covenant or condition hereof, or to exercise any rights given Landlord on account of any such default. A waiver of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default. The acceptance of rent hereunder shall not be, nor be construed to be, a waiver of any breach of any term, covenant or condition of this Lease.
21. ATTORNEYS FEES.
If as a result of any breach or default on the part of Tenant under this Lease Landlord uses the services of an attorney in order to secure compliance with this Lease, Tenant shall reimburse Landlord upon demand as additional rent for any and all attorneys fees and expenses incurred by Landlord, whether or not formal legal proceedings are instituted. Should either party bring an action against the other party, by reason of or alleging the failure of the other party to comply with any or all of its obligations hereunder, or to seek enforcement of any of the terms of this Lease, whether for declaratory or other relief, then the party which prevails in such action shall be entitled to its reasonable attorneys fees, expert witness fees and disbursements, and all other reasonable costs and expenses related to such action (including those incurred in connection with any matters on appeal), in addition to all other recovery or relief. The party which prevails in such action (a) as used in the context of proceedings in the Bankruptcy Court, means the prevailing party in an adversary proceeding or contested matter, or any other action taken by the non-bankruptcy party which is reasonably necessary to protect its rights under this Agreement, and (b) as used in the context of proceedings in any court other than the Bankruptcy Court, shall mean the party that prevails in obtaining a remedy or relief which most nearly reflects the remedy or relief which the party sought, so that, for example, the party which prevails may be a party which is ordered to pay $100 where the obligation to pay $80 was undisputed and the other party claimed that it was entitled to $1,000.
22. NOTICES.
All approvals, consents and other notices given by Landlord or Tenant under this Lease shall be properly given only if made in writing and either deposited in the United States mail, postage prepaid, certified with return receipt requested, or delivered by hand (which may be through a messenger or recognized delivery, courier or air express service) and addressed to Landlord at the address of Landlord specified in the Basic Lease Information or at such other place as Landlord may from time to time designate in a written notice to Tenant, and addressed
to Tenant at the address of Tenant specified in the Basic Lease Information and, after the Commencement Date, at the Premises, together with a copy to such other address as Tenant may from time to time designate in a written notice to Landlord. Such approvals, consents and other notices shall be effective on the date of receipt (evidenced by the certified mail receipt), if mailed, or on the date of hand delivery, if hand delivered. If any such approval, consent or other notice is not received or cannot be delivered due to a change in the address of the receiving party of which notice was not previously given to the sending party or due to a refusal to accept by the receiving party, such request, approval, consent, notice or other communication shall be effective on the date delivery is attempted. Any approval, consent or other notice under this Lease may be given on behalf of a party by the attorney for such party. Tenant hereby appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of or occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the door of the Premises and such service shall be effective for all purposes under this Lease.
23. EMINENT DOMAIN.
If all or any part of the Premises shall be taken as a result of the exercise of the power of eminent domain or agreement in lieu thereof, this Lease shall terminate as to the part so taken as of the date of taking, and, in the case of a partial taking, Landlord shall have the right to terminate this Lease as to the balance of the Premises by giving written notice to Tenant within sixty (60) days after such date. Common Areas taken shall be excluded from the Common Areas usable by Tenant and no reduction of rent shall occur with respect thereto or by reason thereof. In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or interest therein which may be paid or made in connection therewith, and, except as hereinafter expressly provided, Tenant waives and relinquishes to Landlord any and all claims for the value of any unexpired Term of this Lease or otherwise. In the event of a partial taking of the Premises which does not result in a termination of this Lease, the Base Rent thereafter to be paid shall be equitably reduced. If all or any part of the Building shall be taken as a result of the exercise of the power of eminent domain, and, in the case of a partial taking, Landlord determines that the remainder of the Building is not suitable for the continued operation as a multi-tenant office building, Landlord shall have the right to terminate this Lease by giving written notice to Tenant within sixty (60) days of the date when the possession is required. Notwithstanding anything to the contrary in this Paragraph, in the event of a temporary taking for a period less than twenty-four (24) months (or the remainder of the Term, whichever is less), this Lease shall not terminate, but Tenants obligation to pay Base Rent and additional rent for the portion of the Premises subject to such temporary taking shall abate for the period during which such taking is in effect. Without obligation to Tenant, Landlord may agree to transfer to any condemnor all or any portion of the Office Building Project sought by such condemnor, free from this Lease and the rights of Tenant hereunder, without first requiring that any action or proceeding be instituted or, if instituted, pursued to a judgment. Landlord and Tenant hereby waive the provisions of California Code of Civil Procedure Sections 1265.110 through 1265.160 to the extent that such provisions are inconsistent with the terms of this Lease.
24. LATE CHARGE/RETURNED CHECKS.
Rent or other payments due under this Lease which remain unpaid when due shall bear interest from and after the date said amount was due at the discount rate of the Federal Reserve Bank of San Francisco on the date said amount was due, plus five percent (5%) per annum, but in no event in excess of the maximum rate of interest permitted by law. Tenant acknowledges that late payment by Tenant to Landlord of such rent or other payments will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Therefore, if any installment of rent or other payment due from Tenant is not received by Landlord by the fifth (5th) day of the month when due, Tenant shall pay to Landlord an additional sum of seven and one-half percent (7.5%) of the overdue amount as a late charge. Said late charge shall be due as of the sixth (6th) day of the month in question. If any check for payment by Tenant to Landlord of Base Rent or other sums due hereunder is returned to Landlord by Tenants bank for any reason, a returned check charge ( NSF charge ) will be added in the amount of Fifty Dollars ($50.00), in addition to any sums due hereunder including late charges, to compensate Landlord for the costs associated with processing such dishonored check. The parties agree that the foregoing late charges and NSF charge represent a fair and reasonable estimate of the costs Landlord will incur because of said late or dishonored payment. Acceptance of said charges by Landlord shall not constitute a waiver of Tenants default for the overdue amount, nor prevent Landlord from exercising the other rights and remedies granted Landlord under this Lease.
25. SECURITY DEPOSIT.
(a) Upon signing this Lease, Tenant shall pay to Landlord the amount of the Security Deposit specified in the Basic Lease Information. The Security Deposit shall be held by Landlord as security for the performance by Tenant of all of the covenants of this Lease to be performed by Tenant, including, without limitation, defaults by Tenant in the payment of rent, the repair of damage to the Premises caused by Tenant, the cleaning of the Premises upon termination of the tenancy created hereby, and for any damages that Landlord may incur as a consequence of any default by Tenant under this Lease, and Tenant shall not be entitled to interest thereon. If Landlord uses or applies the Security Deposit or any portion thereof, Tenant shall, within ten (10) days after demand deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount, and Tenants failure to do so shall be deemed a material breach of this Lease. Upon termination of the original Landlords or any successor owners interest in the Premises or the Building, the original Landlord or such successor owner shall be released from further liability with respect to the Security Deposit upon the original Landlords or such successor owners complying with California Civil Code Section 1950.7. Subject to the foregoing, Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code (return of security deposit within thirty (30) days of termination of Lease), or any successor statute providing a time limit for the return of a security deposit to a commercial tenant, and all other provisions of law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage caused by the default of Tenant under this Lease. The parties agree
that Landlord shall have the right to (i) retain the Security Deposit until the time of entry of an award in any action brought by Landlord pursuant to California Civil Code Section 1951.2, and (ii) offset the Security Deposit against any such award. In the event the Security Deposit exceeds the amount of the award, Landlord shall refund to Tenant any remainder within thirty (30) days of the entry of the award.
(b) On the first (1 st ) anniversary of the Commencement Date (the First Deposit Reduction Date ) , if Tenant is not then in default under this Lease, and to the extent that the Security Deposit then held by Landlord hereunder exceeds Twenty Thousand Five Hundred Twenty-Seven and 20/100 Dollars ($20,527.20) (such excess amount hereinafter referred to as the First Excess Security Deposit), then Landlord shall return to Tenant the First Excess Security Deposit within thirty (30) days after the First Deposit Reduction Date. Upon such return of the First Excess Security Deposit to Tenant, the Security Deposit under this Lease shall thereafter be equal to Twenty Thousand Five Hundred Twenty-Seven and 20/100 Dollars ($20,527.20), and Landlord shall have satisfied all obligations to Tenant with respect to the First Excess Security Deposit, including, without limitation, any obligation to return such amount to Tenant described in this Lease or arising under any applicable law. On the First Deposit Reduction Date, if there is then an Event of Default under this Lease, or if the First Excess Security Deposit equals Zero and No/100 Dollars ($0.00), then in either such event the amount of the Security Deposit shall be unchanged and Landlord shall have no obligation to return any portion of the Security Deposit to Tenant.
(c) If the Security Deposit has been reduced pursuant to the terms of Paragraph 25(b) above, then on the second (2 nd ) anniversary of the Commencement Date (the Second Deposit Reduction Date ) , if Tenant is not then in default under this Lease, and to the extent that the Security Deposit then held by Landlord hereunder exceeds Ten Thousand Two Hundred Sixty-Three and 60/100 Dollars ($10,263.60) (such excess amount hereinafter referred to as the Second Excess Security Deposit), then Landlord shall return to Tenant the Second Excess Security Deposit within thirty (30) days after the Second Deposit Reduction Date. Upon such return of the Second Excess Security Deposit to Tenant, the Security Deposit under this Lease shall thereafter be equal to Ten Thousand Two Hundred Sixty-Three and 60/100 Dollars ($10,263.60), and Landlord shall have satisfied all obligations to Tenant with respect to the Second Excess Security Deposit, including, without limitation, any obligation to return such amount to Tenant described in this Lease or arising under any applicable law. On the Second Deposit Reduction Date, if there is then an Event of Default under this Lease, or if the Second Excess Security Deposit equals Zero and No/100 Dollars ($0.00), then in either such event the amount of the Security Deposit shall be unchanged and Landlord shall have no obligation to return any portion of the Security Deposit to Tenant. If the Security Deposit has not been reduced pursuant to the terms of Paragraph 25(b) above, then the Security Deposit shall not be reduced pursuant to the terms of this Paragraph 25(c).
26. RELOCATION. [INTENTIONALLY LEFT BLANK]
27. ESTOPPEL CERTIFICATE.
Within ten (10) days after notice from Landlord, Tenant shall execute and deliver to Landlord a certificate stating (a) that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification), (b) the date, if any, to which rental and other sums payable hereunder have been paid, (c) that no notice has been received by Tenant of any default which has not been cured, except as to defaults specified in said certificate and (d) such other matters as may be reasonably requested by Landlord. Tenants failure to timely deliver an estoppel certificate in accordance with this Paragraph shall be deemed an Event of Default in accordance with Paragraph 17 of this Lease.
28. SURRENDER.
On or before the expiration or sooner termination of this Lease Tenant shall remove all of Tenants properly and all alterations, additions, fixtures and improvements therein or thereto except those which Landlord has confirmed in writing should be left in place; and fully repair any damage to the Premises, the Building or other portions of the Office Building Project caused by the removal of any of the items provided herein. Subject to the foregoing, Tenant shall surrender the Premises at the expiration or earlier termination of the tenancy herein created broom clean, and in the same condition as received, reasonable use and wear thereof and damage by the act of God or by the elements excepted. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall at the option of Landlord, terminate all of any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies. Tenants obligations under this Paragraph shall survive the termination of this Lease.
29. HOLDING OVER.
(a) If, with Landlords approval, Tenant holds possession of the Premises after expiration of the Term of this Lease, Tenant shall become a tenant from month to month upon the terms herein specified but at a Base Rent equal to one hundred fifty percent (150%) of the Base Rent in effect at the expiration of the Term of this Lease, payable in advance on or before the first day of each month. Such month-to-month tenancy may be terminated by either Landlord or Tenant by giving thirty (30) days written notice of termination to the other at any time.
(b) If, without Landlords written approval, Tenant holds possession of the Premises after expiration of the Term of this Lease, Tenant shall become a tenant at sufferance upon the terms herein specified but at a Base Rent equal to two hundred percent (200%) of the Base Rent in effect at the expiration of the Term of this Lease, payable in advance on or before the first day of each month. Such tenancy at sufferance shall be terminated immediately upon Landlord giving written notice of such termination to Tenant at any time.
(c) If Tenant fails to surrender the Premises upon the expiration or termination of this Lease except as hereinabove provided, Tenant hereby indemnifies and agrees to hold Landlord harmless from all costs, loss, expense or liability, including without limitation, costs, real estate brokers claims and attorneys fees, arising out of or in connection with any delay by Tenant in surrendering and vacating the Premises, including, without limitation, any claims made by any succeeding tenant based on any delay and any liabilities arising out of or in connection with
these claims. Nothing in this Paragraph shall be deemed to permit Tenant to retain possession of the Premises after the expiration or sooner termination of the Term.
30. SUBORDINATION.
This Lease shall be subordinate to any ground lease, master lease, mortgage, deed of trust, or any other hypothecation for security now or later placed upon the Building and to any advances made on the security of it or Landlords interest in it, and to all renewals, modifications, consolidations, replacements, and extensions of it. However, if any mortgagee, trustee, master lease or ground lessor elects to have this Lease prior to the lien of its mortgage or deed of trust or prior to its master lease or ground lease, and gives notice of that to Tenant, this Lease shall be deemed prior to the mortgage, deed of trust, master lease or ground lease, whether this Lease is dated prior or subsequent to the date of the mortgage, deed of trust, master lease or ground lease, or the date of recording of it. In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee under the deed in lieu of foreclosure. In the event of termination of any master lease or ground lease to which this Lease is subordinate, Tenant shall attorn to the master lessor or ground lessor. Tenant agrees to execute any documents, in form and substance reasonably acceptable to Tenant, required to effectuate the subordination, to make this Lease prior to the lien of any mortgage or deed of trust, master lease or ground lease, or to evidence the attornment.
31. INABILITY TO PERFORM.
Landlord shall not be in default hereunder nor shall Landlord be liable to Tenant for any loss or damages if Landlord is unable to fulfill any of its obligations, or is delayed in doing so, if the inability or delay is caused by reason of accidents, strike, labor troubles, acts of God, or any other cause, whether similar or dissimilar, which is beyond the reasonable control of Landlord.
32. MISCELLANEOUS.
(a) The words Landlord and Tenant as used herein shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there be more than one Tenant, the obligations hereunder imposed on Tenant shall be joint and several. Subject to the provisions hereof relating to assignment and subletting, this Lease is intended to and does bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. Each provision of this Lease to be observed or performed by Tenant shall be deemed both a covenant and a condition. Time is of the essence of this Lease.
(b) If Tenant is a corporation or limited liability company, Tenant (and as to clause (iv) of this Paragraph 32(b) only, each person executing this Lease on behalf of Tenant) represents and warrants to Landlord that (i) Tenant is duly incorporated or formed, as the case may be and validly existing under the laws of its state of incorporation or formation, (ii) Tenant is qualified to do business in California, (iii) Tenant has the full right, power and authority to enter into this Lease and to perform all of Tenants obligations hereunder, and (iv) each person signing this Lease on behalf of the corporation or company is duly and validly authorized to do so. If Tenant is a partnership (whether a general or limited partnership), each person executing
this Lease on behalf of Tenant represents and warrants to Landlord that (A) he/she is a general partner of Tenant, (B) he/she is duly authorized to execute and deliver this Lease on behalf of Tenant, (C) this Lease is binding on Tenant (and each general partner of Tenant) in accordance with its terms, and (D) each general partner of Tenant is personally liable for the obligations of Tenant under this Lease.
(c) There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease or the Building. No party has been induced to enter into this Lease by, nor is any party relying on, any representation or warranty outside those expressly set forth in this Lease. Notwithstanding the preparation of this Lease by Landlord or its agent, all of the provisions of this Lease have been freely negotiated by the parties hereto, and each of the parties has had the opportunity to be represented by counsel in connection with the negotiation and execution of this Lease. Accordingly, the parties agree that there shall be no presumption or implication against either party with respect to the meaning or interpretation of this Lease, and any presumption against the drafter implied by law is hereby waived. Any amendment or modification of this Lease is ineffective to modify, waive, or terminate this Lease, in whole or in part, unless such agreement is in writing, signed by the parties to this Lease.
(d) Any provision of this Lease which shall be held invalid, void or illegal shall in no way affect, impair or invalidate any of the other provisions hereof and such other provisions shall remain in full force and effect.
(e) The obstruction of Tenants view, air, or light by any structure erected in the vicinity of the Building, whether by Landlord or third parties, shall in no way affect this Lease or impose any liability upon Landlord.
(f) To the extent permitted by law, Tenant hereby waives trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto on any matters whatsoever arising out of or in any way connected with this Lease.
(g) This Lease shall be governed by the laws of the State of California applicable to transactions to be performed wholly therein.
(h) Provided that Landlord and each person with whom the financial statements will be shared have entered into commercially reasonable confidentiality agreements with Tenant, Tenant, not more than twice in each calendar year, shall submit to Landlord (and any lender or prospective lender of Landlord) the following financial statements, all of which must be prepared in accordance with generally accepted accounting principles consistently applied: (i) quarterly financial statements for Tenant within fifty (50) days after the end of each fiscal quarter during the Term; (ii) annual financial statements for Tenant, audited by an independent certified public accountant, within one hundred twenty (120) days after the end of each fiscal year during the Term (provided, however, that Landlord agrees that Tenants 2011 financial statements may be submitted as having been reviewed by Tenants certified public accounting firm, if Tenant elects not to have the same audited); and (iii) the most recent financial statements for Tenant and
Guarantor in Tenants or Guarantors possession as may be reasonably requested by Landlord (or any lender or prospective lender of Landlord) within ten (10) days of Landlords or such lenders request therefor.
(i) Tenant is not acting, directly or indirectly, for or on behalf of any person named by the United States Treasury Department as a Specifically Designated National and Blocked Person, or for or on behalf of any person designated in Executive Order 13224 as a person who commits, threatens to commit, or supports terrorism. Tenant is not engaged in this Lease directly or indirectly on behalf of, or facilitating this Lease directly or indirectly on behalf of, any such person.
33. BROKER.
Tenant represents and warrants to Landlord that Tenant has had no dealings with any broker, finder, or similar person who is or might be entitled to a commission or other fee in connection with the execution of this Lease, except for Landlords Broker and Tenants Broker. Landlord shall pay the commission due Landlords Broker and Tenants Broker pursuant to a separate agreement between Landlord and Landlords Broker. Landlord and Tenant shall each indemnify, defend, protect and hold the other harmless from and against any and all claims and damages and for any and all costs and expenses (including reasonable attorneys fees and costs) resulting from claims that may be asserted against the other party by any broker, agent or finder not disclosed herein.
34. SIGNAGE.
Landlord, at its sole cost and expense, shall provide signage to Tenant in accordance with the Buildings signage program, including one (1) line identifying Tenant on the Building lobby directory sign and tenant identification signage next to the main entry door into the Premises. Initial signage shall be provided by Landlord at Landlords expense, but any changes, deletions, or additions requested by Tenant after the Commencement Date will be provided by Landlord at Tenants sole cost and expense, upon reasonable notice by Tenant. In addition, At Tenants sole cost and expense, Landlord shall fabricate and install signage identifying Tenant on the Buildings monument sign located near Woodside Road (the Monument Sign), in such location on the Monument Sign as shall be designated by Landlord from time to time, in accordance with any sign program or other standards adopted by Landlord from time to time.
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IN WITNESS WHEREOF , the parties hereto have executed this Lease as of the date first above written.
LANDLORD : |
TENANT : |
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WOODSIDE ROAD HOLDINGS, LLC, |
SKINTELLIGENCE, INC., |
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a California limited liability company |
a Delaware corporation |
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By: |
Nearon Mission Pointe Holdings II, LLC, |
By: |
/s/ Tom Wiggans |
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a Delaware limited liability company |
Name: |
Tom Wiggans |
Its: |
Sole Member |
Its: |
CEO |
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By: |
Nearon Enterprises, |
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a California corporation |
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Its: |
Managing Member |
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By: |
/s/ David S. Christensen |
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David S. Christensen |
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Its: |
Co-President and Chief Operating Officer |
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EXHIBIT B
OPERATING EXPENSES AND TAXES
A. As used in this Lease, Operating Expenses shall mean, without duplication, all costs and expenses paid or incurred by Landlord in connection with the management, operation, maintenance and repair of the Building and/or the Office Building Project (individually and collectively, as used in this Exhibit, the Building ), and in providing services in accordance with this Lease, including the following: salaries, wages, other compensation, taxes and benefits (including payroll, social security, workers compensation, unemployment, disability and similar taxes and payments) for all personnel engaged in the management, operation, maintenance or repair of the Building; uniforms provided to such personnel; premiums and other charges for all property, earthquake, rental value, liability and other insurance carried by Landlord, together with the amount of any deductible under such policy, except that for any deductible incurred by Landlord as a result of a claim under a policy of property or earthquake insurance, the deductible shall be reasonably amortized as determined by Landlord, according to generally accepted accounting principles to the extent such deductible was utilized for Capital Expenditures (as defined below); water and sewer charges or fees; license, permit and inspection fees; electricity, water, heating, ventilation, air conditioning, gas, fuel, steam and other utilities; sales, use and excise taxes on goods and services purchased by Landlord; telephone, delivery, postage, stationery supplies and other expenses; reasonable management fees and expenses; repairs to and maintenance of the Building, including Building systems and accessories thereto and repair and replacement of worn out or broken equipment, facilities, parts and installations; janitorial, window cleaning, security, guard, extermination, water treatment, garbage and waste disposal, rubbish removal, plumbing and other services; inspection or service contracts for elevator, electrical, mechanical and other Building equipment and systems; supplies, tools, materials and equipment; accounting, legal and other professional fees and expenses (excluding legal fees, accounting, and other professional fees and expenses incurred by Landlord relating to disputes with specific tenants or the negotiation, interpretation or enforcement of specific leases); painting of any of the public or common areas of the Office Building Project, including, without limitation, the Building exterior and any interior portions thereof, and the cost of maintaining the sidewalks, landscaping and other common areas of the Office Building Project; the cost of parking area repair, restoration and maintenance, including, without limitation, resurfacing, restriping and cleaning; the cost, amortized over the useful life as reasonably determined by Landlord, according to generally accepted accounting principles, of all furniture, fixtures, draperies, carpeting and personal property furnished by Landlord in common areas or public corridors of the Building or in the Building office; all costs and expenses resulting from compliance with any laws, ordinances, rules, regulations or orders applicable to the Building; Building office rent or rental value for office space reasonably necessary for the proper management and operation of the Building; all costs and expenses of contesting by appropriate legal proceedings any matter concerning managing, operating, maintaining or repairing the Building, or the validity or applicability of any law, ordinance, rule, regulation or order relating to the Building, or the amount or validity of any Property Taxes; reasonable depreciation as determined by Landlord according to generally accepted accounting principles on all machinery, fixtures, tools and equipment (including window washing machinery) used in the management, operation, maintenance or repair of the Building and on window coverings provided by
Landlord; the cost, reasonably amortized as determined by Landlord, according to generally accepted accounting principles, of all capital improvements made to the Building or capital assets acquired by Landlord that are designed or intended to be a labor-saving or energy-saving device, or to improve economy or efficiency in the management, operation, maintenance or repair of the Building, or to reduce any item of Operating Expenses, or that constitute a replacement of a Building system, or that are required by any law, ordinance, rule, regulation or order (collectively, Capital Expenditures); charges and assessments on the Office Building Project pursuant to any applicable covenants, conditions and restrictions encumbering the Office Building Project; and such other usual costs and expenses which are paid by other landlords for the on-site operation, servicing, maintenance and repair of comparable office buildings in the San Francisco Bay Area. To the extent Landlord elects to purchase any type of insurance not carried by Landlord during the entire Base Year, then the insurance component of Operating Expenses for the Base Year shall be grossed up to reflect the amount of the insurance premiums that would have been incurred if Landlord had carried the same insurance coverage during the entire Base Year, as reasonably determined by Landlord. Notwithstanding anything contained in the Lease or the foregoing list of Operating Expenses, no expenses incurred for the following shall be included in Operating Expenses for any expense year: costs of remediation or removal of Hazardous Substances, any cost or expenditure for which Landlord may be reimbursed by others, expense reserves, fines, penalties and interest, Property Taxes, depreciation on the Building (except as described above), costs of tenants improvements (including permit, license and inspection fees), real estate brokers commissions, interest, payments of loan principal and expenses related to a financing or refinancing of the Building, the cost of services provided to tenants materially in excess of services customarily provided to Tenant, whether or not Landlord is entitled to reimbursement therefor, Landlords legal costs and expenses in connection with any lease dispute, or litigation with any tenant, or Landlords costs in maintaining Landlords corporate or limited liability company status.
B. Notwithstanding anything to the contrary in the Lease or this Exhibit B , for purposes of determining Operating Expenses for any year, including, but not limited to the Base Year, any and all charges paid by Landlord for gas, electricity or power generation ( Gas and Electrical Costs ) shall be segregated. Any increases in Gas and Electrical Costs for any calendar year subsequent to the Base Year shall be determined separately, based on the total dollar increase, if any, in all Gas and Electrical Costs paid or incurred by Landlord in such calendar year over Gas and Electrical Costs paid or incurred by Landlord in the Base Year. In addition, notwithstanding anything to the contrary in the Lease or this Exhibit B , for purposes of determining Operating Expenses for any year, including, but not limited to the Base Year, any and all charges paid by Landlord to maintain insurance with respect to the Office Building Project ( Insurance Costs ) shall also be segregated. Any increases in Insurance Costs for any calendar year subsequent to the Base Year shall be determined separately, based on the total dollar increase, if any, in all Insurance Costs paid or incurred in such calendar year over Insurance Costs paid or incurred by Landlord in the Base Year.
C. Actual Operating Expenses for the Base Year and each subsequent calendar year shall be adjusted, if necessary, to equal Landlords reasonable estimate of Operating Expenses for a full calendar year with the total area of the Building occupied during such full calendar year; provided, however, Landlord shall not in any year collect in excess of one hundred percent
(100%) of the actual Operating Expenses paid or incurred by Landlord in any calendar year.
D. Landlord reserves the right to, in good faith, establish classifications for the equitable allocation of Operating Expenses that are incurred for the direct benefit of specific types of tenants or users in the Building (Cost Pools). Such Cost Pools may include, but shall not be limited to, office, ground floor retail, and lower level basement, tenants of the Building and tenants of any other building(s) within the Office Building Project. Landlords determination of such allocations in a manner consistent with the terms and conditions of this section shall be final and binding on Tenant. Tenant acknowledges that the allocation of Operating Expenses among Cost Pools does not affect all Operating Expenses, and is limited to specific items that are incurred or provided to tenants of Cost Pools which Landlord determines, in good faith, it would be inequitable to share, in whole or in part, among tenants of other Cost Pools in the Building.
E. As used in this Lease, Property Taxes shall mean all taxes, assessments, excises, levies, fees and charges (and any tax, assessment, excise, levy, fee or charge levied wholly or partly in lieu thereof or as a substitute therefor or as an addition thereto) of every kind and description, general or special, ordinary or extraordinary, foreseen or unforeseen, secured or unsecured, that are levied, assessed, charged, confirmed or imposed by any public or government authority on or against, or otherwise with respect to, the Building or any part thereof or any personal property used in connection with the Building, or any charge or fee imposed by any federal, state or local government, district or agency for fire protection, public transportation, housing, trash removal, sidewalk, street maintenance or other public service(s). Property Taxes shall not include net income (measured by the income of Landlord from all sources or from sources other than solely rent), franchise, documentary transfer, inheritance or capital stock taxes of Landlord, unless levied or assessed against Landlord in whole or in part in lieu of, as a substitute for, or as an addition to any Property Taxes.
F. In addition to all rent and other charges to be paid by Tenant under the Lease, Tenant shall reimburse Landlord upon demand for all taxes, assessments, excises, levies, fees and charges including all payments related to the cost of providing facilities or services, whether or not now customary or within the contemplation of Landlord and Tenant, that are payable by Landlord and levied, assessed, charged, confirmed or imposed by any public or government authority upon, or measured by, or reasonably attributable to (i) the cost or value of Tenants equipment, furniture, fixtures and other personal property located in the Premises or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, regardless of whether title to such improvements is vested in Tenant or Landlord, (ii) any rent payable under this Lease, including any gross income tax or excise tax levied by any public or government authority with respect to the receipt of any such rent, but excluding franchise, income taxes or other taxes based on net income that are imposed upon Landlord, (iii) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or (iv) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. All taxes, assessments, excises, levies, fees and charges payable by Tenant under this Exhibit shall be deemed to be, and shall be paid as, additional rent.
EXHIBIT C
RULES AND REGULATIONS OF
2055-2075 WOODSIDE Road
COMMON AREAS
The sidewalks, halls, passages, exits, entrances, elevators and stairways of the Building shall not be obstructed by Tenant or used for any purpose other than for ingress to and egress from the Premises. The halls, passages, exits, entrances, elevators and stairways are not for the general public and Landlord shall in all cases have the right to control and prevent access thereto of all persons (including, without limitation, messengers or delivery personnel not wearing uniforms) whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation or interests of the Building and its tenants. Neither Tenant nor any agent, employee, contractor, invitee or licensee of Tenant shall go upon the roof of the Building. Landlord shall have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement or location of entrances or passageways, doors or doorways, corridors, elevators, stairs, toilets and common areas of the Building.
SIGNS
No sign, placard, picture, name, advertisement or notice visible from the exterior of the Premises shall be inscribed, painted, affixed or otherwise displayed by Tenant on any part of the Building or the Premises without the prior written consent of Landlord. Landlord will adopt and furnish to tenants general guidelines relating to signs inside the Building. Tenant agrees to conform to such guidelines. All approved signs or lettering shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. Material visible from outside the Building will not be permitted.
PROHIBITED USES
The Premises shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted on the Premises except that private use by Tenant of microwave ovens and/or Underwriters Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages will be permitted, provided that such use is in accordance with all applicable federal, state and municipal laws, codes, ordinances, rules and regulations. Tenant shall not use electricity for lighting, machines or equipment in excess of four (4) watts per square foot.
JANITORIAL SERVICE
Tenant shall not employ any person other than the janitor of Landlord for the purpose of cleaning the Premises unless otherwise agreed to by Landlord in writing. Except with the written consent of Landlord, no persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the Premises.
KEYS
Landlord will furnish Tenant without charge with two (2) keys to each door lock provided in the Premises by Landlord. Landlord may make a reasonable charge for any additional keys requested by Tenant. Tenant shall not have any such keys copied or any keys made. Tenant shall not alter any lock or install a new or additional lock or any bolt on any door of the Premises. Tenant, upon the termination of this Lease, shall deliver to Landlord all keys to doors in the Building.
MOVING PROCEDURES
Landlord shall designate appropriate entrances for deliveries or other movement to or from the Premises of equipment, materials, supplies, furniture or other property, and Tenant shall not use any other entrances for such purposes. All moves shall be scheduled and carried out during non-business hours of the Building. All persons employed and means or methods used to move equipment, materials, supplies, furniture or other property in or out of the Building must be approved by Landlord prior to any such movement. Landlord shall have the right to prescribe the maximum weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on a platform of such thickness as is necessary properly to distribute the weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and all damage done to the Building by moving or maintaining such property shall be repaired at the expense of Tenant.
NO NUISANCES
Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. Tenant shall not use or keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business in the Building, nor shall any animals be brought or kept in the Premises or the Building.
BUSINESS HOURS
Landlord establishes the hours of 7:00 a.m. to 6:00 p.m., Monday through Friday, except generally recognized holidays (business days), as reasonable and usual business hours for the purposes of this Lease.
ACCESS TO BUILDING
Landlord reserves the right to exclude from the Building during the evening, night and early morning hours beginning at 6:00 p.m. and ending at 7:00 a.m. Monday through Friday, and at all hours on Saturdays, Sundays, union holidays and legal holidays, all persons who do not present identification acceptable to Landlord. Tenant shall provide Landlord with a list of all persons authorized by Tenant to enter the Premises and shall be liable to Landlord for all acts of such persons. Landlord shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In the case of invasion, mob, riot, public excitement or other circumstances rendering such action advisable in Landlords opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such action as Landlord may deem appropriate, including closing doors.
USE OF NAME OF BUILDING
Tenant shall not use the name of the Building for any purpose other than as an address of the business to be conducted by Tenant in the Premises. Landlord shall have the right to change the name, address or title of the Office Building Project or the Building.
BUILDING DIRECTORY
The directory of the Building will be provided for the display of the name and location of Tenant. Landlord reserves the right to restrict the amount of directory space utilized by Tenant. Landlord may make a reasonable charge for the replacement of directory slots/panels requested by Tenant.
WINDOW COVERINGS
No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with any window of the Building without the prior written consent of Landlord. In any event, with the prior written consent of Landlord, such items shall be installed on the office side of Landlords standard window covering and shall in no way be visible from the exterior of the Building. Tenant shall keep window coverings closed when the effect of sunlight (or the lack thereof) would impose unnecessary loads on the Buildings air conditioning systems.
FOOD AND BEVERAGES
Tenant shall not obtain for use in the Premises ice, drinking water, food, beverage, or other similar services, except at such reasonable hours and under such reasonable regulations as may be established by Landlord.
BATHROOMS
The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be paid by Tenant if caused by Tenant or its agents, employees, contractors, invitees or licensees.
BICYCLES, VEHICLES
There shall not be used in any space, or in the public halls of the Building, either by Tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material handling equipment as Landlord approves. No other vehicles of any kind, except as hereinafter provided, shall be brought by Tenant into the Building or kept in or about
the Premises. Bicycles are permitted in the Building only in the areas designated by Landlord and only in accordance with rules and regulations adopted by Landlord for bicycles and bicycle owners.
TRASH REMOVAL
Tenant shall store all its trash and garbage within the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of office building trash and garbage in the city or county in which the Building is located without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. Tenant shall crush and flatten all boxes, cartons and containers. Tenant shall pay extra charges for any unusual trash disposal.
NO SOLICITING
Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Building are prohibited, and Tenant shall cooperate to prevent the same.
NO SMOKING
There shall be NO SMOKING in the Building or in the immediate area of the entrances to the Building as designated by Landlord.
PARKING RULES
1. Automobile parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called Permitted Size Vehicles.
2. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenants employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities.
3. Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Landlord is not responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area.
4. The maintenance, washing, waxing or cleaning of vehicles in the parking structure or anywhere on the property is prohibited.
5. Tenant shall be responsible for ensuring that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements.
6. Landlord reserves the right to modify these rules and/or adopt such other reasonable and nondiscriminatory rules and regulations as it may deem necessary for the proper operation of the parking area.
7. Parking herein provided is intended as a license only and no bailment is intended or shall be created hereby.
8. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking.
WAIVER
Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building.
SUPPLEMENTAL TO LEASE
These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants of this Lease.
EXHIBIT D
TENANT IMPROVEMENTS
Landlord will perform, at its sole cost and expense, the work described in this Exhibit D (the Tenant Improvements), and shall deliver the Premises to Tenant with the Tenant Improvements completed, subject to punchlist items. Landlord shall correct and complete the items on such punchlist promptly after such written notice from Tenant. If Tenant fails to provide such written notice of punchlist items to Landlord on or before the date that is thirty (30) days after the date Landlord delivers possession of the Premises to Tenant, then Tenant shall be deemed to have waived the right to require Landlord to perform such punchlist items. The Tenant Improvements shall be the improvements described in the scope of work (Scope of Work) prepared by E.A. Davidovits & Co., Inc. and attached hereto as Schedule 1 and as depicted in the space plan (the Space Plan) attached hereto as Schedule 2 . Except as noted in the Scope of Work and the Space Plan, Landlord shall utilize Building Standard (as defined below) materials for improvement to the Premises. By its execution of the Lease, Tenant hereby authorizes Landlord to perform and commence work on the Tenant Improvements through contractors selected and under the supervision and control of Landlord. As used herein, the term Building Standard refers to the materials maintained in stock or typically used by Landlord for use in the improvement of tenant space in the Building.
In the event of any Tenant Delays (as that term is hereinafter defined), the Commencement Date of the Lease shall be determined based on the date Landlord in good faith determines it would have substantially completed the Tenant Improvements without the delays attributable to Tenant Delays. As used herein, the term Tenant Delays shall mean any delay that Landlord may encounter in the performance of Landlords obligations under this Exhibit D or the Lease to construct the Tenant Improvements because of any act or omission of any nature by Tenant or its agents, including, without limitation, delays resulting from changes in or additions to the plans for the Tenant Improvements; delays due to the failure to promptly give authorizations or approvals required by to enable Landlord to proceed with any work; or delays due to the postponement of any Landlord work at the request of Tenant.
Landlord shall have the right to cease all work in the event the number of days attributable to Tenant Delays exceeds the aggregate of twenty (20) days, unless Tenant gives unconditional approval to all Tenant Improvements in a manner requested by Landlord to allow Landlord to proceed with the immediate construction of the Tenant Improvements. The failure of Tenant to provide such unconditional approval within three (3) business days after written demand therefor from Landlord shall constitute a non-curable Event of Default under the Lease.
SCHEDULE 1
SCOPE OF WORK
E.A. DAVIDOVITS & CO., INC.
GENERAL CONTRACTORS
REMODEL OF SUITE #270, 2055 WOODSIDE RD.
SCOPE OF WORK, JOB QUALIFICATIONS AND ALTERNATE PRICING
SCOPE OF WORK: E.A. DAVIDOVITS & CO, INC. will provide labor, equipment, and materials necessary to perform the work shown on attach floor plan EXHIBIT A and described in proposal EXHIBIT B, attached hereto, as follows:
1) DEMOLITION:
Includes: Safe off electrical, plumbing and mechanical systems prior to start of demo. Demolition of interior ceiling tile (broken or stained), excess doors, frames, side-lights, walls, flooring (carpet and existing top set base) required for new suite configuration. Also includes removal and lawful disposal of debris generated by demolition
Excludes: The testing for and/or removal of any hazardous materials such as asbestos or lead and all other demolition work not detailed on the plans or described under inclusions above.
2) CONCRETE: N I C
3) STRUCTURAL STEEL: N I C
4) MASONRY: N I C
5) ROUGH CARPENTRY:
Includes: Provide all materials and labor required to install backing required to secure new break room cabinetry to walls
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
6) ACOUSTICAL CEILINGS:
Includes: Provide materials and labor required to replace all damage, broken and stained ceiling tiles
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
7) CABINETRY:
Includes: Provide shop drawings and p-lam finish materials samples for tenant selection and approvals. Provide a labor and materials to fabricate and install 8 LF of base cabinets, counter tops, and
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555 PRICE AVENUE, SUITE 200 |
REDWOOD CITY, CA 94063 |
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LICENSE #708744 |
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(650) 366-6068 · FAX (650) 368-1188 |
upper cabinets for new break room. Casework bodies to be constructed from white melamine with plastic laminate veneer at exposed to view cabinet surfaces. Countertops to be plastic laminate with waterfall edge and 4 back splash and one 4 side splash
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
8) DOORS, FRAMES, HARDWARE AND SIDE LIGHT FRAMES:
Includes: Provide all labor and materials to install new pre-finished stain graded wood doors with aluminum frames and ADA compliant operating hardware (pricvacy door latch and door stop) to match existing; remove and relocate existing doors, fames and hardware as possible; provide new sidelight frames with mid span vertical mullions as required.
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
9) GLASS/GLAZING:
Includes: Provide all labor and materials to glaze all new sidelights with 1/4 glass, tempered as required for code compliance; and at relocated side lights reuse existing glazing materials: and provide
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
10) DRYWALL/METAL STUDS:
Includes: Provide all labor and materials required install new ceiling height drywall partitions shown on plans; patch existing door openings; cut in for new door openings; patch demolition scars, patch existing wall surfaces to prep for painting; and finish all new and repaired drywall finishes to match the existing drwall surface finishes.
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
11) FINISHES:
Includes: Provide labor and material require for final janitorial at suite after completion of construction, including dusting, vacuuming carpet, waxing new VCT flooring, and cleaning interior glass surfaces only
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
12) FLOORING:
Includes: Provide cost appropriate samples for tenant selection. Provide labor and materials to install new carpet over 32 oz. commercial padding throughout suite, except in break room (allowance is $24 per square yard); prepare sub flooring and install new VCT at break room (Armstrong Excelon); and install new rubber top set base at all walls in suite and patch common corridor as required.
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
13) THERMAL/ACOUSTICAL:
Includes: Provide labor and materials required for the installation of acoustical batt insulation at all new walls and a 4 runner of acoustical batt insulation above the ceiling over new walls (extend 2 at either side of all new walls)
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
14) PAINTING/WALL COVERINGS:
Includes: Provide brush outs for approval of tenants color selections using eggshell enamel by Kelley Moore Paint. Provide labor and materials to prepare and prime as required (spot prime only at existing walls) and paint all interior walls of suite applying 1 finish coat to cover: allow for one accent color at walls of suite; paint affect walls outside of suite resulting from door patches and new door cut in from corner to corner to best possible match; and touch up existing doors as possible (not refinished).
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
15) GENERAL CONDITIONS:
Includes: Provide labor and materials to perform clean up and debris disposal throughout the course of construction; provide supervision and project management, on part time basis, required to manage project, assure quality of construction and timely completion of the project; provide tools, equipment and scaffolding required for build project; provide temporary barricades (temp closure at new front door opeing) to secure project; provide protection at existing common area building
finish to prevent damage; and provide and maintain temporary sanitation facilities for use by the construction crews.
Excludes: Contractor will not provide for or cost of course of construction temp utilities, to be provide by owner/tenant. All other work under this division not detailed on the plans or described within inclusions above.
16) SPECIALTIES:
Includes: Provide labor and materials to provide and install 1 each fire cabinet with signage and 5# extinguisher (location to be determined by fire marshall); provide and install 9 each new mini blinds at the perimeter exterior window line of building as required by new wall layout
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
17) FURNISHINGS: N I C
18) EQUIPTMENT: N I C
19) MECHANICAL:
A) Fire Protection/Sprinklers: N I C
B) HVAC:
Includes: Provide all labor and materials to safe off existing system, re-rout/distribute existing and new duct work, provide new registers, reuse existing thermostats, and install new 70 CFM exhaust fan in break room
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
C) Plumbing:
Includes: Provide all labor and materials to install new waste water line, break room sink and trim, and insta-hot water heater
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
20) ELECTRICAL:
Includes: Provide all labor and materials required to install eight each new parabolic style light fixtures, relocate eleven each existing parabolic light fixtures, relocate 1 each existing exit light, install ten each new OCS style light switches, install one each ceiling mounted OCS to control open area, provide nineteen each new duplex receptacles, install ten each new ring and strings for
data/telco by tenant, provide two each base feeds (inc two circuits) for new tenant provided cubicals, provide five new circuits for added plugs, and allow to re-circuit existing lights and plugs after demo and reconfiguration
Excludes: All other work under this division not detailed on the plans or described within inclusions above.
QUALIFICATIONS:
1) |
Proposal will only be valid for thirty days from date on EXHIBIT A. |
2) |
Proposal assumes that all work will be performed during standard working hours, neither shift nor over time have been included. |
3) |
Proposal assumes that existing HVAC and Electrical Systems are sufficient for requirements the new construction |
4) |
Proposal does not cover added work at roof (i.e. roof screens) |
ALTERNATE PRICING: ( not included in the contract amount)
1) |
Asbestos and/or hazardous materials sampling by EAD |
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$650 |
2) |
Blue printing, deliveries, etc (@ cost x 1.2) |
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TBD |
3) |
Special inspection, if required |
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By Owner |
A.D.A. DISCLOSURE: In accordance with state regulations, the local chief building official could, at his or her discretion, request that an additional amount, equivalent to 20% of the contract, be spent on handicap accessibility upgrades to the building. This applies to improvements up to $120,000; when this sum has been exceeded, by adding together any improvements to the building done after January 26, 1992, the chief building official could require a complete handicap upgrade of the building. None of these costs are included in this contract unless otherwise noted.
SPECIFIC EXCLUSIONS: Any items not specifically shown on plans or described herein; Overtime, union labor rates, repairs of existing code violations, phone/data wiring, removal of hazardous substances (i.e., asbestos or lead paint), panic hardware, fire or burglar alarm work, removal or relocation of concealed utility lines, or responsibility for accidental cutting of same; any work to buildings HVAC equipment or controls.
ASBESTOS AND LEAD REMOVAL: The OSHA Asbestos in the Construction Industry standard (29 CFR 1926.1101) states the following: Building and/or facility tenants shall notify the contractor and/or their authorized representative about the presence, location, and quantity of ACM or PCBM at the worksites in their building.
(A) Prospective employers applying or bidding for work whose employees reasonably can be expected to work in or adjacent to areas containing such material.
N.I.C - Denotes items that are not in contract. These items are not included in the scope of work.
EXHIBIT E
COMMENCEMENT MEMORANDUM
This Lease Commencement Memorandum (Memo) confirms specific terms outlined in the lease dated , 20 (Lease), by and between WOODSIDE ROAD HOLDINGS, LLC, a California limited liability company (Landlord), and SKINTELLIGENCE, INC., a Delaware corporation (Tenant), located at 2055 Woodside Road, Suite 270, Redwood City, California (Premises).
In accordance with the terms and conditions of the above referenced Lease, Tenant hereby accepts possession of the Premises and agrees as follows:
Commencement & Expiration Dates
Commencement Date of the Lease: ;
Expiration Date of the Lease: .
Premises
Suite: .
Total Rentable Square Feet:
Tenants Percentage Share: % ( rentable square feet of / rentable square feet)
Rent
Base Rent is confirmed as outlined below.
Rent Period |
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Monthly Rent |
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Period 1 |
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$ |
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$ |
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Period 2 |
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$ |
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$ |
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Period 3 |
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$ |
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$ |
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Tenant Improvements
Landlord has completed construction of the Tenant Improvements identified in the Lease. Tenant accepts the Tenant Improvements.
Security Deposit
Landlord has received Tenants Security Deposit of $ as outlined in the Basic Lease Information.
Parties to acknowledge their acceptance of this Memo by signing two (2) originals copies to be distributed to Landlord and Tenant. Terms not specifically outlined or modified in this Memo shall remain in effect as outlined in Lease.
AGREED AND ACCEPTED on , .
[SIGNATURES ON NEXT PAGE]
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ( Amendment ) is entered into as of November 18, 2011 (the Effective Date ), by and between WOODSIDE ROAD HOLDINGS, LLC, a California limited liability company ( Landlord ) and DERMIRA, INC., a Delaware corporation ( Tenant ).
RECITALS
This Amendment is based upon the following facts, understandings and intentions of the parties:
A. Landlord owns that certain building commonly known as 2055 Woodside Road, Redwood City, California (the Building ).
B. Landlord and Tenant (formerly known as Skintelligence, Inc., a Delaware corporation) entered into that certain Lease dated as of September 12, 2011 (the Existing Lease ) with respect to Suite 270 of the Building, consisting of approximately two thousand eight hundred fifty-one (2,851) rentable square feet ( Suite 270 ).
C. On or about September 9, 2011, Tenant changed its name from Skintelligence, Inc. to Dermira, Inc.
D. Tenant wishes to expand the Premises to include Suite 290 ( Suite 290 ) of the Building. Suite 290 is approximately one thousand seventy-six (1,076) rentable square feet and is more particularly shown on Exhibit A attached hereto.
E. Landlord and Tenant now desire to amend the Existing Lease as more particularly described in the terms and conditions hereinafter set forth. The Existing Lease, as modified by this Amendment, shall hereinafter be referred to as the Lease .
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions . All capitalized terms not otherwise defined herein shall have the same meanings utilized in the Existing Lease; provided, however, that to the extent any capitalized term is defined in this Amendment differently from the definition given in the Existing Lease, the definition utilized in this Amendment shall be controlling.
2. Amendment to Existing Lease . This Amendment shall constitute an amendment to the Existing Lease. Except as specifically modified by this Amendment, all of the terms and conditions of the Existing Lease shall remain unmodified and in full force and effect.
3. Premises . Effective as of the date (the Expansion Date ) that is the later to occur of (a) the date that Landlord delivers Suite 290 to Tenant in the condition required in this Amendment, and (b) the date that is thirty (30) days after the date that Landlord delivers possession of Suite 270 to Tenant pursuant to the terms and conditions of the Existing Lease, the Premises described in the Basic Lease Information of the Existing Lease shall be deleted in its entirety, and in its place there shall be inserted the following:
PREMISES: |
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Suites |
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Rentable Square Footage |
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270 and 290 |
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3,927 r.s.f. |
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Effective as of the Expansion Date, Exhibit A attached to this Amendment shall be appended to and made a part of Exhibit A attached to the Existing Lease.
4. Tenants Percentage Share . Effective as of the Expansion Date, the Tenants Percentage Share described in the Basic Lease Information of the Existing Lease shall be deleted in its entirety, and in its place there shall be inserted the following:
TENANTS PERCENTAGE SHARE: Thirteen and 78/100 Percent (13.78%)
5. Base Rent . Notwithstanding anything to the contrary contained in the Existing Lease, including, but not limited to the Rent described in the Basic Lease Information of the Existing Lease, effective as of the Expansion Date, the Base Rent payable pursuant to the Lease for the following periods shall be in the following amounts:
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Monthly |
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Annual |
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Period |
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Base Rent |
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Base Rent |
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For the period commencing on the Expansion Date through the day immediately preceding the 1 Year Anniversary |
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$ |
13,705.23 |
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$ |
164,462.76 |
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For the period commencing on the 1 Year Anniversary through the day immediately preceding the 2 Year Anniversary |
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$ |
14,097.93 |
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$ |
169,175.16 |
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For the period commencing on the 2 Year Anniversary through the Expiration Date |
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$ |
14,490.63 |
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$ |
173,887.56 |
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6. Security Deposit - Amount . On or before the Effective Date, Tenant shall increase the Security Deposit held by Landlord under the Lease to Forty-Two Thousand Four Hundred Eleven and 60/100 Dollars ($42,411.60) by delivering to Landlord the amount of Eleven Thousand Six Hundred Twenty and 80/100 Dollars ($11,620.80) (the Additional Security Deposit ). Upon Landlords receipt of the Additional Security Deposit, the Security Deposit described in the Basic Lease Information of the Existing Lease shall be deleted in its entirety, and in its place there shall be inserted the following:
SECURITY DEPOSIT: $42,411.60, subject to Paragraph 25 below
7. Security Deposit - Disposition . Effective as of the Expansion Date, Paragraphs 25(b) and 25(c) of the Existing Lease shall be deleted in their entirety, and in their place there shall be inserted the following:
(b) On the first (1st) anniversary of the Commencement Date (the First Deposit Reduction Date ), if Tenant is not then in default under this Lease, and to the extent that the Security Deposit then held by Landlord hereunder exceeds Twenty-Eight Thousand Two Hundred Seventy-Four and 40/100 Dollars ($28,274.40) (such excess amount hereinafter referred to as the First Excess Security Deposit ), then Landlord shall return to Tenant the First Excess Security Deposit within thirty (30) days after the First Deposit Reduction Date. Upon such return of the First Excess Security Deposit to Tenant, the Security Deposit under this Lease shall thereafter be equal to Twenty-Eight Thousand Two Hundred Seventy-Four and 40/100 Dollars ($28,274.40), and Landlord shall have satisfied all obligations to Tenant with respect to the First Excess Security Deposit, including, without limitation, any obligation to return such amount to Tenant described in this Lease or arising under any applicable law. On the First Deposit Reduction Date, if there is then an Event of Default under this Lease, or if the First Excess Security Deposit equals Zero and No/100 Dollars ($0.00), then in either such event the amount of the Security Deposit shall be unchanged and Landlord shall have no obligation to return any portion of the Security Deposit to Tenant.
(c) If the Security Deposit has been reduced pursuant to the terms of Paragraph 25(b) above, then on the second (2nd) anniversary of the Commencement Date (the Second Deposit Reduction Date ), if Tenant is not then in default under this
Lease, and to the extent that the Security Deposit then held by Landlord hereunder exceeds Fourteen Thousand One Hundred Thirty-Seven and 20/100 Dollars ($14,137.20) (such excess amount hereinafter referred to as the Second Excess Security Deposit ), then Landlord shall return to Tenant the Second Excess Security Deposit within thirty (30) days after the Second Deposit Reduction Date. Upon such return of the Second Excess Security Deposit to Tenant, the Security Deposit under this Lease shall thereafter be equal to Fourteen Thousand One Hundred Thirty-Seven and 20/100 Dollars ($14,137.20), and Landlord shall have satisfied all obligations to Tenant with respect to the Second Excess Security Deposit, including, without limitation, any obligation to return such amount to Tenant described in this Lease or arising under any applicable law. On the Second Deposit Reduction Date, if there is then an Event of Default under this Lease, or if the Second Excess Security Deposit equals Zero and No/100 Dollars ($0.00), then in either such event the amount of the Security Deposit shall be unchanged and Landlord shall have no obligation to return any portion of the Security Deposit to Tenant. If the Security Deposit has not been reduced pursuant to the terms of Paragraph 25(b) above, then the Security Deposit shall not be reduced pursuant to the terms of this Paragraph 25(c) .
8. Unreserved Parking Spaces . Effective as of the Expansion Date, the Security Deposit described in the Basic Lease Information of the Existing Lease shall be deleted in its entirety, and in its place there shall be inserted the following:
UNRESERVED PARKING SPACES: |
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Tenant shall have access to twelve (12) unreserved parking spaces on an as-is available basis |
9. Floor Plan of Suite 270 . Certain improvements originally intended to be performed by Landlord and delivered to Tenant in connection with Suite 270 will now be performed by Landlord and delivered in connection with Suite 290, and as a result thereof, Exhibit A of the Existing Lease shall be deleted in its entirety and shall be replaced with Exhibit D attached hereto.
10. Tenant Improvements Space Plan . Schedule 2 of Exhibit D of the Existing Lease shall be deleted in its entirety and replaced with Exhibit C attached hereto.
11. Landlords Work; Condition of Suite 290 . Landlord shall construct and install in Suite 290 the improvements ( Landlords Work ) provided in, and in accordance with, Exhibit B attached hereto. As of the Expansion Date, all building systems serving Suite 290, including standard ceiling lighting, plumbing, life safety, and HVAC, shall be in good operating condition and working order. Except as otherwise expressly provided in the Lease, Tenant accepts Suite 290 in its existing AS-IS condition and Tenant acknowledges and agrees that Landlord has no obligation to and has made no promise to alter, remodel, improve, or repair Suite 290 or any part thereof, or to bring Suite 290 into compliance with applicable laws, or to improve any condition existing therein.
12. Tenants Work . Tenant shall bear and pay all of the costs ( Tenant Work Costs ) incurred in connection with the installation of furniture and data and telecommunication wiring in Suite 290 (collectively, Tenants Work ). Upon completion of Tenants Work, Tenant shall deliver written notice ( Tenants Completion Notice ) notifying Landlord that Tenant has completed performance of Tenants Work, which notice shall be accompanied by copies of paid invoices and receipts showing that full payment has been received for the performance of Tenants Work. Upon Landlords receipt of Tenants Completion Notice, Landlord shall reimburse Tenant for the Tenant Work Costs up to an aggregate maximum amount (the Allowance ) equal to the lesser of (a) Seven Thousand Five Hundred and No/100 Dollars ($7,500.00), and (b) the actual amount of Tenant Work Costs. Tenant shall not be entitled to a credit for any unused portion of the Allowance in the form of rent abatement or otherwise. Notwithstanding anything to the contrary contained in this Amendment, Landlord shall have no obligation to disburse any portion of the Allowance that remains undisbursed as of March 1, 2012.
13. No Default . As a material part of the consideration for Landlord to enter into this Amendment, Tenant hereby represents and warrants that no default has occurred or is now occurring under the Lease. Tenant agrees that no default on the part of Landlord exists in the performance of the terms, covenants, and conditions set forth in the Lease required to be performed on the part of Landlord as of the Effective Date.
14. Brokers . Other than Cornish & Carey Commercial/Newmark KnightFrank ( Broker ), Landlord and Tenant each represent and warrant to the other that it has not dealt with any broker, agent or other person in connection with the transaction evidenced by this Amendment. Landlord shall pay Broker a commission in connection with the transaction evidenced by this Amendment pursuant to a separate agreement. Each party agrees to indemnify, defend, protect and hold the other harmless from and against any claims by any broker (other than Broker), agent or other person claiming a commission or other form of compensation if in fact such person has dealt with the indemnifying party with regard to this transaction. The provisions of this Paragraph 14 shall survive the termination of the Lease.
15. Counterparts . This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.
TENANT |
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LANDLORD |
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DERMIRA, INC., |
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WOODSIDE ROAD HOLDINGS, LLC, |
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a Delaware corporation |
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a California limited liability company |
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By: |
/s/ Tom Wiggans |
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By: |
Nearon Mission Pointe Holdings II, LLC, |
Name: |
Tom Wiggans |
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a Delaware limited liability company |
Its: |
CEO |
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Its: |
Sole Member |
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By: |
Nearon Enterprises, |
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a California corporation |
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Its: |
Managing Member |
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By: |
/s/ David S. Christensen |
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David S. Christensen |
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Its: |
Co-President and Chief Operating Officer |
EXHIBIT B
Landlords Work
Landlord will perform, at its sole cost and expense, the work described in this Exhibit B ( Landlords Work ), and shall deliver Suite 290 to Tenant with Landlords Work completed, subject to punchlist items. If Tenant delivers written notice of such punchlist items to Landlord on or before the date that is thirty (30) days after the Expansion Date, then Landlord shall correct and complete the items on such punchlist promptly after such written notice from Tenant. Landlords Work shall include the following improvements, as more particularly described in the space plan attached hereto as Schedule 1 :
1. Paint interior walls.
2. Install new carpet.
3. Repair (or replace if required as reasonably determined by Landlord) ceiling tiles.
4. Convert the office identified on Schedule 1 attached hereto into one (1) private office and hallway corridor that connects Suite 270 and Suite 290.
Landlord shall utilize Building Standard materials for improvement to Suite 290. By its execution of this Amendment, Tenant hereby authorizes Landlord to perform and commence work on Landlords Work through contractors selected and under the supervision and control of Landlord.
As used herein, the term Building Standard refers to the materials maintained in stock, or typically used, by Landlord for the improvement of tenant space in the Building.
In the event of any Tenant Delays, the date that Landlord is deemed to have delivered Suite 290 to Tenant shall be determined based on the date Landlord in good faith determines it would have substantially completed Landlords Work without the delays attributable to Tenant Delays.
Landlord shall have the right to cease all work in the event the number of days attributable to Tenant Delays exceeds an aggregate of twenty (20) days, unless Tenant gives unconditional approval to all Landlords Work in a manner requested by Landlord to allow Landlord to proceed with the immediate construction of Landlords Work. The failure of Tenant to provide such unconditional approval within three (3) business days after written demand therefor from Landlord shall constitute a non-curable Event of Default under the Lease.
Exhibit 10.9
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[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
DATED MARCH 21, 2014
(1) DERMIRA, INC.
AND
(2) UCB PHARMA S.A.
DEVELOPMENT AND COMMERCIALISATION AGREEMENT
CONTENTS
1. |
DEFINITIONS AND INTERPRETATION |
1 |
2. |
CONDITIONS PRECEDENT AND FUNDING |
26 |
3. |
SCOPE OF AGREEMENT |
34 |
4. |
GOVERNANCE |
36 |
5. |
DEVELOPMENT |
49 |
6. |
INFORMATION TRANSFER AND TECHNICAL ASSISTANCE |
67 |
7. |
COMMERCIALISATION |
68 |
8. |
MANUFACTURE AND SUPPLY |
76 |
9. |
MEDICAL AFFAIRS, PHARMACOVIGILANCE AND OTHER REGULATORY MATTERS |
76 |
10. |
FINANCIAL PROVISIONS |
79 |
11. |
REPORTING |
88 |
12. |
EXCLUSIVITY AND NON-COMPETE |
90 |
13. |
COMPLIANCE |
92 |
14. |
INTELLECTUAL PROPERTY RIGHTS AND GRANT OF RIGHTS |
94 |
15. |
WARRANTIES |
101 |
16. |
INDEMNITY, LIABILITY |
104 |
17. |
CONFIDENTIALITY |
106 |
18. |
CHANGE OF CONTOL |
110 |
19. |
ASSIGNMENT |
112 |
20. |
TERM AND TERMINATION |
112 |
21. |
EFFECT OF TERMINATION |
114 |
22. |
WAIVER |
124 |
23. |
DISPUTE RESOLUTION |
124 |
24. |
ENTIRE AGREEMENT |
127 |
25. |
VARIATION |
127 |
26. |
SEVERANCE |
128 |
27. |
COUNTERPARTS |
128 |
28. |
THIRD PARTY RIGHTS |
128 |
29. |
NO PARTNERSHIP OR AGENCY |
128 |
30. |
NON-SOLICITATION OF EMPLOYEES |
128 |
31. |
FORCE MAJEURE |
129 |
32. |
NOTICES |
129 |
33. |
GOVERNING LAW AND JURISDICTION |
130 |
DEVELOPMENT AND COMMERCIALISATION AGREEMENT
THIS AGREEMENT is dated the 21 st day of March 2014 (the Effective Date ).
BETWEEN:
(1) DERMIRA, INC. , a corporation organised under the laws of the State of Delaware, with its principal offices located at 2055 Woodside Road, Suite 270, Redwood City, California 94061, the United States of America ( Dermira ); and
(2) UCB PHARMA S.A. , a limited liability corporation incorporated under the laws of Belgium, with registered office at Allée de la Recherche 60, 1070 Brussels, Belgium ( UCB )
WHEREAS:
(A) UCB is a biopharmaceutical company with experience in the discovery, development and commercialisation of antibodies as therapeutic products and is the owner of the Product (as defined below) which it is developing and commercialising in a number of indications throughout the Territory (as defined below).
(B) Dermira is a biotechnology company focused on developing and commercialising therapies in dermatology.
(C) UCB wishes to collaborate with Dermira to undertake a development program for the Product in the Development Indication (as defined below) and , on grant of Regulatory Approval for the Product in the Development Indication, for Dermira to undertake Dermira Commercial Activities (as defined below) and certain Medical Affairs activities for the Product in the Development Indication and the Promotion Indication, in each case to Dermatologists (as defined below) in the Promotion Territory (as defined below).
(D) UCB and Dermira have agreed that Dermira will Develop and undertake such Dermira Commercial Activities and Medical Affairs Activities and the Parties will Commercialise the Product as described above in accordance with the terms and conditions of this Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Agreement the following words and expressions shall have the meanings ascribed to them (unless expressly provided or the context requires otherwise) as follows:
Adverse Drug Experience means any serious, non-serious or unexpected adverse event associated with the use of a drug in humans, whether or not considered drug-related, that may come to the attention of either of the Parties or their respective
Affiliates or Third Party subcontractors of Dermira with regard to the Product, as such events may be further described in the Safety Agreement but in any event including but not limited to those that are of such a nature and magnitude that they are required under Applicable Law to be reported to the FDA, EMA, Health Canada or one or more Regulatory Authorities throughout the Territory.
Affiliate means, with respect to a Person, any Person that, directly or indirectly, through one or more intermediaries, from time to time, controls, is controlled by or is under common control with such first Person. For purposes of this definition, control and, with correlative meanings, the terms controlled by and under common control with mean (a) the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of voting securities, by contract relating to voting rights or corporate governance, or otherwise; or (b) the ownership, directly or indirectly, of at least fifty per cent (50%) of the voting securities or other ownership interest of a Person.
Aggregate Investment Amount means (a) $15,000,000 less (b) the Initial Subsequent Financing Amount.
Agreement means this development and commercialisation agreement (together with the Schedules annexed thereto, the terms and contents of which are hereby incorporated by reference), as the same may be amended, varied or otherwise altered in accordance with its terms.
Alliance Manager means an individual employee representative designated by each Party in accordance with Section 4.13 to promote effective communication between the Parties and coordination of the Parties activities and responsibilities with respect to the Product under this Agreement.
Annual Net Sales means, in relation to any given Calendar Year during the Term, the total amount of Net Sales which are Royalty Bearing Sales.
Applicable Law means the applicable laws, rules, and regulations, including any rules, regulations, guidelines, or other requirements of the Regulatory Authorities, that may be in effect from time to time in the Territory.
Arising IP means all Information and Materials arising from activities performed under this Agreement and Intellectual Property Rights subsisting therein or derived or derivable therefrom.
Audit shall have the meaning ascribed to it in Section 11.4.
Background IP means, with respect to a Party, (a) the Intellectual Property Rights Controlled by such Party or any of its Affiliates as of the Effective Date and (b) the Intellectual Property Rights to which a Party gains Control outside the activities under this Agreement during the Term and, in each case (a) and (b), that are reasonably necessary, relevant or otherwise useful for performing the activities under this Agreement and/or for the exercise of rights under any license granted hereunder as applicable.
Biologic means antibodies, proteins, conjugates or other molecules which fall within the definitions of Biological Product in Title 42 of the U.S. Code §262(i)(1) and/or Biosimilar or Biosimilarity in Title 42 of the U.S. Code §262(i)(2).
BLA means a Biologic License Application, as defined in the PHSA (42 U.S.C. § 262) and applicable regulations promulgated thereunder (or any equivalent application that replaces such application and including amendments and supplements thereto ) to obtain Regulatory Approval in the United States of America, or any corresponding applications for marketing authorisations or submissions filed with the relevant Regulatory Authorities to obtain Regulatory Approvals in any other country in the Territory.
Branding Strategy has the meaning ascribed to it in Section 7.14.
Business Day means a day other than a Saturday or Sunday on which banking institutions in Brussels, Belgium and New York, United States of America, are open for business.
Calendar Month means each of the twelve (12) calendar months in a Calendar Year.
Calendar Quarter means, with respect to any given Calendar Year, the respective periods of three (3) consecutive Calendar Months ending on March 31, June 30, September 30 or December 31; provided, however, that (i) the first calendar quarter of the Term shall extend from the Effective Date to the end of the first full calendar quarter thereafter; and (ii) the last calendar quarter of the Term shall end upon the date of termination or expiration of this Agreement.
Calendar Year means each successive period of twelve (12) consecutive Calendar Months commencing on January 1 and ending on December 31; provided, however, that (i) the first calendar year of the Term shall commence on the Effective Date and end on December 31 of the same year; and (ii) the last calendar year of the Term shall commence on January 1 of the calendar year in which this Agreement terminates or expires and end on the date of termination or expiration of this Agreement.
Cap shall have the meaning ascribed to it in Section 10.1(b).
Change of Control means, with respect to Dermira, the occurrence of any of the following events:
(i) the acquisition by any Third Party (or a group of Third Parties acting in concert), whether in a single transaction or a series of related transactions, of beneficial ownership of securities of Dermira representing more than fifty percent (50%) of the combined voting power of Dermiras then outstanding securities entitled to vote generally in the election of directors, provided, that (A) Dermiras current stockholders shall not be deemed to be acting in concert by virtue of their current or future ownership of Dermira securities or rights as security holders (including rights to nominate members of Dermiras board of directors) and (B) Third Parties who purchase Dermira securities in future financing transactions, including a public offering, shall not be deemed to be acting in concert by virtue of purchasing the same securities and collectively negotiating, or
receiving, their rights as security holders in such financing transactions;
(ii) the consummation of a merger (including without limitation any reverse merger or other similar transaction or series of transactions) or consolidation of Dermira with a Third Party, which results in (1) Dermiras voting securities outstanding as immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the surviving or another entity) fifty percent (50%) or less of the combined voting power of the voting securities of, as applicable, Dermira or such surviving or other entity which are outstanding as immediately after such merger or consolidation or (2) a change of fifty percent (50%) or more of either the members of Dermiras incumbent board of directors or executive management (Executive Vice Presidents and above) directly responsible for Development and Dermira Commercial Activities, in either case, as existing immediately prior thereto.
(iii) the bona fide sale, transfer, exclusive licence, or other disposition, whether in a single transaction or series of related transactions, by Dermira (or its Affiliates) to a Third Party of all or substantially all the assets of Dermira and its Affiliates taken as a whole, provided that such assets include the right to Develop and/or Commercialise the Product as provided under this Agreement.
CIA or Corporate Integrity Agreement shall have the meaning ascribed to it in Section 13.4.
Cimzia® means the PEGylated fragment (Fab) of an anti-TNF a antibody, owned and Commercialised by UCB as Cimzia ® , having the INN certolizumab pegol .
Cimzia® Trademarks means the Trademarks listed in Schedule 1 , Part A and such other Trademarks that UCB should decide to use to brand or market the Product.
Clinical Study means a human clinical trial in human subjects that is required by Applicable Law, or otherwise recommended by the Regulatory Authorities, to obtain or maintain Regulatory Approval.
CMC Data means the chemistry, manufacturing and controls Information required by Applicable Law or otherwise desirable to support any Drug Approval Application in the Territory.
Combination Product means a product incorporating Cimzia® as an active ingredient together with one or more other active ingredient(s) that is sold either as a fixed dose or as separate doses in a single package.
Commencement Date means the date on which this Agreement comes into full force and effect in accordance with Section 2.2.
Commercial Functions means with respect to each country within the Territory in relation to both the Promotion Indication and the Development Indication, those
activities related to Commercialisation for which UCB has responsibility (unless otherwise delegated by UCB to Dermira as set forth in this Agreement) and final decision making authority, as set out in Schedule 2 .
Commercially Reasonable Efforts means a level of commercially reasonable efforts to Develop, obtain Regulatory Approval, supply and Commercialise and perform Medical Affairs activities for the Product that are consistent with the type and scope of efforts a company similarly situated as the applicable Party would devote to a Product wholly-owned by such Party at a similar stage of Development and Commercialisation. Without limiting the foregoing, Commercially Reasonable Efforts require that each Party: (i) assign responsibility for the relevant activities to specific employees who are responsible for progress and monitor such progress on a regular basis; (ii) set and consistently seek to achieve specific and meaningful objectives and timelines for carrying out such activities; and (iii) consistently make and implement decisions and allocate resources consistent with the efforts described above. Commercially Reasonable Efforts shall be determined on a market-by-market and indication-by-indication basis for the Product, and it is acknowledged and understood that the level of efforts will be different for different markets and may change over time, and may take into account issues of safety and efficacy, product profile, market opportunity and profitability, the Patent and other proprietary position of the Product, and the then current competitive environment for the Product.
Commercialisation means, with respect to the Product: (a) any and all activities (whether before or after Regulatory Approval) related to the market access activities, pricing and reimbursement activities, marketing research, marketing, detailing, and promotion of the Product and (b) after Regulatory Approval for commercial sale has been granted, distributing, distribution channels, logistics, packaging, offering to commercially sell and commercially selling the Product, importing, exporting or transporting the Product for commercial sale with respect to the foregoing. For clarity, Commercialisation shall not include any Medical Affairs activities. When used as a verb, Commercialising means to engage in Commercialisation and Commercialise and Commercialised shall have corresponding meanings.
Commercialisation Plan means a detailed, annual, consolidated plan for the Commercialisation of the Product by the Parties (including the Dermira Commercial Activities) in the Promotion Territory in the Promotion Indication and the Development Indication, as applicable. Commercialisation Plan, as used in this Agreement, shall be deemed to include the plans contained therein to the extent applicable the Commercialisation of the Product by the Parties in the Promotion Territory in the Promotion Indication and the Development Indication, including but not limited to, and to the extent applicable to the same, Local Dermira Commercial Plans and, in relation to the Product in the Development Indication, a Launch Plan.
Commercial Transition Plan means the plan, based on the Development and Commercial Transition Checklist, to be implemented on termination of the Dermira Commercial Activities for the Product in the Promotion Indication and the Development Indication in the Promotion Territory, details of which are to be agreed between the Parties and approved in accordance with Section 4.31(m).
Committee shall have the meaning ascribed to it in Section 4.1.
Comparator Drug means [*], or any other pharmaceutical product used as a comparator drug as the Parties may mutually agree after the Effective Date, for use in the Clinical Studies conducted for the Development of the Product in the Development Indication in accordance with the Development Plan.
Comparator Drug Placebo means the placebo supplied by UCB for use in the Clinical Studies that is formulated identically to the Comparator Drug used in the same Clinical Studies, except that the Comparator Drug Placebo does not contain the active ingredient contained in such Comparator Drug.
Comparator Drugs and Placebo means any and all (a) Comparator Drugs and (b) Placebos.
Competing Product means a product, not being the Product or a Combination Product, containing any Biologic capable of interacting with and inhibiting or decreasing the function of the Target that has as its primary mechanism of action the modulation of the Target caused by such Biologic directly binding to the Target, such primary mechanism of action delivering a pharmacological effect.
Competitor Company means any Third Party, including any Affiliates of such Third Party, who is conducting clinical development of and/or commercialising a Competing Product.
Confidential Information shall have the meaning ascribed to it in Section 17.1.
Confidentiality Agreement means the agreement, entered into between the Parties and dated July 2, 2013, and each subsequent amendment.
Contacts shall have the meaning ascribed to it in Section 4.33.
Control or Controlled means, with respect to any Information, Materials, UCB Materials, Regulatory Documentation, Patent, Trademark or other Intellectual Property Right, possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise, to assign or grant a license, sublicense or other right to or under such Information, Material, UCB Material, Regulatory Documentation, Patent, Trademark or other Intellectual Property Right as provided for in this Agreement without violating the terms of any agreement or other binding arrangement with any Third Party.
Corporate Function shall mean the performance of activities by or on behalf of each Party with respect to activities performed by non-commercial or medical departments, including without limitation charitable contributions, regulatory functions including regulatory reporting, and compliance.
Cost of Goods means, in relation to UCB, (i) for any Product and/or component of a Product that is Manufactured by UCB, (a) the costs of direct material purchased for use in the Manufacture of the Product and the costs of the Manufacture and supply of the Product (including any delivery device such as the pre-filled syringe or any autoinjector if sold (or, in the case of the clinical supply, used) with the Product), (b) depreciation, repair, maintenance and operating costs of the production facilities utilized in the
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Manufacture of the Product, (c) the costs of quality, stability and in-process controls, (d) building operating costs, other than any included in the subpart (b) above, (e) direct labour costs and reasonable overhead costs, (f) the costs of non-capitalized manufacturing process improvement and cost reduction efforts, (g) the costs of filling, finishing and packaging the Product; and (h) Third Party Royalties, in each case as determined in conformity with IFRS, consistently applied and to the extent utilized in and directly allocable to the production of the Product without allocating any excess idle capacity in any manufacturing facility to the production of the Product and/or (ii) to the extent that the Product or any component thereof (including any delivery device such as the pre-filled syringe and/or autoinjector if sold, or in the case of clinical supply, used with the Product) is Manufactured on behalf of UCB by a Third Party subcontractor, the actual amount paid by UCB to such Third Party for such Product or such component as delivered to UCB. For the purposes of this definition, reference to Product includes Sample. Cost of Goods for the Product, Samples, Product Placebo, Comparator Drug and Comparator Drug Placebo as of the Effective Date are set forth in Schedule 4 . In addition, Cost of Goods for (A) the Product (except for any New Formulations, New Presentations and/or Line Extensions) and the Product Placebo under Section 5.11 for clinical use, and/or (B) Cost of Goods for the purpose of calculating Gross Margin hereunder, in each case for a particular Calendar Year, shall not exceed [*] United States dollars (US$ [*]) [*] of the Product (consisting of [*] containing [*]) for such Calendar Year (the COGS Cap ), with such COGS Cap for a particular Calendar Year starting in [*] to be adjusted by the percentage change in the Consumer Price Index (All Urban Users) (as published by the U.S. Department of Labor Statistics) during the prior Calendar Year or, if such index is no longer published, a mutually agreed appropriate replacement index, for the preceding Calendar Year, to reflect changes in costs. COGS Cap for any New Formulation, New Presentation and/or Line Extension shall be subject to the Parties future agreement. Costs of Goods for Comparator Drug and Comparator Drug Placebo shall mean the actual amount paid by UCB to a Third Party to purchase and supply such Comparator Drug and Comparator Drug Placebo, as applicable [*].
CRF means case report form.
CRO means (i) in the first instance, [*] or (ii) such other Third Party contract research organisation recommended by the JDT and approved by the JDC in accordance with Section 3.4, and, in each case (i) and (ii), engaged by Dermira to undertake on behalf of Dermira certain or all aspects of and activities in relation to the Development of the Development Indication, which shall include at a minimum the engagement, monitoring and auditing of the clinical trial sites in connection with any Phase 3 Study or any Post-Approval Study in the Development Indication.
CRO Agreement shall have the meaning ascribed to it in Section 5.10(a)(iii).
CTA means clinical trial application and supporting documentation filed with a relevant Regulatory Authority within the European Union for authority to commence
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Clinical Studies for a medicinal product in the relevant jurisdiction, or the equivalent application or filing filed with any equivalent Regulatory Authority outside the European Union, which application shall include all documents required by Applicable Law.
Current Formulation means the approved formulations of Cimzia® (including the formulations for lyophilized vials, pre-filled syringes and the autoinjector) existing as of the Effective Date, each as described in the relevant approved BLAs existing as of the Effective Date.
Current Presentation means the lyophilized vials, the pre-filled syringe, and/or the autoinjector containing the Current Formulation which is in accordance with approved Drug Approval Applications for the Product in the Territory.
Damages shall have the meaning ascribed to in Section 16.1.
Dermatologist means a Healthcare Professional, in the relevant country within the Promotion Territory specialising in the treatment and prevention of diseases of the skin, hair or nails (including physician assistants and nurse practitioners in a Healthcare Professionals office). For clarity, for the purpose of calculating Royalty Bearing Sales, Dermatologist shall only include physician assistants and nurse practitioners to the extent such physician assistants and nurse practitioners prescribe in the name of and/or on behalf of and using the prescriptions in the name of the relevant Healthcare Professional.
Dermira Arising IP shall have the meaning ascribed to in Section 14.8.
Dermira Background IP means the Background IP of Dermira.
Dermira Board means the Board of Directors of Dermira.
Dermira Breach Termination Date means the date on which Dermira has fulfilled all of its obligations pursuant to Section 21.2 following a termination of this Agreement by UCB pursuant to Section 20.4 or Section 20.6(c).
Dermira Indemnified Parties shall have the meaning ascribed to in Section 16.2.
Dermira Product Arising IP shall have the meaning ascribed to in Section 14.9.
Dermira Commercial Activities means, with respect to the Product, those activities to be undertaken by Dermira to encourage sales of the Product, including Detailing, marketing, advertising, reimbursement field support, training for product administration, sales analytics, initiating and facilitating of the d istribution of Samples, Marketing, Corporate Function, promotional educational grants, sponsorships and other acts related to promotion, in each case to Dermatologists, details of which shall be set out in the Commercial Plan.
Dermira Responsible Parties shall have the meaning ascribed to in Section 16.1.
Detail or Detailing means an interactive face-to-face meeting or presentation, in an individual or group setting, by a Sales Representative of Dermira to a Dermatologist (including physician assistants and nurse practitioners in a Dermatologists office) in
the Promotion Territory, during which the Sales Representative discusses the Product, its approved Promotion Indication or its approved Development Indication. A Sample drop or a reminder shall not alone constitute a Detail.
Development means, with respect to the Product, all activities related to Clinical Studies, statistical analysis and report writing, the preparation of Drug Approval Applications for submission by UCB, regulatory affairs with respect to the foregoing and all other activities necessary or reasonably useful or otherwise requested or required by a Regulatory Authority as a condition or in support of obtaining or maintaining a Regulatory Approval for the Product. Development shall include any Post-Approval Studies to the extent set forth in Section 5.4. When used as a verb, Develop means to engage in Development.
Development and Commercial Transition Checklist the checklist attached to this Agreement as Schedule 3 , forming the basis of the Development Transition Plan and the Commercial Transition Plan, each to be developed by the Parties pursuant to Section 4.
Development Costs means the external costs, fees and expenses of preparing for, arranging, conducting or having conducted each Phase 3 Study or any Post-Approval Study for the Development Indication in the Development Territory, including the Cost of Goods for the Product and Comparator Drugs and Placebo, as such Clinical Studies are set out in the Initial Development Plan and, subsequently, the Development Plan.
Development Indication means (a) with respect to Development, the treatment of psoriasis in adults, and, if applicable, children, as required by the FDA, EMA or Health Canada or otherwise provided in the Development Plan; and (b) with respect to the Commercialisation activities, the treatment of psoriasis in adults, and, if applicable, children, as further defined in each of the FDA, Health Canada and EMA approved product labels, as applicable, after the grant of the applicable Regulatory Approval.
Development Plan means a detailed work plan, including a detailed breakdown of the protocols, timelines and JDC-Approved Development Budget for the conduct of: (a) each Phase 3 Study, (b) any Post-Approval Study for the Development Indication to the extent described in Section 5.4, and (c) any other Development activities with respect to the Product agreed upon by the Parties, together with the Development Responsibility Matrix and the Regulatory Responsibility Matrix.
Development Responsibility Matrix means the responsibility matrix allocating Development responsibilities between the Parties as set forth in Schedule 6 .
Development Term means the period beginning on the Effective Date and ending on the earlier of (i) the grant of Regulatory Approval in the Development Indication by each of the FDA, Health Canada and the EMA, or, if any Post-Approval Study(ies) in the Development Indication is required by the FDA, Health Canada and/or the EMA, the completion of the last of such Post-Approval Studies, or (ii) termination of this Agreement by a Party in accordance with its rights set out in Section 20.
Development Territory means those countries agreed by the JDC in which Clinical Studies are to be conducted in accordance with the Development Plan.
Development Transition Plan means the plan, based on the Development and Commercial Transition Checklist, to be implemented on termination of the Development for the Product in the Development in the Development Territory, details of are to be agreed between the Parties and approved in accordance with Section 4.23(k).
Disclosing Party has the meaning set out in Section 17.1.
Dispute means any dispute or disagreement between the Parties in connection with this Agreement, its construction, or the rights, obligations or liabilities of either Party under this Agreement which has not been settled or otherwise resolved by and between the Parties by the appropriate Committee.
Disruption and Transition Costs means those documented internal and external costs and expenses actually and reasonably incurred by Dermira directly in relation to (A) the termination of its right to Develop the Product in the Development Indication in the Development Territory and/or (B) the conduct those Dermira Commercial Activities and Medical Affairs activities agreed to be undertaken in accordance with this Agreement, including (i) the termination of its employees (including the cost of reasonable severance packages consistent with relevant market practices and pursuant to Dermiras standard policies) as a direct result of such termination of Dermiras rights; (ii) the reduction or disposal of facilities and equipment as a direct result of such termination of Dermiras rights; and (iii) the termination or modification of Third Party agreements directly applicable to such Development, Dermira Commercial Activities, and Medical Affairs activities.
Divest means, with respect to a Competing Product, a divestiture of such Competing Product to a Third Party by sale, license or otherwise; provided that if such divestiture is by way of one or more licenses or sublicenses, a Party and its Affiliates retain no rights, whether directly or indirectly, to commercialise the Competing Product through the conduct of marketing, promotion, medical affairs, distribution, supply, sales and/or regulatory activities with respect to such Competing Product. For clarity, such Party shall not be deemed to commercialise the Competing Product by virtue of having the right to: (i) receive license fees, milestone payments, royalties and other monetary consideration on the commercialisation of such Competing Product, (ii) defend claims of infringement alleged against them or their licensees, (iii) assert claims of infringement against persons who may infringe their Intellectual Property Rights with respect to the Competing Product and recover damages and other remedies in respect of the same and/or (iv) otherwise control Prosecution connected with any Patent Rights licensed in respect of the Competing Product.
Drug Approval Application means a BLA supplement (FDA), NDA supplement (Health Canada) or any corresponding foreign application in the Territory, including, with respect to the European Union, a Type II Variation application procedure (defined in Commission Regulation EC 1234/2008) filed with the EMA to vary the marketing authorisation in the European Union for the Product relating to the addition of the Development Indication.
Effective Date means the date signature of this Agreement by both Parties, being the date first above written.
EMA means the European Medicines Agency as established by Regulation (EC) 2309/93 and Regulation (EC) 726/2004, or any successor agency thereto.
EMA Development Meeting shall have the meaning ascribed to it in Section 5.2.
European Union means the economic, scientific and political organization of member states as it may be constituted from time to time, which, as of the Effective Date, consists of Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, the United Kingdom and a portion of Cyprus.
Excluded Sales shall have the meaning ascribed to it in Section 10.11.
Expiry Date means the date on which all valid claims of U.S. Patent No. [*] w have expired or the last unexpired valid claim is declared invalid and revoked by a judgment of a court of final determination with no right of appeal against such judgment.
Extended Unit Sales shall have the meaning ascribed to it in Section 10.9(a).
Fair Market Value shall have the meaning ascribed to it, and shall be determined in accordance with the mechanism set out, in Section 21.7.
FDA means the United States Food and Drug Administration and any successor agency thereto.
FDA Development Meeting means the pre-Phase 3 Study meeting or correspondence with the FDA with respect to the Product for the purpose of seeking the guidance from and acceptance by the FDA of the content of Initial Development Plan.
Financing means any sale or series of related sales by Dermira of convertible preferred stock after the date of this Agreement.
GCP means Good Clinical Practices as set forth in, as applicable, the ICH Harmonized Guidance on Good Clinical Practice (CPMP/ICH/135/95), 21 C.F.R. Parts 50 and 56 et seq., and other equivalent regulations or standards in the Territory, including as such standards, practices, procedures, requirements and regulations may be amended from time to time.
GMP means Good Manufacturing Practices as set forth in, as applicable, 21 C.F.R. Part 210, et seq., the Rules Governing Medicinal Products in the European Union volume 4, and other equivalent regulations or standards in the Territory, including as such standards, practices, procedures, requirements and regulations may be amended from time to time.
Gross Margin means the Royalty Bearing Sales of Product minus (i) the Cost of Goods of the Product to which such Royalty Bearing Sales pertain; (ii) the Cost of Goods of Samples provided by UCB to Dermira during the applicable accounting period; (iii) the UCB Commercialisation Cost Deductions as set forth in Section 7.7;
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(iv) Branded Prescription Drug Tax as described in Section 10.12; (v) the costs of Recall as expressly set forth in Section 9.6; and (vi) the out of pocket shipping costs actually incurred by UCB for the shipment of the Samples for use by Dermira in connection with the Dermira Commercial Activities. An example of the calculation of the Gross Margin is set forth in Schedule 7 .
Gross Sales shall be calculated in accordance with the mechanism set out in Schedule 7 , and have the meaning ascribed to it, in Section 10.9.
Health Canada means Canadian federal department for health or any successor agency thereto.
Healthcare Professional means a doctor of medicine (for example, MD or MBBS) who is authorised or otherwise licensed to practice medicine or surgery in the state, territory or country in which the doctor practices, and any other healthcare professional who is legally authorized to prescribe medication.
IB shall have the meaning ascribed to it in Section 4.25(d).
ICF shall have the meaning ascribed to it in Section 4.25(e).
ICH Guidelines means rules, regulations and guidelines issued by the international conference on harmonisation of technical requirements for registration of pharmaceuticals for human use as amended from time to time.
IFRS mean the then current International Financial Reporting Standards, as published by the International Accounting Standards Board as endorsed by the European Union.
IMPD means the documentation accompanying a CTA, comprising information in relation to the quality, manufacture and control of the investigational medicinal product, and data from non-clinical studies and from its clinical use.
IMS means the information provider IMS Health, or its successors in title.
Incentive Compensation means the amount actually received by a Dermira Sales Representative each Calendar Year under the Incentive Compensation Plan.
Incentive Compensation Plan means Dermiras internal, sales performance-based bonus scheme for the monetary compensation paid to a Dermira Sales Representative based on the total volume of sales of all Dermira products (including the Product) by such Sales Representative or any other similar sales performance-based bonus scheme.
IND means an Investigational New Drug application filed with the FDA for authorization to commence Clinical Studies, and its equivalent filing to a Regulatory Authority in the other countries within the Development Territory.
Information means any inventions (whether patentable or not), data, instructions, ideas, software, algorithms, discoveries, procedures, methods, techniques, formulae, biological sequences, advice and any other knowledge each in whatever form .
Initial Development Plan means the Development Plan agreed by the Parties for the purposes of the FDA Development Meeting, a draft of which is attached to this Agreement as Schedule 8 as it exists at the Effective Date.
Initial Subsequent Financing Amount means an amount not less than $5,000,000 and not more than $7,500,000, to be mutually determined in good faith by UCB and Dermira within five days of UCBs receipt of the Qualified Financing Notice or Triggering Financing Notice (each as defined below), as applicable; provided, that if the parties are not able to come to agreement by such time then such amount shall be determined by UCB, in its sole discretion, within 10 days of its receipt of the Qualified Financing Notice or Triggering Financing Notice, as applicable.
INN means the international non-proprietary name assigned by the World Health Organization.
Institutions shall have the meaning ascribed to it in Section 5.10(a)(i).
Intellectual Property Rights means all Patent Rights, Trademarks, utility certificates and models, inventors certificates, copyrights, database rights, designs, domain names, Know-How and any other proprietary rights, priority rights, prior user rights, rights in Confidential Information and all other rights of a like nature in each case whether registered or unregistered and in any jurisdiction.
Interim Clinical Study Report shall have the meaning ascribed to it in Section 5.7(b).
Investigator shall have the meaning ascribed to it in Section 5.10(a)(i).
IPO means Dermiras initial public offering of securities registered under the Securities Act.
IPO Price means the price per share equal to the price per share that the Dermira common stock is sold to the public in the IPO, as set forth on the cover of the final prospectus filed with the SEC.
IRA means that certain Amended and Restated Investors Rights Agreement, by and among Dermira, the Investors (as defined therein) and the Stockholders (as defined therein), dated March 28, 2013.
JDC-Approved Development Budget means the budget setting forth the Development Costs allocated for each activity or set of activities to be performed by or on behalf of Dermira under the Development Plan as approved by the JDC and as may be amended from time to time in accordance with Section 5.3, the initial version of which is included in the Development Plan.
Joint Commercialisation Committee or JCC means the joint commercialisation committee established and functioning in accordance with Section 4.
Joint Commercialisation Team or JCT means the joint commercialisation team established and functioning in accordance with Section 4.
Joint Development Committee or JDC means the joint development committee established and functioning in accordance with Section 4.
Joint Development Team or JDT means the joint development team established and functioning in accordance with Section 4.
Joint Steering Committee or JSC means the joint steering committee established and functioning in accordance with Section 4.
Joint Arising IP shall have the meaning ascribed to in Section 14.8.
Know-How means Information, Materials and UCB Materials to which the obligations of confidence in Section 17 apply. For the avoidance of doubt, if and to the extent any such Information, Materials or UCB Materials cease to be subject to the obligations of confidence in Section 17 (i.e. the Information, Materials or UCB Materials satisfy one of the exceptions set forth in Section 17.2), such Information, Material or UCB Material shall cease to be Know-How for the purposes of this Agreement.
Launch means the commercial launch of the Product for the Development Indication in each country within the Promotion Territory following the grant of Regulatory Approval in such country of the Development Indication, including the Parties respective activities as set forth in (i) the Commercialisation Plan, such as the initiation of importation, marketing, promotion, Medical Affairs activities, market access activities, and distribution of the Product in order to sell the Product in such country in the Development Indication and (ii) the Medical Affairs Plan.
Launch Plan means each plan for the Launch of the Product in the Development Indication in the Promotion Territory to be conducted by the Parties, approved by the JSC.
LCIA shall have the meaning ascribed to it in Section 23.1(a).
Line Extension means any extension or modification (other than any New Formulations or New Presentations) to the Product Labelling for the Product with respect to (i) sub-populations (i.e. age, gender, disease state), (ii) alternative dosing regimen, or (iii) sub-indications within the Promotion Indication or the Development Indication.
Local Dermira Commercial Plan means, with respect to each country within the Promotion Territory, the annual, JCC approved plan for the Dermira Commercial Activities for the Product in the Promotion Territory in each of the Promotion Indication and the Development Indication, as the case may be, in such country as well as Commercialisation activities to be conducted by UCB to support and enable such Dermira Commercial Activities, each such plan being derived from and in accordance with the Commercialisation Plan.
Long Stop Date shall have the meaning ascribed to it in Section 2.2.
Manufacture means all activities related to the production, manufacture, processing, formulation, filling, finishing, packaging, labelling, shipping and holding of the Product, including process development, process qualification and validation, scale-up, pre-clinical, clinical and commercial manufacture and analytic development, process improvements and optimization, product characterization, stability testing, quality assurance, quality control and release.
Market Information means the information provided by and sourced from the [*] which provides the detail of the number of [*] in the Promotion Territory [*] or such other market information as agreed by the Parties in accordance with Section 10.8. A sample of the [*] is set out in Schedule 9 .
Marketing shall mean the performance of activities by or on behalf of each Party with respect to Commercial-related activities including without limitation development of brand and Product promotional strategies, promotional sponsorships, allocation and recordkeeping of Samples, and speaker programs.
Materials means any tangible biological, chemical or physical materials .
Medical Affairs means the performance of activities by or on behalf of each Party with respect to accredited continuing medical education for the Product, clinical studies conducted after Regulatory Approval other than Post-Approval Studies, and other medical affairs activities including without limitation oversight of MSLs, support for investigator initiated studies, publication-related activities, activities performed by medical/scientific liaisons, scientific publications, disease state medical education, professional symposia, and speaker and activity programs.
Medical Affairs Budget shall have the meaning ascribed to it in Section 9.2.
Medical Affairs Plan means the annual consolidated plan detailing the Medical Affairs activities to be undertaken and/or funded for the Product in Promotion Indication and the Development Indication to Dermatologists in the Promotion Territory.
MSL means an employee of a Party whose duties include the provision of medical science liaison activities which include activities of a medical, scientific and/or educational nature and that are targeted to Dermatologists in order to introduce and explain to Dermatologists the Product and all related science in accordance with Applicable Law, industry standards and as agreed between the Parties pursuant to Section 9.3.
M&A Notice shall have the meaning ascribed to it in Section 18.1.
NDS means a new drug submission, as the same relates to such submissions to Health Canada.
Net Sales means the actual amount of Gross Sales invoiced by UCB, or its Affiliate or licensee, for sales or other disposition of the Product in the Promotion Territory to a Third Party purchaser, less the following accrual based deductions to the extent directly attributable to such sales and to the extent such deductions are not already reflected in such gross amount invoiced, in each case across all indications for the Product:
(a) normal and customary rebates, quantity, patient discount programs, trade and cash discounts to customers actually allowed and properly taken;
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(b) governmental and other rebates, chargebacks or administrative fees (or equivalents thereof) granted to managed health care organisations, pharmacy benefit managers (or equivalents thereof) or to national, federal, state, provincial, local and other governments, their respective agencies, purchasers and reimbursers or to trade customers actually allowed and properly taken;
(c) retroactive price reductions, credits or allowances actually granted upon rejections, damaged goods, destruction, recalls or returns of the Product (for clarity, costs associated with Product that is the subject of a market recall, market withdrawal, correction, removal or seizure shall not be deductible from Net Sales);
(d) freight, postage, shipping and insurance charges actually allowed or paid for delivery of the Product, to the extent included in the gross sales price; and
(e) sales taxes, excise taxes, use taxes, import/export duties or other governmental taxes (other than taxes based on income or capital gains) actually due or incurred and payable to government authorities with respect to such sales, including value-added taxes, to the extent applicable, excluding however, the Branded Prescription Drug Fee Program.
Any of the above deductions shall only be permitted if incurred in the ordinary course of business in type and amount consistent with good industry practice and determined in accordance with IFRS as applied by UCB on a consistent basis across its products for external reporting purposes.
Any Product used for a Clinical Study, or used or distributed in the Promotion Territory free of charge for promotional or advertising purposes, including Samples, shall not be included in Net Sales. Any Product used or distributed in the Promotion Territory free of charge, (i) as charitable donations, or (ii) for compassionate use, named-patient, indigent patient or other similar uses shall not be included in Net Sales. Net Sales will not include transfers among UCB or its Affiliates or its licensees, but in such cases the royalty shall be due and calculated on UCBs or its Affiliates or licensees Net Sales to the first independent Third Party.
In the event the Product is sold as a Combination Product in the Promotion Territory, the Net Sales of the Product in a country within the Promotion Territory, for the purposes of this Agreement, shall be determined by multiplying the Net Sales (as defined above) of the Combination Product in such country by the fraction A/(A+B) where A is the weighted (by sales volume) average sale price in such country of Product when sold separately in finished form, and B is the weighted (by sales volume) average sale price in such country of the other active ingredient(s) sold separately in finished form.
If the weighted (by sales volume) average sale price of the Product when sold separately in finished form in a country within the Promotion Territory can be determined, but the weighted (by sales volume) average sale price of the other active ingredient(s) when sold separately in finished form in such country cannot be
determined, Net Sales for purposes of determining royalty payments shall be calculated by multiplying the Net Sales (as defined above) of the Combination Product by the fraction A/C, where A is the weighted (by sales volume) average sale price in such country of the Product when sold separately in finished form in such country, and C is the weighted (by sales volume) average sale price of the Combination Product in such country.
In the case of any other sale or other disposal for value, such as barter or counter trade, of any Product or Combination Product, or part thereof, other than in an arms length transaction exclusively for money, Net Sales shall be calculated as above on the fair market value of the consideration given.
New Formulation means a formulation of Cimzia® as the sole active ingredient other than the Current Formulation.
New Presentation means a presentation with Cimzia® as the sole active ingredient other than the Current Presentation.
New Third Party Licence shall have the meaning ascribed to it in Section 10.17.
Non-Breach Termination means the termination of this Agreement by either party pursuant to Section 20.5, Section 20.6(d) or Section 20.8.
Non-Breach Termination Date means (a) the two-year anniversary of a Non-Breach Termination if UCB has invested the full Aggregate Investment Amount as of the date of the Non-Breach Termination and, provided, that a Non-Breach Termination Date shall not be deemed to occur pursuant to this clause (a) if, prior to such two-year anniversary, UCB and Dermira shall have entered into a binding development, collaboration, research or marketing or other commercialization agreement (in which event, the Non-Breach Termination Date shall be as provided in such binding agreement) or (b) the five-year anniversary of a Non-Breach Termination if UCB has complied with its funding obligations under Sections 2.5 and 2.6 through the date of the Non-Breach Termination and continues to comply with its funding obligations following such Non-Breach Termination pursuant to the terms of Section 2 (and upon any failure by UCB to so comply, the Non-Breach Termination Date shall be deemed to occur on the date of such non-compliance) or (c) on or following a Non-Breach Termination if UCB has complied with its funding obligations under Sections 2.5 and 2.6 through the date of the Non-Breach Termination and UCB provides written notice to Dermira deeming the Non-Breach Termination Date to have occurred.
Non-Competitor Company means a Non-Qualified Non-Competitor Company and/or a Qualified Non-Competitor Company.
Non-Qualified Non-Competitor Company means a Third Party (i) with which Dermira consummates a Change of Control transaction; and (ii) that is not a Competitor Company; and (iii) that is not a Qualified Non-Competitor Company.
Off-label Promotion means the promotion of the Product (i) for an indication, (ii) in an age group, (iii) in a dosage, or (iv) in a form of administration, in each case (i) to (iv) for which Regulatory Approval has not been obtained, or any other unauthorised use.
OXO GOOD GRIPS Trademarks shall mean the Trademarks under the Control of Helen of Troy Limited specified in schedules to and subject to the terms and conditions of the OXO Trademarks Sublicence Agreement.
OXO Trademarks Sublicense Agreement shall mean the agreement contained in Schedule 1 , Part B of this Agreement.
Party means Dermira or UCB and Parties means Dermira and UCB.
Patent Rights means all patent applications and patents and any continuations, continuations-in-part, divisionals, reissues, re-examinations, patent term extensions, supplementary protection certificates or the like and any substitutions, confirmations, registrations or additions of or to any of the foregoing .
Peak Sales Termination Date means the date on which Net Sales of the Product to Dermatologists in a Calendar Year during the Term are less than [*]% of the Net Sales of the Product to Dermatologists in any prior Calendar Year during the Term.
Person means an individual, sole proprietorship, partnership, corporation, trust, unincorporated association or other similar entity or organisation.
Phase 3 Study means a Clinical Study or series of Clinical Studies with a defined dose or set of doses of the Product which is designed to be appropriately powered to demonstrate the efficacy and safety of the Product for the Development Indication and will enable the preparation and submission of a Drug Approval Application for Regulatory Approval to the FDA, Health Canada and the EMA.
Phase 3 Protocol means the protocol for a Phase 3 Study, synopses of which at the Effective Date are annexed to this Agreement as Schedule 10 .
PHSA means the United States Public Health Service Act as amended from time to time.
Paediatric Plan means a human clinical trial in paediatric patients designed to satisfy the requirements of the Paediatric Committee (PDCO) of the EMA, or the equivalent as promulgated by the FDA for the Development of the Development Indication in the paediatric patient population. Such Paediatric Plan, including the measures contained within it and proof of compliance with such measures, is a condition for the submission and obtaining of Regulatory Approval for the Development Indication in adult patients.
Placebo means, collectively or individually as applicable, the Comparator Drug Placebo and/or the Product Placebo.
Post-Approval Study means any Clinical Study, patient registry or other data collection effort for the Product with respect to the Development Indication that is initiated in one or more countries after receipt of Regulatory Approval for such Development Indication and not to support or obtain an application for Regulatory Approval for another indication, which Clinical Study is required by the FDA, Health Canada or the EMA as a post-approval commitment or other condition to receiving Regulatory Approval for the Product in the Development Indication by the FDA, Health Canada or the EMA including but not limited to clinical experience trials,
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post-approval studies intended to evaluate clinical outcomes or the risk/benefits of the Product, paediatric studies (including Paediatric Plans) and studies that are required by a Regulatory Authority as post-approval commitments or other conditions to receiving Regulatory Approval for the Product in the Development Indication by the FDA, Health Canada or the EMA.
Post-Approval Study Protocol means the protocol for a Post-Approval Study in the Development Indication.
Press Release means the communication to be made to the public, subject to Section 17.10, as soon as practicable following the Commencement Date, the agreed form of wording of which will be agreed in writing by the Parties.
Price Range means the preliminary price range submitted by Dermira to the SEC for the IPO.
Pricing and Reimbursement Approval means, for each country or region within the Promotion Territory where Pricing and Reimbursement Authorities, Regulatory Authorities or other competent public or private bodies and authorities must approve or determine gross and/or net pricing or pricing reimbursement or formulary coverage for pharmaceutical products that are distributed and sold in such country or region, such approvals or determinations.
Pricing and Reimbursement Authority means any applicable supra-national, federal, national, regional, state, provincial or local agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to Pricing and Reimbursement Approvals for the Product.
Privacy Laws shall have the meaning ascribed to it in Section 21.6.
Product means (a) the Current Presentation and (b) any and all New Formulations, New Presentations, and Line Extensions.
Product Arising IP shall have the meaning ascribed to in Section 14.7.
Product Data means all data, reports and results with respect to the Product made, collected or otherwise generated by or on behalf of a Party or the Parties jointly in the course of the Development of the Product for the Development Indication.
Product Labelling means, with respect to the Product and each country in the Territory, (a) the Regulatory Authority-approved full prescribing information for the Product for such country, including any required patient information and (b) all labels and other written, printed or graphic matter upon a container, wrapper or any package insert utilized with or for the Product in such country.
Product Literature means, with respect to a given country in the Promotion Territory, any promotional, medical, informative and other information intended for distribution or use by Sales Representatives in connection with the Dermira Commercial Activities for the Product in such country (whether in the form of written, printed, graphic, electronic, audio or video materials), and shall include, without limitation, all related Sales Representative training materials.
Product Placebo means the placebo supplied by UCB for use in the Clinical Studies that is manufactured in accordance with the same manufacturing process as the Product and used in the same Clinical Studies, except that the Product Placebo does not contain Cimzia® as an active ingredient.
Product Warranty shall have the meaning ascribed to it in Section 5.11(a).
Promotion Indication means the treatment of psoriatic arthritis in adults, and, if applicable, children, as defined in each of the FDA, Health Canada and EMA approved product labels, as applicable.
Promotion Territory means (a) the United States of America, namely the fifty (50) states of the United States of America and the District of Columbia and (b) Canada.
Promotional and Product Services Related Functions means (a) promotion, marketing, advertising, and/or sale of the Product; (b) the development, preparation, or dissemination of Promotional Materials, or the provision of services relating to, the Product; and (c) post-marketing research, development, and publication-related activities involving the Product.
Promotional Materials means any and all promotional, advertising, communication and educational or speaker materials relating to the Product which are developed for use in connection with the marketing, Dermira Commercial Activities and sale of the Product in the Promotion Territory, and shall include, without limitation, sales training materials, Product Literature, journal advertisements, sales aids, formulary binders, promotional publication reprints, direct mail, direct-to-consumer advertising, websites and internet postings, broadcast advertisements, promotional displays and exhibits, sales reminder aids. For clarity, Promotional Materials shall not include any Medical Affairs materials.
Prosecution means, with respect to Patent Rights, the preparation, drafting, filing, prosecution (including, without limitation, any patent interference proceedings, reissue proceedings, patent opposition proceedings, re-examinations, or other similar proceedings), patent term extensions, paediatric extensions, supplementary protection certificates, and the maintenance of such Patent Rights in the Territory.
Qualified Equity Financing means the first sale by Dermira of convertible preferred stock in one transaction or a series of related transactions after the closing of the Initial Equity Financing (as defined below) in which Dermira receives proceeds, net of any discounts or commissions, of at least $10,000,000 from one or more investors, exclusive of any amount that UCB invests in such transaction or series of related transactions.
Qualified Equity Financing Per Share Price means the price per share of the preferred stock sold by Dermira in the Qualified Equity Financing.
Qualified IPO shall have the meaning set forth in the Restated Certificate.
Qualified Non-Competitor Company means a Third Party (i) with which Dermira consummates a Change of Control transaction; and (ii) that is not a Competitor Company; and (iii) that is engaged in the development and/or commercialisation of a
pharmaceutical product, or after completion of such Change of Control transaction, will maintain Dermira as an operating entity and will maintain at least fifty percent (50%) of the executive management team of Dermira existing immediately prior to completion of such Change of Control transaction (holding a position that is executive vice president or higher) for at least twelve (12) Calendar Months after completion of such Change of Control transaction; and (iv) that, immediately following completion of such Change of Control transaction, has sufficient working capital to continue and complete (to the extent not already completed by Dermira) the Development of the Product in the Development Indication in the Development Territory as provided in the JDC-Approved Development Budget (taking into consideration any milestone payments to be made by UCB under Section 10.2 when such milestone payments become due so long as such Third Party has sufficient working capital to complete the Development activities as set forth in the Development Plan that precedes such milestone event) , and (v) has the ability to obtain sufficient funding to perform the Dermira Commercial Activities and Medical Affairs for which Dermira is responsible, and to comply with Dermiras other obligations under this Agreement, in each case when such activities or obligations are required to be performed under this Agreement.
Recall shall have the meaning ascribed to it in Section 9.6.
Receiving Party has the meaning ascribed to it in Section 17.1.
Regulatory Approval means, with respect to the Product in a particular country in the Territory, any and all approvals (including Drug Approval Applications), licenses, registrations or authorizations of any Regulatory Authority necessary to commercially distribute, sell or market the Product in such country, including, where applicable, (a) pre- and post-approval marketing authorizations and (b) labelling approval, but in each case excluding Pricing and Reimbursement Approval.
Regulatory Authority means any applicable supra-national, federal, national, regional, state, provincial or local regulatory agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to the Commercialisation of the Product in the Territory.
Regulatory Documentation means all applications, registrations, licenses, authorizations and approvals, all correspondence submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority), and all supporting documents, in each case, relating to the Product, and all data contained in any of the foregoing, including all IMPDs, CTAs, INDs, clinical trial applications, Drug Approval Applications, supplements to a BLA, supplements to an NDS, Regulatory Approvals, regulatory drug lists, marketing and promotion documents, Product Data, adverse event files and complaint files and Manufacturing records (including any CMC Data).
Regulatory Responsibility Matrix means the responsibility matrix allocating regulatory responsibilities between the Parties as set forth in Schedule 11 .
Related Claim means any claim or other dispute arising out of or relating to a Dispute or to the transactions contemplated under this Agreement or to the inducement
of any Party to enter into this Agreement, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise.
Reserved Territory means all countries and territories in the world, but excluding the Promotion Territory.
Restated Certificate means that certain Restated Certificate of Incorporation of Dermira, Inc., filed with the Delaware Secretary of State on March 27, 2013.
Retention Period shall have the meaning ascribed to it in Section 5.12(b).
Review Board means an institutional review board, independent ethics committee or other group formally designated by an Institution in compliance with 21 C.F.R. Part 56 or analogous provisions of Applicable Law outside the United States to review, approve the initiation of, and conduct periodic review of, a Phase 3 Study or Post-Approval Study.
ROFR Agreement means that certain Amended and Restated Right of First Refusal and Co-Sale Agreement, by and among Dermira and the Major Stockholders (as defined therein), dated March 28, 2013.
Royalty Bearing Sales means the aggregate Net Sales from units of the Product sold in the Promotion Territory during the Term and attributable to Dermatologists in the Promotion Territory as determined by the Market Information.
Safety Agreement means the agreement to be entered into by and between the Parties prior to the Commencement Date governing the Parties respective responsibilities with respect to Adverse Drug Experiences, pharmacovigilance, complaints and other safety-related matters with respect to the Product.
Safety Process means UCBs process of safety signal detection management and assessment in relation to the Product that is consistent with UCBs practice, strategy and evaluation criteria for safety signal detection management and assessment in relation to its other marketed products, in the form provided by UCB to Dermira prior to the Effective Date and attached to this Agreement as Schedule 12 .
Sales Force means, with respect to a given country or region in the Promotion Territory, the Sales Representatives and sales management personnel who are employed by either of the Parties or their respective Affiliates, in each case to undertake Dermira Commercial Activities for the Product to Healthcare Professionals in the Promotion Territory.
Sales Representative means, as applicable, an individual who is employed by Dermira, or by one of its Affiliates, and appropriately trained to undertake Dermira Commercial Activities for the Product to Dermatologists in one or more countries in the Promotion Territory.
Sales Year means either (a) the period of twelve (12) Calendar Months commencing on the date of t he Launch of the Product in the Development Indication in the United States of America and ending on the first anniversary of such Launch (the First Sales Year ) or (b) on expiry of the First Sales Year, each subsequent period of twelve (12) Calendar Months (each a Subsequent Sales Year ).
Sample means a unit of the Product that is not intended to be sold and is intended solely for distribution free of charge and in accordance with Applicable Law to Healthcare Professionals to promote the sale and use of the Product in the Territory.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Senior Executives means: (a) with respect to Dermira, its Chief Executive Officer; and (b) with respect to UCB, (i) a member of its executive committee having direct responsibility for the Product within UCB and having knowledge and authority to resolve the applicable matter.
Series B Financing Documents means the IRA, ROFR Agreement and Voting Agreement.
Series B Preferred Stock shall have the meaning set forth in the Restated Certificate.
Series B Per Share Price means $1.4525.
SOP means standard operating procedure.
Source Documents means all recorded original observations and notations of clinical activities and all reports and records necessary for the evaluation and reconstruction of a Phase 3 Study or any Post-Approval Study in the Development Indication, regardless of form, in each case as maintained by the Institutions.
SPA means that certain Series B Preferred Stock Purchase Agreement, by and among Dermira and the Investors (as defined therein), dated March 28, 2013, as amended by that certain Amendment No. 1 to Series B Preferred Stock Purchase Agreement, which will be dated as of the date of the closing of the Initial Equity Financing (the SPA Amendment ).
Study Documentation means all Regulatory Documentation pertaining to a Phase 3 Study and any Post-Approval Study in the Development Indication, including Source Documents, case report forms, data correction forms, case histories, monitoring reports and appointment schedules and any other documentation required by this Agreement or Applicable Law.
SSAR shall have the meaning ascribed to it in Section 4.27.
Target means human TNF a .
Term shall have the meaning ascribed to it in Section 20.1.
Territory means the Promotion Territory and the Reserved Territory.
Third Financing Per Share Price means the price per share of the preferred stock sold by Dermira in the Third Financing.
Third Party means any Person or other legal entity other than the Parties or their respective Affiliates.
Third Party Claim shall have the meaning ascribed to in Section 16.3.
Third Party Licences means those licenses and/or sublicenses with respect to the Product (or the Development, Manufacture, Commercialisation and/or use of the Product) which are held by UCB and/or its Affiliates under agreements with Third Parties listed in Schedule 13 and which exist as of the Effective Date.
Third Party Royalties means [*] royalty payments actually paid by UCB to Third Parties under the terms of a Third Party License to the extent attributable to the Development of the Product in the Development Indication in the Promotion Territory and the Commercialisation of the Product in the Development Indication and/or Promotion Indication in the Promotion Territory.
Trademark means any and all corporate names, service marks, logos, trade dress and trademarks (whether or not registered) and all applications therefor and registrations thereof, and all renewals, extensions or modifications thereto.
Trial Master File means the guidelines on and the documentation relating to a Clinical Study, including archiving, qualification of inspectors, inspection readiness and inspection procedures to verify compliance of the Clinical Study in question with Directive 2001/20/EC, as amended, and dependent legislation and to enable the evaluation of the conduct of the Clinical Study and the quality of the data produced therefrom.
Transfer of Obligations Checklist means a transfer of obligations established by the JDT in accordance with Section 5.10(j).
Trigger Date means the date on which Regulatory Approval for the Product in the Development Indication is granted in the Promotion Territory.
Triggering Financing Per Share Price means the weighted-average price per share of the preferred stock sold by Dermira in the Triggering Financing and all previously consummated unrelated Financings following the Initial Equity Financing, which together with the Triggering Financing, would result in Dermira receiving aggregate proceeds, net of any discounts or commissions, of least $10,000,000 from one or more investors, exclusive of any amount that UCB invests in such Financings.
UCB Arising IP shall have the meaning ascribed to in Section 14.8.
UCB Background IP means the Background IP of UCB, including certain Patent Rights detailed in Schedule 14 and Third Party Licenses listed in Schedule 13 .
UCB Breach Termination means a termination of this Agreement by Dermira pursuant to Section 20.4 for a breach by UCB, Section 20.6(a), Section 20.6(b), Section 20.7(a) or Section 20.7(b).
UCB Commercialisation Cost Deductions shall have the meaning ascribed to it in Section 7.7.
UCB Hub Services means those services also known as the Cimplicity ® Program, as outlined in Schedule 15 .
*Confidential Treatment Requested
UCB Indemnified Parties shall have the meaning ascribed to it in Section 16.1.
UCB Information means the Information supplied by or on behalf of UCB under this Agreement.
UCB Materials means the Materials supplied by or on behalf of UCB under this Agreement.
UCB Responsible Parties shall have the meaning ascribed to it in Section 16.2.
UCB Subsidiary means any direct or indirect wholly-owned subsidiary of UCB.
US$ means United States dollars.
Voting Agreement means that certain Amended and Restated Voting and Drag-Along Agreement, by and among Dermira and the Holders (as defined therein), dated March 28, 2013.
WAC means, in relation to the Product, the whole sale acquisition cost charged by UCB for the Product, calculated on a country-by-country basis as the weighted average of such whole sale acquisition cost on a per extended unit basis, normalized by dosage strength of the active ingredient, across all indications and uses of the Product in the applicable country in the Promotion Territory.
1.2 Interpretation. In this Agreement, unless the context otherwise requires:
(a) references to this Agreement shall mean this Agreement and any and all Schedules to it, each as amended from time to time in accordance with the provisions of this Agreement;
(b) references to a particular Section, Schedule or Paragraph shall be a reference to that Section, schedule or paragraph in this Agreement;
(c) words in the singular shall include the plural and vice versa and references to the masculine gender shall include the feminine gender and vice versa;
(d) headings are for convenience only and shall be ignored in interpreting this Agreement;
(e) the words include, including or in particular are to be construed without limitation to the generality of the preceding words;
(f) references to a statute include any statutory modification, extension or re-enactment of that statute;
(g) any reference to writing includes a reference to any communication effected by facsimile transmission or similar means but not e-mail.
1.3 If there is any inconsistency between Sections 1 to 33 (inclusive) of this Agreement and any Schedule, such Sections shall prevail.
2. CONDITIONS PRECEDENT AND FUNDING
2.1 Sections 1 (as applicable), 2, 3, 4, 5.1-5.3(b)(i), 6, 7.1, 9.4, 13, 14, 17, 20.3, 21.1, and 24 through 33 shall take effect on the Effective Date in each case to the extent applicable to the Parties rights and obligations prior to the Long Stop Date. Save in relation to those Sections referred to in this Section 2.1, no other provisions of this Agreement shall have any force or effect, and the Parties shall have no rights or obligations under this Agreement unless and until the conditions set out in Section 2.2 are satisfied.
2.2 Save as provided under Section 2.1, the terms of this Agreement are conditional upon and shall enter into full force and effect if, and only if, within sixty (60) Business Days of receipt from the FDA of its written comments arising from the FDA Development Meeting (the Long Stop Date ):
(a) Dermira has successfully obtained an initial minimum of twenty million United States dollars (US$ 20,000,000) of capital increase ( which initial minimum shall includ e the capital increase received as part of the UCB investment as set forth in Sections 2.4 and 2.5) ; and
(b) Neither Party has served notice of termination of this Agreement on the other Party in accordance with the provisions of Section 5.1(d)
such date being the Commencement Date .
2.3 If the conditions set out in Section 2.2 are not satisfied by the Long Stop Date, this Agreement shall terminate in accordance with Section 20.3 and the provisions of Section 21.1 shall apply.
2.4 Sales of Series B Preferred Stock.
(a) Within 21 days of the Effective Date , Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, 3,442,341 shares of Series B Preferred Stock at the Series B Per Share Price (the Initial Investment Shares ).
(b) Payment of the aggregate purchase price for the Initial Investment Shares (the Financing Purchase Price ) shall be made concurrently with the closing of such Financing (the Initial Equity Financing ) by wire transfer of immediately available funds to the account specified in writing by Dermira to UCB, subject to the satisfaction or waiver of the conditions set forth in Section 2.4(c). Payment of the Financing Purchase Price for the Initial Investment Shares shall be made against delivery to UCB of the Initial Investment Shares, which shares shall be certificated and delivered to UCB promptly following the closing of the Initial Equity Financing.
(c) The purchase of the Initial Investment Shares shall be made pursuant to the terms and conditions of the SPA and the Series B Financing Documents; provided, that:
(i) UCB shall execute the SPA Amendment and joinders to the Series B Financing Documents, in each case, in a form reasonably acceptable to Dermira and UCB;
(ii) the SPA Amendment shall contain a representation and warranty of Dermira that, as of the closing of the Initial Equity Financing, no material adverse effect on the business and operations of Dermira and its Subsidiaries taken as a whole since the date of the Initial Closing (as defined in the SPA) has occurred;
(iii) UCB shall be deemed an Investor pursuant to the SPA, IRA and Voting Agreement and a Preferred Stockholder pursuant to the ROFR Agreement; and
(iv) the Restated Certificate shall be amended to increase the authorized number of shares of Series B Preferred Stock and Common Stock by a number equal to the number of Initial Investment Shares; provided , that , for the avoidance of doubt, Section 6.3 of Article V of the Restated Certificate shall not be amended and UCB shall not be subject to any Special Mandatory Conversion (as defined in the Restated Certificate).
2.5 Subsequent Sale(s) of Preferred Stock.
(a) Qualified Equity Financing.
(i) Following the consummation of the Initial Equity Financing and until the earliest of (A) the Non-Breach Termination Date, (B) a termination of this Agreement other than a Non-Breach Termination, (C) an IPO, (D) a Change of Control, (E) a Triggering Financing Closing (as defined below) and (F) March 31, 2016, upon such time as Dermira has determined that it is reasonably likely that it will consummate a Qualified Equity Financing, but in no event less than 25 days prior to the execution of the purchase agreement providing for such Qualified Equity Financing (the Qualified Financing Closing ), Dermira shall notify UCB in writing of such Qualified Equity Financing (including the material terms thereof) (the Qualified Financing Notice ). Following the date of the Qualified Financing Notice, Dermira shall keep UCB reasonably informed of any material changes to the information contained in the Qualified Financing Notice and shall provide UCB with drafts of the applicable Subsequent Financing
Documents that it sends to the lead investor in such Qualified Equity Financing promptly following distribution to such lead investor.
(ii) Concurrently with the Qualified Financing Closing, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Initial Subsequent Financing Amount of the class of Dermira preferred stock sold in the Qualified Equity Financing at the Qualified Equity Financing Per Share Price.
(b) Triggering Financing.
(i) Following the consummation of the Initial Equity Financing and until the earliest of (A) the Non-Breach Termination Date, (B) a termination of this Agreement other than a Non-Breach Termination, (C) an IPO, (D) a Change of Control, (E) a Qualified Financing Closing and (F) March 31, 2016, upon such time as Dermira has determined that it is reasonably likely that it will consummate a Financing, which is not a Qualified Equity Financing but pursuant to which Dermira would receive aggregate proceeds (together with any unrelated Financings that are not Qualified Equity Financings and that were consummated following the Initial Equity Financing), net of any discounts or commissions, of least $10,000,000 from one or more investors (the Triggering Financing ), but in no event less than 25 days prior to the execution of the purchase agreement providing for such Triggering Financing (the Triggering Financing Closing ), Dermira shall notify UCB in writing of such Triggering Financing (including the material terms thereof) (the Triggering Financing Notice ). Following the date of the Triggering Financing Notice, Dermira shall keep UCB reasonably informed of any material changes to the information contained in the Triggering Financing Notice, shall provide UCB with (1) drafts of the applicable Subsequent Financing Documents that it sends to the lead investor in such Triggering Financing promptly following distribution to such lead investor and (2) access to the same diligence materials as provided to the lead investor (in the same format as provided to the lead investor) in the Triggering Financing.
(ii) UCB may, at its sole option, to be exercised, if at all, within 10 days after the date of the Triggering Financing Notice, provide written notice to Dermira stating its desire to purchase the Initial Subsequent Financing Amount of the class of Dermira preferred stock sold in the Triggering Financing at the Triggering Financing Per Share Price (the Triggering Financing Put Notice ). If UCB delivers a Triggering Financing Put Notice, then Dermira shall issue and sell to UCB (or any
of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, concurrently with the Triggering Financing Closing, in a private placement under the Securities Act, the Initial Subsequent Financing Amount of the class of Dermira preferred stock sold in such Financing at the Triggering Financing Per Share Price.
(c) Third Financing.
(i) Following the earlier of the Qualified Equity Financing Closing or the Triggering Financing Closing and until the earliest of (A) the Non-Breach Termination Date, (B) a termination of this Agreement other than a Non-Breach Termination, (C) an IPO, (D) a Change of Control and (E) March 31, 2016, upon such time as Dermira has determined that it is reasonably likely that it will consummate a Financing, pursuant to which Dermira would receive aggregate proceeds, net of any discounts or commissions, of least $10,000,000 from one or more investors (the Third Financing ), but in no event less than 25 days prior to the execution of the purchase agreement providing for such Third Financing (the Third Financing Closing ), Dermira shall notify UCB in writing of such Third Financing (including the material terms thereof) (the Third Financing Notice ). Following the date of the Third Financing Notice, Dermira shall keep UCB reasonably informed of any material changes to the information contained in the Third Financing Notice and shall provide UCB with drafts of the applicable Subsequent Financing Documents promptly following distribution to such lead investor.
(ii) Concurrently with the Third Financing Closing, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Aggregate Investment Amount of the class of Dermira preferred stock sold in the Third Financing at the Third Financing Per Share Price.
(d) Mechanics. The number of shares of preferred stock to be issued and sold by Dermira and purchased by UCB (or any of its designated UCB Subsidiaries) under this Section 2.5 (the Subsequent Equity Financing Shares ) shall be determined by (i) with respect to the Qualified Equity Financing, dividing the Initial Subsequent Financing Amount by the Qualified Equity Financing Per Share Price, (ii) with respect to the Triggering Financing, dividing the Initial Subsequent Financing Amount by the Triggering Financing Per Share Price, and (iii) with respect to the Third Financing, dividing the Aggregate Investment Amount by the Third Financing Per Share Price, in each case, rounded down to the nearest whole share. Payment of the purchase price for the Subsequent Equity Financing Shares (the Financing Purchase Price ) shall be made
concurrently with the closing of the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable, by wire transfer of immediately available funds to the account specified in writing by Dermira to UCB, subject to the satisfaction or waiver of the conditions set forth in the stock purchase agreement for the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable. Payment of the Financing Purchase Price for the Subsequent Equity Financing Shares shall be made against delivery to UCB (or any of its designated UCB Subsidiaries) of the Subsequent Equity Financing Shares, which shares shall be certificated and delivered to UCB (or any of its designated UCB Subsidiaries) promptly following the closing of the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable.
(e) Documentation. The purchase of the Subsequent Equity Financing Shares shall be made pursuant to a stock purchase agreement, investors rights agreement, right of first refusal and co-sale agreement, voting and drag-along agreement and/or other agreements, in each case, in forms negotiated and agreed-to between Dermira and the lead investor in the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable, as identified in the Qualified Financing Notice, Triggering Financing Notice or Third Financing Notice, respectively, which forms shall be entered into by all investors, including UCB, in the Qualified Equity Financing, Triggering Financing or Third Financing, as applicable (the Subsequent Financing Documents ); provided, that (i) such Subsequent Financing Documents shall not contain any material term that is materially less favorable from the perspective of the investors than the material term in the Series B Financing Documents (a Less Favorable Term ) and (ii) UCB shall not be treated less favorably than any other investor in such Subsequent Financing Documents. In the event that the Subsequent Financing Documents contain one or more Less Favorable Terms or UCB is treated less favorably than any other investor in such Subsequent Financing Documents, then UCB and Dermira shall negotiate in good faith regarding such terms, and such Subsequent Financing Documents shall be in a form reasonably acceptable to UCB and, if such Subsequent Financing Documents are not in a form reasonably acceptable to UCB following such good faith efforts then UCB shall have no obligation to purchase any securities of Dermira in the Qualified Financing Closing, Triggering Financing Closing or Third Financing Closing, as applicable, and UCBs obligations pursuant to Section 2.5(a), 2.5(b) or 2.5(c), as applicable, shall be deemed satisfied.
(f) Directorship.
(i) The first voting agreement entered into as part of the Subsequent Financing Documents (the Subsequent Voting Agreement ) shall provide (and each amendment to or restatement of the Subsequent Voting Agreement shall continue to provide) that UCB shall be entitled, subject to the terms and conditions of the Subsequent Voting Agreement, to designate one director to the Dermira Board (the UCB
Designee ) (provided, that UCB shall agree to consult with Dermira in good faith with regard to the selection of the UCB Designee in light of applicable regulatory and stock exchange requirements, with it being understood that the selection of the UCB Designee shall be in UCBs sole discretion following such good faith consultation), and the parties thereto shall be required to vote for the election of the UCB Designee, for so long as (A) UCB owns at least 50% of the shares of Dermira capital stock purchased pursuant to the terms of this Agreement, (B) there has not occurred an IPO, (C) there has not occurred a Change of Control, (D) a UCB Breach Termination has not occurred, (E) the Dermira Breach Termination Date has not occurred and (F) the Non-Breach Termination Date has not occurred. The Subsequent Voting Agreement shall terminate upon an IPO.
(ii) Following an IPO, Dermira agrees not to remove the UCB Designee prior to, and to re-nominate and recommend the UCB Designee for election at each annual meeting of stockholders taking place prior to, the earliest of (A) the date of a UCB Breach Termination, (B) UCB failing to own at least 50% of the shares of Dermira capital stock purchased pursuant to the terms of this Agreement (or such shares of capital stock of Dermira as such shares may be converted into), (C) a Change of Control, (D) the Non-Breach Termination Date, (E) the Dermira Breach Termination Date and (F) the last to occur of (x) the Peak Sales Termination Date and (y) the Expiry Date (any of the foregoing dates in clauses (A) through (F), a Public Designee Termination Date ). If Dermira closes an IPO after a Public Designee Termination Date, then UCB shall thereafter no longer have a right to a UCB Designee upon the closing of the IPO.
(iii) The UCB Designee shall be entitled to serve on committees of the Board where the UCB Designee would be a disinterested director with respect to the subject matter of such committee, provided, that notwithstanding the foregoing, the UCB Designee shall not be entitled to serve on the audit committee, compensation committee or a committee for the pricing of Dermiras securities (capital stock or debt).
(iv) The UCB Designee shall, prior to joining the Dermira Board and for all times during service on the Dermira Board, deliver a non-revocable letter of resignation taking effect one day after any Public Designee Termination Date.
(g) Major Investor Rights. Under the terms of the Subsequent Financing Documents, UCB shall be considered a major investor (or whatever other term(s) are used in the Subsequent Financing Documents to denote the
investor(s) receiving the most favorable rights and privileges) for purposes of receiving any special rights or privileges reserved for certain investors.
2.6 Sale of Common Stock Concurrently with IPO.
(a) IPO Notice. . No later than five days prior to the date that Dermira will file its preliminary (red herring) prospectus with the SEC, Dermira shall deliver to UCB a written notice stating (i) the anticipated date that it will file its preliminary (red herring) prospectus with the SEC and (ii) the Price Range and the aggregate gross proceeds to Dermira based on the low end of the Price Range (the IPO Notice ).
(b) Concurrent Private Placement. If (i) the low end of the Price Range is not less than the Conversion Price (as defined in the Restated Certificate) of the Series B Preferred Stock in effect immediately prior to the closing of the IPO and (ii) the aggregate gross proceeds to Dermira based on the low-end of the Price Range would be equal to or in excess of $50 million (clauses (i) and (ii) together, the IPO Conditions ), then concurrently with the closing of the IPO, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Aggregate Investment Amount of Dermira common stock at the IPO Price.
(c) Put Right. If either of the IPO Conditions are not met, then UCB may, at its sole option, to be exercised, if at all, within five days after the date of the IPO Notice, provide written notice to Dermira stating its desire to purchase the Aggregate Investment Amount of Dermira common stock at the IPO Price (the IPO Put Notice ). If UCB delivers an IPO Put Notice, then, concurrently with the closing of the IPO, Dermira shall issue and sell to UCB (or any of its designated UCB Subsidiaries), and UCB agrees to purchase (or to cause its UCB Subsidiaries to purchase) from Dermira, in a private placement under the Securities Act, the Aggregate Investment Amount of Dermira common stock at the IPO Price.
(d) Mechanics. The number of shares of common stock to be sold by Dermira and purchased by UCB (or any of its designated UCB Subsidiaries) hereunder (the IPO Shares ) shall be determined by dividing the Aggregate Investment Amount by the IPO Price (rounded down to the nearest whole share). Payment of the purchase price (which shall be equal to the total number of IPO Shares to be purchased by UCB (or any of its designated UCB Subsidiaries), as calculated pursuant to the immediately preceding sentence, multiplied by the IPO Price) for the IPO Shares (the IPO Purchase Price ) shall be made concurrently with the closing of the IPO by wire transfer of immediately available funds to the account specified in writing by Dermira to UCB, subject to the concurrent closing of the IPO. Payment of the IPO Purchase Price for the IPO Shares shall be made against delivery to UCB (or any of its designated UCB Subsidiaries) of
the IPO Shares, which IPO Shares shall be uncertificated and shall be registered in the name of UCB (or any of its designated UCB Subsidiaries) by Dermiras stock transfer agent. The purchase of the IPO Shares shall be made pursuant to and contingent upon UCB (or any of its designated UCB Subsidiaries) executing and delivering to Dermira a stock purchase agreement in form reasonably acceptable to Dermira and UCB. The IPO Shares shall be subject to a market stand-off agreement, consistent with the terms set forth in Section 2.9 of the IRA.
(e) Termination. The rights and obligations set forth in this Section 2.6 shall terminate upon the earliest of (i) the Non-Breach Termination Date, (ii) a termination of this Agreement other than a Non-Breach Termination, (iii) the Third Financing Closing, (iv) a Change of Control and (v) March 31, 2016.
(f) Maximum Purchase Amount. For clarity, in no event shall UCB and the UCB Subsidiaries be required to purchase in excess of $20,000,000 of Dermiras securities, in the aggregate, pursuant to the terms of this Section 2.
2.7 Other Covenants,
(a) Competitor Companies. Prior to the IPO or a termination of this Agreement, Dermira covenants and agrees (i) not to sell to any Competitor Company a number of shares of Dermiras capital stock more than the number of shares issued to UCB (or any of its designated UCB Subsidiaries) pursuant to the terms of this Agreement as of the date on which the sale to a Competitor Company would occur, (ii) not to grant any Competitor Company a right to designate a director or a non-voting observer to the Dermira Board and (iii) not to grant any Competitor Company any rights that would materially and adversely undermine the rights expressly granted to UCB under Sections 2.4 through 2.7 and Section 18.1. For illustrative purposes only, granting a Competitor Company a right of last refusal on a Change of Control would be deemed to materially and adversely undermine the rights expressly granted to UCB pursuant to Section 18.1.
(b) Dermira Actions. Prior to a termination of this Agreement, Dermira covenants and agrees that it will not intentionally take any action that has the effect of materially circumventing, or that would materially and adversely undermine, the rights expressly granted to UCB pursuant to Sections 2.4 through 2.7.
2.8 Conditions Precedent. For the avoidance of doubt and notwithstanding anything to the contrary in this Section 2, neither Party shall have any obligations pursuant to Sections 2.5 or 2.6 unless and until the conditions set forth in Section 2.2 have been satisfied and this Agreement has not been terminated on or prior to the Long Stop Date; provided, that, $10 million of UCBs financing obligations hereunder (the Financing Purchase Price plus the minimum Initial Subsequent Financing Amount) shall be included for purposes of determining whether the condition set forth in Section 2.2(a) has been met.
2.9 Dermira acknowledges that the sum referred to in Section 2.2 represents a portion of the total funding requirement that Dermira shall secure in order to undertake and complete the Development of the Product in the Development Indication throughout the Development Territory and Dermira undertakes to UCB that it shall:
(a) secure sufficient funding to fulfil its obligations to Develop the Product in the Development Indication in the Development Territory in accordance with the Development Plan; and
(b) keep UCB appraised of its efforts, activities and progress in securing such funding to comply with Section 2.8(a).
3. SCOPE OF AGREEMENT
3.1 During the Term, Dermira shall be responsible for and shall use Commercially Reasonable Efforts to undertake: (i) the Develop ment of the Product for the Development Indication in the Development Territory in accordance with the Development Plan and the terms of this Agreement for UCB to seek Regulatory Approval for the Product from each of the FDA, Health Canada and the EMA, and shall be responsible for paying all Development Costs incurred in connection therewith, subject to Section 10.1, and (ii) the Dermira Commercial Activities and any Medical Affairs activities for which Dermira is responsible to Dermatologists for the Product in the Development Indication and Promotion Indication (subject to Section 7.1) in the Promotion Territory if, and only if, UCB obtains Regulatory Approval for the Commercialisation of the Product in the Development Indication in the Promotion Territory, subject to Dermiras right to conduct activities under the Pre-Launch Medical Affairs Plan under Section 9.3 . All such activities will be performed under the oversight of, and are subject to governance by, the JSC, JCC, JDC and any other Committees established by the Parties pursuant to this Agreement, all as set forth in more detail in Section 4.
3.2 UCB shall use Commercially Reasonable Efforts to: (a) supply of the Product and Comparator Drugs and Placebo to Dermira or its CRO or its Institutions for the Development activities hereunder; (b) undertake those Development activities assigned to it under the Development Plan; and (c) undertake the Commercial Functions and such other Commercialisation activities that are necessary or, in UCBs reasonable determination, useful to enable and support the Dermira Commercial Activities for (A) the Commercialisation of the Product in the Development Indication and the Promotion Indication as specified in the Commercialisation Plan and (B) the conduct of the Medical Affairs activities for the Product in the Development Indication and the Promotion Indication as specified in the Medical Affairs Plan.
3.3 Except as otherwise expressly set forth in this Agreement, UCB shall retain sole control over and responsibility for all other aspects of the Development, Manufacture and Commercialisation of the Product in all indications throughout the Territory, and except as otherwise expressly set forth in this Agreement, nothing shall be construed as (1) granting, conveying or otherwise creating any rights, interests or entitlements of
Dermira, (2) obligating UCB to disclose or otherwise provide Dermira with access to any non-public information other than to the extent necessary or, in UCBs reasonable judgement, useful in order for Dermira to exercise its rights and/or perform its obligations under this Agreement, or (3) requiring UCB to consult with Dermira or otherwise seek or obtain Dermiras comments or other input, with respect thereto.
3.4 Dermira may perform any specific activities for which it is responsible in connection with the Development and/or the undertaking of Dermira Commercial Activities (and any Medical Affairs activities for which Dermira is responsible) for the Product in accordance with Section 3.1 through subcontracting to an Affiliate or a Third Party sub contractor and through utilisation of its Sales Force, provided, however, that Dermira shall not have the right to enter into any agreement or other arrangement or otherwise use (a) any CRO for the Development of the Product or (b) any Third Party contract sales force or sales representatives to undertake Dermira Commercial Activities and/or Medical Affairs activities for the Product in the Promotion Indication or the Development Indication to Dermatologists in the Promotion Territory, in each case (a) and (b) without first obtaining the prior written consent of UCB to do so . If Dermira engages an Affiliate or a Third Party sub-contractor to perform any of Dermiras obligations under this Agreement, Dermira shall:
(a) ensure that any such Affiliate or Third Party to whom Dermira discloses the Confidential Information of UCB is bound by an appropriate written agreement containing obligations of confidentiality and restrictions on use of UCBs Confidential Information that are no less restrictive than the obligations of confidentiality in this Agreement (provided that Dermira shall use Commercially Reasonable Efforts to seek and include in such Third Party agreement obligations of confidentiality and non-use lasting for a period of [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement and provided that in no event shall the obligations of confidentiality and/or non-use in any such Third Party agreement be of a duration less than [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement);
(b) ensure that any such Affiliate or Third Party is bound in writing to assign to Dermira any Arising IP (other than any improvements to any pre-existing Intellectual Property Rights of such Affiliate or Third Party identified to Dermira at the date of execution of such Third Party agreement) that is generated or otherwise created by such Affiliate or Third Party or their respective employees or agents in performing such services on behalf of Dermira in order for Dermira to give effect to the assignment provisions set out in Section 14 ; and
(c) at all times be responsible for and liable under this Agreement with respect to the performance or non-performance by any such Affiliate or Third Party of any of Dermiras obligations delegated by it to such Affiliate or Third Party and their compliance or non-compliance with Applicable Law .
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4. GOVERNANCE
4.1 Subject to this Section 4 and the terms of this Agreement, the Parties shall establish (a) a Joint Steering Committee (JSC) that will serve as the overall governing body for (i) the Development of the Product in the Development Indication in the Development Territory by Dermira ; (ii) the Dermira Commercial Activities (iii) Medical Affairs activities for the Product in the Promotion Indication and the Development Indication, in the Promotion Territory by Dermira ; and (iv) all other matters relating to the performance of this Agreement referred to it; (b) a Joint Development Committee (JDC) that will oversee the Development and Medical Affairs activities for the Product in the Development Territory in the Development Indication; (c) a Joint Development Team (JDT) that will coordinate the Development of and Medical Affairs activities for the Product in the Development Territory in the Development Indication by Dermira; (d) a Joint Commercialisation Committee (JCC) that will coordinate, oversee and manage the Dermira Commercial Activities of the Product by Dermira in the Promotion Indication and the Development Indication in the Promotion Territory; and (e) a Joint Commercialisation Team (JCT) that will coordinate the Dermira Commercial Activities of the Product by Dermira in the Promotion Territory in the Promotion Indication and the Development Indication. The JDC and the JCC shall be subordinate to the JSC, the JDT shall be subordinate to the JDC, and the JCT shall be subordinate to the JCC. Each such committee and any other committee established by the JSC (collectively, the Committees and each a Committee ) shall have the responsibilities and authority allocated to it in this Section 4 and elsewhere in this Agreement, but shall not have the right to interpret, modify, amend, vary and/or waive compliance of any of the provisions of this Agreement, either as a Committee action or through a Partys exercising of its final decision making authority on such Committee. Each such Committee shall have the membership and shall operate by the procedures set forth in this Section 4, and each Party shall carry out the responsibilities in relation to each Committee to enable a fair, expeditious and efficient process in such Committee. Each such Committee shall also serve as a forum for information exchange, updates, coordination and discussions with respect to the activities to be undertaken by UCB under this Agreement in support of Dermiras conduct of the Development activities and/or Dermira Commercial Activities and/or the Medical Affairs activities for which Dermira is responsible under this Agreement.
4.2 Notwithstanding the Committee structure established pursuant to Section 4.1, each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no such rights, powers, or discretion shall be delegated to or vested in a Committee unless such delegation, vesting of rights or discretion is expressly provided for in this Agreement or the Parties expressly so agree in writing. Notwithstanding the foregoing, neither Party shall be restricted from bringing before any appropriate Committee for discussion any matter relating to the activities to be performed under this Agreement that it believes warrants discussion between the Parties through the Committees, provided that the consideration of any such matter by any Committee shall not infringe or limit the exercise of a Partys right of consent or approval or other decision making
authority granted to it by this Agreement. To the extent any right of consent, approval or other decision making authority is granted to a Party or a Committee under this Agreement, such consent or approval or other decision made in accordance with such decision making authority shall not be subject to any dispute resolution mechanism provided for in Section 23.
4.3 Each Party shall appoint representatives with the requisite authority and seniority to make decisions on behalf of that Party with respect to issues falling within the jurisdiction of the relevant Committee.
4.4 Each Committee shall establish a schedule of times for regular meetings, provided that in no event shall such meetings of: (i) the JSC be held less frequently than once every six (6) months; (ii) the JDC be held less frequently than once every three (3) months; (iii) the JCC be held less frequently than once every six (6) months, in each case (i), (ii) and (iii) in any given Calendar Year; and (iv) any other Committee to be held as frequently as determined by the JSC on formation of such other Committee. Each Committee shall meet alternately at one of UCBs facilities in the United States of America (as determined by UCB) and at one of Dermiras facilities in the United States of America (as determined by Dermira) or at such other locations as the Parties may agree.
4.5 Meetings of any Committee shall be in person, provided that Committee meetings may be held by audio or video teleconference with the consent of the representatives of each Party on such Committee, which consent shall not be unreasonably withheld or delayed, provided that at least one (1) meeting of the Committee every six (6) months shall be held in person. In addition to such scheduled meetings, the chair of a Committee may convene a special meeting of the Committee at either Partys request with two (2) weeks written notice if such meeting is to be conducted in person, and with one (1) weeks written notice if such meeting is to be conducted by teleconference, or such shorter period as the Committee may decide, and the chair shall prepare and circulate to each Committee member an agenda for each meeting not later than one (1) week prior to such meeting, and the representatives of the other Party shall have the right on written notice to the chair given within two (2) Business Days after receipt of the agenda to supplement the agenda, in each case, or such shorter period as the Committee may agree. Notwithstanding the foregoing, (y) notice of any such special meeting or receipt of such agenda may be waived in writing at any time, either before, during or after such meeting, and (z) attendance of any member at a meeting shall constitute a valid waiver of notice of any such special meeting or receipt of such agenda from such member, unless such member attends the meeting for the express purpose of objecting to the failure to provide valid notice or an agenda.
4.6 In addition to Committee members, employees of each Party may, as appropriate, attend meetings of each Committee as non-voting participants, and consultants, representatives or advisors, in each case as appropriate, may attend meetings of each Committee as non-voting observers, provided that such Third Party representatives are under obligations of confidentiality and non-use applicable to the Confidential
Information of each Party that are at least as stringent as those set forth in Section 17 (provided that each Party engaging a Third Party shall use Commercially Reasonable Efforts to seek and include in such Third Party agreement obligations of confidentiality and non-use lasting for a period of [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement and provided that in no event shall the obligations of confidentiality and/or non-use in any such Third Party agreement be of a duration less than [*] Calendar Years after the termination and/or expiration of the applicable Third Party agreement), and subject, in the case of non-employees of a Party, to the consent of the other Party, which consent shall not be unreasonably withheld or delayed.
4.7 Each Party shall be responsible for and bear all of its own expenses of attending at or participating in any Committee.
4.8 Each Committee shall keep minutes of its meetings that record in reasonable detail all decisions and all actions recommended or taken. Drafts of the minutes shall be prepared and circulated by the relevant chair to Committee members within ten (10) Business Days of the meeting. Each Committee member shall have the opportunity to provide comments on the draft minutes. The minutes of a Committee meeting shall be approved, disapproved and revised as necessary prior to the end of the next Committee meeting following such Committee meeting, provided that any member of the Committee shall have the right to withhold his or her consent with respect to any issue discussed during the meeting (e.g., in the event the proper expertise or level of information for a decision was not available), and the minutes for such meeting may reflect a lack of consensus on an issue-by-issue basis, the persons responsible for resolving such matter and by what date such matter shall be resolved. Upon approval, final minutes of each meeting shall be circulated by the chair of the Committee to the members of the Committee and, unless that Committee is the JSC, to the JSC Chair for circulation to the other members of the JSC in accordance with Section 4.17.
4.9 No action taken at any meeting of a Committee shall be effective unless at least one representative of each Party is participating.
4.10 Each Partys representatives on each Committee shall collectively have a single vote, irrespective of the number of representatives of a Party actually in attendance at a meeting. Each Committee shall take action by consensus (subject to the final decision making authority of a Party as expressly provided for in this Agreement) at any Committee meeting, or by a written resolution signed by the designated representatives of each of UCB or Dermira.
4.11 If the JDT cannot, or does not, reach consensus on an issue, then the dispute shall be referred to the JDC for resolution by written notice to the members of the JDC, and a special meeting of the JDC may be called for such purpose. If the JCT cannot, or does not, reach consensus on an issue, then the dispute shall be referred to the JCC for resolution by written notice to the members of the JCC, and a special meeting of the JCC may be called for such purpose. If a Committee (other than the JSC ) cannot, or
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does not, reach consensus on an issue (including issues referred to it by any of its subordinate Committees), then the dispute shall be referred to the JSC pursuant to either Section 4.23(i) or 4.31(l) for resolution by written notice to the members of the JSC, and a special meeting of the JSC may be called for such purpose. If the JSC cannot, or does not, reach consensus on an issue within the jurisdiction of the JSC, including any dispute arising in another Committee and referred to it for resolution, within a period of ten (10) Business Days from the date on which such matter is referred to the JSC or such other period as the Parties may agree, then such matter shall be promptly referred to the Senior Executives of the Parties for resolution. If such Senior Executives cannot resolve such matter within a period of ten (10) Business Days from the date on which such matter is referred to such Senior Executives, then: (a) if neither Party has the final decision making authority with respect to the subject matter of such Dispute, then either Party may refer such D ispute for resolution in accordance with the provisions of Section 23; or (b) if subject matter of such Dispute is subject to a Partys final decision making authority as set forth in this Agreement, then the Senior Executive of the Party having the final decision making authority shall, in relation to those issues with respect to which it has final decision making authority in its discretion decide on the matter in dispute, which decision shall be final and binding on the Parties and not subject to resolution pursuant to Section 23, nor shall such decision give rise to any right of the other Party to claim breach of this Agreement provided that such Party, in exercising such final decision authority, shall do so in accordance with the provisions of this Section 4 governing such final decision making . Notwithstanding the foregoing, the Development Matters shall be subject to the expedited decision making process under Section 4.25.
(a) UCB shall have final decision making authority for the following matters:
(i) the overall regulatory, Development and Commercialisation strategy for the Product throughout the Territory; and
(ii) those issues designated as Commercial Functions; and
(iii) the Medical Affairs Plan; and
(iv) market access, gross and/or net pricing, discounting, rebates, tendering and contracting, Pricing and Reimbursement Approval coverage at national, regional or any other sub-national level, regulatory strategy, market access, overall requirement for commercial and legal compliance, statistical analysis, medical writing, data management, safety and pharmacovigilance measures under the Safety Agreement, Recalls, Product life cycle management and Medical Affairs strategy and messaging throughout the Territory
provided that, in exercising such final decision making authority, such final decision shall not (A) with the exception of Section 5.3(b)(i), increase the activities to be undertaken by Dermira under the Development Plan, Medical Affairs Plan or the Commercialisation Plan such that any such increase in activities would increase the total Development Costs payable by Dermira under the JDC-Approved
Development Budget or the total costs and expenses payable by Dermira under the then current budget relating to the Dermira Commercial Activities or Medical Affairs activities; (B) except for in relation to any safety issue identified from the Safety Process, suspend, terminate or delay the Development of the Product in the Development Indication; (C) withhold its approval unreasonably in connection with the JCCs adjustment to Dermiras Commercialisation diligence obligation as set forth in Section 7.9; (D) apply to the level of UCB support under Section 7.4(a) and the UCB Support Budget in relation thereto; or (E) any modification to the Development Responsibilty Matrix and/or the Regulatory Responsibility Matrix shall require the mutual written agreement by the Parties.
(b) Dermira shall have final decision making authority for the following matters:
(i) subject to Dermiras obligation to use Commercially Reasonable Efforts to conduct the Dermira Commercial Activities, (A) the level of the Dermira Commercial Activities undertaken by Dermira under the Commercialisation Plan, including the level of Dermira Commercial Activities set out in the plans contained in the Commercialisation Plan such as the Launch Plan and each Local Dermira Commercial Plan, (B) the level of Medical Affairs activities for which Dermira will be responsible under the Medical Affairs Plan, and (C) the budgets set forth under each such plan for which Dermira will be responsible, including the UCB Support Budget that is subject to the UCB Commercialisation Cost Deductions from Gross Margin; and
(ii) subject to Dermira conforming with and adhering to UCBs policies and procedures relating to the engagement of key opinion leaders to the extent such policies and procedures are provided by UCB to Dermira in writing in advance, the selection and management of dermatology key opinion leaders and conferences and patient advocacy sponsorships within the field of dermatology, provided that Dermira shall not exercise such final decision making authority under this subsection (ii) if UCB should notify Dermira that such exercise would be inconsistent with UCBs overall Commercialisation strategy with respect to the Product
provided that, in exercising such final decision making authority, such final decision shall not (A) increase the activities to be undertaken by UCB on behalf of UCB under the Development Plan, Medical Affairs Plan or the Commercialisation Plan such that any such increase in activities would increase the total Development Costs payable by UCB under the JDC-Approved Development Budget or the total of the UCB Support Budget, or (B) save in relation to any safety issue identified from the Safety Process, suspend, terminate or delay the Development of the Product in the Development Indication.
4.12 The Parties recognize that each Party possesses an internal structure (including various internal committees, teams and review boards) that will be involved in administering such Partys activities under this Agreement. Each Committee shall establish procedures to facilitate communications between such Committee and any project teams established by such Committee and the relevant internal committee, team or board of each of the Parties, as well as joint teams (such as the JDT and JCT), in order to ensure the efficient conduct of the collaboration, including by requiring appropriate members of such Committee to be available at reasonable times and places and upon reasonable prior notice for making appropriate oral reports to, and responding to reasonable inquiries from, the relevant internal committee, team or board, and conducting deliberations and rendering decisions (including exercising any final decision making authority granted to it under this Agreement) on matters referred to it in a fair, efficient and expeditious manner so as to minimize any disruption in the Development of the Product under the Development Plan. The Parties have entered into this Agreement acknowledging that UCB is managing the Cimzia® franchise across a variety of international markets and indications, and that decisions made in respect of branding strategy, pricing policy, regulatory strategy and other customary practices in relation to the Product may have varying effects on each indication in different countries in the Territory. In addition, t he Parties have entered into this Agreement based on the assumption that the interests of the Parties across various indications will be generally aligned having regard to the fact that the Parties acknowledge that the commercial value, potential and stage of development of the various indications for the Product are inherently not the same and are each subject to being adversely affected (often to differing degrees) by many factors which are outside of the control of the Parties. Accordingly , following Launch and provided that Dermira is performing the Dermira Commercial Activities in accordance with the provisions of Section 7 , Dermira may , subject to the following proviso, [*] pursuant to [*] within [*] Calendar Months of Dermiras becoming aware of [*] if UCB [*] one or more [*] and [*] the Development Indication [*] with the [*] of [*] the [*] of [*] and that UCB knew or reasonably should have known that [*] would, and such [*] did , in fact , result in a [*] in the amount of [*] based on the [*] payable to Dermira under this Agreement as determined by comparing: (a) the greater of (i) the then mutually agreed forecast for the Royalty Bearing Sales in the six (6) Calendar Month period immediately following the [*] of such [*] or (ii) the Royalty-Bearing Sales of the Product in the six (6) Calendar Month period immediately preceding the [*] of such [*] with (b) the actual Royalty Bearing Sales for the six (6) Calendar Month period immediately after the [*] of such [*] provided always that Dermira shall have [*] pursuant to [*] if UCB (i) initiates [*] on receipt by it of a notice from Dermira to [*] in the amount of royalties based on Royalty Bearing Sales payable to Dermira under this Agreement; and (ii) until such [*] has taken effect so
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as to [*] in an amount equivalent to the [*] royalties based on Royalty Bearing Sales under this Agreement from the date of the implementation of such [*] up to the date of such [*]. For clarity, Dermira acknowledges that UCB will need to make business decisions that could adversely affect one indication more or less than another indication and the foregoing shall not be construed as requiring UCB to [*] to evaluate the potential effect prior to making each [*] in order to [*] on any one [*] to any other [*] .
4.13 As soon as practicable following the Commencement Date, each Party will appoint an Alliance Manager. Each Alliance Manager will manage and oversee the governance of the Agreement and will serve as the primary contact person concerning on-going interactions between the Parties under this Agreement. The Alliance Managers will coordinate and attend all meetings of the JSC and will be responsible for the preparation and circulation of JSC meeting minutes for approval and will facilitate the scheduling and conduct of JSC meetings. The Alliance Managers may also attend meetings of the JDC, JCC and any other Committee established pursuant to Section 4.4. The Alliance Managers will not also be members of the JSC, the JDC or the JCC, nor will they have any voting rights or decision making authority with respect to matters for which such Committees are responsible.
JOINT STEERING COMMITTEE: JSC
4.14 On or within twenty (20) Business Days after the Effective Date, the Parties shall establish the JSC.
4.15 The JSC shall consist of a total of six (6) members and shall be comprised of three (3) senior employees of each Party being executive level managers, and the composition of each Partys representation on the JSC may be altered by the relevant Party at any time provided that, prior to any such alteration, the Party requiring such alteration shall:
(a) notify the other Party in writing of such alteration, including in such notification the identity of the representative being replaced, and the identity and level of responsibility of the replacement representative; and
(b) ensure that any replacement representative is capable of making decisions in accordance with Section 4.3; and
(c) ensure that at least one (1) representative of the JSC (i) in the case of UCB, a senior executive reporting directly to a member of UCBs Executive Committee and (ii) in the case of Dermira, a senior executive reporting directly to the CEO of Dermira.
Other employee representatives of each Party may attend and participate (but not vote) in meetings of the JSC.
4.16 The initial members of the JSC shall be:
(a) in the case of UCB: [*]; and
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(b) in the case of Dermira: [*].
4.17 As soon as reasonably practicable following the formation of the JSC, the Parties shall appoint a chairperson (the JSC Chair ) responsible for the scheduling and conduct of all JSC meetings as indicated in Section 4.4 and for the production and circulation of JSC, JDC and JCC meeting minutes. The JSC Chair shall promptly accommodate requests by either Party to schedule meetings of the JSC and/or add agenda items to the agenda for JSC meetings.
4.18 The JSC shall have responsibility for the oversight, strategic planning, and decision making, and overall management of the Parties activities relating to the Development of the Product in the Development Indication in the Development Territory as identified in the Development Plan , the Dermira Commercial Activities and Medical Affairs activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication and UCBs activities in support thereof, in each case in accordance with this Agreement, including responsibility for:
(a) the strategic oversight of the Development of the Product in the Development Indication in the Development Territory and the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication, as appropriate;
(b) approving the formation of such other Committee as it should deem necessary to be formed for the performance of the Parties respective obligations pursuant to this Agreement;
(c) approving the Development Plan, the Medial Affairs Plan, and the Commercialisation Plan, including the Launch Plan, and each Local Dermira Commercial Plan;
(d) resolution of disputes referred to it by the JDC or the JCC;
(e) reviewing any referral made by the JDC pursuant to Section 4.23(c);
(f) approval of the adoption and use of alternative sources of Market Information pursuant to Section 10.8 ;
(g) performing such other functions as are allocated to it under the other provisions of this Agreement or as appropriate to further the purposes of this Agreement as agreed by the Parties from time to time in writing.
4.19 Each JSC Chair shall serve as chairperson for a period of twelve (12) Calendar Months and shall rotate as between the Parties. The first JSC Chair shall be a UCB member of the JSC.
JOINT DEVELOPMENT COMMITTEE: JDC
4.20 On or within twenty (20) Business Days after the Effective Date, the Parties shall establish the JDC.
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4.21 The JDC shall consist of a total of six (6) members and shall be comprised of three (3) senior employees of each Party having the requisite experience seniority to be able to make decisions of the JDC on behalf of the relevant Party, and the composition of each Partys representation on the JDC may be altered by the relevant Party at any time provided that, prior to any such alteration, the Party requiring such alteration shall:
(a) notify the other Party in writing of such alteration, including in such notification the identity of the representative being replaced, and the identity and level of responsibility of the replacement representative; and
(b) ensure that any replacement representative is capable of making decisions in accordance with Section 4.3; and
(c) ensure that at least one (1) representative of the JDC is a member of (i) in the case of UCB, a Vice President having responsibility for clinical research and (i) in the case of Dermira, a Vice President having responsibility for product development.
Other employee representatives of each Party may attend and participate (but not vote) in meetings of the JDC.
4.22 As soon as reasonably practicable following the formation of the JDC, Dermira shall appoint a chairperson (the JDC Chair ) responsible for the scheduling and conduct of all JDC meetings as indicated in Section 4.4 and for the production and circulation of JDC meeting minutes. Meetings of the JDC shall take place during the Development Term until at least the date on which Regulatory Approval for the Product in the Development Indication has been granted by the FDA. The JDC Chair shall promptly accommodate requests by either Party to schedule meetings of the JDC and/or add agenda items to the agenda for JDC meetings.
4.23 The JDC shall have responsibility for the oversight, strategic planning, decision making and overall management and coordination of activities relating to Development and the Development Plan, including responsibility for:
(a) reviewing of and commenting on the Development Plan and any Medical Affairs Plan prepared by the JDT and, if acceptable, recommending such Development Plan or Medical Affairs Plan for approval by the JSC;
(b) reviewing and commenting on the amendments to the Initial Development Plan following the FDA Development Meeting and the EMA Development Meeting, and if acceptable, recommending such amendments for approval by the JSC;
(c) if unresolved, refer ring any notification of anticipated delay in meeting any timelines or target completion dates set forth in the Development Plan provided by the JDT pursuant to Section 5.16 to the JSC;
(d) review ing and approv ing the Development Plan and the JDC-Approved Development Budget and discussin g and consider ing proposed changes to the same (including amendments to the JDC-Approved Development Budget );
(e) reviewing and approving the Medical Affairs Plans and the Medical Affairs Budgets and discussin g and consider ing proposed changes to the same (including amendments to any approved Medical Affairs Budget ) ;
(f) the formation and oversight of the JDT to oversee the performance of the day-to-day activities set out in the Development Plan;
(g) subject to the provisions of Section 5.6, coordinating and establishing strategies for obtaining Regulatory Approvals and strategies for communications and interactions with Regulatory Authorities in relation to the Development of the Product in the Development Indication in the Development Territory;
(h) considering and attempting to resolve disputes arising within the JDT;
(i) referring disagreements arising in the JDC to the JSC;
(j) approving Post-Approval Studies and Post-Approval Study Protocols, in each case, in the Development Indication;
(k) developing and approving the Development Transition Plan within sixty (60) Business Days of the Commencement Date;
(l) performing such other functions as are allocated to it under the other provisions of this Agreement or as appropriate to further the purposes of this Agreement as agreed by the Parties from time to time in writing.
4.24 Each J D C Chair shall serve as chairperson for a period of twelve (12) Calendar Months and shall rotate as between the Parties. The first J D C Chair shall be a Dermira member of the J D C.
4.25 The overall operational compliance with and execution of the Development Plan, including but not limited to the following matters, shall be subject to the day-to-day management at the JDT, and the JDT shall endeavour to resolve such matters in a fair, expeditious and efficient manner. The JDT may seek the JDCs guidance on such matters, and the JDC shall, upon the request of the JDT, make decisions on such matters without referring such matters to the JSC (each, a Development Matter ). In the event the JDC cannot agree on any such Development Matter, such matter shall be referred to the JSC for determination, and if the JSC cannot reach agreement on such matter within five (5) Business Days after such matter has been referred to it for resolution, then [*] such Development Matter, having regard for the terms and conditions of this Agreement and the [*]:
(a) the [*] and [*] of [*];
(b) reporting obligations in the [*] with respect to [*] and [*];
(c) quality assurance, including auditing of [*] and [*];
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(d) the [*] for the Product if the same has not already been produced by UCB prior to the Effective Date, and each issuance of a new version of such [*];
(e) the [*] and any other information to be provided to potential [*] to [*] to participate in [*], and any [*] in the Development Indication;
(f) the form of [*] to be used for [*], and each [*] in the Development Indication; and
(g) each amendment to any such [*], provided that the initial form of each such [*] shall be approved prior to the FDA Development Meeting, and in the case of this Section 4.25(g), Dermira may request expedited approval within fifteen (15) Business Days from UCB via UCBs relevant Contact (in lieu of JDC approval), and UCB shall use reasonable efforts to expedite its review and give such approval (or communicate any comments or concerns to Dermiras Contacts, as applicable) within such period of time.
4.26 Other than as expressly set out in Section 4.25 as being subject to the expedited dispute resolution process, any other unresolved disputes of the JDC shall be referred to the JSC for resolution as set forth in Section 4.11.
JOINT DEVELOPMENT TEAM: JDT.
4.27 The Parties shall establish a Joint Development Team consisting of such number of representatives from each Party as the Parties may decide (the JDT ) as soon as practicable after the Effective Date. The JDT shall meet on an as-needed basis, either in person or by teleconference, and shall serve as a working group that coordinates between the Parties in the conduct of the day-to-day Development activities under the Development Plan and Medical Affairs activities under the Medical Affairs Plan , including UCBs regulatory responsibilities and UCBs supply of Product and Comparator Drugs and Placebo in connection therewith. The JDT shall endeavo u r to resolve any operational issues that arise from the conduct of the Development of the Product in the Development Indication in the Development Territory in accordance with the Development Plan , the conduct of the Medical Affairs activities under the Medical Affairs Plan, and the provisions of this Agreement in a fair, efficient and expeditious manner, and shall refer any unresolved issues to the JDC for resolution. Each Party shall designate a member of the JDT as the primary contact (the Development Contact ) for such Party to coordinate the Development activities between the Parties. If at any time prior to the first Regulatory Approval of the Product in the Development Indication in the Promotion Territory, UCB commences a safety signal assessment report ( SSAR ) in accordance with UCBs Safety Process for the Product, then UCB shall notify Dermira in writing within five (5) Business Days of completing such SSAR that a validated safety signal has been detected, if the safety
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signal relates to the Development Indication, UCB and shall provide Dermira the data and other information upon which such assessment is based. UCB shall keep Dermira informed of the status, progress and outcome of such safety assessment, and shall provide ongoing updates to Dermira, through the JDT, and UCB shall take into consideration Dermiras comments and feedback with respect to such assessment. Final approval of all signal assessment reports shall rest with UCB benefit risk team. If such validated safety signal is of sufficient concern, UCB shall notify Dermira and may terminate this Agreement pursuant to Section 20.6(d).
JOINT COMMERCIALISATION COMMITTEE: JCC
4.28 At either Partys request during the Term but in any event no earlier than six (6) months after the Commencement Date and no later than twelve (12) months prior to the first anticipated Regulatory Approval of the Product in the Development Indication in the Promotion Territory, the Parties shall establish the JCC.
4.29 The JCC shall consist of a total of six (6) members and shall be comprised of three (3) senior employees of each Party having the requisite experience seniority to be able to make decisions of the JCC on behalf of the relevant Party, and the composition of each Partys representation on the JCC may be altered by the relevant Party at any time provided that, prior to any such alteration, the Party requiring such alteration shall:
(a) notify the other Party in writing of such alteration, including in such notification the identity of the representative being replaced, and the identity and level of responsibility of the replacement representative; and
(b) ensure that any replacement representative is capable of making decisions in accordance with Section 4.3; and
(c) ensure that at least one (1) representative of the JCC is a member of (i) in the case of UCB, a Vice President having responsibility for Commercialisation of the Product in the United States of America and (i) in the case of Dermira a Vice President having responsibility for Commercialisation of the Product in the US.
Other employee representatives of each Party may attend and participate (but not vote) in meetings of the JCC.
4.30 As soon as reasonably practicable following the formation of the JCC, UCB shall appoint a chairperson (the JCC Chair ) responsible for the scheduling and conduct of all JCC meetings as indicated in Section 4.4 and for the production and circulation of JCC meeting minutes. Meetings of the JCC shall take place during the Term until at least the date on which Regulatory Approval for the Product in the Development Indication has been obtained. The JCC Chair shall promptly accommodate requests by either Party to schedule meetings of the JCC and/or add agenda items to the agenda for JCC meetings.
4.31 The JCC shall have responsibility for the oversight, strategic planning, decision making and overall management and coordination of activities relating to the Dermira
Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication in accordance with the Commercialisation Plan and the terms of this Agreement, as well as UCBs Commercialisation activities under the Commercialisation Plan , including responsibility for:
(a) reviewing and commenting on the Commercialisation Plan (including long-term and peak-year sales forecasts) and recommending such Commercialisation Plan for approval by the JSC;
(b) overs eeing the implementation of the Commercialisation Plan, including the Dermira Commercial Activities, for the Product in the Promotion Indication and the Development Indication to Dermatologists in the Promotion Territory ;
(c) reviewing, considering, commenting on and making suggestions in relation to the reports presented to the JCC by the JCT pursuant to Section 7.5;
(d) managing issues relating to the timelines, resources, and budget as detailed in the relevant Local Dermira Commercial Plans, including reviewing UCBs supply of the Product based on the forecast of sales attributable to Dermatologists;
(e) reviewing Local Dermira Commercial Plans;
(f) reviewing and monitoring the Market Information for accuracy, reliability and suitability;
(g) overseeing the formation of the JCT to undertake the day-to-day activities set out in each Local Dermira Commercial Plan;
(h) discussing Medical Affairs activities undertaken by the Parties and communications by UCB with Regulatory Authorities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication;
(i) exchanging information with respect to UCBs Commercialisation activities with respect to the Product in accordance with the Commercialisation Plan so as to inform Dermiras plan and conduct of Dermira Commercial Activities;
(j) discussing any New Presentation proposed by Dermira for use in the Development Indication and/or Promotion Indication and, provided that the JCC agrees to consider the same, a plan to supply the Product in such New Presentation to accommodate any new dosing regimen for the Development Indication and/or Promotion Indication;
(k) considering and resolving disputes arising between the Parties respective project teams;
(l) referring disagreements arising in the JCC to the JSC;
(m) developing and approving the Commercial Transition Plan within sixty (60) Business Days of the Commencement Date;
(n) performing such other functions as are allocated to it under the other provisions of this Agreement or as appropriate to further the purposes of this Agreement as agreed by the Parties from time to time in writing.
4.32 Each JCC Chair shall serve as chairperson for a period of twelve (12) Calendar Months and shall rotate as between the Parties. The first JCC Chair shall be a UCB member of the JCC. A JCC member from either Party may be a member of the JDC.
JOINT COMMERCIALISATION TEAM: JCT.
4.33 The Parties shall establish a Joint Commercialisation Team consisting of such number of representatives from each Party as the Parties may decide (the JCT ) at the same time the Parties establish the JCC. The JCT shall meet on an as-needed basis but no less frequently than once every three (3) Calendar Months during the period that begins twelve (12) Calendar Months prior to the first anticipated Launch of the Product in the Development Indication in the Promotion Territory, and ending on the day that is the first anniversary of such Launch, either in person or by teleconference, and shall serve as a working group that coordinates between the Parties in the conduct of the day-to-day Commercialisation activities under the Commercialisation Plan, the Launch Plan and each Local Dermira Commercial Plan, including UCBs Commercialisation activities in support of the Dermira Commercial Activities. The JCT shall endeavor to resolve any operational issues that arise in connection with the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication, in accordance with the Commercialisation Plan (including Launch Plan and each Local Dermira Commercial Plan) and the provisions of this Agreement in a fair, efficient and expeditors manner, and shall refer any unresolved issues to the JCC for resolution. Each Party shall designate a member of the JCT as the primary contact (the Commercial Contact and together with the Development Contacts, the Contacts ) for such Party to coordinate each Parties respective activities as contemplated by this Section 4.
5. DEVELOPMENT
5.1 Initial Development Plan. The Parties have agreed upon an Initial Development Plan setting forth the design, costs, protocols, roles and responsibilities, and timelines of the Development activities to be undertaken with the objective of obtaining Regulatory Approval for the Product in the Development Indication by the FDA, Health Canada and EMA, as further set forth in this Section 5.1. The clinical and regulatory strategy contemplated by the agreed Initial Development Plan will be submitted to the FDA in advance of the FDA Development Meeting, which meeting will be held as soon as practicable after the Effective Date but in any event the Parties shall endeavor to schedule such FDA Development Meeting to occur within [*] Calendar Months after the Effective Date. Following the FDA Development Meeting:
(a) If no material changes or alterations of the Initial Development Plan (including the JDC-Approved Development Budget) are required, then it shall be deemed a
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JSC approved Development Plan, and, subject to the satisfaction of the conditions set out in Section 2.2, the Parties shall commence Development of the Product in the Development Indication in the Development Territory in accordance with such Development Plan as soon as practicable thereafter;
(b) If either Party believes that a ny decision, recommendation or other feedback from the FDA requires amendment of the Initial Development Plan, the JDT shall promptly meet and decide how to implement such amendment. Except as otherwise set forth in Section 5.1(c), if the JDC approves such proposed amendment by the JDT, then the Initial Development Plan (including the JDC-Approved Development Budget contained in such Development Plan, which shall be amended accordingly in a manner that minimizes any increase in such JDC-Approved Development Budget whilst still giving effect to such JDC approved amendment) shall be amended accordingly and shall, subject to JSC approval, be deemed to be the Development Plan and the new JDC-Approved Development Budget, and, subject to the satisfaction of the conditions set out in Section 2.2, the Parties shall commence Development of the Product in the Development Indication in the Development Territory in accordance with such Development Plan as soon as practicable thereafter;
(c) If any a mendment to the Initial Development Plan (including the JDC-Approved Development Budget therein) required to address such FDA feedback will (i) significantly increase the costs of Development , and/or (ii) extend the projected timeline for completion of Development , and/or (iii) otherwise require material modifications to the Initial Development Plan, then either Party may object if it reasonably determines that such amendment will adversely affect the medical and scientific basis and/or commercial objectives for undertaking the Development of the Product in the Development Indication in the Development Territory . The objecting Party shall inform the JDC which shall promptly meet to discuss the factual basis for such determination;
(d) Any amendment to the Development Plan (including the JDC-Approved Development Budget) under Section 5.1(b) or (c) shall be finalized and approved by JSC within [*] days after the FDA Development Meeting. Following any such amendment over a Partys objection under Section 5.1(c), such Party may terminate this Agreement pursuant to Section 20.3 on [*] Business Days written notice to the other Party and the consequences set out in Section 21.1 shall apply, provided that: such Party shall provide such notice within [*] Business Days after the approval of such Development Plan (including the JDC-Approved Development Budget).
5.2 EMA Development Meeting. In addition to the FDA Development Meeting, t he Parties anticipate that the clinical and regulatory strategy contemplated in the Development Plan as referred to in Section 5.1(b) will also be submitted to the EMA for review and comment by the EMA (the EMA Development Meeting ), which review will be held as soon as practicable. After such EMA Development Meeting, the JDT will review and amend, if appropriate, the Development Plan (including the
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JDC-Approved Development Budget therein) for the recommendation by the JDC to seek approval from the JSC to reflect any requirement from the EMA for the Regulatory Approval by the EMA for the Product in the Development Indication. If any a mendment to the Development Plan (including the JDC-Approved Development Budget therein) required to address such EMA feedback will (i) increase the JDC-Approved Development Budget to [*] dollars ($ [*] or more , and/or (ii) extend the projected timeline in the Development Plan for the submission to the FDA of a Drug Approval Application for the Product for the Development Indication to [*] then within [*] Business Days after the approval of such amended Development Plan by the JSC, Dermira may terminate this Agreement pursuant to Section 20.3 on [*] Business Days written notice to UCB and the consequences set out in Section 21.1 shall apply .
5.3 Amendments to Development Plan and JDC-Approved Development Budget.
(a) The Initial Development Plan (including the JDC-Approved Development Budget as of the Effective Date) is set forth in Schedule 8 .
(b) After the Effective Date, the Development Plan (including the JDC-Approved Development Budget therein) may only be amended as follows:
(i) Following each of the FDA Development Meeting and the EMA Development Meeting, until the expiration of the termination rights under Sections 5.1 and 5.2, respectively, the Development Plan (including the JDC-Approved Development Budget therein) may be amended pursuant to Section 5.1 or 5.2 above;
(ii) Following expiry of the termination rights referred to in Section 5.3(b)(i), the Development Plan (including the JDC-Approved Development Budget therein) may only be amended as necessary to meet the requirement of the FDA or the EMA or Health Canada for the Regulatory Approval for the Product in the Development Indication . Any such amendment(s) (including any amendment that would result in the termination of the Development of the Product in the Development Indication) shall be prepared by the JDT and reviewed and recommended by the JDC for JSCs approval, and any such amendments shall attempt to minimize any disruption to the Development of the Product in the Development Indication and minimise any increase in the JDC-Approved Development Budget. Such amendment in the Development Plan (including the JDC-Approved Development Budget therein) shall become effective only upon the approval of the JSC, and neither Party shall have the final decision making authority with respect to such approval. Notwithstanding the foregoing, neither Party shall withhold its approval on the JSC for such amendment to the extent such amendment is required by the FDA, Health Canada, or the EMA for the Regulatory Approval by the FDA, Health Canada, and/or the EMA for the Product in the Development Indication.
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5.4 Post-Approval Studies.
(a) UCB agrees to [*] for the Product in the Development Indication from the FDA so that the FDA [*] the Product in the Development Indication [*] of the Product for use in the Development Indication. To the extent the FDA requires a Paediatric Plan to be undertaken as a condition for the Regulatory Approval of the Product in the Development Indication, such Paediatric Plan shall be included within the Development Plan.
(b) If the EMA requires a Paediatric Plan to be undertaken as a condition for Regulatory Approval of the Product for the Development Indication by the EMA, such Paediatric Plan shall be included within the Development Plan.
(c) If the Development activities to be conducted under the Development Plan to satisfy the requirements of the FDA and EMA for the Regulatory Approval of the Product in the Development Indication, including any Paediatric Plan and/or other Post-Approval Studies, are not sufficient to satisfy the requirements of Health Canada for the Regulatory Approval of the Product in the Development Indication (the Health Canada Additional Requirement ), Dermira shall have the right to terminate its rights and obligations under this Agreement with respect to Canada by providing written notification to UCB within sixty (60) Business Days after learning about such Health Canada Additional Requirement, whereupon: (A) Canada shall no longer be included in the Promotion Territory, (B) all of Dermiras obligations with respect to the Product in Canada shall terminate, and (C) any costs and expenses incurred in connection with any Development activities to be conducted by or on behalf of UCB thereafter for the purpose of obtaining Regulatory Approval from Health Canada shall be solely borne by UCB. In the event there exists no Health Canada Additional Requirement, or if Dermira does not provide UCB with such written notification of termination as set forth in the preceding sentence, then: (X) Canada shall remain included in the Promotion Territory, (Y) to the extent there exists any Health Canada Additional Requirement, the Development Plan (together with the JDC-Approved Development Budget therein) shall be modified to include the Development activities that would satisfy such Health Canada Additional Requirement; and (Z) the Development Costs in connection therewith shall be deemed to be included in the FDA/EMA Development Costs, provided that Dermiras share of such Development Costs, as incurred, shall be counted towards the Cap.
(d) The Parties anticipate [*] to consist of [*] the requirements of [*] with respect to [*]. The Parties shall share the Development Costs in connection with [*] Paediatric Plan equally through the reimbursement mechanism set forth in Section 10.13, such Development Costs shall be included in the JDC-Approved Development Budget and Dermiras share of such Development Costs shall be counted towards the Cap.
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(e) For clarity, other than the Paediatric Plans requested by the EMA relating to the use of the Product in the Development Indication as set forth in Section 5.4(b) , Dermira shall not be responsible for the conduct or the costs of any Post-Approval Studies that are only required by the EMA but not for Regulatory Approval in the Promotion Territory (an EMA-Specific Post-Approval Study ). Such EMA-Specific Post-Approval Study shall be the sole responsibility , and shall be conducted solely by and at the cost , of UCB and the costs and expenses incurred in connection with such Clinical Studies shall not be included in the Development Costs.
(f) Notwithstanding anything to the contrary herein: (i) while the Parties recognize that any Post - Approval Studies, if necessary, need to be adequate and sufficient to satisfy the requirement for Regulatory Approval(s) by the FDA, EMA and/or Health Canada (to the extent Dermira does not elect to terminate its rights in Canada under Section 5.4(c)), UCB shall endeavo u r to limit the number and scope of the Post-Approval Studies, including any Paediatric Plan, for the Product in the Development Indication; and (ii) any and all of Dermiras obligations under this Agreement with respect to Post-Approval Studies shall be subject to the responsibility and costs allocation described in this Section 5.4.
5.5 Development Diligence. Under the supervision of the JDC and during the Development Term, Dermira shall use Commercially Reasonable Efforts to perform all activities assigned to it in the Development Plan and UCB shall use Commercially Reasonable Efforts to undertake such of the activities under the Development Plan subcontracted to it by Dermira . In addition, except as otherwise set forth in Section 5.1, Dermira shall be responsible for the payment of all Development Costs incurred under the Development Plan, including the Cost of Goods for of Product and Comparator Drugs and Placebo ordered in connection with such Development activities, all as set out in the JDC-Approved Development Budget. For clarity, Dermira shall not be required to reimburse UCB for any Development Costs incurred by UCB except to the extent set forth in the Development Plan, as identified in the JDC-Approved Development Budget as being subject to reimbursement by Dermira. Each Party shall use Commercially Reasonable Efforts to perform such activities assigned to it under the Development Plan and/or as set forth in the Development Responsibility Matrix and/or Regulatory Responsibility Matrix (in the case of UCB, including its supply responsibilities) in good scientific manner, in accordance with Applicable Law, GMP (except in relation to Comparator Drug and Comparator Placebo), GCP and ICH Guidelines, as applicable, as well as the terms of this Agreement and the Safety Agreement. The JDT shall coordinate the Parties performance of such activities in a fair, efficient and expeditious manner. Each Party shall allocate appropriate resources, effort, equipment and personnel for the effective implementation and performance of its specified responsibilities set out in Development Plan, including in the case of UCB, its regulatory and supply responsibilities as set forth in this Agreement, so as to complete such activities fully and promptly, and in accordance with the Development Plan and the timelines set out therein. If either Party suspects that there may be a delay
in meeting any timelines set out in the Development Plan, it shall promptly raise such issue with the JDT.
5.6 Regulatory Interactions. In relation to the Product, UCB shall, at its sole cost and expense, have overall responsibility for the strategy, and communication and interactions with Regulatory Authorities and shall prepare and submit all Regulatory Documentation relating to the Development of the Product in the Development Indication throughout the Development Territory, except that Dermira shall carry out such specific activities delegated to Dermira under the Regulatory Responsibility Matrix, and the Parties respective roles and responsibilities shall be further set forth in the Regulatory Responsibility Matrix. During the Development Term, UCB shall communicate and interact with Regulatory Authorities in a manner that is consistent with such overall strategy, and shall consult with Dermira prior to any such communications and shall keep Dermira informed, through the JDT, of the progress, strategy and updates with respect to the regulatory activities for the Product in the Development Indication in the Development Territory. UCB shall provide Dermira with drafts of material Regulatory Documentation and material correspondence with the Regulatory Authorities with respect to the Development Indication and/or the Promotion Indication for Dermiras review and comment. In addition, UCB shall, to the extent practicable, provide Dermira with advance notification of any and all meetings with the FDA, EMA and Health Canada with respect to the Development Indication and/or the Promotion Indication, and allow Dermira to participate in such meetings as agreed by the JDC prior to such meetings.
5.7 Reports.
(a) No less than once during each Calendar Quarter, the JDT shall provide to the JDC detailed reports of the progress of the Development of the Product in the Development Indication and the activities undertaken under by it, and outcomes of the Development work conducted pursuant to, the Development Plan.
(b) After obtaining the necessary data to do so, Dermira shall provide UCB with the interim clinical study report after each Clinical Study conducted by Dermira under the Development Plan, in the form and containing the detail set forth in Schedule 16 (the Interim Clinical Study Report ).
(c) UCB shall have the right to comment as to whether the level of detail of such Interim Clinical Study Report is sufficient for submission of the Interim Clinical Study Report to the FDA, EMA and Health Canada, and Dermira shall revise such Interim Clinical Study Report based on such comments received from UCB.
(d) After Dermiras completion of such Interim Clinical Study Report based on UCBs comments and provided the Interim Clinical Study Report meets the criteria in Section 5.7(b), or after UCBs first submission of such Interim Clinical Study Report to a Regulatory Authority, whichever is earlier, UCB shall pay to Dermira Development milestone number 3 in Section 10.2. UCB shall submit to the FDA a Drug Approval Application for the Product for the
Development Indication, and shall seek Regulatory Approval for the Product for the Development Indication, as soon as practicable after Dermiras completion of the Interim Clinical Study Report but in any event by the later of: (i) [*] Calendar Months after Dermiras completion of the Interim Clinical Study Report; and (ii) [*] Calendar Months after the database lock for the Clinical Study identified in the Development Plan as [*].
5.8 Review Board Approvals. Following approval by the JDC, UCB shall delegate the responsibility for obtaining required Review Board approvals to Dermira and Dermira shall communicate all such approvals of the Phase 3 Protocol, or any Post-Approval Study Protocol , each in the Development Indication, and the associated IB , CRF and template ICF, including amendments to any of the foregoing, to the JDT, and no such protocol, IB , CRF and ICF, or amendment to any of the foregoing shall become effective or be used (as applicable) until required Review Board approval thereof, if applicable, has been obtained. In addition, Dermira shall be responsible for seeking required Review Board approvals of any Phase 3 Study or any Post-Approval Study , each in the Development Indication .
5.9 Maintenance of Authorisation to Conduct Clinical Studies. UCB shall be the sponsor of all Phase 3 Studies and all Post-Approval Studies and UCB shall be [*] responsible for preparing, submitting and maintaining all authorizations of, and filings with, Regulatory Authorities (including INDs and Drug Approval Applications) required for the initiation and conduct of any Phase 3 Study and any Post-Approval Study, and for all communications with any Regulatory Authority in relation to any Phase 3 Study, any Post-Approval Study, or any Product or Comparator Drugs and Placebo , except for certain responsibilities delegated to Dermira as set forth in the Regulatory Responsibility Matrix and/or Development Responsibility Matrix, and subject to Dermiras information and participation rights set forth in Section 5.6. In the protocols for such Phase 3 Studies and Post-Approval Studies, UCB shall identify Dermira as a collaborator for such Clinical Studies and shall provide Dermiras contact information on the contact page of the Phase 3 Protocols and/or the Post-Approval Study Protocols. Notwithstanding the foregoing, Dermira acknowledges that, as sponsor, UCB may delegate to Dermira certain of its responsibilities, as set forth in the Regulatory Responsibility Matrix. Without limiting the generality of the foregoing, in relation to the Development of the Product in the Development Indication in the Development Territory, UCB shall be [*] responsible for the filing of the Phase 3 Protocol, IB (if filing is required), template ICF, form of CRF (if required), and amendment to any of the foregoing with the applicable Regulatory Authorities, except for certain responsibilities delegated to Dermira as set forth in the Regulatory Responsibility Matrix and/or Development Responsibility Matrix, subject to Dermiras information and participation rights set forth in Section 5.6. Each Party shall cooperate with the other Party, and provide such assistance as such other Party may reasonably request, in the preparation of the aforesaid regulatory submissions and responses to any request, inquiry or other communication from any Regulatory Authority in relation to a Phase 3 Study, any Post-Approval Study or the Product .
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5.10 Appointment of CROs and other Third Party Subcontractors.
(a) CROs
(i) Subject to the terms and conditions of this Agreement, Dermira shall, in relation to the Development of the Product in the Development Indication in the Development Territory, have primary responsibility for selection and appointment of (i) the CROs that will manage any Phase 3 Study, or any Post-Approval Study in the Development Indication, (ii) the institutions at which a Phase 3 Study, and any Post-Approval Study in the Development Indication, will be performed ( Institutions ), and (iii) the principal investigator at each Institution designated to supervise the work of all persons who assist in performing a Phase 3 Study, or any Post-Approval Study in the Development Indication, at such Institution (each, an Investigator ), including replacement Investigators.
(ii) Dermiras selection, removal and/or replacement of the CROs for the Phase 3 Study, and any Post-Approval Study in the Development Indication shall be subject to discussion at the JDT and the approval by the JDC and the JSC, if applicable, and as the case may be, as a Development Matter under Section 4.25, provided that Dermira may not remove and/or replace [*] CROs at any one time.
(iii) The form of any agreement with either CRO entered into hereunder (a CRO Agreement ) shall, in the case of a CRO Agreement to be entered into by or on behalf of Dermira, be subject to approval by UCB. Each CRO Agreement entered into by Dermira, as it may be amended from time to time, shall contain provisions that comply, or permit Dermira to comply (as applicable), with its obligations under this Section 5.10 and the Safety Agreement and that are otherwise consistent with this Agreement. Dermira shall provide a copy of each UCB approved fully-executed CRO Agreement entered into by Dermira and amendments thereto to the JDT promptly following the execution thereof, and shall ensure that no CRO shall commence any activities (other than preliminary feasibility work in order to provide a quote) with respect to any Phase 3 Study or any Post-Approval Study unless and until the JDC has received a fully-executed CRO Agreement.
(iv) If either or both CROs is or are unable or unwilling to continue in such role, Dermiras Contact shall promptly notify UCBs Contact thereof, and Dermira shall use Commercially Reasonable Efforts to find a suitable replacement, subject to Section 5.10(a)(ii).
(b) Investigators. Subject to Section 5.10(a), Dermira shall use Commercially Reasonable Efforts to engage such number of Investigators and Institutions in order to satisfy the patient enrolment anticipated by and set forth in the Development Plan or the Phase 3 Protocol, or the Post-Approval Study Protocol
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in order to undertake the Development of the Product in the Development Indication in the Development Territory in accordance with the timelines set out in the Development Plan. In selecting Investigators, Dermira shall, and shall ensure any Third Party subcontractor (including either CRO) shall, comply with Applicable Law as it applies to the selection of investigators, including 21 C.F.R. §312.53 (or the equivalent regulation in the case of Investigators located outside of the U.S.). Dermira shall ensure that no Investigators are selected to participate in any Phase 3 Study, and any Post-Approval Study in the Development Indication, as an inducement to, or in return for, past, present, or future prescribing, purchasing, recommending, using, dispensing or granting preferential formulary status for any other product or service. Dermira may remove and/or replace any Investigator for non-performance or non-compliance with, as applicable, the Phase 3 Protocol or Post-Approval Study Protocol at any time.
(c) Clinical Site Agreements. Dermira shall provide to the JDT a draft of the form of Clinical Site Agreement that Dermira proposes to use in connection with the Development of the Product in the Development Indication in the Development Territory through the conduct of a Phase 3 Study, or a Post-Approval Study, which draft form shall be approved by the JDC as a Development Matter prior to the date on which Dermira first expects to use such form. UCBs representatives on the JDT shall provide to Dermira within ten (10) Business Days any comments or questions that UCB may have, and the Parties respective representatives on the JDT, acting reasonably and in good faith, shall negotiate and use Commercially Reasonable Efforts to agree on, within a further three (3) Business Days, such form to be used by Dermira. Following agreement by the JDT as to such form of Clinical Site Agreement, Dermira shall be free to use such Clinical Site Agreement for a Phase 3 Study, or a Post-Approval Study in the Development Indication, and to negotiate such changes to the terms of such Clinical Site Agreement with individual Institutions as are reasonably acceptable to Dermira, provided, however, that: (i) each such negotiated Clinical Site Agreement shall contain provisions that comply, or permit Dermira to comply (as applicable), with its obligations under this Section 5.10(c), the Safety Agreement and this Agreement; and (ii) Dermira shall not agree to substantive changes to the [*] provisions that are less favourable to, and protective of, Dermira than [*], without, in each case, first obtaining the prior approval of UCB. Dermira shall also have the right to negotiate and enter into amendments to such Clinical Site Agreements, subject to the proviso in the preceding sentence. Except where prohibited by Applicable Law or Institution policy, the applicable Investigator at each such Institution shall acknowledge, by his or her signature of the Clinical Site Agreement between Dermira (or the CRO) and such Institution, that he or she has read and understands his or her obligations under the Clinical Site Agreement and the Phase 3 Protocol, or Post-Approval Study Protocol in the
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Development Indication, as applicable. Dermira shall provide a copy of each fully-executed Clinical Site Agreement entered into by Dermira and any amendment thereto to UCBs Contact promptly following the execution thereof.
(d) CRO, Investigator and Institution Payments. In accordance with all Applicable Law, Dermira shall be solely responsible for the payment of all amounts due to CROs, Institutions and Investigators under CRO Agreements and Clinical Site Agreements entered into by Dermira for the performance of any Phase 3 Study, and any Post-Approval Study in the Development Indication.
(e) Visitation, inspection, examination and copying rights. Without prejudice to any other obligation of Dermira hereunder, Dermira shall procure that:
(i) its CRO Agreements include commercially reasonable and customary visitation, inspection, examination and copying rights with respect to the Development Plan activities for the Development of the Product in the Development Indication in the Development Territory conducted by or on behalf of either CRO that are parties thereto and the books and records of such CRO with respect to such activities;
(ii) its Clinical Site Agreements either (i) include commercially reasonable and customary visitation, inspection, examination and copying rights with respect to the Development Plan activities conducted at Institutions and the books and records of such Institutions with respect to such activities or (ii) are on UCB standard site agreement terms; and
(iii) the applicable provisions of such CRO Agreements and Clinical Site Agreements permit UCBs representatives (which may include Third Party contractors of UCB) to exercise the rights described in Sections 5.10(e)(i) and 5.10(e)(ii), respectively, provided that UCB notifies Dermira in writing and coordinates with Dermira prior to the exercise of any such rights, and permits Dermira to participate in UCBs exercise of any such rights to the extent requested by Dermira in writing.
(f) Investigator Documentation. Dermira shall ensure that no Investigator enrols any subject in any Phase 3 Study, or any Post-Approval Study in the Development Indication, unless and until Dermira has received: (a) from such Investigator the information and documentation required by Applicable Law as it applies to the selection of investigators, including 21 C.F.R. §§312.53 and 312.64 (or the equivalent regulations in the case of Investigators located outside of the United States); and (b) from the applicable Review Board written confirmation that the required Review Board approvals for a Phase 3 Study and any Post-Approval Study for the Development of the Product in the Development Indication in the Development Territory described in Section 5.8 have been received. Upon the completion or earlier termination of a Phase 3
Study, or a Post-Approval Study in the Development Indication, Dermira shall provide UCB with the original documents described in this Section 5.10(f).
(g) Communication with Investigators. Dermira shall be responsible for all communications with the Investigators with respect to a Phase 3 Study, and any Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory. Without limiting either Partys obligations under the Safety Agreement, prior to the commencement of a Phase 3 Study, or any Post-Approval Study in the Development Indication, Dermira shall provide each Investigator with the applicable Phase 3 Protocol, and Post-Approval Study Protocol in the Development Indication, and corresponding I B s and ICFs. Thereafter, Dermira shall provide each Investigator with any amendments to any of the foregoing, provided that such amendments have received all required approvals set forth in Section 5.8.
(h) Monitoring. Dermira (or the applicable CRO acting on Dermiras behalf) shall monitor each Institution and any other site at which a Phase 3 Study, or any Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory is performed and collect Product Data therefrom, including CRFs, in compliance with Applicable Law, the Safety Agreement, and the applicable CRO Agreement. If Dermira is conducting on-site visits, Dermira shall prepare and maintain reports of site visits in accordance with the Safety Agreement and shall promptly provide UCBs Contacts with a copy of each such report in accordance with the Safety Agreement.
(i) Disclosure of Study Documentation. Upon UCBs written request, Dermira shall provide, or cause to be provided, to the relevant UCB Contact a copy of all Study Documentation and such other Information necessary or useful for UCBs preparation of Regulatory Documentation, and any supplemental application or variation generated by or on behalf of Dermira during the Development Term or during the duration of any Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory. Dermira shall diligently, in good scientific manner and in accordance with prevailing industry practices concerning the conduct of Clinical Studies, GCP, ICH Guidelines and Applicable Law, attempt to identify, or cause to be identified, and to resolve expeditiously, inconsistencies and deficiencies in Product Data from any Phase 3 Study, or any Post-Approval Study in the Development Indication, conducted by or on behalf of Dermira.
(j) Transfer of Obligations. The appropriate Contacts of the Parties shall work together through the JDT in good faith to finalize and mutually agree to the Transfer of Obligations Checklist, which shall be consistent with the allocation of responsibilities between the Parties set forth in the Agreement. Dermira shall be responsible for the obligations transferred or delegated under the Transfer of Obligations Checklist in relation to the Development of the Product in the Development Indication in the Development Territory, and such responsibilities shall be deemed transferred or delegated as described in 21
C.F.R. §312.52 and any analogous a pplicable l aw or regulation outside of the United States. UCB shall cooperate with Dermira to permit Dermira to comply with the regulatory obligations that have been transferred or delegated by UCB to Dermira. Notwithstanding the foregoing, subject to the Parties mutual written agreement, UCB may re-assume through written notice any such obligation transferred or delegated to Dermira at any time, or may issue specific written instructions to Dermira with respect to any such obligation, subject to Applicable Law . Any responsibilities not specifically transferred in the Transfer of Obligations Checklist shall remain, as between the Parties, the regulatory responsibility of UCB. If any amendment hereto affects the scope of the regulatory obligations that have been transferred or delegated to Dermira, the Parties shall execute a corresponding amendment to the Transfer of Obligations Checklist, and the Parties shall cooperate to ensure an orderly transition of any such obligation. UCB shall be responsible for any required filing of the Transfer of Obligations Checklist or amendment thereto with the FDA and any other relevant Regulatory Authorities.
(k) SOP Approval. For the purposes of this Section 5.10, in conducting the activities with respect to the Clinical Studies hereunder, each Party shall do so in compliance with its SOPs, provided that, prior to working under any such SOP, each Party has agreed that the other Partys relevant SOP is acceptable for use in connection with such activities .
5.11 Supply of Product for Clinical Studies.
(a) Supply Obligations. Subject to the terms and conditions of this Agreement, UCB (or its designee) shall supply, in a timely manner in quantities and timing as agreed by the JDT to satisfy the Development activities set forth in the Development Plan in the manner set forth in the Development Responsibility Matrix, with required quantities of the Product in final packaged form , and Comparator Drugs and Placebo, to be used in a Phase 3 Study, and any Post-Approval Study in the Development Indication . UCB represents and warrants that: (a) all Product and Product Placebo shall have been manufactured in accordance with Applicable Law, including GMP; and (b) any Product and Product Placebo supplied to an Investigator or Institution will, at the time of delivery to such Investigator or Institution, conform to the applicable specifications for the Product or Product Placebo, as applicable, in effect at the date of delivery and shall not be adulterated or misbranded within the meaning of the PHSA ((a) and (b) collectively, the Product Warranty ). Dermira shall, in accordance with Section 10.13, pay the costs and expenses for the supply of Product and Comparator Drugs and Placebo , which shall be UCBs Cost of Goods for the Product and Comparator Drugs and Placebo for activities undertaken by or on behalf of Dermira under the Development Plan (and including those activities undertaken by or on behalf of Dermira in relation to any Post-Approval Studies in the Development Indication to the extent and in the same ratio Dermira is responsible for the Development Costs for such Post-Approval Studies as set forth in Section 5.4) all in relation to the
Development of the Product in the Development Indication in the Development Territory. Dermira shall be solely responsible for ensuring that all Investigators engaged by Dermira under the Development Plan meet all applicable requirements of 21 C.F.R. Part 312, including the record-keeping requirements specified in Section 5.12(b). UCB acknowledges that Institutions may require Dermira to include in Clinical Site Agreements representations and warranties regarding Product and/or Product Placebo supplied to Institutions or Investigators for use in a Phase 3 Study, or any Post-Approval Study in the Development Indication, and will require Dermira to include in such Clinical Site Agreements standard indemnities regarding the Product and/or Product Placebo. UCB further acknowledges and agrees that: (A) Dermira will be entitled to, and will, rely exclusively on the Product Warranty in making any such representation, warranty or statement that is consistent with, and does not exceed the scope of, the Product Warranty; and (B) as between Dermira and UCB, UCB shall be solely responsible for the failure of the Product and/or Product Placebo to conform to the Product Warranty provided that the Product and/or Product Placebo is handled and stored in accordance with the instructions provided with the same at the time of delivery to the Institution. UCB shall purchase Comparator Drug and Comparator Drug Placebo from Third Parties in accordance with its customary practices and shall supply such Materials for use in the Phase 3 Study and any Post-Approval Studies as set forth in the Development Plan. UCB does not provide a product warranty with respect to such Comparator Drug and Comparator Drug Placebo, but in the event of any alleged defect in any such Comparator Drug or Comparator Drug Placebo, UCB shall assign , to the extent permitted by the applicable sale and purchase agreement for such Comparator Drug or Comparator Placebo or Applicable Law, to Dermira all warranties, express and implied, and other rights and causes of action it obtains from or against the suppliers of such materials (if any) ( Comparator Drug Rights ). In the event Dermira instructs UCB to enforce such Comparator Drug Rights, Dermira shall reimburse all costs and expenses reasonably incurred by UCB in connection with such enforcement. In the event UCB experiences any supply shortfall with respect to the Product or the Comparator Drugs and Placebo, UCB shall immediately notify Dermira and the Parties shall discuss in good faith measures to be taken to minimize the impact of such shortfall for the Development of the Product in the Development Indication.
(b) Ownership and Use. All Product and Comparator Drugs and Placebo supplied to Investigators or Institutions shall remain the exclusive property of UCB unless and until administered or dispensed to subjects during a Phase 3 Study, or a Post-Approval Study in the Development Indication in relation to the Development of the Product in the Development Indication in the Development Territory. In no event shall any Product or Comparator Drugs or Placebos supplied for use in such Phase 3 Study, or a Post-Approval Study in the Development Indication, be used by or on behalf of Dermira for any purpose other than as contemplated by the Development Plan in relation to the
Development of the Product in the Development Indication in the Development Territory.
(c) Supply Records and Other Obligations.
(i) UCB shall maintain and retain, as required by Applicable Law regarding the control and disposition of investigational drugs and by GCP, including 21 C.F.R. §312.57, complete and accurate records relating to the disposition of all Product supplied in connection with a Phase 3 Study and each Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory. In accordance with 21 C.F.R. § 312.52, the Transfer of Obligations Checklist will provide for the transfer to Dermira of the responsibility to maintain and retain as required by Applicable Law regarding the control and disposition of investigational drugs and by GCP, including 21 C.F.R. §312.57, complete and accurate records regarding the control and disposition of all such supplied Product, Comparator Drugs and Placebo from and after delivery to Institutions or Investigators. On request, UCB shall provide Dermira with copies of certificates of analysis for the Product and Product Placebo supplied by UCB for use in connection with the Development activities under the Development Plan.
(ii) Dermira shall procure that each Institution and Investigator engaged in the performance of any Phase 3 Study or any Post Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory shall take such measures as are necessary to permit UCB to comply with Applicable Law regarding the control and disposition of investigational drugs, the ICH Guidelines and GCP, including 21 C.F.R. §§312.59 through 312.62 inclusive. Without prejudice to the preceding sentence, Dermira shall maintain and retain, or shall cause to be maintained and retained, complete and accurate records relating to the disposition of all Product and Comparator Drugs and Placebo supplied to any Institution or Investigator engaged in the performance of the Development of the Product in the Development Indication in the Development Territory, which records (i) shall include the quantity and batch code of such Product, Comparator Drugs and Placebo; and (ii) shall identify all Product, Comparator Drugs and Placebo (A) received from or on behalf of UCB; (B) delivered to each Investigator; (C) dispensed by each Investigator; (D) spilled or otherwise lost (by whom and with appropriate documentation thereof); (E) returned to UCB or disposed of at the written request of UCB and in accordance with UCBs written instructions (with appropriate documentation thereof and with respective dates for each such event).
(d) Disclaimer. EXCEPT FOR THE PRODUCT WARRANTY EXPRESSLY PROVIDED UNDER SECTION 5.11(a), UCB HEREBY DISCLAIMS TO
THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW ALL REPRESENTATIONS AND WARRANTIES, WHETHER WRITTEN OR ORAL OR EXPRESSED OR IMPLIED, WITH RESPECT TO PRODUCT SUPPLIED IN CONNECTION WITH SECTION 5.11, INCLUDING ANY REPRESENTATION OR WARRANTY OF QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR USE OR PURPOSE, OR THAT THE USE OF ANY PRODUCT FOR PURPOSES OTHER THAN THOSE SPECIFIED IN THIS AGREEMENT WILL NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. DERMIRA ACKNOWLEDGES AND AGREES THAT THE PRODUCT HAS NOT BEEN APPROVED BY ANY REGULATORY AUTHORITY FOR THE USES SET FORTH IN THE PHASE 3 PROTOCOL OR A POST-APPROVAL STUDY PROTOCOL IN THE DEVELOPMENT INDICATION (OTHER THAN FOR INVESTIGATIONAL USE IN ACCORDANCE THEREWITH) AND THAT A PHASE 3 STUDY AND ANY POST-APPROVAL STUDY IN THE DEVELOPMENT INDICATION IS BEING CONDUCTED, INTER ALIA, TO DETERMINE WHETHER THE PRODUCT IS SAFE AND EFFICACIOUS FOR SUCH USE. NOTHING CONTAINED IN THIS SECTION 5.11(d) ALTERS UCBS INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 16.2 OF THE AGREEMENT.
5.12 Records.
(a) Record Keeping. Dermira shall collect, or cause to be collected, prepared and maintained complete, current, accurate, organized and legible records of Product Data from each Phase 3 Study, or each Post-Approval Study in relation to the Development of the Product in the Development Indication in the Development Territory, in sufficient detail and in a manner suitable for submission to, or review by, applicable Regulatory Authorities and in compliance with the applicable Phase 3 Protocol, or Post-Approval Study Protocol in the Development Indication and Applicable Law, including 21 C.F.R. §312.62. All right, title and interest in and to all Product Data and all Intellectual Property Rights therein shall be owned by UCB.
(b) Record Retention. Dermira shall retain, or cause to be retained, all Study Documentation generated by, or by a Third Party on behalf of, Dermira during the Development Term and, except as expressly set forth below, thereafter until (i) the second anniversary of the date upon which Regulatory Approval is received for the Product for the Development Indication throughout the Development Territory or, if no Drug Approval Application is to be filed or if Regulatory Approval is not received for the Product in the Development Indication in the Development Territory, the second anniversary of the date upon which the relevant Regulatory Authority is notified that shipment and delivery of the Product has been discontinued in relation to the Development of the Product in the Development Indication in the Development Territory or (ii) such later date as may be required by Applicable Law (the Retention
Period ). All such Study Documentation shall be retained in a secure area reasonably protected from fire, theft and destruction and with the same degree of protection as Dermira would use with its own ma terials and data. Any additional methods of storage and back-up provisions shall be agreed upon in writing by the Parties. Dermira shall, upon UCBs request, make, or direct the applicable CRO to make, all such Study Documentation available at its or the CROs offices, or the Institutions or other sites at which the Development of the Product in the Development Indication in the Development Territory is performed, if applicable, for review, copying and audit pursuant to Section 5.10(e) of this Agreement. At the end of the applicable Retention Period or earlier as requested by UCB, all such Study Documentation generated by or on behalf of Dermira shall, at UCBs option, be (x) delivered to UCB or its designee, in accordance with UCBs written direction and at UCBs cost, (y) retained by or on behalf of Dermira for an agreed period of time or otherwise in accordance with Applicable Law , or (z) destroyed at UCBs cost, unless such material is otherwise required to be stored or maintained by or on behalf of Dermira pursuant to Applicable Law, in which case Dermira shall have the right to retain, but not use or disclose (except as required by Applicable Law), an archival copy of such Study Documentation at its own expense. For clarity, Dermira shall not discard or destroy any Study Documentation without the prior written approval of UCB.
(c) Clinical Study Data. At the reasonable request of UCB, Dermira shall provide to UCB the complete Trial Master File, the original CRFs and, if applicable, laboratory data transfer files for each subject participating in the Development of the Product in the Development Indication in the Development Territory, and such other subject data reports and other Information as are required by the applicable Phase 3 Protocol, or Post-Approval Study Protocol for the Development of the Product in the Development Indication in the Development Territory, the ICH Guidelines or GCP, including 21 C.F.R. §312.64. Dermira shall provide to the JDT the final data and reports as set forth in the Development Plan , including the original CRFs for each subject, when and as set forth in the Development Plan or on such other date(s) as the JDT may determine.
5.13 Qualifications and Absence of Conflicts.
(a) All personnel of a Party assigned to perform such Partys obligations under this Agreement, including this Section 5.13, shall at all material times be qualified by training, experience, and appropriate expertise to perform such obligations.
(b) Each Party represents, warrants and covenants to the other Party that such Party and its employees and representatives have, and at all material times shall have, all appropriate licenses, approvals and certifications necessary to lawfully perform its obligations hereunder.
5.14 Regulatory Assistance; Response to Regulatory Actions and Audits.
(a) Notification of Regulatory Actions. Each Party shall notify the other Partys relevant Contact within twenty four (24) hours if any Regulatory Authority (i) contacts such Party regarding the Development of the Product in the Development Indication in the Development Territory or the supply of the Product supplied for use therein (or if either Party becomes aware that any Regulatory Authority has contacted any Affiliate or any Third Party subcontractor of such Party regarding any of the foregoing ) , (ii) conducts, or gives notice of its intent to conduct, an inspection at the facilities of such Party, any of i ts Affiliates, or any of its Third Party subcontractors where any Development or supply of the Product in the Development Indication in the Development Territory is conducted or the Product or stored, or (iii) takes, or gives notice of its intent to take, any other regulatory action alleging any failure of such Party, any of i ts Affiliates, or any of i ts Third Party subcontractors to comply with Applicable Law in connection with the Development of the Product in the Development Indication in the Development Territory or the supply of the Product supplied for use therein. Each Party shall provide the other Partys Contact with copies of such notice(s) and related correspondence within three (3) Business Days of receipt (or as otherwise expressly set forth in the Safety Agreement). In the event Dermira is the Party subject to such audit or inspection, to the extent practicable under the circumstances and permitted by Applicable Law, Dermira shall provide any such notice or correspondence received by it to UCBs Contacts in sufficient time for UCBs representatives to be, and shall permit UCBs representatives to be, present at, or otherwise participate in, such inspections or regulatory actions, and Dermira shall supply UCB with all documentation and information in Dermiras possession or control that is pertinent thereto. In the event Dermira is the Party subject to such audit or inspection, Dermira shall also, to the extent practicable under the circumstances and permitted by Applicable Law, provide to UCB any proposed response which Dermira would suggest to be made by UCB to any Regulatory Authority. For the avoidance of doubt, UCB, not Dermira, shall be responsible for all interactions, responses and communications with any Regulatory Authority, except when Dermira is required by Applicable Law or any Regulatory Authority to do so . In the event Dermira is the Party subject to such audit or inspection and it does not receive prior notice of such a regulatory inspection or regulatory action, Dermira shall notify UCB as soon as practicable after such inspection or regulatory action, and shall provide UCB with copies of all m aterials, correspondence, statements, forms and records received or generated pursuant to any such inspection or regulatory action. No admission or communication made by either Party to any Regulatory Authority in the absence of the other Party shall include any false or misleading information relating to the Development of the Product in the Development Indication in the Development Territory, the Product or the other Party.
(b) Adverse Drug Experience Reports and Safety Information. The Parties shall enter into a Safety Agreement governing the procedure and timeline of the
Parties exchange of Adverse Drug Experience and/of safety information, consistent with the outline set forth in Schedule 5 . Each Party shall comply with its obligations under the Safety Agreement in respect of Adverse Drug Experience reporting and other drug safety and pharmacovigilance matters in connection with the Development of the Product in the Development Indication in the Development Territory or the Product supplied for use therein, and shall provide the other Party with such information as the other Party may reasonably require and request with respect to such matters, all in accordance with the timelines and procedures set forth in the Safety Agreement. Notwithstanding the above, Dermira shall ensure that the CRO shall include in the provisions in each Clinical Site Agreement for the notification of any Serious Adverse Event (as defined in 21CFR 312.32) by any Institution or any Investigator to the CRO within twenty four (24) hours of such Institution or Investigator becoming aware of such Serious Adverse Event.
5.15 Materials. UCB shall own and retain all right, title and interest in and to all UCB Materials (including Product, Comparator Drugs and Placebo, equipment, documentation) and UCB Information. Dermira shall (i) use the UCB Materials and UCB Information only for the purposes described in the Development Plan in order to Develop the Product in the Development Indication in the Development Territory, (ii) restrict access to and use of the UCB Materials and UCB Information to those of its employees and Third Party subcontractors as are required to conduct a Phase 3 Study, or a Post-Approval Study in the Development of the Product in the Development Indication in the Development Territory, (iii) take all actions reasonably necessary to preserve, protect and maintain the UCB Materials and the UCB Information in accordance with accepted industry standards; and (iv) deliver the UCB Materials and the UCB Information in its possession to UCB or its designee on the termination of this Agreement, or as otherwise requested or directed by UCB. For purposes of this Section 5.15, UCB shall include any Affiliate of UCB.
5.16 [*] Dermira will notify the JDC in the event it becomes aware of any facts or circumstances related to or managed by [*] which may have delayed , or may delay , in a material respect [*] in relation to the Development of the Product in the Development Indication in the Development Territory. If Dermira should so notify the JDC of any such facts or circumstances, the JDC shall promptly meet to discuss the situation and use good faith efforts to agree upon and promptly [*] a mutually acceptable [*] to address them. If the JDC reasonably determines that the Development of the Development Indication would [*] then Dermira will request UCB to [*] Without prejudice to any other rights and remedies available under this Agreement or at law, if [*] provided for in this [*] such [*] shall be
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addressed, at UCBs option, at the level of the JDC or the JSC, but such failure shall not be deemed to be a breach of this Agreement.
5.17 If , following the receipt by UCB of the request for [*] under Section 5.16, UCB should notify Dermira in writing that [*] the Parties, through the JDC, shall promptly arrange to [*] as soon as possible , provided that the Parties, acting through the JDC, have agreed [*] until such time as [*] and has requested the JDC to [*] such [*]. Pursuant to Section 5.16 and 5.17, t he Parties will work through the JDC to determine the best course of action for the Development of the Development Indication. If the JDC determines the Parties should [*] the Parties will work together as expeditiously as possible to [*]. Notwithstanding the foregoing, Dermira shall remain responsible for [*] associated with [*] and has provided such [*] pursuant to Sections 5.16 and 5.17 , to the extent provided for in such mutually-agreed, JDC-Approved Development Budget, and [*] to be provided to Dermira by UCB. For the avoidance of doubt, and provided that Dermira has [*] in undertaking such [*] up to the date of grant of Regulatory Approval for the Product in the Development Indication, shall not (i) preclude Dermira from undertaking the Dermira Commercial Activities and Medical Affairs activities for which Dermira is responsible in accordance with the provisions of this Agreement nor (ii) [*] the Development of the Product in the Development Indication. [*] pursuant to this Section 5.17 shall be [*].
5.18 UCB shall have responsibility for all Development activities which are necessary to obtain and maintain Regulatory Approval for the Product in the Territory for the Promotion Indication and, for the avoidance of doubt, neither Dermira nor the JDC n or any other Committee shall have any jurisdiction or decision making power or any other authority over such Development activities.
6. INFORMATION TRANSFER AND TECHNICAL ASSISTANCE
6.1 In order for Dermira to commence the planning and implementation of the Development of the Product in the Development Territory in the Development Indication, including, without limitation, the conduct of any Phase 3 Study, or any Post-Approval Study in the Development Indication, UCB shall provide such Regulatory Documentation and other data and records in electronic form or, where electronic copies are not available, in paper form (or such other media as may be agreed
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between the Parties) which are necessary, or in UCBs reasonable discretion, useful for Dermira to have access to in order to carry out its obligations under this Agreement.
6.2 The provision of the information referred to in Section 6.1 shall , to the extent not already provide to Dermira by UCB prior to the Effective Date, occur within [*] Business Days of the Effective Date.
6.3 For the avoidance of doubt, all materials and information transferred by UCB to Dermira pursuant to this Section 6 shall remain the Confidential Information of UCB and shall be subject to the provisions of Section 17, and nothing in this Section 6 shall be construed or interpreted as being an obligation on UCB to provide Dermira with any materials, information or documentation relating to the Product other than those that are necessary, or in UCBs reasonable discretion, useful for Dermira to exercise its rights or carry out its obligations pursuant to this Agreement or as otherwise set forth in the Safety Agreement.
7. COMMERCIALISATION
7.1 Except for the activities to be conducted by Dermira under the Pre-Launch Medical Affiairs Plan as set forth in Section 9.3, Dermira shall have no right to undertake Dermira Commercial Activities for the Product in the Promotion Indication in any country within the Territory unless and until UCB has been granted Regulatory Approval to Commercialise the Product in the Development Indication, unless such Dermira Commercial Activities are identified in the Commercialisation Plan as to be conducted prior to such Regulatory Approval. Notwithstanding anything to the contrary in this Agreement, Dermira shall have no diligence obligations with respect to the Promotion Indication but shall have those rights with respect to the Promotion Indication as set forth in this Agreement.
7.2 Subject to the restriction on the Dermira Commercial Activities for the Product in the Promotion Indication and Development Indication in the Promotion Territory referred to in this Agreement, each Party will use Commercially Reasonable Efforts to conduct assigned Marketing and Corporate Functions and activities assigned to it under the Commercialisation Plan and to Commercialise the Product in the Promotion Territory for the Promotion Indication and the Development Indication, through the coordination of the JCT and under the oversight of the JCC and the JSC. All other aspects of the Commercialisation of the Product in the Territory are outside of the scope of this Agreement and shall remain under the responsibility and control of UCB .
7.3 It is the Parties intent for Dermira to be the Party primarily responsible for the Dermira Commercial A ctivities in connection within the Promotion Indication and the Development Indication and solely to Dermatologists in the Promotion Territory , subject to the JCC approving all activities and UCB approving all Promotional Materials developed by Dermira. In addition, Dermira shall have the right to perform the Medical Affairs activities under the approved Medical Affairs Plan or otherwise permitted under Section 9 . All other aspects of the Commercialisation of the Product in
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the Territory, including the Commercial Functions, shall remain under the sole responsibility and control of UCB, except for activities delegated to Dermira under the Commercialisation Plan and/or Medical Affairs Plan (including the right to engage Third Party contractors in connection with such activities in accordance with Section 3.4).
7.4 Commercialisation Plan and Information Transfer
(a) At a time determined by the JCT, UCBs representatives on the JCT shall provide Dermira with all information reasonably necessary or, in UCBs reasonable discretion, useful for Dermira to prepare an initial draft of the Commercialisation Plan that is consistent with UCBs overall strategy for the Commercialisation of the Product in the Promotion Territory, including information about UCBs resources and activities in support of the Dermira Commercial Activities and the Branding Strategy. Using such information, Dermira shall prepare such draft Commercialisation Plan and JCC approved amendments thereto in order to tailor the commercial strategy, messaging, field support and promotional plan to optimize the commercial opportunity for the Product among Dermatologists in a manner that is consistent with UCBs overall strategy for Commercialisation of the Product. Dermira shall include in such plan the activities to be conducted by Dermira and the Commercialisation support that Dermira requests from UCB, UCB Hub Services and any other proposed commercial support, together with a proposed budget for all such requested support for review by UCB. To the extent UCB agrees to provide such requested support, Dermira will include the activities to be conducted by UCB as part of such Commercialisation Plan, along with a proposed budget for all such activities (the UCB Support Budget ) for approval by the JCC. To the extent that UCB declines to provide such requested support, Dermira shall have the right, following JCC approval to conduct such support activities and such activities shall be deemed delegated to Dermira by UCB under this Agreement, except to the extent such activities are otherwise expressly prohibited under this Agreement.
(b) The JCT shall review and modify as needed drafts of the Commercialisation Plan and any amendment thereof prepared by Dermira, and shall submit such plan for review by the JCC and recommendation by the JCC for the JSCs approval, provided that UCBs representatives on the JCT and JCC shall ensure and confirm that all such plans are consistent with UCBs overall strategy for the Commercialisation of the Product in the Promotion Territory prior to submitting such plans for the JSCs approval. The JCT shall revise such drafts based on any comments provided by the JCC or JSC, subject to Dermiras final decision making authority under Section 4.11(b) .
(c) On an ongoing basis during the Term, the JCT will coordinate the activities of the Parties under the Commercialisation Plan and communication between the Parties to ensure each Party remains aware of relevant information pertaining to the other Party s activities under the Commercialisation Plan.
7.5 Each Party shall provide written reports to the JCT, for review and submission to the JCC, every Calendar Quarter describing the activities undertaken by such Party in the preceding Calendar Quarter in relation to the Commercialisation of the Product in the Promotion Indication and the Development Indication, in the Promotion Territory.
7.6 From the Commencement Date and throughout the Term, Dermira, whether acting directly or through its Affiliates, shall use Commercially Reasonable Efforts to undertake the Dermira Commercial Activities for the Product under the Cimzia® Trademark in the Promotion Territory for (i) the Promotion Indication and (ii) the Development Indication, in each case (i) and (ii) through undertaking the Dermira Commercial Activities for the Product solely to Dermatologists and to no other Healthcare Professionals, and in accordance with each JCC approved Commercialisation Plan (including the applicable Local Dermira Commercial Plan) and the Branding Strategy.
7.7 Except as provided in Section 9, Dermira shall be solely responsible for all costs and expenses incurred by it in connection with the conduct of all Dermira Commercial Activities and Medical Affairs activities undertaken by it pursuant to and in accordance with this Agreement . In addition, as provided in the definition of Gross Margin, UCB shall have the right to deduct from the Royalty Bearing Sales any and all out-of-pocket costs incurred by UCB (including any payments made by UCB to its Third Party contractors and consultants) in connection with its Medical Affairs activities and any market access activities (in each case to the extent any such activities result in any incremental, additional costs to UCB as compared with UCBs commercialisation activities not directed to the Development Indication and/or Promotion Indication in the Promotion Territory) assigned to UCB by the JCC, to the extent incurred by UCB on behalf of Dermira in accordance with the Medical Affairs Plan, and the UCB Hub Services in accordance with the Local Dermira Commercial Plan, in each case [*] (the UCB Commercialisation Cost Deductions ).
7.8 Dermira shall, at its election, on a Sales Year-by-Sales Year basis and in any given Sales Year, either
(a) undertake not less than [*] Details in the Development Indication in the United States of America during the F irst Sales Year and thereafter [*] Details in each Subsequent Sales Year until the Expiry Date (with the number of required Details for the last Subsequent Sales Year being prorated as at the Expiry Date ); or
(b) structure the Incentive Compensation so that: (i) for the [*], the percentage of the total achieved Incentive Compensation that is attributable to the sales of the Product to Dermatologists for at least [*] Dermira Sales Representatives in the United States is not less than [*] percent ( [*] %); and (ii) thereafter until [*], the percentatge of the total achieved Incentive Compensation that is attributable to the sales of the Product in the United States
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to Dermatologists for at least [*] Dermira Sales Representatives is not less than [*] percent ( [*] %).
7.9 At any time, Dermira shall have the right to propose to the JCC to adjust the minimum requirements for the number of Details under Section 7.8(a), and/or the number of Dermira Sales Representatives whose Incentive Compensation would be subject to the requirement under Section 7.8(b), and JCC shall not unreasonably withhold its approval for such adjustment to the extent such proposed adjustment reflects the then-current market condition.
7.10 If, in the Development Indication, Dermira does not undertake any Dermira Commercial A ctivities for which it is responsible in relation to Launch the Product in the Development Indication in Canada within [*] of the date of grant of Regulatory Approval for the Product in Canada UCB shall have the right, but not the obligation, to terminate the right for Dermira to undertake the Dermira Commercial Activities in relation to the Product in the Development Indication in Canada, and, if UCB should exercise such right of termination, Dermiras right to undertake Dermira Commercial Activities for the Product in the Development Indication in Canada shall terminate and the rights and licences granted to Dermira pursuant to this Agreement shall terminate in relation to the Dermira Commercial Activities for the Product in the Development Indication in Canada .
7.11 In accordance with Section 7.4, Dermira shall prepare as part of the Commercialisation Plan for the JCTs review and JCCs recommendation for JSC approval, each Local Dermira Commercial Plan for each Calendar Year including the budget thereof, provided that Dermira shall have the final decision making authority for each such Local Dermira Commercial Plan as set forth in and in accordance with Section 4.11. Each Local Dermira Commercial Plan shall include: (i) strategies for marketing and undertaking of the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication, including identification of targeted and agreed Dermatologists for such activities; (ii) market research activities; (iii) reimbursement field support activities; (iv) procedures for UCBs provision of sales analytics, subject to Section 7.20; (v) anticipated marketing and sales efforts for undertaking Dermira Commercial Activities for the relevant Calendar Year, including any pre-Launch activities and any field support activities directed to Dermatologists, including training and reimbursement support in accordance with the provisions of Section 13 ; (vi) Dermiras estimates of annual market and sales forecasts; and (vii) advertising, public relations and other programs relating to Dermira Commercial Activities and Sampling (if applicable). Each Local Dermira Commercial Plan shall be designed to optimize the commercial potential of the Product in the Promotion Territory in the Promotion Indication and the Development Indication. Each Local Dermira Commercial Plan for each subsequent Calendar Year shall be prepared and submitted to the JCC for approval at least [*] Calendar Months prior to end of the then current Calendar Year or at such other times as may be agreed by the JCC.
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7.12 UCB shall be solely responsible for the gross and/or net pricing and market access strategy for the Commercialisation of the Product in the Territory in the Promotion Indication and the Development Indication, subject to Dermiras right to be informed, to be consulted at least once every [*] Calendar [*], and to provide comments as the same relates to such activities within the Promotion Territory. UCB shall be responsible for all terms and conditions of sale for the Product in the Promotion Territory in the Promotion Indication and the Development Indication including without limitation all negotiations and other interactions with Third Party purchasers and payors (including government purchasers) and/or with Regulatory Authorities with respect to obtaining or maintaining Pricing and Reimbursement Approvals. Notwithstanding the foregoing, UCB shall provide Dermira with an opportunity to discuss and comment on market access activities to the extent that such activities relate to Dermiras interests in relation to the Dermira Commercial Activities. At the beginning of each Calendar Year, UCB shall provide Dermira with an updated gross-to-net percentage forecast for each of the Calendar Quarters within such Calendar Year.
7.13 Following grant of Regulatory Approval for the Product in the Development Indication in the Promotion Territory, and, as applicable, Pricing and Reimbursement Approval:
(a) Dermira will, whether acting directly or through its Affiliates, undertake the Launch activities for the Product in each country in the Promotion Territory in accordance with the Launch Plan and the Dermira Commercial Activities for the Product under the Cimzia® Trademark s in the Development Indication in the Promotion Territory through the undertaking of Dermira Commercial Activities for the Product to Dermatologists only; and
(b) UCB, whether acting directly or through its Affiliates, shall have the right but not the obligation to Commercialise the Product under the Cimzia® Trademark s in the Development Indication (i) in the Promotion Territory through the Commercialisation of the Product to all Healthcare Professionals but excluding Dermatologists and (ii) in the Reserved Territory through the Commercialisation of the Product to all Healthcare Professionals including Dermatologists.
7.14 In connection with Dermiras preparation of the Commercialisation Plan under Section 7.4, UCB shall prepare and provide Dermira with its branding strategy to govern use of the Cimzia® Trademark s and trade dress, as well as the OXO GOOD GRIPS Trademarks, in connection with the Commercialisation of the Product in the Promotion Indication, and, if applicable, the Development Indication, in the Promotion Territory (the Branding Strategy ), subject to Dermiras right to be informed, be consulted and provide comments. UCB shall remain responsible for and control the overall Branding Strategy and any amendments for the Product, with each Party being responsible for the proper implementation and compliance therewith when performing its obligations in respect to Commercialisation of the Product hereunder. UCB shall be responsible for enforcing and protecting the branding of the Product in the Promotion Territory in accordance with the UCB approved Branding Strategy, which shall include, without
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limitation responsibility and control over the registration, maintenance, enforcement and defense of the Cimzia® Trademark s in the Promotion Territory. This shall include UCB having responsibility for the registration and the maintenance of the INN and Cimzia® Trademark s throughout the Territory consistent with the Branding Strategy. The Cimzia® Trademark s and trade dress used in connection with the Development and Commercialisation of the Product in the Territory shall be owned by UCB (or its designated Affiliates). At Dermiras request from time to time, the Parties shall discuss opportunities to present the Dermira name and logo to Dermatologists in the Promotion Territory.
7.15 UCB or its designated Affiliate shall be responsible for and shall carry out all sales and distribution activities in accordance with the Commercialisation Plan, including but not limited to all pricing and rebating activities, related to the Product in each country within the Promotion Territory. Such responsibilities shall include undertaking and performing the receiving and processing of orders, pick, pack and ship operations, order delivery, invoicing and collection activities, inventory control and any other sales or distribution activities. If Dermira or its Affiliate receives orders for the Product within the Promotion Territory or the Reserved Territory directly from Dermatologists, it shall transmit said orders to UCB within [*] Business Days of receipt. UCB shall be responsible for all pricing, Pricing and Reimbursement Approvals, discounting, market access, invoicing and booking of sales.
7.16 The supplies of Samples of the Product intended for use in the Promotion Territory will be allocated among the countries within the Promotion Territory in accordance with the then current Commercialisation Plan. For clarity, the supply of Samples allocated for the United States market in the Commercialisation Plan shall be consistent and in accordance with the then current UCB, Inc. sample policy and procedures. If there is any shortfall in the supplies of Samples, UCB shall determine the allocation of available supplies of Samples. In considering the allocation of supplies of Samples within each country within the Promotion Territory, UCB will take into account Dermiras Detailing activities under each approved Local Dermira Commercial Plan. The Samples will be used and distributed strictly in accordance with the then applicable, approved Local Dermira Commercial Plan and shall be stored and distributed in full compliance with all Applicable Law, including the requirements of the U.S. Prescription Drug Marketing Act ( PDMA ). Dermira (and its local Affiliates) will maintain appropriate Sample accountability procedures and policies, will generate and maintain all records required by the PDMA and/or other Applicable Law, and shall allow representatives of UCB a reasonable opportunity to inspect such records for the Samples on request. With respect to the United States of America, UCB shall be responsible for the timely filing with the FDA of any necessary reports it is obligated to file in connection with the PDMA, and Dermira undertakes to UCB to assist UCB in such timely filing. At Dermiras request, the Parties shall cooperate in good faith to add the Dermira name and logo to the packaging for all Samples supplied on behalf of Dermira, subject to UCBs approval as to (i) the design and placement of Dermiras name and logo on such packaging and (ii) regulatory compliance.
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7.17 Dermira and its Affiliates shall only use UCB-approved Promotional Materials that are created in accordance with the terms of this Section 7.17, and shall only conduct Dermira Commercial A ctivities for the Product in the Promotion Indication and the Development Indication that are ascribed to it in the approved Commercialisation Plan (including each applicable Local Dermira Commercial Plan) and this Section 7. Dermira shall: (a) have the right to prepare all local Promotional Materials intended for use with respect to the Product in the Development Indication in each country within the Promotion Territory; and (b) shall have the right to either prepare new Promotional Materials directed to the Promotion Indication and/or the Development Indication or use existing UCB Promotional Materials for use with respect to the Product in the Promotion Indication and the Development Indication in each country within the Promotion Territory; provided that in each case Dermira shall have the right to include the Dermira name and logo on the Promotional Materials used in connection with the Dermira Commercial Activities and in connection with its conduct of Medical Affairs Activities, provided that UCB shall have the right to review and approve any such inclusion in Promotion Materials intended for use in Dermiras Medical Affairs Activities to ensure compliance with Section 13. All Promotional Materials shall be (i) consistent with each approved Local Dermira Commercial Plan, (ii) in compliance with Applicable Law, and (iii) approved by UCB prior to use or distribution. UCBs representatives on the JCT shall ensure that such Promotional Materials are consistent with UCBs Branding Strategy and meet UCBs compliance standards for such purpose. Once any Promotional Materials developed and produced by Dermira have been approved by UCB, Dermira may not alter or otherwise amend any such Promotional Materials without first obtaining the written approval of UCB to do so, provided that UCB shall not unreasonably withhold or delay such approval if such alteration or amendment is required by Applicable Law or any applicable Regulatory Authority. For clarity, except for the Dermira name and logo, UCB shall own all copyrights and other rights throughout the Territory with respect to all Promotional Materials for the Product. Until such time as all Promotional Materials have been reviewed and approved by UCB, Dermira shall maintain in confidence and shall not use, disclose or distribute to any Third Party any Promotional Materials.
7.18 Dermira agrees that it will comply in all material respects with UCB policies relating to the performance of Dermira Commercial Activities and Medical Affairs activities for the Product to the extent such policies are provided to Dermira in writing in advance. UCB shall be responsible for , according to the then current UCB country-specific Review Committee policies and procedures (a) reviewing all Promotional Materials intended for use by Dermira in connection with the Dermira Commercial Activities for the Product to Dermatologists only in the Promotion Indication and, if applicable, the Development Indication in the Promotion Territory, and (b) all Medical Affairs materials intended for use by Dermira in connection with the Dermira Medical Affairs a ctivities for the Product to Dermatologists in the Development Indication and the Promotion Indication , as applicable , in the Promotion Territory, and (c) ensuring that all such Promotional Materials and Medical Affairs materials comply with Applicable Law and with the Regulatory Approval for the Product in the Promotion Indication and
the Development Indication, including making any necessary submissions to and/or obtaining review or approval by Regulatory Authorities in countries within the Promotion Territory of any Promotional Materials intended for use in connection with any Commercialisation activities for the Product. UCB will provide Dermira with written documentation of approvals for Promotional Materials for use by Dermira to undertake Dermira Commercial Activities to Dermatologists of the Product in the Promotion Indication and, if applicable, the Development Indication. Dermira acknowledges and agrees that it will rely upon such approvals by UCB as the basis for authorization to use such Promotional Materials in the Promotion Territory in relation to the Promotion Indication and, if applicable, the Development Indication to undertake Dermira Commercial Activities for the Product to Dermatologists and in accordance with Applicable Law. UCB shall provide Dermira with the form of the approved Promotional Materials for the Product, and Dermira shall have the right to duplicate but not modify such Promotional Materials for use in connection with the Dermira Commercial Activities for the Product in the Promotion Indication and the Development Indication in the Promotion Territory.
7.19 Dermira shall, and shall cause its Affiliates to, perform its field-based obligations in respect of the Dermira Commercial Activities for the Product in the Territory using Sales Representatives who are qualified pharmaceutical sales representatives who have been properly trained, and shall ensure that all such Sales Representatives conduct those activities in accordance with the terms of Section 13. Dermira shall establish, and throughout the Term maintain and implement, appropriate policies and procedures to ensure such compliance that are at least as stringent as those referred to in Section 13. Through the JDT, the Parties shall coordinate to make available to Dermira those of UCBs training materials and services necessary for Dermira to train its sales representatives with respect to the Dermira Commercial Activities for the Product by Dermira in the Promotion Territory.
7.20 UCB Hub Services. Through the coordination of the JCT, UCB shall support the Dermira Commercial Activities for the Product in the Promotion Territory in the Promotion Indication and the Development Indication by Dermira by providing the UCB HUB Services in a manner agreed to be sufficient to support Dermira Commercial Activities, all in accordance with each Local Dermira Commercial Plan. Dermira shall not otherwise be permitted to offer or provide any analogous services for the Product, whether itself or through use of any Third Party contractors, without the prior written consent of UCB . Through the JCT, UCB shall provide Dermira with sales analytics data, data from the UCB Hub Services, patient assistance program and distribution network for the Product in the Development Indication and the Promotion Indication in the Promotion Territory, at a level of detail, amount and frequency agreed and comparable to that UCB provides for other indications for the Product, for Dermiras use in connection with the Dermira Commercial Activities, subject to the agreement between the Parties as to any costs incurred by UCB to obtain sales analytics data under such Local Dermira Commercial Plan that would otherwise not be obtained by UCB, and the agreement by Dermira to reimburse any such costs .
8. MANUFACTURE AND SUPPLY
8.1 UCB shall be responsible for and control all aspects of the Manufacture, distribution and supply of Product (including Samples) relating to the Commercialisation of the Product in the Territory.
8.2 UCB shall have operational responsibility for the planning and oversight of the supply chain for Product, including periodic risk assessments and risk mitigation planning.
8.3 UCB shall use Commercially Reasonably Efforts to supply Product requirements for the Development of the Product in the Development Territory and the Commercialisation of the Product in the Promotion Territory. In the event UCB experiences any supply shortfall with respect to the Product, UCB shall immediately notify Dermira and the Parties shall discuss in good faith measures to be taken to correct such shortfall.
8.4 Subject to Sections 8.1 and 8.2, the JCC will review and approve the forecasts and production plans prepared by UCB for supplies of the Product for use in Development of the Product by Dermira in the Development Indication in the Development Territory and the anticipated Commercial requirements of Product for distribution and sale in the Promotion Territory attributable to Dermatologists based on Dermiras anticipated Dermira Commercial Activities. Dermira shall prepare a rolling [*] month forecast of Dermiras requirements for Product attributable to Dermatologists in the Promotion Territory, such rolling forecast to be provided each Calendar Quarter to the JCT, commencing [*] Calendar Months following the date of Launch, and UCB shall be responsible for ensuring that the agreed production plans for Product will be consistent with such forecasts. UCB shall be responsible for updating and/or revising the forecasts and production plans prepared by UCB from time to time during the Term, and shall consult with Dermira in connection therewith, and UCB shall reasonably consider and appropriately address comments provided by Dermira with respect to such forecasts and production plans.
9. MEDICAL AFFAIRS, PHARMACOVIGILANCE AND OTHER REGULATORY MATTERS
9.1 During the Term, each Party whether acting directly or through its Affiliates, shall, at its own cost and expense except as set forth in Section 7.7 with respect to the UCB Commercialisation Costs Deductions, undertake and perform Medical Affairs activities for the Product in the Promotion Territory for the Promotion Indication and, if applicable, the Development Indication in accordance with the Medical Affairs Plan and the provisions of this Section 9. All Medical Affairs activities for the Product for the Promotion Indication and, if applicable, the Development Indication in the Promotion Territory shall be coordinated through the J D T and subject to the oversight of the J D C. For the avoidance of doubt, UCB shall be responsible for all Medical Affairs activities for the Product in the Promotion Indication and, if applicable, the
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Development Indication, in each case in the Reserved Territory, which activities shall not be subject to the oversight of the JSC or the terms of this Agreement.
9.2 In accordance with Section 7.4, as part of the Commercialisation Plan Dermira shall prepare for the JDTs review and JDCs recommendation for JSC approval, a Medical Affairs Plan for each Calendar Year including budget thereof, provided that Dermira shall have the final decision making authority for its level of activities under and the budget under such Medical Affairs Plans as set forth in and in accordance with Section 4.11(b). Each Medical Affairs Plan shall be consistent with UCB Medical Affairs and MSL activity related SOPs and include: (i) Medical Affairs programs, including professional symposia and other educational activities, grants, and guidelines and budgets for the support of investigator initiated interventional or observational (prospective and retrospective) clinical or health economics/outcomes studies and (ii) any post-approval Clinical Studies (other than Post-Approval Studies) in the Promotion Indication and Development Indication. The Medical Affairs Plan will include a n agreed budget for the current Calendar Year, as well as outline of the projected plan and an estimated budget for the next Calendar Year ( Medical Affairs Budget ). The initial Medical Affairs Plan for the Product in the Development Indication and the Promotion Indication will be prepared by Dermira and submitted to the JDC for recommendation for approval by the JSC at least [*] before the anticipated first Launch of the Product in the Development Indication in the Promotion Territory. The Medical Affairs Plan for the Product for each subsequent Calendar Year shall be prepared by Dermira and submitted to the JSC for endorsement at least [*] prior to commencement of activities agreed and contemplated thereunder.
9.3 The Parties acknowledge (i) UCB engages MSLs in relation to the Product and that Dermira may, during the term of this Agreement, want to engage its own MSLs and further that (ii) prior to any such engagement by Dermira and subject to agreement by the JCC, the Parties shall mutually agree the terms pursuant to which such engagement shall be made, having consideration for, amongst other things, co-ordination of the efforts and the scope, manner and involvement of each Parties MSLs. As such, from the Commencement Date and throughout the Term (even before the first Launch of the Product in the Development Indication) and subject to this Section 9.3 , Dermira shall have the right to conduct Medical Affairs activities (including engaging MSLs) for the Product in the Development Indication and in the Promotion Indication in the Promotion Territory. Prior to conducting any such activities, Dermira shall provide a plan describing such activities to the J D T for review and approval, including training and reimbursement support in accordance with the provisions of Section 13 (the Pre-Launch Medical Affairs Plan ). The J D T shall present such plan to the J D C for review and submission to the JSC for approval. Dermira shall conduct such activities in accordance with such Pre-Launch Medical Affairs Plan, and UCB shall reimburse Dermira, pursuant to Section 10.13, for portions of the external costs and expenses incurred by Dermira in connection with the activities under the Pre-Launch Medical
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Affairs Plan to the extent agreed by the Parties in such Pre-Launch Medical Affairs Plan
9.4 As soon as practicable after the Effective Date and in any event before the FDA Development Meeting, the Parties shall enter into the Safety Agreement governing the Parties respective responsibilities with respect to Adverse Drug Experiences, complaints and other safety-related matters relating to the Product. UCB shall designate a drug safety physician who shall be responsible for pharmacovigilance matters and UCB shall notify Dermira of the identity of the person so designated. Each Party will ensure it has in place and shall maintain during the Term such drug safety and pharmacovigilance systems, procedures, training programs and documentation in order adequately to comply with its drug safety and pharmacovigilance obligations under this Agreement, the Safety Agreement and Applicable Law. UCB shall own and maintain the global safety database with respect to the Product. Any Adverse Drug Experience known by a Party or its Affiliates or Third Party subcontractors must be reported to the other Party in writing in accordance with the timelines and procedures set forth in the Safety Agreement. Dermira shall cooperate with UCB to ensure the collection, reporting and follow-up of any safety data. UCB shall have the final decision on any drug safety or pharmacovigilance matters. Dermira shall not , and shall ensure that each of its Affiliates, agents or T hird Party subcontractors shall not, make any public statement or give any public opinion on drug safety or pharmacovigilance matters, whether orally or in writing, without first having received UCBs express written consent to do so, provided that UCB shall not withhold, delay or condition such consent in a manner that would result in Dermiras non-compliance with Applicable Law or the requirements of any Regulatory Authority or any other governmental authority .
9.5 Each Party shall maintain a record of all non-medical and medical Product-related complaints it receives with respect to the Product. Each Party shall promptly notify the other Party of any such complaint received by it in sufficient detail and in accordance with UCBs timeframes and procedures to ensure timely reporting by UCB. UCB shall investigate and respond to all such complaints with respect to the Product as soon as reasonably practicable and provide a copy of all such responses to Dermira. For clarity, to the extent that a Product-related complaint received by Dermira may also constitute an Adverse Drug Experience, Dermira shall comply with the obligations set out in Section 9.4 , or, if entered into by the Parties, the Safety Agreement, in reporting such information to UCB.
9.6 During the Term, UCB shall promptly consult with Dermira in good faith as to all decisions concerning any potential market recall, market withdrawal, correction, removal or seizure of a Product from the market in either country in the Promotion Territory in either the Promotion Indication or the Development Indication (each such event, a Recall ), including, but not limited to, determining whether or not to implement any such Recall, the timing and scope of such Recall, and the means of conducting such Recall. For the avoidance of doubt, UCB shall in its sole discretion determine whether any Recall should be implemented, and the timing and extent of any such Recall. Without limiting the foregoing, each Party shall keep the other Party
promptly and fully informed of any notification or other information, whether received directly or indirectly, which might affect the marketability, safety or effectiveness of the Product and/or which might result in a Recall. If UCB elects to conduct any Recall, it shall have sole discretion and control with respect to conducting such Recall provided that UCB shall immediately notify Dermira of any potential, anticipated or planned Recall, and Dermira shall cooperate and assist UCB in relation to the same. UCB shall bear all costs of Recall to the extent such Recall results from the non-conformity of the Product to the Product Warranty or from UCBs activities with respect to the Product outside the Development of the Product in the Development Indication or the Commercialisation of the Product by UCB in the Promotion Indication or the Development Indication. In all other cases, UCB shall have the right to deduct costs of Recall from the Gross Margin calculation to the extent such Recall results from the Development of the Product in the Development Indication, or the Dermira Commercial Activities for the Product in the Promotion Indication or the Development Indication.
10. FINANCIAL PROVISIONS
10.1 Development Costs Allocation.
(a) (i) Dermira shall bear its and (ii) UCB shall, in connection any activities assigned to it under the Development Plan (such activities shall be deemed subcontracted to it by Dermira), bear its, internal costs and expenses incurred in carrying out its obligations under the Development Plan or otherwise in connection with the Development of the Product in the Development Indication in the Development Territory, except as expressly set forth in the JDC-Approved Development Budget as to be reimbursed by a Party to the other Party.
(b) Except as expressly set forth in Sections 5.4(c)(C), 5.4(d) and 5.4(e), Dermira shall bear one hundred percent (100%) of the Development Costs incurred by: (i) Dermira, and/or (ii) by UCB to the extent any Development activity is subcontracted to it by Dermira and specified in the Development Plan as to be reimbursed by Dermira, in each case under the Development Plan for Development activities that are necessary for obtaining Regulatory Approval by the FDA, the EMA and Health Canada, up to a cap of [*] dollars ($ [*]) (the Cap ). The Development Costs which will be incurred in order to conduct any EMA-Specific Post-Approval Studies shall be borne solely by UCB and shall not count towards the Cap.
(c) The Parties shall share equally any and all Development Costs in excess of the Cap, to the extent incurred in accordance with the Development Plan. I f an amendment to the JDC-Approved Development Budget is made under Section 5.3(b) that increases the JDC-Approved Development Budget above the Cap , or if the Development Costs otherwise exceed the Cap, each such amendment shall be documented and the provisions of Section 10.3 shall apply.
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(d) If the JDC is unable to agree to the mechanism for such cost sharing, it shall refer such matter to the escalation procedure to Senior Executives as set out in Section 4.11, except that neither Party shall have final decision making authority on such matter, and if the Senior Executives of the Parties cannot agree on such mechanism, then the Parties shall share such excess Development Costs above the Cap equally through quarterly reimbursement as set forth in Section 10.13.
(e) Dermira shall be responsible for the payment of one hundred percent (100%) of the Development Costs. If UCB has an obligation to share such costs incurred in excess of the Cap in accordance with Sections 10.1(c) or 10.1(d), then Dermira shall have the right to receive the amount of such Development Costs owed by UCB: (i) for any such Development Costs incurred prior to the achievement of Milestone Number 4, through the milestone adjustment mechanism set forth in Section 10.3; and (ii) for any such Development Costs incurred on or after the achievement of Milestone Number 4, through the quarterly reimbursement mechanism set forth in Section 10.13.
(f) Unless otherwise set forth herein or as otherwise agreed by the Parties in writing, each Party shall bear the costs and expenses incurred by or on account of such Party in connection with the Development of the Product in the Development Indication to the extent such costs and expenses are not included in the Development Costs .
10.2 Development Milestones. UCB shall pay to Dermira the following one-time development milestone payments within [*] Business Days from the date of receipt of a valid invoice provided by Dermira and relating to the successful achievement of the corresponding milestone event. UCB shall notify Dermira promptly after, and in any event within [*] Business Days after, each of (1) receipt of Pricing and Reimbursement Approval and (2) first commercial sale, in each case (1) and (2) in each of the countries listed below.
Milestone
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Milestone Event |
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Milestone Payment in US$ |
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1 |
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[*] for the Development Indication in accordance with the Development Plan |
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[*] for the Development Indication in accordance with the Development Plan |
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3 |
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[*] for the |
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Development Indication in accordance with the Development Plan |
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[*] |
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4 |
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[*] for the Development Indication or [*] months after the completion of the event described milestone 3, whichever is earlier. ( Milestone Number 4 ) |
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[*] |
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5 |
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Grant of a Regulatory Approval* for the Product in the Development Indication in each of the following countries: |
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[*] |
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5a |
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5b |
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[*] |
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5c |
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5d |
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[*] |
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5e |
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[*] |
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*including Pricing and Reimbursement Approvals for each such country in accordance with the criteria as follows:
[*]: either the date of European marketing authorization in case the indication extension would not be subject to [*] of Cimzia® by [*] or the successful conclusion of [*] in case the indication extension in the Development Indication would result in [*];
[*]: the earliest of (1) [*] by the [*] in the Development Indication; (2) [*] on use of Cimzia® in the Development Indication; and (3) addition of Cimzia® onto formularies of [*] percent ([*] %) of [*] groups or equivalent bodies in [*] at the [*];
[*]: publication in the [*] of the price and extension of reimbursement of Cimzia® in the Development Indication;
[*]: addition of Cimzia® in the Development Indication to the [*] percent ([*] %) of the [*] ;
[*]: addition of Cimzia® in the Development Indication to the [*] percent ([*] %) of the [*] .
For the avoidance of doubt, the milestone payment corresponding to each milestone event set out in the table in this Section 10.2 shall be payable only once, regardless of how many times the corresponding milestone event is achieved.
10.3 Milestone Amendment. If the Parties agree pursuant to Section 10.1(c) or 10.1(d) to amend the Development Milestone Number 4 payment in the table set out in Section
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10.2, then the Development Milestone Number 4 payment of [*] United States dollars (US$[*]) shall be increased by an amount equal to [*] of the amount by which the Development Costs have exceeded the Cap referred to in Section 10.1(b). Upon achievement of the milestone event for which the payment of Development Milestone Number 4 relates, the invoice submitted by Dermira shall reflect all amounts by which the Development Costs exceed the Cap. Any Development Costs incurred in excess of the Cap after achievement of the Development Milestone Number 4 will be [*] on a Calendar Quarterly basis pursuant to Section 10.13. In addition, if the Parties have agreed to a Milestone Number 4 amendment and the JDC determines that Development of the Product in the Development Indication will be terminated such that Development Milestone Number 4 is unlikely to be achieved, UCB shall pay the amount by which such milestone payment would have been increased under this Section 10.3 had such termination not occurred within [*] Business Days after such actual termination.
10.4 The Parties acknowledge, agree and accept that Development milestone number [*] in the table set out in Section 10.2 will not be paid by UCB to Dermira prior to [*], notwithstanding the date on which such Development milestone number [*] is achieved, but such milestone payment number [*], if so deferred pursuant to this Section 10.4, shall become immediately due on [*] and payable within [*] Business Days thereafter.
10.5 Royalties on Sales. In addition to the payments referred to in Section 10.2 , UCB shall make the following quarterly royalty payments to Dermira within [*] Business Days after the end of each Calendar Quarter during the Term, and shall provide Dermira with such information as needed for Dermira to meet its audit or financial reporting obligations in a timely manner. The amount of each such payment shall, subject to Section 10.6, be calculated as an amount equal to the applicable percentage of Gross Margin. UCB shall accompany each such payment with a statement setting forth the calculation for such payment, including the amount of Extended Unit Sales, WAC, deductions included in the definition of Net Sales, Royalty Bearing Sales and deductions from Royalty Bearing Sales included in the definition of Gross Margin. The applicable percentage of Gross Margin shall be determined as follows:
Royalty Bearing Sales in the Promotion Territory |
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% of Gross
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The portion of Annual Net Sales on or after the Trigger Date of up to US$ [*] in a given Calendar Year |
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[*] |
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The portion of Annual Net Sales on or after the Trigger Date in a given Calendar Year over US$[*] and up to US$ 150,000,000 |
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[*] |
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The portion of Annual Net Sales on or after the Trigger Date in a given Calendar Year of over US$ 150,000,000 |
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50 |
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10.6 Calculation of Payments due Dermira on Royalty Bearing Sales . The calculation of royalty payments referred to in Section 10.5 shall be made on a Calendar Quarter basis and shall be calculated as the applicable percentage (%) of the Gross Margin on Royalty Bearing Sales during such Calendar Quarter [*].
10.7 In addition to the payments referred to in Section 10.2 and Section 10.5, UCB shall pay to Dermira the following sales-based milestones within [*] Business Days of the first successful occurrence of the level of Annual Net Sales in a single Calendar Year:
Royalty Bearing Sales in the Promotion Territory in a given
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Milestone
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Annual Net Sales over US$ [*] |
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[*] |
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Annual Net Sales over US$ [*] |
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[*] |
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Annual Net Sales over US$ [*] |
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[*] |
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Annual Net Sales over US$ [*] |
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[*] |
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For the avoidance of doubt, the milestone payment corresponding to each milestone event set out in the table in this Section 10.7 shall be payable only once, regardless of how many times the corresponding milestone event is achieved, and if more than one milestone payments are triggered within a single Calendar Year, each and every of such milestone payments shall become due at the end of such Calendar Year.
10.8 [*] The Parties have structured the terms of this Agreement to provide an economic return to Dermira from the sales of the Product attributable to Dermatologists in the Promotion Territory, and in the United States, from sales that [*] using data from the [*]. The Parties recognize that the [*] certain [*] sales of Product, for which Dermira may receive [*],
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but the payment terms of this Section 10 have been negotiated by the Parties to take such sales into consideration. If , due to market change s or the form and substance of [*] sales of Product using data from such report with substantially the same [*] the Parties shall make [*] for purposes of determining Extended Unit Sales as set forth in this Section 10.8. No inference shall be drawn that an adjustment shall be made under this Section 10.8 simply because data is presented, and no adjustment shall be effective until approved by the JCC or a resolution has been reached pursuant to Section 23.2.
(a) General. Either Party may at any time bring data to the J C C that [*] sales of Product in the United States with [*] and such Party may request an adjustment in the method used to calculate Extended Unit Sales (an Adjustment Request ). In such event, the Parties through the J C C shall in good faith review such data and seek to agree on [*] with the purpose of restoring the economic terms of the Agreement to reflect the Parties agreement as narrated in the preamble to this Section 10.8 . With the sole exception of the adjustment provided for in Section 10.8(c), any such change in the method of measurement and calculation shall have prospective effect only and shall not change the amounts due with respect to previous reporting periods. If the Parties cannot reach agreement within [*] Business D ays following the date on which a Party submits an Adjustment Request to the JCC , then either Party may [*] under Section [*] to either confirm the validity of the existing method of measuring and calculating Extended Unit Sales or to establish a new method of measurement and calculation.
(b) Information Sharing. UCB shall provide Dermira with [*] and any other information that UCB has used in its determination of Extended Unit Sales and to calculate the [*] subject to Dermiras reimbursing UCB for any incremental payment made to any [*] provider to the extent such payment obligation directly results from UCBs sharing such information with Dermira and subject to Dermiras entering into any written agreement to comply with such Third Partys requirement prior to receiving such information from UCB. UCB shall provide such information it has used in its determination of Extended Unit Sales no less often than [*] per Calendar [*] and such information it has used to calculate the [*] no less often than [*] per Calendar [*].
(c) Retail Channel Accounting. The Parties agree that the [*] of the retail sales of Cimzia® in the United States [*] the comparison of [*] which shows this calculation. By [*] in each Calendar [*] UCB shall prepare and deliver to Dermira an updated
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analysis of the [*] for such recently-ended calendar [*]. If the [*] then as part of the [*] adjustment for the most recently ended Calendar [*] the number of Extended Unit Sales for such Calendar [*] otherwise calculated from [*] shall be multiplied by the [*].
(d) [*] The Parties acknowledge that [*] Accordingly, in the course of negotiating and agreeing the terms of this Agreement, the Parties agreed to exclude [*] from the calculation of Extended Unit Sales. The Parties have agreed that t his is based on the understanding that on average approximately [*] percent ( [*] % ) of Cimzia® retail prescriptions [*]. If the percentage of Cimzia® prescriptions in the [*] exceeds on average [*] percent ( [*] %) of the total of such Cimzia® prescriptions, then the Parties shall make an appropriate adjustment to the calculation of Extended Unit Sales to increase the number of Extended Unit Sales to reflect such change . The Parties acknowledge that the data to support such assertion shall be provided by Dermira, and may be from sources other than [*] but in such event, such data shall be obtained from [*] and in either case such data shall be procured by Dermira at its own expense. For example, if Dermira demonstrates that the percentage of Cimzia prescriptions in [*] represents [*] % of the total, then the number of Extended Unit Sales derived from [*] would be increased by [*]
(e) [*] The Parties acknowledge that as of the Effective Date, there are [*] sales of Cimzia® to dermatology practices . So long as the [*] of Cimzia® sales to dermatology practices in the United States remains [*] percent ( [*] % ) of the unit volume attributable to dermatology practices in the [*] (as adjusted pursuant to Section 10.8(c) and 10.8(d) , if applicable), the Parties agree to make no adjustment [*]. If the unit volume of [*] Cimzia® sales to dermatology practices in the United States exceeds [*] percent ( [*] % ) of the unit volume attributable to Dermatologists in the [*], the Parties shall in future reporting periods increase the number of Extended Unit Sales by a percentage which is designed to capture [*]. For example, if the data demonstrate that in a particular C alendar [*] sales of Cimzi a ® to dermatology practices was [*] percent ( [*] % ) of the total, then the number of Extended Unit Sales derived from the [*] in the following C alendar [*] would be increased by [*].
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(f) [*] If [*] ceases to be available, the Parties shall meet to identify and discuss the use of [*] and shall agree on a new method of calculating Extended Unit Sales using [*]. Pending agreement on such new method of calculation, UCB shall continue to make payments to Dermira under this Agreement based on the assum ption that [*] immediately prior to the [*]. If the Parties cannot reach agreement within [*] Business D ays following written notice by either Party to the other that the [*] then either Party may [*] to establish a new method of calculation.
(g) [*] To determine sales attributable to Dermatologists [*] the Parties will agree on a mechanism for [*], to be conducted every [*], managed by the JCC and paid for equally by the Parties, to determine the percentage of total Product Net Sales [*] attributable to Dermatologists. For the first [*] Calendar Quarters commencing with the Calendar Quarter during which Launch of the Product occurs [*] the Parties will agree , acting reasonably and in good faith, on a percentage and apply it for the purpose of determining Royalty-Bearing Sales [*]. Such percentage will be adjusted by [*] and the adjusted percentage will be applied to the calculation of future Royalty-Bearing Sales until any further adjustment based on [*]. If such data is not readily determinable in the form of Extended Unit Sales, the Parties will make reasonable assumptions using the available data to determine Royalty-Bearing Sales [*].
10.9 Gross Sales. During the Term, the following shall be used for the calculation of gross sales:
(a) Subject to Section 10.8, the [*] will be used as the source to calculate the number of extended units attributable to Dermatologists in a given Calendar Year Extended Unit Sales ; and
(b) the Extended Unit Sales shall be multiplied by the [*] price for the Product the mechanism set out sequentially in Sections 10.9(a) and 10.9(b) together providing the calculation of gross sales ( Gross Sales ).
10.10 Prior to February 14 in any given Calendar Year, UCB shall make one (1) reconciliation to account for any adjustments to the [*] made throughout the previous Calendar Year. Any difference in the amount actually paid by UCB during the previous Calendar Year and the amount determined following such reconciliation shall be added to or deducted from the royalty payment on Royalty Bearing Sales to be made by UCB during the second Calendar Quarter for the first Calendar Quarter .
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10.11 For the avoidance of doubt, other than as set out in this Section 10 or otherwise in Section 21, Dermira will not receive, and UCB shall be under no obligation to make, any payment of any kind based on any and all Net Sales of the Product (i) prior to the Effective Date, (ii) during the Term in the Promotion Territory and which are not Royalty Bearing Sales or (iii) during the Term in the Reserved Territory (collectively, the Excluded Sales ). The Excluded Sales shall be expressly excluded from any calculation of Annual Net Sales for any given time period.
10.12 Branded Prescription Drug Tax. At the same time as the reconciliation referred to in Section 10.10 is undertaken, UCB will provide Dermira with a statement of the amount (in United States dollars) of tax which UCB is liable to pay under the Branded Prescription Drug Fee Program as promulgated by Section 9008 of the Affordable Care Act reasonably attributable to the Royalty Bearing Sales based on the [*] for the period during which such liability to tax has accrued, which amount shall be deducted from Royalty Bearing Sales in the current Calendar Quarter to arrive at Gross Margin for such Calendar Quarter.
10.13 Reimbursement of Costs. To the extent a Party is entitled to be reimbursed by the other Party for any costs and expenses under this Agreement, including Cost of Goods, Development Costs, costs and expenses relating to Commercialisation activities, and the like, such Party shall, within [*] Business Days after the end of each Calendar Quarter, prepare an invoice itemising such costs and expenses incurred by or on account of such Party during such Calendar Quarter and submit such invoice to the other Party. Each Party shall pay the undisputed portion of the invoice received from the other Party within [*] Business Days after the date of receipt of such invoice.
10.14 Payment. UCB shall make payments under this Agreement when such payments become due and payable in immediately available funds to the bank account designated by Dermira from time to time, in accordance with Dermiras instructions. In addition, Dermira shall have the right to request that royalty payments made for Royalty Bearing Sales made in the United States of America and Canada be made to separate accounts designated by Dermira, and UCB shall promptly implement such request after receipt of the relevant information from Dermira.
10.15 Interest. Any uncontested amount required to be paid by UCB to Dermira pursuant to this Section 10 which is not paid on the date due shall bear interest calculated and accrued at [*] from the date such payment was due. Such interest shall be accrued daily.
10.16 Exchange Rate. All amounts payable and calculations under this Agreement shall be in United States dollars. Where amounts payable or calculated under this Agreement are in a currency other than United States dollars, conversion of such amounts to United States dollars will be performed in a manner consistent with the average applicable exchange rate for converting such currency to United States dollars as published by the Wall Street Journal for the duration of the Calendar Quarter. If the Wall Street Journal
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does not publish a particular exchange rate for such period, the Parties shall use the rate published by the Financial Times during such period.
10.17 New Third Party Licences. If, during the Term and following the Effective Date, UCB enters into an agreement with a Third Party in order to obtain a license under an y Intellectual Property Right s of one or more Third Parties that is, in UCBs reasonable judgement, necessary or desirable for UCB or its Affiliates to research, Develop and/or Commercialise the Product (a New Third Party Licence ), then, upon entering into any such New Third Party Licence and for the remainder of the period during which UCB is obliged to make payments to Dermira based on Gross Margin, the [*] actually paid by UCB pursuant to the terms of any such New Third Party Licence to the extent attributable to the Development of the Product for the Development Indication in the Development Territory, or the Commercialisation of the Product in the Development Indication or Promotion Indication in the Promotion Territory, shall, for the purposes of the calculation of Cost of Goods, be Third Party Royalties. For clarity, any such New Third Party Licence shall be included in the UCB Background IP.
11. REPORTING
11.1 During the Term and for a period of three (3) Calendar Y ears thereafter, Dermira shall maintain, and shall cause its Affiliates to maintain, detailed and accurate records of all costs and expenses relating to the Development of the Product the Development Indication in the Development Territory in accordance with United States of America generally accepted accounting principles, consistently applied and all Dermira Commercial A ctivities and Medical Affairs activities , and shall also record the number of Details made by Sales Representatives of Dermira to Dermatologists in the Promotion Territory relating to the Promotion Indication and the Development Indication.
11.2 During the Term and for a period of three (3) Calendar Y ears thereafter, UCB shall maintain, and shall cause its Affiliates to maintain, detailed and accurate records in order for Dermira to verify any payments owed to or by Dermira under this Agreement, in accordance with IFRS consistently applied, and all [*] relied on for the basis of determining [*] and/or [*] hereunder.
11.3 Any and all payments made by UCB under or with respect to this Agreement to or for the account of Dermira shall [*] for or on account of any present or future [*] directly or indirectly [*] by or for the account of any [*] to the extent [*] required by Applicable Law. If any tax is required by Applicable Law to be [*] the full amount [*]. Dermira agrees to cooperate with UCB to enable UCB to [*].
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If UCB is so required to [*] UCB shall (i) promptly notify Dermira of such requirement, (ii) [*], and (iii) promptly forward to Dermira [*]. As of the Effective Date, the Parties acknowledge the [*].
11.4 Each Party shall have the right to examine and audit the other Partys relevant books and records to verify the accuracy of any reports and and/or payments prepared and/or delivered by such Party pursuant to this Agreement, including any information related to calculations under Section 10.8 and any calculation of the Cost of Goods for the Product or Comparator Drugs and Placebo supplied by UCB (each and Audit ). Any such Audit shall be on at least [*] Business D ays prior written notice. A Partys rights to perform an Audit under this Section 11.4 shall be limited to not more than [*] in any Calendar Year and shall be limited to the pertinent books and records for any Calendar Year ending not more than [*] Calendar M onths before the date of the request. In the absence of fraud, negligence, wilful misconduct or manifest error, any Audit shall be performed at the auditing Partys sole expense by an independent certified public accounting firm of internationally recognized standing that is selected by the auditing Party and reasonably acceptable to the audited Party. The accounting firm may be required to enter into a reasonable and customary confidentiality agreement with the audited Party to protect the confidentiality of its books and records. The audited Party shall make the relevant books and records reasonably available during normal business hours for examination by the accounting firm. Except as may otherwise be agreed, the accounting firm shall be provided access to such books and records at the audited Partys and/or its Affiliates facilities where such books and records are normally kept. Upon completion of the audit, the accounting firm shall provide both Parties a written report disclosing whether or not the relevant reports and/or payments are correct, and the specific details concerning any discrepancies. The accounting firm shall not provide the auditing Party with any additional information or access to the audited Partys confidential information .
11.5 If an Audit pursuant to Section 11.4 correctly concludes as a result of such Audit that any additional amounts were due and payable to Dermira, such additional amounts shall be paid to Dermira within [*] Business Days of the date that the audited Party receives a statement therefor, plus all interest accrued on such late payment in accordance with Section 10.15. In the event that the total amount of any underpayments
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by one Party to the other Party for the audited period exceeds [*] of the aggregate total amount that was properly due and payable to relevant Party for such period, then the Party responsible for such underpayment shall also reimburse the other Party for the documented, reasonable out-of-pocket expenses incurred in conducting the Audit, except to the extent that such underpayment was due to any fraud, negligence, wilful misconduct or manifest error on the part of the Party subject to such Audit or any inaccurate or incomplete information provided to the Party undertaking such Audit .
12. EXCLUSIVITY AND NON-COMPETE
12.1 During the Term, Dermira undertakes to UCB that it shall not, and it shall ensure that each of its Affiliates shall not, whether alone or in collaboration with a Third Party:
(a) undertake activities or actions outside those contemplated by this Agreement with respect to the clinical development or Commercialisation of a pharmaceutical product which is a Competing Product; or
(b) file an application with any Regulatory Authority in the Territory seeking Regulatory Approval for any pharmaceutical product which is a Competing Product ; or
(c) promote a Competing Product to any Dermatologist in the Promotion Territory.
12.2 During the Term, UCB undertakes to Dermira that it shall not, and it shall ensure that each of its Affiliates shall not, whether alone or in collaboration with a Third Party:
(a) undertake activities or actions outside those contemplated by this Agreement with respect to the clinical development or Commercialisation of a pharmaceutical product which is a Competing Product for the Promotion Indication or the Development Indication in the Promotion Territory; or
(b) file an application with any Regulatory Authority in the Promotion Territory seeking Regulatory Approval for any pharmaceutical product which is a Competing Product for the Promotion Indication or the Development Indication in the Promotion Territory; or
(c) promote a Competing Product to any Dermatologist in the Promotion Territory.
12.3 If, during the Term, Dermira acquires or is acquired by, a Third Party that is clinically Developing or Commercialising a Competing Product, Dermira shall, notwithstanding the terms of Section 12.1, not be deemed to be in breach of Section 12.1 provided that Dermira either (i) within [*] of such acquisition, ceases clinically Developing or Commercialising such Competing Product; or (ii) Divests such Competing Product within [*] of the close of such transaction . If neither of the events referred to in sub-Sections (i) and (ii) above occur, UCB may terminate this A greement in accordance with Section 20.6(c); provided that if UCB does not exercise such termination right, Dermira will not be deemed to be in breach of Section 12.1.
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12.4 If, during the Term, UCB acquires or is acquired by, a Third Party on that is clinically Developing or Commercialising a Competing Product (a) targeting Dermatologists in the Promotion Indication or (b) in the Development Indication, in each case (a) and (b) in the Promotion Territory , either alone or with a Third Party, UCB shall, notwithstanding the terms of Section 12.2, not be deemed to be in breach of Section 12.2 provided that UCB either (i) within [*] of such acquisition, ceases clinically Developing or Commercialising such Competing Product (A) targeting Dermatologists in the Promotion Indication, or (B) in the Development Indication in the Promotion Territory; or (ii) Divest s such Competing Product within [*] of the close of such transaction . If neither of the events referred to in sub-Sections (i) and (ii) above occur, Dermira may terminate this A greement in accordance with Section; provided that if Dermira does not exercise such termination right, UCB will not be deemed to be in breach of Section 12.2.
12.5 For the purposes of this Section 12 and for those purposes only, references to Product in the definitions Commercialise, Detail, Development, Dermira Commercial Activities , Regulatory Approval and Regulatory Authority shall be deemed to include Competing Product and be read as Product and/or Competing Product.
12.6 During the Term, UCB agrees that it shall not, and shall ensure that each of its Affiliates shall not, grant to any Third Party any rights or licenses to engage in any activities with respect to the Product that are inconsistent with the licences granted by UCB to Dermira pursuant to Section 14.
12.7 During the Term, if UCB intends to Develop or Commercialise a Combination Product for use in the Promotion Indication or the Development Indication in the Promotion Territory, either alone or in collaboration with a Third Party, UCB shall not promote such Combination Product to any Dermatologist in the Promotion Territory, without first entering into good faith negotiations with Dermira to undertake activities similar to the Dermira Commercial Activities and Medical Affairs activities on behalf of UCB in relation to such Combination Product. If the Parties are unable to reach agreement on the terms and conditions pursuant to which Dermira will conduct such activities similar to the Dermira Commercial Activities and Medical Affairs activities for such Combination Product to Dermatologists in the Promotion Territory within [*] Business Days of the commencement of such negotiations, UCB shall have no further obligation to Dermira in relation to such Combination Product and shall be able to undertake any and all promotion or other commercialisation activities in the Promotion Territory, provided that the Royalty Bearing Sales for such Combination Product shall be deemed included in the Royalty Bearing Sales for the Product for the purpose of calculating UCBs obligation to make royalty payments to Dermira under Section 10.5, taking into account the adjustment for the calculation of Net Sales for such Combination Product as set forth in the Net Sales definition.
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13. COMPLIANCE
13.1 During the Term of this Agreement, each Party will perform its obligations and exercise its rights under this Agreement in accordance with Applicable Law and shall maintain in full force and effect all necessary licenses, permits and other authorizations required by Applicable Law throughout the Territory in order to comply with the provisions of this Agreement, including this Section 13.
13.2 In addition, each Party shall be responsible for ensuring that all activities for which it is responsible under this Agreement are performed in accordance with all Applicable Law. In furtherance of the foregoing, Dermira shall m aintain in place appropriate policies, standard operating procedures and business practices for the Development, Medical Affairs and Dermira Commercial Activities conducted under this Agreement, which are consistent with UCBs pertinent policies and procedures provided to Dermira in writing in advance and UCBs Code of Conduct and Principles of Ethical Business Practices attached to this Agreement as Schedule 18 and Dermira shall use Commercially Reasonable Efforts to ensure its, and ensure its Affiliates and its Third Party subcontractors, compliance with all Applicable Law in connection with the Development of the Product in the Development Indication in the Development Territory and the conduct of the Dermira Commercial Activities and Medical Affairs activities for the Product in the Promotion Indication and the Development Indication in the Promotion Territory. Neither Party, nor any of its Affiliates, shall undertake or shall be required to undertake any activity pursuant to or in connection with this Agreement which it believes, in good faith, may violate any Applicable Law.
13.3 Neither Party shall, and each Party shall ensure that its Affiliates and Third Party subcontractors shall not, make any medical or promotional claims for the Product or do any act or thing that is or are outside the scope of or inconsistent with: (i) the relevant Regulatory Approval then in effect for the Product in the Promotion Indication or the Development Indication, including an absolute prohibition on any Off-Label Promotion; or (ii) in the case of Dermira, the approved and applicable Local Dermira Commercial Plans and UCB approved Promotional Materials. When distributing information related to the Product or its use (including information contained in scientific articles, reference publications and publicly available healthcare economic information) or in conducting any of their respective Commercialisation a ctivities related to the Product, each Party shall, and shall ensure that its Affiliates and its Third Party subcontractors shall, comply with all Applicable Law, and act in good faith consistent with current industry standards in the relevant country within the Development Territory and the Promotion Territory. The foregoing shall include, without limitation, (i) with respect to the United States of America, compliance with the FFDCA, the PDMA, the Federal Health Care Programs Anti-Kickback Law, 42 U.S.C. 1320a-7b(b), the Pharmaceutical Research and Manufacturers of America Code of Pharmaceutical Marketing Practices, the American Medical Association Guidelines on Gifts to Physicians from Industry; the IFPMA Code of Pharmaceutical Marketing Practices; the Public Health Service Act, as amended; the Health Insurance Portability and Accountability Act of 1996, the FDA Guidance for Industry-Supported Scientific
and Educational Activities; and all federal, state and local fraud and abuse, consumer protection and false claims statutes and regulations, including the Medicare and State Health Programs Anti-Fraud and Abuse Amendments of the Social Security Act and the Safe Harbor Regulations found at 42 C.F.R. §1001.952 et seq, the Office of the Inspector Generals Compliance Guidance Program, and the standards set forth by the Accreditation Council for Continuing Medical Education relating to educating the medical community in the United States with respect to the Product including in each case as they may be amended, and (ii) in all other countries in the Development Territory or the Promotion Territory, compliance with all similar Applicable Law applicable to the Product or such activities as are in effect throughout the Territory from time to time. Each Party shall, and shall ensure that its Affiliates and Third Party subcontractors shall, in all material respects, conform its practices and procedures relating to educating the medical community throughout the Development Territory and the Promotion Territory with respect to the Product to the Accreditation Council for Continuing Medical Education Standards for Commercial Support of Continuing Medical Education and any applicable regulations or guidelines established by Regulatory Authorities throughout the Development Territory and the Promotion Territory, including as they may be amended. Dermira shall promptly notify UCB of any correspondence or other reports submitted to or received by it, its Affiliates or any of its Third Party subcontractors from the FDA, Health Canada, EMA or other Regulatory Authorities in the Promotion Territory or the Development Territory with respect to the Product, which notice shall include a copy of such correspondence. Without limitation of the foregoing, each Party shall, and shall ensure that its Affiliates and Third Party subcontractors shall, establish and maintain a reasonable compliance program that, at a minimum meets the standards set forth in the Compliance Program Guideline for Pharmaceutical Manufacturers issued by the Office of Inspector General of the Department of Health and Human Services.
13.4 Dermira acknowledges that UCBs US Affiliate, UCB, Inc., entered into a Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services, with an effective date of June 20, 2011 and a duration of five (5) Calendar Years, ending June 19, 2016 (the CIA ). The Parties shall cooperate with each other to ensure that Dermiras personnel who are preforming Medical Affairs activities, Dermira Commercial Activities and Promotional and Product Services Related Functions pursuant to this Agreement shall complete, on an annual basis, CIA-related training as determined and directed by UCB on behalf of UCB, Inc., which trainings will be conducted at Dermiras facilities and/or via computer-based training and at UCBs sole expense, and shall comply with the reasonable requests of UCB to provide records related to such training and to perform policy reviews (including, in particular, a review of UCBs Code of Conduct) and provide such other information necessary for UCB to comply with its obligations relating to the CIA as outlined in this Section 13.4, at UCBs sole expense. To the extent that it has not done so prior to the Effective Date, Dermira undertakes that it shall, prior to permitting any employee of Dermira to undertake any such activities,
ensure that each of its employees undertakes and successfully completes all necessary trainings referred to in this Section 13.
13.5 Each Party shall, and shall ensure that its Affiliates and Third Party subcontractors shall, comply as applicable with the U.S. Foreign Corrupt Practices Act, the United Kingdom Anti-Bribery Act, and any other analogous Applicable Law existing in any other country or region in the Territory, in connection with its performance under this Agreement. Each Party shall not, and shall ensure that its Affiliates and Third Party subcontractors shall not, make any payment, either directly or indirectly, of money or other assets to any government or political party officials, officials of international public organizations, candidates for public office, or representatives of other businesses or persons acting on behalf of any of the foregoing, that would constitute a violation of any Applicable Law.
13.6 Each Party shall ensure that none of its, nor any of its Affiliates or its Third Party subcontractors (including any and all Investigators engaged by such Party), employees has been debarred or is subject to debarment and neither such Party nor any of its employees, nor its Affiliates, its Third Party subcontractors nor any of their respective employees shall use in any capacity, in connection with the performance of any obligations of such Party under this Agreement, any Person who has been debarred pursuant to Section 306 of the FFDCA, as amended, or who is the subject of a conviction described in such section. A Party will inform the other Party in writing immediately if it or any Person or any such Persons employees who is or are performing any obligations of Dermira under the Agreement is or are debarred or is or are the subject of a conviction described in Section 306, or if any action, suit, claim, investigation or legal or administrative proceeding is pending or, to Dermiras knowledge, is threatened, relating to the debarment or conviction of such Party or any Person or any such Persons employees performing any obligations of such Party under this Agreement.
14. INTELLECTUAL PROPERTY RIGHTS AND GRANT OF RIGHTS
14.1 UCB Controls the UCB Background IP and the Cimzia® Trademark s .
14.2 UCB hereby grants Dermira during the Term:
(a) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP, the Cimzia® Trademarks and (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to conduct the activities assigned to Dermira under the Pre-Launch Medical Affairs Plan;
(b) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP, the Cimzia® Trademarks and (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to conduct Dermira Commercial Activities and Medical Affairs activities assigned to
Dermira for the Product in the Promotion Indication to Dermatologists and as provided herein in the Promotion Territory, subject, however, to UCB receiving Regulatory Approval for the Product in the Development Indication in the Promotion Territory; and
(c) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP,the Cimzia® Trademarks and (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to Develop the Product in the Development Indication in the Development Territory pursuant to this Agreement, provided that UCB reserves the right to conduct Development activities in the Development Indication in the Development Territory to the extent such activities are subcontracted to UCB by Dermira under the Development Plan, and
(d) (i) an exclusive licence under the UCB Background IP, UCBs interest in the Arising IP, the Cimzia® Trademarks and (ii) (ii) a sublicence of the OXO GOOD GRIPS Trademarks in accordance with and subject to the terms and conditions of the OXO Trademarks License Agreement, in each case (i) and (ii) to conduct Dermira Commercial Activities and Medical Affairs activities assigned to Dermira for the Product in the Development Indication to Dermatologists as provided herein in the Promotion Territory, subject, however, to UCB receiving Regulatory Approval for the Product in the Development Indication in the Promotion Territory.
UCB shall retain all other rights, title and interests in and to the UCB Background IP, its interest in the Arising IP, Regulatory Approvals, Drug Approvals and the Cimzia® Trademark s .
14.3 For the avoidance of doubt, Dermira shall have no right to grant any sublicences of any of the rights or licences granted to it by UCB pursuant to Section 14.2 to any Third Party, except that Dermira shall have the right to grant sublicences under the rights granted pursuant to Section 14.2(c) to the extent required to engage Third Party subcontractors (including consultants) in accordance with Section 3.4. Dermira shall have the right to grant sublicenses of such rights and licences under Section 14.2 to its Affiliates, and to exercise its rights and conduct its obligations under and in accordance with this Agreement through its Affiliates, in each case without the prior written consent of UCB.
14.4 Dermira hereby grants UCB during the Term:
(a) an exclusive licence under the Dermira Background IP and its interest in the Arising IP to Commercialise the Product in the Promotion Territory in the Promotion Indication through Commercialisation of the Product to Healthcare Professionals (excluding Dermatologists);
(b) an exclusive licence under the Dermira Background IP and its interest in the Arising IP to Commercialise the Product in the Reserved Territory in the
Promotion Indication to all Healthcare Professionals (including Dermatologists);
(c) if Regulatory Approval for the Product in the Development Indication is successfully obtained in the Promotion Territory, an exclusive licence of the Dermira Background IP and its interest in Arising IP to (i) Commercialise the Product in the Development Indication in the Promotion Territory through the Commercialisation of the Product to Healthcare Professionals (excluding Dermatologists) and (ii) to Commercialise the Product in the Reserved Territory in the Development Indication through the Promotion of the Product to all Healthcare Professionals (including Dermatologists).
14.5 For clarity, UCB shall have the right to grant sublicences through multiple tiers of the licences granted to it by Dermira pursuant to Section 14.4 solely in connection with the Development and Commercialisation of the Product, provided, however, that UCB shall not grant any sublicense to any Third Party in a manner that would permit such Third Party to conduct activities during the Term that, if conducted by UCB, would constitute a violation of UCBs exclusivity obligations under Section 12.
14.6 Other than as set out in this Agreement, no other rights or licences are or shall be created or granted pursuant to this Agreement by implication, estoppel or otherwise.
14.7 All right, title and interest in and to all Arising IP pertaining to the composition of matter or formulation of, or to any method of making or using Cimzia® or any Product, including with regard to dosage, administration, combination (but excluding any component in a Combination Product that is proprietary to Dermira, if any), patient (sub)group, biomarkers, (the Product Arising IP ) shall vest in UCB and Dermira acknowledges and agrees that all Product Arising IP and all Intellectual Property Rights subsisting in the same, shall be or if necessary shall be deemed to be the sole and exclusive property of UCB.
14.8 All Arising IP other than Product Arising IP shall be owned (a) by UCB if generated solely by UCB and/or its Affiliates or Third Party contractors (the UCB Arising IP ), (b) by Dermira if generated by solely by Dermira and/or its Affiliates or Third Party contractors (the Dermira Arising IP ), and (c) jointly by the Parties if generated by the Parties jointly (the Joint Arising IP ). Each Party shall own an undivided half interest in such Joint Arising IP, with the right to practice and exploit and license such Joint Arising IP without the duty of accounting or seeking consent from the other Party, provided, however, that neither Party shall grant any license under the Arising IP to any Third Party: (i) to conduct clinical development of and/or commercialise any product that is a Competing Product; or (ii) to conduct clinical development of and/or commercialise any other product in the Development Indication.
14.9 Dermira shall, and shall cause its Affiliates to, require that any and all of its employees, agents, consultants and Third Party subcontractors performing any activities under or contemplated by this Agreement are obligated in writing to assign all of his/her rights,
title and interests in and to any Product Arising IP conceived or generated by Dermira and/or its Affiliates or Third Party contractors to Dermira so that Dermira may in turn assign such rights to UCB under Section 14.10 (the Dermira Product Arising IP ).
14.10 Dermira hereby assigns to UCB (or as UCB shall direct, UCBs designee) upon creation, by way of a present assignment its entire right, title and interest in and to all Dermira Product Arising IP, which may be so assigned, free from any security interests, Third Party interests or other encumbrances. Where a present assignment of future rights is not legally permissible or competent, Dermira hereby undertakes to assign such Dermira Product Arising IP to UCB within a reasonable period following creation and in any event upon the written request of UCB.
14.11 Dermira shall at UCBs request and cost (and notwithstanding the termination or expiry of this Agreement) execute all such documents and perform all such acts, including without limitation executing declarations, assignments and other documents, as UCB or its designee may reasonably require to give effect to Section 14.10 and to vest the legal title in all Dermira Product Arising IP in UCB (or its Affiliates or designee) and to enable UCB (or its Affiliates or designee) to apply for, obtain and maintain in force in the sole name of UCB (or as it shall direct) all Patent Rights and other Intellectual Property Rights or statutory protection of any nature whatsoever in respect of such Arising IP in all countries of the Territory.
14.12 UCB shall, at its sole cost and expense, be solely responsible for the Prosecution and defence of all Patent Rights within the UCB Background IP and any UCB Arising IP and Product Arising IP.
14.13 For any Patent Right within the Joint Arising IP the Parties shall consult and co-operate in good faith in order to determine and execute the most efficient strategy for the Prosecution of such Patent Right (including which Party shall be responsible for implementing such strategy; and how the costs of the Prosecution are to be borne).
14.14 Dermira agrees and undertakes to UCB that during the Term it shall not take steps (directly or indirectly) to challenge the validity of any of the Patent Rights licensed to Dermira under this Agreement within the UCB Background IP, the Product Arising IP, the UCB Arising IP or any Patent Right that is subject to a Third Party Licence or any counterpart of any of the foregoing anywhere in the world, nor assist or support (directly or indirectly) any Third Party in such a challenge, in each case other than as a defense against any infringement action instituted by UCB or its licensee, either in an infringement proceeding or in the form of declaratory judgment. The Parties acknowledge that the restriction in this Section 14.14 is reasonable and proportionate for the proper protection of the Patent Rights relating to the Product and proprietary and Confidential Information of UCB which Dermira shall receive and use pursuant to this Agreement. Dermira further acknowledges that damages may not be an adequate remedy for a breach of this undertaking and UCB shall be entitled to seek interim and/or equitable relief in respect of any breach or anticipated breach of this undertaking.
14.15 If, in relation to the UCB Background IP or the Product Arising IP, either Party (i) becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights or (ii) if any such Patent Rights is or are challenged or in any other way involved in any action or proceeding, in each case (i) and (ii) anywhere in the Territory, the relevant Party shall promptly notify the other Party. UCB shall have the right (but not the obligation) in its sole discretion to undertake and control, at its own expense, any actions, claims or proceedings related to the suspected or threatened infringement of the applicable Patent Rights in the Territory. Dermira shall reasonably cooperate with UCB and, at UCBs request and cost and expense, reasonably assist UCB in any such actions, claims or proceedings in the Development Territory or the Promotion Territory, including if and to the extent necessary by joining or lending its name to such actions or proceedings, executing appropriate legal documents, and securing the cooperation of inventors or other witnesses for the benefit of UCB. If any such action, claim or proceeding is successful and a monetary award is received by UCB from such action, claim or proceeding, such award shall be applied in the first instance to reimburse the Parties for their documented costs and expenses actually incurred in connection with such action, claim or proceeding, and the remainder of such award attributable to the infringement activities in the Promotion Territory in the Promotion Indication or the Development Indication shall be deemed to be Royalty Bearing Sales for which UCB will make the appropriate proportional royalty payment to Dermira. If an award for damages and costs is made against UCB as a result of such action, claim or proceeding, to the extent that such damages and costs are attributable to the alleged infringement activities in the Promotion Territory in the Promotion Indication or the Development Indication, UCB shall be entitled to deduct an appropriate proportion of such damages and costs from Royalty Bearing Sales.
14.16 If, in relation to the Dermira Background IP, either Party (i) becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights or (ii) if any such Patent Rights is or are challenged or in any other way involved in any action or proceeding, in each case (i) and (ii) anywhere in the Territory, the relevant Party shall promptly notify the other Party. Dermira shall have the sole right (but not the obligation) in its sole discretion and at its sole expense to undertake and control, at its own expense, any actions, claims or proceedings related to the suspected or threatened infringement of the applicable Patent Rights in the Territory.
14.17 If, in relation to the Joint Arising IP, either Party becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights in the Territory, the relevant Party shall promptly notify the other Party. Where such suspected or threatened infringement involves a product of a Third Party that competes with or would be reasonably considered to have the potential to compete with any UCB product sold or marketed in the Territory or in clinical development in the Territory, UCB shall have the sole right but not the obligation to take action, file suit and enforce the Joint Arising IP against such infringing Third Party at its own expense, in its own name and under its own direction and control (with Dermira having the right to participate in any such action and be represented at its own expense, if it so desires, by counsel of its own
selection therein to the extent legally permissible), save that UCB shall consult with Dermira with regard to any material aspect of defence or enforcement, shall have due regard to any representations made by Dermira and shall not settle any infringement action, proceeding or dispute without Dermiras prior written consent (such consent not to be unreasonably withheld or delayed). Dermira shall in any case assist, and join in any action to the extent necessary if so requested (such as in order to ensure standing), subject to being indemnified and secured in a reasonable manner as to any costs, damages, expenses or other liability and shall have the right to be separately represented by its own counsel at its own expense. If any damages or other sums are received by UCB (whether awarded by a court or paid by the infringing third party in an out-of-court settlement) as a result of any action UCB may take, suit it may file or other enforcement activities, Dermira shall be entitled to reimbursement from such damages or other sums an amount equal to its actual and documented out-of-pocket costs and expenses which it has reasonably incurred in assisting or joining such action, suit or enforcement activities. Any remaining sum shall be retained by UCB.
14.18 If, in relation to the Joint Arising IP, either Party becomes aware of a suspected or threatened infringement by a Third Party of any of the Patent Rights in the Territory, the relevant Party shall promptly notify the other Party. Where such suspected or threatened infringement involves a product of a Third Party that competes with or would be reasonably considered to have the potential to compete with any Dermira product sold or marketed in the Territory or in clinical development in the Territory, Dermira shall have the sole right but not the obligation to take action, file suit and enforce the Joint Arising IP against such infringing Third Party at its own expense, in its own name and under its own direction and control (with UCB having the right to participate in any such action and be represented at its own expense, if it so desires, by counsel of its own selection therein to the extent legally permissible), save that Dermira shall consult with UCB with regard to any material aspect of defence or enforcement, shall have due regard to any representations made by UCB and shall not settle any infringement action, proceeding or dispute without UCBs prior written consent (such consent not to be unreasonably withheld or delayed). UCB shall in any case assist, and join in any action to the extent necessary if so requested (such as in order to ensure standing), subject to being indemnified and secured in a reasonable manner as to any costs, damages, expenses or other liability and shall have the right to be separately represented by its own counsel at its own expense. If any damages or other sums are received by Dermira (whether awarded by a court or paid by the infringing third party in an out-of-court settlement) as a result of any action Dermira may take, suit it may file or other enforcement activities, UCB shall be entitled to reimbursement from such damages or other sums an amount equal to its out-of-pocket costs and expenses which it has incurred in assisting or joining such action, suit or enforcement activities. Any remaining sum shall be retained by Dermira.
14.19 For any other suspected or threatened infringement of Joint Arising IP the Parties shall consult in order to determine the most efficient strategy (including which Party shall be responsible for implementing such strategy; how the costs of any action are to be borne;
and how any damages or other sums received as a result of any action are to be distributed), and the Parties shall co-operate to implement said strategy.
14.20 If, in relation to the Cimzia® Trademark s , either Party (i) becomes aware of a suspected or threatened infringement by a Third Party of any of the Cimzia® Trademark s or (ii) if the Cimzia® Trademark s is challenged or in any other way involved in any action or proceeding, in each case (i) and (ii) anywhere in the Territory, the relevant Party shall promptly notify the other Party. UCB shall have the right (but not the obligation) in its sole discretion to undertake and control, at its own expense, any actions, claims or proceedings related to the suspected or threatened infringement of the Cimzia® Trademark s in the Territory. Dermira shall reasonably cooperate with UCB and, at UCBs request and cost and expense, reasonably assist UCB in any such actions, claims or proceedings, including if and to the extent necessary by joining or lending its name to such actions or proceedings, executing appropriate legal documents, and securing the cooperation of inventors or other witnesses for the benefit of UCB.
14.21 UCB shall in its sole discretion seek to obtain patent term extensions (including without limitation, any p a ediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in the Promotion Territory with respect to Patent Rights covering the Product or its use in the Promotion Indication and/or, if applicable, the Development Indication in Promotion Territory.
14.22 Each Party shall promptly notify and provide the other Party with copies of any allegations of patent invalidity, unenforceability or non-infringement of any Patent Rights in the UCB Background IP, or the Product Arising IP, in each case which relates to any Third Partys clinical development, application for approval, distribution or sale of a biosimilar version of the Product. Any such notification (and provision of copies) required under this Section 14.22 shall be provided to the other Party within [*] Business Days after the relevant Party receives notice or otherwise becomes aware of such certification, application or procedure. UCB shall be primarily responsible for, and have control over, the conduct of any actions undertaken to enforce or defend, as applicable, the relevant Patent Rights.
14.23 Each Party shall promptly notify and provide the other Party with copies of any allegations from any Third Party that an activity pursuant to this Agreement would infringe an Intellectual Property Right of such Third Party. UCB shall have the first right to defend both Parties against such allegation using counsel of its choice and reasonably acceptable to Dermira, at UCBs sole cost and expense. Dermira shall have the right, but not the obligation, to engage its own counsel at its sole cost and expense, but UCBs counsel shall at all times be the lead counsel in, and shall control, the defense of such allegation. UCB shall not, without Dermiras written consent, settle any such allegations in a manner that would admit fault on behalf of Dermira, result in any prohibition or injunction of Dermiras activities hereunder, or impose any payment obligation (either as damages or payments based on future development and/or commercailisation activities) on Dermira as compared to UCB in a manner that is disproportionate to the Parties financial interests under this Agreement.
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15. WARRANTIES
15.1 Each Party represents and warrants to the other Party as of the Effective Date:
(a) it has all requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement;
(b) the execution of this Agreement and the performance by such Party of its obligations hereunder have been duly authorized by all necessary corporate action on the part of such Party;
(c) this Agreement is legally binding and enforceable on such Party in accordance with its terms, subject to all limitations of bankruptcy, liquidation, reorganization, insolvency, moratorium and enforcement of creditors rights generally, general principles of equity (including without limitation those relating to specific performance, injunctions and other remedies);
(d) the performance of this Agreement by it does not create a breach or default under any other agreement to which it is a party;
(e) all necessary consents, approvals, and authorizations of all government authorities, Regulatory Authorities and other persons required to be obtained by such Party as of the Effective Date in connection with the execution, delivery and performance of this Agreement have been obtained;
(f) no broker, finder or similar agent has been employed by or on behalf of such Party and no Third Party with which such Party has had any dealings or communications of any kind is entitled to any brokerage commission, finders fee or any similar compensation, in connection with this Agreement;
(g) there are no pending or, to the best of such Partys knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the Effective Date against such Party which, either individually or together with any other, will have a material adverse effect on the ability of such Party to perform its obligations under this Agreement or any agreement or instrument contemplated hereby.
15.2 UCB represents and warrants to Dermira as at the Effective Date:
(a) UCB or its Affiliates owns all right, title and interest in the Patent Rights listed in Schedule 14 and has not granted to any Third Party a right which is still in force to Develop the Product in the Development Indication, or to undertake any Dermira Commercial Activities or Medical Affairs activities to be undertaken by Dermira for the Product in the Promotion Indication or Development Indication in the Promotion Territory;
(b) UCB has not granted to any Third Party any rights or licenses which are still in force under the Patent Rights listed in Schedule 14 or licensed under the Third Party Licenses, or under the Cimzia® Trademark s , or with respect to the Product and/or the UCB Background IP, that would conflict with the licenses
granted to Dermira under this Agreement or rights of Dermira under Section 12, or constitute a grant of present or future right to such Third Party to Develop the Product in the Development Indication in the Development Territory, or to conduct the Dermira Commercial Activities or Medical Affairs activities in the Promotion Territory;
(c) there is no judgment by a court of competent jurisdiction against UCB with respect to patent infringement of the Patent Rights licensed by UCB to Dermira pursuant to Section 14 or misappropiration of a trade secret relating to the Product that would affect the Development of the Product in the Current Presentation in the Development Indication in the Development Territory, or the Commercialisation of the Product in the Current Presentation in the Promotion Indication or the Development Indication in the Promotion Territory;
(d) [*] there are no existing or threatened claims or litigation with respect to patent infringement or misappropriation of a trade secret that would affect the Development of the Product in the Current Presentation in the Development Indication in the Development Territory, or the Commercialisation of the Product in the Promotion Indication or the Development Indication in the Promotion Territory. [*];
(e) [*] the Development of the Product in the Current Presentation in the Development Indication, and the sale and promotion of the Product in the Current Presentation in the Promotion Territory in the Development Indication and in the Promotion Indication, will not infringe an issued and unexpired Patent, which has not been held invalid or unenforceable, of any Third Party. [*];
(f) [*], UCB has not failed to disclose or otherwise make available to Dermira any available information concerning the quality, toxicity, safety and/or efficacy of the Product in the Current Presentation which would materially impair the utility and/or safety of the Product;
(g) UCB (i) has not received notice of breach of any the Third Party Licenses;(ii) is not aware of any fact or circumstance that would prohibit the grant of sublicenses to Dermira under the Third Party Licenses as required for Dermira to perform its activities contemplated under this Agreement; and (iii) in each instance in which the license granted by UCB to Dermira under this Agreement constitutes a sublicense under any Third Party Licence, has complied and/or
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will comply with its obligations under such Third Party Licence in connection with the grant of such sublicence; and
(h) there is no Third Party claim or demand, litigation or proceeding which is pending or, to the knowledge of UCB, threatened, that challenges the validity, patentability or enforceability of any Patent Rights listed in Schedule 14 .
15.3 Dermira represents and warrants to UCB as at the Effective Date that:
(a) neither Dermira nor any of its Affiliates is Developing or Commercialising a Competing Product in the Promotion Territory or the Development Territory;
(b) Dermira has not granted to any Third Party any rights or licenses which are still in force under the Dermira Background IP that would conflict with the licenses granted to UCB under this Agreement or rights of UCB under Section 12, or constitute a grant of present or future right to such Third Party inconsistent with such rights granted by Dermira to UCB; and
(c) there are no pending or threatened judicial, administrative or arbitral actions, claims, suits or proceedings which, either individually or together with any other, would adversely affect Dermiras ability to perform its Development or Commercialisation obligations or any other obligation of Dermira under this Agreement, or any agreement entered into pursuant to this Agreement ; and
(d) Dermira makes no representation or warranty that the Dermira Background IP is valid, or that any Patent Rights within the Dermira Background IP that are patent applications will result in granted Patent Rights.
15.4 For the sake of clarity, except as expressly set forth in Section 15.2, UCB makes no representation or warranty that:
(a) the Product is safe or efficacious;
(b) [*];
(c) the UCB Background IP is valid;
(d) any Patent Rights within the UCB Background IP that are patent applications will result in granted Patent Rights; or
(e) in relation to the Product, any particular Product Labeling for the Product in the Promotion Indication or any Product Labeling or Regulatory Approval in Development Indication will be obtained anywhere in the Territory.
15.5 DISCLAIMER: EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF SAFETY, EFFICACY, MERCHANTABILITY, SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY MATTER ARISING IN CONNECTION WITH THIS
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AGREEMENT (INCLUDING ANY ACTIVITIES CONDUCTED HEREUNDER), OR THE PRODUCT.
16. INDEMNITY, LIABILITY AND INSURANCE
16.1 Dermira shall indemnify, defend and hold harmless UCB, its Affiliates, and its and their respective officers, directors, employees, and agents, and their respective successors, heirs and assigns and representatives (individually and collectively, the UCB Indemnified Parties ), from and against any and all Third Party liability, loss, damage, claim, injury, costs or expenses (including reasonable attorneys fees and expenses of litigation) of any kind (collectively, Damages ) that are directly or indirectly caused by, or arise out of or in connection with: (i) any breach of any covenant, obligation or undertaking of Dermira under this Agreement, (ii) any breach or inaccuracy of any representation or warranty made by Dermira hereunder, (ii) any breach or violation of any Applicable Law by any of Dermira, its Affiliates, or Third Party subcontractors, or any of their respective officers, directors, Sales Representatives, employees, or agents (collectively, Dermira Responsible Parties ) in connection with the activities contemplated by this Agreement or any negligent act or omission of any Dermira Responsible Party (iv) any unauthorized use by any Dermira Responsible Parties of any Product Literature, or (v) any Medical Affairs activity, Dermira Commercial Activity or other application of the Product by any Dermira Responsible Party of the Product in each case that constitutes Off-Label Promotion. The foregoing notwithstanding, Dermira shall under no circumstances be obligated to indemnify any UCB Indemnified Party if and to the extent that the relevant Damages are directly or indirectly caused by or arise out of any UCB Responsible Partys negligence, willful misconduct, breach of this Agreement, or breach of Applicable Law relating to any Manufacture or Commercialisation of the Product by UCB Responsible Parties.
16.2 UCB shall indemnify, defend and hold harmless Dermira, its Affiliates, and its and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives (individually and collectively, the Dermira Indemnified Parties ), from and against any and all Damages that are directly or indirectly caused by, or arise out of or in connection with: (i) any breach of any covenant, obligation or undertaking of UCB under this Agreement, (ii) any breach or inaccuracy of any representation or warranty made by UCB hereunder, (iii) any non-conformity of Product to the Product Warranty; (iv) any Product supplied under Section 8 that is not Manufactured in accordance with GMP or did not conform with the then current specification for the Product; (v) at the time of receipt of the same by or on behalf of Dermira, any Sample supplied by UCB for use by Dermira in accordance with the terms of this Agreement was not Manufactured in accordance with GMP or did not conform with then current specification for such Sample, (vi) any breach or violation of any Applicable Law by any of UCB or its Affiliates, or any of their respective officers, directors, Sales Representatives, employees, or agents; or (vii) UCBs development or commercialisation of the Product outside the scope of the collaboration between the
Parties under this Agreement (collectively, UCB Responsible Parties ) in connection with the activities contemplated by this Agreement or any negligent act or omission of any UCB Responsible Party. The foregoing notwithstanding, UCB shall under no circumstances be obligated to indemnify, defend or hold harmless any Dermira Indemnified Party if and to the extent that the relevant Damages are directly or indirectly caused by or arise out of the negligence, wilful misconduct, breach of this Agreement, or breach of any Law applicable to any Commercialisation or Development of the Product by Dermira Responsible Parties.
16.3 Promptly after receipt by a Party of notice, or such Party otherwise becoming aware, of any actual or potential claim by a Third Party which could give rise to a right to indemnification pursuant to Section 16.1 or Section 16.2 (each, a Third Party Claim ), such Party shall promptly give the other Party written notice describing the Third Party Claim in reasonable detail. The indemnified Party shall not take any action that impairs the defence of any Third Party Claim by the indemnifying Party. The failure or delay of a Party to give notice in the manner provided herein shall not relieve the indemnifying Party of its obligations under this Section 16 , except to the extent that such failure or delay to give notice materially prejudices the indemnifying Partys ability to defend such Third Party Claim.
(a) The indemnifying Party shall have the right, exercisable by written notice to the indemnified Party within [*] Business Days of receipt of notice of the commencement of or assertion of any Third Party Claim, to assume the defence of such Third Party Claim. Following such notice, the indemnifying Party shall, at its sole cost and expense, assume and conduct such defence, with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party. However, if no such notice is given then the indemnified Party shall be entitled to retain control of the defence of such Third Party Claim at its own expense.
(b) If the indemnifying Party undertakes to defend any Third Party Claim as provided in Section 16.3(a) above, the indemnified Party agrees to reasonably cooperate with the indemnifying Party and its counsel in the defence of such Third Party Claim, including by furnishing such records, information and testimony and attending such conferences, discovery proceedings, hearings, trials or appeals as may reasonably be requested by the indemnifying Party. All reasonable costs and expenses incurred in connection with such cooperation shall be borne by the indemnifying Party. The indemnified Party shall have the right to participate in (but not control) and be represented by its own counsel (at the indemnified Partys own expense) in connection with such Third Party Claim.
(c) If the indemnifying Party does not defend the Third Party Claim, or fails to notify the indemnified Party of its election to defend as herein provided, the indemnified Party shall have the right, at its option, to defend such Third Party Claim by counsel of its choice and its reasonable costs and expenses for such
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Third Party Claim shall be included as part of the indemnification obligation of the indemnifying Party hereunder.
(d) Notwithstanding the foregoing, neither Party may settle or compromise any Third Party Claim without the other Partys prior written consent which would: (i) commit the other Party to take, or to forbear to take, any action; (ii) subject the other Party to an injunction; (iii) constitute an admission of guilt or liability by the other Party; or (iv) impose any financial liability on the other Party.
(e) The Parties shall in all cases reasonably cooperate in the defence of any Third Party Claims and each Party shall make reasonably available to the other Party any books, records or other documents within its control that are reasonably necessary or appropriate for such defence. Notwithstanding anything to the contrary in this Section 16.3, the Party conducting the defence of a Third Party Claim shall (i) keep the other party informed on a reasonable and timely basis as to the status of the defence of such Third Party Claim, and (ii) conduct the defence of such Third Party Claim in a prudent manner.
(f) The amount of any Damages for which indemnification is provided under Section 16.1 or Section 16.2 shall be reduced by any insurance proceeds received or other amounts actually recovered, if any, by the indemnified Party with respect to such Damages, provided , however, that the indemnified Party shall not be subject to an obligation to pursue an insurance claim relating to any Damages for which indemnification is sought hereunder.
16.4 LIMITATION ON LIABILITY: IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES CONSTITUTING LOST PROFITS UNDER THIS AGREEMENT OR ANY OTHER AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, EXCEPT TO THE EXTENT OF ANY SUCH DAMAGES PAID TO A THIRD PARTY AS PART OF AN INDEMNIFICATION CLAIM HEREUNDER.
16.5 Nothing in this Agreement shall have the effect of excluding or limiting any liability for death or personal injury caused by negligence, or for fraud.
16.6 During the Term, the Parties will, each for its respective responsibility, secure and maintain a comprehensive general liability insurance policy providing sufficient coverage for personal injury (including as a result of product liability) and property damage at a level as is usual and customary in the pharmaceutical industry to procure. A certificate with regard to said policies will be delivered to the other Party on request.
17. CONFIDENTIALITY
17.1 Except as set forth in this Section 17, for the Term of this Agreement and for a period of [*] years following expiry or termination of this Agreement, each Party shall and shall cause its officers, directors, employees and agents to, keep completely
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confidential and not publish or otherwise disclose, nor use except as is reasonably necessary for the performance of its obligations or the exercise of its rights under this Agreement, any Information, Materials or UCB Materials provided or deemed to be provided by one Party (the Disclosing Party ) to the other Party (the Receiving Party ) under or in connection with this Agreement ( Confidential Information ).
17.2 Notwithstanding Section 17.1, Information shall not include any Information which the Receiving Party can establish:
(a) is already lawfully possessed by the Receiving Party without any obligations of confidentiality or restrictions on use prior to receiving it from the Disclosing Party, as documented by prior written records; or
(b) is or becomes public knowledge or is in the public domain other than by breach of this Section 17 by the Receiving Party; or
(c) is obtained subsequently by the Receiving Party from a Third Party without any obligations of confidentiality with respect to such information and such Third Party is in lawful possession of such information and not in violation of any contractual or legal obligation to maintain the confidentiality of such information; or
(d) has been developed by the Receiving Party independently of any access to or use of any Confidential Information disclosed hereunder, as documented by the Receiving Partys written records.
17.3 The Receiving Party may disclose any part of the Confidential Information of the Disclosing Party (including the terms of this Agreement) to the extent such Confidential Information is disclosed:
(a) in the case of both Parties:
(i) subject to Section 17.4, to comply with Applicable Law (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities or stock exchange) and with judicial process, if, in the reasonable opinion of the Receiving Partys counsel, such disclosure is necessary for such compliance; provided that the Receiving Party shall promptly notify the Disclosing Party of any intended disclosure and shall provide the Disclosing Party with a copy of the Confidential Information which the Receiving Party intends to disclose not less than [*] Business Days (or such shorter period of time as may be required, under the circumstances, to comply with Applicable Law, but in no event less than [*] Business Days) prior to such disclosure and provided that the Receiving Party shall, prior to such disclosure, use commercially reasonable efforts to obtain confidential treatment of such of the Confidential Information that the Disclosing Party requests be kept confidential; or
(ii) solely on a need to know basis, to its Affiliates, to its (actual or potential) Third Party acquirers or assignees under Section 19, to
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licensors of UCB or its Affiliates with respect to the Product, to Third Party subcontractors (and their advisors), to Third Party subcontractors involved in Development, Medical Affairs activities assigned to Dermira under the Medical Affairs Plan or Dermira Commercial Activities, and to accountants and legal advisors and each of the Parties respective directors, employees, contractors and agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Section 17 (potentially with a shorter duration provided that the Receiving Party shall use Commercially Reasonable Efforts to seek and include in the relevant confidentiality agreement obligations of confidentiality and non-use lasting for a period of [*] Calendar Years after the termination and/or expiration of the applicable confidentiality agreement and provided that in no event shall the obligations of confidentiality and/or non-use in any such confidentiality agreement be of a duration less than [*] Calendar Years after the termination and/or expiration of the applicable confidentiality agreement ), provided , however, that the Receiving Party shall remain responsible for any failure by any Third Party who receives Confidential Information pursuant to this Section 17.3(a)(ii) to treat such Confidential Information as required under this Section 17, and provided further that no such disclosure shall be made to any Third Party involved in the Development or Commercialisation of any Competing Products; and
(b) solely in the case of UCB:
(i) to any relevant patent office in preparing, filing, prosecuting and maintaining patents in accordance with the provisions of Section 14;
(ii) to Regulatory Authorities in order (i) to obtain authorizations to conduct any Clinical Studies in relation to the Product, or (ii) to file, obtain and maintain Regulatory Approvals in respect of the Product, or (iii) to Develop, Commercialise or Manufacture the Product, in each case in accordance with this Agreement; or
(iii) for prosecuting or defending litigation or in establishing rights (whether through declaratory actions or other legal proceedings) or enforcing obligations under this Agreement; and
(c) Solely in the case of Dermira:
(i) with respect to the terms of this Agreement, to actual or potential investors, other sources of financing, investment bankers and/or other financial advisors in connection with any actual or proposed financing and/or public offering of Dermira or any of its Affiliates, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use substantially similar to the obligations set forth in this Section 17 (but with a duration of confidentiality and
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non-use obligation no less than [*] years after the date of the applicable confidentiality agreement) ;
(ii) if applicable, to Regulatory Authorities as set forth in the Regulatory Responsibilities Matrix or otherwise as required to conduct Dermiras activities under this Agreement; or
(iii) for prosecuting or defending litigation or in establishing rights (whether through declaratory actions or other legal proceedings) or enforcing obligations under this Agreement.
17.4 If and whenever any Confidential Information is disclosed in accordance with Section 17.3, such disclosure shall not cause any such Information to cease to be Confidential Information, except to the extent that such disclosure results in a public disclosure of such Information (otherwise than by breach of this Agreement). Where reasonably possible and subject to Section 17.6 and other than pursuant to Section 17.3(a)(ii) and (c)(i), the Receiving Party shall:
(a) give the Disclosing Party reasonable advance notice of the Receiving Partys intent to make such disclosure pursuant to Section 17.3, to the extent practicable; and
(b) provide reasonable co-operation to the Disclosing Party regarding the timing and content of such disclosure and regarding any action which the Disclosing Party may deem appropriate to protect the confidentiality of the information by appropriate legal means, to the extent practicable.
17.5 Subject to Section 17.3, the Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties.
17.6 If either Party determines that it is required to file with the securities regulators of any country or jurisdiction in the Territory a registration statement or any other required disclosure document which describes any of the terms and conditions of this Agreement, such Party shall promptly notify the other Party of such intention. The Party required to file shall provide such other Party with a copy of relevant portions of the proposed filing not less than [*] Business Days (or such shorter period of time as may be required, under the circumstances, to comply with Applicable Law, but in no event less than [*] Business Days) prior to such filing (and, for any revisions to such portions of the proposed filing, a reasonable time prior to the filing thereof), including any exhibits thereto relating to the terms and conditions of this Agreement. The Party required to file shall use commercially reasonable efforts to obtain confidential treatment of the terms and conditions of this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which it is advised by legal counsel is legally required to be disclosed in order to comply. No such notice shall be required under this Section 17.6 if and to the extent that the specific information contained in the proposed filing has previously been included in any previous filing or disclosure made by either Party hereunder pursuant to this Section 17, or is otherwise approved in advance in writing by the other Party.
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17.7 This Agreement supersedes the Confidentiality Agreement, provided that any and all Confidential Information (as defined in the Confidentiality Agreement) that was disclosed or received by the Parties prior to the Effective Date shall be deemed to be Confidential Information that was disclosed pursuant to this Agreement and shall be subject to the terms and conditions of this Agreement.
17.8 Upon the expiration or termination of this Agreement, and upon written notice by the Disclosing Party, the Receiving Party shall, at the discretion of the Disclosing Party, either: (a) return to the Disclosing Party; or (b) destroy (or permanently delete in the case of Confidential Information held electronically to the extent technically feasible or practicable) and provide evidence of such destruction, all originals, copies, summaries and other tangible manifestations of Confidential Information of the Disclosing Party in the possession of the Receiving Party; provided that, the Receiving Party may maintain one (1) copy of Confidential Information in its legal files to monitor any continuing rights or obligations under this Agreement.
17.9 Save for the licence granted to Dermira pursuant to Section 14.2, neither Party shall make use of the other Partys name, Trademarks, logos or any information acquired through its dealings with the other Party for publicity or marketing purposes without the prior written consent of the other Party (such consent not to be unreasonably withheld or delayed).
17.10 Neither Party shall issue any press release, including the Press Release, or other similar public communication relating to this Agreement, its subject matter or the transactions covered by it, or the activities of the Parties under or in connection with this Agreement, without the prior written approval of the other Party, except (a) for communications required by Applicable Law as reasonably advised by the issuing Partys counsel (provided that the other Party is given a reasonable opportunity to review and comment on any such press release or public communication in advance thereof to the extent legally permitted and the issuing Party shall act in good faith to incorporate any comments provided by the other Party on such press release or public communication), (b) for information that has been previously disclosed publicly or (c) as otherwise set forth in this Agreement. The Parties have agreed to issue a joint press release promptly after the Commencement Date, in the form to be mutually agreed by the Parties in writing.
18. CHANGE OF CONTROL
18.1 First Right of Negotiation. Promptly after (a) Dermira receives a term sheet from a Non-Competitor Company proposing a Change of Control for which Dermiras board of directors desires to pursue negotiations, or (b) if Dermiras board of directors intends to initiate a process for the purpose of soliciting proposals for a Change of Control, Dermira shall notify UCB in writing (the M&A Notice ). In the case of sub-Section (a), the M&A Notice shall not be required to identify the party from whom Dermira received the term sheet nor any of its proposed terms, nor in the case of sub-Section (b) shall the M&A Notice specify the Third Parties who Dermira intends to contact nor any
proposed terms or processes with respect to such a solicitation or transaction. In the event UCB has a bona fide interest to consummate a Change of Control of Dermira, then UCB may provide Dermira with written notice of such interest within five (5) Business D ays of receiving the M&A Notice, in which event Dermira and UCB will negotiate in good faith potential terms and conditions for such a potential transaction, and for a period of twenty (20) Business D ays after receiving UCBs notice of interest, Dermira will not enter into any binding agreement with a Third Party that would prevent Dermira from entering into a definitive agreement providing for a Change of Control with UCB during such period. Following such initial twenty (20 ) Business D ay period, Dermira shall have no further obligations to UCB pursuant to this Section 18.1 with respect to such transaction. This Section 18.1 shall terminate upon the first to occur of (i) the closing of a public offering of Dermiras common stock under the Securities Act of 1933, as amended, (ii) the registration of any of Dermiras securities under the Securities Exchange Act of 1934, as amended, (iii) immediately prior to the consummation of a Change of Control of Dermira and (iv) the termination of this Agreement for any reason.
18.2 Qualified Non-Compet itor Company. If Dermira consummates a Change of Control with a Qualified Non- Competi tor Company, then one of the following shall apply:
(a) if such Change of Control occurs prior to the date of the grant of first Regulatory Approval for the Product in the Development Indication in the Development Territory and provided Dermira (or the successor entity after such Change of Control transaction, as applicable) provides written confirmation within [*] after the closing of such Change of Control transaction, that Dermira (or the successor entity after such Change of Control transaction, as applicable) undertakes to continue , and to continue to pay for the costs and expenses of, Development in accordance with the terms of this Agreement, then this Agreement shall remain in full force and effect on its original terms;
(b) if such Change of Control occurs prior to the date of the grant of first Regulatory Approval for the Product in the Development Indication in the Development Territory and Dermira (or the successor entity after such Change of Control transaction, as applicable) does not provide written confirmation within [*] after the closing of such Change of Control transaction that Dermira (or the successor entity after such Change of Control transaction, as applicable) undertakes to continue , and continue to pay for the costs and expenses of, Development in accordance with the terms of this Agreement then UCB shall have the right to terminate this Agreement pursuant to Section 20.6(b) .
if such Change of Control occurs after the date of grant of first Regulatory Approval for the Product in the Development Indication in the Development Territory, this Agreement will, subject to the continued performance of this Agreement by Dermira (or the successor entity after such Change of Control transaction, as applicable), remain in full force and effect in accordance with its terms.
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18.3 Change of Control - Competi tor Company or Non-Qualified Non-Competitor Company. If Dermira consummates a Change of Control with a Third Party which is Competitor Company or a Non-Qualified Non-Competitor Company, then UCB shall have the right to terminate this Agreement pursuant to Section 20.6(a).
19. ASSIGNMENT
19.1 This Agreement will inure to the benefit of and be binding upon the Parties and their respective lawful successors and permitted assigns.
19.2 Dermira shall not, without the prior written consent of UCB, assign, transfer, mortgage, charge or declare a trust of any of its rights or obligations under this Agreement; provided that Dermira may assign this Agreement without any requirement for consent by UCB: (i) to an Affiliate; (ii) to a Qualified Non-Competitor Company, if Dermira provides the written confirmation pursuant to Section 18.2(a); or (iii) to a Non-Qualified Non-Competitor Company or to a Competitor Company in the event UCB does not exercise its termination right under Section 18.3, provided that Dermira shall remain liable for the performance or non-performance of its obligations under this Agreement by such Affiliate or such permitted assignee, as applicable .
19.3 UCB may assign this Agreement without any requirement for consent by Dermira to (i) an Affiliate or (ii) its successor in interest as a result of any merger, consolidation, or sale of all or substantially all of its assets or that portion of its business pertaining to the subject matter of this Agreement provided that in each case, UCB shall remain liable for the performance or non-performance of its obligations under this Agreement by such Affiliate or such permitted assignee, as applicable.
20. TERM AND TERMINATION
20.1 Subject to Section 2, t his Agreement shall come into force on the Effective Date and, unless terminated earlier in accordance with this Section 20, shall remain in force until six (6) Calendar Months following th e twelfth (12 th ) anniversary of first Launch , after which date this Agreement shall terminate (the Term ).
20.2 Neither Party shall have the right to terminate this Agreement for non-material breach of any right or obligation set out herein or breach that can be substantially remedied by the award of monetary damages to the non-breaching Party (collectively, the Non-Material Breaches ), and any such claim for Non-Material Breach by a Party, if not remedied within [*] of receipt by the Party allegedly in default of the written notice given by the Party claiming default (such notice specifying the Non-Material Breach and requiring its remedy), such claim for Non-Material Breach shall be settled in the first instance pursuant to the escalation procedures between the Parties up to the level of Senior Executives as set out in this Agreement, and, in the absence of resolution of such dispute by such Senior Executives, shall be referred for final determination though arbitration pursuant to Section 23 as a Dispute,
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where the arbitrator shall not award the right of termination to the Party alleging such Non-Material Breach regardless of the outcome of such Dispute resolution.
20.3 If, prior to the Long-Stop Date, the conditions precedent set out in Section 2.2 are not met or otherwise satisfied in full by the Long-Stop Date, or if either Party terminates this Agreement pursuant to Section 5.1(d), or if Dermira terminates this Agreement pursuant to Section 5.2, this Agreement shall terminate with immediate effect and otherwise cease to have any further force and the provisions of Section 21.1 shall apply.
20.4 Either Party may terminate this Agreement for breach of this Agreement by the other Party other than a Non-Material Breach, immediately on written notice to the other Party if the other Party is in material breach and such material breach is not remedied within [*] of such Party receiving notice specifying the material breach and requiring its remedy, and the consequences of termination as set out in Section 21.2 (in the case of termination by UCB) and Section 21.4 (in the case of termination by Dermira) shall apply; provided that (a) the Senior Executive of the Party intending to provide such written notice for breach (the Notifying Party ) shall first contact the Senior Executive of the other Party (the Notified Party ), so that such Senior Executives will have the opportunity to discuss orally and attempt to resolve such matter, further provided that the Notifying Party shall have the right to provide to the Notified Party such written breach notice by the end of the [*] after the first discussion between such Senior Executives under this subsection (a) if such Senior Executives have not resolved the matter to the satisfaction of the Notifying Party; and (b) in the event the alleged breaching Party in good faith disputes the basis for such alleged breach, then such termination shall not become effective unless and until the dispute is resolved pursuant to Section 23 in favour of the Party alleging such breach. The Parties acknowledge that the termination of this Agreement for a Partys material breach of its material obligations shall be a remedy of last resort, and neither Party shall invoke such termination right if remedies other than termination may be obtained. Notwithstanding the foregoing, in the event: (i) Dermira is [*] under Section [*] in connection with the [*] Dermira Commercial Activities and/or Medical Affairs activities; and (ii) Dermira [*] constituting [*] after it receives a written notice of [*] as the reason for such [*] the Dermira Commercial Activities and/or Medical Affairs activities by written notification to Dermira and [*] shall be effective for [*] or until Dermira [*], whichever is shorter.
20.5 Either Party may terminate this Agreement for insolvency of the other Party immediately on written notice to the other if the other Party files for protection under bankruptcy or insolvency laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver, administrator, manager, trustee or like official over its property that is not discharged within [*] Business Days, proposes or is a party to any dissolution, winding-up or liquidation, files a petition
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under any bankruptcy or insolvency act or has any such petition filed against it which involuntary petition is not discharged within [*] Business Days of the filing thereof or undergoes or suffers any analogous event or process in any jurisdiction, and the consequences of termination as set out in Section 21.2 (in the case of termination by UCB) and Section 21.4 (in the case of termination by Dermira) shall apply.
20.6 UCB may terminate this Agreement at any time on [*] Business Days notice to Dermira if:
(a) Dermira should complete a Change of Control transaction with a Competi tor Company or Non-Qualified Non-Competitor Company as set out in Section 18.3; or
(b) Dermira should complete a Change of Control transaction with a Qualified Non- Competi tor Company and the provisions of Section 18.2(b) should apply; or
(c) Dermira is in breach of Sections 12.1 or 12.3; or
(d) as outlined in Section 4.27, UCB should determine that, having conducted a n SSAR in accordance with UCBs Safety Process, a validated safety signal has been established the magnitude of which UCB determines constitut es a significant patient risk so that the Development or Commercialisation of the Product should cease, in which case the provisions of Section 21.3 shall apply.
20.7 Dermira may terminate this Agreement at any time on [*] Business Days notice to UCB if :
(a) UCB is in breach of Sections 12.2 or 12.4; or
(b) Dermira has the right to terminate this Agreement for the reasons set out in Section [*] .
20.8 Dermira may terminate this Agreement at any time after both Parties have received the complete data set used to assess the primary efficacy endpoint of the first Phase 3 Clinical Study , such termination being effective [*] Business Days following the receipt by UCB of Dermiras written notice of its intention so to terminate.
20.9 A Partys right of termination under this Agreement, and the exercise of any such right, shall be without prejudice to any other right or remedy (including any right to claim damages) that such Party may have under this Agreement.
21. EFFECT OF TERMINATION
21.1 If this Agreement should terminate pursuant to Section 20.3, any and all rights and obligations that entered into force pursuant to Section 2.1 shall terminate immediately, neither Party shall have any further rights or obligations under this Agreement, each Party shall be responsible for its own costs and expenses incurred in relation to the transaction contemplated by this Agreement up to the date of such termination, and
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termination of this Agreement shall not entitle either Party to make any claim or demand of any nature on the other Party. Upon such termination, each Party shall return to the other Party, or, at the other Partys election, destroy, the other Partys Confidential Information, and Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Regulatory Documentation, data and records, Materials, Study Documentation Product Literature provided by UCB pursuant to Section 6 or otherwise prior to the Long-Stop Date.
21.2 On termination of this Agreement by UCB pursuant to Section s 20.4, 20.5, 20.6(a), 20.6(b), or 20.6(c) :
(a) the rights and licences granted by UCB to Dermira pursuant to Section 14 shall terminate immediately; and
(b) Dermira shall cease, and shall cause its Third Party subcontractors to cease, all Development , Medical Affairs activities and/or Dermira Commercial A ctivities and the use of all documentation relating to the same; and
(c) Dermira shall, at Dermiras sole cost and expense, assist UCB in accordance with UCBs reasonable instructions, in the implementation of the Development Transition Plan and/or the Commercial Transition Plan, in order to effectuate a smooth, orderly, successful and complete transition by Dermira of the Development of the Product in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating t o the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory, such completion to have occurred within [*] Business Days of the date of receipt by Dermira of UCBs notice to terminate subject to UCBs cooperation to do so, and thereafter Dermira shall cease, and shall ensure that its Third Party subcontractors shall cease, all activities relating to the Development of the Development Product in the Development Territory , Medical Affairs activities and/or the Dermira Commercial Activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory; and
(d) if such termination occurs prior to the grant of Regulatory Approval for the Development Indication and subject to the transition of the Development of the Development Indication to UCB in accordance with Section 21.2(c), Dermira shall continue to pay all the external costs and expenses (as well as any internal costs and expenses to the extent set forth in the JDC-Approved Development Budget existing as of the date of such termination as to be incurred by UCB and reimbursed by Dermira) incurred by or on behalf of UCB in accordance with the Development Plan included in the JDC-Approved Development Budget up to completion, or the date of termination by UCB, of such Development, provided that (i) UCB shall remain responsible for its share of the Paediatric Plan under Section 5.4(d), its sole responsibility to fund any EMA-Specific Post-Approval Studies under Section 5.4(e) and its share of the Development Costs above the Cap, and (ii) at any time UCB (by itself of through its Affiliates or licensees) achieves a milestone event that, if achieved by or on behalf of Dermira would
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have triggered a milestone payment from UCB to Dermira under Section 10.2 if this Agreement had not been terminated, UCB shall deduct the amount of such milestone payment from the amount of Development Costs invoiced by UCB to Dermira for reimbursement in accordance with Section 10.13, for the Calendar Month during which such milestone is achieved and for any subsequent Calendar Months until the total amount of such milestone payment has been fully deducted from such invoiced Development Costs; and
(e) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Study Documentation Product Literature, Promotional Materials; and
(f) Dermira shall cease to use and shall return to UCB , or, at UCB s election, destroy, UCBs Confidential Information; and
(g) solely to the extent necessary or useful to UCB in its continued Development and Commercialisation of the Product in the Development Indication and/or the Promotion Indication throughout the Territory, UCB shall have the right, subject to Section 17, to use any Confidential Information of Dermira disclosed to UCB pursuant to this Agreement; and
(h) all rights and licences granted by Dermira to UCB pursuant to Section 14 shall continue in full force and effect; and
(i) from the date of termination and provided always that Dermira has complied in all material respects with its obligations pursuant to this Section 21.2 , UCB shall:
(i) if such termination occurred prior to the grant of Regulatory Approval, reimburse Dermira for its documented costs and expenses actually incurred in accordance with and as set out in the JDC-Approved Development Budget which are properly incurred in connection with the Development of the Development Indication (undertaken by Dermira as at the date of termination or paid by Dermira post-termination under subsection (d) above) by making to Dermira a payment of [*] percent ( [*] %) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such costs and expenses have been reimbursed, provided always that UCB shall have the right to first deduct from the total amount of such costs and expenses payable to Dermira an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2; or
(ii) if such termination occurred following the grant of Regulatory Approval and UCB has, prior to the date of termination, made payments to Dermira pursuant to Sections 10.5 and 10.7, UCB shall make a payment to Dermira of the difference between (A) its documented costs and expenses actually incurred in accordance with and as set out in the JDC-Approved Development Budget which are
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properly incurred in connection with the Development of the Development Indication (undertaken by Dermira as at the date of termination or paid by Dermira post-termination under subsection (d) above) minus the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2, and (B) the payments already made by UCB to Dermira pursuant to Sections 10.5 and 10.7 to the extent and only to the extent that total of the payments made in (B) is less than the amount in (A); such payment to be made to Dermira at a rate of [*] percent ([*] %) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such payment has been made in full.
21.3 On termination of this Agreement by UCB pursuant to Section 20.6(d):
(a) the rights and licences granted by each Party to the other Party pursuant to Section 14 shall terminate immediately; and
(b) Dermira shall cease, and shall cause its Third Party subcontractors to cease, all Development , Medical Affairs activities and/or Dermira Commercial A ctivities and the use of all documentation relating to the same, and thereafter Dermira shall have no obligation to incur any Development and Commercial Transition Costs whatsoever; and
(c) UCB shall reimburse Dermira for (i) its documented costs and expenses which were properly incurred in connection with the Development in accordance with the JDC-Approved Development Budget and its documented external costs and expenses actually incurred or to be incurred due to any committed and uncancellable Third Party agreements entered into by Dermira prior to the date of notification of such termination and which directly relate solely to the Development of the Development Indication, as accounted for in the JDC-Approved Development Budget, already undertaken or, but for such termination, would have been undertaken by Dermira , and (ii) its documented external costs and expenses directly and actually incurred in connection with the JCC-approved Dermira Commercial Activities and Medical Affairs activities, in each case (i) and (ii) by making to Dermira a payment of [*] percent ([*] %) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such costs and expenses have been reimbursed, provided always that UCB shall have first deducted from the total amount of such costs and expenses payable to Dermira an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2 ; and
(d) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Study Documentation, Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Product Literature, Promotional Materials; and
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(e) each Party shall return to the other Party, or, at the Partys election, destroy, the relevant Partys Confidential Information; and
(f) UCB shall no longer Develop or Commercialise, itself, or through a Third Party, the Product in the Development Indication in any country within the Territory; and
(g) from the date of termination and subject to Section 21.3(c) , Dermira shall receive no further payments of any kind, whether pursuant to Section 10 or otherwise from UCB.
21.4 On termination of this Agreement by Dermira pursuant to Section s 20.4, 20.5 or 20.7 :
(a) the rights and licences granted by each Party to the other Party pursuant to Section 14 shall terminate immediately; and
(b) UCB shall pay to Dermira an amount equal to the greater of (A) the Fair Market Value or (B) if such termination is effective prior to the Parties receipt of the complete data set used to assess the primary efficacy endpoint of the first Phase 3 Clinical Study, [*] per cent ([*]%) of (i) Dermiras documented external costs and expenses in accordance with the JDC-Approved Development Budget and internal and out of pocket costs and expenses which are actually incurred or to be incurred due to any committed and uncancellable costs under Third Party agreements entered into by Dermira prior to the date of notification of such termination and which costs directly relate to the Development of the Development Indication, (ii) Dermiras documented external costs and expenses directly and actually incurred in connection with the JCC-approved Dermira Commercial Activities and Medical Affairs activities included in the Commercialisation Plan and endorsed by the JCC or the Medical Affairs Plan, (iii) Dermiras documented internal costs directly and actually incurred in connection with Dermiras performance of the Development Transition Plan and/or the Commercial Transition Plan, and (iv) the documented Disruption and Transition Costs (to the extent not already accounted for in or otherwise paid by UCB) the aggregate amount under such clause (B), the Floor ) , and in either case of (A) or (B), increased by the Tax Gross-Up Payment, such payment being made by UCB within [*] Business Days of the determination of the greater amount in subsection (A) or (B) above, and provided always that UCB shall have the right to first deduct from such payment to Dermira under subsection (B) above (but not subsection (A) above) an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2; and
(c) Dermira shall cease, and shall cause its Third Party subcontractors to cease, all Development and the use of all documentation relating to the same; and
(d) Dermira shall, at UCB s sole cost and expense, assist UCB in accordance with UCBs reasonable instructions, subject to UCBs reasonable cooperation, in the implementation of the Development Transition Plan and/or the Commercial Transition Plan, in order to effectuate a smooth, orderly, successful and
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complete transition by Dermira of the Development of the Product in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating t o the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory, such completion to have occurred within [*] Business Days of the date of receipt by UCB of Dermira s notice to terminate, and thereafter Dermira shall cease, and shall ensure that its Third Party subcontractors shall cease, all activities relating to the Development of the Development Product in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory; and
(e) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Study Documentation, Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Study Documentation Product Literature, Promotional Materials; and
(f) Each Party shall cease to use and shall return to the other Party , or, at the other Party s election, destroy, the other Partys Confidential Information .
21.5 On termination of this Agreement by Dermira pursuant to Section 20.8:
(a) the rights and licences granted by UCB to Dermira pursuant to Section 14 shall terminate immediately; and
(b) Dermira shall, at UCBs election and at Dermiras sole cost and expense:
(i) pay all costs and expenses associated with the wind down of all Clinical Studies related to the Product in the Development Indication in the Development Territory which are on-going at the date of receipt by UCB of Dermiras notice of termination pursuant to Section 20.8; or
(ii) if UCB elects to continue to Develop and/or Commercialise the Product in the Development Indication:
(A) assist UCB in accordance with UCBs reasonable instructions, in the implementation of the Development Transition Plan and/or the Commercial Transition Plan, in order to effectuate a smooth, orderly , successful and complete transition by Dermira of the Development of the Product in the Development Territory and/or the Dermira Commercial Activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory, such completion to have occurred within [*] Business Days of the date of receipt by UCB of Dermiras notice to terminate subject to UCBs cooperation to do so , and thereafter Dermira shall cease, and shall ensure that its Third Party subcontractors shall cease, all activities relating to the Development of the Development Product in the Development Territory and/or the Dermira Commercial Activities relating to the Product in the
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Development Indication and/or the Promotion Indication in the Promotion Territory; and
(B) continue to pay all the external costs and expenses (as well as any internal costs and expenses to the extent set forth in the JDC-Approved Development Budget existing as of the date of such termination as to be incurred by UCB and reimbursed by Dermira) incurred by or on behalf of UCBin accordance with the Development Plan up to the JDC-Approved Development Budget up to completion, or the date of termination by UCB, of all Clinical Studies of the Product for the Development Indication in the Promotion Territory that are ongoing on the date of termination, in accordance with the cost reimbursement procedure set forth in Section 10.13, provided that (i) UCB shall remain responsible for its share of the Paediatric Plan under Section 5.4(d), its sole responsibility to fund any EMA-Specific Post-Approval Studies under Section 5.4(e) and its share of the Development Costs above the Cap, and (ii) at any time UCB (by itself of through its Affiliates or licensees) achieves a milestone event that, if achieved by or on behalf of Dermira would have triggered a milestone payment from UCB to Dermira under Section 10.2 if this Agreement had not been terminated, UCB shall deduct the amount of such milestone payment from the amount of Development Costs invoiced by UCB to Dermira for reimbursement, for the Calendar Month during which such milestone is achieved and for any subsequent Calendar Months until the total amount of such milestone payment has been fully deducted from such invoiced Development Costs; and
(c) Dermira shall cease to use and shall return to UCB, or, at UCBs election, destroy all Study Documentation, Regulatory Documentation, data and records provided by UCB pursuant to Section 6, Materials, Study Documentation Product Literature, Promotional Materials; and
(d) Dermira shall cease to use and shall return to UCB , or, at UCB s election, destroy, UCBs Confidential Information; and
(e) solely to the extent necessary or useful to UCB in its continued Development and Commercialisation of the Product in the Development Indication and/or the Promotion Indication throughout the Territory, UCB shall have the right, subject to Section 17, to use any Confidential Information of Dermira disclosed to UCB pursuant to this Agreement; and
(f) all rights and licences granted by Dermira to UCB pursuant to Section 14 continue in full force and effect; and
(g) provided that Dermira has complied in all material respects with its obligations pursuant to this Section 21.5 , in the event UCB (by itself or through any of its Affiliates or licensees) obtains Regulatory Approval for the Product for use in
the Development Indication, UCB shall reimburse Dermira for (i) its documented external costs and expenses in accordance with the JDC-Approved Development Budget which are actually incurred or to be incurred due to any committed and uncancellable costs under Third Party agreements entered into by Dermira prior to the date of notification of such termination and which costs directly relate to the Development of the Development Indication, (ii) the costs and expenses referred to in Section 21.5(b)(ii)(B) , in each case of (i) and (ii) by making to Dermira a payment of [*] percent ([*]%) of the net sales actually received by UCB from the sale of the Product in the Promotion Territory in all indications until such time as such costs and expenses have been reimbursed, provided always that UCB shall have the right to first deduct from the total amount of such costs and expenses payable to Dermira an amount equal to the total of all development milestone payments made by UCB to Dermira pursuant to Section 10.2. For the avoidance of doubt, UCB shall have no obligation whatsoever to make any of the Development milestone payments to Dermira identified in the table in Section 10.2 as Milestone Numbers 5a, 5b, 5c, 5d and 5e.
21.6 Study Subject Information. Notwithstanding the termination of this Agreement, each Party shall maintain the confidentiality of each study subjects medical or other personal information in accordance with the obligations of non-disclosure and non-use set forth in Section 17 of this Agreement and shall, in addition, comply with all Applicable Laws with respect to the collection, use, transfer, storage, deletion, processing (both by computer and manually), combination or other use of subject or other personal data as contemplated by applicable data protection or privacy laws of all data relating to any participant in, or applicant wishing to participate in, a Clinical Study, including with Health Insurance Portability and Accountability Act of 1996, Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations and any applicable state or foreign data privacy laws (collectively, Privacy Laws ). Each Party agrees to take all such steps as the other Party may reasonably request from time to time in order to permit the other Party to comply with any notification obligation applicable to the other Party or its Affiliates under Privacy Laws relevant to activities undertaken hereunder.
21.7 Fair Market Value.
(a) If UCB is required to make payment to Dermira under Section 21.4(b) , Fair Market Value shall be determined as the amount that a willing buyer would pay to a willing seller in an arms length transaction for all of Dermiras rights under this Agreement, plus an amount which equals the documented D isruption and T ransition C osts incurred and subsequent adjustments for documented future costs up to [*] Calendar Year after the determination of Fair Market Value for additional costs incurred and reimbursed when paid , by Dermira by reason of the termination of its rights to Develop and undertake Dermira Commercial Activities and Medical Affairs activities in relation to the Product, in each case in accordance with its obligations under this Agreement .
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(b) When determining Fair Market Value, (x) the Parties, acting reasonably and in good faith, shall attempt to reach agreement on values for, and (y) if such dermination is subject to the dispute resolution mechanism set forth in Section 23.2, the arbitrator shall be required to utilize:
(i) the then-current net present value of all rights of Dermira under this Agreement (assuming no termination of this Agreement during the Term, no discount for UCBs rights of termination hereunder, no un-remedied non-material breaches of the Agreement by Dermira and, in the case of termination by Dermira arising in accordance with Section 20.4 or 20.7, based on the assumption that UCB had never, in the case of Section 20.4 or 20.7(a), breached this Agreement, or in the case of Section 20.7(b), [*]) and assuming:
(A) one hundred percent (100%) likelihood of Regulatory Approval in the Development Indication in the Promotion Territory being obtained (unless the FDA has already commenced its review of the Drug Approval Application for the Product in the Development Indication in the Promotion Territory and has provided sufficient written feedback which would suggest that a one hundred percent (100%) likelihood of success is doubtful, in which case, the Parties shall agree or the arbitrator shall determine the percentage likelihood of Regulatory Approval in the Development Indication in the Promotion Territory being obtained); and
(B) a discount rate equal to [*]; and
(ii) subject to Dermiras duty to mitigate any such costs, Dermiras reasonable documented internal (including, without limitation, administration, overhead, personnel and facilities costs reasonably allocated by Dermira to its obligations pursuant to this Agreement not already accounted for in the Disruption and Transition Costs or not otherwise already paid by UCB) and external costs, in each case, incurred and subsequent adjustments for documented future costs up to [*] after the determination of Fair Market Value for additional costs incurred and reimbursed when paid, of transitioning the Development of the Product in the Development Indication in the Development Territory and/or the Dermira Commercial Activities and Medical Affairs activities relating to the Product in the Development Indication and/or the Promotion Indication in the Promotion Territory (in each case, if not already paid by UCB) to UCB. In determining the Fair Market Value, each Partys sales projections regarding the future Royalty-Bearing Sales of the Product shall be given due consideration.
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(iii) The Tax Gross-Up Payment shall be computed as described below and in a manner to minimize the income taxes incurred by Dermira, and thus the amount of the Tax Gross Up Payment, taking into account all reasonable tax mitigation strategies. The Tax Gross-Up Payment shall be an amount equal to (A) the aggregate federal, state and any other applicable income taxes or other taxes actually incurred by Dermira with respect to the receipt of Fair Market Value or the Floor, in each case, plus the Disruption and Transition Costs (after taking into account use by Dermira of available losses, usable net operating loss carryforwards and tax credits that actually offset income and taxes arising from such payment but after first applying such losses and credits to offset other net income and resulting taxes for the year(s) of payment, taking into account deductibility of certain of such taxes against federal income, taking into account any costs specifically related to this Agreement (and therefore deductible by Dermira for tax purposes), including project related capitalized costs that would reasonably result in tax deductions for Dermira in future years (e.g., capitalized research & development expenditures, etc.), and applying Dermiras actual marginal tax rates applicable to such income), and (B) such additional amount as is necessary to fully gross up Dermira for such income and other taxes as are incurred in respect of the receipt of the payments under both clause (A) and clause (B) of this sentence, so that Dermira receives a net amount under Section 21.4, after payment of such income and other taxes, that equals the amount of the payment that would have been received had no such income taxes or other taxes been incurred by Dermira in respect of such payments. The Parties agree to cooperate reasonably and consistent with the purposes of this Section 21.7 to minimize the income taxes incurred by Dermira, including providing UCB and/or its advisors reasonable access to relevant Dermira information in order for UCB to collaborate with Dermira and agree on reasonable tax mitigation strategies, and therefore the amount of the Tax Gross-Up Payment, as a result of the payments provided for under Section 21.4, provided, however, that if such cooperation of the Parties results in a transaction (such as a spin-off or corporate reorganization) which itself results in taxation either to Dermira, an Affiliate of Dermira, or the stockholders of Dermira, then the Tax Gross-Up Payment shall also include an amount to be paid to such Persons sufficient to cause the net tax costs to such Persons to be no greater than the taxes they would have paid had any consideration received by such Persons in such transaction been taxed (net of basis) at the long-term capital gains rate. Dermira shall prepare and furnish to UCB its calculation of the Tax Gross-Up Payment, together with supporting workpapers and other documentation. If UCB disagrees with such calculation, and the Parties are unable to resolve their disagreement after good faith discussions, then the
calculation of the Tax Gross-Up Payment shall be determined by an independent nationally recognized accounting firm mutually agreeable to Dermira and UCB, whose determination shall be final and binding on the Parties, and whose fees will be shared equally by them. In performing such determination, such accounting firm shall use the principles set forth in this Section 21.7 and such information regarding Dermiras tax circumstances as it may deem appropriate and request from Dermira. Further, such accounting firm shall take into account all reasonable tax mitigation strategies and opportunities to mitigate the amount of the Tax Gross-Up Payment.
(c) If the Parties are unable to agree on the Fair Market Value, the Floor, and/or the Disruption and Transition Costs (the Unresolved Amount ) within [*] Business Days following termination of this Agreement by Dermira pursuant to Sections 20.4, 20.5 or 20.7, then upon the written request of either Party the Parties shall refer the determination of such Unresolved Amount for final resolution using the baseball arbitration mechanism set forth in Section 23.2, using as the arbitrator an independent third party selected by the Parties in accordance with Section 23.2.
21.8 In the event that any payments required to be made by one Party to another pursuant to this Section 21 are not paid when due hereunder, interest not paid on the date due shall bear interest calculated and accrued at [*] from the date of payment was due. Such interest shall be accrued daily.
21.9 Sections 5.11(a), 5.11(c), 5.11(d), 5.12(b), 10.8(c)-(g), 10.10, 10.12, 10.15, 10.16, 11, 14.7, 14.8, 14.10, 14.11, 15.5, 16, 17, 21, 22, 23, 25, 26, 28, 29, 32 and 33 shall survive the expiry or termination of this Agreement.
22. WAIVER
No failure or delay by a Party to exercise any right or remedy provided under this Agreement or by law shall constitute a waiver of that or any other right or remedy, nor shall it preclude or restrict the further exercise of that or any other right or remedy. No single or partial exercise of such right or remedy by a Party shall preclude or restrict the further exercise by that Party of that or any other right or remedy.
23. DISPUTE RESOLUTION
23.1 Either Party may submit any unresolved Dispute (and any Related Claim) arising hereunder for final resolution and determination through binding arbitration in accordance with the terms set forth in this Section 23.1, which binding arbitration shall be the sole and exclusive manner of resolving any such Dispute and Related Claims. For clarity, this shall exclude any decisions made by either Party in the exercise
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pursuant to Sections 4.11 or 4.25 of its final decision making authority with respect to any matter arising hereunder, and any matters subject to resolution under Section 23.2.
(a) A Party may submit a Dispute to arbitration by notifying the other Party in writing to that effect. Any such notice shall clearly describe the specific subject matter of the Dispute as well as any Related Claims such Party wishes to raise in connection with said Dispute. Within [*] Business Days after receipt of such notice, the Parties shall designate in writing a single mutually acceptable arbitrator to resolve the Dispute and any Related Claims. If the Parties cannot agree on an arbitrator within such [*] Business Day period, the arbitrator shall be selected by the London Court of International Arbitration (the LCIA ). The arbitrator shall, in any event, be a lawyer knowledgeable and experienced in the Applicable Law concerning the subject matter of the Dispute, and shall not be a current or former employee, consultant, officer or director, nor a current stockholder, of either Party (or their respective Affiliates), or otherwise have any current or previous relationship with either Party or their respective Affiliates. The proceedings shall be conducted in accordance with the then current procedures of the LCIA and the terms of this Section 23.1, provided that in the event of any conflict between such LCIA procedures and the terms of this Section 23.1, the terms of this Section shall prevail.
(b) Within [*] Business Days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of (i) all issues within the scope of the Dispute and any Related Claims; (ii) such Partys position on each such issue; and (iii) such Partys proposed ruling on the merits of each such issue.
(c) The arbitrator shall set a date for a hearing, which shall be no later than [*] Business Days after the designation of the arbitrator, for the presentation of evidence and legal arguments concerning each of the issues identified by the Parties. Each Party shall have the right to be represented (at its own expense) by legal counsel at the hearing. Except as otherwise provided in this Section 23.1, the arbitration shall be governed by the commercial arbitration rules of the LCIA as are in effect as of the date of notice of arbitration pursuant to Section 23.1(a). For clarity, in the event of any conflict between such LCIA rules and the terms of this Section 23.1, the terms of Section 23.1 shall prevail.
(d) The arbitrator shall use his or her best efforts to rule on each disputed issue within [*] Business Days after the completion of the hearing described in Section 23.1(c). In making such rulings, the arbitrator shall be required to choose between the respective proposed rulings submitted by each of the Parties pursuant to Section 23.1(b) and shall not have the authority to modify such proposed rulings or to impose any alternative remedies.
(e) The determination of the arbitrator as to the resolution of any and all issues raised by the Parties in the Dispute and any Related Claims shall be final,
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binding and conclusive upon all Parties. All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the rules of the LCIA expressly provide otherwise. Nothing contained in this Section 23 shall be construed to permit the arbitrator to: (i) award any indirect, punitive, special, consequential, exemplary or any other similar damages; or (ii) to decide or rule on any issue or other matter that is not clearly with the scope of the Dispute and any Related Claims.
(f) Each Party shall be responsible for all of its attorneys and/or experts fees that are incurred by or on its behalf in connection with any arbitration pursuant to this Section 23.1. The fees of the arbitrator and the costs and expenses of the arbitration shall be shared equally by the Parties. In any arbitration arising out of or related to this Agreement, each Party may take [*] discovery depositions. [*]. Additional depositions may be scheduled only with the permission of the arbitrator, and for good cause shown. Each Party also shall have the right to serve reasonable document requests.
(g) Any arbitration proceedings pursuant to this Section 23.1 shall take place in London, England at such place and times (consistent with the timelines set forth in this Section 23) as are agreed to by the Parties and acceptable to the arbitrator. The arbitration shall be conducted in English.
(h) The arbitration proceedings, and the facts and circumstances surrounding the underlying dispute, shall be kept confidential by the Parties, and the Parties shall work with the arbitrator to take such steps as are reasonably necessary to preserve the confidentiality thereof, except to the extent otherwise required by Applicable Law.
(i) Notwithstanding anything in this Section 23, each Party shall have the right to seek injunctive or other equitable relief from any court of competent jurisdiction that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration.
(j) Notwithstanding anything in this Section 23, any dispute relating to the determination of validity or infringement of a Partys Patent Rights or other issues relating solely to the validity or infringement of a Partys Intellectual Property Rights (but excluding, in any event, disputes relating to royalties or other amounts payable pursuant to the terms of this Agreement, whether or not involving questions of infringement or validity) shall be submitted to the courts in accordance with the provisions of Section 33.
23.2 All disagreements at the JSC with respect to the matters described in Section 10.8 or (b) the Parties disagreement on the calculation of Fair Market Value under Section 21.7, shall be resolved under this Section 23.2. Upon referral of any such matter for resolution under this Section 23.2, the Parties shall promptly designate in writing a single mutually acceptable arbitrator experienced in the licensing, development and commercialization of pharmaceutical products, who is not a current or former
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employee, consultant, officer or director, nor a current stockholder, of either Party (or their respective Affiliates), and who does not otherwise have any current or previous relationship with either Party or their respective Affiliates. If the Parties cannot agree on an arbitrator within [*] Business D ays after referral of such matter, the arbitrator shall be selected by the LCIA. The arbitration shall be conducted in accordance with the then-current procedures of the LCIA, to the extent consistent with this Section 23.2. Within [*] Business D ays of the arbitrators appointment, each Party will prepare and deliver to both the arbitrator and the other Party its last, best offer for the applicable unresolved terms (the Proposal ) and a memorandum (the Support Memorandum ) in support thereof. The arbitrator will also be provided with a copy of the relevant provisions of this Agreement. Within [*] Business D ays after receipt of the other Partys Support Memorandum, each Party may submit to the arbitrator (with a copy to the other Party) a rebuttal to the other Partys Support Memorandum and will at such time have the opportunity to amend its Proposal based on any new information contained in the other Partys Support Memorandum. Neither Party may have communications (either written or oral) with the arbitrator other than for the sole purpose of engaging the arbitrator or as expressly permitted in this Section 23.2. Within [*] Business D ays after the arbitrators appointment, the arbitrator will select from the two Proposals provided by the Parties the Proposal that he or she believes is most consistent with the intent of the Parties when this Agreement was entered into (the Selected Proposal ). The decision of the arbitrator shall be final and binding.
23.3 Sole Remedy. Save in relation to the matters referred to in this Agreement for which a Party has sole and final decision making authority, the provisions of this Section 23 shall be each Partys sole remedy for the resolution of all Disputes or all Related Claims.
24. ENTIRE AGREEMENT
24.1 This Agreement constitutes the entire agreement between the Parties and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to its subject matter. Each Party acknowledges that in entering into this Agreement it does not rely on, and shall have no remedies in respect of, any representation or warranty (whether made innocently or negligently) that is not set out in this Agreement. No Party shall have any claim for innocent or negligent misrepresentation based upon any statement in this Agreement. Nothing in this Section 24 shall limit or exclude any liability for fraud.
25. VARIATION
25.1 No variation of this Agreement shall be effective unless it is in writing and signed by a duly authorised representative of the Parties.
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26. SEVERANCE
26.1 If any provision or part-provision of this Agreement shall be held to be illegal, void, invalid or unenforceable under the law of any jurisdiction:
(a) that provision or part-provision shall, to the extent required, be deemed to be deleted, and the validity and enforceability of the other provisions of this Agreement shall not be affected; and
(b) the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction shall not be affected.
27. COUNTERPARTS
27.1 This Agreement may be executed in any number of counterparts and all the counterparts when taken together will constitute one agreement. Each Party may enter into this Agreement by executing a counterpart. Transmission of the executed signature page of a counterpart of this agreement (a) by fax or (b) by e-mail (in PDF, JPEG or other agreed format) shall take effect as delivery of an executed counterpart of this Agreement. If either such method of delivery is adopted, without prejudice to the validity of the agreement, each Party shall provide the others with the original of such counterpart as soon as reasonably possible thereafter.
28. THIRD PARTY RIGHTS
28.1 No Person other than a Party to this Agreement, and their respective successors and permitted assigns, shall have any rights to enforce any term of this Agreement.
29. NO PARTNERSHIP OR AGENCY
29.1 Nothing in this Agreement is intended to, or shall be deemed to, establish any partnership or joint venture between the Parties, constitute either Party the agent of the other Party, nor authorise either Party to make or enter into any commitments for or on behalf of the other Party.
30. NON-SOLICITATION OF EMPLOYEES
30.1 During the Term, each Party agrees that it shall not and shall ensure that is Affiliates do not directly solicit the employment of or otherwise entice away the employees of the other Party who are engaged in the performance of this Agreement, provided nothing in this Section 30.1 shall be construed as preventing a Party or its Affiliates from employing an employee of the other Party as a result of a bone fide unsolicited approach by such employee.
31. FORCE MAJEURE
31.1 A Party shall not be liable for a failure to perform any of its obligations under this Agreement during the period and to the extent that that Party is prevented or hindered from complying with them by any cause beyond its reasonable control including (insofar as beyond such control but without prejudice to the generality of the foregoing expression) strikes, lock-outs, labour disputes, act of God, war, riot, civil commotion, terrorism, epidemic disease, malicious damage, compliance with any law or governmental order, rule, regulation or direction, accident, breakdown of plant or machinery, fire, flood, storm, earthquake (each a Force Majeure Event ). The affected Party shall give notice to the other Party of the Force Majeure Event and its effect on its ability to perform its obligations. If the notice is not given by the affected Party within a reasonable period after that Party knew or ought to have known of the Force Majeure Event, it shall remain liable to the other Party for the consequences of its failure to perform. The foregoing notwithstanding, nothing herein shall require a Party to settle on terms unsatisfactory to such Party any strike, lock-out or other labo u r difficulty, or any investigation or proceeding by any public authority, or any litigation by any Third Party.
32. NOTICES
32.1 Any notice or other communication required or permitted to be given by a Party under this Agreement shall be effective when delivered, if delivered by hand or by electronic facsimile, or five (5) Business Days after mailing if mailed by registered or certified mail (postage prepaid and return receipt requested), or two (2) Business Days after deposit with a courier if sent by an internationally recognised courier, and shall be addressed to a Party at the addresses and to the representatives set out below in Section 32.2.
32.2 The Parties respective representatives for the receipt of notices are, until changed by notice given in accordance with this Section 32, as follows:
For UCB: |
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UCB Pharma SA |
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Allée de la Recherche 60 |
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2055 Woodside Road, Suite 270 |
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1070 Brussels, Belgium |
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Redwood City, CA 94061 |
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32.3 The provisions of this Section 32 shall not apply to the service of any proceedings or other documents in any legal action.
33. GOVERNING LAW AND JURISDICTION
33.1 Subject to the provisions of Section 23, this Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by, construed and enforced in accordance with the law of the State of New York without regard to its conflict of laws principles.
33.2 The Parties expressly disclaim the application of the United Nations Convention on the International Sales of Goods to this Agreement.
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This Agreement has been entered into on the date stated at the beginning of it.
Signed for and on behalf of |
/s/ Thomas Wiggans |
DERMIRA, INC. |
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Thomas Wiggans |
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Signed for and on behalf of |
/s/ Detlef Thielgen |
UCB PHARMA S.A. |
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Detlef Thielgen |
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/s/ Mark McDade |
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Mark McDade |
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[Signature Page to Development and Commercialisation Agreement]
List of Schedules
Schedule 1 Cimzia® Trademarks
Schedule 2 Commercial Functions
Schedule 3 Development and Commercial Transition Checklist
Schedule 4 Cost of Goods
Schedule 5 Outline of Safety Reporting Timelines
Schedule 6 Development Responsibility Matrix
Schedule 7 Gross Margin Calculation
Schedule 8 Initial Development Plan
Schedule 9 [*]
Schedule 10 Synopses of Phase 3 Protocols
Schedule 11 Regulatory Responsibility Matrix
Schedule 12 UCB Safety Process
Schedule 13 Third Party Licenses
Schedule 14 Certain Patent Rights under the UCB Background IP
Schedule 15 UCB Hub Services
Schedule 16 Interim Clinical Study Report
Schedule 17 [*]
Schedule 18 UCB Code of Conduct and Principles of Ethical Business Practice
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SCHEDULE 1
CIMZIA® TRADEMARKS
PART A
[*]
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PART B
OXO Trademarks Sublicense Agreement
This Agreement is entered into
BETWEEN
UCB PHARMA S.A. , a corporation incorporated under the laws of Belgium, having its registered offices at Allée de la Recherche 60, 1070 Bruxelles, Belgium, hereinafter referred to as UCB PHARMA , and
AND DERMIRA, INC., a corporation organised under the laws of the State of Delaware, with its principal offices located at 2055 Woodside Road, Suite 270, Redwood City, California 94061, the United States of America, hereafter referred to as DERMIRA ;
Individually a Party and together the Parties.
WHEREAS , UCB PHARMA is a bio-pharmaceutical company which has developed and/or owns rights to manufacture distribute, promote, market and sell the Product;
WHEREAS , UCB PHARMA holds exclusive right and license to use the OXO and GOOD GRIPS trademarks and to sublicense the rights under the license to UCB PHARMA affiliates;
WHEREAS , the Parties desire and intend that Dermira be permitted to use the OXO Trademarks throughout the Territory, on and in connection with the Development and Collaboration Agreement (the DCA) and subject to the terms and conditions of this OXO Trademarks Sublicense Agreement.
Now therefore, it has been agreed as follows:
SECTION 1 DEFINITIONS
1.1 Confidential Information shall have the meaning ascribed to it in the DCA.
1.2 OXO Designed Features shall have the meaning set forth in Schedule B.
1.3 OXO Trademarks shall have the meaning specified in Schedule A and which UCB PHARMA has the exclusive right to use and sublicense in the Territory.
1.4 OXO Trademarks Licensor shall mean HELEN OF TROY LIMITED, a Barbados limited company, with offices at 13 8 th Avenue, Belleville, P.O. 836E, St. Michael, Barbados.
1.5 OXO Trademarks Sublicense shall have the meaning set forth in Section 2.
1.6 OXO Trademarks Sublicense Contact Persons shall be the person(s) identified in Schedule C.
1.7 OXO Trademarks Sublicense Term shall have the meaning set forth in Section 4.1.
1.8 Product shall mean the Product as defined in the DCA.
1.9 Territory shall have the same meaning as the Development Territory as defined in the DCA.
1.10 Use of OXO Trademarks Quality Standards shall have the meaning set forth in Section 3.5.
Other capitalized terms used in this OXO Trademarks Sublicense Agreement not defined herein shall have the meanings ascribed to them in the DCA.
SECTION 2 OBJECT OF THE AGREEMENT
Grant of OXO Trademarks sublicense
UCB PHARMA hereby grants Dermira which hereby accepts, a royalty-free, non-exclusive sublicense and, subject to Section 6, non-transferable right and sublicense to use the OXO Trademarks in the Territory during the OXO Trademarks Sublicense Term on and in connection with the Product (the OXO Trademarks Sublicense).
SECTION 3 CONDITIONS OF THE OXO TRADEMARKS SUBLICENSE
3.1 Approval procedures
UCB PHARMA shall furnish to the OXO Trademarks Licensor for review and approval by the OXO Trademarks Licensor a reasonable number of pre-Development samples of any labels, tags, containers, packaging or wrappings to use with Product in Development and bearing any of the OXO Trademarks.
Each Party shall appoint an OXO Trademarks Sublicense Contact Person. All requests for approval should be sent by the Dermira OXO Trademarks Sublicense Contact Person to the UCB OXO Trademarks Sublicense Contact Person. UCB PHARMA shall use commercially reasonable efforts to submit the request to the OXO Trademarks Licensor and inform Dermira whether the OXO Trademarks Licensor approved, objected or failed to reply to the submission. UCB PHARMA will provide Dermira with a written explanation of the reasons for OXO Trademarks Licensor objection when applicable. Any information or language mandated by the Regulatory Authority competent within the Territory shall be deemed automatically authorized for use within the Territory; however, the placement or the location of such mandated material or language requires OXO Trademarks
Licensor approval unless the placement or the location of such material or language is also mandated by a Regulatory Authority.
3.2 Reporting
Dermira and UCB shall, through the JDC no more than twice in a Calendar Year, upon request, a reasonable number of representative samples of Product that bear any of the OXO Trademarks and other printed material bearing any of the OXO Trademarks that Dermira may desire to disseminate publically .
3.3 Ownership of the OXO Trademarks
Dermira acknowledges that all use of the OXO Trademarks does not create in Dermira any right, title or interest in or to the OXO Trademarks, except pursuant to the license grants expressly provided herein. Dermira shall not represent in any manner to any Third Party that it has ownership rights in or to the OXO Trademarks or any rights other than those specific rights conferred by the OXO Trademarks Sublicense.
3.4 Use of the OXO Trademarks
Dermira shall include the following statements or such alternative statements as may be dictated by the Applicable Law, with all uses of any of the OXO Trademarks on any label, tag, container or packaging associated with any of the Products, and in any advertisement, marketing or promotional materials or other printed materials relating to such Products, provided that UCB does not prevent Dermira to do so under the DCA:
(i) For any OXO Trademark registered for the Product in a country within the Territory, Dermira shall ensure on any material associated with the Product used in that country (but not on the Product itself), the following legend, to the extent such Product or associated materials bear any of the OXO Trademarks:
OXO, Good Grips and the associated logos are registered trademarks of Helen of Troy Limited and are used under sublicense.
(ii) For any OXO Trademark that has not yet been registered for such Products in a country within the Territory, Dermira shall include on any material associated with the Product used in that country (but not on the Product itself), the following legend, to the extent such Product or associated materials bear any of the OXO Trademarks:
OXO, Good Grips and the associated logos are trademarks of Helen of Troy Limited and are used under sublicense.
When using any of the OXO Trademarks on Products or any associated materials in a particular country within the Territory, Dermira shall use commercially reasonable efforts to comply with all Applicable Law in force in that country with respect to the use of trademarks.
3.5 Use of OXO Trademarks Quality Standards
UCB should maintain the nature and quality of the Product bearing any of the OXO Trademarks and ensure printed material bearing any of the OXO Trademarks shall be of high standards and of such style, appearance and quality as to be adequate and suited to the exploitation to the best advantage and to the protection and enhancement of the OXO Trademarks (Quality Standards).
Each of UCB and Dermira shall notify promptly each other in writing of any instance of non-compliance with the Quality Standards or any material change in quality of any previously approved Products, materials or uses, of which it may become aware. UCB shall use Commercially Reasonable Efforts to correct any non-compliance, including by recalling the Product.
3.6 Infringement by Third Parties
The provisions of Section 14.20 of the DCA apply to the OXO Trademarks mutatis mutandis.
3.7 Confidentiality
The confidentiality obligations set in Section 17 of the DCA apply fully to this OXO Trademarks Sublicense Agreement.
SECTION 4 TERM AND TERMINATION OF THE OXO TRADEMARKS SUBLICENSE
4.1 OXO Trademarks Sublicense Term
The term of the OXO Trademarks Sublicense shall have the same term as the Term. If the DCA is terminated for any reason this OXO Trademarks Sublicense Agreement shall automatically terminate.
4.2 Termination by UCB PHARMA
In addition to the termination rights in Section 20 of the DCA, UCB PHARMA may terminate the OXO Trademarks Sublicense Agreement in its entirety if Dermira is in material breach or default if any of its obligations under Section 3 of this OXO Trademarks Sublicense Agreement.
4.3 Automatic Termination
Without prejudice to Section 4.1 and in addition to the termination rights in Section 20 of the DCA, UCB PHARMA shall have the right in its sole discretion to terminate the OXO Trademarks
Sublicense if the OXO Trademarks Licensor terminates the OXO Trademarks License granted to UCB PHARMA.
4.4 Survival
Expiration or termination of this OXO Trademarks Sublicense Agreement in whole or in part shall not relieve the Parties of the obligation to pay any amounts owing between them, nor shall it relieve the Parties of their obligations under Section 3.7 and any other Section providing for its survival, which shall survive such expiration or termination, in accordance with their terms.
4.5 Effects of Termination
On expiration or termination of this OXO Trademarks Sublicense Agreement for any reason whatsoever, Dermira:
(i) shall cease using the OXO Trademarks and shall at no time adopt or use any word or mark which is confusingly similar to the OXO Trademarks;
(ii) shall cease to represent that it is a sub-licensee of the OXO Trademarks Licensor;
(iii) shall cease to have any further rights to, and shall promptly cease using and return to UCB PHARMA any and all UCB PHARMA Confidential Information or destroy the same as instructed in writing by UCB PHARMA;
(iv) shall establish, upon a request from UCB PHARMA, an inventory of all remaining Product bearing any of the OXO Trademarks and/or incorporating an OXO Designed Feature in its or its CROs or its Third Party subcontractors possession and inform UCB PHARMA accordingly no later than 30 days after the receipt of such request;
(v) shall return or ensure the return to UCB PHARMA, upon a written request from UCB PHARMA, the inventory of all remaining Product bearing any of the OXO Trademarks and/or incorporating an OXO Designed Feature in its possession no later than 40 days after the receipt of such request;
If the specific automatic termination under section 4.2 occurs, UCB PHARMA may at its sole discretion consider appropriate remedies.
SECTION 5 WARRANTIES
The provisions of Section 15.1 of the DCA apply to this OXO Trademarks Sublicense Agreement as applicable.
SECTION 6 SUBLICENSING
[*]
SECTION 7 GOVERNING LAW AND DISPUTE RESOLUTION
The provisions of Section 33 of the DCA apply fully in this OXO Trademarks Sublicense Agreement.
* Confidential Treatment Requested
Done in two (2) originals, each Party having received its original.
Signed for and on behalf of |
/s/ Thomas Wiggans |
DERMIRA, INC. |
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Thomas Wiggans |
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Signed for and on behalf of |
/s/ Detlef Thielgen |
UCB PHARMA S.A. |
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Detlef Thielgen |
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/s/ Mark McDade |
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Mark McDade |
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LIST OF SCHEDULES
To the OXO Trademarks Sublicense Agreement between UCB PHARMA and Dermira
SCHEDULE |
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CONTENT |
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OXO Trademarks |
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OXO Trademarks Sublicense Contact Persons |
SCHEDULE A
TO THE OXO TRADEMARKS SUBLICENSE AGREEMENT BETWEEN UCB PHARMA AND DERMIRA
OXO Trademarks
1.
OXO® and
(OXO logo)
2.
GOOD GRIPS® and
(GOOD GRIPS logo)
SCHEDULE B
TO THE OXO TRADEMARKS SUBLICENSE AGREEMENT BETWEEN UCB PHARMA AND DERMIRA
[*]
* Confidential Treatment Requested
SCHEDULE C
TO THE OXO TRADEMARKS SUBLICENSE AGREEMENT BETWEEN UCB PHARMA AND DERMIRA
OXO Trademarks Sublicense Contact Persons
UCB OXO Trademarks Sublicense Contact Person shall be [*]
Dermira OXO Trademarks Sublicense Contact Person shall be [*]
SCHEDULE 2
COMMERCIAL FUNCTIONS
Regulatory Matters :
1 Implementing local regulatory strategy and labelling for the Product for the Promotion Indication and the Development Indication in the Promotion Territory in accordance with the applicable UCB approved Commercialisation Plans, Medical Affairs Plans and Local Dermira Commercial Plans.
2 As sponsor and marketing authorisation holder and, within the Development Territory as the case may be, IND holder/CTA applicant or equivalent, obtaining and maintaining any and all Regulatory Approvals for the Product in the Development Indication and the Promotion Indication in the Territory, including assembling the registration dossier, obtaining any foreign language translations, and making such submissions to such Regulatory Authorities as are needed to obtain such Regulatory Approval.
3 Complying with all regulatory requirements and reporting obligations to Regulatory Authorities relating to the Regulatory Approvals for the Product in the Territory for both the Promotion Indication and the Development Indication.
4 To the extent required under Applicable Law, filing any necessary reports with relevant Regulatory Authority in the Promotion Territory regarding distribution and use of Samples.
5 Interactions with all Regulatory Authorities in the Promotion Territory in relation to the Product, including but not limited to with respect to Promotional Materials, advertising, and the like for the Product in the Promotion Indication and the Development Indication.
Other Matters :
1 Carrying out Post-Approval Studies (if any) for the Product in the Promotion Territory for the Promotion Indication and in the Reserved Territory for the Promotion Indication and the Development Indication.
2 All market access activities and activities related to pricing, discounting, reimbursement and formulary access, tenders and contracting with public and private customers and purchasers, including without limitation: (i) determining the local terms and conditions of sale for the Product in each country within the Promotion Territory (including, without limitation, discounts, rebates and managed market matters), (ii) if applicable, negotiating gross and net Pricing and Reimbursement Approvals for the Product including any adjustments thereto, with the relevant
governmental authority in each country or private payors and other purchasing organisations within the Promotion Territory, and (iii) negotiating gross and net pricing, and maintaining and enforcing contracts, with managed care companies and governmental authorities with respect to the Product in each country within the Promotion Territory. All such activities will be performed in accordance with the terms of the Agreement, commercially acceptable business practices, Applicable Law, and the applicable general pricing strategies and guidelines of UCB.
3 All matters and activities relating to Medical Affairs.
4 Negotiating and entering into agreements with Third Parties, such as advertising agencies, related to the Commercialization of the Product in each country within the Promotion Territory, in each case in accordance with commercially acceptable business practices, Applicable Law, and the applicable Commercialisation Plans and Local Dermira Commercial Plans.
5 UCB approval of all Promotional Materials to be used and distributed by Dermiras Sales Representatives (or those of their respective designated Affiliates) in each country within the Promotion Territory for the Promotion Indication and, if applicable, the Development Indication. All such Promotional Materials shall be prepared, distributed and used in accordance with the corresponding Regulatory Approvals, the applicable Commercialisation Plans, Applicable Law, and applicable local health authority guidelines.
6 Manufacturing or having manufactured supplies of the Product for distribution and sale in the Promotion Territory, in accordance with the applicable supply pricing recommendations agreed by UCB, and attending to all related activities, such as (i) import administration, (ii) administration and financing of import-related taxes, (iii) transport insurance and freight, (iv) physical warehouse management, (v) planning, accounting and information technology-related management, and (vi) inventory safeguarding and insurance.
7 Distribution, invoicing and booking of sales of the Product in the Promotion Territory in the Promotion Indication and the Development Indication, interfacing with wholesale, hospital and governmental authority customers in connection therewith, determining payment terms and policies with such customers, and all other customer service functions for invoicing sales of the Product in the Promotion Territory.
8 Cash management, debt collection and accounting for sales of the Product in the Promotion Territory.
9 Sourcing and providing supplies of Samples of the Product in accordance with the applicable Commercialisation Plans and Local Dermira Commercial Plans, and the distribution of those Samples to a facility designated by Dermira (or its designated Affiliates) for distribution to and use by Dermiras Sales Representatives in the Promotion Territory.
10 Initiating any Recall or other withdrawal of the Product for the Promotion Indication or the Development Indication in the Territory within the global strategic guidelines for Recalls or withdrawals defined by UCB.
SCHEDULE 3
DEVELOPMENT AND COMMERCIAL TRANSITION CHECKLIST
The following is a checklist of information, materials and support relating to the Development of the Product in the Development Indication in the Development Territory and Dermira Commercial Activities relating to the Product in the Promotion Territory based on which the Parties shall (without prejudice to the more general obligations set out in Section [to be inserted]) set out more precisely what shall be provided to UCB by Dermira either prior to or on termination of the Agreement as provided in Section [to be inserted], to the extent that information or material corresponding thereto exists and is in the possession or control of Dermira or any of its Affiliates (or any of its or their Third Party subcontractors to the extent Dermira or any of its Affiliates can obtain such information or materials from their subcontractors using all best efforts) at the time of termination and to the extent that Dermira has not already provided such information or material during the Term. Reference to Dermira in this Schedule shall be deemed to include reference to Dermira or any of its Affiliates or any of its or their Third Party subcontractors. Such information or material shall be fully up to date and accurate at the date of termination save where historical information is required. The timetable for delivery of agreed-upon information, materials and assistance will be a reasonable timetable having regard to the obligations set out in Section [to be inserted].
DEVELOPMENT RELATED
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* Confidential Treatment Requested
DERMIRA COMMERCIAL ACTIVITIES RELATED
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* Confidential Treatment Requested
SCHEDULE 4
COST OF GOODS
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* Confidential Treatment Requested
SCHEDULE 5
OUTLINE SAFETY REPORTING TIMELINES
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* Confidential Treatment Requested
SCHEDULE 6
DEVELOPMENT RESPONSIBILITY MATRIX
Development Activities and Assignment
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* Confidential Treatment Requested
SCHEDULE 7
GROSS MARGIN CALCULATION
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*Confidential Treatment Requested
SCHEDULE 8
INITIAL DEVELOPMENT PLAN
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*Confidential Treatment Requested
SCHEDULE 9
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*Confidential Treatment Requested
SCHEDULE 10
SYNOPSES OF PHASE 3 PROTOCOLS
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*Confidential Treatment Requested
SCHEDULE 11
REGULATORY RESPONSIBILITY MATRIX
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* Confidential Treatment Requested
SCHEDULE 12
UCB SAFETY PROCESS
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*Confidential Treatment Requested
SCHEDULE 13
THIRD PARTY LICENCES
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*Confidential Treatment Requested
SCHEDULE 14
CERTAIN PATENT RIGHTS UNDER THE UCB BACKGROUND IP
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*Confidential Treatment Requested
SCHEDULE 15
UCB HUB SERVICES
Cimzia® Hub Services - [*]
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*Confidential Treatment Requested
SCHEDULE 16
CLINICAL STUDY REPORT
CLINICAL STUDY REPORT {STUDYNUMBER}
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*Confidential Treatment Requested
SCHEDULE 17
[*]
*Confidential Treatment Requested
SCHEDULE 18
UCB CODE OF CONDUCT AND PRINCIPLES OF ETHICAL BUSINESS PRACTICE
http://www.ucb.com/_up/ucb_com_ir/documents/Code_of_conduct.pdf
**Document to be added once document is in PDF format
PRINCIPLES OF ETHICAL BUSINESS PRACTICES
UCB requires any business partner, collaborator, supplier or contractor of UCB (Partner) to conduct their business with due regard to the highest ethical standards and to comply with the following principles of ethical business practices (the Principles):
1. Compliance with Laws.
The Partner shall at all times be bound by and strictly comply with all applicable laws and regulations concerning corrupt practices or which in any manner prohibit the giving of any financial or other advantage, or anything of value to any official, agent or employee of any government, political party or public international organisation, or to any candidate for public office, or to any Healthcare Professional, or to any officer, employee, agent, or representative of another company or organisation, including but not limited to the US Foreign Corrupt Practices Act and the UK Bribery Act. The Partner shall comply with any applicable industry codes when performing its responsibilities under its agreement with UCB.
2. Specific Obligations
In performing its obligations under its agreement with UCB, neither the Partner, nor any of its equity holders, partners, officers, directors, employees, representatives, or agents, shall:
(a) directly or indirectly, offer, give, promise to give or authorise the giving of any financial or other advantage, or anything of value, to (i) any official or employee of any government, or any department, agency, or instrumentality thereof, (ii) any political party or official thereof, or to any candidate for political office, (iii) any official or employee of any public international organisation, or (iv) any person acting in an official capacity on behalf of any of the foregoing (i) - (iii), in each case for the purpose of (1) influencing or rewarding any act or decision of such official, employee, party or candidate, or (2) inducing such official, employee, party or candidate to do or omit to do any act in violation of the lawful duty of such official, employee, party or candidate, or (3) inducing such party, official, or candidate to use its or his or her influence with a government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, or (4) securing an improper advantage for the Partner or UCB; or
(b) directly or indirectly, offer, give, promise to give or authorise the giving of any financial or other advantage, or anything of value, on behalf of UCB, to
an officer, employee, agent, or representative of another company or organisation, without that companys or organisations knowledge and consent, with the intent to influence or reward the recipients action(s) with respect to his or her companys or organisations business, or to induce the recipient to violate a duty of loyalty to his employer, or to gain a commercial benefit to the detriment of the recipients company or organisation, or to induce or reward the improper performance of the persons duties.
During the term of the Partners agreement with UCB, no official or employee of any government, or of any agency or instrumentality of any government, or of any political party, or of any public international organisation, and no candidate for public office, shall own, directly or indirectly, any shares or other beneficial interest in the Partner.
When it enters into its Agreement with UCB, the Partner must not have received any notice, subpoena, demand or other communication (whether oral or written) from any governmental authority at any time in the previous five (5) years regarding the Partners actual, alleged, possible or potential violation of, or failure to comply with, any laws, regulations or industry codes governing bribery, money laundering, or other corrupt payments and, to its best knowledge, the Partner must not be, and must not have been at any time in the previous five (5) years, the subject of any governmental investigation, audit, suit or proceeding (whether civil, criminal or administrative) regarding its violation of, or failure to comply with, any such laws, regulations or industry codes.
None of the Partners officers, directors, employees, representatives, or agents shall be or become, without prior written notice to UCB, an official or employee of any government, or of any department, agency or instrumentality of any government, or of any political party, or of any public international organisation; or a candidate for public office.
3. Notice
The Partner shall promptly notify UCB of (a) the occurrence of any fact or event that the Partner suspects could put it in breach of Section 2 of these Principles, (b) any notice, subpoena, demand or other communication (whether oral or written) from any governmental authority regarding the Partners actual, alleged, possible or potential violation of, or failure to comply with, any laws, regulations or industry codes governing bribery, money laundering, or other corrupt payments, and (c) any governmental investigation, audit, suit or proceeding (whether civil, criminal or administrative) regarding the Partners violation of, or failure to comply with, any such laws, regulations or industry codes.
4. Certification
Annually or at such other times as may be reasonably requested by UCB, the Partner shall cause one of its authorised officers to execute and deliver to UCB a Certificate of Compliance with Ethical Business Practices that confirms the Partners continued compliance with the provisions of these Principles.
5. Implementation of Policies and Procedures
The Partner shall maintain policies and procedures designed to ensure continued compliance with these Principles by all officers, directors, employees, representatives, and agents of the Partner.
6. Record Keeping
The Partner shall maintain true, accurate and complete books and records with respect to all payments made to third parties pursuant to its agreement with UCB or in furtherance of the services provided to UCB under the agreement.
Exhibit 10.10
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[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement ( Agreement ) is entered into as of April 26 2013 ( Effective Date ), by and between Rose U LLC, a California limited liability company ( Licensor ), and Dermira, Inc., a Delaware corporation ( Dermira ) (collectively, the Parties and individually, a Party ).
RECITALS
A. Licensor is the owner of the Patent Rights and Technology (as defined below), and has also licensed the Stiefel Data (as defined below) and obtained certain other rights from Stiefel Laboratories, Inc. ( Stiefel ) pursuant to a License and Post-Termination Agreement dated April 26 2013 (the Stiefel Agreement ), a copy of which is attached as Appendix B ;
B. Licensor desires to license the Patent Rights and Technology and sublicense the Stiefel Data, to Dermira, and Dermira desires to obtain such license and sublicense, all upon the terms and conditions and as further set forth in this Agreement.
C. Concurrently with the execution of this Agreement, Dermira and Stiefel are entering into a letter agreement (the Stiefel Side Letter ), a copy of which is attached as Appendix C , pursuant to which, among other things, Dermira agrees to pay license fees arising from the use of the Stiefel Data directly to Stiefel and indemnify Stiefel.
NOW, THEREFORE, Licensor and Dermira agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Affiliate means, with respect to a person, any corporation, partnership, business joint venture or other entity that directly or indirectly controls, is controlled by or is under common control of such person. For purposes of this section, control means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity in question (whether through ownership of securities or other ownership interests, by contract or otherwise).
Section 1.2 Combination Product means a product that is a combination of a Licensed Product with one or more other products that contain an active pharmaceutical ingredient that is not a Licensed Product (such other products, NLPs ).
Section 1.3 Commercially Reasonable Efforts means efforts that, taken together, would constitute a reasonable level of effort by [*] to develop and commercialize in a [*] manner, one of such companys [*] giving full consideration to all [*].
*Confidential Treatment Requested
Section 1.4 [*] Payment has the meaning given to it in the Stiefel Agreement.
Section 1.5 FDA means the United States Food and Drug Administration.
Section 1.6 Field means the use of topical products containing [*] or other compounds identified in the patents listed in Appendix A , for any indications, including without limitation, for the treatment and prevention of hyperhidrosis, [*], or excessive sweating, provided that the indications included in the Field as it applies to the use of Stiefel Data shall be limited to the treatment and prevention of hyperhidrosis [*], or excessive sweating. For clarity, the Field, in all cases, includes such products sold [*].
Section 1.7 Generic Product means, with respect to a Licensed Product, a product that (1) (a) contains as an active ingredient, active moiety, or molecular entity which is the same active ingredient, active moiety, or molecular entity as such Licensed Product; (b) is approved by the Regulatory Authority in such country for use in such country for the same human indication within the Field as such Licensed Product; and (c) is substitutable or interchangeable for such Licensed Product by healthcare practitioners or pharmacists in the applicable country; or (2) obtains marketing approval pursuant to an abbreviated regulatory approval process relying in whole or in part on marketing approvals for the Licensed Product or data submitted to a Regulatory Authority by or on behalf of Dermira or a Dermira Affiliate or a Sublicensee for a Licensed Product; or (3) otherwise references the Licensed Product to obtain such marketing approval based on a demonstration of bioequivalence or biosimilarity to a Licensed Product.
Section 1.8 Improvement means, with respect to Dermira or Licensor, as applicable, any and all new or useful know-how, discoveries, inventions, contributions, findings, improvements, and enhancements to a Licensed Product for use in the Field, including, without limitation, any enhancements of its use, dosage, form, presentation (including packaging, applicators and the like) and/or formulation, whether or not patented or patentable, conceived, reduced to practice or otherwise developed by or for such Party, either solely or jointly, as the case may be. Improvement also means the change in regulatory classification or status of a Licensed Product (e.g. from prescription pharmaceutical to over-the-counter pharmaceutical).
Section 1.9 Know-How Royalty Term means the period calculated on a [*] basis commencing on the first commercial sale of the first Licensed Product in the [*] and ending [*] thereafter; provided that in no event shall the Know-How Royalty Term for any [*] extend beyond the date that is [*] following the commencement of the first Know-How Royalty Term.
Section 1.10 Licensed Product means any product, process or service in the Field which incorporates in whole or in part, or the use or sale of which absent this license would otherwise infringe, the Patent Rights and Technology or the Stiefel Data.
Section 1.11 Liquidity Event means (i) an initial public offering of Dermiras common stock on any nationally recognized stock exchange (including without limitation NASDAQ, NYSE, TSE, London Stock Exchange, or equivalents in other countries) at a price
*Confidential Treatment Requested
per share representing an enterprise value for Dermira equal to at least [*] times the aggregate amount of invested capital (including all equity and unrepaid debt investments) received by Dermira prior to such offering; or (ii) a merger, acquisition, or the sale of all or substantially all of Dermiras assets or of the assets of a division or product line that includes the Licensed Product.
Section 1.12 Net Sales means the gross amount invoiced or otherwise received by Dermira or a Dermira Affiliate or a Sublicensee from sales of Licensed Product, whether or not assembled (and, except as provided below with respect to Combination Products, without excluding any components or subassemblies thereof), less the following items but only insofar as they actually pertain to the disposition of such Licensed Product by Dermira or an Affiliate of Dermira or a Sublicensee: (a) any import, export, sale, use, or excise taxes (including value added taxes to the extent that such value added tax is incurred and not reimbursed, refunded, or credited under a tax authority); (b) costs of transportation, packing, and insurance from the place of manufacture to the customers premises or point of sale; (c) credits for returns, allowances, or trades, or allowances for uncollectable accounts; or (d) discounts for prompt payment or volume purchases, or other discounts or rebates paid or credited to promote the inclusion of Licensed Product in applicable formulary programs. Sales among Dermira, Affiliates of Dermira and Sublicensees shall be excluded from the computation of Net Sales.
In the event a Licensed Product is sold in a country as part of a Combination Product, then for purposes of determining payments due to Licensor under this Agreement, Net Sales shall be calculated by multiplying the Net Sales of the Combination Product by the fraction A over A+B, in which:
A is the Gross Selling Price of the Licensed Product when such Licensed Product is sold in the relevant country in substantial quantities where the Licensed Product is the sole active pharmaceutical ingredient, and
B is the Gross Selling Price of the NLPs contained in the Combination Product sold separately in the relevant country in substantial quantities.
All Gross Selling Prices of the Licensed Product and NLPs shall be calculated as the average Gross Selling Prices of such products in the relevant country during the applicable accounting period for which the Net Sales are being calculated. In the event that no separate sale of either the Licensed Product as the sole active pharmaceutical ingredient or the NLPs are made in the relevant country during the accounting period in which the sale was made, or if the Gross Selling Price for a Licensed Product or NLP cannot be determined for an accounting period, Net Sales allocable to the Licensed Product and NLPs shall be determined by mutual agreement reached in good faith by the Parties prior to the end of the accounting period in question based on an equitable method of determining same that takes into account the relative contribution of each active pharmaceutical ingredient in the Combination Product, and relative value to the end user of each active pharmaceutical ingredient. For purposes of this definition, Gross Selling Price means the gross price at which a product containing the active pharmaceutical ingredient in question is sold to a third party, before discounts, deductions, credits, taxes or allowances.
*Confidential Treatment Requested
Section 1.13 Patent Rights and Technology means: (a) Licensors rights under all patents, and patent applications listed on Appendix A , as well as all foreign counterpart patents and patent applications (including future foreign counterparts to the patents and patent applications listed in Appendix A or described in (b) and (c) below); (b) all reissues, reexaminations, renewals, extensions, divisionals, continuations, and continuations-in-part of the patents and patent applications listed in Appendix A and/or described in (c) below, and any patents which issue on the foregoing; (c) unless Dermira elects otherwise with respect to a given patent or patent application, all patent applications that are owned by Licensor or an Affiliate of Licensor during the Term, or to which Licensor or an Affiliate of Licensor otherwise acquires rights during the Term, which are Improvements or enhancements of the patents or patent applications listed in Appendix A and/or described in (b) above; and (d) any know-how or other enabling information relating to the use of [*] ( or other compounds identified in the patents listed in Appendix A ) in the Field that is or comes into the possession and control of Licensor or its Affiliates (other than the Stiefel Data) during the Term.
Section 1.14 Program Inventory and Supplies has the meaning given to it in the Stiefel Agreement.
Section 1.15 Quarter means each period of three (3) consecutive months during the Term ending on a Quarter Date provided that the period from the: (a) Effective Date until the first Quarter Date is deemed to be a Quarter; and (b) last Quarter Date prior to termination, through the termination date, of this Agreement is deemed to be a Quarter.
Section 1.16 Quarter Date means one of March 31, June 30, September 30, or December 31.
Section 1.17 Region means each of [*].
Section 1.18 Regulatory Authority means the FDA and/or its equivalent in other countries of the Territory, or any successor entity thereto.
Section 1.19 Regulatory Materials means the regulatory applications, submissions, notifications, registrations, regulatory approvals or other submissions or correspondence assigned to Licensor under the Stiefel Agreement, or that relate to the use of [*] ( or other compounds identified in the patents or patent applications listed in Appendix A ) in the Field and are in or during the Term come into the possession and control of Licensor. For clarity, the Regulatory Materials include [*] .
Section 1.21 Rose U Patents means the issued patents identified as the Rose U Patents in Appendix A ; and Non-Rose U Patents means all patent rights included in the Patent Rights and Technology, other than the Rose U Patents.
Section 1.23 Stiefel Data has the meaning given to it in the Stiefel Agreement.
*Confidential Treatment Requested
Section 1.25 Sublicense Agreement means a written agreement under which Dermira or a Dermira Affiliate grants a sublicense of the rights granted under Section 2.1 or 2.2 to a Sublicensee which rights include the right to commercialize Licensed Product .
Section 1.27 Sublicensing Revenue means amounts received by Dermira or an Affiliate of Dermira under a Sublicense Agreement in the form of [*], in each case to the extent attributable to the grant of sublicenses of the Patent Rights and Technology or Stiefel Data. For clarity, Sublicensing Revenue shall not include (without limitation): (i) payments in return for research services or activities, including costs of materials, equipment or clinical testing; (ii) payments for the manufacturing and supply of Licensed Product, (iii) bona-fide equity or debt investments, or amounts received by Dermira in respect of any sale or assignment of assets; or (iv) reimbursements of patent prosecution costs and patent maintenance expenses.
Section 1.28 Term has the meaning given to it in Article 13.
Section 1.29 Territory means all countries, states and territories worldwide .
Section 1.30 Valid Claim means either: (a) a claim of an issued and unexpired patent included within the Patents Rights and Technology, which has not been permanently revoked or declared unenforceable or invalid by an unreversed and unappealable or unreversed and unappealed decision of a court or other appropriate body of competent jurisdiction, and that has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, or (b) a claim of a pending patent application included within the Patents Rights and Technology, which claim (i) was filed in good faith and has not been irretrievably cancelled, withdrawn or abandoned or finally disallowed without the possibility of appeal or refiling of such application, and (ii) has not been pending for more than [*] from the earliest priority date of the pending application reciting such claim.
ARTICLE 2
GRANT OF RIGHTS; TECHNOLOGY TRANSFER
Section 2.1 License to Patent Rights and Technology . Subject to the terms of this Agreement, Licensor hereby grants Dermira and its Affiliates an exclusive (even as to Licensor), worldwide, perpetual license under the Patent Rights and Technology to research, develop, have developed, make, have made, promote, have promoted, import, have imported, distribute, have distributed, use, have used, sell, have sold, offer for sale, have offered for sale, sublicense through multiple tiers and otherwise fully exploit any and all products, processes and services whatsoever, throughout the Territory in the Field.
Section 2.2 Sublicense to Stiefel Data . Subject to the terms of this Agreement, Licensor hereby grants Dermira and its Affiliates a worldwide, exclusive (except as to Stiefel and its Affiliates) license (including the right to grant sublicenses through multiple tiers pursuant
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to the provisions of Section 2.3) to use the Stiefel Data in the Field. Stiefel and its Affiliates are intended third party beneficiaries of this Agreement.
Section 2.3 Sublicenses . Dermira and its Affiliates shall have the right to grant sublicenses (through multiple tiers) to third parties (each such third party, a Sublicensee ) of the rights licensed under Sections 2.1 and 2.2. Sublicenses of the rights granted to Dermira and its Affiliates under Section 2.2 may only be granted to a third party to which Dermira, an Affiliate of Dermira or a Sublicensee grants the right to research, develop or commercialize products in the Field using Stiefel Data. However, notwithstanding the grant of sublicenses by Dermira and/or its Affiliates hereunder, Dermira shall remain obligated to pay all milestone payments under Section 4.1 that become due as a result of activities by Affiliates of Dermira or Sublicensees, and all royalties due to Licensor with respect to Net Sales of Licensed Products by Affiliates of Dermira and Sublicensees. Any sublicense agreement, whether by Dermira or an Affiliate of Dermira or a Sublicensee, shall not be inconsistent with the terms of this Agreement nor exceed the scope of the license granted to Dermira under this Agreement and shall include (i) an obligation of the Sublicensee to indemnify Licensor and its Affiliates as provided in Section 11.1 and Stiefel and its Affiliates as provided in the Stiefel Side Letter, subject to conditions and procedures substantially equivalent to those contained in Section 11.2 and the Stiefel Side Letter, (ii) confidentiality obligations of the Sublicensee no less protective of the Stiefel Data than those contained in Article 9, and (iii) an express statement that Stiefel and its Affiliates are intended third party beneficiaries of such sublicense agreement. Dermira shall promptly thereafter provide Licensor a true and correct copy of each such sublicense, provided that Dermira or the Sublicensee may redact confidential provisions of the sublicense agreement that are not reasonably required for Licensor to confirm compliance with this Agreement (but not the identity of the Sublicensee). Licensor agrees that the obligations in (i) and (iii) above and the obligation to provide copies of sublicenses shall not apply to sublicense agreements entered into by Dermira or its Affiliates or a Sublicensee with contract research organizations, contract manufacturing organizations and similar third parties performing services for the benefit of Dermira or its Affiliates or a Sublicensee which sublicense does not include any right to commercialize Licensed Product.
Section 2.4 Technology Transfer Obligations .
(a) Patent Rights and Technology . Promptly following the Effective Date, Licensor shall provide Dermira with copies of all documents (whether in written or electronic form) in Licensors possession or control which embody any know-how or information included in the Patent Rights and Technology.
(b) Stiefel Data . Promptly following the Effective Date, Licensor shall (or shall cause Stiefel to) provide Dermira with copies of all documents (whether in written or electronic form) listed on Exhibit A-1 to the Stiefel Agreement or that otherwise come into the possession or control of Licensor and describe or contain any Stiefel Data, and shall cause Stiefel to provide Dermira with such technical assistance and access to and cooperation of Stiefel personnel as Dermira may reasonably request in connection with the delivery to Dermira of factual knowledge and information relating to the Stiefel Data, Regulatory Materials and Program Inventory and Supplies, subject to the terms and condition of Section 3.3 of the Stiefel Agreement. Dermira shall reimburse Licensor for any out-of-pocket expenses of Stiefel for
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which Licensor becomes liable under Section 3.3 of the Stiefel Agreement to the extent such expenses have been approved in advance by Dermira in writing.
(c) Regulatory Materials . Licensor hereby assigns to Dermira all of its right, title and interest in and to the Regulatory Materials, and promptly following the Effective Date shall (or shall cause Stiefel to) promptly deliver the Regulatory Materials (whether in written or electronic form) to Dermira and take (and cause under the Stiefel Agreement Stiefel to take) such additional steps and execute such additional documents as Dermira may reasonably request in order to effect such assignment and delivery, including the transfer of any regulatory applications into the name of Dermira.
Section 2.5 Program Inventory and Supplies . Promptly following the Effective Date, to the extent the Program Inventory and Supplies still exists and to the extent it is able to under the terms of the Stiefel Agreement, Licensor shall (or shall cause Stiefel to) assign, transfer and deliver the Program Inventory and Supplies to Dermira, and shall cause Stiefel to take such additional steps and execute such additional documents as Dermira may reasonably request in order to effect such assignment, transfer and delivery. In addition, Licensor will cause Stiefel to use commercially reasonable efforts subject to the provisions of Section 3.4.2 of the Stiefel Agreement to (i) introduce Dermira to the contract manufacturing organization ( CMO ) that provided the Program Inventory and Supplies to Stiefel, and (ii) facilitate the transition of manufacturing to a CMO designated by Dermira, provided that Stiefel shall not be obligated to place any orders from a CMO on behalf of Dermira nor to provide any other assistance with respect to a CMO except as specifically set forth in Section 3.4.2 of the Stiefel Agreement. Upon the request of Dermira, Licensor will cause Stiefel to provide such Stiefel consent as is reasonably necessary to allow Dermira to work with service providers who have provided services to Stiefel in connection with the [*] Program (as defined in the Stiefel Agreement), including consenting to the use by such contractors of any Stiefel Data in the possession or control of such contractors to provide services to Dermira, its Affiliates or any Sublicensees.
Section 2.6 Amendment or Termination of Stiefel Agreement . Licensor acknowledges that the rights and obligations arising under the Stiefel Agreement are fundamental to Dermiras willingness to agree to the terms and conditions of this Agreement, and therefore Licensor agrees that it shall (i) promptly notify Dermira of any notices or other communications received by Licensor from Stiefel that relate to alleged breaches or violations of the Stiefel Agreement and (ii) shall not agree to any amendment, modification or termination of the Stiefel Agreement without Dermiras prior written consent. If the Stiefel Agreement is terminated prior to its expiration, the provisions of Section 8.3 of the Stiefel Agreement and Paragraph 4 of the Stiefel Side Letter shall apply such that the sublicense to the Stiefel Data granted by Licensor to Dermira under this Agreement shall be automatically assigned to and assumed by Stiefel and this Agreement shall be deemed amended to provide for such assignment in part of the rights and obligations of Dermira relating to the Stiefel Data under this Agreement. Such assignment and assumption of the sublicense to the Stiefel Data shall not affect the other provisions of this Agreement, including without limitation, the license of the Patent Rights and Technology to Dermira and the milestone, royalty and other payment obligations of Dermira to Licensor under Article 4.
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ARTICLE 3
DILIGENCE
Section 3.1 Diligence Obligation . As an inducement to Licensor to enter into this Agreement, Dermira agrees to use Commercially Reasonable Efforts to proceed with the development, manufacture, sale, and lease of Licensed Products in [*], and the development of markets for such Licensed Products in applicable [*] countries. The foregoing obligations shall include, where consistent with the Commercially Reasonable Efforts standard, an obligation to select commercially capable Sublicensees and to monitor and enforce the terms of sublicense agreements between Dermira and such Sublicensees.
Section 3.2 Progress Reports . In connection with this obligation, Dermira shall provide annual progress reports on September 1 of each year detailing its progress through the year ending June 30 toward commercialization of the Licensed Products. Such report shall include, at a minimum, a summary of work completed, key scientific discoveries, summary of work in progress, current schedule of anticipated events or milestones, and market plans for introduction of Licensed Product.
Section 3.3 Disputes as to Diligence . If Licensor believes that Dermira is out of compliance with its diligence obligations (including the obligation to use Commercially Reasonable Efforts as specified in Section 3.1), Licensor shall notify Dermira of such belief and Licensors grounds for such belief, including a reasonably detailed written statement of the minimum steps that Licensor believes Dermira would have to take during the ensuing [*] to bring itself into compliance with such obligations. If Dermira believes in good faith that it is in compliance with such diligence obligations, or that such steps are more than would be required in order to bring Dermira into such compliance during such ensuing [*], then Dermira may seek to resolve the matter with Licensor, either through good faith negotiations or pursuant to arbitration in accordance with Section 15.2. In the event that Licensor seeks to resolve such matter through arbitration, the following additional provisions shall apply: (i) the arbitrator(s) selected pursuant to the procedure described in Section 15.2 shall have, as part of their relevant industry expertise, experience with pharmaceutical development and commercialization, (ii) the purpose of the arbitration shall be initially to determine if Dermira was, as asserted by Licensor, failing to comply with the applicable diligence obligations and if such non-compliance was material, (iii) if the arbitrator determines that Dermira was materially failing to comply with such diligence obligations, then Dermira and Licensor shall each submit to the arbitrator a written proposal that sets forth a commercially reasonable (using the standard established under the definition of Commercially Reasonable Efforts) set of tasks, and a reasonable timeline that includes specific dates for completing such tasks (such timeline not to exceed [*]), that Dermira shall undertake in order to satisfy the specific diligence obligations for such period. The arbitrator(s) shall review the written proposals submitted by Dermira and Licensor, and shall determine which of the written proposals shall be adopted as the plan for complying with the applicable diligence obligations (the Cure Plan ). If Dermira then materially fails to perform the tasks set forth in the Cure Plan within the timeline established by such Cure Plan, and fails to cure such noncompliance within [*] after written notice by Licensor, then Licensor shall be entitled, as Licensors sole remedy, to terminate the licenses granted in Section 2.1 and 2.2, solely with respect to the specific territories
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and/or applications for which Dermira has failed to exercise the level of diligence required by Section 3.1.
ARTICLE 4
MILESTONE PAYMENT, ROYALTIES AND PAYMENT TERMS
In consideration for the licenses granted pursuant to this Agreement, Dermira shall pay Licensor or Stiefel (as set out below) the onetime milestone payments and shall pay Licensor the royalties identified below.
Section 4.1 Milestone Payments . Dermira shall pay Licensor the following noncreditable, nonrefundable milestone payments in accordance with the milestone events listed below:
Milestone Event |
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Amount Due
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Upon [*] |
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[*] |
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Upon [*]for a Licensed Product [*] |
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[*] |
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Upon Dermiras [*] of a Licensed Product |
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[*] |
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Upon [*] for a Licensed Product [*] |
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[*] |
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Upon [*] of a Licensed Product in the [*] |
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[*] |
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Upon [*] of a Licensed Product in the [*] |
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[*] |
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In the event of [*] for Licensed Product [*] |
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[*] |
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[*]
For avoidance of doubt, each milestone payment above will be payable once regardless of whether milestones are achieved with respect to multiple products.
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[*]
In addition, Dermira shall pay Stiefel the [*] Payment as and if it becomes payable under the terms of the Stiefel Side Letter.
Section 4.2 Royalty Payments . Dermira shall pay Licensor the following royalties and other amounts:
(a) Net Sales .
(i) Dermira shall pay Licensor a royalty on Net Sales as follows:
(A) [*]% of Net Sales in the Territory until [*] (the Rose U Patent Royalty Term ),
(B) Following the Rose U Patent Royalty Term:
a. For Licensed Product which at the time of sale are [*]% of Net Sales in the country of sale;
b. Until the expiration of the applicable Know-How Royalty Term, for Licensed Product which at the time of sale are [*]% of Net Sales in the country of sale;
c. Following the expiration of the applicable Know-How Royalty Term, the licenses granted hereunder for Licensed Product which at the time of sale are [*] shall be considered fully paid up, and Dermira shall have no obligation to pay royalties on any Net Sales on such Licensed Products occurring after such date in such countries; and
d. Following the expiration of the last to occur of (i) the last Know-How Royalty Term, and (ii) the last Valid Claim of the Non-Rose U Patents, the licenses granted hereunder for all Licensed Products shall be considered fully paid up and Dermira shall have no obligation to pay royalties on any Net Sales of any Licensed Products occurring after such date.
(ii) This Section 4.2(a)(ii) applies only after the expiration of the Rose U Patent Royalty Term and only to adjust the royalty rate under Section 4.2(a)(i)(B)a above. If at any time one or more third parties launches, sells or otherwise distributes a Generic Product in any country and such Generic Product(s) account for [*] percent [*] or more of aggregate prescriptions of Licensed Product and all Generic Products in the given country in any given
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Quarter according to [*] (or any similar third party mutually agreed by the Parties), then the royalty rate under Section 4.2(a)(i)(B)a, from and after the date such Generic Product(s) account for [*] percent [*] or more of aggregate prescriptions of Licensed Product and all Generic Products in the given country in any given Quarter as determined above, shall be [*]%.
(iii) If Dermira is required or otherwise determines it necessary to pay additional royalties or other amounts to third parties in respect of intellectual property rights included in a Licensed Product (other than the [*] Payment), then the royalties for such Licensed Product that are due pursuant to Section 4.2(a)(i)(A) and Section 4.2(a)(i)(B) (as may be revised by the application of Section 4.2(a)(ii)) shall be reduced by [*] percent [*] of the amount of royalties or other amounts paid to such third parties, provided that in no event will the royalties payable to Licensor be reduced to less than [*] percent [*] of the amounts specified in Section 4.2(a)(i)(A) and 4.2(a)(i)(B) (as may be revised by the application of Section 4.2(a)(ii)).
(b) Sublicensing Revenue Payments . In addition, until the expiration of the last Valid Claim included in the applicable sublicensing agreement, Dermira shall pay Licensor a royalty equal to a percentage of the Sublicensing Revenue received by Dermira from a Sublicensee, determined based on the date that the applicable sublicensing agreement is entered into by Dermira and the Sublicensee in accordance with the following schedule:
Effective Date of Sublicensing Agreement |
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Applicable Percentage |
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Within [*] after Effective Date |
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[*]% |
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More than [*] after Effective Date |
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[*]% |
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In the event the Sublicensing Revenue is nonmonetary (including without limitation a cross-license), it shall be assigned a fair market value in good faith and the specified percentage of that fair market value shall be paid to Licensor.
(c) Crediting of [*] Payment . Dermira shall be entitled to deduct from amounts payable to Licensor under this Section 4.2 an amount equal to the [*] Payment paid by Dermira to Stiefel under the Stiefel Side Letter as follows: after Dermira has paid the [*] Payment to Stiefel, Dermira shall be entitled to reduce royalties on Net Sales or Sublicensing Revenue otherwise payable under this Section 4.2 by [*] percent [*]%) until the full amount of the [*] Payment has been credited against such portion of royalties on Net Sales or Sublicensing Revenue payable by Dermira under this Section 4.2 after Dermiras payment of the [*] Payment.
(d) Liquidity Events . In the event that Dermira undergoes a Liquidity Event during the Rose U Patent Royalty Term, it shall pay Licensor a royalty of $[*]. For avoidance of doubt, the Liquidity Event payment will be payable once regardless of whether Dermira or its successors undergo multiple Liquidity Events.
(e) Worldwide Scope . The parties acknowledge that Licensed Products, and components incorporated with or into Licensed Products, are mobile and may be transported from country to country across the world. Accordingly, for ease of accounting and the
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convenience of the parties in calculating payments due Licensor, the royalties and other amounts due under this Agreement are based on worldwide sales of Licensed Products regardless of whether a particular Licensed Product is covered by a current patent claim in the country of manufacture, sale, use, or importation, and the parties acknowledge that the amounts due Licensor under this Agreement have been reduced to account for this.
Section 4.3 Payment Terms . All payments made pursuant to this Agreement shall be in U.S. dollars.
(a) Milestone Payments . Milestone payments payable to Licensor pursuant to Section 4.1 that become payable during the Term shall be paid by Dermira to Licensor within [*] of the completion of the milestone event giving rise to such payment as set forth in Section 4.1. [*] Payment arising under the Stiefel Side Letter shall be paid by Dermira in accordance with the terms of the Stiefel Side Letter.
(b) Royalties . Any payments pursuant to Section 4.2 that become due and payable during the Term shall be paid by Dermira to Licensor within [*] after the end of the Quarter in which the Net Sales occurred or Sublicensing Revenue is received by Dermira.
(c) Service Fees . Any payments due to Licensor that are not paid within the time provided in this Agreement shall be subject to a service charge of [*] percent per month, calculated on the number of days such payment is delinquent, or, if lower, the maximum charge permitted under applicable law. This Section 4.3(c) shall in no way limit any other remedies available to Licensor.
Section 4.4 Royalty Reports . No later than [*] after each Quarter Date commencing after the earlier of (i) first commercial sale of a Licensed Product, and (ii) the first Sublicense Agreement entered into by Dermira or an Affiliate of Dermira, Dermira shall provide Licensor with a written statement that identifies the: (a) Net Sales (including without limitation information broken out by country, product name, entity making sale, and details of amounts deducted from the proceeds invoiced for the purpose of calculating Net Sales) received during the Quarter in question; (b) Sublicensing Revenue received during the Quarter in question; and (c) any royalties due and payable to Licensor pursuant to this Agreement. Each report shall also identify any Sublicense Agreements entered into with a Sublicensee during the Quarter and a report detailing the compensation received from each such Sublicensee that quarter broken out in the same way as the reports described above.
Section 4.5 Right to Audit .
(a) Dermira shall keep and maintain records for a period of [*] showing the manufacture, sale, use, sublicensing, and other disposition of Licensed Products sold or otherwise disposed of under this Agreement in sufficient detail to enable an outside accountant to determine the amounts due under this Agreement. Dermira will permit an accountant from a nationally-recognized accounting firm designated by Licensor, and who has entered into a confidentiality agreement in a form reasonably requested by Dermira, to review Dermiras records related to Licensed Products, milestone payments and royalties payable
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pursuant to this Agreement. The designated accountant will have access to such records during regular business hours and upon at least [*] prior written notice, for the purpose of verifying the accuracy of any royalty paid or payable under this Agreement for the [*] preceding such an audit. Licensor may not exercise this right more than once in any calendar year. Licensor will provide Dermira with a copy of any report prepared as a result of the audit. Licensor shall bear the full cost of such audit unless such audit discloses an underpayment by Dermira to Licensor of more than [*] of the amount due in any Quarter examined, in which case, Dermira shall bear the full cost of the audit.
(b) Except for purposes of enforcing this Agreement, or as otherwise required by law, Licensor agrees to hold confidential all non-public, confidential information learned in the course of any examination of Dermiras books and records under this Agreement.
Section 4.6 Payment Adjustments . Any adjustment to royalty or milestone payments made by Dermira to Licensor (whether payment or reimbursement, as the case may be) required as a result of an audit conducted pursuant to Section 4.5 shall be made within [*] after the date on which the accountant conducting the audit issues a written report to Licensor and Dermira containing the results of the audit.
Section 4.7 Audit Conditions . Dermira will supply all records to Licensor and its accountant in the English language and such records will be collated, indexed or otherwise mapped and made available for review in a well-lighted, climate-controlled location at Dermiras facilities. Dermira agrees that all records relating to this Agreement subject to audit will be maintained and presented by English speaking personnel within Dermiras organization who have authority and responsibility for such records.
ARTICLE 5
LICENSED PRODUCT DEVELOPMENT AND RIGHTS
Section 5.1 Dermira Future Development and Inventions . Dermira shall be responsible, at its sole cost and expense and in accordance with its obligations under Article 3, for the formulation, preclinical, clinical development and registration work to develop and market Licensed Products ( Development Work ).
Section 5.2 Intellectual Property Ownership . As between Licensor and Dermira, Dermira will have and retain ownership of all right, title and interest to technology and intellectual property developed by Dermira, its Affiliates and their personnel, whether or not relating to the Patent Rights and Technology. Without limiting the generality of the foregoing, Dermira shall be the owner of any Improvements to the Licensed Product developed by Dermira, its Affiliates or their personnel as part of the Development Work under Section 5.1.
ARTICLE 6
PATENT PROSECUTION
Section 6.1 Responsibility for Prosecution of Patent Rights and Technology . Dermira shall be responsible for (and shall use Commercially Reasonable Efforts toward) the
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prosecution and maintenance of the U.S. and foreign patents and patent applications included in the Patent Rights and Technology, using counsel of its choice, and shall bear all expenses incurred in connection with such prosecution or maintenance. Dermira shall provide Licensor with copies of relevant documentation so that Licensor may be informed and apprised of the continuing prosecution of such patent applications. Dermira shall provide Licensor with an opportunity to review and comment on the text of each patent application and material responses to office actions before filing, and shall take Licensors comments and suggestions into consideration when framing responses and submissions to patent offices. At Dermiras sole expense, Licensor agrees to reasonably cooperate with Dermira in preparing, filing, prosecuting and maintaining any such patent applications and patents (including without limitation by using reasonable efforts to make the applicable inventor(s) available to Dermira as a liaison and resource during patent prosecution), and Licensor agrees to execute any documents as shall be necessary for such purpose.
Section 6.2 Abandoned Patents . Notwithstanding Section 6.1, if Dermira elects to abandon prosecution of a patent or patent application included in the Patent Rights and Technology, then Dermira shall notify Licensor in writing and if Licensor so elects by written notice to Dermira within [*] thereafter, then (a) such patent or patent application shall no longer be part of the Patent Rights and Technology and (b) Licensor shall be entitled (at its own expense) to assume and continue the prosecution and maintenance of such abandoned patent or patent application.
ARTICLE 7
INFRINGEMENT
Section 7.1 Notification of Infringement . Each Party agrees to provide written notice to the other Party promptly after becoming aware of any suspected infringement or alleged infringement of the Patent Rights and Technology. Such notifying Party shall provide the other Party with any available evidence of such suspected infringement or alleged infringement.
Section 7.2 Right to Pursue Infringers .
(a) In the event of suspected infringement of the Patent Rights and Technology by a third party, Dermira shall have the first right to enforce the Patent Rights and Technology, and shall be entitled to (in consultation with counsel of its choice) control all aspects of any enforcement action, including without limitation the degree, timing, object, and methods of enforcement (such methods including but not limited to licensing, litigating for damages and injunctive relief, and settling disputes). If requested by Dermira (and at Dermiras expense) Licensor (i) shall join in (or if necessary, initiate) a suit against alleged infringers of the Patent Rights and Technology, and (ii) provide (at Dermiras expense) all assistance, information and authority reasonably requested by Dermira in connection with any enforcement action initiated or requested by Dermira. In the event of an enforcement action initiated or requested by Dermira pursuant to this Section 7.2(a), Dermira shall be entitled to retain any amounts awarded or received by way of judgment or settlement, except that any amounts received by Dermira in excess of Dermiras costs and expenses associated with such enforcement action shall be treated
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as Sublicensing Revenue and shall be subject to the payment obligations contained in Section 4.2(b).
(b) Notwithstanding Section 7.2(a), if Licensor has provided Dermira with written notice of suspected infringement or alleged infringement of the Patent Rights and Technology, and Dermira does not within [*] after such notice (the Dermira First Right Period ) elect to initiate settlement discussions or an enforcement action with respect to such infringement, then Licensor shall have the right, exercisable at any time within [*] after the expiration of the Dermira First Right Period to notify Dermira in writing that it wishes to initiate an enforcement action against the alleged infringers, in which case:
(i) If Dermira so elects within [*] after receiving such notice from Licensor, then (A) Dermira and Licensor shall be entitled to jointly control all aspects of such enforcement action (it being understood that unless Dermira in its sole discretion agrees in writing, the Parties shall not be entitled to enter into any settlement that provides the alleged infringer with any rights or license to the Patent Rights and Technology), (B) the expenses of such enforcement shall be shared equally by Dermira and Licensor, and each Party shall provide any assistance, information and authority reasonably requested by the other in connection with such enforcement action, and (C) all recoveries awarded or received by way of judgment or settlement will first be allocated to each Party [*] to reimburse all attorneys costs, fees, and other related expenses incurred by such Party, with any remaining amount shared [*] between the Parties.
(ii) If Dermira declines to participate in such enforcement action or fails to respond within [*] after receiving such notice, then (A) Licensor shall be entitled to control all aspects of such enforcement action, provided that unless Dermira in its sole discretion agrees in writing, Licensor shall not be entitled to enter into any settlement that provides the alleged infringer with any rights or license to the Patent Rights and Technology, and (B) such enforcement action shall be at Licensors sole cost and expense, provided that Dermira shall (at Licensors expense) provide any assistance, information and authority reasonably requested by Licensor in connection with such enforcement action, and (C) Licensor shall be entitled to retain [*] awarded or received by way of judgment or settlement.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Section 8.1 Licensor Representations and Warranties . Licensor represents and warrants to Dermira that: (a) Licensor has full power to make the assignments and transfers and grant the rights, licenses and privileges granted in this Agreement; (b) Licensor has not licensed, pledged, granted a security interest in, encumbered or assigned any of the Patent Rights and Technology, Stiefel Data, Regulatory Materials, or Program Inventory and Supplies to any third party, other than Stiefels retention of certain rights to Stiefel Data under the Stiefel Agreement, and the license of certain Patent Rights and Technology pursuant to a prior license described in Recital A of the Stiefel Agreement which was terminated by Stiefel (with no remaining rights to Patent Rights (as defined therein) held by the former licensee) pursuant to a termination notice
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issued by Stiefel on [*]; (c) the Stiefel Agreement has been executed and delivered by Licensor and Stiefel and remains in full force and effect; (d) there no patents or patent applications in the name of [*] in existence as of the Effective Date related to the Field which have not been assigned to Licensor, and (e) Licensor will ensure that any inventions or discoveries made by [*] during the Term which would be included in Patent Rights and Technology if assigned to Licensor are assigned by [*] to Licensor.
Section 8.2 Dermira Representations and Warranties . Dermira represents and warrants that: (a) it has full power and authority to enter into this Agreement; and (b) in exercising its rights under this Agreement, it shall fully comply with the requirements of any and all applicable laws, regulations, rules, and orders of any governmental body having jurisdiction over the exercise of the rights hereunder.
Section 8.3 Disclaimer; Negation of Warranties by Licensor .
EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 8, LICENSOR MAKES NO WARRANTIES OR REPRESENTATION (EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE) WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES AND REPRESENTATIONS OF NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
Nothing contained in this Agreement shall be construed as:
(a) a warranty or representation by Licensor as to the validity, enforceability, or scope of any of the Patent Rights and Technology;
(b) a warranty or representation by Licensor that the manufacture, sale, offer for sale, lease, import, use, or other exploitation of the Licensed Products will be free from infringement of intellectual property rights of third parties;
(c) conferring any rights to use in advertising, publicity, or other marketing activities any name, trademark, or other designation of either party, except as otherwise expressly set forth herein;
(d) granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of Licensor or other persons other than the Patent Rights and Technology and the Stiefel Data; or
(e) an obligation to furnish any technical information or know-how except as expressly provided.
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ARTICLE 9
CONFIDENTIALITY
Section 9.1 Treatment of Confidential Information . Each Party agrees that all inventions, processes, materials, chemicals, know-how and ideas, and all other business, technical and financial information, it obtains from the other Party (which includes disclosures by Stiefel in the case of disclosures by Licensor) is the confidential property of the disclosing Party ( Confidential Information of the disclosing Party). Except as expressly allowed in this Agreement, the receiving Party will hold in confidence and not use or disclose any Confidential Information of the disclosing Party; provided , however , that Dermira, its Affiliates and Sublicensees may disclose information relating to the Patent Rights and Technology and the Stiefel Data (a) to actual or potential Sublicensees, investors or acquirers provided that each such actual or potential Sublicensee, investor or acquirer agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, (b) to consultants, contractors, suppliers and Affiliates, provided that each such consultant, contractor, supplier and Affiliate agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, and (c) to legal, financial, and tax advisors of Dermira or its Affiliates or of a Sublicensee, provided that such advisors are subject to confidentiality obligations with respect to any Confidential Information. No provision of this paragraph shall be interpreted to prevent Dermira, its Affiliates or a Sublicensee from making disclosures of Confidential Information to Regulatory Authorities as necessary: (i) for the research and development of Licensed Products; or (ii) to seek or obtain patents. Furthermore, Licensor agrees (without limitation on Licensors obligations under Article 2) that during the Term, Licensor shall treat the Patent Rights and Technology as Confidential Information of Dermira. Dermira acknowledges that, pursuant to Section 9.1 of the Stiefel Agreement, if Stiefel reasonably believes that a potential sublicensee of Dermira of rights to commercialize Licensed Product may be using any of the Stiefel Data in breach of any confidentiality or non-use obligation to Dermira or sublicense or other authorization provided by Dermira, Stiefel may request in writing of Licensor whether Dermira disclosed the Stiefel Data to such third party or an Affiliate or representative thereof, and Dermira shall provide Licensor with the information for Licensor to answer Stiefels request, provided that answering such request does not constitute a breach of any legal obligation of Dermira to such third party, including representing to Licensor whether Dermira made such a disclosure. Dermira will ensure that any non-disclosure or other agreement with such a third party under which Stiefel Data is disclosed, does not prevent Dermira from making such a disclosure in response to a court order.
Section 9.2 Release from Restrictions . The provisions of Section 9.1 shall not apply to any Confidential Information disclosed hereunder which:
(a) was known or used by the receiving Party prior to its date of disclosure to the receiving Party, as evidenced by the prior written records of the receiving Party; or
(b) either before or after the date of the disclosure to the receiving Party is lawfully disclosed to the receiving Party by sources other than the disclosing Party rightfully in possession of such information, and such source was not under a duty of confidentiality with respect to such information; or
(c) either before or after the date of the disclosure to the receiving Party becomes published or generally known to the public, through no fault or omission on the part of the receiving Party or an affiliated party; or
(d) is independently developed by or for the receiving Party without reference to or reliance upon the Confidential Information; or
(e) is required to be disclosed by the receiving Party to comply with applicable laws, court order, or governmental regulations, provided that the receiving Party (i) provides (A) prior written notice of such disclosure requirement to the other Party and (B) an adequate opportunity to seek appropriate legal relief to prevent such disclosure or limit use and further disclosure of the Confidential Information and (ii) takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure, and provided, further, that the receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and shall promptly inform the disclosing Party in writing of which portion of the Confidential Information was so disclosed.
Notwithstanding the foregoing or anything set forth herein or otherwise, and for the avoidance of doubt, [*] shall be considered to be Confidential Information.
ARTICLE 10
MARKING
Prior to their expiration, Dermira, its Affiliates, and its Sublicensees shall mark, or shall cause to be marked, each Licensed Product with a notice that the Licensed Product is Licensed under one or more of U.S. Patents Nos. [*] and/or all such additional patents covered by this Agreement as they issue and shall otherwise so mark Licensed Products in accordance with applicable patent laws and practices of the country in which the Licensed Product is sold. To the extent permitted and effective pursuant to applicable law, however, and if marking the Licensed Product is not practicable, then the Licensed Product will be considered marked if the above notice is included in a manual or literature accompanying the Licensed Product.
ARTICLE 11
INDEMNIFICATION
Section 11.1 By Dermira . Dermira shall indemnify, defend, and hold Licensor, its members, employees, directors, officers, successors and assigns and [*] (individually and collectively Licensor Indemnitees ) harmless from and against any and all third party claims, actions, suits, proceedings, demands, costs, expenses (including
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reasonable attorneys fees), liabilities and/or losses (collectively, Losses ) arising out of or in connection with third party claims based on the exercise or practice by Dermira, its Affiliates and/or its Sublicensees of the rights and licenses granted under this Agreement by Licensor, including without limitation (i) the development, manufacture, use, sale or other disposition of Licensed Products by Dermira, or its Affiliates and Sublicensees and (ii) the use by any person of Licensed Products made, used, sold or otherwise distributed by Dermira, or its Affiliates and Sublicensees; provided , however , that the foregoing indemnification obligations shall not apply to any claim arising out of the gross negligence or willful misconduct of a Licensor Indemnitee or any breach of Licensors representations and warranties under Article 8. Notwithstanding the foregoing, Dermiras indemnification and defense obligations under this Section 11.1 shall not apply to the extent that the act of such indemnification itself would constitute a violation of California Civil Code Section 2773.
Section 11.2 Indemnification and Defense Procedure . A Licensor Indemnitee (each, an Indemnified Person ) shall reasonably promptly notify Dermira (the Indemnifying Party ) in writing, of any claim for which indemnification may be sought under Section 11.1; provided , however , that any delay in notification shall not nullify any indemnification obligation except to the extent of actual and substantial prejudice. The Indemnifying Party shall control the investigation, trial, defense and settlement of such lawsuit or action (including all negotiations to effect a settlement) and any appeal arising therefrom. The Indemnified Person may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any resulting appeal. At the Indemnifying Partys expense, the Indemnified Person shall reasonably cooperate in good faith with the Indemnifying Party at all times during the pendency of the claim or lawsuit including, without limitation, promptly providing the Indemnifying Party with all available information and documents concerning the claim that are in the Indemnified Persons possession. Notwithstanding the foregoing, an Indemnified Persons consent, which shall not be unreasonably withheld, shall be obtained in the event any compromise or settlement under this Article 11 that includes a finding or admission of any violation of any law by such Indemnified Person, or requires the payment of any money by the Indemnified Person.
Section 11.3 Indemnification and Personal Liability Disclaimer . Licensor shall have no obligation of defense, contribution, or indemnity with respect to any actual or alleged intellectual property infringement, product liability, personal injury, or otherwise with respect to the Patent Rights and Technology or otherwise arising from this Agreement. Licensor shall have no liability arising out of any such actual or alleged intellectual property infringements, product liability, or personal injury. However, the foregoing provisions of this Section 11.3 shall not limit Licensors obligations or liability with respect to any breach of Licensors representations and warranties under Article 8.
Section 11.4 Indemnification of Stiefel. Dermira, its Affiliates and Sublicensees shall indemnify Stiefel and its Affiliates, and other related indemnified persons as set out in the Stiefel Side Letter.
ARTICLE 12
LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF OPPORTUNITY, OR LOSS OF REVENUE OR PROFIT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 13
TERM
Unless terminated earlier, as provided in this Agreement, the term of this Agreement shall commence on the Effective Date and continue in full force and effect until the later of (i) the expiry of the last Valid Claim, or (ii) expiration of the last Know-How Royalty Term (the Term ), provided that upon expiration of the Term, the licenses granted to Dermira and its Affiliates pursuant to Section 2.1, 2.2 and 2.3 shall become nonexclusive, irrevocable and royalty-free and remain in full force and effect in perpetuity. Notwithstanding the foregoing, the sublicense to Stiefel Data shall not become irrevocable before the date that is [*] following the Effective Date.
ARTICLE 14
TERMINATION
This Agreement may be terminated as follows:
Section 14.1 By Licensor . During the Term, Licensor shall be permitted to immediately terminate this Agreement in the event Dermira c ommits a material breach of this Agreement (other than Article 3) and fails to cure such breach within [*] (or in the event of a breach of Dermiras payment obligations that is not being disputed in good faith, within [*]) after Dermira receives written notice from Licensor identifying this Agreement and the action giving rise to the claimed material breach. Any actual or alleged breach by Dermira of its obligations under Article 3 shall be governed by, and Licensors remedies for such breach shall be as set forth in, Article 3. In addition, Licensor shall be permitted to immediately terminate the sublicense to the Stiefel Data in the event Dermira commits a material breach of this Agreement or the Stiefel Side Letter which causes Licensor to be in material breach of the Stiefel Agreement and Dermira fails to cure such breach within [*] after Dermira receives written notice from Licensor or Stiefel identifying this Agreement and the action giving rise to the material breach. In addition, in the event that Stiefel and Dermira become involved in an arbitration under Paragraph 10 of the Stiefel Side Letter, to avoid having two dispute proceedings being conducted at the same time, if Licensor wishes to issue a written notice of material breach of this Agreement to Dermira prior to the completion of the Stiefel - Dermira arbitration proceedings, in addition to Licensors other rights under this Section 14.1, Licensor may elect to issue such notice but specify that the notice will become
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effective only simultaneously with the arbitrator issuing its decision in the Stiefel - Dermira arbitration.
Section 14.2 By Dermira . During the Term, Dermira shall be permitted to immediately terminate this Agreement in the event:
(a) Licensor c ommits a material breach of this Agreement and fails to cure such breach within [*] after Licensor receives written notice from Dermira identifying this Agreement and the action giving rise to the claimed material breach; or
(b) In Dermiras sole and reasonable opinion [*] of Licensed Products is [*] Licensed Product or, before or after approval of Licensed Products for sale [*]. Upon any termination pursuant to this Section 14.2(b), (x) all rights to the Patent Rights and Technology shall revert to Licensor, and (y) Dermira agrees, subject to Licensors agreement to a release of claims against Dermira and its Affiliates in a form reasonably requested by Dermira, to (1) [*], and (2) for a period of [*] after such termination to provide Licensor (at Licensors expense) with such technical assistance and access to and cooperation of Dermira personnel as Licensor may reasonably request in connection with the license of such Improvements to Licensor.
Section 14.3 Termination for Insolvency . Either Party may terminate this Agreement immediately upon delivery of written notice to the other Party: (i) upon the institution by or against the other Party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of the other Partys debts, and provided in the case of an involuntary proceeding initiated against a Party that such proceeding is not stayed or dismissed within [*] after its initiation; (ii) upon the other Partys making an assignment for the benefit of creditors; (iii) upon the other Partys dissolution or ceasing to do business; or (iv) upon the appointment of a receiver or receiver and manager, trustee, administrator or official manager or agent of a secured or unsecured creditor to any of the other Partys property. For clarity, in the event of a dissolution of Licensor, unless this Agreement is affirmatively terminated by Dermira by written notice as permitted under this Section 14.3, it shall remain in full force and effect and be binding upon Licensors successors and assigns resulting from such dissolution, as provided in Article 18.
Section 14.4 Effect of Insolvency or Bankruptcy of Licensor . The Parties acknowledge and agree that all rights and licenses to intellectual property granted to Dermira and its Affiliates and Sublicensees pursuant to this Agreement are, for all purposes of Section 365(n) of the United Stated Bankruptcy Code, as amended (the Bankruptcy Code), licenses of rights to intellectual property as defined in the Bankruptcy Code, and that in the event Licensor becomes a debtor in bankruptcy, the provisions of Section 365(n) of the Bankruptcy Code shall apply and each of Dermira and each Sublicensee shall continue to have rights under such
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licenses as long as such party continues to fulfill all of its obligations, including its obligations to pay royalties, under this Agreement, as and to the extent provided in Section 365(n).
Section 14.5 Effect of Termination . Expiration or termination of this Agreement for any reason shall not release the other Party from any liability that at the time of such termination or expiration has already accrued to the other Party. Upon the expiration or termination of this Agreement, (a) the license granted to Dermira and its Affiliates shall terminate, and (b) any sublicense of the rights granted to Dermira and its Affiliates hereunder shall automatically be assigned to and assumed by Licensor, and shall remain in full force and effect with Licensor as the licensor instead of Dermira or its Affiliate (provided that, unless Licensor agrees in writing otherwise, the obligations of Licensor under the assigned sublicenses will not be greater than the obligations of Licensor under this Agreement). Within [*] after any expiration or termination, Dermira shall pay any and all amounts owing to Licensor, and all royalties accrued, as of the date of such expiration or termination.
ARTICLE 15
DISPUTE RESOLUTION
Section 15.1 Mandatory Procedures . The Parties agree that any dispute arising out of or relating to this Agreement shall be resolved solely by means of the procedures set forth in this Article, and that such procedures constitute legally binding obligations that are an essential provision of this Agreement. If either Party fails to observe the procedures of this Article, as may be modified by their written agreement, the other Party may bring an action for specific performance of these procedures in any court of competent jurisdiction.
Section 15.2 Arbitration . The Parties shall endeavor to resolve in good faith any disputes or conflicts arising from or relating to the subject matter of this Agreement, failing which either Party shall submit such conflict for resolution to an executive officer of Dermira and Licensor. If the executive officers of Dermira and Licensor are unable to resolve such conflict within [*] after such conflict is submitted to them for resolution, such conflict may be submitted to binding arbitration in accordance with the rules of arbitration of the American Arbitration Association (in accordance with its Commercial Arbitration Rules then in effect and this Agreement) and heard before a arbitrator or panel of arbitrators selected as follows: (i) for a period of [*] after submission of a dispute to arbitration, the Parties shall confer in good faith to attempt to mutually agree as to the selection of a single arbitrator with relevant industry expertise, and if they so agree then the dispute will be heard before the single arbitrator so selected, and (ii) if after such [*] period, the Parties have failed to reach mutual agreement, then each Party shall select an arbitrator with relevant industry expertise, the two arbitrators so selected shall select a third arbitrator with relevant industry expertise, and the dispute shall be heard before the three arbitrator panel so selected. Such arbitration will be held in Palo Alto, California and conducted in English. The arbitrator(s) will apply California law, without regard to its conflict of laws rules or principles. The arbitrator(s) will allow such discovery as is appropriate for the purpose of arbitration in accomplishing a fair, speedy and cost-effective resolution of the dispute. The arbitrator(s) will have the authority to award compensatory damages only. Any award by the arbitrator(s) will be accompanied by a written opinion setting forth the findings of fact and conclusions of law relied
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upon in reaching the decision. The award rendered by the arbitrator(s) will be final, binding and, except as permitted by applicable law, non-appealable.
ARTICLE 16
GOVERNING LAW; JURISDICTION
This Agreement and all disputes arising out of or related to this Agreement shall be governed by the laws of the state of California, without regard to conflict of laws principles. The Parties hereby agree that any dispute arising out of this Agreement that is not subject to arbitration pursuant to Article 15 shall be subject to the exclusive jurisdiction of and venue in the federal and state courts within Santa Clara County, California. Each Party hereby irrevocably consents to the personal and exclusive jurisdiction and venue of such courts.
ARTICLE 17
NOTICE
Any notices required or permitted under this Agreement shall be in writing, in English, specifically refer to this Agreement, and shall be sent by prepaid registered or certified mail, return receipt requested; by recognized overnight courier; or by personal delivery, in each case addressed to the other Party as follows:
If to Dermira: |
If to Licensor: |
Dermira, Inc. 2055 Woodside Road, Ste. #270 Redwood City, California 9406 |
Rose U LLC [*] Palo Alto, CA 94303 |
Attention: Chief Executive Officer Fax: (650) 365-3410 |
Attention: [*] |
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With a copy to: |
With a copy to: |
Fenwick & West LLP Silicon Valley Center 555 California Street 12th Floor San Francisco, CA 94104 Attention: Douglas Cogen Fax: (415) 281-1350 |
[*] |
Either Party may designate a different address, telephone number and/or facsimile number by giving notice, pursuant to this Article, to the other Party. Any notice given pursuant to this Article shall be deemed to have been given: (a) three (3) business days after sent by prepaid registered or certified mail; (b) two (2) business days after sent by recognized overnight courier and (c) when received if by personal delivery.
ARTICLE 18
ASSIGNMENT
Neither Party may assign or transfer this Agreement or any rights or obligations under this Agreement, whether voluntary or by operation of law, without the prior written consent of the other Party; provided , however , that a Party may (without requirement to obtain the other Partys consent) assign or transfer this Agreement to any successor or third party in connection with a merger, acquisition or sale of all or substantially all of the assets of such Party that relate to the business activities conducted pursuant to this Agreement (and, for clarity, in the case of an assignment by Dermira in connection with a Liquidity Event, Dermira shall timely make any payment required under Section 4.2(c) above). In addition, in the event of an assignment or transfer of this Agreement by Dermira to a third party in connection with a sale of all or substantially all of the assets of Dermira that relate to the business activities conducted pursuant to this Agreement, Dermira shall make any payments arising from such assignment to Stiefel that are required to be made under the Stiefel Side Letter. Any assignment or transfer or attempted assignment or transfer of this Agreement made in contravention of the terms of this Article shall be null, void and without effect. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the Parties respective successors and permitted assigns.
ARTICLE 19
WAIVER
No failure or delay on the part of a Party in exercising any right under this Agreement will operate as a waiver of, or impair, any such right, unless a waiver is made in writing signed by the waiving Party. No single or partial exercise of any such right will preclude any other or further exercise thereof or the exercise of any other right. No waiver of any such right will be deemed a waiver of any other right under this Agreement.
ARTICLE 20
PARTIAL INVALIDITY
If any provision of this Agreement is held to be invalid, illegal, or unenforceable by a court of competent jurisdiction: (a) such provision will be deemed amended to conform to applicable laws of such jurisdiction so as to be valid and enforceable, or, if it cannot be so amended without materially altering the intention of the Parties, it will be stricken; (b) the remaining provisions shall remain in full force and effect; (c) the validity, legality and enforceability of such provision will not in any way be affected or impaired in any other jurisdiction and (d) the remainder of this Agreement will remain in full force and effect. The Parties agree to renegotiate in good faith any term of this Agreement held to be invalid, illegal or unenforceable and agree to be bound by the mutually agreed substitute provision in order to give the most approximate effect intended by the Parties.
ARTICLE 21
HEADINGS
All headings are for convenience only and shall not affect the meaning of any provision of this Agreement.
ARTICLE 22
FORCE MAJEURE
A Party shall be excused from (and not liable to the other Party for) any failure or delay in performance of any obligation under this Agreement (other than obligations to make payment) to the extent such failure or delay is due to an event or circumstance beyond the reasonable control of such Party, including, without limitation, war, rebellion, civil commotion, strikes, lock-outs or industrial disputes; fire, explosion, earthquake, acts of God, flood, drought or bad weather; acts of terror or the requisitioning or other act or order by any government department, council or other constituted body (a Force Majeure ). In the event of a Force Majeure, the non-performing Party will promptly notify the other Party thereof and use its best efforts to resume performance as soon as practicable.
ARTICLE 23
NO PUBLICITY
Neither Party shall make any public or press announcement about this Agreement, its terms or its business relationship with the other Party, without the prior written consent of the other Party. The form and content of any such announcement shall be subject to the prior approval of each Party.
ARTICLE 24
USE OF NAME, SYMBOLS AND MARKS
Licensor and Dermira shall not use the name, symbols and/or marks of the other Party in any form of publicity without the prior written authorization of the other Party. However, each Party has the right to use the other Partys name on governmental filings and elsewhere as required by law.
ARTICLE 25
SURVIVAL
The terms and provisions of Articles 1, 5, 8, 9, 11, 12, 13, 14.5 and 15 through 30 shall survive any expiration or termination of this Agreement.
ARTICLE 26
INDEPENDENT CONTRACTOR
Licensors status and relationship with Dermira shall be that of an independent contractor, and Licensor shall not state or imply, directly or indirectly, that it is empowered or authorized to commit or bind Dermira or to incur any liabilities or expenses on behalf of Dermira or to enter into any oral or written agreement in the name of or on behalf of Dermira. Nothing in this Agreement shall create, expressly or by implication, a partnership, joint venture, agency or other association of the Parties.
ARTICLE 27
MULTIPLE COUNTERPARTS
This Agreement may be executed in two (2) identical counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
ARTICLE 28
AMENDMENT
This Agreement may be amended, supplemented or otherwise modified only by means of a written instrument signed by both Parties.
ARTICLE 29
ENTIRE AGREEMENT
This Agreement including the Appendices hereto, constitutes the entire agreement between the Parties with respect to its subject matter and supersedes all prior agreements or understandings, oral or written, between the Parties relating to the subject matter of this Agreement.
ARTICLE 30
[*]
[*] shall have no liability or obligation to Dermira or any other parties arising out of this Agreement and shall be direct and intended third-party beneficiaries of Article 11 (Indemnification) and this Article, entitled to enforce the same directly against Dermira.
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IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute and deliver this Exclusive License Agreement as of the Effective Date.
LICENSOR |
DERMIRA |
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ROSE U LLC |
DERMIRA, INC. |
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Signature: |
/s/ Jeffrey D. Urman |
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Signature: |
/s/ Thomas Wiggans |
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Print: |
Jeffrey D. Urman |
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Print: |
Thomas Wiggans |
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Title: |
Secretary Treasurer |
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Title: |
Chief Executive Officer |
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Date: |
April 2, 2013 |
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Date: |
April 26, 2013 |
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[SIGNATURE PAGE TO EXCLUSIVE LICENSE AGREEMENT]
APPENDIX A
LIST OF PATENT APPLICATIONS AND PATENTS
ROSE U PATENTS
[*]
NON-ROSE U PATENTS
[*]
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APPENDIX B
STIEFEL AGREEMENT
(ATTACHED)
LICENSE AND POST-TERMINATION AGREEMENT
This License and Post-Termination Agreement (this Agreement ) is entered into as of April 26, 2013 ( Effective Date ), by and between Stiefel Laboratories, Inc. ( Stiefel ), a Delaware corporation with a place of business at 20 T.W. Alexander Drive, Research Triangle Park, NC 27709 and Rose U LLC, ( Rose U ) a California limited liability company with a place of business at [*], Palo Alto, CA 94303. Each of Rose U and Stiefel may be referred to herein as a Party and collectively as the Parties .
RECITALS
A. Rose U and Connetics Corporation ( Connetics ) entered into an Exclusive Patent License Agreement dated [*] , which agreement was amended on [*] (the Prior License Agreement ). Stiefel acquired Connetics on December 29, 2006, and as a result of such acquisition, Stiefel became the successor in interest to, and assumed the rights and obligations of, Connetics under the Prior License Agreement.
B. On [*], Stiefel notified Rose U in writing that Stiefel had terminated the Prior License Agreement pursuant to Section [*] of the Prior License Agreement effectively immediately as of the date of the letter.
C. Pursuant to Section [*] of the Prior License Agreement, upon the termination of such agreement, the Parties are required to negotiate in good faith the licensing of the data generated by Connetics/Stiefel supporting the development work under such agreement to Rose U at a mutually agreed upon compensation. The Parties have engaged in such negotiations.
D. Rose U and Stiefel now wish to enter into this Agreement in order to document certain agreements and understandings relating to the termination of the Prior License Agreement, and to provide Rose U with certain rights to such data developed by Connetics/Stiefel, and other matters, in connection with the Prior License Agreement, all upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1. DEFINITIONS
Affiliate means, with respect to a person, any corporation, partnership, business joint venture or other entity that directly or indirectly controls, is controlled by or is under common control with such person. For purposes of this definition, control means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity in question (whether through ownership of securities or other ownership interests, by contract or otherwise).
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Control or Controlled means, with respect to any item of Stiefel Data, patent rights, or other intellectual property right, the possession (whether by ownership or license) by a Party of the ability to grant to the other Party access, a license or a sublicense (as applicable), or to extend other rights as provided in this Agreement, to such intellectual property right, without violating the terms of any agreement or other arrangements with any third party.
Dermira means Dermira, Inc. and any successor or assign of Dermira, Inc. through merger, reorganization, consolidation or sale of all or substantially all of the assets of Dermira, Inc. to which the sublicense of the rights granted under this Agreement relates. Dermira shall also be considered to be a Designated Sublicensee where such defined term is used throughout this Agreement.
Designated Sublicensee is defined in Section 3.5.
Field shall mean the use of topical products containing [*] or other compounds identified in the Rose U Patents for the treatment and prevention of hyperhidrosis, [*], or excessive sweating. For clarity, the Field includes such products sold [*].
[*] Program means the programs of research and development conducted by Connetics, Stiefel, or any combination of the foregoing directly and through their Affiliates and contractors relating to applications of [*] or other compounds identified in the Rose U Patents, including as undertaken in relation to [*] and any similar registrations with regulatory authorities.
Licensed Product means any product, process or service (i) that incorporates in whole or in part Stiefel Data, or (ii) in the Field that incorporates [*], provided that Licensed Product does not include a Pre-Existing Product, where a Pre-Existing Product means a product, process or service in the Field that (a) incorporates [*], (b) does not incorporate, in whole or in part, any Stiefel Data and (c) was in clinical development by a Designated Sublicensee or an Affiliate or permitted sublicensee of a Designated Sublicensee or an Affiliate of any such sublicensee prior to any access to Stiefel Data by the relevant entity; provided , that such entity shall promptly provide Stiefel proof of such development prior to the date of access to Stiefel Data upon the request of Stiefel. Rose U represents and warrants that neither Rose U, Dermira, Inc. nor any of their Affiliates has any product, process or service in the Field that incorporates [*] in clinical development as of the Effective Date.
Program Inventory and Supplies means the drug substance, drug product and inventory relating to the [*] Program owned or Controlled by Stiefel or its Affiliates that is specified on Exhibit A-2 .
Regulatory Materials means regulatory applications, submissions, notifications, registrations, regulatory approvals or other submissions or correspondence made to, with or from a regulatory authority prior to the Effective Date in connection with the [*] Program. Regulatory Materials include Investigational New Drug applications, drug approval applications, or any similar applications with regulatory authorities anywhere in the world, amendments and supplements for any of the foregoing, and applications for pricing approvals. For clarity, the
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Regulatory Materials include [*].
Rose U Patents means U.S. Patents [*].
Stiefel Data means the documentation, reports and data relating to the [*] Program that is specified on Exhibit A-1 that is owned or Controlled by Stiefel or its Affiliates and was developed or used in connection with the [*] Program, together with any additional information delivered by Stiefel pursuant to Section 3.3.
Stiefels Knowledge means the actual knowledge of [*] with no further investigation.
ARTICLE 2. TERMINATION OF PRIOR LICENSE AGREEMENT; RELEASE
Section 2.1 Termination . Rose U and Stiefel acknowledge and agree that the Prior License Agreement was terminated.
Section 2.2 Release . Rose U and Stiefel (each, a Releasor ), on behalf of themselves and their heirs, executors, administrators, predecessors, subsidiaries, affiliates, successors, and assigns, knowingly and voluntarily release and discharge the other and the others respective officers, directors, stockholders, members, employees, agents and affiliates (collectively, the Released Parties ), from any and all claims, liabilities, damages and obligations that each Party may have against any such Released Party, through the Effective Date based upon any matter, cause or thing whatsoever related to or arising out of the Prior License Agreement and the resulting relationship between the parties (collectively, the Released Matters ). This release shall not extend to the Parties rights to enforce the terms and conditions of this Agreement, all of which rights shall be preserved. Releasor hereby covenants and agrees not to bring suit in any forum, or prosecute in any fashion, any suit or other legal proceeding of any sort at any time, now or in the future, against any Released Party with respect to any of the Released Matters.
ARTICLE 3. TRANSFER OF [*] PROGRAM
Section 3.1 Assignment of Patent Rights . In connection with this Agreement, Stiefel has assigned and transferred all of its and its Affiliates right, title and interest in and to certain patent rights to Rose U. Such assignment was formalized by the execution and delivery by Stiefel to Rose U of an assignment in the form attached as Exhibit A-3 (the patents, applications and rights assigned pursuant thereto, the Assigned Patent Applications ).
Section 3.2 License to Stiefel Data . Subject to the terms of this Agreement (including but not limited to Section 3.5.4 hereof), Stiefel hereby grants Rose U a worldwide, exclusive (except as to Stiefel and its Affiliates) license (including the right to grant sublicenses through multiple tiers pursuant to the provisions of Section 3.5 hereof) to use the Stiefel Data in the Field.
Section 3.3 Delivery of Stiefel Data . Promptly following the Effective Date, Stiefel shall transfer and assign to Rose U copies of all documents (whether in written or electronic
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form) listed on Exhibit A-1 . Additionally, for a period of [*] after the Effective Date, Stiefel shall provide Rose U or Dermira at no cost to Rose U (other than reimbursement of Stiefels actual out-of-pocket expenses, which shall be paid by Rose U to Stiefel) with such technical assistance and access to and cooperation of Stiefel personnel as Rose U or Dermira may reasonably request in connection with the delivery to Rose U of factual knowledge and information relating to the Stiefel Data, Regulatory Materials and Program Inventory and Supplies, provided that in no event shall Stiefel be required to provide more than [*] of employee time for such purpose (the Technical Assistance ).
Section 3.4 Regulatory Materials and Program Inventory and Supplies .
3.4.1 Stiefel hereby assigns to Rose U all of its right, title and interest in and to the Regulatory Materials. At the request of Rose U, Stiefel shall promptly deliver the Regulatory Materials to Rose U and shall take such additional steps and execute such additional documents as Rose U may reasonably request in order to effect such assignment and delivery, including the transfer of any regulatory applications into the name of Rose U.
3.4.2 Upon Rose Us request within [*] of the Effective Date, Stiefel shall, to the extent it is able to do so in compliance with its internal policies and to the extent such Program Inventory and Supplies still exists, assign, transfer and deliver the Program Inventory and Supplies to Rose U and shall take such additional steps and execute such additional documents as Rose U may reasonably request in order to effect such assignment, transfer and delivery. In addition, if requested by Rose U or Dermira, Stiefel shall use commercially reasonable efforts, but only during such [*] period (such time spent by Stiefel to count toward the [*] cap on Technical Assistance), to (i) introduce Rose U and/or Dermira to the contract manufacturing organization ( CMO ) that provided the Program Inventory and Supplies to Stiefel, and (ii) facilitate the transition of manufacturing to a CMO designated by Rose U or Dermira, provided that Stiefel shall not be obligated to place any orders from a CMO on behalf of Rose U or Dermira nor to provide any other assistance with respect to a CMO except as specifically set forth in this Section 3.4.2. If Rose U does not request delivery of the Program Inventory and Supplies within [*] of the Effective Date or if Stiefel determines that its internal policies prevent Stiefel from transferring any or all of the Program Inventory and Supplies to Rose U or that such Program Inventory and Supplies no longer exist, Stiefel may destroy such materials at its sole discretion without notice to Rose U. Upon the request of Rose U or Dermira, Stiefel will provide such Stiefel consent as is reasonably necessary to allow Rose U or Designated Sublicensees to work with service providers who have provided services to Stiefel in connection with the [*] Program, including consenting to the use by such contractors of any Stiefel Data in the possession or control of such contractors to provide services to Rose U or Designated Sublicensees.
Section 3.5 Sublicenses .
3.5.1 The license granted to Rose U pursuant to Section 3.2 includes the right to grant sublicenses of such rights through multiple layers of sublicenses to third parties or Affiliates (each such sublicensee, a Designated Sublicensee ) to which Rose U or a Designated Sublicensee is granting the right to research, develop or commercialize products in the Field using Stiefel Data.
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3.5.2 Any sublicense agreement, whether by Rose U or a Designated Sublicensee, shall not be inconsistent with the terms of this Agreement nor exceed the scope of the license granted to Rose U under this Agreement and shall include (i) an obligation of the Designated Sublicensee to indemnify Stiefel and its Affiliates as provided in Section 6.1 hereof, subject to conditions and procedures substantially equivalent to those contained in Section 6.2 and Article 7, (ii) confidentiality obligations of the Designated Sublicensee no less protective of the Stiefel Data than those contained in Article 9 of this Agreement, and (iii) an express statement that Stiefel and its Affiliates are intended third party beneficiaries of such sublicense agreement. Rose U shall promptly thereafter provide Stiefel a true and correct copy of each such sublicense, provided that Rose U or the Designated Sublicensee may redact confidential provisions of the sublicense agreement that are not reasonably required for Stiefel to confirm compliance with this Agreement (but not the identity of the Designated Sublicensee).
3.5.3 Rose U represents and warrants that the copy it has provided to Stiefel of the sublicense it is entering into with Dermira simultaneously with this Agreement is a true and correct copy thereof (the Rose U-Dermira Sublicense ), except that the financial terms regarding the amounts to be paid by Dermira to Rose U have been redacted from the copy provided to Stiefel.
3.5.4 Simultaneous with Dermira and Rose U entering into the Rose U-Dermira Sublicense, Dermira and Stiefel are entering into a letter agreement in the form attached as Exhibit B (the Side Letter Agreement ). If the Rose U-Dermira Sublicense is terminated for any reason, then in the event that Rose U seeks to engage a subsequent Designated Sublicensee to replace Dermira, Rose U may request such subsequent Designated Sublicensee to enter into a letter agreement with Stiefel substantially in the form of Exhibit B (a Subsequent Side Letter Agreement ), with any changes made thereto only as Stiefel finds acceptable. Stiefel may, in its sole discretion, agree or decline to enter into a Subsequent Side Letter Agreement. In the event that Stiefel declines to enter into the Subsequent Side Letter Agreement, Rose U may still elect to sublicense to such subsequent Designated Sublicensee but the provisions of Section 4.3 herein shall not apply and Rose U shall be liable to Stiefel to make the [*] Payment. If Stiefel does elect to enter into a Subsequent Side Letter Agreement with such Designated Sublicensee, then the provisions of Section 4.3 herein shall continue to apply with the subsequent Designated Sublicensee replacing Dermira in such section of this Agreement. Rose U acknowledges the possibility of the license grant in Section 3.2 hereof (the License Grant ) being converted to a non-exclusive grant pursuant to Paragraph 10 of the Side Letter Agreement. Notwithstanding the foregoing, in the event that Rose U sends a notice to Dermira to terminate the Rose U-Dermira Sublicense for material breach prior to or simultaneously with an arbitrator decision to order such a conversion of the License Grant (such that the Side Letter Agreement would be terminated pursuant to Paragraph 11 thereof if the Rose U-Dermira Sublicense were terminated), then the License Grant shall remain as exclusive (except as to Stiefel and its Affiliates).
3.5.5 For clarity, the definition of Designated Sublicensee shall include any permitted subsequent sublicensees permitted in accordance with this Section 3.5.
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ARTICLE 4. PAYMENTS, AND PAYMENT TERMS
Section 4.1 Payments . Subject to Section 4.3 (and, as applicable in the event the Rose U-Dermira Sublicense is terminated, Section 3.5.4), Rose U shall pay Stiefel [*] US dollars (US $[*]) upon [*] (the [*] Payment ), at which point no further royalties or other amounts shall be due and payable and the license granted hereunder shall be deemed fully paid-up and royalty-free.
Section 4.2 Payment Terms. Subject to Section 4.3, the [*] Payment shall be made directly by Rose U to Stiefel in US dollars, by wire transfer of immediately available funds to an account designated by Stiefel in writing, as Stiefel may update from time to time. The [*] Payment shall be made within [*] following [*]. In no event shall Rose U have any right to reclaim the [*] Payment or any part thereof.
Section 4.3 Payment by Dermira or Subsequent Designated Sublicensee Directly to Stiefel . The Parties acknowledge and agree that, through the Side Letter Agreement, Dermira has assumed Rose Us obligation to pay the [*] Payment that arises from [*]. For clarity, no other obligations of Rose U, including any indemnity obligations hereunder, are being transferred to Dermira. Accordingly, as long as the Side Letter Agreement remains in place, Stiefel will not seek payment of any such [*] Payment from Rose U, and will instead seek payment from Dermira pursuant to the terms of the Side Letter Agreement. Similarly if the Rose U-Dermira Sublicense is terminated, and Rose U requests a subsequent Designated Sublicensee to replace Dermira and to enter into a Subsequent Side Letter Agreement with Stiefel, and Stiefel at its sole discretion elects to enter into such Subsequent Side Letter Agreement (all in accordance with Section 3.5.4 hereof), then such Designated Sublicensee would assume Rose Us obligation to pay the [*] Payment that arises from [*] of a Licensed Product [*] by such Designated Sublicensee or its sublicensees. Accordingly, in such case Stiefel would not seek payment of any such [*] Payment from Rose U, and would instead seek payment from the subsequent Designated Sublicensee pursuant to the terms of the Subsequent Side Letter Agreement.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
Section 5.1 Stiefel Representations and Warranties . Stiefel represents and warrants to Rose U as follows:
(a) Stiefel has the full corporate right, power and authority to enter into and perform its obligations under this Agreement;
(b) this Agreement is legally binding upon Stiefel and enforceable in accordance with its terms, and the execution, delivery, and performance of this Agreement by
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Stiefel does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound;
(c) to Stiefels Knowledge, neither Stiefel nor any of its employees or any of its contractors involved in the [*] Program or their personnel, have been debarred by the FDA, or subject to a similar sanction from another regulatory, or convicted of a felony under the laws of the United States for conduct relating to regulations under the FDCA; and
(d) other than as may be set forth in the Stiefel Data, to Stiefels Knowledge, it is not aware of any materially adverse regulatory action that has been taken or determination that has been made with respect to the [*] Program, nor to Stiefels Knowledge is it aware of any materially adverse safety or toxicology data relating to the use of topical products containing [*].
Section 5.2 Rose U Representations and Warranties . Rose U represents and warrants to Stiefel as follows:
(a) Rose U has the full limited liability company right, power and authority to enter into and perform its obligations under this Agreement; and
(b) this Agreement is legally binding upon Rose U and enforceable in accordance with its terms, and the execution, delivery, and performance of this Agreement by Rose U does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound.
Section 5.3 DISCLAIMER; NEGATION OF WARRANTIES . EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 5, NEITHER STIEFEL NOR ROSE U MAKES ANY WARRANTIES OR REPRESENTATIONS (EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE) WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES AND REPRESENTATIONS OF NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
ARTICLE 6. INDEMNIFICATION
Section 6.1 Subject to the limitations set forth in Article 7 hereof, and notwithstanding any transfer to Dermira or a subsequent Designated Sublicensee of Rose Us obligation to make the [*] Payment, Rose U shall indemnify, defend, and hold Stiefel and its Affiliates, and their stockholders, employees, directors, officers, successors and assigns (individually and collectively Indemnified Persons ) harmless from and against any claims, actions, suits, proceedings, demands, costs, expenses (including reasonable attorneys fees), liabilities and/or losses (collectively, Losses ) arising out of or in connection with third party claims based on (a) the development, manufacture, use, sale or other disposition of Licensed Products by Rose U or any Designated Sublicensee, or (b) the use by any person of Licensed Products made, used, sold or otherwise distributed by Rose U or any Designated Sublicensee.
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Rose U shall contractually require Dermira to, and shall contractually require each subsequent Designated Sublicensee to, provide the same indemnity in favor of the Indemnified Persons as to each such Designated Sublicensee and its subsequent sublicensees.
Section 6.2 Indemnification and Defense Procedure . An Indemnified Person shall reasonably promptly notify Rose U and any relevant Designated Sublicensee from which the Indemnified Person elects to seek indemnification under this Article 6 (each such Party, the Indemnifying Party ) in writing, of any claim for which indemnification may be sought under this Article 6; provided however that any delay in notification shall not nullify any indemnification obligation except to the extent of actual prejudice. The Indemnifying Party shall have the right, using counsel acceptable to the Indemnified Person, to control the investigation, trial, defense and settlement of such lawsuit or action (including all negotiations to effect a settlement) and any appeal arising therefrom, provided (a) that such claim involves (and continues to involve) solely monetary damages, (b) that the Indemnifying Party has notified the Indemnified Persons in writing of its intention to do so within [*] of receiving notice of a claim from the Indemnified Persons, and (c) that the Indemnifying Party shall diligently contest the claim (clauses a, b and c hereof, the Litigation Conditions ). The Indemnified Person may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any resulting appeal. At the Indemnifying Partys expense, the Indemnified Person shall reasonably cooperate in good faith with it at all times during the pendency of the claim or lawsuit including, without limitation, promptly providing all available information and documents concerning the claim that are in the Indemnified Persons possession. The Indemnifying Party shall not have, or shall lose, as applicable, the right to control the investigation, trial, defense and settlement of such lawsuit or action in the event that any of the Litigation Conditions are not, or are no longer, met, as applicable. An Indemnified Persons consent shall be required in the event that any proposed compromise or settlement under this Article 6 (i) includes a finding or admission of any violation of any law by such Indemnified Person, or (ii) requires the payment of any money by the Indemnified Person, or (iii) requires the Indemnified Person to take, or to forebear taking, any action, or (iv) does not provide for a complete release by such third party claimant of the Indemnified Person.
ARTICLE 7. LIMITATION OF LIABILITY
Section 7.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF OPPORTUNITY, OR LOSS OF REVENUE OR PROFIT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 8. TERM; TERMINATION
Section 8.1 Term . Unless terminated earlier as provided in this Agreement, the term of this Agreement shall commence on the Effective Date and continue in full force and effect until [*] from the Effective Date. Upon expiration of the term, Rose Us license to the Stiefel Data shall become an irrevocable, royalty free, sublicensable, non-exclusive license to
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the Stiefel Data. Expiration of the term pursuant to this Section 8.1 shall not affect the assignment of rights pursuant to Section 3.1 herein.
Section 8.2 Termination for Breach . Each Party shall be entitled to terminate this Agreement by written notice to the other Party in the event that the other Party commits a material breach of this Agreement and does not cure such breach within [*] after written notice from the non-breaching Party; provided, however, that the Release set forth in Section 2.2 is irrevocable.
Section 8.3 Effect of Termination. Upon the termination of this Agreement other than pursuant to Section 8.1: (i) the licenses granted to Rose U under Section 3.2 (and the obligations to pay fees under Article 4) shall terminate; and (ii) any sublicense of the rights granted to Rose U hereunder shall automatically be assigned to and assumed by Stiefel, and shall remain in full force and effect with Stiefel as the licensor instead of Rose U (provided that, unless Stiefel agrees in writing otherwise, the obligations of Stiefel under the assigned sublicenses will not be greater than the obligations of Stiefel under this Agreement). Expiration or termination of this Agreement for any reason shall not release the other Party hereto from any liability that at the time of such termination or expiration has already accrued to such other Party.
ARTICLE 9. CONFIDENTIALITY
Section 9.1 Treatment of Confidential Information . Each Party agrees (and Rose U agrees on behalf of each Designated Sublicensee) that all inventions, processes, materials, chemicals, know-how and ideas and all other business, technical and financial information it obtains from the other Party under this Agreement are the confidential property of the disclosing Party ( Confidential Information of the disclosing Party). Except as expressly allowed in this Agreement, the receiving Party will hold in confidence and not use or disclose any Confidential Information of the disclosing Party; provided , however , that Rose U and the Designated Sublicensees may disclose information relating to the Stiefel Data (a) to actual or potential Designated Sublicensees (including, for the avoidance of doubt, disclosure by Rose U to Dermira and disclosure by the Designated Sublicensees to each of its or their actual or potential Designated Sublicensees), investors or acquirers, provided that each such actual or potential Designated Sublicensee (including, for the avoidance of doubt, Dermira), investor or acquirer agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, and (b) to consultants, contractors, suppliers and Affiliates, provided that each such consultant, contractor, supplier and Affiliate agrees in writing to abide by confidentiality and non-use restrictions similar to those contained in this paragraph, and (c) to legal, financial, and tax advisors of Rose U or Designated Sublicensees, provided that such advisors are subject to confidentiality obligations with respect to any Confidential Information. No provision of this paragraph shall be interpreted to prevent Rose U or a Designated Sublicensee from making disclosures of Confidential Information to regulatory authorities as necessary: (i) for the research and development of Licensed Products; or (ii) to seek or obtain patents. Notwithstanding anything to the contrary herein, in recognition of Dermiras concerns with respect to disclosing to Stiefel the identities of its potential sublicensees of rights to commercialize Licensed Product except in the case that it actually enters into a sublicense with one (in which case a copy of the sublicense must be delivered to Stiefel in accordance with Section 3.5.2 hereof), the Parties agree that if Stiefel reasonably believes that such a third party may be using any of the Stiefel Data in
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breach of any confidentiality or non-use obligation to Rose U or Dermira or sublicense or other authorization provided by Rose U or Dermira, Stiefel may request in writing of Rose U whether Rose U or Dermira disclosed the Stiefel Data to such third party or an Affiliate or representative thereof, and Rose U shall answer Stiefels request, provided that answering such request does not constitute a breach of any legal obligation of Rose U or Dermira to such third party including representing to Stiefel whether Dermira made such a disclosure. Rose U and Dermira will ensure that any non-disclosure or other agreement with such a third party under which Stiefel Data is disclosed, does not prevent Rose U or Dermira from making such a disclosure in response to a court order.
Section 9.2 Release from Restrictions . The provisions of Section 9.1 shall not apply to any Confidential Information disclosed under this Agreement that:
(a) was known or used by the receiving Party prior to its date of disclosure to the receiving Party, as evidenced by the prior written records of the receiving Party; or
(b) either before or after the date of the disclosure to the receiving Party is lawfully disclosed to the receiving Party by sources other than the disclosing Party rightfully in possession of such information, and such source was not under a duty of confidentiality with respect to such information; or
(c) either before or after the date of the disclosure to the receiving Party becomes published or generally known to the public, through no fault or omission on the part of the receiving Party or an affiliated party; or
(d) is independently developed by or for the receiving Party without reference to or reliance upon the Confidential Information; or
(e) is required to be disclosed by the receiving Party to comply with applicable laws, court order, or governmental regulations, provided that the receiving Party (i) provides (A) prior written notice of such disclosure requirement to the other Party and (B) an adequate opportunity to seek appropriate legal relief to prevent such disclosure or limit use and further disclosure of the Confidential Information and (ii) takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure, and provided, further, that the receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and shall promptly inform the disclosing Party in writing of which portion of the Confidential Information was so disclosed.
Notwithstanding the foregoing or anything set forth herein or otherwise, and for the avoidance of doubt, [*] shall be considered to be Confidential Information.
ARTICLE 10. DISPUTE RESOLUTION AND JURISDICTION
Section 10.1 Mandatory Procedures . The Parties agree that any dispute arising out of or relating to this Agreement shall be resolved solely by means of the procedures set forth in this Article, and that such procedures constitute legally binding obligations that are an essential
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provision of this Agreement. If either Party fails to observe the procedures of this Article, as may be modified by their written agreement, the other Party may bring an action for specific performance of these procedures in any court of competent jurisdiction.
Section 10.2 Negotiation. The Parties shall endeavor to resolve in good faith any disputes or conflict arising from or relating to the subject matter of this Agreement, failing which either Party may submit such dispute for resolution to appropriate senior management of Rose U and Stiefel. If such senior management representatives are unable to resolve such dispute within [*] after such conflict is submitted to them for resolution, either Party may refer the dispute for mediation as set forth in Section 10.3.
Section 10.3 Mediation . If the Parties are unable to resolve a dispute arising out of or relating to this Agreement through the negotiation procedures set forth in Section 10.2, the Parties agree that they shall submit such dispute for confidential mediation under the CPR Mediation Procedure then in effect at the start of mediation with the International Institute for Conflict Prevention & Resolution (www.cpradr.org) (the CPR ). Unless otherwise agreed, the Parties shall select a mediator from the CPR Panels of Distinguished Neutrals. If the Parties cannot agree, they will defer to the CPR to select a mediator. The cost of the mediator shall be borne equally by the Parties. Any dispute not resolved within [*] (or within such other time period as may be agreed to by the Parties in writing) after appointment of a mediator shall be finally resolved by arbitration pursuant to Section 10.4.
Section 10.4 Arbitration . If the Parties are unable to resolve a dispute arising out of or relating to this Agreement through the negotiation procedures set forth in Section 10.2 and the mediation procedures set forth in Section 10.3, the Parties agree that they shall submit such dispute for final settlement via binding arbitration. The arbitration shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Parties, and heard before a single arbitrator as selected in accordance with the Commercial Arbitration Rules. Such arbitration will be held in [*] and shall be conducted in English. Each Party shall be responsible for its own expenses in connection therewith. The Parties hereby submit to the non-exclusive jurisdiction of the United States District Court for the [*] for the limited purpose of enforcing this Agreement to arbitrate. The arbitration award shall be final and binding, and judgment over the award may be entered by any court having jurisdiction thereof or having jurisdiction over the relevant Party and its assets.
ARTICLE 11. GOVERNING LAW
Section 11.1 This Agreement and all disputes arising out of or related to this Agreement shall be governed by the laws of the state of Delaware, without regard to conflict of laws principles.
ARTICLE 12. NOTICE
Section 12.1 Any notices required or permitted under this Agreement shall be in writing, in English, specifically refer to this Agreement, and shall be sent by prepaid registered
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or certified mail, return receipt requested; by recognized overnight courier; or by personal delivery, in each case addressed to the other Party as follows:
If to Rose U: |
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If to Stiefel: |
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Rose U LLC [*] Palo Alto, CA 94303 Attention: [*] |
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Stiefel Laboratories, Inc. 20 TW Alexander Drive PO Box 14910 Research Triangle Park, N.C. 19102 Attention: Alliance Management |
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With a copy to: |
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With a copy to: |
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GlaxoSmithKline, LLC 2301 Renaissance Boulevard Mail Code RN0220 King of Prussia, PA 19406 Attn: V.P. and Associate General Counsel Legal Operations Business Development Transactions |
Either Party may designate a different address, telephone number, or facsimile number by giving notice, pursuant to this Article, to the other Party. Any notice given pursuant to this Article shall be deemed to have been given: (a) [*] after sent by prepaid registered or certified mail; (b) [*] after sent by recognized overnight courier and (c) when received if by personal delivery.
ARTICLE 13. ASSIGNMENT
Section 13.1 Neither Party may assign or transfer this Agreement or any rights or obligations under this Agreement, whether voluntary or by operation of law, without the prior written consent of the other Party, provided that (a) Stiefel shall be permitted to assign this Agreement in connection with the sale or disposition of all or substantially all of the assets or business to which this Agreement pertains, and (b) Rose U shall be permitted to assign this Agreement in connection with the sale or disposition of all or substantially all of the assets or business to which this Agreement pertains provided that, prior to Stiefels receipt of the [*] Payment and except in the case of a sale or disposition to Dermira or an Affiliate of Dermira (provided that in no event will Dermira or the Affiliate of Dermira be relieved of its liability to make the [*] Payment to Stiefel under the terms of the Side Letter Agreement), the assignee may not be a party to which the Stiefel Data has been sublicensed or any Affiliate thereof. Any assignment or transfer or attempted assignment or transfer of this Agreement made in contravention of the terms of this Article shall be null, void
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and without effect. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the Parties respective successors and permitted assigns.
ARTICLE 14. WAIVER
Section 14.1 No failure or delay on the part of a Party in exercising any right under this Agreement will operate as a waiver of, or impair, any such right, unless a waiver is made in writing signed by the waiving Party. No single or partial exercise of any such right will preclude any other or further exercise thereof or the exercise of any other right. No waiver of any such right will be deemed a waiver of any other right under this Agreement.
ARTICLE 15. PARTIAL INVALIDITY
Section 15.1 If any provision of this Agreement is held to be invalid, illegal, or unenforceable by a court of competent jurisdiction: (a) such provision will be deemed amended to conform to applicable laws of such jurisdiction so as to be valid and enforceable, or, if it cannot be so amended without materially altering the intention of the Parties, it will be stricken; (b) the remaining provisions shall remain in full force and effect; (c) the validity, legality and enforceability of such provision will not in any way be affected or impaired in any other jurisdiction and (d) the remainder of this Agreement will remain in full force and effect. The Parties agree to renegotiate in good faith any term of this Agreement held to be invalid, illegal or unenforceable and agree to be bound by the mutually agreed substitute provision in order to give the most approximate effect intended by the Parties.
ARTICLE 16. HEADINGS
Section 16.1 All headings are for convenience only and shall not affect the meaning of any provision of this Agreement.
ARTICLE 17. NO PUBLICITY
Section 17.1 Neither Party shall make any public or press announcement or other disclosure to any third party about this Agreement, its terms or its business relationship with the other Party, without the prior written consent of the other Party; provided, that Rose U may disclose and may permit Dermira to disclose this agreement to a third party that is subject to confidentiality restrictions substantially similar to the proviso in Section 9.1 hereof in connection with a possible sublicense or other transaction relating to its rights hereunder to such third party. The form and content of any such announcement shall be subject to the prior approval of each Party.
ARTICLE 18. USE OF NAME, SYMBOLS AND MARKS
Section 18.1 Stiefel and Rose U shall not use the name, symbols and/or marks of the other Party in any form of publicity without the prior written authorization of the other Party. However, each Party has the right to use the other Partys name on governmental filings and elsewhere as required by law.
ARTICLE 19. INDEPENDENT CONTRACTOR
Section 19.1 Each Partys status and relationship with the other Party shall be that of an independent contractor, and neither Party shall state or imply, directly or indirectly, that it is empowered or authorized to commit or bind the other Party or to incur any liabilities or expenses on behalf of the other Party or to enter into any oral or written agreement in the name of or on behalf of the other Party. Nothing in this Agreement shall create, expressly or by implication, a partnership, joint venture, agency or other association of the Parties.
ARTICLE 20. MULTIPLE COUNTERPARTS
Section 20.1 This Agreement may be executed in two (2) identical counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
ARTICLE 21. AMENDMENT
Section 21.1 This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both Parties.
ARTICLE 22. ENTIRE AGREEMENT
Section 22.1 This Agreement including the Exhibits hereto constitutes the entire agreement between the Parties with respect to its subject matter and supersedes all prior agreements or understandings, oral or written, between the Parties relating to the subject matter of this Agreement.
ARTICLE 23. NO THIRD PARTY BENEFICIARIES AND NO LIABILITY OF LLC MEMBERS
Section 23.1 Nothing express or implied in this Agreement is intended to confer, nor shall anything herein confer, upon any person other than the Parties and their permitted successors or assigns any rights, remedies, obligations or liabilities whatsoever. For the avoidance of doubt, [*] in their individual capacities shall have no personal liability or obligation to Stiefel or any other parties arising out of this Agreement and Stiefel will not bring a claim directly against [*] in their individual capacities relating to this Agreement; provided, that nothing in this Section shall limit any claims against Rose U.
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IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute and deliver this License and Post-Termination Agreement as of the Effective Date.
STIEFEL |
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ROSE U |
STIEFEL LABORATORIES, INC. |
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ROSE U, LLC |
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Signature: |
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Signature: |
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/s/ Justin T. Huang |
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/s/ Jeffrey D. Urman |
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Print: |
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Print: |
Justin T. Huang |
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Jeffrey D. Urman |
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Title: |
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Title: |
Assistant Secretary |
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Secretary / Treasurer |
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Date: |
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Date: |
4/26/13 |
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April 2, 2013 |
[SIGNATURE PAGE TO LICENSE AND POST-TERMINATION AGREEMENT]
Exhibit A-1
Stiefel Data
To the extent existing:
[*]
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Exhibit A-2
Program Inventory and Supplies
[*]
*Confidential Treatment Requested
Exhibit A-3
ASSIGNMENT
WHEREAS, [*], incorporated in [*], having an address of [*], a [*] of [*], a [*] corporation, having an address at [*], (collectively, hereinafter the ASSIGNOR), are the owner of the invention listed in Schedule I attached herewith (hereinafter the Patents), and
WHEREAS, Rose U, a limited liability corporation (hereinafter ASSIGNEE), having an address at [*] , Palo Alto, California, 94303, is desirous of acquiring ASSIGNORs entire right, title and interest in and to said Patents, and in and to any application for or issued Letters Patent therefore, and any and all Letters Patent continuations, divisions, continuations in part, extensions, substitutions, reissues and reexaminations therefore;
NOW, THEREFORE, TO ALL WHOM IT MAY CONCERN, BE IT KNOWN, that the said ASSIGNORs, for and in consideration of the payment by ASSIGNEE of one dollar ($1.00) and other good and valuable consideration, hereby sells, assigns, transfers and conveys all right title and interest in and to the Patents to ASSIGNEE, its successors and assigns, ASSIGNORs entire right, title and interest in and to said Patents and any application for or issued Letters Patent therefore, including any extensions or adjustments in term thereof and any continuations, divisions, continuations-in-part, extensions, substitutions, reissues and reexaminations thereof, TO HAVE AND TO HOLD THE SAME;
AND the said ASSIGNOR, for the considerations aforesaid, does hereby covenant and agree to and with the said ASSIGNEE, its successors and assigns, that it has the full power to make this assignment and that the rights assigned are not encumbered by any grant, license or right heretofore given, and that said ASSIGNOR, it successors and assigns, shall and will use commercially reasonable efforts to procure or make, execute, and deliver any and all other instruments, and any and all further application papers; affidavits, assignments or other documents which may be required or necessary to secure to and vest in said ASSIGNEE, its successors and assigns, the whole right, title and interest in and to said Patents, Letters Patent, applications for Letters Patent, rights, title, benefits, privileges and advantages hereby sold, assigned, transferred and conveyed or intended so to be.
[Signature page follows]
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IN WITNESS WHEREOF, this agreement is executed below by an authorized representative of [*]:
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EXHIBIT B
DERMIRA STIEFEL LETTER AGREEMENT
April 26, 2013
[*]
VP, Global Business Development & Licensing
Stiefel Laboratories, Inc.
20 TW Alexander Drive
PO Box 14910
Research Triangle Park, NC 19102
Re: Sublicense to Dermira, Inc. ( Dermira ) under the License and Post-Termination Agreement between Stiefel Laboratories, Inc. ( Stiefel ) and Rose U LLC ( Rose U ) effective April 26, 2013 (the License and Post-Termination Agreement )
Dear [*] :
1) As you know, Dermira is in the process of negotiating a license agreement with Rose U (the Rose U-Dermira License Agreement ) which includes a sublicense of certain development data and related information which were licensed, in the first instance, by Rose U from Stiefel under the License and Post-Termination Agreement (the Sublicense ). Defined terms used in this letter agreement shall have the meaning given to them in the License and Post-Termination Agreement.
2) Dermira now seeks certain agreements from Stiefel regarding the rights sublicensed by Rose U to Dermira which have as their source the License and Post-Termination Agreement and in return Stiefel requires Dermira to confirm certain obligations to Stiefel arising from such sublicense.
3) Without in any way diminishing Dermiras obligation to indemnify Stiefel set out below, Stiefel agrees that the obligation in Sections 3.5.2(i) and (iii) of the License and Post-Termination Agreement to include certain terms in sublicense agreements and the obligation to provide Stiefel with copies of sublicense agreements shall not apply to sublicense agreements entered into by Dermira or its Designated Sublicensees with contract research organizations, contract manufacturing organizations and similar third parties performing services for the benefit of Dermira or its Affiliates or Designated Sublicensees which sublicense does not include any right to commercialize Licensed Product.
4) Consistent with Section 8.3 of the License and Post-Termination Agreement, in the event of a termination of the License and Post-Termination Agreement, the Sublicense granted by Rose U to Dermira under the Rose U-Dermira License Agreement shall survive such termination subject to the terms of the Rose U-Dermira License Agreement and this letter agreement and shall automatically be assigned to and assumed by Stiefel and remain in full force and effect with Stiefel as the licensor instead of Rose U, provided that, unless Stiefel agrees in writing otherwise, the obligations of Stiefel under the assigned Sublicense will not be greater than the obligations of Stiefel under this Agreement, and further provided that a default by Dermira was not the cause of such termination and at the time of such termination Dermira is not in material breach of the Rose U-Dermira License Agreement or this letter agreement.
5) Dermira shall directly pay Stiefel the [*] Payment upon [*] (the [*] ). Dermira shall pay the [*] Payment directly to Stiefel in accordance with Section 4.2 of the License and Post-Termination Agreement. Stiefel shall be entitled to terminate this letter agreement and the Sublicense to Dermira by written notice to
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Dermira in the event that Dermira fails to pay Stiefel the [*] Payment when due and does not cure such breach within [*] after written notice from Stiefel to Dermira.
6) Dermira shall indemnify, defend, and hold Stiefel and its Affiliates, and their stockholders, employees, directors, officers, successors and assigns (individually and collectively Indemnified Persons ) harmless from and against any claims, actions, suits, proceedings, demands, costs, expenses (including reasonable attorneys fees), liabilities and/or losses (collectively, Losses ) arising out of or in connection with third party claims based on (a) the development, manufacture, use, sale or other disposition of Licensed Products (as such term is defined in the License and Post-Termination Agreement) by Dermira, any Dermira sublicensee or any subsequent sublicensee, or (b) the use by any person of Licensed Products made, used, sold or otherwise distributed by Dermira, any Dermira sublicensee or any subsequent sublicensee. Dermira shall contractually require each of its sublicensees (other than contract research organizations, contract manufacturing organizations and similar third parties performing services for the benefit of Dermira or its Affiliates or Designated Sublicensees who do not receive any right to commercialize Licensed Product) to provide the same indemnity in favor of the Indemnified Persons as to such sublicensee and its subsequent sublicensees (subject to conditions and procedures substantially equivalent to those contained in paragraphs numbered 7 and 8 below).
7) An Indemnified Person shall reasonably promptly notify Dermira and any relevant Designated Sublicensee from which the Indemnified Person elects to seek indemnification hereunder (each such person, the Indemnifying Party ) in writing, of any claim for which indemnification may be sought under this indemnification; provided however that any delay in notification shall not nullify any indemnification obligation except to the extent of actual prejudice. The Indemnifying Party shall have the right, using counsel acceptable to the Indemnified Person, to control the investigation, trial, defense and settlement of such lawsuit or action (including all negotiations to effect a settlement) and any appeal arising therefrom, provided (a) that such claim involves (and continues to involve) solely monetary damages, (b) that the Indemnifying Party has notified the Indemnified Persons in writing of its intention to do so within [*] of receiving notice of a claim from the Indemnified Persons, and (c) that the Indemnifying Party shall diligently contest the claim (clauses a, b and c hereof, the Litigation Conditions ). The Indemnified Person may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any resulting appeal. At the Indemnifying Partys expense, the Indemnified Person shall reasonably cooperate in good faith with it at all times during the pendency of the claim or lawsuit including, without limitation, promptly providing all available information and documents concerning the claim that are in the Indemnified Persons possession. The Indemnifying Party shall not have, or shall lose, as applicable, the right to control the investigation, trial, defense and settlement of such lawsuit or action in the event that any of the Litigation Conditions are not, or are no longer, met, as applicable. An Indemnified Persons consent shall be required in the event that any proposed compromise or settlement under this indemnification (i) includes a finding or admission of any violation of any law by such Indemnified Person, or (ii) requires the payment of any money by the Indemnified Person, or (iii) requires the Indemnified Person to take, or to forebear taking, any action, or (iv) does not provide for a complete release by such third party claimant of the Indemnified Person.
8) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF OPPORTUNITY, OR LOSS OF REVENUE OR PROFIT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9) Subject to Paragraph 10 hereof, Dermira shall only have the right to assign this letter agreement to a third party in connection with an assignment of the Rose U-Dermira License Agreement arising from (a) a merger, consolidation or reorganization of Dermira or a sale of all or substantially all of the assets of Dermira (an Acquisition Transaction ), or (b) a sale of all or substantially all of the assets of Dermira to which the Rose U-Dermira License Agreement relates (an Assignment Transaction ), and Dermira agrees that it shall so assign this letter agreement in any such scenario where the Rose U-Dermira License Agreement has been assigned, provided that, in the case of an Assignment Transaction, (i) Dermira shall
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not be relieved of its obligations under this letter agreement but shall be jointly and severally liable with the assignee hereunder, and (ii) [*] . Any further assignments from Dermira or a subsequent assignee to a different third party assignee shall only be made in accordance with Paragraph 9 hereof, and, following an Assignment Transaction, Dermira shall continue not to be relieved of its obligations under this letter agreement but shall be jointly and severally liable with its assignee and any such further assignees hereunder. Any assignment or transfer or attempted assignment or transfer of this letter agreement made in contravention of the terms of this Paragraph shall be null, void and without effect. Subject to the foregoing, this letter agreement shall be binding on and inure to the benefit of Dermiras respective successors and permitted assigns.
10) Providing that the [*] Payment has not yet been made, until the [*] anniversary of the date hereof, Dermira shall use Commercially Reasonable Efforts to develop and commercialize a Licensed Product, whether by itself, through an Affiliate, or a through a Designated Sublicensee. In the event that Stiefel reasonably believes Dermira is not using such Commercially Reasonable Efforts, Dermira and Stiefel shall meet to discuss the issue. In the event that Dermira and Stiefel cannot reach resolution on such matter, Dermira and Stiefel agree to engage in a dispute resolution process equivalent to that set forth Article 10 of the License and Post-Termination Agreement. Dermira and Stiefel agree that the result of such dispute resolution process by binding arbitration (but not pursuant to the negotiation in Section 10.2 or the non-binding mediation in Section 10.3, through which resolution Dermira and Stiefel may mutually agree as they choose) shall be limited to a finding by the arbitrator that either (a) Dermira owes Stiefel (i) none, (ii) all or (iii) some portion to be decided by the arbitrator of the [*] Payment, or that (b) the license grant to Rose U in the License and Post-Termination Agreement shall (i) be converted into a non-exclusive license such that Stiefel may license the Stiefel Data to other parties of its choice or (ii) shall remain in place with no change. In the License and Post-Termination Agreement executed as the date hereof, Rose U is agreeing to such possibility of the conversion of the license grant to Rose U from exclusive (except as to Stiefel and its Affiliates) to non-exclusive as set forth in this Paragraph 10. For the purposes of this Paragraph 10, Commercially Reasonable Efforts means efforts that, taken together, would constitute a reasonable level of effort by [*] to develop and commercialize in a [*] manner, one of such companys [*] giving full consideration to all [*] .
11) This letter agreement shall terminate upon any termination of the Rose U-Dermira License Agreement, unless such termination was effected by the acquisition of Rose U by Dermira or an Affiliate thereof, or unless, in a series of related transactions, Dermiras [*] program related to the Rose U-Dermira License Agreement has been substantially divested and this letter agreement is terminated and not assigned in conjunction therewith and a new license agreement has been entered into by and between the assignee of Dermiras [*] program related to the Rose U-Dermira License Agreement and Rose U, in either of which case this letter agreement shall not terminate. Notwithstanding the foregoing, paragraphs numbered 6, 7, 8, and this Paragraph 11 shall survive any termination of this letter agreement, and provided that Dermiras obligations under Paragraph 5, 9 and 10 shall survive any termination of this letter agreement but only if the [*] Payment or payment obligation in Paragraph 9 or 10 accrued prior to termination but was not received by Stiefel prior to termination.
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If you are in agreement with the foregoing, kindly sign and date this letter where indicated below and return an executed copy to me at your convenience.
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Very truly yours, |
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/s/ Tom Wiggans |
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Tom Wiggans |
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Chief Executive Officer |
The foregoing is hereby agreed to
Stiefel Laboratories, Inc.
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/s/ Justin T. Huang |
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Justin T. Huang |
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Assistant Secretary |
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4/26/13 |
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[SIGNATURE PAGE TO DERMIRA STIEFEL LETTER AGREEMENT]
APPENDIX C
STIEFEL SIDE LETTER
(ATTACHED)
Exhibit 10.11
DERMIRA, INC.
LOAN AND SECURITY AGREEMENT
Dermira, Inc. LSA Execution Version
This LOAN AND SECURITY AGREEMENT (the Agreement ) is entered into as of December 11, 2013, by and between Square 1 Bank ( Bank ) and Dermira, Inc. ( Borrower ).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions . As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A . Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.
1.2 Accounting Terms . Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP (except for non-compliance with FASB Accounting Standards Codification Topic 718, Compensation Stock Compensation in monthly reporting). The term financial statements shall include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions .
(a) Promise to Pay . Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
(b) Term Loan A .
(i) Subject to and upon the terms and conditions of this Agreement, Bank agrees to make one (1) term loan to Borrower in an aggregate principal amount equal to Two Million Dollars ($2,000,000) (the Term Loan A ). Borrower hereby requests that Bank make the Term Loan A on or about the Closing Date. The proceeds of the Term Loan A shall be used for general working capital purposes and for capital expenditures.
(ii) Interest shall accrue from the date of the Term Loan A at the rate specified in Section 2.3(a), and prior to the Interest Only End Date shall be payable monthly beginning on the 11th day of the month next following such Term Loan A, and continuing on the same day of each month thereafter. Any Term Loan A that is outstanding on the Term Loan A Interest Only End Date shall be payable in 30 equal monthly installments of principal, plus all accrued interest, beginning on the last day of the month immediately following the Term Loan A
Interest Only End Date, and continuing on the same day of each month thereafter through the Term Loan A Maturity Date, at which time all amounts due in connection with the Term Loan A and any other amounts due under this Agreement shall be immediately due and payable. The Term Loan A, once repaid, may not be reborrowed. Borrower may prepay the Term Loan A without penalty or premium.
(c) Term Loan B .
(i) Subject to and upon the terms and conditions of this Agreement, Bank agrees to make one (1) term loan to Borrower in an aggregate principal amount not to exceed Five Million Five Hundred Thousand Dollars ($5,500,000) (the Term Loan B , and together with the Term Loan A, the Term Loans ). Borrower may request the Term Loan B at any time from the Term Loan B Availability Start Date through the Term Loan B Availability End Date. The proceeds of the Term Loan B shall be used for general working capital purposes and for capital expenditures.
(ii) Interest shall accrue from the date of the Term Loan B at the rate specified in Section 2.3(a), and prior to the Term Loan B Interest Only End Date shall be payable monthly beginning on the 11th day of the month next following the Term Loan B, and continuing on the same day of each month thereafter. The Term Loan B that is outstanding on the Term Loan B Interest Only End Date shall be payable in equal monthly installments of principal, plus all accrued interest, beginning on the last day of the month immediately following the Term Loan B Interest Only End Date, and continuing on the same day of each month thereafter through the Term Loan B Maturity Date, at which time all amounts due in connection with the Term Loan B and any other amounts due under this Agreement shall be immediately due and payable. The Term Loan B, once repaid, may not be reborrowed. Borrower may prepay the Term Loan B without penalty or premium.
(iii) When Borrower desires to obtain the Term Loan B, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:30 p.m. Eastern time on the day on which the Term Loan B is to be made. Such notice shall be substantially in the form of Exhibit C . The notice shall be signed by an Authorized Officer.
2.2 Intentionally Left Blank .
2.3 Interest Rates, Payments, and Calculations .
(a) Interest Rates .
(i) Term Loans . Except as set forth in Section 2.3(b), the Term Loans shall bear interest, on the outstanding daily balance thereof, at an annual rate equal to the greater of: (A) 5.10% above the Treasury Rate in effect on the date that a Term Loan is funded; or (B) 5.50%, which rate shall be fixed on the date of funding of such Term Loan.
(b) Late Fee; Default Rate . If any payment is not made within 15 days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under
applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to 5 percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
(c) Payments . Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrowers deposit accounts. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation . In the event the Treasury Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Treasury Rate is changed, by an amount equal to such change in the Treasury Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.
2.4 Crediting Payments . Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence and during the continuance of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 5:30 p.m. Eastern time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5 Fees . Borrower shall pay to Bank the following:
(a) Intentionally Omitted .
(b) Bank Expenses . On the Closing Date, all Bank Expenses incurred through the Closing Date, and, after the Closing Date, all Bank Expenses, as and when they become due.
(c) Final Payment Fees . On the earlier of (i) the Term Loan A Maturity Date, or (ii) Borrowers repayment in full of the Term Loan A, Borrower shall pay Bank a fee equal to 2.75% of the original principal amount borrowed under the Term Loan A. On the earlier of (i) the Term Loan B Maturity Date, or (ii) Borrowers repayment in full of the Term Loan B, Borrower shall pay Bank a fee equal to 2.75% of the original principal amount borrowed under the Term Loan B. This Section 2.5(c) shall survive any termination of this Agreement.
2.6 Term . This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Upon
(a) indefeasible repayment of the Obligations and termination of this Agreement and Banks obligation to make Credit Extensions hereunder, and (b) Banks confirmation of such repayment and termination, all security interests granted pursuant to this Agreement shall terminate, and at such time Bank, at Borrowers sole expense, shall promptly execute all documents and take all actions reasonably requested to terminate or more effectively evidence the termination of this Agreement and such security interests. Notwithstanding the foregoing, (a) Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default, and (b) Borrower shall have the right to terminate the Banks obligation to make Credit Extensions hereunder by providing written notice to Bank in accordance with the terms hereof, which notice shall be irrevocable.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Closing . The agreement of Bank to enter into this Agreement on the Closing Date is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, each the following items and completed each of the following requirements:
(a) this Agreement;
(b) an officers certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
(c) a financing statement (Form UCC-1);
(d) Borrower shall have opened and funded not less than $10,000 in deposit accounts held with Bank;
(e) payment of the fees and Bank Expenses then due specified in Section 2.5, which may be debited from any of Borrowers accounts with Bank;
(f) current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;
(g) current financial statements, including audited statements (or such other level required by the Investment Agreement) for Borrowers most recently ended fiscal year, together with an unqualified opinion (or an opinion qualified only for going concern so long as Borrowers investors provide additional equity as needed), company prepared consolidated and consolidating balance sheets, income statements, and statements of cash flows for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;
(h) current Compliance Certificate in accordance with Section 6.2;
(i) a Warrant in form and substance satisfactory to Bank;
(j) a Borrower Information Certificate;
(k) a Guarantee and a General Security Agreement, in each case duly executed by Dermira Canada, together with an Officers Certificate authorizing the execution and delivery of the foregoing;
(l) confirmation by Bank that, on or before October 31, 2013, Borrower initiated Phase 2 clinical trials for at least two separate treatment programs (excluding the Phase 2A clinical trial program for LTS (lemuteporfin)); and
(m) such other documents or certificates, and completion of such other matters, as Bank may reasonably request.
3.2 Conditions Precedent to all Credit Extensions . The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is contingent upon the Borrowers compliance with Section 3.1 above, and is further subject to the following conditions:
(a) timely receipt by Bank of the Loan Advance/Paydown Request Form as provided in Section 2.1;
(b) Borrower shall be in compliance with Section 6.6 hereof; and
(c) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Loan Advance/Paydown Request Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest . Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except for Permitted Liens or as disclosed in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Except for the granting of Permitted Liens and the making of Permitted Transfers, Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property. Notwithstanding any termination of this Agreement or of any filings undertaken related to Banks rights under the Code, Banks Lien on the Collateral shall remain in effect for so long as any Obligations are unpaid.
4.2 Perfection of Security Interest . Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of
filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee (excluding materials and parts held by independent third parties in the normal course of development and testing, provided that the book value of such materials and parts do not exceed an aggregate amount of $2,000,000). Borrower shall take such steps as Bank reasonably requests for Bank to (i) subject to Section 7.10 below, obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, and (ii) obtain control of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term control are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations. Borrower authorizes Bank to hold such specific cash balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding. Borrower shall take such other actions as Bank reasonably requests to perfect its security interests granted under this Agreement.
4.3 Conflict with Security. If there is any conflict between the provisions of this Agreement and those of any security documents given by any guarantor of all or a portion of the Obligations, then the provisions of this Agreement shall prevail.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification . Borrower and each Subsidiary is a corporation duly existing under the laws of the state in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict . The execution, delivery, and performance of the Loan Documents are within Borrowers powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrowers Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.
5.3 Collateral . Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or
pledge except for Permitted Liens. Other than movable items of personal property such as laptop computers, all Collateral having an aggregate book value not in excess of $100,000, is located solely in the Collateral States. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of the Borrowers Cash is maintained or invested with a Person other than Bank or Banks affiliates.
5.4 Intellectual Property . Borrower is the sole owner of the intellectual property created or purchased by Borrower, except for licenses granted by Borrower to its customers in the ordinary course of business and Permitted Liens. To the best of Borrowers knowledge, each of the Copyrights, Trademarks and Patents created or purchased by Borrower is valid and enforceable, and no part of the intellectual property created or purchased by Borrower has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the intellectual property created or purchased by Borrower violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect.
5.5 Name; Location of Chief Executive Office . Except as disclosed in the Schedule or following notice to Bank in compliance with Section 7.2 hereof, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. Except following notice to Bank in compliance with Section 7.2 hereof, the principal offices of Borrower is located at the address indicated in Section 10 hereof.
5.6 Litigation . Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect.
5.7 No Material Adverse Change in Financial Statements . All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrowers consolidated and consolidating financial condition as of the date thereof and Borrowers consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements of Borrower submitted to Bank (the Recent Financial Statements ).
5.8 Solvency, Payment of Debts . Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrowers assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations . Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrowers failure to comply with ERISA that is reasonably likely to result in Borrowers incurring any liability that could have a
Material Adverse Effect. Borrower is not an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.
5.10 Subsidiaries . Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
5.11 Government Consents . Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrowers business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5.12 Inbound Licenses . Except as disclosed on the Schedule or following notification to Bank in compliance with Section 6.8 hereof, Borrower is not a party to, nor is bound by, any material license or other agreement important for the conduct of Borrowers business that prohibits or otherwise restricts Borrower from granting a security interest in Borrowers interest in such license or agreement or any other property important for the conduct of Borrowers business, other than this Agreement or the other Loan Documents.
5.13 Full Disclosure . No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading in light of the circumstances in which they were made, it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.
6. AFFIRMATIVE COVENANTS.
Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance . Borrower shall maintain its and each of its Subsidiaries corporate existence and good standing in the respective states of formation, shall maintain qualification and good standing in each other jurisdiction in which the
failure to so qualify would reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.
6.2 Financial Statements, Reports, Certificates . Borrower shall deliver to Bank: (i) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet, statement of operations, and statement of cash flows covering Borrowers operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event within 180 days after the end of Borrowers fiscal year, audited (or such other level as is required by the Investment Agreement) consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which is either unqualified, qualified only for going concern so long as Borrowers investors provide additional equity as needed or otherwise consented to in writing by Bank on such financial statements of Ernst & Young LLP; (iii) annual budget promptly after approval by Borrowers Board of Directors, but no later than January 31 of each year during the term of this Agreement; (iv) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and, if applicable, all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (v) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could reasonably be expected to result in damages or costs to Borrower or any Subsidiary of $250,000 or more; (vi) promptly upon receipt, each management letter prepared by Borrowers independent certified public accounting firm regarding Borrowers management control systems; and (vii) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request in writing from time to time.
(a) Within 30 days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto.
(b) Within 3 calendar days after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.
(c) Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrowers Books and to make copies thereof and to check, test, inspect, audit and appraise the
Collateral at Borrowers expense in order to verify Borrowers financial condition or the amount, condition of, or any other matter relating to, the Collateral.
Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. Borrower shall include a submission date on any certificates and reports to be delivered electronically.
6.3 Inventory and Equipment; Returns . Borrower shall keep all Inventory and Equipment in good and merchantable condition, free from all material defects except for Inventory and Equipment (i) sold in the ordinary course of business, and (ii) for which adequate reserves have been made, in all cases in the United States and such other locations as to which Borrower gives prior written notice. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving inventory having a book value of more than $100,000.
6.4 Taxes . Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower or such Subsidiary.
6.5 Insurance . Borrower, at its expense, shall (i) keep the Collateral insured against loss or damage, and (ii) maintain liability and other insurance, in each case in as ordinarily insured against by other owners in businesses similar to Borrowers. All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All policies of property insurance shall contain a lenders loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least 10 days notice to Bank before cancelling its policy for any reason. Within 30 days of the Closing Date, Borrower shall cause to be furnished to Bank a copy of its certificate of insurance including any endorsements covering Bank or showing Bank as an additional insured. Upon Banks request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. Proceeds payable under any property policy will, at Borrowers option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest, provided that if an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Banks option, be payable to Bank to be applied on account of the Obligations.
6.6 Primary Accounts. Subject to the provisions of Section 3.1(d) and 3.2(b), Borrower and its Subsidiaries within 60 days of the Closing Date shall maintain all its depository and operating accounts with Bank and its primary investment accounts with Bank or Banks affiliates, provided, however, that Dermira Canada shall be permitted to maintain one or more accounts in Canada (the Canadian Accounts), so long as the aggregate balance maintained in the Canadian Accounts does not exceed $800,000 at any time.
6.7 Product Covenants. Borrower shall at all times maintain the following product covenants:
(a) Maintenance of Active Drug Development Programs. Borrower shall, at all times, maintain at least two active and ongoing drug development programs.
6.8 Notice of Inbound Licenses . Within ten (10) days after entering into or becoming bound by any material inbound license or agreement, Borrower shall provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrowers business or financial condition.
6.9 Creation/Acquisition of Subsidiaries. In the event any Borrower or any Subsidiary of any Borrower creates or acquires any Subsidiary, Borrower or such Subsidiary shall promptly notify Bank of such creation or acquisition, and Borrower or such Subsidiary shall take all actions reasonably requested by Bank to achieve any of the following with respect to such New Subsidiary (defined as a Subsidiary formed after the date hereof during the Term of this Agreement): (i) to cause New Subsidiary to become a co-Borrower hereunder, if such New Subsidiary is organized under the laws of the United States, any State thereof or the District of Columbia (a Domestic Subsidiary ), or, any new Subsidiary which is not a Domestic Subsidiary (a Foreign Subsidiary ) to become a secured guarantor with respect to the Obligations; and (ii) to grant and pledge to Bank a perfected security interest in 100% of the stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such Domestic Subsidiary, and 65% of the voting stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such Foreign Subsidiary.
6.10 Further Assurances . At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without Banks prior written consent, which shall not be unreasonably withheld:
7.1 Dispositions . Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to Transfer ), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control . (i) Change its name or the state of Borrowers formation or relocate its chief executive office without delivering written notification to Bank at least 10 days prior to such event; (ii) replace or suffer the departure of its chief executive officer without delivering written notification to Bank within 10 days following such event; (iii) fail to appoint an interim replacement or fill a vacancy in the position of chief executive officer for more than 90 consecutive days following the departure of such officer; (iv) (a) suffer a change on its board of directors which results in the failure of at least one partner, managing director, or principal of Bay City Capital or its Affiliates to serve as a voting member, (b) suffer a change on its board of directors which results in the failure of at least one partner, managing director, or principal of Canaan Partners or its Affiliates to serve as a voting member, (c) suffer a change on its board of directors which results in the failure of at least one partner, managing director, or principal of New Enterprise Associates or its Affiliates to serve as a voting member, or (d) suffer the resignation of one or more directors from its board of directors resulting directly from such directors anticipation of Borrowers insolvency, in each case without the prior written consent of Bank which may be withheld in Banks sole discretion; (v) take action to liquidate, wind up, or otherwise cease to conduct business in the ordinary course; (vi) engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; (vii) change its fiscal year end; or (viii) have a Change in Control (provided that, for the sake of clarity, Borrower shall be permitted to have a Change in Control so long as, simultaneously with the Change in Control, the Obligations are repaid in full and Banks obligation to make any Credit Extensions hereunder is terminated).
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) each of the following conditions is applicable: (i) Borrowers equity issued in such transaction is solely Borrowers common stock; (ii) the consideration (excluding Borrowers common stock) paid in connection with such transaction (including assumption of liabilities) does not cause the aggregate consideration (excluding Borrowers common stock) to exceed $750,000 during any fiscal year of Borrower, (iii) no Event of Default has occurred, is continuing or would exist after giving effect to such transaction, (iv) such transaction does not result in a Change in Control, and (v) Borrower is the surviving entity; or (b) the Obligations are repaid in full concurrently with the closing of any merger or consolidation of Borrower in which Borrower is not the surviving entity; provided, however, that Borrower may not enter into any binding contractual arrangement with any Person to attempt to facilitate a merger or acquisition of Borrower unless (x) no Event of Default exists when such agreement is entered into by Borrower, (y) such agreement does not give such Person the right to claim any fee, payment or damages from any parties, other than from Borrower or Borrowers investors, in connection with a sale of Borrowers stock or assets pursuant to or resulting from an assignment for the benefit of creditors, an asset turnover to Borrowers creditors (including, without limitation, Bank), foreclosure, bankruptcy or similar liquidation, and (z) Borrower notifies Bank in advance of entering into such an agreement (provided the failure to give such notice shall not be deemed a violation of this Agreement).
7.4 Indebtedness . Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.
7.5 Encumbrances . Create, incur, assume or allow any Lien with respect to its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person (other than (i) the licensors of in-licensed property with respect to such property or (ii) the lessors of specific equipment or lenders financing specific equipment with respect to such leased or financed equipment) that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrowers property.
7.6 Distributions . Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, (ii) convert any of its convertible securities into other equity securities pursuant to the terms of such convertible securities or otherwise in exchange therefor, and (iii) repurchase the stock of former employees pursuant to stock repurchase agreements by the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists.
7.7 Investments . Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its Investment Property with a Person other than Bank or Banks Affiliates or permit any Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower (other than wholly-owned Subsidiaries) except for transactions that are in the ordinary course of Borrowers business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person.
7.9 Subordinated Debt . Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision affecting Banks rights contained in any documentation relating to the Subordinated Debt without Banks prior written consent.
7.10 Inventory and Equipment . Store the Inventory or the Equipment of a book value in excess of $100,000 with a bailee, warehouseman, collocation facility or similar third party unless the third party has been notified of Banks security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Banks benefit or (b) is in possession of the warehouse receipt, where negotiable,
covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and for movable items of personal property having an aggregate book value not in excess of $100,000, and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank is able to take such actions as may be necessary to perfect its security interest or to obtain a bailees acknowledgment of Banks rights in the Collateral.
7.11 No Investment Company; Margin Regulation . Become or be controlled by an investment company, within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default . If Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default .
(a) If Borrower fails to perform any obligation under Sections 6.2 (financial reporting), 6.4 (taxes), 6.5 (insurance), 6.6 (primary accounts) or 6.7 (product covenants), or violates any of the covenants contained in Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within 10 days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the 10 day period or cannot after diligent attempts by Borrower be cured within such 10 day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made.
8.3 Material Adverse Effect . If there occurs any circumstance or any circumstances which would reasonably be expected to have a Material Adverse Effect;
8.4 Attachment . If any material portion of Borrowers assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within 10 Business Days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a
lien or encumbrance upon any material portion of Borrowers assets, or if a notice of lien, levy, or assessment is filed of record with respect to any material portion of Borrowers assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period);
8.5 Insolvency . If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within 30 days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements . If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties (a) resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $700,000 or (b) in connection with any lease of real property material to the conduct of the Borrowers business resulting in a right by the landlord to terminate such lease, which default is not cured within 10 days, or (c) that would reasonably be expected to have a Material Adverse Effect;
8.7 Judgments . If a final, uninsured judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $700,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of 10 days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or
8.8 Misrepresentations . Borrower or any Person acting for Borrower makes any material representation, warranty, or other statement, either now or later, in this Agreement, any Loan Document or in any writing delivered to Bank to induce Bank to enter into this Agreement or in any Loan Document, and such material representation, warranty, or other statement is incorrect in any material respect when made.
8.9 Guaranty . If any guaranty of all or a portion of the Obligations (a Guaranty) ceases for any reason to be in full force and effect, or any guarantor fails to perform any material obligation under any Guaranty or a security agreement securing any Guaranty (collectively, the Guaranty Documents), or any event of default occurs under any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if any of the circumstances described in Sections 8.3 through 8.8 occur with respect to any guarantor.
9. BANKS RIGHTS AND REMEDIES.
9.1 Rights and Remedies . Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);
(b) Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrower shall promptly deposit and pay such amounts;
(c) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
(d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(e) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Banks determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrowers owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Banks rights or remedies provided herein, at law, in equity, or otherwise;
(f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrowers labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Banks exercise of its rights under this Section 9.1, Borrowers rights under all licenses and all franchise agreements shall inure to Banks benefit;
(h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers premises) as Bank determines is commercially reasonable, and apply any
proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;
(i) Bank may credit bid and purchase at any public sale;
(j) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and
(k) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
9.2 Power of Attorney . Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Banks designated officers, or employees) as Borrowers true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Banks security interest in the Accounts; (b) endorse Borrowers name on any checks or other forms of payment or security that may come into Banks possession; (c) sign Borrowers name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrowers policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clause (g) above, regardless of whether an Event of Default has occurred. The appointment of Bank as Borrowers attorney in fact, and each and every one of Banks rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Banks obligation to provide advances hereunder is terminated.
9.3 Accounts Collection . At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to Borrower of Banks security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Banks trustee,
and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses . If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; and/or (b) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Banks Liability for Collateral . Bank has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 No Obligation to Pursue Others . Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Banks rights against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative . Banks rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrowers part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest . Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. All disputes, controversies, claims, actions and similar proceedings arising with respect to Borrowers account or any related agreement or transaction shall be brought in the Superior Court of San Mateo County, California or the United States District Court for the Northern District of California, except as provided below with respect to arbitration of such matters. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. If the jury waiver set forth in this Section 11 is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Agreement, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in San Mateo County, California in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply California law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrators fees and expert witness fees, and reasonable attorneys fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrators fees as and when billed by the arbitrator.
12. GENERAL PROVISIONS.
12.1 Successors and Assigns . This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Banks prior written consent, which consent may be granted or withheld in Banks sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, assign, transfer, negotiate, or grant participation in all or any part of, or any interest in, Banks obligations, rights and benefits hereunder.
12.2 Indemnification . Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Banks gross negligence or willful misconduct.
12.3 Time of Essence . Time is of the essence for the performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Executed copies of the signature pages of this Agreement sent by facsimile or transmitted electronically in Portable Document Format ( PDF ), or any similar format, shall be treated as originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to object to such treatment.
12.7 Survival . All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality . In handling any confidential information, Bank and Borrower and all employees and agents of such party shall exercise the same degree of care that such party exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) in the case of Bank, to the subsidiaries or Affiliates of Bank or Borrower in connection with their present or prospective business relations with Borrower, (ii) in the case of Bank, to prospective transferees or purchasers of any interest in the Credit Extensions, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) in the case of Bank, as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of the receiving party when disclosed to such party, or becomes part of the public domain after disclosure to such receiving party through no fault of such receiving party; or (b) is disclosed to such receiving party by a third party, provided such receiving party does not have actual knowledge that such third party is prohibited from disclosing such information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
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SQUARE 1 BANK |
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[ILLEGIBLE] |
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[ILLEGIBLE] |
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EXHIBIT A
DEFINITIONS
Accounts means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefore, as well as all merchandise returned to or reclaimed by Borrower and Borrowers Books relating to any of the foregoing.
Affiliate means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Persons senior executive officers, directors, and general partners.
Authorized Officer means someone designated as such in the corporate resolution provided by Borrower to Bank in which this Agreement and the transactions contemplated hereunder are authorized by Borrowers board of directors. If Borrower provides subsequent corporate resolutions to Bank after the Closing Date, the individual(s) designated as Authorized Officer(s) in the most-recently provided resolution shall be the only Authorized Officers for purposes of this Agreement.
Bank Expenses means all reasonable costs or expenses (including reasonable attorneys fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Banks reasonable attorneys fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
Borrowers Books means all of Borrowers books and records including: ledgers; records concerning Borrowers assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
Business Day means any day that is not a Saturday, Sunday, or other day on which banks in the State of North Carolina are authorized or required to close.
Cash means unrestricted cash and cash equivalents.
Change in Control shall mean a transaction other than a bona fide equity financing or series of financings on terms and from investors reasonably acceptable to Bank in which any person or group (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such
person or group to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
Closing Date means the date of this Agreement.
Code means the California Uniform Commercial Code as amended or supplemented from time to time.
Collateral means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is non-assignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, §9406 and §9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote, or (iv) property (including any attachments, accessions or replacements) that is subject to a Lien that is permitted pursuant to clause (c) of the definition of Permitted Liens, if the grant of a security interest with respect to such property pursuant to this Agreement would be prohibited by the agreement creating such Permitted Lien or would otherwise constitute a default thereunder, provided, that such property will be deemed Collateral hereunder upon the termination and release of such Permitted Lien.
Collateral State means the state or states where the Collateral is located, which is California.
Contingent Obligation means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
Copyrights means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published
or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
Credit Extension means the Term Loan A, the Term Loan B, or any other extension of credit, by Bank to or for the benefit of Borrower hereunder.
Dermira Canada means Dermira (Canada) Inc., a wholly owned subsidiary of Borrower organized under the laws of Canada.
Equipment means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
Event of Default has the meaning assigned in Article 8.
GAAP means generally accepted accounting principles, consistently applied, as in effect in the United States.
Indebtedness means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations, including but not limited to any sublimit contained herein.
Insolvency Proceeding means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
Inventory means all present and future inventory in which Borrower has any interest.
Investment means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
Investment Agreement means, collectively, Borrowers stock purchase and other agreement(s) pursuant to which Borrower most recently issued its preferred stock.
IRC means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
Letter of Credit means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrowers request.
Lien means any mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
Loan Documents means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.
Material Adverse Effect means a material adverse effect on: (i) the operations, business or financial condition of Borrower and its Subsidiaries taken as a whole; (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents; or (iii) Borrowers interest in, or the value, perfection or priority of Banks security interest in the Collateral.
Negotiable Collateral means all of Borrowers present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrowers Books relating to any of the foregoing.
Obligations means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement entered into in connection with this Agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Periodic Payments means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
Permitted Indebtedness means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness not to exceed $700,000 in the aggregate at any time secured by a lien described in clause (c) of the defined term Permitted Liens, provided such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market value of the property financed with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary course of business; and
(f) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investment means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poors Corporation or Moodys Investors Service, (iii) Banks certificates of deposit maturing no more than one year from the date of investment therein, and (iv) Banks money market accounts; (v) Investments in regular deposit or checking accounts held with Bank or subject to a control agreement in favor of Bank; and (vi) Investments consistent with any investment policy adopted by the Borrowers board of directors;
(c) Repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed $700,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
(e) (i) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries (other than Dermira Canada) not to exceed $700,000 in the aggregate in any fiscal year, and (ii) Investments by Borrower in Dermira Canada not to exceed $1,500,000 in the aggregate in any fiscal year;
(f) Investments not to exceed $700,000 outstanding in the aggregate at any time consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrowers Board of Directors;
(g) Investments in unfinanced capital expenditures in any fiscal year, not to exceed $700,000;
(h) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrowers business;
(i) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary;
(j) Joint ventures or strategic alliances in the ordinary course of Borrowers business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $700,000 in the aggregate in any fiscal year; and
(k) Investments permitted under Section 7.3.
Permitted Liens means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Credit Extensions) or arising under this Agreement, the other Loan Documents, or any other agreement in favor of Bank;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves;
(c) Liens not to exceed $700,000 in the aggregate at any time (i) upon or in any Equipment (other than Equipment financed by a Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, in each case provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
(e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 (attachment) or 8.7 (judgments);
(f) Liens securing Subordinated Debt; and
(g) Liens of bailees, carriers, warehousemen, suppliers, or other similar Persons that are possessory in nature arising in the ordinary course of business securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto.
Permitted Transfer means the conveyance, sale, lease, transfer or disposition by Borrower or
any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;
(c) worn-out, surplus or obsolete Equipment not financed with the proceeds of Credit Extensions;
(d) grants of security interests and other Liens that constitute Permitted Liens; and
(e) other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $700,000 during any fiscal year;
(f) Cash in the ordinary course of business for the purpose of conducting Borrowers day to day operations, so long as such transfer would not be prohibited by any other provision of this Agreement.
Person means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
Prime Rate means the variable rate of interest, per annum, most recently announced by Bank, as its prime rate, whether or not such announced rate is the lowest rate available from Bank.
Responsible Officer means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, Vice President of Finance and the Controller of Borrower, as well as any other officer or employee identified in as an Authorized Officer in the corporate resolution delivered by Borrower to Bank in connection with this Agreement.
Schedule means the schedule of exceptions attached hereto and approved by Bank, if any.
SOS Reports means the official reports from the Secretaries of State of each Collateral State, the state where Borrowers chief executive office is located, the state of Borrowers formation and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.
Subordinated Debt means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).
Subsidiary means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
Term Loan A Interest Only End Date means October 31, 2014.
Term Loan A Maturity Date means April 30, 2017.
Term Loan B Availability End Date means October 31, 2014.
Term Loan B Availability Start Date means the achievement by Borrower of positive top-line results from at least one Phase 2 program which shall be satisfactory to Borrowers board of directors in their sole discretion, and verified by Bank through a written document signed by the Borrowers board of directors.
Term Loan B Interest Only End Date means the earlier of (a) December 31, 2014, or (b) six (6) months following the making of the Term Loan B.
Term Loan B Maturity Date means June 30, 2017.
Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
Treasury Rate means the variable rate of interest, per annum, most recently announced by Bank, as its 3 year constant maturity treasury rate.
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DERMIRA, INC. |
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SQUARE 1 BANK |
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as Borrower or Debtor) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles, domain names, and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtors books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions.
Notwithstanding the foregoing, the Collateral shall not include any of the intellectual property, in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds or hereafter acquires or receives any right or interest (collectively, the Intellectual Property); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the Rights to Payment).
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of December 11, 2013, include the Intellectual Property to the extent and only to the extent necessary to permit perfection of Banks security interest in the Rights to Payment, and further provided, however, that Banks enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to
Payment only, and Bank shall have no recourse whatsoever with respect to the underlying Intellectual Property.
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Exhibit A) Borrower owns 100% of the outstanding capital stock of Dermira (Canada), Inc.
Permitted Investments (Exhibit A) None.
Permitted Liens (Exhibit A) None.
Prior Names (Section 5.5) Borrower did business as Skintelligence, Inc. from the date of incorporation on August 18, 2010 until Borrower changed its name to Dermira, Inc. pursuant to filing a Certificate of Amendment of Restated Certificate of Incorporation with the Secretary of State of the State of Delaware on September 9, 2011.
Litigation (Section 5.6) None.
Inbound Licenses (Section 5.12)
· Month-To-Month Lease Agreement by and between the Company and Woodside Road Holdings, LLC dated May 10, 2011, as amended by that certain First Amendment to Lease dated November 18, 2011.
CORPORATE RESOLUTION
The undersigned duly elected and qualified [Assistant] Secretary of Dermira, Inc. (the Company) do hereby certify that the following is a true and correct copy of certain resolutions adopted by the Companys Board of Directors in accordance with applicable law and the Companys bylaws, and that such resolutions are now unmodified and in full force and effect:
BE IT RESOLVED, that:
1) Any one (1) of the following, duly elected officers of the Company (each, an Authorized Officer) whose genuine original signature appears next to his or her name is authorized to act for, on behalf of, and in the name of the Company in connection with the resolutions below:
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Tom Wiggans |
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/s/ Tom Wiggans |
2) Any Authorized Officer may borrow money from time to time from Bank, and may negotiate and procure loans, letters of credit, foreign exchange contracts and other financial accommodations from Bank, including without limitation, that certain Loan and Security Agreement dated as of December 11, 2013, and also to execute and deliver to Bank one or more renewals, extensions, or modifications thereof;
a) Give security for any liabilities of the Company to Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Company;
b) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the Company, whether or not registered in the name of the Company;
c) Discount with the Bank, commercial or other business paper belonging to the Company made or drawn by or upon third parties, without limit as to amount;
d) The Bank is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign;
e) Issue a warrant or warrants to purchase the Companys capital stock; and
f) Execute and deliver in Form and content as may be required by the Bank any and all notes, evidences of indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, any or all of which may relate to all or to substantially all of the Companys property and assets;
3) The Authorized Officers may designate additional or alternate individuals as being authorized to request loan advances, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as he or she may in his or her discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions.
4) Any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, and the authority conferred herein may be exercised singly by any such officer, and these resolutions shall continue in full force and effect until written notice of modification or revocation is received and accepted by Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions). Bank may rely upon any form of notice, which it in good faith believes to be genuine or what it purports to be.
5) The Resolutions are in full force and effect as of the date of this Certificate and are intended to replace, as of this date, any Resolutions previously given by the Company to Bank in connection with the matters described herein; these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, revoked or modified; neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the articles of incorporation or bylaws of the Company or of any agreement, indenture or other instrument to which the Company is a party or by which it is bound; and to the extent the articles of incorporation or bylaws of the Company or any agreement, indenture or other instrument to which the Company is a party or by which it is bound require the vote or consent of shareholders of the Company to authorize any act, matter or thing described in the foregoing Resolutions, such vote or consent has been obtained.
In Witness Whereof, I have affixed my name as [Assistant] Secretary and have caused the corporate seal (where available} of said Company to be affixed on December 11, 2013,
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/s/ Tom Wiggans |
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[Assistant] Secretary* |
*If the certifying officer is designated as the only signer in these resolution then another corporate officer must also sign.
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/s/ Eugene Bauer |
USA PATRIOT ACT
NOTICE
OF
CUSTOMER IDENTIFICATION
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your drivers license or other identifying documents.
SQUARE 1 BANK
AUTOMATIC DEBIT AUTHORIZATION
Member FDIC
To: Square 1 Bank
Re: Loan #
You are hereby authorized and instructed to charge account No. in the name of Dermira, Inc. for facility fees, principal, interest and other payments due on above referenced loan as set forth below and credit the loan referenced above.
o Debit the Facility Fee as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.
x Debit each interest payment as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.
x Debit each principal payment as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.
x Debit each payment for Bank Expenses as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in writing.
Borrower Signature |
/s/ Tom Wiggans |
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Date |
12/11/13 |
We are excited to have you as a Square 1 Bank client and want to spread the word about your success!
From press releases to mentions on social media sites, and all points in between. Square 1s marketing and communications team is constantly seeking new opportunities to promote our clients and to connect them to prospects, existing customers, and the larger entrepreneurial/venture capital community.
If you complete the authorization below and return it to us, you are authorizing us to reference and or include your company as part of our marketing and advertising efforts without further review or advance approval by you. Please select all areas that you approve.
o All items listed below
o List company as a Square 1 Bank customer on social media sites, including Twitter, Linkedln, Facebook, Square I Bank corporate blog, or any other social media site
o Press release including your company as a Square 1 Bank client (to include company name and description only ; may appear alongside other clients)
o Press release including your company as a Square 1 Bank client (general press release not focused on your company, but referring to your company as a client, and including your companys name, description, and editorial comments; may appear alongside other clients)
o Provide quote for inclusion in a Square 1 Bank press release
o Use of company name and logo in Square 1 Bank marketing materials including corporate marketing collateral, website, social media sites, and other advertising campaigns
o Provide quotes for inclusion in Square 1 Bank marketing materials including corporate marketing collateral, website, social media sites, and other advertising campaigns
o Customer case study/application brief (success story to be posted on website, included in press kits and/or pitched to publications as potential articles)
o Willing to participate in a video testimonial highlighting your banking relationship and experiences with Square 1 Bank
o Other (please describe):
None
If you have questions, please contact your Square I banker, or our Marketing Communications department at marketing@square1bank.com
Please acknowledge your authorization by signing below:
Company Name: |
Dermira, Inc. |
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Authorized Signer: |
/s/ Tom Wiggans |
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Name : |
Tom Wiggans |
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Title : |
CEO |
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Date : |
12/11/13 |
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Exhibit 10.12
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[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
RIGHT OF FIRST NEGOTIATION AGREEMENT
This Right of First Negotiation Agreement (this Agreement ) dated March 28, 2013 is made by and between Dermira, Inc., a Delaware corporation with a principal address at 2055 Woodside Road, Ste. #270, Redwood City, California 94061 ( Dermira ) and Maruho Co. , Ltd., a Japanese corporation with a principal address at 1-5-22 Nakatsu, Kitaku, Osaka, 531-0071, Japan ( Maruho ). Dermira and Maruho may individually be referred to as a Party and collectively, as the Parties .
WHEREAS , on even date herewith, Maruho has, alongside certain other investors, entered into that certain Securities Purchase Agreement (the SPA ) by and among Dermira and the investors party thereto (the Investors ) and related agreements by and among Dermira and the Investors (together, the Securities Purchase Agreements ).
WHEREAS , the transactions contemplated by the Securities Purchase Agreements are expected to close on or about March 28, 2013 (the actual date of such closing hereinafter referred to as the Effective Date ).
WHEREAS , in addition to Maruhos investment, Maruho is willing to make certain payments to Dermira and Dermira is willing to grant Maruho as of the Effective Date certain rights with respect to certain Dermira development products.
NOW, THEREFORE , intending to be legally bound hereby, the Parties hereby agree as follows:
1. Definitions .
The following terms shall have the following meanings:
Change of Control Transaction means: (1) the sale of all or substantially all of the assets of Dermira including all rights and obligations under this Agreement to an unrelated person or entity, (2) a merger, reorganization, consolidation or similar transaction pursuant to which the holders of Dermiras then-outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, or (3) the sale of all of the then-outstanding capital stock of Dermira to an unrelated person or entity.
Dermira Products means the topical pharmaceutical products within the Dermira product portfolio as of the Effective Date known as [*].
Phase 2a Clinical Trial means a study of a pharmaceutical product the goal of which is to demonstrate the proof of the concept in human patients to evaluate safety and initial pharmacologic activity and/or efficacy in healthy volunteers and/or individuals who have a certain disease or condition before embarking on a Phase 2b Clinical Trial.
*Confidential Treatment Requested
Phase 2b Clinical Trial means a study of a pharmaceutical product in human patients to determine efficacy and statistical trends prior to initiation of Phase 3 pivotal studies. These studies will also evaluate potential doses and dosing regimens to optimize the therapy under investigation.
Specified Territories means [*].
2. Information Rights .
2.1 Formation of Development Committee . Within thirty (30) days following the Effective Date, the Parties shall form a committee (the Development Committee ) which shall serve as the vehicle for Dermira to provide Maruho with periodic updates on Dermiras development activities involving the Dermira Products. The Development Committee shall have three (3) representatives from each of Dermira and Maruho. Dermira and Maruho shall inform the other Party of their names before the first Development Committee is held. Each Party shall have the right to replace one or more of their representatives with the equivalent number of full time employees of such Party at any time upon written notice to the other Party.
2.2 Meetings of the Development Committee . The Development Committee shall meet once every six (6) month period, provided that Maruho shall have the right to request one (1) additional meeting per six (6) month period. Development Committee meetings may be conducted in person or via teleconference and/or videoconference. Each Party shall bear its own expenses in connection with attending meetings of the Development Committee.
2.3 Termination of Development Committee . The Development Committee shall terminate and Maruhos rights under this Section 2 shall terminate at such time when all of the ROFN Rights (defined below) in respect of the Dermira Products have been exercised or have expired or terminated as set out below. In addition, the Development Committee meetings shall not include discussion of any Dermira Product for which all of the ROFN Rights have expired or terminated as set out below.
2.4 Change of Control . Dermira shall provide Maruho with at least [*] days advance written notice of a Change of Control Transaction.
3. Fees and Credits .
3.1 Payment . In consideration of the rights granted to Maruho under this Agreement, Maruho will pay Dermira the sum of ten million USD ($10,000,000) within thirty (30) days following the Effective Date (the Maruho Payment ).
3.2 Credits . The Maruho Payment, and any portion thereof, until the entire Maruho payments has been so credited, will be creditable by Maruho against any up-front or milestone payments payable by Maruho under any license agreement entered into between Maruho and Dermira (or its successors) following negotiation under Section 4.1 or 4.3. Notwithstanding the foregoing, the Maruho Payment is non-refundable even in the event that Mauho and Dermira (or its successors) do not enter into a license agreement.
*Confidential Treatment Requested
3.3 Tax form . Dermira shall provide Maruho with residential certificates, tax forms and other tax related documents previously requested by Maruho (the Tax Forms ). If Dermira fails to provide the Tax Forms ten (10) days prior to the due date of the Maruho Payment, Maruho may postpone the Maruho Payment until ten (10) days after Maruho receives the Tax Forms from Dermira.
4. Rights of First Negotiation .
4.1 Dermira Products . Dermira shall grant Maruho the rights set out in this Section 4.1 (each, an ROFN Right ) to negotiate with Dermira for an exclusive license to develop and commercialize the Dermira Products in the Specified Territories.
(a) Phase 2b Program Completion . If Dermira conducts and completes a Phase 2b Clinical Trial for a Dermira Product, Dermira shall notify Maruho upon completion of the Phase 2b Clinical Trial (the Phase 2b Completion Notice ) and Maruho will have a first right to negotiate with Dermira for an exclusive license to develop and commercialize such Dermira Product in one or more of the Specified Territories as set forth in this Section 4.1(a) if the ROFN Rights in respect of such Dermira Product have not previously expired or been exercised or terminated in accordance with this Section 4. At the time it issues the Phase 2b Completion Notice, Dermira will also physically or electronically deliver to Maruho, or provide Maruho access via secure electronic data room (any such delivery method, make available , and made available shall have a corresponding meaning) all material data related to Dermiras development of such Dermira Product, including from such Phase 2b Clinical Trial, that Dermira then possesses (the Phase 2b Data Package ). Maruho will be entitled to exercise its right of first negotiation with respect to such Dermira Product by written notice to Dermira (the Phase 2b Exercise Notice) within [*] days after Maruhos receipt of the Phase 2b Completion Notice and the Phase 2b Data Package being made available by Dermira (the Phase 2b Evaluation Period ). If Maruho so exercises its right of first negotiation, Dermira and Maruho will negotiate with respect to such a license during an exclusive negotiation period of [*] days following Maruhos issuance of the Phase 2b Exercise Notice (the Phase 2b Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the Phase 2b Completion Notice will terminate for all countries of the Specified Territories effective upon the earlier of (i) Maruhos failure to issue a Phase 2b Exercise Notice prior to the expiration of the Phase 2b Evaluation Period, and (ii) the expiration of the Phase 2b Negotiation Period.
(b) Prior to 3rd Party License or Sale . If, prior to the ROFN Rights for a Dermira Product expiring or being exercised or terminated in accordance with this Section 4, Dermira intends to license or sell the intellectual property related to such Dermira Product for all or part of the Specified Territories (other than in connection with a Change of Control Transaction) Dermira will provide Maruho with written notice of such intention (the 3rd Party Transaction Notice ) and Maruho will have a first right to negotiate with Dermira for an exclusive license to develop and commercialize such Dermira Product or purchasing the rights to such Dermira Product in the Specified
*Confidential Treatment Requested
Territories as set forth in this Section 4.1(b). At the time it issues the 3rd Party Transaction Notice, Dermira will also make available to Maruho all material data related to Dermiras development of such Dermira Product that Dermira then possesses (the 3rd Party Transaction Data Package ). Maruho will be entitled to exercise its right of first negotiation with respect to such Dermira Product by written notice to Dermira (the 3rd Party Transaction Exercise Notice ) within [*] days after Maruhos receipt of the 3rd Party Transaction Notice and the 3rd Party Transaction Data Package being made available by Dermira (the 3rd Party Transaction Evaluation Period). If Maruho so exercises its right of first negotiation, Dermira and Maruho will negotiate with respect to such a license or sale during an exclusive negotiation period of [*] days following Maruhos issuance of the 3rd Party Transaction Exercise Notice (the 3rd Party Transaction Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the 3rd Party Transaction Notice will terminate for all countries of the Specified Territories effective upon the earlier of (i) Maruhos failure to issue a 3rd Party Transaction Exercise Notice prior to the expiration of the 3rd Party Transaction Evaluation Period, and (ii) the expiration of the 3rd Party Transaction Negotiation Period, provided that, if the right of first negotiation arose from Dermiras intention to sell or license the intellectual property related to the Dermira Product for part but not all of the Specified Territories, then the ROFN Rights in respect of such Dermira Product in such other parts of the Specified Territories shall continue until exercised, terminated or expired in accordance with this Section 4.
(c) Effect of Dermira Ceasing Development . Maruho acknowledges that Dermira will have the sole discretion regarding the development of the Dermira Products inside and outside of the Specified Territories and that Dermira may cease development of a Dermira Product at any time if Dermira so determines. In the event that Dermira determines to cease development of a Dermira Product prior to the exercise, expiration or termination of the ROFN Rights in respect of such Dermira Product, Dermira will so notify Maruho in writing (the Development Termination Notice ). At the time it issues the Development Termination Notice, Dermira will also make available to Maruho all material data related to Dermiras development of the Dermira Product that Dermira then possesses (the Development Termination Data Package ). Maruho will be entitled to exercise its right of first negotiation with respect to such Dermira Product by written notice to Dermira (the Development Termination Exercise Notice ) within [*] days after Maruhos receipt of the Development Termination Notice and the Development Termination Data Package being made available by Dermira (the Development Termination Evaluation Period ). If Maruho so exercises its right of first negotiation, Dermira and Maruho will negotiate with respect to such a license during an exclusive negotiation period of [*] days following Maruhos issuance of the Development Termination Exercise Notice (the Development Termination Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the Development Termination Notice will terminate for all countries of the Specified Territories effective upon the earlier of (i) Maruhos failure to issue a Development Termination Exercise Notice prior to the
*Confidential Treatment Requested
expiration of the Development Termination Evaluation Period, and (ii) the expiration of the Development Termination Negotiation Period.
(d) Maruho Initiated Negotiation . If Dermira has not completed a Phase 2b Clinical Trial for a Dermira Product, Maruho will have the right to offer Dermira the negotiation with respect to the license of such Dermira Product in the Specified Territories at any time prior to the exercise, expiration or termination of the ROFN Rights for such Dermira Product. Maruho shall exercise this right of first negotiation by providing written notice to Dermira (the Maruho Negotiation Notice ). Promptly following receipt of a Maruho Negotiation Notice, Dermira will make available to Maruho all material data related to Dermiras development of such Dermira Product that Dermira then possesses (the Maruho Negotiation Data Package ) and Dermira and Maruho will negotiate with respect to such a license during an exclusive negotiation period of [*] days following the Maruho Negotiation Data Package being made available by Dermira (the Maruho Negotiation Period ). Dermira will not delay such negotiation. All of the ROFN Rights in respect of the Dermira Product which was the subject of the Maruho Negotiation Notice will terminate for all countries of the Specified Territories effective upon the expiration of the Maruho Negotiation Period. Notwithstanding the foregoing if Maruho exercises its ROFN Rights under this Section 4.1(d) for [*] in [*], and Dermira and Maruho enter into a license agreement for [*] in [*] (an [*] License ), the ROFN Rights for [*] in the Specified Territories other than [*] and for Dermira Product other than [*] shall continue to the extent not previously exercised, expired or terminated.
4.2 Termination of ROFN Rights . If Dermira undergoes a Change of Control Transaction, Dermiras successor will have the right to terminate all ROFN Rights upon written notice to Maruho. In addition, if not exercised, expired or terminated earlier, all of the ROFN Rights will expire upon the later to occur of (a) when Dermira has notified Maruho in writing that Dermira has completed Phase 2a Clinical Trials for all Dermira Products, or (b) [*] years after Maruho and Dermira have entered into a license agreement (except for an [*] License) for one or more Dermira Products in one or more of the Specified Territories against which all or a portion of the Maruho Payment is applied. Subject only to the ROFN Rights with respect to the Dermira Products prior to their exercise, expiration or termination in accordance with this Agreement (including subject to the proviso in the last sentence of Section 4.1(b)), Dermira and its successors shall be free to commercialize, license, sell or take any other actions with respect to the Dermira Products and the intellectual property rights related thereto, in Dermiras sole discretion. In addition, nothing in this Agreement shall restrict Dermira and its successors rights to commercialize, license, sell or take any other actions with respect to Dermira Products and the intellectual property rights related thereto outside of the Specified Territories and other products and their related intellectual property rights in any territory of the world.
4.3 Additional Right to Credit the Maruho Payment . If as of the date that all ROFN Rights expire or have been exercised or terminated (the ROFN Termination Date ), the Parties have not entered into any license, sale or other commercialization agreement involving a Dermira Product, Maruho will have the right to credit the Maruho Payment (including portions thereof, until the entire Maruho Payment has been so credited) against up-front and milestone payments payable by Maruho under any license agreement entered into between Dermira or its successor
*Confidential Treatment Requested
and Maruho after the ROFN Termination Date for: (a) any Dermira Product for which the ROFN Rights were terminated following a Change of Control Transaction, or (b) any other pharmaceutical product developed by Dermira, provided that such other Dermira-developed products will not be subject to any ROFN Rights. This right to credit the Maruho Payment under license agreements for other Dermira-developed pharmaceutical products shall continue to apply following a Change of Control Transaction of Dermira but shall be thereafter limited to Dermira-developed products which were under development by Dermira at the time of the Change of Control Transaction and not to other products of the acquirer or any of its affiliates.
5. Confidentiality .
5.1 Confidential Information . For purposes of this Agreement, Confidential Information means and will include any information, materials or knowledge regarding Dermira and Maruho and their business, financial condition, products, development programs, licensors, suppliers, technology, clinical or other data, or research and development that is disclosed or made available to the other Party (the Receiving Party ) or to which the Receiving Party has access in connection with this Agreement or the Development Committee meetings. Confidential Information will not include any information that: (a) is or becomes part of the public domain through no fault of the Receiving Party; (b) was rightfully in the Receiving Partys possession at the time of disclosure, without restriction as to use or disclosure as demonstrated by contemporaneous written records; or (c) the Receiving Party rightfully receives from a third party who has the right to disclose it and who provides it without restriction as to use or disclosure. Dermira and Maruho agree to only use the Confidential Information of the other Party for the purposes of this Agreement and in no other manner and for no other purpose, including but not limited to the research, development or commercialization of any other product. Dermira and Maruho agree to hold all Confidential Information of the other Party in strict confidence and not to disclose it to others, except to full time employees and medical advisors of the Receiving Party and its affiliates who have a need to know and are bound by written agreements of confidentiality no less protective of the Confidential Information than the terms of this Section 5. The Receiving Party shall be liable to the other Party for any failure of such employees or medical advisors to comply with the non-use and non-disclosure obligations under this Section 5, and shall provide prompt notice to the other Party of any failure to comply of which the Receiving Party becomes aware. Dermira and Maruho further agrees to take all actions reasonably necessary to protect the confidentiality of all Confidential Information of the other Party including, without limitation, implementing and enforcing procedures to minimize the possibility of unauthorized use or disclosure of Confidential Information of the other Party.
5.2 Terms of the Agreement . The terms and conditions of this Agreement will be considered the confidential information of both Parties and will not be disclosed by either Party except: (a) pursuant to the order or requirement of a court, administrative agency, or other governmental body; provided that the Party required to make such a disclosure gives reasonable notice to the other party to enable it to contest such order or requirement; (b) on a confidential basis to its legal or professional financial advisors; (c) as required under applicable securities regulations; or (d) on a confidential basis to Dermiras present or potential future providers of financing or potential acquirers or strategic partners. Following the Effective Date, the Parties shall mutually agree in writing on the form and content of a press release announcing the Maruho investment and the relationship formed by this Agreement. Any other public announcement regarding this Agreement is subject to the prior written approval of the Parties.
*Confidential Treatment Requested
6. General .
6.1 Notices . Any and all notices required or permitted to be given to a Party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such Party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) at the time of transmission by facsimile, addressed to the other Party at its facsimile number specified herein (or hereafter modified by subsequent notice to the Parties hereto), with confirmation of receipt made by either telephone or printed confirmation sheet verifying successful transmission of the facsimile; (c) one (1) business day after deposit with an express overnight courier for United States deliveries, or three (3) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (d) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by facsimile or by express courier. Notices by facsimile shall be machine verified as received. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the Party to be notified at the address or facsimile number as follows, or at such other address or facsimile number as such other Party may designate by one of the indicated means of notice herein to the other Parties hereto as follows:
if to Maruho, marked Attention: General Manager, Strategies & Licensing, at 1-5-22 Nakatsu, Kitaku, Osaka,531-0071, Japan, or facsimile number: [*]
With a copy (which shall not constitute notice) to:
General Manager, Legal Department at 1-5-22 Nakatsu, Kitaku, Osaka, 531-0071,
Japan, or facsimile number: [*]
if to Dermira, marked Attention: Chief Executive Officer, at 2055 Woodside Road, Suite 270, Redwood City, California 94061, or facsimile number: [*]
With a copy (which shall not constitute notice) to:
Fenwick & West LLP
Silicon Valley Center
555 California Street
12th Floor
San Francisco, CA 94104
Facsimile: [*]
Attention: Douglas Cogen
6.2 Entire Agreement . This Agreement and the Securities Purchase Agreements constitute the entire agreement, and supersede all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings between the Parties with respect to the subject matter hereof and thereof.
*Confidential Treatment Requested
6.3 Governing Law . This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws. The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of California and the Federal courts of the United States of America located within the County of San Francisco, State of California, in respect of the interpretation and enforcement of the provisions of this Agreement, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the Parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a California State or Federal court.
6.4 No Assignment . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by any Party without the prior written consent of the other Party, and any such assignment without such prior written consent shall be null and void. Notwithstanding the foregoing, this Agreement may be assigned by Dermira without the consent of Maruho in connection with a merger, reorganization, consolidation involving, or sale of all or substantially all of the assets of, Dermira provided that, in connection with any such assignment, Dermira shall assign all of Dermiras obligations under this Agreement to its successor and Maruho shall continue to have all of its rights under this Agreement after such assignment.
6.5 Severability . Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
6.6 Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. This Agreement may be executed by facsimile or emailed pdf signature and a facsimile or pdf signature shall constitute an original for all purposes.
[ Remainder of Page Intentionally Left Blank ]
*Confidential Treatment Requested
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
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DERMIRA, INC. |
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By: |
/s/ Thomas Wiggans |
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Name: |
Thomas Wiggans |
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Title: |
Chief Executive Officer |
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Date: |
March 28, 2013 |
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MARUHO CO., LTD. |
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By: |
/s/ Koichi Takagi |
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Name: |
Koichi Takagi |
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President and Chief Executive Officer |
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March 28, 2013 |
Exhibit 10.13
LEASE AGREEMENT
THIS LEASE , made this 24th day of July, 2014 between Middlefield Park, California General Partnership hereinafter called Landlord, and Dermira, Inc., a Delaware Corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the Premises) outlined in red on Exhibit B-1, attached hereto and incorporated herein by this reference thereto more particularly described as follows:
· Approximately 18,833 gross square feet of space, including Tenants proportionate share of the building common areas, located on the 2nd floor of Building A located at 275 Middlefield Road, Menlo Park, Santa Mateo County, California. Tenants suite number in the building shall be Suite 150.
· As used herein the Complex shall mean and include all of the land outlined in red and described in Exhibit A, attached hereto, and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land. The gross area of the Complex is approximately 146,388 square feet.
· Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance.
1. USE. Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of conducting a commercial general office business, research and development and all related purposes, and for no other purpose. Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Complex or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex which will in any way obstruct or interfere with the rights of other tenants or occupants of the Complex or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon the floors, walls, or ceiling, which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where
designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of common area of the Complex. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, attorneys fees, or liability arising out of failure of Tenant to comply with any applicable law. The provisions of this Paragraph 1 are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Complex.
2. TERM. A. The term of this Lease shall commence on December 1, 2014 (Lease Commencement Date). The Lease termination date shall be November 30, 2019 (Lease Termination Date).
Tenant shall be provided at least 20 business days early access (Early Access Period) to set up its furniture, fixtures and equipment with no obligation to pay Basic Rent. Tenant shall pay Additional Rent pursuant to Paragraph 4(D) during this 20 day early access period.
B. Tenant may occupy the Premises prior to the Lease Commencement Date (Early Occupancy Period). The monthly Basic Rent shall be $18,833.00 during the Early Occupancy Period. Tenant shall pay Additional Rent pursuant to Paragraph 4(D) during the Early Occupancy Period. Tenants Early Occupancy shall not interfere with the construction work to be performed by Landlord as set forth in Paragraph 48.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver access to said Premises to Tenant for the full Early Access Period or possession of said Premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlords agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlords delivery of possession, as specified in Paragraph 2(A), above. The above is, however, subject to the provision that the period of delay or delivery of the Premises shall not exceed 150 days from the execution of this Lease by both parties (except those delays caused by Acts of God, strikes, war, utilities, governmental bodies, extreme weather, unavailable materials, and delays beyond Landlords control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease in which event Landlord shall immediately repay the security deposit and any prepaid Rent.
4. RENT. A. Basic Rent . Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the Premises the sums set forth below, payable in lawful money of the United States of America:
· $98,873.25 shall be due and payable upon execution of this Lease and shall represent payment of the 1 st months Basic Rent.
· $98,873.25 shall be due and payable on or before the first day of the 2 nd month of the Lease term with a like sum to be due and payable on or before the first day of each month thereafter through November 30, 2015.
· $101,839.45 shall be due and payable on or before December 1, 2015 with a like sum to be due and payable on or before the first day of each month thereafter through November 30, 2016.
· $104,894.63 shall be due and payable on or before December 1, 2016 with a like sum to be due and payable on or before the first day of each month thereafter through November 30, 2017.
· $108,041.47 shall be due and payable on or before December 1, 2017 with a like sum to be due and payable on or before the first day of each month thereafter through November 30, 2018.
· $111,282.71 shall be due and payable on or before December 1, 2018 with a like sum to be due and payable on or before the first day of each month thereafter through November 30, 2019.
B. Time for Payment . In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof, Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). If such rent is less than the amount paid above as 1 st months Basic Rent, then the difference between the 1 st months Basic Rent and the rent due shall be credited against the 2 nd months Basic Rent. In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge . Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rent as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default five (5) days. Said late charge shall equal five (5%) percent of each rental payment so in default.
D. Additional Rent . Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as Additional Rent the following:
(1) Tenants proportionate share of all utilities relating to the Complex as set forth in Paragraph 11, and
(2) Tenants proportionate share of all Taxes relating to the Complex as set forth in Paragraph 12, and
(3) Tenants proportionate share of all insurance premiums relating to the Complex, as set forth in Paragraph 15 , including reasonable deductibles and the pre-payment of premiums for coverage of up to one year. The amount of earthquake insurance deductibles actually paid shall be amortized ( including interest at the rate of 8% per year on the unamortized cost) over a period of ten (10) years and only the amortized portion during the Term of this Lease shall be included as Additional Rent; and
(4) Tenants proportionate share of expenses for the operation, management, maintenance and repair of the Building (including common areas of the Building) and Common Areas of the Complex in which the Premises are located as set forth in Paragraph 7, and
(5) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including attorneys fees and legal expenses, that may accrue thereto in the event of Tenants failure to pay such amounts, and all damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenants part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent.
Tenant shall pay to Landlord monthly, in advance, Tenants proportionate share of an amount estimated by Landlord to be Landlords approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled at the end of each calendar year as compared to Landlords actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord refunding to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlords actual expenditures for said Additional Rent items.
Tenants payment for such estimated Additional Rent for the Early Access Period as well as in the first twelve (12) months of this Lease shall be $22,600.00 per month. Prior to execution and delivery of this Lease by both parties, Landlord shall provide to Tenant complete and accurate figures setting forth the Additional Rent for each of the two (2) full calendar years preceding the calendar year in which the Lease Commencement Date occurs.
The respective obligations of Landlord and Tenant under this Paragraph 4 shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365.
E. Place of Payment of Rent and Additional Rent . All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord c/o Willis & Company at 3130 Alpine Road, Suite 190, Portola Valley, CA 94028, or to such other person or to such other place as Landlord may from time to time designate in writing.
F. Security Deposit. Upon execution of this Lease, Tenant shall deposit with Landlord the sum of Five Hundred Thousand Dollars ($500,000.00) or a Letter of Credit pursuant to the terms of Paragraph 4 (F)(1) below. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenants default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenants default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor accompanied by a reasonably detailed written explanation of the basis for Landlords use of such funds, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenants failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Deposit. If the Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlords option, to the last assignee of Tenants interest hereunder) at the expiration of the Lease term and after Tenant has vacated the Premises less amounts retained to cover uncured defaults. In the event of termination of Landlords interest in this lease, Landlord shall transfer said Deposit to Landlords successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor.
(1) Tenant shall have the right to provide within 10 days upon the execution of this Lease Agreement, a Letter of Credit in lieu of a Security Deposit, provided the Letter of Credit is to be issued by a financial institution with a Standard & Poors rating of A or better with offices in either San Francisco, San Mateo or Santa Clara County, and in the Stated Amount, to be held by Landlord in accordance with the terms, provisions and conditions of this Lease. Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining the Letter of Credit. In the event the issuer of the Letter of Credit no longer maintains a Standard & Poors rating of A or better, Landlord shall notify Tenant and Tenant shall within fifteen (15) business days thereafter issue a new Letter of Credit with a financial institution with a Standard & Poors rating of A or better. If Tenant fails to issue a replacement Letter of Credit with such 15-business day period, Landlord shall be entitled to draw upon the Letter of Credit if the credit rating or financial condition of the issuer of the Letter of Credit is no longer compliant with the requirements of this Paragraph 4(F). Following any such draw by Landlord on the Letter of Credit solely because of the deterioration of the creditworthiness of the issuer of the Letter of Credit, Landlord will disburse such Letter of Credit proceeds to Tenant provided (i) Tenant delivers to Landlord a replacement Letter of Credit from a financial institution with a Standard & Poors rating of A or better with offices in either San Francisco, San Mateo or Santa Clara County, and in favor of Landlord in a form, containing terms, issued by a lending institution, and
drawable in a location all reasonably preapproved by Landlord within sixty (60) days after Landlords draw thereon, (ii) at the time of Tenants delivery of the replacement Letter of Credit, there exists no default with respect to any provisions of this Lease, and (iii) Tenant pays all of the fees and expenses charged by the issuer of the Letter of Credit in connection with such disbursement; provided, further, that if any of the three (3) foregoing conditions are not satisfied within such sixty (60) day period, the proceeds received from such draw shall constitute Landlords property (and not Tenants property or the property of the bankruptcy estate of Tenant) and Landlord shall then use, apply or retain all or any part of the proceeds for the purposes set forth in clauses (1) through (4) of the next paragraph. Tenant shall have the right to replace the Letter of Credit at any time provided it is with a financial institution that meets the qualifications set forth above. The Stated Amount shall be Five Hundred Thousand Dollars ($500,000.00).
The Letter of Credit shall state that an authorized officer or other representative of Landlord may make demand on Landlords behalf for the Stated Amount of the Letter of Credit, or any portion thereof, and that the issuing bank must immediately honor such demand, without qualification or satisfaction of any conditions, except the proper identification of the party making such demand. In addition, the Letter of Credit shall indicate that it is transferable in its entirety by Landlord as beneficiary and that upon receiving written notice of transfer, and upon presentation to the issuing bank of the original Letter of Credit, the issuer or confirming bank will reissue the Letter of Credit naming such transferee as the beneficiary. Tenant shall be responsible for the payment to the issuing bank of any transfer costs imposed by the issuing bank in connection with any such transfer. If (A) the term of the Letter of Credit held by Landlord will expire prior to the date which is sixty (60) days after the last day of the Lease Term and the Letter of Credit is not extended, or a new Letter of Credit for an extended period of time is not substituted, in either case at least (30) days prior to the expiration of the Letter of Credit, or (B) a default beyond applicable notice and cure periods occurs, or, without regard to notice and cure periods, there occurs a filing of a voluntary petition under Title 11 of the United States Code (i.e., the Bankruptcy Code), or Tenant otherwise becomes a debtor in any case or proceeding under the Bankruptcy Code, as now existing or hereinafter amended, Landlord may (but shall not be required to) draw upon all or any portion of the Stated Amount of the Letter of Credit to the extent reasonably required to cure such default (provided, however that the entire amount of the Letter of Credit may be drawn upon following any occurrence described in item (B) above), and the proceeds received from such draw shall constitute Landlords property (and not Tenants property or the property of the bankruptcy estate of Tenant) and Landlord shall, at its election, then use, apply or retain all or any part of the proceeds (1) for the payment of any sum which is in default, (2) for the payment of any other amount which Landlord may spend or become obligated to spend by reason of the default, (3) to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenants default or (4) as prepaid rent to be applied against Tenants next Rent obligations as they become due until the remaining proceeds are exhausted. If any portion of the Letter of Credit proceeds is so used or applied, Tenant shall, within ten (10) days after demand therefor, post an additional Letter of Credit in an amount to cause the aggregate amount of the unused proceeds and such new Letter of Credit to equal the then-applicable Stated Amount required in this Paragraph 4(F). Landlord shall not be required to keep any proceeds from the Letter of Credit separate from its general funds. Should Landlord sell its interest in the Premises during the Lease Term and if Landlord deposits with the purchaser thereof the Letter of Credit or any proceeds of the Letter of Credit, thereupon Landlord
shall be discharged from any further liability with respect to the Letter of Credit and said proceeds and Tenant shall look solely to such transferee for the return of the Letter of Credit or any proceeds therefrom. The Letter of Credit or any remaining proceeds of the Letter of Credit held by Landlord after expiration of the Lease Term, after any deductions described in this Paragraph 4(F), shall be returned to Tenant or, at Landlords option, to the last assignee of Tenants interest hereunder, within sixty (60) days following the expiration of the Lease Term.
The use, application or retention of the Letter of Credit, the proceeds or any portion thereof, shall not prevent Landlord from exercising any other rights or remedies provided under this Lease, it being intended that Landlord shall not be required to proceed against the Letter of Credit, and such use, application or retention of the Letter of Credit shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. No trust relationship is created herein between Landlord and Tenant with respect to the Letter of Credit.
Landlord and Tenant acknowledge and agree that in no event or circumstance shall the Letter of Credit, any renewal thereof or substitute therefor or the proceeds thereof be (i) deemed to be or treated as a security deposit within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a security deposit within the meaning of such Section 1950.7. The parties hereto (A) recite that the Letter of Credit is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (Security Deposit Laws) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Notwithstanding the foregoing, to the extent California Civil Code Section 1950.7 in any way: (a) is applicable to the Letter of Credit (or any proceeds thereof); or (b) controls Landlords rights to draw on the Letter of Credit or apply the proceeds of the Letter of Credit to any amounts due under this Lease or any damages Landlord may suffer following termination of this Lease, then Tenant fully and irrevocably waives the benefits and protections of Section 1950.7 of the California Civil Code (except for subsection (b) of Section 1950.7 of the California Civil Code) as it relates to the Letter of Credit, it being agreed that Landlord may recover from the Letter of Credit (or its proceeds) all of Landlords damages under this Lease and California law including, but not limited to, any damages accruing upon the termination of this Lease in accordance with this Lease and Section 1951.2 of the California Civil Code.
Provided that no monetary Event of Default (as defined in Paragraph 22 below) has occurred during the Term and then exists and no other Event of Default then exists, Landlord agrees that Tenant may reduce the Security Deposit or the Letter of Credit to the sum of $250,000 after the 30 th month of the Lease Term,
5. RULES AND REGULATIONS AND COMMON AREA . Subject to the terms and conditions of this Lease and such Rules and Regulations as Landlord may from time to time prescribe, Tenant and Tenants employees, invitees and customers shall, in common with other occupants of the Complex in which the Premises are located, and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex in which the Premises are
located, which areas and facilities are referred to herein as Common Area. This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interests of the occupants of the Complex. The Rules and Regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such Rules and Regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Complex of any of said Rules and Regulations provided that Landlord shall enforce the Rules and Regulations in a fair and equitable manner with respect to all tenants of the Complex.
Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord provided that maintenance and expenditures shall be done in a fair and equitable manner with respect to all tenants of the Complex.
6. PARKING. Tenant shall have the right to use with other tenants or occupants of the Complex the parking spaces in the common parking areas of the Complex, of which the Tenants share is 75 parking spaces. Tenant agrees that Tenant, Tenants employees, agents, representatives and/or invitees shall not use parking spaces in excess of said 75 spaces allocated to Tenant hereunder. Landlord shall have the right, at Landlords sole discretion, to specifically designate the location of Tenants parking spaces within the common parking areas of the Complex in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant, Tenants employees, agents, representatives and/or invitees shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenants use. Said parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time, and from time to time. Landlord reserves the right, at Landlords sole discretion, to rescind any specific designation of parking spaces, thereby returning Tenants parking spaces to the common parking area. Landlord shall give Tenant written notice of any change in Tenants parking spaces. Tenant shall not, at any time, park, or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park, or permit the parking of Tenants trucks or other vehicles or the trucks and vehicles of Tenants suppliers or others, in any portion of the common area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common parking area or other common areas of the Complex. Tenant agrees to assume responsibility for compliance by its employees with the parking provision contained herein. If Tenant or its employees park in other than such designated parking areas, then Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay, Ten Dollars ($10.00) per day for each day or partial day each such vehicle is parked in any area other than that designated. Tenant hereby authorizes Landlord to attach violation stickers or notices to any vehicle belonging to Tenant or Tenants employees parked in violation of these provisions. If after notice of violation, a vehicle belonging to Tenant or a Tenants employee remains in violation of these provisions, Tenant hereby authorizes Landlord,
at Tenants sole expense, to tow away such vehicle from the Complex. Tenant shall use the parking areas for vehicle parking only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX, PREMISES AND BUILDING IN WHICH THE PREMISES ARE LOCATED . As Additional Rent and in accordance with Paragraph 4(D) of this Lease, Tenant shall pay to Landlord Tenants proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, management fees (not to exceed 3.0% of the gross rental income of the Complex) and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance of landscaped areas, lakes, parking lots, sidewalks, driveways; maintenance, repair and replacement of all fixtures and electrical, mechanical and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements which exceed Seventy Five Thousand Dollars ($75,000.00), Landlord shall amortize its investment in said improvements (together with interest at the rate of eight (8%) percent per annum on the unamortized balance) as an operating expense over the useful life of the capital improvement in a manner consistent with industry practice.
As Additional Rent and in accordance with Paragraph 4(D) of this Lease, Tenant shall pay its proportionate share (calculated on a square footage , or other equitable basis as calculated by Landlord) of the cost of operation (including common utilities), management, maintenance and repair of the Premises and the building (including common areas such as lobbies, restrooms, janitors closets, hallways, elevators, mechanical and telephone rooms, stairwells, entrances, spaces above the ceilings) in which the Premises are located. The maintenance items herein referred to include, but are not limited to, janitorization, electrical systems (such as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and air conditioning controls (such as mixing boxes, thermostats, time clocks, supply and return grills), all interior improvements within the Premises including but not limited to: wall coverings, window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors (both interior and exterior, including closing mechanisms, latches, locks), and all other interior improvements of any nature whatsoever, all windows, window frames, plate glass, glazing, truck doors, main plumbing systems of the building (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), main electrical systems (such as panels and conduits), heating and air conditioning systems (such as compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building common area interiors (such as wall coverings, window coverings, floor coverings and partitioning), ceilings, building exterior doors, skylights (if any), automatic fire extinguishing systems and elevators; license, permit, and inspection fees; security; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements which exceed Seventy Five Thousand ($75,000.00), Landlord shall amortize its investment in said improvements (together with interest at the rate of eight (8%) percent per annum on the
unamortized balance) as an operating expense over the useful life of the capital improvement in a manner consistent with industry practice. Tenant hereby waives all rights under, and benefits of, subsection I of Section 1932 and Sections 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. Should Tenant replace the carpet in the Premise office spaces during the Lease term, Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas (Areas of Excessive Wear). Such Areas of Excessive Wear shall be replaced at Tenants sole expense upon Lease termination.
Additional Rent as used herein shall not include: Landlords debt repayments; interest on charges; capital expense reserves; fines and penalties; expenses to maintain structural elements of the Complex; expenses to correct construction defects of the Complex; expenses directly or indirectly incurred by Landlord and reimbursed from insurance proceeds; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant, including any leasing or tenant improvements; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries.
Landlord agrees to provide five-day janitorial service for the leased Premises and to maintain the Complex in a first-class manner.
8. ACCEPTANCE AND SURRENDER OF PREMISES . Landlord, at its sole cost and expense, shall deliver the leased Premises with all building systems and components in good condition and good working order including all electrical, plumbing, fire sprinkler, lighting, water and gas systems, ceiling system, heating, ventilating and air condition systems. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire or normal wear and tear excepted), with all interior walls painted, or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; and all floors cleaned and waxed; all carpets cleaned and shampooed; the server room air conditioning and heating equipment serviced by a reputable and licensed service firm and in good operating condition (provided the maintenance of such equipment has been Tenants responsibility during the term of this Lease) (damage by Acts of God, fire or normal wear and tear excepted) together with all alterations, additions and improvements which may have been made in, to, or on the Premises (except movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenants sole cost and expense, provided that Tenant shall not be held responsible for restoration of any Tenant Improvements made pursuant to Paragraph 48. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenants personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenants sole cost, and repair any damage caused by such removal of wall-mounted furniture and equipment at Tenants sole cost, provided that such damage was not caused by negligence of Landlord, its agents, servants, employees, invitees, or contractors. If the Premises are not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases and subtenancies.
Subject to the Tenant Improvements provided for in Paragraph 48, Tenant agrees to lease the Premises in their AS IS condition, and the construction of any alterations or improvements by Tenant shall not delay the Lease commencement date nor the obligation to pay Rent under the terms of this Lease.
9. ALTERATIONS AND ADDITIONS . Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant, but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. If Landlord consents to the making of any alteration, addition, or improvement to or of the Premises by Tenant, the same shall be made by Landlord at Tenants sole cost and expense. Any modifications to the building or building systems required by governmental code or otherwise as a result of Tenants alterations, additions or improvements shall be made at Tenants sole cost and expense. Tenant shall retain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, air conditioning, partitioning, drapery, carpeting and floor installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make any alterations or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenants improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. Tenant shall, if required by Landlord, secure at Tenants own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanics lien filed against the Premises or against the Complex for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant.
Pursuant to California Civil Code Section 1938, Landlord hereby notifies Tenant that as of the Effective Date, the Premises and Building have not undergone inspection by a Certified Access Specialist to determine whether the Premises meets all applicable construction related accessibility standards under California Civil Code Section 55.53
10. BUILDING PLANNING . Omitted.
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED . As Additional Rent and in accordance with Paragraph 4(D) of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of all utility charges such as water, gas, electricity, telephone, telex, facsimile and other electronic communications service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to the building in which the Premises are located, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this Lease to be performed or observed by it, and subject to the rules and regulations of the Complex hereinbefore referred to, Landlord shall furnish to the Premises: (i) at all times, reasonable quantities of water, gas and electricity suitable for the intended use of the Premises and (ii) between the hours of 8:00 A.M. and 6:00 P.M., Mondays through Fridays (holidays excepted) (Standard Business Hours) heating, ventilation and air conditioning required in Landlords reasonable judgment for the comfortable use and occupation of the Premises. Landlord shall furnish additional heating, ventilation and air conditioning outside of Standard Business Hours upon Tenants written notice provided that Tenant reimburses Landlord for its actual costs for the additional operation of the heating, ventilation and air conditioning systems. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the building heating, ventilating and air conditioning systems. Whenever heat generating machines, equipment, or any other devices (including exhaust fans) are used in the Premises by Tenant which affect the temperature or otherwise maintained by the air conditioning system, Landlord shall have the right to install supplementary air conditioning units in the Premises and the costs thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation), electronic data processing machines or machines using current in excess of 110 Volts which will in any way increase the amount of electricity, gas, water or air conditioning usually furnished or supplied to premises being used as general office space, or connect with electric current (except through existing electrical outlets in the Premises), or with gas or water pipes any apparatus or device for the purposes of using electric current, gas or water. If Tenant shall require water, gas or electric current in excess of that usually furnished or supplied to premises being used as general office space, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas, or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for
such excess water, gas and electric current consumed (as shown by such meters and at the rates then charged by the furnishing public utility); and any additional expense incurred by Landlord in keeping account of electric current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord.
12. TAXES. A. As Additional Rent and in accordance with Paragraph 4(D) of this Lease, Tenant shall pay to Landlord Tenants proportionate share of all Real Property Taxes, which proportionate share shall be allocated to the leased Premises by square footage or other equitable basis, as calculated by Landlord. The term Real Property Taxes, as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Complex) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Complex (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlords interest therein; any improvements located within the Complex (regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Complex; or parking areas, public utilities, or energy within the Complex; (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Complex; and (iii) all costs and fees (including attorneys fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax provided that such contest in the Landlords business judgment has a reasonable basis in fact and law and if a successful outcome were achieved, would result in a direct financial benefit to Tenant. If at any time during the term of this Lease the taxation or assessment of the Complex prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlords interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex, on Landlords business of leasing the Complex, or computed in any manner with respect to the operation of the Complex, then any such tax or charge, however designated, shall be included within the meaning of the term Real Property Taxes for purposes of this Lease. Notwithstanding the foregoing, the term Real Property Taxes shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlords income from all sources.
B. Taxes on Tenants Property. (1) Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenants personal property or trade fixtures are levied against Landlord or Landlords property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall upon demand, as the
case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlords full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amount so recovered shall belong to Tenant.
(2) If the Tenant improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for Real Property Tax purposes at a valuation higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the Real Property Taxes and assessments levied against Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of 12A(i), above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant improvements are assessed at a higher valuation than standard office improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used.
13. LIABILITY INSURANCE . Tenant, at Tenants expense, agrees to keep in force during the term of this Lease a policy of comprehensive public liability insurance with limits in the amount of $2,000,000/$3,000,000 for injuries to or death of persons occurring in, on or about the Premises or the Complex, and property damage insurance with limits of $500,000. The policy or policies affecting such insurance, certificates of which shall be furnished to Landlord, shall name Landlord as additional insured, and shall insure any liability of Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder; and shall be issued by an insurance company admitted to transact business in the State of California and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days prior written notice to Landlord. Tenant shall provide Landlord with an endorsement evidencing that Landlord has been named as an additional insured and is covered as an additional insured under the terms of Tenants insurance policy. If, during the term of this Lease, in the considered opinion of Landlords Lender, insurance advisor or counsel, the amount of insurance described in this Paragraph 13 is not adequate, Tenant agrees to increase said coverage to such reasonable amount as Landlords Lender, insurance advisor or counsel shall deem adequate.
14. TENANTS PERSONAL PROPERTY INSURANCE, WORKERS COMPENSATION INSURANCE AND AUTO INSURANCE . Tenant shall maintain a policy or policies of fire and property damage insurance in Special form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured.
Tenant shall also maintain a policy or policies of workers compensation insurance and any other employee benefit insurance sufficient to comply with all laws but not less than
$1,000,000 per accident limit for bodily injury and disease. Tenant shall also maintain an auto liability policy or policies for all owned, non-owned, and hired vehicles with a $1,000,000 per accident limit of bodily injury and property damage.
15. PROPERTY INSURANCE . Landlord shall purchase and keep in force and, as Additional Rent and in accordance with Paragraph 4(D) of this Lease, Tenant shall pay to Landlord Tenants proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of policy or policies of insurance covering loss or damage to the Premises and Complex in the amount of the full replacement value thereof, providing protection against those perils included within the classification of Special insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100)%) percent of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenants use of the Premises or the Complex, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing partys insurance policies, irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex but excluding, however, the willful misconduct and negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to persons or damage to property the cause of which is the willful misconduct or negligence of Landlord, Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever.
17. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer provided however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This Paragraph 17
shall not be interpreted as requiring Tenant to make structural changes or improvements, except to the extent such changes or improvements are required as a result of Tenants use of the Premises. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises.
18. LIENS. Tenant shall keep the Premises and the Complex free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING . Tenant shall not assign, transfer or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. Tenant agrees to pay to Landlord, as additional rent, 50% of amounts received by Tenant from its assignees, transferees or subtenants in excess of: (i) the Basic and Additional Rents payable by Tenant to Landlord hereunder and (ii) reasonable costs incurred by Tenant from the sublease including brokers fees, legal fees, and rent inducements. Tenant shall provide Landlord sixty (60) days written notice, advising Landlord of its intent to assign or transfer Tenants interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. If Landlord provides its consent and Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, Tenant shall provide Landlord thirty (30) days written notice of its intended assignee, transferee or subleasee for Landlords consent, which shall not be unreasonably withheld. Any assignee, transferee or subtenant shall not assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any of Tenants obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord may require Tenant to pay all expenses in connection with the assignment, and Landlord may require Tenants assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease.
Nothwithstanding anything to the contrary in this Lease, Landlord may elect to terminate this Lease in the case of a sublease of more than 50% of the Leased Premises. Tenant may void Landlords election to terminate by withdrawing the requested consent within two (2) business days of Landlords election to terminate.
Notwithstanding anything to the contrary in this Lease, Tenant may, without Landlords prior written consent, sublet the Premises or assign the Lease to a subsidiary or affiliate of Tenant (Permitted Assignee), provided the Permitted Assignee assumes in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease.
20. SUBORDINATION AND MORTGAGES . In the event Landlords title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as Lender) to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lenders deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Tenant hereby irrevocably appoints Landlord the attorney in fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenants possession under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. Tenant agrees to send to any mortgagees and/or deed of trust holders, by registered mail, a copy of any notice of default served by Tenant upon the Landlord, provided that prior to such notice, Tenant has been notified, in writing (by way of notice of assignment of rents or otherwise) of the addresses of such mortgagees and/or deed of trust holders. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, any such mortgagees and/or deed of trust holders shall have an additional thirty (30) days within which to cure such default, or if such default is not reasonably susceptible of cure within that time, then such additional time as may be reasonably necessary if within such (30) days, any mortgagee and/or deed of trust holder has commenced and is diligently pursuing the remedies necessary to cure such default, (including but not limited to commencement of foreclosure proceedings), in which event this Lease shall not be terminated when such remedies are being diligently pursued.
21. ENTRY BY LANDLORD . Landlord reserves, and shall at all reasonable times have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder; to submit the Premises to prospective purchasers, mortgagors or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Complex, all without abatement of rent; and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed; provided, however, that the business of Tenant shall be interfered with to the least extent that is reasonably practical. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time
to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Complex and to change the name, number or designation by which the Complex is commonly known, and none of the foregoing shall be deemed an actual or constructive eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT . The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlords option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenants unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises.
Nothing contained in this Paragraph 22 shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided (Event of Default). Tenant shall have a period of 10 days for monetary default from the date of written notice from Landlord within which to cure any other default under this Lease. In the event Tenant is in non-monetary default under the terms of the Lease, Tenant shall have the time necessary to cure the default acting in good faith and a prudent manner. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subsubsections (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select a third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code which allow Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenants right to possession; acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlords initiative to protect its interest under this Lease shall not constitute a termination of Tenants right to possession.
(c) The right to terminate this Lease by giving notice to Tenant in accordance with applicable law.
(d) The right and power, as attorney-in-fact for Tenant, to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord, as attorney-in-fact for Tenant, may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the cost of such subletting, including, but not limited to, reasonable attorneys fees, and any real estate commissions actually paid, and the cost of such alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as rent for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third, to payment of rent due or unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. For all purposes set forth in this subparagraph (d), Landlord is hereby irrevocably appointed attorney-in-
fact for Tenant, with power of substitution. No taking possession of the Premises by Landlord, as attorney-in-fact for Tenant, shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time hereafter elect to terminate this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord as attorney-in-fact for Tenant pursuant to subparagraph (d) above.
23. ABANDONMENT. Tenant shall not abandon the Premises at any time during the term of this Lease; and if Tenant shall abandon said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord.
24. DESTRUCTION. In the event the Premises are destroyed in whole or in part from any cause, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or
(b) Terminate this Lease.
If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlords obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenants trade fixtures, equipment, merchandise or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenants sole cost and expense provided this Lease is not canceled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4 of the California Civil Code.
In the event that the building in which the Premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. In the event the destruction of the Premises is caused by Tenant, Tenant shall pay the deductible portion of Landlords insurance proceeds.
25. EMINENT DOMAIN . If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenants personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the Premises or any portion thereof, or (ii) any of the foregoing events occur with respect to the taking of any space in the Complex not leased hereby, or if any such spaces so taken or conveyed in lieu of such taking and Landlord shall decide to discontinue the use and operation of the Complex, or decide to demolish, alter or rebuild the Complex, then, in any of such events Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur: on the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD . In the event of a sale or conveyance of the Complex or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability for events occurring after the effective date or the transfer upon any of the terms, covenants or conditions (expressed or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Complex and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY . In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustees foreclosure sale, Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender to Landlord is prior and paramount to the lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained.
28. HOLDING OVER . Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL . Tenant shall at any time upon not less than ten (10) business days prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenants knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenants failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord; that there are no uncured defaults in Landlords performance, and that not more than one months rent has been paid in advance.
30. CONSTRUCTION CHANGES . It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlords architect determine to be desirable in the course of construction of the Premises, and no such changes, or any changes in plans for any other
portions of the Complex shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings supplied to Tenant and verification of the accuracy of such drawings rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM . All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by Tenant at Tenants sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for five (5) days after written notice thereof by Landlord, Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obligated to, make any such payment or perform any such other term or covenant on Tenants part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord, together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment of performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEYS FEES . A. In the event that Landlord should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease, or for any other relief against Tenant hereunder, then all costs and expenses, including reasonable attorneys fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenants occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorneys fee.
33. WAIVER. The waiver by either party of the other partys failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof.
34. NOTICES. All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advices or designations by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises or if sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices in care of Willis & Company, 3130 Alpine Road, Suite 190, Portola Valley, CA 94028. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE . Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. Landlord and Tenant mutually intend that neither shall have any binding contractual obligations to the other with respect to the matters referred to herein unless and until this instrument has been fully executed by both parties.
36. DEFAULT BY LANDLORD . Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations. ; provided, however, that if the nature of Landlords obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY . If Tenant is a corporation (or a partnership) each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants on behalf of said corporation that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by-laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this lease.
38. BASIC RENT ADJUSTMENT . Omitted.
39. LIMITATION OF LIABILITY . In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord and Landlords assets;
(ii) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the Partnership);
(iii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the Partnership);
(iv) no partner of Landlord shall be required to answer or otherwise plead to any service of process;
(v) no judgment shall be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord;
(ix) the term, Landlord, as used in this Paragraph 39, shall mean only the owner or owners from time to time of the fee title or the tenants interest under a ground lease of the land described in Exhibit B and in the event of any transfer or such title or interest, Landlord herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlords obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to the grantee. Similarly, the obligations contained in this Lease to be performed by Landlord shall be binding on Landlords successors and assigns only during their respective periods of ownership.
Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law.
40. BROKERS. Landlord agrees to pay a procuring brokerage commission of one dollar and fifty cents ($1.50) per rentable square foot per year to Cornish & Carey Commercial Newmark Knight Frank.
41. SIGNS. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, then upon expiration or other sooner termination of this Lease, Tenant at Tenants sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises.
Notwithstanding the above, Tenant shall have the right to place a directory sign in the lobby of the building in which the Premises are located and on the monument sign at the entry to the Complex. The size and design of the lobby and monument sign shall be at the reasonable discretion of the Landlord.
42. FINANCIAL STATEMENTS . In the event Tenant tenders to Landlord any information on the financial stability, creditworthiness or ability of the Tenant to pay the rent due and owing under the Lease, then Landlord shall be entitled to rely upon the information provided in determining whether or not to enter into this Lease Agreement with Tenant and Tenant hereby represents and warrants to Landlord the following: (i) That all documents provided by Tenant to Landlord are true and correct copies of the original; and (ii) Tenant has not withheld any information from Landlord which is material to Tenants creditworthiness, financial condition or ability to pay the rent; and (iii) all information supplied by Tenant to Landlord is true, correct and accurate; and (iv) no part of the information supplied by Tenant to Landlord contains misleading or fraudulent statements. Landlord agrees to hold all such information data and financial details in strict confidence and not to divulge same to any third party without prior written consent which consent shall not be unreasonably withheld, delayed or conditioned by Tenant.
A default under this Paragraph 42 shall be a non-curable default on behalf of Tenant and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or available to Landlord under the laws of the State of California.
43. HAZARDOUS MATERIALS . A. As used herein, the term Hazardous Material shall mean any substance or material which has been determined by any state, federal or local governmental authority to be capable of posing a risk of injury to health, safety or property including all of those materials and substances designated or defined as hazardous or toxic by (i) the Environmental Protection Agency, the California Water Quality Control Board, the Department of Labor, the California Department of Industrial Relations, the Department of Transportation, the Department of Agriculture, the Consumer Product Safety Commission, the Department of Health and Human Services, the Food and Drug Administration or any other governmental agency now or hereafter authorized to regulate materials and substances in the environment, or by (ii) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., as amended; the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., as amended; the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., as amended; the Hazardous Waste Control Law, California Health & Safety Code 25100 et seq., as amended; Sections 66680 through 66685 of Title 22 of the California Administration Code, Division 4, Chapter 30, as amended; and in the regulations adopted and publications promulgated pursuant to said laws.
B. Tenant shall not cause or permit any Hazardous Material to be improperly or illegally used, stored, discharged, released or disposed of in, from, under or about the Premises or the Complex or any other land or improvement in the vicinity of the Premises or the Complex. Without limiting the generality of the foregoing, Tenant, at its sole cost, shall comply with all laws relating to Hazardous Materials. If the presence of Hazardous Materials on the Premises or the Complex caused or permitted by Tenant results in contamination of the Premises or the Complex or any soil in or about the Premises or the Complex (Tenant Hazardous Materials),
Tenant, at its expense shall promptly take all actions necessary to return the Premises or the Complex to be in compliance with applicable Hazardous Material laws insofar as the Tenant Hazardous Materials are concerned. Tenant Hazardous Materials includes Hazardous Material that is or was attributable to the activities of Tenant, its agents or contractors during the Lease term, whether or not Tenant had knowledge of such Hazardous Material. The termination of this Lease shall not terminate or reduce the liability or obligations of Tenant under this Section, or as may be required by law, to clean up, monitor or remove any Tenant Hazardous Materials from the Premises or the Complex.
Tenant shall defend, hold harmless and indemnify Landlord and its agents and employees with respect to all claims, damages and liabilities arising out of or in connection with any Tenant Hazardous Material used, stored, discharged, released or disposed of in, from, under or about the Premises or the Complex, including, without limitation, any cost of monitoring or removal, any reduction in the fair market value or fair rental value of the Premises or the Complex and any loss, claim or demand by any third person or entity relating to bodily injury or damage to real or personal property
Tenant shall not suffer any lien to be recorded against the Premises or the Complex as a consequence of a Tenant Hazardous Material, including any so called state, federal or local super fund lien related to the clean up of a Tenant Hazardous Material in or about the Premises where said Hazardous Material is or was attributable to the activities of Tenant.
C. In the event Hazardous Materials are discovered in or about the Premises or the Complex, and Landlord has substantial reason to believe that Tenant was responsible for the presence of the Hazardous Material, then Landlord shall have the right to appoint a consultant to conduct an investigation to determine whether Hazardous Materials are located in or about the Premises or the Complex and to determine the corrective measures, if any, required to remove such Hazardous Materials. Tenant, at its expense, shall comply with all recommendations of the consultant, as required by law. To the extent it is determined that Tenant was not responsible for the presence of the Hazardous Materials, then Landlord shall reimburse Tenant for any costs incurred by Landlord and paid by Tenant under the terms of this Paragraph 45(C).
Tenant shall immediately notify Landlord of any inquiry, test, investigation or enforcement proceeding by or against Tenant concerning a Hazardous Material on the Premises or the Complex. Tenant acknowledges that Landlord, as the owner of the Property, at its election, shall have the sole right, at Tenants expense, to negotiate, defend, approve and appeal any action taken or order issued with regard to a Hazardous Material by an applicable governmental authority. Provided Tenant is not in default under the terms of this Lease, Tenant shall likewise have the right to participate in any negotiations, approvals or appeals of any actions taken or orders issued with regard to Tenant Hazardous Material and Landlord shall not have the right to bind Tenant in said actions or orders.
D. It shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or subletting if (i) the proposed assignees or subtenants anticipated use of the Premises involves the storage, use or disposal of Hazardous Material; (ii) if the proposed assignee or subtenant has been required by any prior landlord, lender or governmental authority to clean up Hazardous Material; (iii) or if the proposed assignee or subtenant is subject to
investigation or enforcement order or proceeding by any governmental authority in connection with the use, disposal or storage of a Hazardous Material.
E. Tenant shall surrender the Premises to Landlord, upon the expiration or earlier termination of the Lease, free of Tenant Hazardous Materials which are or were attributable to Tenant. If Tenant fails to so surrender the Premises, Tenant shall indemnify and hold Landlord harmless from all damages resulting from Tenants failure to surrender the Premises as required by this Paragraph 43(E), including, without limitation, any claims or damages in connection with the condition of the Premises including, without limitation, damages occasioned by the inability to relet the Premises or a reduction in the fair market and/or rental value of the Premises or the Complex by reason of the existence of any Tenant Hazardous Materials, which are or were attributable to the activities of Tenant, in or around the Premises of the Complex.
Notwithstanding any provision to the contrary in this Lease, if any action is required to be taken by a governmental authority to clean up, monitor or remove any Tenant Hazardous Materials which are or were attributable to the activities of Tenant from the Premises or the Complex and such action is not completed prior to the expiration or earlier termination of the Lease, then at Landlords election (i) this Lease shall be deemed renewed for a term commencing on the expiration date of this Lease and ending on the date the clean-up, monitoring or removal procedure is completed (provided, however, that the total term of this Lease shall not be longer than 34 years and 11 months); or (ii) Tenant shall be deemed to have impermissibly held over and Landlord shall be entitled to all damages directly or indirectly incurred in connection with such holding over including, without limitation, damages occasioned by the inability to relet the Premises or a reduction in the fair market and/or fair rental value of the Premises or the Complex by reason of the existence of the Tenant Hazardous Material.
F. Upon the Lease Commencement Date, Tenant shall provide to Landlord a complete list of all chemicals, toxic waste or Hazardous Materials employed by Tenant within the Premises. Throughout the term of the Lease, Tenant shall continue to update this list of chemicals, contaminants and Hazardous Materials.
44. MISCELLANEOUS AND GENERAL PROVISIONS.
a. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect.
c. The term Premises includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term Landlord or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term Tenant or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to
the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.
The term person includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) business days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenants Premises are a part.
f. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant hereby agree that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to enable Landlord to obtain financing, so long as Tenants rights hereunder are not substantially affected.
i. Paragraph. Omitted
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect this Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant.
45. Energy And Resource Consumption. Landlord may voluntarily cooperate in a reasonable manner with the efforts of governmental agencies and/or utility suppliers in reducing energy or other resource consumption within the Property. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such cooperation. Tenant agrees at all times to cooperate fully with Landlord and to abide by all reasonable rules established by Landlord (i) in order to maximize the efficient operation of the electrical, heating, ventilating and air conditioning systems and all other energy or other resource
consumption systems with the Property and/or (ii) in order to comply with the recommendations of utility suppliers and governmental agencies regulating the consumption of energy and/or other resources.
If Tenant (or any party claiming by, through or under Tenant) pays directly to the provider for any energy consumed at the Premises or Project, Tenant, promptly upon request, shall deliver to Landlord (or, at Landlords option, execute and deliver to Landlord an instrument enabling Landlord to obtain from such provider) any data about such consumption that Landlord, in its reasonable judgment, is required to disclose to a prospective buyer, tenant or security holder under California Public Resources Code § 25402.10 or any similar Law.
46. AS IS . Subject to Paragraphs 8 and 48 relating to Improvements Tenant agrees to lease the Premises in an as is condition.
47. Furniture : Landlord and Tenant acknowledge and agree that during the Term of this Lease, Landlord shall lease to Tenant, at no additional cost or expense, all of the furniture listed in Exhibit C attached hereto and made a part hereof (Furniture). Such leasing of the Furniture to Tenant is on an AS-IS, WITH ALL FAULTS basis and subject to all of the terms of this Lease, without recourse, representation or warranty of any kind or nature, express or implied, including without limitation, habitability, merchantability or fitness for a particular purpose. At the expiration or earlier termination of this Lease, the Furniture shall be returned and surrendered to Landlord in good condition and repair, reasonable wear and tear excepted. Landlord shall have no obligation to repair, maintain or insure any of the Furniture. Tenant shall insure the Furniture for its full replacement value. Tenant shall not have the right to (i) remove or modify the furniture without Landlords prior consent, which shall not be unreasonably withheld, or (ii) assign or sublet any of the Furniture except in conjunction with this Lease and the Leased Premises. Tenant shall pay any taxes, assessments and insurance premiums attributable to the Furniture.
Notwithstanding anything to the contrary, prior to the Lease Commencement Date, Landlord shall at Landlords cost remove any existing furniture, fixtures and equipment not needed by Tenant.
48. Tenant Improvements . Landlord shall perform demolition work and reception area renovation work (Improvements) for the Premises as depicted in Exhibit F attached hereto. Landlords work shall include restoration of ceiling tiles, fire sprinklers, carpet/flooring in the common areas of the Premises, lighting and painting (color to be mutually agreed upon by Landlord and Tenant) as necessary in the areas where Improvement work will be completed and in no other spaces in the Premises. All finishes will be similar to existing finishes in the Premises. Tenant shall be responsible for the purchase, installation and electrical wiring of the cubicles and purchase of any additional furniture.
49. Right of First Offer . Tenant shall have the Right of First Offer for additional space in the Complex upon the terms and conditions of Addendum One attached here to and incorporated here in.
50. Option. Tenant shall have an option to extend the lease upon the terms and conditions of Addendum Two attached hereto and incorporated here in.
51. Building Lobby Renovation . Landlord will endeavor to complete the building main lobby renovation work (Lobby Work) prior to the Lease Commencement Date, however the Lease Commencement Date shall not be affected should the Landlord require additional time to complete the Lobby Work.
52. Server Room . Landlord, at Landlords sole cost, shall relocate from the Premises, McDermott Will & Emerys server room equipment (MWE Equipment). Landlord shall use its best effort to remove the MWE Equipment prior to the Lease Commencement Date, however the Lease Commencement Date shall not be affected should Landlord require additional time to relocate the MWE Equipment.
IN WITNESS WHEREOF , Landlord and Tenant have executed and delivered this Lease as of the day and year first above written.
LANDLORD: |
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TENANT: |
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Middlefield Park |
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Dermira, Inc. |
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A California Partnership |
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A Delaware Corporation |
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By: |
/s/ Richard M. Jacobsen |
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By: |
/s/ Tom Wiggans |
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Print Name: |
Richard M. Jacobsen |
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Print Name: |
Tom Wiggans |
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Title: |
GENERAL PARTNER |
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Title: |
CEO |
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Dated: |
July 24, 2014 |
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Dated: |
July 24, 2014 |
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EXHIBIT A
PROPERTY DEPICTION
EXHIBIT B-1
LEASED PREMISES DEPICTION
Second Floor 275 Middlefield Road, Building A, Suite 150
EXHIBIT C
FURNITURE
275 Middlefield Road, Building A, Suite 150 Furniture Inventory List
Office |
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Desk |
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Overhead
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Tack board |
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Bookcase(s) |
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Desk Chair |
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Side
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Round
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Miscellaneous |
40.1A |
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Conference Room Desk |
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1(8) cubed |
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0 |
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1(4 shelf) |
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1 Attorney |
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0 |
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0 |
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One matching credenza |
38.1A |
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1 Standard L-Shape |
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1(6) cubed |
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1 |
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2 ( 4 Shelf) |
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1 Attorney |
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2 |
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1 |
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1 side 2 drawer credenza, 3 shelf bookcase on top of credenza |
37.1A |
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1 Standard U-Shape |
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1(8)cubed |
|
1 |
|
1(4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
36.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
35.1A |
|
1 Standard U-Shape |
|
1(8) cubed |
|
1 |
|
0 |
|
1 Attorney |
|
2 |
|
0 |
|
|
34.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
3 (4 shelf) |
|
1 Attorney |
|
3 |
|
1 |
|
|
33.1A |
|
1 Standard U-Shape |
|
1(6) cubed |
|
1 |
|
1(4 shelf) |
|
1 Attorney |
|
1 |
|
1 |
|
|
32.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
64.1A |
|
1 Table U-Shape |
|
1(6)cubed |
|
1 |
|
1 (4 shelf) |
|
None |
|
2 |
|
0 |
|
|
31.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
2 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
63.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
1 (2 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
30.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
29.1A |
|
1 U Shaped Partial Desk |
|
1(6)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
1 |
|
0 |
|
|
28.1A |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
No Furniture |
27.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
1(4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
26.1A |
|
1 Standard U-Shape |
|
1(8) cubed |
|
1 |
|
2 (4 shelf) |
|
1 Attorney |
|
2 |
|
1 |
|
|
25.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
24.1A |
|
1 Standard U-Shape |
|
1(3)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
23.1A |
|
1 Standard U-Shape |
|
1(8) cubed |
|
1 |
|
3 (4 shelf) |
|
1 Attorney |
|
3 |
|
1 |
|
|
22.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
2 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
21.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
Plus 1 ( 2 shelf/ 2 drawer book shelf Dark Wood) |
20.1A |
|
1 Standard U-Shape |
|
1(3) cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
55.1A |
|
1 Non Standard |
|
1(6)cubed |
|
1 |
|
|
|
1 Attorney |
|
1 |
|
0 |
|
|
67.1A |
|
1 Standard U-Shape |
|
3(6)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
50.1A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copy Room |
19.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
18.1A |
|
1 Non standard dark wood desk |
|
None |
|
|
|
|
|
1 Attorney |
|
4 |
|
|
|
Plus 1 ( 2 shelf/ 2 drawer book shelf Dark Wood) |
17.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
1 |
|
0 |
|
1 - 2 drawer metal file cabinet |
16.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
1(4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
46.1A |
|
1 Standard U-Shape |
|
1(3)cubed |
|
1 |
|
|
|
1 Attorney |
|
4 |
|
0 |
|
|
15.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
0 |
|
|
14.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
0 |
|
|
13.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
3 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
12.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
0 |
|
|
11.1A |
|
1 Non-standard |
|
1(6)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
4 |
|
1 |
|
1 side credenza, 3 shelf bookcase on top of credenza |
10.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
0 |
|
|
09.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
1 |
|
|
08.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
1 (4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
Plus 1 ( 2 shelf/ 2 drawer book shelf Dark Wood) |
07.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
1(4 shelf) |
|
1 Attorney |
|
2 |
|
0 |
|
|
06.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
0 |
|
|
05.1A |
|
1 Standard U-Shape |
|
1(8)cubed |
|
1 |
|
|
|
1 Attorney |
|
1 |
|
0 |
|
1 small credenza with 4 cubed bookcase on credenza |
04.1A |
|
Empty office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03.1A |
|
1 Standard U-Shape |
|
1(6)cubed |
|
1 |
|
|
|
1. Attorney |
|
2 |
|
0 |
|
|
02.1A |
|
l Non-standard |
|
1(6)cubed |
|
1 |
|
|
|
1 Attorney |
|
2 |
|
1 |
|
with 2 file drawers |
OTHER ROOMS |
|
Tables |
|
Chairs |
|
Misc. Items |
Kitchen |
|
2 |
|
8 |
|
1 -46 inch Flat Screen TV, 1 Refrigerator, 1 large microwave, 1 ice maker |
Whitney Conference Room |
|
1 Large Conference Table |
|
28 |
|
1 - side chair and 1 wood podium |
Shasta Conference Room |
|
1 Conference Table |
|
10 |
|
1-Glass whiteboard |
Polemonium Conference RM |
|
1 Conference Table |
|
0 |
|
1 - Glass whiteboard |
5 shelf Cabinets in Hallway |
|
|
|
|
|
Total 37 existing cabinets of which 24 will stay and 13 in construction area will be removed |
EXHIBIT D
COMMENCEMENT DATE CERTIFICATE
Landlord: |
Middlefield Park, a California general partnership |
|
|
Tenant: |
Dermira, Inc., a Delaware Corporation |
|
|
Lease Date: |
July 24, 2014 |
|
|
Leased Premises: |
275 Middlefield Road, Menlo Park, California |
The Commencement Date of the Lease is , .
The Expiration Date of the Lease is , .
Following is the Base Rent Schedule:
Base Rent for the initial term of the Lease shall be payable as follows:
Months |
|
Base Rent |
|
|||
- 12/1/14 through 11/30/15 |
|
$ |
98,873.25 |
|
NNN [$5.25 psf] |
|
- 12/1/15 through 11/30/16 |
|
$ |
101,839.45 |
|
NNN [$5.41 psf] |
|
- 12/1/16 through 11/30/17 |
|
$ |
104,894.63 |
|
NNN [$5.57 psf] |
|
- 12/1/17 through 11/30/18 |
|
$ |
108,041.47 |
|
NNN [$5.74 psf] |
|
- 12/1/18 through 11/30/19 |
|
$ |
111,282.71 |
|
NNN [$5.91 psf] |
|
|
|
LANDLORD |
|
|
|
|
|
|
|
MIDDLEFIELD PARK, |
|
|
|
a California general partnership |
|
|
|
By: |
|
|
|
Its: |
General Partner |
|
|
|
|
|
|
Dated: |
|
|
|
TENANT |
|
|
|
|
|
|
|
Dermira, Inc. |
|
|
|
a Delaware Corporation |
|
|
|
By: |
|
|
|
Its: |
|
|
|
|
|
|
|
Dated: |
|
EXHIBIT E
RULES AND REGULATIONS
This exhibit, entitled Rules and Regulations, is and shall constitute an exhibit to that certain Lease dated, for reference purposes only, July 24, 2014, by and between Middlefield Park, a California general partnership (Landlord) and Dermira Inc. a Delaware corporation (Tenant) for the leasing of certain premises located at 275 Middlefield Road, Menlo Park, California (the Leased Premises). The terms, conditions and provisions of this exhibit are hereby incorporated into and are made a part of the Lease. Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease.
1. No advertisement, picture or sign of any sort shall be displayed on or outside the Leased Premises or the Building without the prior written consent of Landlord. Landlord shall have the right to remove any such unapproved item without notice and at Tenants expense.
2. Tenant shall not regularly park motor vehicles in designated parking areas after the conclusion of normal daily business activity.
3. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord without the prior written consent of Landlord.
4. All window coverings installed by Tenant and visible from the outside of the Building require the prior written approval of Landlord.
5. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance or any flammable or combustible materials on or around the Leased Premises, the Building or the Property.
6. Tenant shall not alter any lock or install any new locks or bolts on any door at the Leased Premises without the prior consent of Landlord.
7. Tenant shall park motor vehicles in those general parking areas as designated by Landlord except for loading and unloading. During those periods of loading and unloading, Tenant shall not unreasonably interfere with traffic flow within the Property and loading and unloading areas of other tenants.
8. Tenant shall not disturb, solicit or canvas any occupant of the Building or Property and shall cooperate to prevent same.
9. No person shall go on the roof without Landlords permission.
10. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building, to such a degree as to be objectionable to Landlord or other Tenants, shall be placed and maintained by Tenant, at Tenants expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration.
11. All goods, including material used to store goods, delivered to the Leased Premises of Tenant shall be immediately moved into the Leased Premises and shall not be left in parking or receiving areas overnight.
12. Except to the extent that Landlord has assumed or undertaken responsibility for the same, Tenant is responsible for the storage and removal of all trash and refuse. All trash and refuse shall be contained in suitable receptacles stored behind screened enclosures at locations approved by Landlord.
13. Tenant shall not permit any animals, including, but not limited to, any household pets, to be brought or kept in or about the Leased Premises, the Building, the Property or any of the Common Areas of the foregoing except for guide dogs and guide dogs in training.
14. Tenant shall not permit any motor vehicles to be washed on any portion of the Leased Premises or in the Common Areas of the Property, nor shall Tenant permit mechanical work or maintenance of motor vehicles to be performed on any portion of the Leased Premises or in the Common Areas of the Property.
EXHIBIT F
TENANT IMPROVEMENTS
Addendum One
Right of First Offer
This Addendum One (Addendum) is incorporated as part of that certain Lease Agreement dated for reference purposes as 24 July 2014 (the Lease), by and between Middlefield Park, a California general partnership (Landlord) and Dermira Inc., an Delaware Corporation (Tenant) for the leasing of certain premises located at 275 Middlefield Road, Menlo Park, California, as more particularly described in Exhibit A to the Lease (the Leased Premises). The terms, conditions and provisions of this Addendum are hereby incorporated into and are made a part of the Lease. Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease.
1. Right of First Offer . During the initial Term of the Lease, Tenant shall have a one-time right of first offer (First Offer Right) to lease the additional space in Building A of 275 Middlefield Road (First Offer Space), in the event that such space becomes available for lease, as provided hereinbelow and as determined by Landlord. For purposes hereof, the First Offer Space shall become available for lease to Tenant when Landlord decides to begin marketing such space for lease.
2. Terms and Conditions . Landlord shall give Tenant written notice (the First Offer Notice) that the First Offer Space will or has become available for lease as provided above (as such availability is determined by Landlord) pursuant to the terms of Tenants First Offer Right, as set forth in this Addendum. Any such Landlords First Offer Notice delivered by Landlord in accordance with the provisions of Paragraph 1 above shall set forth, including, without limitation (i) the anticipated date upon which the First Offer Space will be available for lease by Tenant and the anticipated commencement date therefor, (ii) the Base Rent payable for the First Offer Space, and (iii) the term of the lease for the First Offer Space which shall in all events be coterminous with the Term of the Lease for the original Leased Premises (including remaining valid option periods). As of the commencement of the First Offer Space term, Landlord shall deliver to Tenant possession of the First Offer Space in its then existing condition and state of repair, AS IS, without any obligation of Landlord to remodel, improve or alter the First Offer Space, to perform any other construction or work of improvement upon the First Offer Space, or to provide Tenant with any construction or refurbishment allowance. Tenant acknowledges that no representations or warranties of any kind, express or implied, respecting the condition of the First Offer Space or the Building have been made by Landlord or any agent of Landlord to Tenant, except as expressly set forth herein. Tenant further acknowledges that neither Landlord nor any of Landlords agents, representatives or employees has made any representations as to the suitability or fitness of the First Offer Space for the conduct of Tenants business, or for any other purpose. Any exception to the foregoing provisions must be made by express written agreement signed by both parties.
3. Procedure for Acceptance . On or before the date which is ten (10) days after Tenants receipt of Landlords First Offer Notice (the Election Date), Tenant shall deliver written notice to Landlord (Tenants Election Notice) pursuant to which Tenant shall have the one-time right to elect to: (i) lease the entire First Offer Space described in the First Offer Notice upon the terms set forth in the First Offer Notice; (ii) refuse to lease such First Offer Space identified in the First Offer Notice; (iii) lease the entire First Offer Space upon the base monthly rent, but object to the
terms set forth in the First Office Notice, which Landlord and Tenant shall have ten (10) days to agree upon in their sole and absolute discretion. If Tenant does not respond in writing to Landlords First Offer Notice by the Election Date, Tenant shall be deemed to have elected not to lease the First Offer Space. If Tenant elects or is deemed to have elected not to lease the First Offer Space or the parties are unable to agree to mutually acceptable terms pursuant to subpart (iii) above, then Tenants First Offer Right set forth in this Addendum One shall terminate and Landlord shall thereafter have the right to lease all or any portion of such First Offer Space to anyone to whom Landlord desires on any terms Landlord desires.
4. Lease of First Offer Space . If Tenant timely exercises this First Offer Right as set forth herein, Tenant shall provide Landlord a non-refundable deposit, equivalent to twice the last months Base Rent for the First Offer Space, and the parties shall have thirty (30) days after Landlord receives Tenants Election Notice and deposit from Tenant in which to execute an amendment to the Lease adding such First Offer Space to the Leased Premises on all of the terms and conditions as applicable to the initial Leased Premises, as modified to reflect the terms and conditions as set forth in Landlords First Offer Notice. Upon full execution of an amendment for the First Offer Space, one half of the non-refundable deposit shall be credited toward Base Rent for the first complete month for which Rent shall be due therefore and the remaining portion shall be added to Tenants security deposit under the Lease (or if none exists, the same shall held as a security deposit under the Lease). Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its First Offer Right provided herein, if at all, with respect to all of the space offered by Landlord to Tenant in Landlords First Offer Notice, and Tenant may not elect to lease only a portion thereof.
5. Limitations on, and Conditions to, First Offer Right . Notwithstanding anything in the foregoing to the contrary, at Landlords option, and in addition to all of Landlords remedies under the Lease, at law or in equity, the First Offer Right hereinabove granted to Tenant shall not be deemed to be properly exercised if any of the following events occur or any combination thereof occur: (i) at the time of Tenant Election Notice, Tenant is in default of the Lease; and/or (ii) Tenant has assigned its rights and obligations under all or part of the Lease or Tenant has subleased all or part of the Leased Premises, except to a Permitted Assignee pursuant to Paragraph 19 of the Lease; and/or (iii) Tenants financial condition is unacceptable to Landlord at the time Tenants Election Notice is delivered to Landlord; and/or (iv) Tenant has failed to exercise properly this First Offer Right in a timely manner in strict accordance with the provisions of this Addendum; and/or (v) the Lease has been terminated earlier, pursuant to the terms and provisions of the Lease; and/or (vi) Tenant has previously elected not to lease all or any portion of the First Offer Space following notice from Landlord as set forth above. In addition, Tenants First Offer Right to lease the First Offer Space is personal to the original Tenant executing the Lease, and may not be assigned or exercised, voluntarily or involuntarily, by or to, any person or entity other than the original Tenant, except to a Permitted Assignee pursuant to Paragraph 19 of the Lease.
Addendum Two
Options to Extend the Lease
This Addendum Two (Addendum) is incorporated as part of that certain Lease Agreement dated for reference purposes as July 24, 2014 (the Lease), by and between Middlefield Park, a California general partnership (Landlord), and Dermira, Inc., a Delaware Corporation (Tenant), for the leasing of certain premises located at 275 Middlefield Road, Menlo Park, California, as more particularly described in Exhibit A to the Lease (the Leased Premises). The terms, conditions and provisions of this Addendum are hereby incorporated into and are made a part of the Lease. Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease.
1. Option to Extend . Tenant is granted an option to extend the term of the Lease Agreement for one (1) additional three (3) year period. The extensions described in this Addendum are personal to Tenant and may not be assigned, voluntarily or involuntarily, separate from or as part of the Lease. Such extension shall be on the same terms and conditions as provided in the Lease Agreement with the exception of Base Monthly Rent. The initial Base Monthly Rent for the extension period shall be equal to the fair market rental for the Leased Premises as of the date six (6) months prior to the commencement of the applicable expiration period or on or about the date of the final determination by the arbitrators (set forth below), whichever is higher; however, the initial Base Monthly Rent for the applicable extension period shall not be less than the Base Monthly Rent plus three percent (3%) as of the expiration of the initial Lease Term. The fair market rental shall be determined (a) without consideration for the particular use of the Leased Premises by Tenant but shall be for the permitted use of the Lease Premises, (b) shall take into consideration all Leasehold Improvements that are the property of Landlord or that would become the property of Landlord upon expiration or termination of the Lease (upon Landlords election for the same), (c) shall take into consideration any concessions that may then be offered for similar properties (i.e. free rent, tenant improvement allowances, etc.), and (d) without discount for the fact that no leasing commissions shall be paid. The Base Monthly Rent for each extension period shall be subject to three percent (3%) annual increases.
It shall be a condition precedent to the exercise of this option that Tenant shall not be in default under the Lease Agreement at the time of exercise of the option for the applicable extension period. If Tenant elects to exercise this option, Tenant shall exercise said option only by written notice actually received by Landlord not less than three hundred sixty-five (365) days prior to the expiration date of the initial Lease Term. The burden of actual delivery of such notice is on the Tenant.
In the event Tenant exercises the option hereunder, Tenant shall, within a period of one hundred fifty (150) days and one hundred eighty (180) days prior to the expiration date of the initial Lease Term, deliver to Landlord, Tenants opinion of the fair market rental value, as set forth above, and Tenants support for such figure (i.e. comparable lease information). Landlord shall thereafter promptly communicate with Tenant as to Landlords response to Tenants opinion as to the rental value and the parties shall thereafter promptly meet and endeavor to agree upon the fair market rental of the Leased Premises.
If the rental for the applicable extension period has not been agreed upon, as set forth above, at least One Hundred Twenty (120) days prior to the commencement of said extension period (Initial Meeting Period), then the determination of the rental shall be promptly submitted to arbitration. Tenant shall select, within fifteen (15) days of the expiration of the Initial Meeting Period, referred to above, a licensed real estate agent with at least five years commercial experience in the City in which the Leased Premises are located involving properties similar to the Property under this Lease. Tenant shall provide to Landlord (a) the name, address, company affiliation, and phone number of such agent (b) and a list of the agents qualifications, and (c) a statement that Landlord has fifteen (15) days to nominate Landlords own agent, in writing, within such fifteen (15) day period such that such information is actually received by Landlord within such time period. Landlord shall have a period of fifteen (15) days after actual receipt of Tenants information, as set forth above, to nominate its own agent. Thereafter, said agents shall meet for the purpose of determining the rental, as set forth above, for the applicable extension period. If Tenant fails to so nominate an agent and provide the notice, as set forth above, the Landlords reasonable opinion of value shall be the rental value for the applicable extension term. If Landlord fails to nominate an agent, as set forth above, Tenant shall provide to Landlord a written notice setting forth that Tenants agent shall determine the rental value if Landlord does not nominate an agent within fifteen (15) additional days. Such notice must be actually received by Landlord before the fifteen (15) days commences to run. If Landlord thereupon fails to so select an agent, the one agent retained by Tenant shall set the fair market rental. If the two agents do not agree upon the rent, as set forth above, within thirty (30) days of their selection, they shall, within fifteen (15) days thereafter, select a third agent with the qualifications, referred to above, and if they do not so agree on a third agent, the third arbitrator shall be appointed by the presiding judge of the Superior Court in the County in which the Leased Premises are located. Tenant shall be required to petition such Court within ten (10) days of the expiration date of the time for the selection of the third agent, as set forth above, requesting the earliest possible determination by the Court. At Landlords election, such petition shall be on an ex parte basis with notice and opportunity by Landlord to attend such hearing. The Tenants failure to so petition the Court, as set forth herein and within the time period set forth herein, shall void the Tenants option exercise. The three agents shall determine whether Landlords value or Tenants value is closest to the fair market rental, as set forth above, within a thirty (30) day period of the appointment of the third agent and if they cannot agree upon the same, as set forth above, the third agent shall select the fair market rental value as determined by either Landlords agent or Tenants agent which most closely reflects the fair market rental value as determined by the third agent.
Each party shall pay his own agent and the cost of the third agent, if necessary, shall be paid by the Tenant. The determination shall be signed by both parties and shall thereupon become a part of the Lease Agreement. If the Base Monthly Rent for the applicable extension period has not been determined as of the commencement of the applicable extension period, Tenant shall pay an estimated Base Monthly Rent of One Hundred Fifteen percent (115%) of the Base Monthly Rent due for the last month prior to commencement of the applicable extension period. Any deficiency shall be payable by Tenant to Landlord within ten (10) days of the determination of the Base Monthly Rent for the applicable extension period. Any surplus shall be a credit for Base Monthly Rent to become thereafter due.
2. Condition of Premises for the Extended Terms . If Tenant timely and properly exercises this Option, in strict accordance with the terms contained herein: (1) Tenant shall accept the
Leased Premises in its then As-Is condition and, accordingly, (2) Landlord shall not be required to perform any additional improvements to the Leased Premises
3. Limitations On, and Conditions To, Extension Option . The Option described in this Addendum are personal to Tenant and may not be assigned, voluntarily or involuntarily, separate from or as part of the Lease. At Landlords option, all rights of Tenant under the Option described in this Addendum shall terminate and be of no force or effect if any of the following individual events occur or any combination thereof occur: (1) Tenant is in default of the Lease on the date Landlord receives the Option Notice and/or (2) Tenant has assigned its rights and obligations under all or part of the Lease or Tenant has subleased all or part of the Leased Premises, except to a Permitted Assignee; and/or (3) Tenant has failed to exercise properly the Option described in this Addendum in a timely manner in strict accordance with the provisions of this Addendum; and/or (4) the Lease has been terminated earlier, pursuant to the terms and provisions of the Lease.
4. Time is of the Essence . Time is of the essence with respect to each and every time period set forth in this Addendum.
Exhibit 21.1
Subsidiaries of Dermira, Inc.
Name of Subsidiary |
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Jurisdiction |
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Dermira (Canada), Inc. |
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Canada |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated June 26, 2014 in the Registration Statement (Form S-1) and related Prospectus of Dermira Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
Redwood
City, California
August 27, 2014