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TABLE OF CONTENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on January 19, 2021
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Adagene Inc.
(Exact name of Registrant as specified in Its charter)
Not Applicable
(Translation of Registrant's name into English)
Cayman Islands
(State or other jurisdiction of incorporation or organization) |
2834
(Primary Standard Industrial Classification Code Number) |
Not Applicable
(I.R.S. Employer Identification Number) |
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
People's Republic of China
+86-512-8777-3632
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
Phone: (800) 221-0102
Fax: (800) 944-6607
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to: | ||||||
Li He, Esq. Davis Polk & Wardwell LLP c/o 18th Floor, The Hong Kong Club Building 3A Chater Road, Central Hong Kong +852 2533-3300 +852 2533-3306 |
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James C. Lin, Esq. Davis Polk & Wardwell LLP c/o 18th Floor, The Hong Kong Club Building 3A Chater Road, Central Hong Kong +852 2533-3300 +852 2533-3306 |
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Benjamin Su, Esq. Daying Zhang, Esq. Latham & Watkins LLP 18th Floor, One Exchange Square 8 Connaught Place Central, Hong Kong +852 2912-2500 |
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Michael E. Sullivan, Esq. Latham & Watkins LLP 12670 High Bluff Drive San Diego, CA 92130 USA +1 858-523-5400 |
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 statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ý
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o
CALCULATION OF REGISTRATION FEE
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Title of each class of securities
to be registered |
Proposed maximum
aggregate offering price(1) |
Amount of
registration fee |
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Ordinary shares, par value US$0.0001 per share(2)(3) |
US$125,000,000 | US$13,637.50 | ||
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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 Commission, acting pursuant to such Section 8(a), may determine.
The information in this 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 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
Preliminary Prospectus dated , 2021
American Depositary Shares
Adagene Inc.
Representing Ordinary Shares
This is an initial public offering of American depositary shares, or ADSs, representing ordinary shares of Adagene Inc.
We are offering ADSs. Each ADS represents of our ordinary shares, par value US$0.0001 per share.
Prior to this offering, there has been no public market for the ADSs. It is currently estimated that the initial public offering price per share will be between US$ and US$ .
We have applied for listing the ADSs on the Nasdaq Global Market under the symbol "ADAG."
We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.
See "Risk Factors" beginning on page 21 for factors you should consider before buying the ADSs.
Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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Per ADS
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Total
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---|---|---|---|---|
Public offering price |
US$ | US$ | ||
Underwriting discounts and commissions(1) |
US$ | US$ | ||
Proceeds, before expenses, to us |
US$ | US$ | ||
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The underwriters have a 30-day option to purchase up to an additional ADSs from us at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on , 2021.
Goldman Sachs (Asia) L.L.C. | Morgan Stanley | Jefferies | ||
China Renaissance |
The date of this prospectus is , 2021.
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We are responsible for the information contained in this prospectus. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.
We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.
Until , 2021 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under "Risk Factors," "Business," and information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" before deciding whether to buy the ADSs.
OVERVIEW
We are a platform-driven, clinical-stage biopharmaceutical company committed to transforming the discovery and development of novel antibody-based cancer immunotherapies. Our platform is designed to generate therapeutic antibody candidates with unique functional epitopes and species cross-reactivity as highlighted by our immunotherapy pipeline. These features enable our novel drug discovery strategy to advance from lead identification through vigorous preclinical modeling to biomarker-guided mono- and combination immunotherapy development in clinical settings. We have pioneered a dynamic interface design to harness the conformational diversity of antibodies, which enlarges epitope sampling of a given drug target for differentiated therapeutic antibody development. We aim to push the boundaries of antibody discovery and engineering through the precise design, construction, and selection of antibody product candidates intractable to traditional antibody technology.
Life is motion. The motion of proteins and their dynamic interactions trigger a cascade of complex biological and pharmacological effects. Our core technology is built upon our fundamental understanding of the role that protein folding and the motion of molecules play in giving rise to dynamic conformational diversity, where an amino acid sequence can adopt multiple structures and functions. Our approach recognizes that a protein's native state is not accurately represented by a single static structure but rather by a variety of structures in dynamic equilibrium, resulting in a high level of functional diversity, in contrast to the conventional static antibody drug discovery paradigm of "one sequence, one structure and one function."
We have developed our proprietary AI-Powered DPL platform to explore the dynamic conformational diversity of protein sequences, and the flexible binding sites of antibody sequences in particular, as a new paradigm for antibody drug discovery. Our DPL platform combines artificial intelligence, or AI, algorithms and ever-increasing big data in antibody sequence, structure, binding epitope and affinity from public and our own proprietary databases to design, construct and screen high-quality proprietary antibody libraries with well-defined sequence, scaffold and biophysical attributes for antibody drug discovery. Powered by computational physics in combination with AI and big data, our DPL platform samples a potentially infinite number of dynamic binding interface structures arising from the conformational diversity of a finite number of antibody amino acid sequences, allowing us to exponentially expand the universe of candidate antibody binding sites far beyond conventional natural or synthetic antibody repertoires. By exploiting conformational diversity, we have designed and precisely constructed approximately one trillion (1012) antibody sequences in our DPL. These antibodies feature broad epitope (the portion of an antigen that are recognized by an antibody) coverage and robust chemistry, manufacturing, and control, or CMC, attributes.
We believe our AI-powered antibody discovery and engineering DPL platform significantly increase R&D productivity for antibody drug discovery, as illustrated by our clinical anti-CD137 and anti-CTLA-4 programs. DPL library screening against CD137 or CTLA-4 antigens has yielded a large number of high affinity primary hits. The abundant discovery hits with diversified binding epitopes show the power of our AI-powered DPL platform not only in creating novel antibodies in targeting different epitopes of a given antigen, but also in targeting the conserved epitope across different species of a given antigen with broad species cross-reactivity from human, monkey to mouse, which enables us to
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study their efficacy and safety in extensive immuno-competent or syngeneic animal models, to explore their pharmacodynamics and predictive biomarkers in responding vs nonresponding tumor models in vivo, and to understand their deep target biology and novel MOA before testing them in human clinical trials to look for their clinical signals consistent with their MOA. Our DPL platform empowers us to engage the dynamic epitope of the conformationally dynamic target which might be challenging using conventional antibody discovery approaches. We believe that the high-affinity and cross-reactive primary hits from our AI-Powered DPL library screening save time and cost from discovery to early clinical proof of concept. The broad species cross-reactivity of the primary hits also streamlines lead identification and potentially enables high fidelity translation from preclinical to clinical studies. Furthermore, we believe our AI-powered dynamic precision library expands the diversity at the start of discovery to maximize the chance that suitable leads are found on the first pass and improve the probability of success for the overall R&D process.
Translational fidelity from preclinical modeling to informed clinical development is one of the top challenges to developing cancer immunotherapies. Most traditionally developed antibodies do not cross react between their human and murine targets due to their limited species cross-reactivity, making it very difficult to reliably evaluate the same antibody in both the preclinical and clinical settings. Some of the most contentious issues related to preclinical and clinical studies of CD137 and CTLA-4, the targets of our lead product candidates, immunotherapies are traceable to the differences between the antibodies used for preclinical and clinical studies. For example, according to Frost & Sullivan, two of the leading clinical anti-CD137 agonist antibodies bind to different epitopes of CD137 and exhibit dramatic differences in their respective clinical safety and efficacy results, underscoring the importance of finding suitable species cross-reactive antibodies like those we have utilized for comprehensive preclinical evaluation before entering clinical trials.
We believe that it is essential to model the interactions between tumors and an intact host immune system in vivo to evaluate the therapeutic potential of antibodies in preclinical studies. The flexibility of antibody binding interface is fundamental to the NEObody technology of our DPL Platform and allows us to generate species cross-reactive antibodies to assess the safety and efficacy potential of mono- and combination therapy candidates in syngeneic animal models before launching clinical trials. We use syngenic mouse models which are known for their intact in vivo immune systems to provide the original proof of concept for cancer immunotherapies by blocking immune check points with monoclonal antibodies, or mAbs. We believe that the use of species cross-reactive antibodies, rather than surrogate antibodies used in traditional syngeneic animal models, should facilitate the translational relevance and clinical utility of these well-established preclinical models for determining optimal dose, schedule, sequencing, combination synergy, risk and benefit features. The results from the assessment of new species cross-reactive antibodies in rigorous preclinical models may allow us to control the scope and cost of clinical trials, enable the identification of potential clinical biomarkers useful to monitor clinical pharmacological and safety signals, and help preselect patients for precision mono- and combination therapies.
The figure below illustrates how our DPL platform integrates our computational algorithm-enabled high-throughput screening and functional antibody evaluation for preclinical candidates suitable for clinical development as explained above.
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Our DPL platform is further composed of three proprietary enabling technologies tailored to three key attributes of antibody-based therapeutic modalities:
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profile. Our POWERbody technology is designed to improve antitumor activity while maintaining the enhanced safety profile.
We believe that comprehensive in vivo preclinical evaluations are the key to assess the efficacy and safety potential of tailor-made antibody candidates before progressing them into lengthy and costly clinical trials. NEObody, SAFEbody and POWERbody technologies are all designed to facilitate favorable druggability, manageable CMC attributes, and reduced immunogenicity. As highlighted by our lead product candidates, such as ADG106, ADG126 and ADG116, our NEObody technology allows us to engineer and select species cross-reactive NEObodies designed to dynamically adapt to unique and evolutionally conserved epitopes. ADG126 has been further engineered using our SAFEbody technology to address the safety concerns associated with existing CTLA-4 therapeutics.
The figure below shows how our NEObody, SAFEbody, and POWERbody technologies and DPL platform are inter-connected and utilized for the building of our product pipeline of mono- and combination immunotherapies.
Notes:
Our most advanced NEObody product candidate, ADG106, is a fully human ligand-blocking agonistic anti-CD137 mAb currently being evaluated in Phase Ib clinical trials in the United States and China. ADG106 is designed to target a unique epitope of CD137 that is different from other anti-CD137 antibodies currently under clinical development. Epitope mapping and X-ray structural analysis of ADG106 with CD137 have shown in preclinical studies that ADG106 is capable of binding to CD137 in a fashion similar to its natural ligand, CD137L. Our first SAFEbody product candidate, ADG126, is a fully human anti-CTLA-4 masked antibody. It is designed to enhance the safety features by masking the antibody binding site of ADG126, which would be unmasked in the TME, where the activated ADG126 would block CTLA-4 and deplete regulatory T-cells by means of enhanced antibody-dependent cellular cytotoxicity, or ADCC. In preclinical studies, ADG126 was tolerated at doses of up to 200 mg/kg in nonhuman primate models. As ADG126 is also species cross-reactive in humans,
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cynomolgus monkeys and mice, we believe that preclinical studies of ADG126 will support the rational design of clinical trials to expedite its development. Our third product candidate, ADG116, is a fully human anti-CTLA-4 NEObody. Epitope mapping and X-ray structural analysis have shown that in preclinical studies, ADG116 is capable of binding to a novel epitope of CTLA-4 different from ipilimumab, the only CTLA-4 mAb approved globally. The dynamic interface of ADG116 enabled not only its species cross-reactivity with human, cynomolgus monkey, and mouse CTLA-4 for preclinical studies, but also its dynamic engagement on a unique epitope of CTLA-4 to trigger a novel MOA, distinct from ipilimumab, by softer ligand blocking and stronger regulatory T-cell depletion via strong ADCC.
Our species cross-reactive ADG106, ADG126 and ADG116 have enabled a deep understanding of the interaction between tumor and host immune system in vivo in syngeneic animal models. This understanding has been utilized to design and guide the clinical development of rational, mechanism-based mono- and combination therapies using ADG106, ADG126 and ADG116. Because there is limited clinical safety and efficacy data available for anti-CD137 agonists we have followed our preclinical and mechanistic study for the clinical development of ADG106. We observed three patients with Grade 3 liver enzyme increase; among them, one patient with abnormal liver enzyme baseline showed a Grade 3 AST increase. ADG106 showed preliminary clinical antitumor activity in patients who have progressed after several lines of treatment in our completed Phase Ia dose escalation and ongoing Phase Ib dose expansion trials in the United States and China. It is very encouraging to observe the clinical response in connection with the changes in PD biomarkers due to target engagement in a dose dependent manner. We have also observed a correlation with a potential predictive biomarker for patient selection in three patients with more than 30% tumor shrinkage across different indications in retrospective analysis in our ongoing Phase I trials. This predictive biomarker is related to the CD137 pathway. We intend to further explore this predictive biomarker in order to guide our development of precision mono- and combination immunotherapies based on our preclinical and preliminary clinical data.
Our Pipeline
By leveraging our proprietary DPL platform, we have developed a robust pipeline of innovative product candidates in various stages of development, ranging from research and discovery to preclinical and clinical development. Our highly differentiated clinical-stage pipeline consists of ADG106, ADG126 and ADG116. We also have a robust preclinical pipeline in various stages of development. In addition, we have out-licensed the Greater China rights of ADG104, a PD-L1 mAb in Phase Ib and Phase II trials concurrently in China, to our partner, Sanjin and its affiliates. We have the right to apply for the patents derived from our core and key technologies pertaining to ADG104 in the rest of the world and we retain a majority of the economic benefits derived from ADG104 in the rest of the world.
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The following chart provides an overview of the status of each of our programs at clinical or IND-enabling stages, for which we have global rights:
ADG106: Novel agonistic anti-CD137 NEObody candidate
ADG106, is a fully human ligand-blocking, agonistic anti-CD137 immunoglobulin G4, or IgG4, mAb generated using our NEObody technology. ADG106 is being developed for the treatment of advanced solid tumors and non-Hodgkin's lymphoma, or NHL. CD137 stimulates the immune system to attack cancer cells and is a key driver for T-cell and natural killer cell, or NK cell, proliferation. ADG106 is designed to target a unique conserved epitope of CD137 with a novel MOA for CD137 agonism by its natural ligand-like binding and potent cross-linking by Fcg receptors. The broad species cross-reactivity of ADG106 observed in preclinical studies has enabled us to explore robust translational studies concerning the biology of CD137 in mouse, rat, nonhuman primate, and human, especially for anti-CD137 as a single agent and in combination therapies in immuno-competent syngeneic tumor models. In preclinical studies to date, we observed that ADG106 had encouraging antitumor activity and was well tolerated as a monotherapy and in combination with the existing standard-of-care, or SOC, and other immuno-oncology therapies, which was confirmed in the Phase I clinical trials in cancer patients as a monotherapy. These data indicate that ADG106 has the potential to address the limitations of other existing anti-CD137 therapies.
As of the November 30, 2020, the Data Cut-off Date, we have completed the Phase Ia dose escalation in each of our Phase I studies of ADG106 in both the United States and China as a monotherapy in patients with advanced or metastatic solid tumors and/or NHL. We are currently in the Phase Ib dose expansion phase for both trials in the United States and China. ADG106 was dose escalated up to 10 mg/kg and is well tolerated at dose expansion at 3 mg/kg, 5 mg/kg and at 300mg and 400 mg flat doses. A total number of 92 patients have been dosed. Both clinical trials, namely ADG106-1001 and ADG106-1002, have limited Treatment Emergent Adverse Effects, or TEAEs, liver toxicity or hematologic abnormalities. We observed three patients with ³Grade 3 liver enzyme increase; among them, one patient with abnormal liver enzyme baseline showed a Grade 3 AST increase. Two patients developed hemolytic anemia in ADG106-1002 which were controlled; one of the two patients received prior therapies which were known to cause autoimmune hemolytic anemia. One patient with a solid tumor who previously failed chemotherapies, radiotherapy, and an anti-PD-L1 related antibody treatment showed a partial response to ADG106 treatment with a 40% tumor size reduction after two treatment cycles. In addition, two NHL patients showed more than a 30% tumor
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size reduction after one and two ADG106 treatment cycles, respectively. Furthermore, biomarker studies showed target engagement with specific PD biomarkers indicative of immune system activation, and clinical response correlated with changes in CD137 target engagement. These data are encouraging given that the enrolled population was not preselected and was heavily pretreated. We have identified a potential predictive biomarker which correlates with patient response to ADG106 treatment from a retrospective analysis of the ongoing Phase I clinical trial. Based on this finding, we are in the process of preparing an additional Phase II trial which we expect to initiate in 2021 and for which we intend to stratify and preselect patients using this predictive biomarker to potentially enhance clinical response of patients to ADG106 treatment. We also plan to pursue potential registrational trials evaluating ADG106 in biomarker enriched patient populations.
We have also evaluated ADG106 in combination with other therapies including chemotherapies, immune modulators, and immuno-oncology therapies in preclinical studies. Data from combination studies in tumor bearing mice showed that the combination of ADG106 with immune checkpoint inhibitors, including an anti-PD-1/L1 mAb or anti-CTLA-4 mAb, enhanced in vivo antitumor activity. We plan to explore the combination of ADG106 with other targeted antibody therapies for the treatment of hematologic malignancies and solid tumors. We also have identified tumor-specific biomarkers that we believe may correlate with ADG106 antitumor activity in multiple mouse tumor models. These preclinical study findings are consistent with the interim results from our ongoing Phase Ib clinical trials. Going forward, we are focusing on evaluating combinations of ADG106 with various therapies in clinical trials. We have received NMPA approval for the ADG106-1008 study in China, which is a Phase Ib/II combination trial of ADG106 with anti-PD-1 in advanced solid tumors and hematological malignancies. We are also in the preparation for a submission of a Clinical Trial Notification, or CTN, for our ADG106-1003 clinical trial in Australia, which will combine ADG106 with anti-PD-1, anti-VEGF, or anti-CD20 in advanced solid tumors and hematological malignancies.
We have observed responses to ADG106 in all three T cell lymphoma patients enrolled in the ADG106-1002 Phase I trial. We are enrolling additional patients in our ADG106-1002 trial and will conduct an investigator initiated trial in the United Sates to further explore ADG106 as a monotherapy and in combination with other therapies in T cell lymphoma. We expect to submit an Orphan Drug Designation application to the FDA for ADG106 requesting for expedited regulatory approval for this indication. The diagram below illustrates our clinical development plan for ADG106:
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ADG126: Novel anti-CTLA-4 SAFEbody candidate
Our most advanced SAFEbody program, ADG126, is a masked fully-human anti-CTLA-4 mAb engineered to address the safety concerns associated with existing CTLA-4 therapeutics, while maintaining potency when locally activated in the TME. The FDA approval of ipilimumab validated anti-CTLA-4 for cancer treatment. However, due to its on-target off-tumor toxicity, the approved indications for ipilimumab are limited, which we believe has caused sales of ipilimumab to trail other immuno-oncology therapies such as anti-PD-1/L1 antibodies.
ADG126 is designed to address the toxicity and efficacy issues related to the MOA of existing approved CTLA-4 immuno-oncology therapies and to expand the potential of CTLA-4 as a target for the treatment of cancer. In preclinical studies, ADG126 was tolerated at doses of up to 200 mg/kg in nonhuman primate models. We believe the encouraging preclinical tolerability of ADG126 suggests its potential in combination with other immunotherapies such as an anti-PD-1/PD-L1 antibody or an anti-CD137 antibody, including ADG106.
To better address the unmet clinical need for a safe and potent anti-CTLA-4 antibody for chemotherapy-free mono- and combination immunotherapy, we have submitted a CTN and received HREC approval for an ADG126 Phase I dose escalation trial in Australia and are expecting to commence patient enrollment by February 2021. We also have received approval from the FDA to initiate the Phase I clinical trial of ADG126 in the United States in 2021. These two Phase I dose escalation trials will test five doses at 0.1, £0.3, £1, £3, and £10 mg/kg, based on our preclinical primate toxicity study in comparison with ipilimumab. We anticipate that these clinical trials will allow us to determine the ADG126 effective dose in late 2021. Meanwhile, we are preparing IND submissions to initiate ADG126 clinical trials in China. The diagram below illustrates our clinical development plan for ADG126:
ADG116: Novel anti-CTLA-4 NEObody candidate
ADG116 is a fully-human ligand-blocking anti-CTLA-4 mAb generated using our NEObody technology. ADG116 is designed to target a unique conserved epitope of CTLA-4. In preclinical studies, ADG116 was observed to have softer CTLA-4 ligand blocking and stronger ADCC for depleting regulatory T-cells than ipilimumab. In a head-to-head in vivo efficacy study, ADG116 was observed to have at least a five-fold greater preclinical potency in comparison with ipilimumab. In
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addition, ADG116 was observed to induce antitumor responses concomitant with reduced immunosuppressive regulatory T-cell and enhanced cytotoxic T lymphocyte (CD8+ T-cells) activities in the TME. We believe that these preclinical results support the further clinical evaluation of ADG116 both as monotherapies and combination therapies for a wide range of tumor types, as illustrated in the diagram below.
As of January 15, 2021, we have successfully completed dose escalation at the first three doses in our ADG116-1003 clinical trial in Australia, including a dose level at 0.03mg/kg, the dose level used for the first patient who suffered a fatal incident in the ADG116 Phase I trial in the United States. As of January 15, 2021, no dose limiting toxicity or treatment related serious adverse events have been observed in any of the patients treated. There was no treatment induced liver toxicity and all three patients treated at 0.03mg/kg showed normal liver enzyme level post ADG116 treatment. The Safety Review Committee approved dose escalation for ADG116-1003 clinical trial to 0.1mg/kg. The ADG116-1001 Phase I trial in the United States was placed on clinical hold on September 30, 2019 by the FDA, after we reported to the FDA the death of the only patient dosed in the trial. The FDA removed the clinical hold on December 5, 2019 after we submitted an amendment to the study protocol.
Our Global Partnership and Collaborations
We have a successful track record of collaboration and partnerships with global biopharmaceutical companies and academic institutions. So far, we have established multiple collaboration programs and will continue to seek to continue to seek partnership opportunities where we can leverage our proprietary technology platform to develop novel antibodies to address unmet medical needs. Over the past two years, we have established partnerships and collaborations with multiple biopharmaceutical companies.
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We are also working with global biopharmaceutical companies to potentially develop additional strategic partnerships.
Our Team and Investors
We were founded in 2011 by Dr. Peter Luo and is led by an experienced management team. Dr. Luo, who previously founded the biopharmaceutical company Abmaxis which was subsequently acquired by Merck, has a proven track record of more than two decades in antibody discovery and engineering using a multidisciplinary approach that combines computational and experimental technology based on physical, chemical, and biological sciences. Our management team is composed of industry veterans with extensive experience in therapeutic antibody research and development and collectively has decades of experience in molecular biology, immunotherapy, immunology, antibody discovery, protein engineering, and clinical development. Our management team brings a strong history of leadership, innovation, and research and development experience at leading companies, including Merck/Abmaxis, Affomix/Illumina, Amgen, AnaptysBio, Bristol-Myers Squibb, Celgene, Corixa, Forty Seven Inc., Xencor, Novartis, Pfizer, Prometheus, Quanticel, and Teva Biopharmaceuticals. Our company is further supported by a strong group of investors that share our commitment to developing next-generation immuno-oncology therapies for the treatment of cancers. Our investors include leading institutional investors such as F-Prime, Eight Roads, General Atlantic, GP Healthcare Capital, Sequoia China and Wuxi AppTec.
OUR STRATEGIES
We are utilizing our proprietary DPL platform to design, construct and develop novel immunotherapies and precision antibodies to address unmet patient needs globally. Our strategy encompasses the following key elements:
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RISK FACTORS
Our business is subject to a number of risks and uncertainties, including, among others, the following:
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issuance from our owned or licensed patent and trademark applications or to maintain the confidentiality and proprietary nature of our trade secrets, and our issued patents covering one or more of our product candidates could be found invalid or unenforceable if challenged in court or before administrative bodies and a third party could misappropriate our trade secrets or independently develop technology that are highly similar to our trade secrets.
We also face other challenges, risks and uncertainties that may materially and adversely affect our business, financial condition, results of operations and prospectus. You should consider the risk discussed in "Risk Factors" and elsewhere in this prospectus before investing in the ADSs.
Corporate History and Structure
In February 2011, Adagene Inc. was incorporated under the laws of the Cayman Islands as our offshore holding company.
In December 2011, we established Adagene (Hong Kong) Limited, or Adagene Hong Kong, a wholly-owned subsidiary incorporated under the laws of Hong Kong, as our intermediary holding company. In February 2012, Adagene Hong Kong incorporated Adagene (Suzhou) Limited, or Adagene Suzhou, in China, through which we commenced our research and development activities in China.
In September 2017, we established a wholly-owned subsidiary in the state of Delaware, the United States, Adagene Incorporated, to conduct our research and development activities in the United States to facilitate the discovery and development of product candidates and expand our global presence, we have further incorporated several subsidiaries overseas, such as Australia, Singapore and Switzerland.
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The following diagram illustrates our corporate structure as of the date of this prospectus, including our material subsidiaries:
You may refer to "Corporate History and Structure" for more details.
Corporate Information
Our corporate headquarters is located at 4F, Building C14, No. 218, Xinghu Street, Suzhou Industrial Park Suzhou, Jiangsu Province, 25125, People's Republic of China. Our registered office is located at Vistra (Cayman) Limited, P. O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 - 1205 Cayman Islands. Our telephone number is +86-512-8777-3632. Our agent for service of process in the United States is Cogency Global Inc., located at 10E 40th Street, 10th Floor, New York, NY 10016. Our corporate website is www.adagene.com. The information contained on or that can be accessed through our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY AND A FOREIGN PRIVATE ISSUER
As a company with less than US$1.07 billion in revenue for the last fiscal year, we qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012 (as amended by the Fixing America's Surface Transportation Act of 2015), or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company's internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We do not plan to "opt out" of such exemptions afforded to an emerging growth company.
We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt;
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or (iv) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. As a foreign private issuer, we may take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Cayman Islands law for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus reflects the following:
Except where the context otherwise requires and for purposes of this prospectus only:
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Unless specifically indicated otherwise or unless the context otherwise requires, all references to our ordinary shares as of the date of this prospectus exclude a total of 2,262,500 ordinary shares, issued but deemed to be not outstanding as of the date of this prospectus, held by Great Han Fortune LP.
This prospectus contains information derived from various public sources and certain information from an industry report dated September 22, 2020 commissioned by us and prepared by Frost & Sullivan, a third-party industry research firm, to provide information regarding our industry and market position. Such information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the "Risk Factors" section. These and other factors could cause results to differ materially from those expressed in these publications and reports.
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Use of proceeds |
We expect to receive net proceeds of approximately US$ million from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
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We plan to use the net proceeds of this offering for (i) approximately 95% for research and development, among which approximately 26% for ADG106 clinical development, approximately 26% for both ADG126 and ADG116 clinical development, and approximately 43% for our technical and platform development and development of our preclinical candidates, and (ii) approximately 5% for working capital and other general corporate purposes. See "Use of Proceeds." |
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Lockup |
We, [our directors, executive officers and existing shareholders] have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of ADSs or ordinary shares or securities convertible into or exercisable or exchangeable for ADSs or ordinary shares for a period of [180] days after the date of this prospectus. See "Shares Eligible for Future Sale" and "Underwriting" for more information. |
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Nasdaq trading symbol |
ADAG. |
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Payment and settlement |
The underwriters expect to deliver the ADSs against payment therefor through the facilities of The Depository Trust Company on , 2020. |
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Depositary |
. |
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[Directed share program |
At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate of ADSs offered in this offering to our directors, officers, employees, business associates and related persons.] |
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Risk factors |
See "Risk Factors" and other information included in this prospectus for discussions of the risks relating to investing in the ADSs. You should carefully consider these risks before deciding to invest in the ADSs. |
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OUR SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated statements of comprehensive loss data for the years ended December 31, 2018 and 2019, summary consolidated balance sheet data as of December 31, 2018 and 2019 and summary consolidated cash flow data for the years ended December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The following summary consolidated statements of comprehensive loss for the nine months ended September 30, 2019 and 2020, summary consolidated balance sheet data as of September 30, 2020 and summary consolidated cash flows data for the nine months ended September 30, 2019 and 2020 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the periods presented. Our historical results are not necessarily indicative of results expected for future periods. You should read this Summary Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
Summary Consolidated Statements of Comprehensive Loss Data
The following table presents our summary consolidated statements of comprehensive loss data for the years ended December 31, 2018 and 2019 and our selected unaudited interim condensed
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consolidated statements of comprehensive loss data for the nine months ended September 30, 2019 and 2020.
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Summary Consolidated Balance Sheet Data
The following table presents our summary consolidated balance sheet data as of December 31, 2018 and 2019 and our selected unaudited interim consolidated balance sheet data as of September 30, 2019 and 2020.
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As of December 31, |
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As of September 30,
2020 |
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2018 | 2019 | |||||||||||
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Actual | Actual | Actual | Pro forma(1) | |||||||||
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(in USD thousands)
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Current assets: |
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Cash and cash equivalents |
16,058 | 92,533 | 82,895 | 82,895 | |||||||||
Short-term investments |
33,000 | 8,000 | | | |||||||||
Total current assets |
51,817 | 103,923 | 86,606 | 86,606 | |||||||||
Total assets |
54,417 | 105,889 | 89,077 | 89,077 | |||||||||
Current liabilities: |
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Amounts due to related parties |
3,674 | 1,896 | 2,387 | 2,387 | |||||||||
Accruals and other current liabilities |
2,574 | 2,540 | 2,789 | 2,789 | |||||||||
Short-term borrowings |
2,331 | 717 | 2,203 | 2,203 | |||||||||
Total current liabilities |
10,346 |
7,181 |
10,417 |
10,417 |
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Long-term borrowings |
| 1,516 | 3,135 | 3,135 | |||||||||
Total liabilities |
10,488 |
8,697 |
13,610 |
13,610 |
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Total mezzanine equity |
84,955 | 154,201 | 154,387 | | |||||||||
Total shareholders' equity (deficit) |
(41,027 | ) | (57,009 | ) | (78,921 | ) | 75,466 |
Note:
Summary Consolidated Cash Flow Data
The following table presents our summary consolidated cash flow data for the years ended December 31, 2018 and 2019 and our selected unaudited interim consolidated cash flow data for the nine months ended September 30, 2019 and 2020.
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Year Ended
December 31, |
Nine Months Ended
September 30, |
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2018 | 2019 | 2019 | 2020 | |||||||||
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(in USD thousands)
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Net cash used in operating activities |
(14,265 | ) | (18,154 | ) | (11,791 | ) | (19,988 | ) | |||||
Net cash generated (used in) from investing activities |
(29,510 | ) | 24,856 | 18,942 | 7,434 | ||||||||
Net cash generated from financing activities |
51,058 | 69,694 | 16,310 | 3,097 | |||||||||
Effect of exchange rate on cash and cash equivalents |
39 | 78 | 153 | (180 | ) | ||||||||
Net increase in cash and cash equivalents |
7,322 | 76,474 | 23,614 | (9,638 | ) | ||||||||
Cash and cash equivalents at the beginning of year/period |
8,736 | 16,058 | 16,058 | 92,533 | |||||||||
Cash and cash equivalents at the end of year/period |
16,058 | 92,533 | 39,673 | 82,895 | |||||||||
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You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in the ADSs. Any of the following risks and uncertainties could have a material adverse effect on our business, financial condition and results of operations. In particular, as we are a China-based company incorporated in the Cayman Islands, you should pay special attention to subsections headed "Risks Related to Doing Business in the PRC" below. The market price of the ADSs could decline significantly as a result of any of these risks and uncertainties, and you may lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including our financial statements and the related notes thereto. You should also carefully review the cautionary statements referred to under "Special Note Regarding Forward-looking Statements." Our actual results could differ materially and adversely from those anticipated in this prospectus.
Risks Related to Our Financial Prospects and Need for Additional Capital
We have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.
We are a clinical stage biopharmaceutical company with a limited operating history. Since our inception in 2011, we have focused substantially all of our efforts and financial resources on the discovery and development of antibody therapeutics for the treatment of cancer. We have no products approved for commercial sale and therefore we have not generated any revenue from product sales. We have not obtained regulatory approvals for any of our product candidates and there is no assurance that we will obtain approvals in the future. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had and may continue to have an adverse effect on our working capital.
Our operations to date have focused on developing our product candidates, building our intellectual property portfolio, conducting preclinical testing and clinical trials, and raising capital. These operations provide a limited basis for you to assess our ability to successfully market and commercialize our product candidates. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving fields as we seek to shift our focus to late stage development and commercial activities. If we do not address these risks and difficulties successfully, we may not be successful in such a transition.
We have incurred net losses historically and we may continue to incur net losses in the near future.
Since our inception in 2011, we have devoted our resources to the development of innovative antibodies in the therapeutic area. While we have generated revenues from licensing and collaboration deals, we have not generated any revenue from commercial product sales to date, and we have had significant operating losses since our inception. For the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2020, we incurred net losses of US$15.3 million, US$16.4 million and US$29.6 million, respectively. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs. To date, we have financed our operations principally through private placements. Our product candidates and programs are in preclinical development or early stage clinical development, and we have not received marketing approval for any of our product candidates. Our product candidates will require substantial investments and significant marketing efforts before we generate any revenues from product sales, if ever. We
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expect our net losses will increase as more product candidates enter into clinical trial stage. Our ability to generate product revenue and achieve profitability depends on, among other things:
We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with the development, delivery and commercialization of complex innovative antibody therapeutic, we are unable to accurately predict the timing or amount of expenses or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in the initiation and completion of our clinical trials or the development of any of our product candidates, our expenses could increase and profitability could be further delayed.
If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce our operations. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become or remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business or continue our operations. Failure to become and remain profitable may adversely affect the market price of the ADSs and our ability to raise capital and continue operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We may need to obtain substantial additional financing to fund our growth and operations, which may not be available on acceptable terms, if at all.
The development of biopharmaceutical product candidates is capital-intensive. We have used substantial funds to advance our discovery programs and develop our technology and product candidates, and will require significant funds to conduct further research and development, preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates and to manufacture and market products, if any, that are approved for commercial sales. If our product candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory and manufacturing capabilities. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.
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To date, we have funded our operations primarily through capital contributions from our shareholders via private placements. Our operations have consumed substantial amounts of cash since inception. As of September 30, 2020, we had US$82.9 million in cash and cash equivalents. The net cash used in our operating activities was US$14.3 million, US$18.2 million and US$20.0 million for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2020, respectively. Our future funding requirements and the period for which we expect increasing capital need may be different than what we are planning. Our monthly spending levels vary based on new and ongoing research and development activities. Because of the numerous risks and uncertainties associated with our product development, we are unable to accurately predict the timing and amount of our operating expenditures, which will depend largely on:
We will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Any additional capital-raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether cease our research and development programs or future commercialization efforts.
Raising additional capital may lead to dilution of shareholdings by our existing shareholders and restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may seek additional funding through a combination of equity and debt financings and collaborations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the beneficial ownership interest of existing shareholders and the holders of ADSs will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our existing shareholders and the holders of the ADSs. The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through partnerships, collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable
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rights to our technologies, product candidates, or future revenue streams, or grant licenses on terms that are not favorable to us.
We have certain shareholders who will have board representation rights after the offering and their individual interests may differ from yours.
In 2014, we completed private placements of our Series A-1 and A-2 preferred shares, in which we raised gross proceeds of approximately US$8.5 million. In 2016, we completed a private placement of our Series B preferred shares, in which we raised gross proceeds of approximately US$28.0 million. In 2018, we completed a private placement of our Series C-1 preferred shares, in which we raised gross proceeds of approximately US$50.0 million. In 2019, we completed private placements of our Series C-2 and C-3 preferred shares, in which we raised gross proceeds of approximately US$69.0 million in aggregate. As a result of these private placements, a significant portion of our outstanding equity is currently held by multiple separate institutional investors through several separate funds and our founders. Collectively, these institutional investors that are our principal shareholders beneficially owned approximately 55.5% of our outstanding voting stock as of the date of this prospectus on an as-converted basis.
These institutional investors will continue have a significant level of influence because of their level of ownership, including a greater ability than you and our other shareholders to influence the election of directors and the potential outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all of our assets and other extraordinary corporate matters. These investors and our founder, Peter Luo, also have certain rights, such as board representation right and registration right that our other shareholders do not have.
For instance, our post-offering memorandum and articles of association will provide that JSR Limited shall have the right to designate, appoint, remove and replace and reappoint one director so long it holds at least five percent of the shares outstanding on a fully-diluted basis and an as-converted basis, respectively; as long as Wuxi Pharmatech Healthcare Fund I L.P., which is controlled by the ultimate controlling party of our sole supplier, holds at least five percent of the shares outstanding on a fully-diluted basis, it shall have the right to nominate one independent non-executive director and such one director shall be appointed and agreed by the board; as long as Peter Luo holds or beneficially owns any shares or is employed by us or any of our subsidiaries, he will serve as one of our directors and the Chairman of the Board of Directors; in addition, during the period commencing upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part, and ending on the earlier of (i) the date upon which Peter Luo beneficially owns less than five percent of the shares outstanding on a fully diluted basis, (ii) the death or legal determination of Peter Luo's incapacity or (iii) the termination of Peter Luo as an executive officer or principal scientific advisor to us or any of our subsidiaries or for cause (as determined under his related employment or consulting arrangements and subject to all related cure provisions), Peter Luo shall have the right to designate, appoint, remove and replace and reappoint one additional director; and as long as General Atlantic Singapore AI Pte. Ltd. and its affiliates hold at least five percent of the shares outstanding on a fully-diluted basis, they shall have the right to designate, appoint, remove and replace and reappoint one director.
The interests of these investors could conflict with the interests of our other shareholders, including you, and any future transfer by these investors of their shares of preferred or ordinary share to other investors who have different business objectives could have a material adverse effect on our business, results of operations, financial condition and the market value of our ordinary shares or ADSs.
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Risks Related to Clinical Development of Our Product Candidates
We may not be able to identify or discover new product candidates, and may allocate our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may later prove to be more profitable, or for which there is a greater likelihood of success.
Although we will focus our efforts on continued preclinical and clinical developments, regulatory approval process and commercialization with respect to our existing product candidates, the success of our business depends in part upon our ability to identify, license, discover, develop, or commercialize additional product candidates. Research programs to identify new product candidates require substantial technical, financial, and human resources. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:
Because we have limited financial and managerial resources, we focus on research programs and product candidates for specific targets. As a result, we may forgo or delay pursuit of opportunities with other product candidates that later may be proved to have greater commercial potential or a greater likelihood of success. On the other hand, if we do not prioritize the allocation of our resources and conduct research programs that cover a broad range of targets or engage clinical programs that are overly expansive, we may be subject to significant risk of loss as a large part of the research and clinical programs fail. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Accordingly, there can be no assurance that we will ever be able to develop suitable potential product candidates through internal research programs, which could materially adversely affect our future growth and prospects.
We may not be successful in our efforts to use and expand our proprietary platforms to build a pipeline of product candidates.
A key element of our strategy is to leverage our technology platform to expand our pipeline of antibody product candidates and in order to do so, we will continue to invest in our platform and development capabilities. Although our research and development efforts to date have resulted in a pipeline of product candidates, these product candidates may not be safe and effective. In addition, although we expect that our platform will allow us to develop a diverse pipeline of novel and differentiated product candidates, we may not prove to be successful at doing so. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval or achieve market acceptance. Even after approval, if we cannot successfully develop or commercialize our products, or if serious adverse events are discovered after commercialization, we will not be able to generate any product revenue, which would adversely affect business.
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Any failures or setbacks in our platforms or our other proprietary technologies could negatively affect our business and financial condition.
Our product candidates are created with, and dependent upon, our proprietary antibody discovery platforms, such as our proprietary Dynamic Precision Library platform, which includes our NEObody platform, SAFEbody platform and POWERbody platform. These proprietary technology platforms are also the basis of our collaborations with certain other partners. To date, no products based on any of these technologies have been approved for commercial sale in any jurisdiction. Any failures or setbacks with respect to our proprietary technologies, including adverse effects resulting from the use of product candidates derived from these technologies in human clinical trials and/or the imposition of clinical holds on trials of any product candidates using our proprietary technologies, could have a detrimental impact on our clinical pipeline, as well as our ability to maintain and enter into new corporate collaborations regarding our technologies or otherwise, which would negatively affect our business and financial conditions.
Our product candidates, for which we intend to seek approval as biologics products, may face competition sooner than anticipated.
Even if we are successful in achieving a final regulatory approval to commercialize a product candidate ahead of our competitors, our product candidates may face competition from biosimilar products. In the United States, our product candidates are regulated by the FDA as biologic products and we intend to seek approval for these product candidates pursuant to the Biologics License Application (BLA) pathway. The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as "interchangeable" based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.
There is a risk that any of our product candidates approved as a biological product under a BLA would not qualify for the 12-year period of exclusivity or that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for interchangeable or generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Jurisdictions in addition to the United States have established abbreviated pathways for regulatory approval of biological products that are biosimilar to earlier approved reference products. For example, the European Union has had an established regulatory pathway for biosimilars since 2005.
The increased likelihood of biosimilar competition has increased the risk of loss of innovators' market exclusivity. Due to this risk, and uncertainties regarding patent protection, if our clinical candidates are approved for marketing, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. It is also not possible to predict changes in United States regulatory law that might reduce biological product regulatory exclusivity. The loss of market exclusivity
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for a product would likely materially and negatively affect revenues and we may not generate adequate or sufficient revenues from them or be able to reach or sustain profitability.
We depend substantially on the success of our product candidates, particularly ADG106, ADG126, ADG116 and ADG104, which are in clinical development, and our ability to identify additional product candidates. Clinical trials of our product candidates may not be successful. If we are unable to successfully identify new product candidates, complete clinical development, obtain regulatory approval and commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
Our business and the ability to generate revenue related to product sales, if ever, will depend on the successful development, regulatory approval and commercialization of our antibody product candidates for the treatment of patients with cancer, particularly ADG106, ADG126, ADG116 and ADG104, which are still in clinical stage. Other than ADG106, ADG126, ADG116 and ADG104 which are currently in Phase I development, our current product candidates are in relatively early stages of development. We have invested a significant portion of our efforts and financial resources in the development of our existing product candidates and all of our product candidates will require significant further development, financial resources. The success of our product candidates, including ADG106, ADG126, ADG116 and ADG104, will depend on several factors, including:
Due to the uncertain, time-consuming and costly clinical development and regulatory approval process, we may not successfully develop any of our product candidates, or we or our partners may choose to discontinue the development of product candidates for a variety of reasons. Our failure to effectively advance our development programs could have a material adverse effect on our business, financial condition, results of operations and future growth prospects, and cause the market price of our ADSs to decline.
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Clinical trials are expensive, time consuming and difficult to design and implement and may fail to demonstrate adequate safety and efficacy of our product candidates. The results of our current and previous preclinical studies or clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities or provide the basis for regulatory approval.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct preclinical studies and extensive clinical trials to demonstrate their safety and efficacy in humans. Clinical testing is expensive and difficult to design and implement. Clinical testing can take many years to complete, and its ultimate outcome is uncertain. A failure of one or more clinical trials can occur at any stage of the process. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe, pure, and potent for use in a diverse patient population before we can seek final regulatory approvals for their commercial sale. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional and expansive preclinical or clinical testings.
We cannot assure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. The results are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes available. Product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA, the NMPA and comparable foreign regulatory authorities, despite having progressed through preclinical studies or initial clinical trials. Product candidates that have shown promising results in early clinical trials may still suffer significant setbacks in subsequent clinical trials or registration clinical trials. For example, a number of companies in the biopharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
A failure of a clinical trial to meet its predetermined endpoints may cause us to abandon a pipeline product or an indication and may delay development of any other pipeline products. Any delay in, or termination of, our clinical trials will delay the submission for regulatory approval and application, and, ultimately, our ability to commercialize any of our pipeline products and generate revenue.
Moreover, principal investigators for our clinical trials may serve and have served as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of our pipeline products.
We may experience delays in our ongoing clinical trials.
We may experience delays in our ongoing clinical trials, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time, or be completed on schedule, if at all. Clinical trials can be delayed, suspended, or terminated for a variety of reasons, including the following:
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In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. Moreover, while we plan to submit additional investigational new drug applications, or INDs, for other product candidates, we may not be able to file such INDs on the timeline we expect. For example, we may experience manufacturing delays or other delays with IND-enabling preclinical studies. Moreover, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND, we cannot guarantee that such regulatory authorities will not change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existing INDs.
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If we are required to conduct additional clinical trials or other studies with respect to any of our product candidates beyond those that we initially contemplated, if we are unable to successfully complete our clinical trials or other studies or if the results of these studies are not positive or are only modestly positive, we may be delayed in obtaining regulatory approval for that product candidate, we may not be able to obtain regulatory approval at all or we may obtain approval for indications that are not as broad as intended. Our drug development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding to complete the testing and approval process. Significant clinical trial delays could allow our competitors to bring drugs to market before we do and impair our ability to commercialize our drugs, if and when approved. If any of this occurs, our business will be materially harmed.
Clinical trials must be conducted in accordance with the FDA and other applicable regulatory authorities' legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and Ethics Committees or IRBs at the medical institutions where the clinical trials are conducted. We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or Ethics Committees of the institutions in which such trials are being conducted, by the Data Review Committee or Data Safety Monitoring Board for such trial or by the FDA, or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial or to perform obligations in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability to commercialize our product candidates and may harm our business and results of operations.
Further, clinical trials must be conducted with supplies of our product candidates produced under current good manufacturing practices, or cGMP, requirements and other regulations. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with good clinical practice, or GCP, requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study in accordance with GCP or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business. In addition, clinical trials that are conducted in countries outside the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.
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If we encounter difficulties in enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
Successful and timely completion of clinical trials will require that we enroll a sufficient number of patients. Our clinical trials may be subject to delays for a variety of reasons, including as a result of enrollment taking longer than anticipated, subject withdrawal or adverse events. These types of developments could cause us to delay the trial or halt further development.
While we believe our differentiated product candidates address highly unmet medical needs that will facilitate our patient enrollment, clinical trials may compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of patients available to us, as some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Moreover, enrolling patients in clinical trials for cancer therapies is challenging, as cancer patients will first receive the applicable standard of care. Many patients who respond positively to the standard of care antibody therapy (and thus do not enroll in clinical trials) are believed to have tumor types that would have responded well to our product candidates. Patients who fail to respond positively to the standard of care treatment will be eligible for clinical trials of unapproved product candidates. However, these patients may have either compromised immune function from prior administration of chemotherapy or an enhanced immune response from the prior administration of checkpoint inhibitors. Either of these prior treatment regimens may render our therapies less effective in clinical trials. Additionally, patients who have failed approved therapies will typically have more advanced cancer and a poorer long-term prognosis.
Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including:
These factors may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
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Interim, topline or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or topline or data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects, or financial condition.
Risks Related to Obtaining Regulatory Approval of Our Drug Candidates
The regulatory approval processes of the FDA, NMPA and other comparable regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approvals for our product candidates, our business will be substantially harmed.
In the United States, marketing approval of biologics requires the submission of a BLA to the FDA, and we are not permitted to market any product candidate in the United States until we obtain approval from the FDA of the BLA for that product candidate. A BLA must be supported by extensive clinical and preclinical data, as well as extensive information regarding pharmacology, chemistry, manufacturing and controls. Outside the United States, many comparable foreign regulatory authorities employ similar approval processes.
We have not previously submitted a BLA to the FDA or similar regulatory approval filings to the NMPA or other comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will receive regulatory approval. Obtaining approval of a BLA can be a lengthy, expensive and uncertain process, and as a company we have no experience with the preparation of a BLA submission or any other application for marketing approval. In addition, the FDA has the authority to require a risk evaluation and mitigation strategies, or REMS, plan as part of a BLA or after approval, which may impose further requirements or restrictions on the distribution or use of an approved biologic, such as limiting prescribing to certain physicians or medical centers that
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have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry.
FDA approval is not guaranteed, and the time required to obtain approval by the FDA, NMPA and other comparable regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical trials and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, due to external issues such as pandemics or other public health emergencies, FDA, NMPA and other comparable regulatory authorities may be delayed in their review of product applications. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may discover, in-license or acquire and seek to develop in the future will ever obtain regulatory approval.
Our product candidates could fail to receive regulatory approval from the FDA, NMPA or a comparable regulatory authority for many reasons, including:
The FDA and other regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our product candidates. For example, regulatory authorities in various jurisdictions have in the past had, and may in the future have, differing requirements for, interpretations of and opinions on our preclinical and clinical data. As a result, we may be required to conduct additional preclinical studies, alter our proposed clinical trial designs or conduct additional clinical trials to satisfy the regulatory authorities in each of the jurisdictions in which we hope to conduct clinical trials and develop and market our products, if approved. Further, even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA or any other regulatory authority.
The FDA, NMPA or a comparable regulatory authority may require more information, including additional preclinical or clinical data, to support approval, which may delay or prevent approval and our commercialization plans, or we may decide to abandon the development program. If we were to
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obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, may approve a product candidate with a label that is not desirable for the successful commercialization of that product candidate, or may be difficult to meet manufacturing requirements. In addition, if our product candidate produces undesirable side effects or safety issues, the FDA may require the establishment of Risk Evaluation Mitigation Strategies, or REMS, or the NMPA or a comparable regulatory authority may require the establishment of a similar strategy, that may, for instance, restrict distribution of our drugs and impose burdensome implementation requirements on us. Any of the foregoing scenarios could materially harm the commercial prospects of our product candidates.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA's ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA's ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new biologics or modifications to licensed biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such products outside of the United States, which would limit our ability to realize their full market potential.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other countries. Approval procedures vary among countries and can involve additional product testing
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and validation and additional administrative review periods. Seeking regulatory approvals in various jurisdictions could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our ability to realize the full market potential of our products will be harmed.
We are conducting clinical trials and may in the future conduct additional clinical trials for our product candidates outside the United States and/or China, and FDA, NMPA and similar foreign regulatory authorities may not accept data from such trials.
We are conducting clinical trials and may in the future conduct additional clinical trials for our product candidates outside the United States, including in Australia, Europe or other foreign jurisdictions. The acceptance of trial data from clinical trials conducted outside the United States by the FDA may be subject to certain conditions. In cases where data from clinical trials conducted outside the United States are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; (ii) the trials were performed by clinical investigators of recognized competence and (iii) the data may be 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 able to validate the data through an on-site inspection or other appropriate means. Otherwise, for studies that are conducted at sites outside of the United States and not subject to an IND and which are intended to support a marketing application (but which are not intended to serve as the sole basis for marketing approval), the FDA requires the clinical trial to have been conducted in accordance with good clinical practice, or GCP, requirements and the FDA must be able to validate the data from the clinical trial through an on site inspection if it deems such inspection necessary. Additionally, the FDA's clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies, such as NMPA, have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, NMPA or any similar foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA, NMPA or any similar foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.
Our product candidates may cause undesirable adverse events or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any regulatory approval.
Undesirable adverse events caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, NMPA or other comparable regulatory authority. Results of our trials could reveal a high and unacceptable severity or prevalence of adverse events. In such an event, our trials could be suspended or terminated and the FDA, NMPA or other comparable regulatory authorities could order us to cease further development of, or deny approval of, our product
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candidates for any or all targeted indications. Drug-related adverse events could affect patient recruitment or the ability of enrolled subjects to complete the trial, and could result in potential product liability claims. Moreover, such events may require us to amend our trials, including reducing the dosage in our clinical trials.
For instance, in September 2019, in our Phase I trial of ADG116 in the United States, we reported to the FDA the death of the only patient dosed in the trial. The FDA subsequently placed the trial on clinical hold on September 30, 2019. The FDA noted that there was insufficient information to assess the risk of drug-induced liver toxicity in patients receiving ADG116 but requested us to revise the study protocol to mitigate the risk of drug-induced liver toxicity. We submitted to the FDA an amendment to the study protocol, which significantly lowered the starting dose of ADG116, tightened the inclusion and exclusion criteria to exclude, among others, patients with liver dysfunction, history of alcohol abuse, or poorly controlled diabetes, and stipulated additional post-dosing monitoring to closely follow treated patients for safety or toxicity signals. The FDA removed the clinical hold on December 5, 2019. We have obtained authorization from the Australian Therapeutic Goods Administration under a CTN to start a Phase I clinical trial of ADG116. We have decided to focus on conducting the Australian clinical trial of ADG116 at a higher starting dose than currently permitted in the United States, and consequently, we have not re-commenced patient enrollment in the United States. If the data from the Australian clinical trial are favorable, we may consider using such data for re-submission of an IND application to the NMPA. The NMPA in August 2020 did not approve our application for a clinical trial in China at a higher starting dose than currently permitted in Australia and requested additional patient safety data prior to considering approving the IND at the proposed starting dose.
We cannot provide any assurance that there will not be treatment-related severe adverse events with our product candidates, that the trials for our product candidates will not be suspended in the future, or that patient recruitment for trials with our product candidates will not be adversely impacted by the ADG116 related adverse events, any of which could materially and adversely affect our business and prospects. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. In the event that any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including:
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Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
Further, combination therapy involves unique adverse events that could be exacerbated compared to adverse events from monotherapies. These types of adverse events could be caused by our product candidates and could also cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, NMPA or other comparable regulatory authority. Results of our trials could reveal a high and unacceptable severity or prevalence of adverse events.
We may seek Orphan Drug Designation for some of our product candidates, and we may be unsuccessful.
Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a disease with a patient population of fewer than 200,000 individuals in the United States, or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States.
Generally, if a drug with an Orphan Drug Designation subsequently receives the first FDA approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same indication during the period of exclusivity. The applicable period is seven years in the United States. Orphan Drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we obtain Orphan Drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition and the same drugs can be approved for a different condition but used off-label for any orphan indication we may obtain. Even after an orphan drug is approved, the FDA can subsequently approve a different drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
We may attempt to secure approval from the FDA or comparable foreign regulatory authorities through the use of accelerated approval pathways. If we are unable to obtain such approval, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.
We may in the future seek an accelerated approval for our one or more of our product candidates. Under the accelerated approval program, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of
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accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor's agreement to conduct, in a diligent manner, additional post- approval confirmatory studies to verity and describe the drug's clinical benefit. If such post-approval studies fail to confirm the drug's clinical benefit, the FDA may withdraw its approval of the drug.
Prior to seeking accelerated approval for any of our product candidates, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit a BLA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval or receive an expedited regulatory designation (e.g., breakthrough therapy designation) for our product candidates, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The FDA or other comparable foreign regulatory authorities could also require us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.
Even if we receive regulatory approvals for our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory reviews, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, import, export, adverse event reporting, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable regulatory authorities.
Manufacturers and manufacturers' facilities are required to comply with extensive FDA, NMPA and comparable regulatory authority requirements, including, in the United States, ensuring that quality control and manufacturing procedures conform to current cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also
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require a REMS program as a condition of approval of our product candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA, NMPA, or a comparable regulatory authority approves our product candidates, we will have to comply with requirements including, for example, submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and Good Clinical Practices, or cGCPs, for any clinical trials that we conduct post approval.
The FDA and NMPA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the drug reaches the market. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety risks, or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA, NMPA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of the FDA, NMPA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained and we may not achieve or sustain profitability.
All material aspects of the research, development and commercialization of pharmaceutical products are heavily regulated.
All jurisdictions in which we intend to conduct our pharmaceutical-industry activities regulate these activities in great depth and detail. We intend to focus our activities in the major markets such as the United States and China. These jurisdictions strictly regulate the pharmaceutical industry, and in doing so they employ broadly similar regulatory strategies, including regulation of product development and approval, manufacturing, and marketing, sales and distribution of products. However, there are differences in the regulatory regimes that make for a more complex and costly regulatory compliance burden for a company like ours that plans to operate in these regions.
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The process of obtaining regulatory approvals and compliance with appropriate laws and regulations require substantial time and financial resources. Failure to comply with the applicable requirements at any time during the product development process and approval process, or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include: refusal to approve pending applications; withdrawal of an approval; license revocation; clinical hold; voluntary or mandatory product recalls; product seizures; total or partial suspension of production or distribution; injunctions; fines; refusals of government contracts; providing restitution; undergoing disgorgement; or other civil or criminal penalties. Failure to comply with these regulations could have a material adverse effect on our business.
Future strategic partnerships may be important to us. We will face significant competition in seeking new strategic partners.
We do not yet have any capability for manufacturing, sales, marketing or distribution. For some of our product candidates, we may in the future determine to collaborate with pharmaceutical and biotechnology companies for development and potential commercialization of therapeutic products. The competition for strategic partners is intense. Our ability to reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the strategic partner's resources and expertise, the terms and conditions of the proposed collaboration and the proposed strategic partner's evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign 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, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The strategic partner may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such collaboration could be more attractive than the one with us for our product candidate.
Strategic partnerships 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 strategic partners. Even if we are successful in entering into collaboration, the terms and conditions of that collaboration may restrict us from entering into future agreements with other potential collaborators.
If we are unable to reach agreements with suitable strategic partners on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into strategic partnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our technology platform and our business may be materially and adversely affected. Any collaboration may be on terms that are not optimal for us, and we may not be able to maintain any new collaboration if, for example, development or approval of a product candidate is delayed, sales of an approved product candidate do not meet expectations or the partner terminates the collaboration. Any such collaboration, or other strategic transaction, may require us to incur non-recurring or other charges, and increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. Accordingly, although there can be no assurance that we will undertake or successfully complete any
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transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks and have a material and adverse effect on our business, financial condition, results of operations, and prospects. Conversely, any failure to enter any collaboration or other strategic transaction that would be beneficial to us could delay the development and potential commercialization of our product candidates and have a negative impact on the competitiveness of any product candidate that reaches the market.
We may not be able to enter into additional collaboration agreements beyond our existing strategic partnerships or collaborations with ADC Therapeutics and Guilin Sanjin. If we are unable to maintain existing and future strategic partnerships or collaborations, or if these strategic partnerships or collaborations are not successful, our business could be adversely affected.
Our existing strategic partnerships, collaborations and any future strategic partnerships we enter into may pose a number of risks, including the following:
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jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
If any partnerships or collaboration we enter into do not result in the successful development of our product candidates or if one of our partners or collaborator terminates the agreement with us, our continued development of our product candidates could be delayed and our business may be materially and adversely affected.
We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of September 30, 2020, we had 199 full-time employees. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to expand our employee base for managerial, operational, financial and other resources. As our product candidates enter and advance through preclinical studies and clinical trials, we will need to expand our development, regulatory and manufacturing capabilities or contract with other organizations to provide these capabilities for us. In the future, we expect to enter into additional relationships with collaborators or partners, suppliers and other organizations and establish a sales and marketing team in preparation for commercialization activities. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Our inability to successfully manage our growth and expand our operations could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Disruptions in the financial markets and economic conditions could affect our ability to raise capital.
Global economies could suffer dramatic downturns as the result of a deterioration in the credit markets and related financial crisis as well as a variety of other factors including, extreme volatility in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. In the past, governments have taken unprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If these actions are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed, on a timely basis and on acceptable terms or at all.
In addition, there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world's leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa and over the conflicts involving Ukraine, Syria and North Korea. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial
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disputes or the trade related disputes between the United States and China. In addition, the U.K. held a referendum on June 23, 2016 on its membership in the EU, in which voters approved an exit from the EU, commonly referred to as "Brexit"; the U.K. formally left the EU on January 31, 2020. The U.K. is currently in a transition period which is expected to continue through December 31, 2020, when agreements surrounding trade and other aspects of the U.K.'s future relationship with the EU will need to be finalized. Brexit could adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
If we face allegations of non-compliance with laws and encounter sanctions, our reputation, revenues and liquidity may suffer, and our product candidates and approved products, if any, could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations of laws or regulations could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to obtain approvals commercialize and generate revenues from our drugs. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from our product sales, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.
Our reputation is important to our success. Negative publicity may adversely affect our reputation and business prospects.
Any negative publicity concerning us, our affiliates or any entity that shares the "Adagene" name, even if untrue, could adversely affect our reputation and business prospects. There can be no assurance that negative publicity about us or any of our affiliates or any entity that shares the "Adagene" name would not damage our brand image or have a material adverse effect on our business, results of operations and financial condition.
Potential future acquisitions or strategic collaborations may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.
We may evaluate various acquisitions and strategic collaborations, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic collaboration may entail numerous risks, including:
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In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.
Our business operations and current or future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency and other healthcare laws and regulations. If we or our employees, independent contractors, consultants, commercial partners, or vendors violate these laws, we could face substantial penalties.
Our business operations and current or future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our product candidates, if approved. Such laws include, without limitation:
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Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. Further, defending against any such actions can be costly and time-consuming and may require significant personnel resources. Even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
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Recently enacted and future legislation in the United States and other countries may affect the prices we may obtain for our product candidates and increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates.
In the United States and many other countries, rising healthcare costs have been a concern for governments, patients and the health insurance sector, which resulted a number of changes to laws and regulations, and may result in further legislative and regulatory action regarding the healthcare and health insurance systems that could affect our ability to profitably sell any product candidates for which we obtain marketing approval.
For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was enacted in the United States in March 2010 with the stated goals of containing healthcare costs, improving quality and expanding access to healthcare, and includes measures to change health care delivery, increase the number of individuals with insurance, ensure access to certain basic health care services, and contain the rising cost of care. Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of the ACA are currently facing legal and constitutional challenges in the Fifth Circuit Court of Appeals and the United States Supreme Court. Additionally, the current administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices, and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended.
In addition, other federal health reform measures have been proposed and adopted in the United States. For example, as a result of the Budget Control Act of 2011, providers are subject to Medicare payment reductions of 2% per fiscal year through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2020, unless additional Congressional action is taken. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. Payment adjustments for the Medicare quality payment program began in 2019. At this time, it is unclear how the introduction of the quality payment program will impact overall physician reimbursement under the Medicare program. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics.
Since January 2017, there has been legislation considered in Congress to restrict the pricing of drug products to a governmental negotiated rate or to other similar rates that would reduce the costs to government, commercial payers and individuals. In July 2020, President Trump signed four Executive Orders directing the Department of Health and Human Services and other agencies to take specific actions to reduce prescription drug prices. The first order directs federally qualified health centers to pass along significant discounts on insulin and epinephrine from drug companies to low-income individuals. The second order would allow the important of prescription drugs from Canada into the United States where the prices are deemed to be lower. The third order would eliminate safe harbor protections under the federal Anti-Kickback Statute that currently covers rebates paid by manufacturers to Medicare Part D plans and Medicaid managed care organizations, either directly or through
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pharmacy benefit managers under contract with such plans or organizations, so long as such actions are not projected to increase federal spending, Medicare beneficiary premiums or patients' total out-of-pocket cases. The fourth order will reduce the payment for Medicare part B drugs to be paid at the same rate as other developed nations, thereby reducing the reimbursement. All of these Executive Orders require rulemaking prior to implementation and could be stalled by Congress or the next election.
The combination of healthcare cost containment measures, increased health insurance costs, reduction of the number of people with health insurance coverage, as well as future legislation and regulations focused on reducing healthcare costs by reducing the cost of or reimbursement and access to pharmaceutical products, may limit or delay our ability to generate revenue, attain profitability, or commercialize our pipeline products, if approved.
We face intense competitions and rapid technological changes, as well as the possibility that our competitors may develop therapies that are similar, more advanced, or more effective than ours, which may adversely affect our ability to successfully commercialize our product candidates and our financial condition.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We are currently aware of various existing therapies and development candidates that may compete with ADG106, ADG126, ADG116 and ADG104 for the potential treatment of similar targets, such as urelumab and utomilumab targeting CD137 and ipilimumab targeting CTLA-4. While we are developing ADG126 and ADG116, both targeting CTLA-4, we intend to focus on and prioritize ADG126 as it is generated by our SAFEbody technology designed to enhance its safety profile. We have competitors in the United States, China and internationally, including major multinational pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies. Many of our competitors have substantially greater financial, technical, and other resources, such as larger research and development, marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
We have no experience in launching and marketing product candidates. We may not be able to effectively build and manage our sales network, or benefit from third-party collaborators' sales network.
We currently have no manufacturing, sales, marketing or commercial product distribution capabilities and have no experience in marketing drugs. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other biopharmaceutical companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and commercial distribution capabilities for any or all of the drugs we develop, we will likely pursue collaborative arrangements regarding the sales and marketing of our product candidates, if approved. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or, if we are
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able to do so, that they will have effective sales forces. Any revenue we receive will depend on the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We will also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates, if approved.
There can be no assurance that we will be able to develop in-house sales and commercial distribution capabilities or establish or maintain relationships with third-party collaborators to successfully commercialize any product candidate, if approved, and as a result, we may not be able to generate product sales revenue.
Even if we are able to commercialize any approved product candidates, coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, and we may be subject to unfavorable pricing regulations, which could harm our business.
The regulations that govern regulatory approvals, pricing and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a drug in a particular country, but then be subject to price regulations that delay our commercial launch of the drug and negatively impact our revenues.
A primary trend in the global healthcare industry is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Our ability to commercialize any drugs successfully also will depend in part on the extent to which coverage and reimbursement for these drugs and related treatments will be available on adequate terms, or at all, from government health administration authorities, private health insurers and other organizations.
In the United States, no uniform policy of coverage and reimbursement for biopharmaceutical products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a drug from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our drugs on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given drug, the resulting reimbursement rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of our genetically modified drugs. Patients are unlikely to use our drugs and any approved product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of the drug. Because some of our product candidates have a higher cost of goods than conventional therapies, may require long-term follow up evaluations, and will likely be administered under the supervision of a physician, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.
If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
There may be significant delays in obtaining reimbursement for approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or other comparable
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regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower cost drugs that are already reimbursed, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future weakening of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for our drugs and any new product candidates that we develop could have a material adverse effect on our business, our operating results, and our overall financial condition.
In China, the Ministry of Human Resources and Social Security of China or provincial or local human resources and social security authorities, together with other government authorities, review the inclusion or removal of drugs from China's National Drug Catalog for Basic Medical Insurance, Work-related Injury Insurance and Maternity Insurance, or the National Reimbursement Drug List, or the NRDL, or provincial or local medical insurance catalogues for the National Medical Insurance Program regularly, and the tier under which a drug will be classified, both of which affect the amounts reimbursable to program participants for their purchases of those drugs. There can be no assurance that our drugs and any approved product candidates will be included in the NRDL or provincial reimbursements lists. Products included in the NRDL have been typically generic and essential drugs. Innovative drugs similar to our product candidates have historically been more limited on their inclusion in the NRDL due to the affordability of the government's Basic Medical Insurance, although this has been changing in recent years. According to currently effective PRC laws and regulations, the prices of approved drugs are determined by market competition. The government regulate prices mainly by establishing a consolidated procurement mechanism, revising the NRDL and strengthening regulation of medical and pricing practices. We cannot predict the extent to which our business may be affected by potential future legislative or regulatory developments. Changes in pricing regulation could restrict the amount that we are able to charge for our future approved drugs, which would adversely affect our revenue, profitability and results of operations.
We intend to seek approval to market our product candidates in the United States, China and in other jurisdictions. In some non-U.S. countries, the pricing of drugs and biologics is subject to governmental control, which can take considerable time even after obtaining regulatory approval. Market acceptance and sales of our drugs will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for drugs and may be affected by existing and future health care reform measures.
As we engage in collaboration worldwide, we may be exposed to specific risks of conducting our business and operations in international markets.
We are a biopharmaceutical company with global footprints. We are currently building our clinical and technology infrastructures to support our future global operations and prepare to serve global markets. If we fail to obtain applicable licenses or fail to enter into strategic collaboration arrangements with third parties in these markets, or if these collaboration arrangements turn out unsuccessful, our revenue-generating growth potential will be adversely affected.
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Moreover, international business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:
These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.
Building our commercialization capabilities will require significant investment of time and money. There would be no assurance that we will successfully set up our commercialization capabilities in any of the proposed jurisdictions or at all, or that we will successfully commercialize any of our product candidates in the future.
We are currently in the early stages of building and expanding our commercial capabilities to allow us to market our own products, if approved, in the future. We will need to set up full commercialization capabilities in the jurisdictions, including China and the United States, which would require substantial investment of time and money and will divert significant management focus and resources. We also face competition with multinational and local pharmaceutical and biotechnology companies with established commercialization capabilities in terms of marketing and attracting talents.
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Therefore, there can be no assurance that our efforts to set up commercialization capabilities will be successful in any of the proposed jurisdictions or at all.
Even if ADG106 or one of our other proprietary product candidates obtains regulatory approval, we may determine that commercializing such product candidate ourselves would not be the most effective way to create value for our shareholders or holders of ADSs. In addition, if we choose to commercialize any of our product candidates, our marketing efforts may be unsuccessful as a result of unfavorable pricing or reimbursement limitations, delays, competition or other factors. Failure to successfully market one or more of our approved products, or delays in our commercialization efforts, may diminish the commercial prospects for such products and may result in financial losses or damage to our reputation, each of which may have a negative impact on the market price of our ADSs and our financial condition, results of operations and future growth prospects.
We may continue to pursue collaborations or licensing arrangements, joint ventures, strategic alliances, partnerships or other strategic investment or arrangements, which may fail to produce anticipated benefits and adversely affect our operations.
We may continue to pursue opportunities for collaboration, out-license, joint ventures, acquisitions of products, assets or technology, strategic alliances, or partnerships that we believe would advance our development. We may consider pursuing growth through the acquisition of technology, assets or other businesses that may enable us to enhance our technologies and capabilities. Proposing, negotiating and implementing these opportunities may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, technology, or other business resources, may compete with us for these opportunities or arrangements. We may not be able to identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms, or at all.
We have limited experience with respect to these business development activities. Management and integration of a licensing arrangement, collaboration, joint venture or other strategic arrangement may disrupt our current operations, decrease our profitability, result in significant expenses, or divert management resources that otherwise would be available for our existing business. We may not realize the anticipated benefits of any such transaction or arrangement.
Furthermore, partners, collaborators, or other parties to such transactions or arrangements may fail to fully perform their obligations or meet our expectations or cooperate with us satisfactorily for various reasons and subject us to potential risks, including the followings:
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Any such transactions or arrangements may also require actions, consents, approval, waiver, participation or involvement of various degrees from third parties, such as regulators, government authorities, creditors, licensors or licensees, related individuals, suppliers, distributors, shareholders or other stakeholders or interested parties. There is no assurance that such third parties will be cooperative as we desire, or at all, in which case we may be unable to carry out the relevant transactions or arrangements.
We rely on third parties to support, conduct and monitor our preclinical studies and clinical trials. Therefore, we may not be able to directly control the timing, process, expense and quality of our clinical trials and we cannot assure these third parties can duly perform their obligations as agreed and expected.
We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators and third-party CROs, to conduct our preclinical studies and clinical trials and to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for all of our products candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat or suspend clinical trials, which would delay the regulatory approval process.
Further, these investigators and CROs are not our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. In addition, the use of third-party service providers may require us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.
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If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Additionally, CROs may lack the capacity to absorb higher workloads or take on additional capacity to support our needs. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
We currently rely on a third-party manufacturer to produce our product candidates. Any failure by the third-party manufacturer to produce acceptable product candidates for us pursuant to our specifications and regulatory standards may delay or impair our ability to initiate or complete our clinical trials, obtain and maintain regulatory approvals or commercialize approved products, if any.
We currently rely on a third-party manufacturer and expect to continue to rely for some time on third parties to manufacture our product candidates for preclinical testing and clinical trials, in compliance with applicable regulatory and quality standards, and may do so for the commercial manufacture of some of our product candidates, if approved. To date, we have obtained bulk drug substance for ADG106, ADG126 and ADG116 from a single-source third-party contract manufacturer. Any reduction or halt in supply of the drug substance from such contract manufacturer could severely constrain our ability to develop our product candidates until a replacement contract manufacturer is found and qualified. If we are unable to arrange for and maintain such third-party manufacturing sources that are capable of meeting regulatory standards, or fail to do so on commercially reasonable terms, we may not be able to successfully produce sufficient supply of product candidate or we may be delayed in doing so. If we were to experience an unexpected loss of supply of our product candidates, for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials. Such failure or substantial delay or loss of supply could materially harm our business. We are continuously evaluating multiple vendors both in China and abroad to ensure that we have a continuous supply of products for global trials.
We may have little to no control regarding the occurrence of third-party manufacturer incidents. Any failure by our third-party manufacturer to comply with good manufacturing practices, or GMPs, or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, would lead to a delay in, or failure to seek or obtain, regulatory approval of any of our product candidates. Furthermore, any change in manufacturer of our product candidates or approved products, if any, would require new regulatory approvals, which could delay completion of clinical trials or disrupt commercial supply of approved products.
Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.
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In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer, we may have difficulty transferring such skills or technology to another third party and a feasible alternative many not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.
If our current research collaborators or scientific advisors and employees terminate their relationships with us or develop relationships with our competitors, our ability to discover antibodies and to conduct research and development could be adversely affected.
The responsibility of overseeing research and development of our product candidates is concentrated among a number of key research collaborators and/or scientific advisors. There can be no assurance that there will not be a detrimental impact on us if one or more of these key research collaborators and/or scientific advisors were to cease relationship or employment with us, potentially as a result of lateral recruitment by existing or new competitors. As a result, this may adversely affect our ability to conduct research and development on antibody product candidates.
Furthermore, our ability to continue to conduct and expand operations depends on our ability to attract and retain a large and growing number of personnel. The ability to meet our expertise needs, including the ability to find qualified personnel to fill positions that become vacant at our research and development department or to collaborate with us in research and development efforts, while controlling our costs, is generally subject to numerous external factors, including the availability of a sufficient number of qualified persons in the biopharmaceutical industry, the unemployment levels within those markets, prevailing wage rates, changing demographics, health and other insurance costs and adoption of new or revised employment and labor laws and regulations. If we are unable to locate, to attract or to retain qualified personnel, the quality of services and products provided to customers may decrease and our financial performance may be adversely affected. In addition, if costs of labor or related costs to maintain relationships with research collaborators increase for other reasons or if new or revised labor laws, rules or regulations or healthcare laws are adopted or implemented that further increase labor costs, our business, financial condition and results of operations could be materially adversely affected.
We may not be able to attract and retain key senior management members or research and development personnel.
Our future success depends upon the continuing services of members of our senior management team and key research and development personnel and consultants. In particular, Peter Luo, our Chief Executive Officer, Fangyong (Felix) Du, our Chief Technology Officer, Hua Gong, our Chief Operating Officer and Head of Clinical Development and Precision Medicine, JC Xu, our Chief Scientific Officer and Qinghai Zhao, our Chief Manufacturing Officer are crucial to our research and development and operations. Although we typically require our key personnel to enter into non-compete and confidentiality agreements with us, we cannot prevent them from joining our competitors after the non-compete period. The loss of their services could adversely impact our ability to achieve our business objectives. If one or more of our senior management or key clinical and scientific personnel are unable or unwilling to continue in their present positions or joins a competitor or forms a competing company, we may not be able to replace them in a timely manner or at all, which will have a material and adverse effect on our business, financial condition and results of operations. We do not maintain "key person" insurance for any of our executives or other employees.
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In addition, the continued growth of our business depends on our ability to hire additional qualified personnel with expertise in molecular biology, chemistry, biological information processing, computational biology, software, engineering, sales, marketing, and technical support. We compete for qualified management and scientific personnel with other life science and technology companies, universities, and research institutions in China and overseas. Competition for these individuals is intense, and the turnover rate can be high. Failure to attract and retain management and scientific and engineering personnel could prevent us from pursuing collaborations or developing our product candidates or technologies.
We face risks related to health epidemics, severe weather conditions and other outbreaks.
China has in the past experienced significant natural disasters, including earthquakes, extreme weather conditions, as well as health scares related to epidemic diseases, and any similar event could materially impact our business in the future. If a disaster or other disruption were to occur in the future that affects the regions where we operate our business, our operations could be materially and adversely affected due to loss of personnel and damage to property. Even if we are not directly affected, such a disaster or disruption could affect the operations or financial conditions of our customers, which could harm our results of operations.
In addition, our business could be affected by public health epidemics and pandemics, such as the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus or other diseases. In late December 2019, a strain of SARS-CoV-2, which causes the COVID-19 disease, was reported to have surfaced in Wuhan, China. On January 30, 2020, the World Health Organization reportedly declared this COVID-19 outbreak a health emergency of international concern. On February 28, 2020, the World Health Organization reportedly increased the assessment of the risk of spread and the risk of impact of COVID-19 to very high at global level. In March 2020, the World Health Organization declared the COVID-19 a pandemic. As COVID-19 has evolved into a worldwide health crisis, it has resulted in adverse effects in the global economy and financial markets, such as significant declines in the global stock markets. If the COVID-19 outbreak is not effectively controlled globally, our business and results of operations could be adversely affected to the extent the COVID-19 outbreak harms the Chinese or world economy generally. The extent to which the COVID-19 outbreak impacts our financial condition and results of operations for the full year of 2020 cannot be reasonably estimated at this time and will depend on future developments that currently cannot be predicted, including the development of a COVID-19 vaccine and the actions taken to contain the COVID-19 outbreak, among others. Any future outbreak of public health epidemics may restrict economic activities in affected regions, disrupt our business operations and adversely affect our results of operations.
The COVID-19 pandemic could adversely impact our business, including our clinical trials.
The spread of the COVID-19 coronavirus in many countries continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets and supply chains. The pandemic has had, and could have a significantly greater, material adverse effect on the global economy. The pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.
The COVID-19 pandemic has adversely affected the clinical development of our product candidates. Our clinical development program timelines could continue to be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition, and results of operations. Further, due to "shelter in place" orders and other public health guidance measures, we may be required to implement a work-from-home policy for all staff members excluding those necessary to maintain minimum basic operations. In such an instance, our increased reliance on personnel
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working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories may be delayed.
The COVID-19 pandemic may impact our workforce, supply chains or distribution networks or otherwise impact our ability to restock our medical device and supply inventories and depending upon the severity of the COVID-19 pandemic's continued spread in the United States and other countries, we may experience disruptions that could severely impact our business and clinical trials, including:
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in China, the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
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We have limited insurance coverage, and any claims beyond our insurance coverage may result in us incurring substantial costs and a diversion of resources.
We maintain insurance policies that are required under PRC laws and regulations as well as insurance based on our assessment of our operational needs and industry practice. We also maintain liability insurance covering our clinical trials. In line with industry practice in the PRC, we have elected not to maintain certain types of insurances, such as business interruption insurance or key-man insurance. Our insurance coverage may be insufficient to cover any claim for product liability, damage to our fixed assets or employee injuries. Any uninsured risks may result in substantial costs and the diversion of resources, which could adversely affect our results of operations and financial condition.
We have adopted a share incentive plan and will continue to grant share-based awards in the future, which may increase expenses associated with share-based compensation. Exercise of the awards granted will increase the number of our outstanding ordinary shares, which may adversely affect the market price of our ADSs.
We adopted the Second Amended and Restated Share Incentive Plan in December 2019 and the 2021 Performance Incentive Plan in January 2021, which we refer to as the 2019 Plan and the 2021 Plan, respectively, in this prospectus, to enhance our ability to attract and retain exceptionally qualified individuals and to encourage them to acquire a proprietary interest in the growth and performance of us. Upon the effectiveness of our registration statement on Form F-1, we will terminate the authority to grant additional awards under the 2019 Plan and all future awards will be granted under the 2021 Plan. Therefore, the effective maximum number of shares issuable under the 2019 Plan will be 10,728,501. A total of 2,994,000 of our ordinary shares is authorized for issuance with respect to awards granted under the 2021 Plan. As of the date of this prospectus, the aggregate number of our ordinary shares underlying our outstanding awards under the 2019 Plan is 3,601,522. We have not granted any awards under the 2021 Plan. See "ManagementShare Incentive Plan."
We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.
Our employees, third-party suppliers, consultants and commercial partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, third-party suppliers, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the NMPA and overseas regulators that have jurisdictions over us, comply with healthcare fraud and abuse laws and regulations in China and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and our code of conduct and the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant civil, criminal and administrative penalties, including, without limitation, damages, monetary fines,
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individual imprisonment, disgorgement of profits, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of noncompliance with the law and curtailment or restructuring of our operations, which could have a significant impact on our business. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees and divert the attention of management in defending ourselves against any of these claims or investigations.
We may be subject to liability lawsuits arising from our clinical trials.
We currently carry liability insurance covering our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or which is in excess of the limits of our insurance coverage. Our insurance policies also contain various exclusions, and we may be subject to particular liability claims for which we have no coverage. We will have to pay any amount awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. In addition, if we cannot successfully defend ourselves against such claims, we may incur substantial liabilities and be required to suspend or delay our ongoing clinical trials. Even a successful defense would require significant financial and management resources.
Regardless of the merits or eventual outcome, liability claims may result in significant negative consequences to our business and prospects, including, but not limited to:
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.
We are subject to rules and regulations by various governing bodies, including, for example, the FDA, the NMPA, the SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various regulatory authorities in China, the United States, the EU, the Cayman Islands, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalties and our business may be harmed.
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We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation.
We are subject to anti-bribery laws in China that generally prohibit companies and their intermediaries from making payments to government officials for the purpose of obtaining or retaining business or securing any other improper advantage. In addition, although currently our primary operating business is in China, we are subject to the Foreign Corrupt Practices Act, or the FCPA. The FCPA generally prohibits us from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We are also subject to the anti-bribery laws of other jurisdictions, particularly China. As our business expands, the applicability of the FCPA and other anti-bribery laws to our operations will increase. Our procedures and controls to monitor anti-bribery compliance may fail to protect us from reckless or criminal acts committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or those of others, fail to comply with applicable anti-bribery laws, our reputation could be harmed and we could incur criminal or civil penalties, other sanctions and/or significant expenses, which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.
Any failure to comply with applicable regulations and industry standards or obtain various licenses and permits could harm our reputation, business, results of operations and prospects.
A number of governmental agencies or industry regulatory bodies in China, the United States and other applicable jurisdictions impose strict rules, regulations and industry standards governing biopharmaceutical research and development activities, which apply to us. Our or our CROs' failure to comply with such regulations could result in the termination of ongoing research, administrative penalties imposed by regulatory bodies or the disqualification of data for submission to regulatory authorities. This could harm our business, reputation, prospects for future work and results of operations. For example, if we or our CROs were to treat research animals inhumanely or in violation of international standards set out by the Association for Assessment and Accreditation of Laboratory Animal Care, it could revoke any such accreditation and the accuracy of our animal research data could be questioned.
If we or our third-party research collaborators or other contractors or consultants fail to comply with environmental, fire protection, drainage or health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We and third parties, such as our CROs, are subject to numerous environmental, fire protection, drainage or health and safety laws and regulations, including but not limited to those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes discharge of stationary pollution sources. The cost of compliance with health and safety regulations is substantial. Our business activities involve the controlled use of hazardous materials. Our research and development activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption of our commercialization efforts, research and development efforts and business operations. We cannot guarantee that the safety procedures utilized by our partners and by third-party manufacturers and suppliers with whom we may contract will comply with the standards prescribed by laws and regulations or will eliminate the risk of accidental contamination or injury from these materials. In such an event, we could be held liable for any resulting damages, and such liability could exceed our resources. In addition, we may be required to incur substantial costs to comply with current or future environmental, health and safety laws and regulations which are complex, change frequently and have tended to
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become more stringent. We do not currently carry biological or hazardous waste insurance coverage. In the event of an accident or environmental discharge, we may be held liable for any consequential damage and any resulting claims for damages, which may exceed our financial resources and may materially adversely affect our business, financial condition, results of operations and future growth prospects, and the value of our ADSs.
Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
In the ordinary course of our business, we collect and store preclinical trial data and clinical trial data which could be sensitive, including research and development information, health-related information, personally identifiable information, intellectual property, and proprietary business information owned or controlled by ourselves or other parties. We manage and maintain our applications and data utilizing a combination of on-site systems and cloud-based application systems. We utilize external security and infrastructure vendors to manage parts of our data centers. We also communicate sensitive data with third parties. We face a number of risks relative to protecting this critical information, including material system failure or security breach, loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of our being unable to adequately monitor, audit, and modify our controls over our critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive data and third-party collaborators who share with us sensitive data.
Despite the implementation of security measures to protect sensitive data from unauthorized access, use or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance, or other malicious or inadvertent disruptions that could result in unauthorized access to, use or disclosure of, corruption of, or loss of sensitive, and/ or proprietary data, including health-related and other personal information, and could subject us to significant liabilities and regulatory and enforcement actions, and reputational damage. The COVID-19 pandemic is generally increasing the attack surface available to criminals, as more companies and individuals work online and work remotely, and as such, the risk of a cybersecurity incident potentially occurring, and our investment in risk mitigations against such an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from "hackers" hoping to use the COVID-19 pandemic to their advantage. In addition, while we have implemented security measures to prevent unauthorized access to patient data, such data is currently accessible through multiple channels, and there is no guarantee we can protect our data from breach. Unauthorized access, loss, or dissemination could also result in delays of our product development and regulatory approval efforts as well as damage our reputation.
For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in any regulatory approval or clearance efforts and significantly increase our costs to recover or reproduce the data, and subsequently commercialize the product. If we or our third-party collaborators, consultants, contractors, suppliers, or service providers were to suffer an attack or breach, for example, that resulted in the unauthorized access to or use or disclosure of health-related or other personal information, we may have to notify consumers, partners, collaborators, government authorities, and the media, and may be subject to investigations, civil penalties, administrative and enforcement actions, and litigation, any of which could harm our business and reputation. Likewise, we rely on our third-party research institution collaborators and other third parties to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business.
Our insurance policies may not be adequate to compensate us for the potential losses arising from such disruptions, failure, or security breach. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims
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made against us and defending a suit, regardless of its merit, could be costly, divert management attention, and harm our reputation.
Failure to comply with existing or future laws and regulations related to privacy or data security could lead to government enforcement actions, which could include civil or criminal fines or penalties, private litigation, other liabilities, and/or adverse publicity. Compliance or the failure to comply with such laws could increase the costs of our products and services, limit their use or adoption, and otherwise negatively affect our operating results and business.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Regulatory authorities in virtually every jurisdiction in which we operate have implemented and are considering a number of legislative and regulatory proposals concerning personal data protection.
Regulatory authorities in China have implemented and are considering a number of legislative and regulatory proposals concerning data protection. For example, China's Cyber Security Law, which became effective in June 2017, created China's first national-level data protection for "network operators," which may include all organizations in China that provide services over the internet or another information network. Numerous regulations, guidelines and other measures are expected to be adopted under the umbrella of the Cyber Security Law. Drafts of some of these measures have now been published, including (i) the draft rules on cross-border data transfers of personal information and important data published by the China Cyberspace Administration in 2017, and draft rules on measures for security assessment for cross-border transfer of personal information published by China Cyberspace Administration in 2019, which may, upon enactment, require security review before transferring human health-related data out of China, and (ii) the Draft Data Security Law promulgated by the Standing Committee of PRC National People's Congress in 2020, which outlines the main system framework of data security protection. In addition, certain industry-specific laws and regulations affect the collection and transfer of personal data in China. For example, the PRC State Council promulgated Regulations on the Administration of Human Genetic Resources (effective in July 2019), which require approval from or filings with the Science and Technology Administration Department of the State Council where human genetic resources, or HGR, are involved in any international collaborative project and additional approval for any export or cross-border transfer of the HGR samples or human genetic resource information. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices, potentially resulting in confiscation of HGR samples and human genetic resource information and administrative fines or in worst cases, criminal penalties. In addition, the interpretation and application of data and personal information protection laws in China and elsewhere are often uncertain and in flux.
In the United States, we and our partners may be subject to state and federal laws and regulations that govern data privacy, protection and security. Numerous laws and regulations, including security breach notification laws, health information privacy laws, and consumer protection laws, govern the collection, use, disclosure and protection of health-related and other personal information. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, and regulations implemented thereunder (collectively, "HIPAA"). Depending on the facts and circumstances, we could be subject to criminal penalties if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Even when HIPAA does not apply, according to the Federal Trade Commission, or the FTC, violating consumers' privacy rights or failing to take appropriate steps to keep consumers' personal
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information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company's data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards.
In addition, certain state and non-U.S. laws, such as the European Union General Data Protection Regulation, or the GDPR, govern the privacy and security of health information and other personal 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. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. For example, California recently enacted legislation, the California Consumer Privacy Act, or CCPA, which went into effect January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. In Europe, the GDPR went into effect in May 2018 and introduces strict requirements for processing the personal data of individuals within the EU, and the European Economic Area, or the EEA. In addition, the GDPR increases the scrutiny of transfers of personal data from clinical trial sites located in the EEA to the United States and other jurisdictions that the European Commission does not recognize as having "adequate" data protection laws, and recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of personal data from the EEA. For example, on July 16, 2020, the Court of Justice of the European Union, or the CJEU, invalidated the EU-US Privacy Shield Framework, or Privacy Shield, under which personal data could be transferred from the EU and the EEA to United States entities who had self-certified under the Privacy Shield scheme. Moreover, it is uncertain whether the standard contractual clauses will also be invalidated by the European courts or legislature. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. Additionally, following Brexit, companies will have to comply with the GDPR and the GDPR as incorporated into United Kingdom national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The relationship between the U.K. and the EU in relation to certain aspects of data protection law remains unclear, for example around how data can lawfully be transferred between each jurisdiction, which exposes us to further compliance risk.
Given the variability and evolving state of these laws, we face uncertainty as to the exact interpretation of the new requirements, and we may be unsuccessful in implementing all measures required by regulators or courts in their interpretation.
We expect that we will continue to face uncertainty as to whether our efforts to comply with evolving obligations under global data protection, privacy and security laws will be sufficient. Any failure or perceived failure by us to comply with applicable laws and regulations could result in reputational damage or proceedings or actions against us by governmental entities, individuals or others. These proceedings or actions could subject us to significant civil or criminal penalties and negative publicity, result in the delayed or halted transfer or confiscation of certain personal information, require us to change our business practices, increase our costs and materially harm our business, prospects, financial condition and results of operations. In addition, our current and future relationships with customers, vendors, pharmaceutical partners and other third parties could be negatively affected by any proceedings or actions against us or current or future data protection obligations imposed on them under applicable law, including the GDPR. In addition, a data breach
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affecting personal information, including health information, could result in significant legal and financial exposure and reputational damage that could potentially have an adverse effect on our business.
Business disruptions could seriously harm our future revenue, increase our costs and expenses, and have adverse effect on our financial condition.
Our operations and third parties with which we have collaborations could be subjected to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. In addition, we partially rely on our CROs for conducting research and development, and they may be affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a natural disaster or man-made problem, such as power disruptions, computer viruses, data security breaches or terrorism, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations and financial condition.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results of operations or prevent fraud, and investors' confidence and the market price of our ADSs may be materially and adversely affected.
Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In the course of auditing our consolidated financial statements as of December 31, 2019 and for the year ended December 31, 2019, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting and other control deficiencies as of December 31, 2019. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to:
We have taken measures and plan to continue to take measures to remedy the material weaknesses. For details, please refer to "Management's Discussion and Analysis of Financial Condition and Results of OperationsInternal Control over Financial Reporting." The implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these material weaknesses or our failure to discover and address any other material weaknesses could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis.
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Upon the completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report from management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2021. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Generally speaking, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could, in turn, limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
Risks Related to Our Intellectual Property
It is difficult and costly to protect our proprietary rights and technology, and we may not be able to protect our intellectual property rights throughout the world.
Our commercial success will depend, in part, on our ability to obtain, maintain and defend patent and other intellectual property protection (including trademarks and trade secrets) with respect to our product candidates. We cannot be certain that patents will be issued or granted with respect to our patent applications that are currently pending, or that issued or granted patents will not later be found to be invalid and/or unenforceable, be interpreted in a manner that does not adequately protect our product candidates, or otherwise provide us with any competitive advantage. Additionally, the patent applications in respect of patents licensed under our in-license arrangements may not be issued or granted, and as a result, we may not be able to have adequate protection with respect to such patents.
The patent position of biotechnology and pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. Patent applications we have filed may not be granted or issued as valid enforceable patents. Moreover, some of our patents and patent applications may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owned interest in such patents or patent applications, such co-owners may be able to license or transfer their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such
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cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects. As such, we do not know the degree of future protection that we will have on our product candidates and technology, if any, and a failure to obtain adequate intellectual property protection with respect to our product candidates could have a material adverse impact on our business.
Composition-of-matter patents on the active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection without regard to any method of use. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our products for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products "off-label." Although off-label prescriptions may infringe or contribute to the infringement of method-of use patents, the practice is common and such infringement is difficult to prevent or prosecute. We endeavor to seek composition-of-matter patent protection for all of our product candidates. Where appropriate, we also seek method-of-use patents and patents protecting other aspects of our product candidates, including processes for discovery and manufacturing.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and our owned and in-licensed patents may be challenged in the courts or patent offices in the PRC and abroad. For example, we may become involved in opposition, interference, derivation, inter partes review or other similar proceedings challenging our patent rights, and the outcome of any proceedings are highly uncertain. Such challenges may result in the patent claims of our owned or in-licensed patents being narrowed, invalidated or held unenforceable, which could limit our ability to stop or prevent us from stopping others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage.
Despite the measures we can take to increase our likelihood of obtaining patent and other intellectual property protections with respect to our product candidates, there can be no assurance that the existence, validity, enforceability, or scope of our intellectual property rights will not be challenged by a third party, or that we can obtain sufficient scope of claim in those patents to prevent a third party from competing against our product candidates. For example, in an infringement proceeding, a court may hold that patent rights or other intellectual property rights owned by us are invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the ground that our patent rights or other intellectual property rights do not cover the technology in question. An adverse result in any litigation proceedings could put our patent, as well as any patents that may issue in the future from our pending patent applications, at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
In addition, if we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. Grounds for a validity challenge could be an alleged failure to meet any of
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several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the National Intellectual Property Administration of China, or NIPA, or the applicable foreign counterpart, or made a misleading statement, during prosecution. Although we believe that we have conducted our patent prosecution in accordance with all applicable duty of candor and in good faith, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others.
Third parties may also raise similar claims before administrative bodies in the PRC or abroad, even outside the context of litigation. Such mechanisms include ex parte re-examination, inter partes review, post-grant review, derivation and equivalent proceedings, such as opposition proceedings. Such legal proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our product candidates. The outcome following legal assertions of invalidity and unenforceability can be unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we may lose part or all of the patent protection on our product candidates. Any loss of patent protection could have a material adverse impact on one or more of our product candidates and our business.
In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. We may also rely on trade secret protection as temporary protection for concepts that may be included in a future patent filing. However, trade secret protection will not protect us from innovations that a competitor develops independently of our proprietary know-how. If a competitor independently develops a technology that we protect as a trade secret and files a patent application on that technology, then we may not be able to patent that technology in the future, may require a license from the competitor to use our own know-how, and if the license is not available on commercially viable terms, then we may not be able to launch our product. Although we require our employees to assign their inventions to us, and require our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of different countries do not protect proprietary rights to the same extent or in the same manner as the laws of the PRC. We may encounter significant problems in protecting and defending our intellectual property both in the PRC and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, and this scenario could materially adversely affect our business, financial condition and results of operations.
Moreover, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors
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may unintentionally or willfully disclose our information to competitors or use such information to compete with us. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be adversely affected and this would have a material adverse effect on our business.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries do not favor the enforcement or protection of patents, trade secrets and other intellectual property, particularly those relating to pharmaceutical and biotechnology products, 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 certain countries 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. We and our contractors and partners operate in certain countries that are at heightened risk of theft of technology, data and intellectual property through direct or indirect intrusion by private parties or international actors, including those affiliated with or controlled by state actors. Accordingly, our efforts to protect or enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in various countries could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For example, patent reform legislation in the United States includes provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents via post-grant proceedings. The Leahy-Smith Act and any continuing changes in patent laws and regulations in various patent jurisdictions could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration partners' patent applications and the enforcement or defense of our or our collaboration partners' issued patents, all of which could harm our business, results of operations, financial condition and prospects.
In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain due to changes in law and courts' interpretation of the law. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Other courts in the United States, for example, have heightened the bar for broadly claiming antibodies. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Additionally, there are periodic proposals for changes to the patent laws of China, United States and other countries that, if adopted, could impact our ability to enforce our proprietary technology. Depending on future actions by the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
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Similarly in China, intellectual property laws are constantly evolving, with efforts being made to improve intellectual property protection in China. For example, a Draft Amendment to the PRC Patent Law was released in January 2019 and updated in July 2020, which proposes introduction of patent term extensions to eligible innovative drug patents. If adopted, the terms of our Chinese patents may be eligible for extension and allow us to extend patent protection of our products, and the terms of the patents owned by third parties may also be extended, which may in turn affect our ability to commercialize our products candidates, if and when approved, without facing infringement risks. The length of any such patent term extension is uncertain. If we are required to delay commercialization for an extended period of time, technological advances may develop and new competitor products may be launched, which may render our product non-competitive. We also cannot guarantee that other changes to Chinese intellectual property laws would not have a negative impact on our intellectual property protection.
We may not be successful in obtaining or maintaining necessary rights for our development pipeline through acquisitions and licensing deals.
Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire and maintain licenses or other rights to use these proprietary rights. We may be unable to acquire or in-license any compositions, methods of use, or other intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects for growth.
Additionally, we may sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. These institutions may provide us with an option to negotiate a license to any of the institution's rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program. If we are unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of such program and our business and financial condition could suffer.
Licensing of intellectual property involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:
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If disputes over intellectual property that we license in the future prevent or impair our ability to maintain our licensing arrangements on acceptable terms, we may not be able to successfully develop and commercialize the affected product candidates, which would have a material adverse effect on our business.
In addition, certain of our future agreements with third parties may limit or delay our ability to consummate certain transactions, may impact the value of those transactions, or may limit our ability to pursue certain activities. For example, we may in the future enter into license agreements that are not assignable or transferable, or that require the licensor's express consent in order for an assignment or transfer to take place.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful, and any unfavorable outcome from such litigation could limit our research and development activities and/or our ability to commercialize our product candidates.
Competitors may infringe our patent rights or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us, alleging that we infringed their patents. In addition, in a patent infringement proceeding, there is a risk that a court will decide that our asserted patents are invalid or unenforceable, in whole or in part, and that we do not have the right to stop the others from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent's claims narrowly or decide that we do not have the right to stop the others from using the invention at issue on the grounds that our patents do not cover the alleged infringing activity or product. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties and other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects, and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that our asserted marks are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of our trademarks.
In any litigation involving our intellectual property, the award of monetary damages we receive may not be commercially valuable or even sufficient to cover our cost of bringing such action. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the price of our ADSs. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
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Our commercial success depends significantly on our ability to operate without infringing upon, misappropriating or otherwise violating the intellectual property rights of third parties.
The life sciences industry is subject to rapid technological change and substantial litigation regarding patent and other intellectual property rights. Our potential competitors in both the PRC and abroad, may have substantially greater resources than us and are likely to make substantial investments in patent portfolios and competing technologies, and may apply for or obtain patents that could prevent, limit or otherwise interfere with our ability to make, use and sell our products. Numerous third-party patents exist in fields relating to our products and technologies, and it is difficult for industry participants, including us, to identify all third-party patent rights relevant to our products and technologies. Moreover, because some patent applications are maintained as confidential for a certain period of time, we cannot be certain that third parties have not filed patent applications that will cover our products and technologies if they issue as patents.
Patents could be issued to third parties that we may ultimately be found to infringe. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from using our technology. Our failure to obtain or maintain a license from third parties to any technology that we require may materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation.
Third-party intellectual property right holders may also actively bring infringement or other intellectual property-related claims against us, even if we have received patent protection for our technologies, products, and services. Regardless of the merit of third parties claims against us for infringement, misappropriation or violations of their intellectual property rights, such third parties may seek and obtain injunctive or other equitable relief, which could effectively block our ability to perform clinical trials or develop, manufacture or sell our products. Further, if a patent infringement suit were brought against us, we could be forced to temporarily or permanently stop or delay our development or regulatory approval process or other activities that are the subject of such suit. Defense of these claims, even if such claims are resolved in our favor, could cause us to incur substantial expenses and be a substantial diversion of our employee resources even if we are ultimately successful. Any adverse ruling or perception of an adverse ruling in defending ourselves could have a material adverse impact on our cash position and stock price. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the price of our ADSs. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. The occurrence of any of these events may have a material adverse effect on our business, results of operation, financial condition or cash flows.
Obtaining and maintaining patent protection depend on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent authorities, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The NIPA, and various foreign governmental patent agencies including the USPTO, JPO, and EPO require compliance with a number of procedural, documentary, fee payment and other provisions
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during the patent application and prosecution process. Periodic maintenance fees, renewal fees, annuity fees, and various other governmental fees on patents and/or applications will be due to be paid to the NIPA and various other governmental patent agencies outside of China in several stages over the lifetime of the patents and/or applications. We employ reputable professionals and rely on such third parties to help us comply with these requirements and effect payment of these fees with respect to the patents and patent applications that we own. Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official communications within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case, which could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects.
We may not enter into invention assignment and confidentiality agreements with all of our employees and third parties and such agreements may not prevent ownership disputes or unauthorized disclosure of trade secrets and other proprietary information.
We rely in part upon unpatented or unpatentable trade secrets, know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by entering into agreements, including confidentiality agreements and non-disclosure agreements, with parties that have a need for access to them, such as certain of our employees, consultants, academic institutions, corporate partners and, other third-party service providers. Nevertheless, there can be no guarantee that an employee or a third party will not make an unauthorized use or disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will gain access to such information and make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures. In addition, to the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors or business partners might intentionally or inadvertently disclose our trade secret information to competitors or our trade secrets may otherwise be misappropriated. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable.
We sometimes engage individuals or research institutions to conduct research relevant to our business. The ability of these individuals or research institutions to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized, which could adversely affect our business, financial condition and results of operations.
We also seek to enter agreements with our employees and consultants that obligate them to assign any inventions created during their work for us to us. However, we may not obtain these agreements in all circumstances and the assignment of intellectual property under such agreements may not be self-executing. And it is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we
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may not have adequate remedies for any such breach or violation, and we could lose our trade secrets and inventions through such breaches or violations. Any of the foregoing could have a material and adverse effect on our business, financial condition and results of operations.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Some of our employees and consultants were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee's former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and our specific personnel.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Also, former employees may become employed by competitors who develop similar technology, and could assist the competitor in designing around our patents. While it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and litigation may be necessary to defend against these and other claims challenging inventorship or our ownership of our patents, trade secrets or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
Intellectual property rights do not necessarily protect us from all potential threats to our competitive advantages.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business.
Patent terms may not be sufficient to effectively protect our product candidates.
In most countries in which we plan to file applications for patents, the term of an issued patent is generally 20 years from the earliest claimed filing date of the priority application to which a non-provisional patent application in the applicable country claims priority. Although various extensions may be available in various countries, the life of a patent and the protection it affords are limited. Even if patents covering our product candidates are obtained, we may be open to competition from other companies once our patent rights expire. Accordingly, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Excluding any patent term adjustment and patent term extension, our currently issued patents are expected to expire from 2033 to 2034. As a result, our patent portfolio may not provide us with sufficient rights over a sufficient length of time to exclude others from commercializing products similar or identical to ours.
Uncertainty of the length of patent term extensions and data and market exclusivities for our pharmaceutical products could increase the risk of generic competition.
In the United States, the Federal Food, Drug, and Cosmetic Act, as amended by the law generally referred to as the "Hatch-Waxman Amendments," provides the opportunity for patent-term restoration of up to five years to reflect patent term lost during certain portions of product development and the FDA regulatory review process. The Hatch-Waxman Amendments also have a process for patent linkage, pursuant to which FDA will stay approval of certain follow-on applications during the pendency of litigation between the follow-on applicant and the patent holder or licensee, generally for a period of 30 months. Finally, the Hatch-Waxman Amendments provide for statutory exclusivities that can prevent submission or approval of certain follow-on marketing applications. For example, federal law provides a five-year period of exclusivity within the United States to the first applicant to obtain approval of a new chemical entity (as defined) and three years of exclusivity protecting certain innovations to previously approved active ingredients where the applicant was required to conduct new clinical investigations to obtain approval for the modification. Similarly, the Orphan Drug Act provides seven years of market exclusivity for certain drugs to treat rare diseases, where FDA designates the product candidate as an orphan drug and the drug is approved for the designated orphan indication.
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These provisions, designed to promote innovation, can prevent competing products from entering the market for a certain period of time after FDA grants marketing approval for the innovative product.
In China, however, there is no currently effective law or regulation providing patent term extension, patent linkage, or data exclusivity (referred to as regulatory data protection). Therefore, a lower-cost generic drug can emerge onto the market much more quickly. Chinese regulators have set forth a framework for integrating patent linkage and data exclusivity into the Chinese regulatory regime, as well as for establishing a pilot program for patent term extension. To be implemented, this framework will require adoption of regulations. To date, the NMPA has issued several draft implementing regulations in this regard for public comment but no regulations have been formally issued. These factors result in weaker protection for us against generic competition in China than could be available to us in the United States until the relevant implementing regulations for extension, patent linkage, or data exclusivity are put into effect officially in China.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our products in all countries throughout the world would be prohibitively expensive. We may also encounter difficulties in protecting and defending such rights in foreign jurisdictions. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the jurisdictions of the registration of our intellectual properties. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products. 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 certain jurisdictions. The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents in such countries.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost 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. 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 develop or license.
We may not be able to protect and enforce our trademarks.
We currently hold issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third-party objection, which could prevent the registration or maintenance of the same. If we are unsuccessful in obtaining trademark protection for our primary brands, we may be required to change our brand names, which could materially adversely affect our business. Moreover, as our products mature, our reliance on our trademarks to differentiate us from our competitors will increase, and as a result, if we are unable to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, or engaging in conduct that constitutes unfair competition, defamation or other violation of our rights, our business could be materially adversely affected. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish
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the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our financial condition or results of operations.
Risks Related to Doing Business in the PRC
Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.
Our operations in China are governed by the PRC laws and regulations. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. In addition, any new PRC laws or changes in PRC laws and regulations related to, among other things, foreign investment and manufacturing in China could have a material adverse effect on our business and our ability to operate our business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy, than in more developed legal systems. These uncertainties may impede our ability to enforce contracts in China and could materially and adversely affect our business and results of operations.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis, or at all, and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business, and impede our ability to continue our operations and proceed with our future business plans.
We may be restricted from transferring our scientific data abroad.
On March 17, 2018, the General Office of the PRC State Council promulgated the Measures for the Management of Scientific Data, or the Scientific Data Measures, which provide a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in China must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties. Further, any researcher conducting research funded, at least in part, by the PRC government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before such data may be published in any foreign academic journal. Currently, as the term "state secret" is not clearly defined, there is no assurance that we can always obtain relevant approvals for sending scientific data (such as the results of our preclinical studies or clinical trials conducted within China) abroad, or to our foreign partners in China.
If we are unable to obtain the necessary approvals in a timely manner, or at all, our research and development of product candidates may be hindered, which may materially and adversely affect our business, results of operations, financial conditions and prospects. If relevant government authorities consider the transmission of our scientific data to be in violation of the requirements under the Scientific Data Measures, we may be subject to specific administrative penalties imposed by those government authorities
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Recent litigation and negative publicity surrounding China-based companies listed in the United States may result in increased regulatory scrutiny of us and negatively impact the trading price of the ADSs and could have a material adverse effect upon our business, including our results of operations, financial condition, cash flows and prospects.
We believe that litigation and negative publicity surrounding companies with operations in China that are listed in the United States have negatively impacted stock prices for these companies. Various equity-based research organizations have published reports on China-based companies after examining their corporate governance practices, related party transactions, sales practices and financial statements, and these reports have led to special investigations and listing suspensions on U.S. national exchanges. Any similar scrutiny of us, regardless of its lack of merit, could result in a diversion of management resources and energy, potential costs to defend ourselves against rumors, decreases and volatility in the ADS trading price, and increased directors and officers insurance premiums and could have an adverse effect upon our business, including our results of operations, financial condition, cash flows and prospects.
Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact our business and operating results.
The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including imposing several rounds of tariffs affecting certain products manufactured in China. In March 2018, U.S. President Donald J. Trump announced the imposition of tariffs on steel and aluminum entering the United States and in June 2018 announced further tariffs targeting goods imported from China. Recently both China and the United States have each imposed tariffs indicating the potential for further trade barriers. It is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry. While we have not started commercialization of product candidates, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our drug products, the competitive position of our drug products, the hiring of scientists and other research and development personnel, and import or export of raw materials in relation to drug development, or prevent us from selling our drug products in certain countries. If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could have an adverse effect on our business, financial condition and results of operations.
You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ADSs.
Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementation rules, PRC withholding tax at the rate of 10% is generally applicable to dividends from PRC sources paid to investors that are resident enterprises outside of China and that do not have an establishment or place of business in China, or that have an establishment or place of business in China but the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of shares by such investors is subject to 10% PRC income tax if this gain is regarded as income derived from sources within China. Under the PRC Individual Income Tax Law and its implementation rules, dividends from sources within China paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by these investors on the transfer of shares are generally subject to 20% PRC income tax. Any such PRC tax liability may be reduced by the provisions of an applicable tax treaty.
Although substantially all of our business operations are in China, it is unclear whether the dividends we pay with respect to our shares or ADSs, or the gains realized from the transfer of our
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shares or ADSs, would be treated as income derived from sources within China and as a result be subject to PRC income tax if we are considered a PRC resident enterprise. If PRC income tax is imposed on gains realized through the transfer of our ADSs or on dividends paid to our non-resident investors, the value of your investment in our ADSs may be adversely affected. Furthermore, our shareholders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under these tax treaties or arrangements.
In addition, pursuant to the Double Tax Avoidance Arrangement between Hong Kong and China, or the Double Tax Avoidance Treaty, and the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the Notice on Tax Treaties, issued on February 20, 2009 by the State Administration of Taxation, or the SAT, if a Hong Kong resident enterprise owns more than 25% of the equity interest of a PRC company at all times during the twelve-month period immediately prior to obtaining a dividend from such company, the 10% withholding tax on such dividend is reduced to 5%, provided that certain other conditions and requirements under the Double Tax Avoidance Treaty and other applicable PRC laws are satisfied at the discretion of the relevant PRC tax authority. However, based on the Notice on Tax Treaties, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, the PRC tax authorities may adjust the preferential tax treatment. Based on the Notice on Issues concerning Beneficial Owner in Tax Treaties, or Circular 9, issued on February 3, 2018 by the SAT and effective on April 1, 2018, when determining the applicant's status as a "beneficial owner" for purpose of tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. If our Hong Kong subsidiary is determined by PRC government authorities as receiving benefits from reduced income tax rates due to a structure or arrangement that is primarily tax-driven, the dividends paid by our PRC subsidiary to our Hong Kong subsidiary will be taxed at a higher rate, which will have an adverse effect on our financial and operational conditions.
The biopharmaceutical industry in China is highly regulated and such regulations are subject to changes which may affect approval and commercialization of our product candidates.
Part of our research and development operations are in China, which we believe confers clinical, commercial and regulatory advantages. The biopharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new product candidates. See "Regulation" for a discussion of the regulatory requirements that are applicable to our current and planned business activities in China. In recent years, the regulatory framework in China regarding the biopharmaceutical industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our product candidates in China and reduce the current benefits we believe are available to us from developing and manufacturing drugs in China. PRC authorities have become increasingly vigilant in enforcing laws in the biopharmaceutical industry and any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities fines, warnings, administrative or criminal penalties in China. We believe our strategy and approach are aligned with the PRC government's regulatory policies, but we cannot ensure that our strategy and approach will continue to be aligned.
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Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the PRC National People's Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaces the trio of existing laws regulating foreign investment in the PRC, namely, the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law, together with their implementation rules and ancillary regulations and become the legal foundation for foreign investment in the PRC. Meanwhile, the Implementation Regulation of the Foreign Investment Law and the Measures for Reporting of Information on Foreign Investment came into effect as of January 1, 2020, which clarified and elaborated the relevant provisions of the Foreign Investment Law.
The Foreign Investment Law sets out the basic regulatory framework for foreign investments and proposes to implement a system of pre-entry national treatment with a negative list for foreign investments, pursuant to which (i) foreign entities and individuals are prohibited from investing in the areas that are not open to foreign investments, (ii) foreign investments in the restricted industries must satisfy certain requirements under the law, and (iii) foreign investments in business sectors outside of the negative list will be treated equally with domestic investments. The Foreign Investment Law also sets forth necessary mechanisms to facilitate, protect and manage foreign investments and proposes to establish a foreign investment information reporting system, through which foreign investors or foreign-invested enterprises are required to submit initial report, report of changes, report of deregistration and annual report relating to their investments to the Ministry of Commerce, or MOFCOM, or its local branches.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws.
We are a company incorporated under the laws of the Cayman Islands, we conduct most of our operations in China, and substantially all of our assets are located in China. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside China. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
Shareholder claims that are common in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the United States have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. See also "Risks Related to the ADSs and this OfferingYou may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law" for risks associated with investing in us as a Cayman Islands company.
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Our business may be negatively affected by the potential obligations to make additional social insurance and housing fund contributions.
We are required by PRC labor laws and regulations, such as the Social Insurance Law, Administrative Regulations on the Housing Provident Fund and other related rules, to pay various statutory employee benefits, including pensions insurance, medical insurance, work-related injury insurance, unemployment insurance, maternity insurance and housing fund, to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate and timely payments of the requisite statutory employee benefits, and employers who fail to make adequate and timely payments may be subject to supplemental contributions, late payment fees, fines compulsory enforcement and/or other penalties. If the relevant PRC authorities determine that we shall make supplemental social insurance and housing fund contributions or that we are subject to fines and legal sanctions in relation to our failure to make social insurance and housing fund contributions in full for our employees, our business, financial condition and results of operations may be adversely affected.
The lease agreements of our leased properties have not been registered with the relevant PRC government authorities as required by PRC law, which may expose us to potential fines.
Under PRC law, lease agreements of commodity housing tenancy are required to be registered with the local construction (real estate) departments. Although failure to do so does not in itself invalidate the leases, the parties of the lease agreements may be exposed to potential fines if they fail to rectify such non-compliance within the prescribed time frame after receiving notice from the relevant PRC government authorities. The penalty ranges from RMB1,000 to RMB10,000 for each unregistered lease, at the discretion of the relevant authority. As of the date of this Prospectus, the lease agreements for our leased properties in China have not been registered with the relevant PRC government authorities. As of the date of this prospectus, we are not aware of any regulatory or governmental actions, claims or investigations being contemplated or any challenges by third parties to our use of our leased properties that the lease agreements of which have not been registered with the government authorities. However, we cannot assure you that the government authorities will not impose fines on us due to our failure to register any of our lease agreements, which may negatively impact our financial condition.
Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options will be subject to these regulations when our company becomes an overseas-listed company upon completion of this offering. Failure to complete the SAFE registrations may subject them to fines and legal sanctions, there may be additional restrictions on the ability of them to exercise their stock options or remit proceeds gained from the sale of their stock into
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the PRC. We also face regulatory uncertainties that could restrict our ability to adopt incentive plans for our directors, executive officers and employees under PRC law.
If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a "de facto management body" within the PRC is considered a "resident enterprise" and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In 2009, SAT issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT's general position on how the "de facto management body" test should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its "de facto management body" in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management and the places where they perform their duties are in the PRC; (ii) decisions relating to the enterprise's financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe that we are not a PRC resident enterprise for PRC tax purposes. See "TaxationPeople's Republic of China Taxation." However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body." If the PRC tax authorities determine that we or any of our non-PRC subsidiaries are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including ADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders (including ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). Any PRC tax liability may be reduced under applicable tax treaties. However, it is unclear whether in practice our non-PRC shareholders would be able to obtain the benefits of any tax treaties between their countries of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or our ordinary shares.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the SAT in 2009 with retroactive effect from January 1, 2008, where a non-resident enterprise transfers the equity interests of
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a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the competent tax authority of the PRC resident enterprise this Indirect Transfer.
On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 supersedes the rules with respect to the Indirect Transfer under SAT Circular 698. SAT Bulletin 7 has introduced a new tax regime that is significantly different from the previous one under SAT Circular 698. SAT Bulletin 7 extends the PRC's tax jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but also transactions involving a transfer of other taxable assets through an offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or another person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise, being the transferor, or the transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a "substance over form" principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or another person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises at Source, or SAT Bulletin 37, which, among others, repealed the SAT Circular 698 on December 1, 2017. SAT Bulletin 37 further details and clarifies the tax withholding methods in respect of income of non-resident enterprises under SAT Circular 698. And certain rules stipulated in SAT Bulletin 7 are replaced by SAT Bulletin 37. Where the non-resident enterprise fails to declare the tax payable pursuant to Article 39 of the PRC Enterprise Income Tax Law, the tax authority may order it to pay the tax due within required time limits, and the non-resident enterprise shall declare and pay the tax payable within such time limits specified by the tax authority; however, if the non-resident enterprise voluntarily declares and pays the tax payable before the tax authority orders it to do so within required time limits, it shall be deemed that such enterprise has paid the tax in time.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is a transferor in such transactions, and may be subject to withholding obligations if our company is a transferee in such transactions, under SAT Bulletin 7 and SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under SAT Bulletin 7 and SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to
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establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
If our preferential tax treatments are revoked, become unavailable or if the calculation of our tax liability is challenged by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions, and our results of operations could be materially and adversely affected.
The Chinese government has provided various tax incentives to our subsidiaries in China. These incentives include reduced enterprise income tax rates. For example, under the Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%. However, the income tax of an enterprise that has been determined to be a technologically advanced service enterprise can be reduced to a preferential rate of 15%. Any increase in the enterprise income tax rate applicable to our PRC subsidiary, or any discontinuation or retroactive or future reduction of any of the preferential tax treatments currently enjoyed by our PRC subsidiary, could adversely affect our business, financial condition and results of operations. In addition, in the ordinary course of our business, we are subject to complex income tax and other tax regulations and significant judgment is required in the determination of a provision for income taxes. Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest and penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected.
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.
Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, the MOFCOM be notified in advance or its approval be obtained in certain situations, such as any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise of Undertakings, issued by the State Council in 2008 and amended in 2018, were triggered. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the PRC National People's Congress, or NPC, which became effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the MOFCOM before they can be completed. In addition, PRC national security review rules which became effective in September 2011 require acquisitions by foreign investors of PRC companies engaged in military-related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.
The M&A Rules requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval, and any
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failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.
Our PRC legal counsel has advised us based on their understanding of the current PRC laws, rules and regulations that the CSRC's approval may not be required for the listing and trading of the ADSs on the Nasdaq Global Market in the context of this offering, given that: (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offering such as this offering contemplated by our Company are subject to the M&A Rules; and (ii) our PRC subsidiary was incorporated as wholly foreign-owned enterprises by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial owners. However, there is uncertainty as to how the M&A Rules will be interpreted or implemented and we cannot assure you that relevant PRC governmental authorities, including CSRC, would reach the same conclusion as our PRC Legal Counsel.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change, including, among other things, any major change of a PRC resident shareholder, name or term of operation of the SPVs, or any increase or reduction of the SPVs' registered capital, share transfer or swap, merger or division. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiary in China. On February 13, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE or its branches. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.
Some of our existing shareholders, each of whom owns our ordinary shares, including but not limited to as a result of exercising share options, are PRC residents under SAFE Circular 37. However, we cannot provide any assurance that these PRC residents comply with our request to make or obtain any applicable registrations or change registration or comply with all of the requirements under SAFE Circular 37 or other related rules. Furthermore, we may not be informed of the identities of all the
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PRC residents holding direct or indirect interest in our company. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned subsidiary in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and we may also be prohibited from injecting additional capital into the subsidiary. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
We may be materially adversely affected if our shareholders and beneficial owners who are PRC entities fail to comply with the relevant PRC overseas investment regulations.
On December 26, 2017, the NDRC promulgated the Administrative Measures on Overseas Investments, or NDRC Order No. 11, which took effect as of March 1, 2018. According to NDRC Order No. 11, non-sensitive overseas investment projects are subject to record-filing requirements with the local branch of the NDRC. On September 6, 2014, MOFCOM promulgated the Administrative Measures on Overseas Investments, which took effect as of October 6, 2014. According to this regulation, overseas investments of PRC enterprises that involve non-sensitive countries and regions and non-sensitive industries are subject to record-filing requirements with a local MOFCOM branch. According to the Circular of the State Administration of Foreign Exchange on Issuing the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, which was promulgated by SAFE on July 13, 2009 and took effect on August 1, 2009, PRC enterprises must register for overseas direct investment with a local SAFE branch.
We may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC entities, and we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC entities has or will comply with our request to complete the overseas direct investment procedures under the aforementioned regulations or other related rules in a timely manner, or at all. If they fail to complete the filings or registrations required by the overseas direct investment regulations, the relevant authorities may order them to suspend or cease the implementation of such investment impose warnings and sanctions and make corrections within a specified time, or limit our ability to distribute dividends and proceeds to our PRC subsidiary, which may adversely affect our business, financial condition and results of operations.
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PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC subsidiary. We also hold certain intellectual properties and outsource certain research and development activities related to these intellectual properties to our subsidiaries. We may in the future make loans or provide guarantee to our PRC subsidiary subject to the approval or registration from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiary in China. Any loans to our wholly foreign-owned subsidiary in China, which are treated as foreign-invested enterprises under PRC law, are subject to foreign exchange loan registrations. In addition, a foreign-invested enterprise, or FIE, shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of an FIE shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks' principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business.
We are a Cayman Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiary for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders for services of any debt we may incur. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiary, which is a wholly foreign-owned enterprise, may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund.
A portion of our revenue was generated by our PRC subsidiary in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us.
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The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China's foreign exchange policies. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. Since October 1, 2016, Renminbi has joined the International Monetary Fund's basket of currencies that make up the Special Drawing Right, or SDR, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
Significant revaluation of the Renminbi may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or the ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.
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Governmental control of currency conversion may limit our ability to utilize our cash balance effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. In the years ended December 31, 2018 and 2019 and nine months ended September 30, 2020, we received a portion of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company primarily relies on previous rounds of private financing to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with applicable laws and regulations, as well as certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiary may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use the cash generated from the operations of our PRC subsidiary to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.
The audit report included in this prospectus is prepared by an auditor that is not inspected by the Public Company Accounting Oversight Board and, as such, our investors are deprived of the benefits of such inspection. In addition, various legislative and regulatory developments related to U.S.-listed China based companies due to lack of PCAOB inspection and other developments due to political tensions between the United States and China may have a material adverse impact on our listing and trading in the U.S. and the trading prices of our ADSs, and we could be delisted if we are unable to meet the PCAOB inspection requirements in time.
Our auditor, the independent registered public accounting firm that issued the audit reports included elsewhere in this prospectus filed with the U.S. Securities and Exchange Commission, or SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with applicable professional standards. Our auditor is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities.
On May 24, 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21,
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2020, the Chairman of the SEC, the Chairman of the PCAOB and certain other SEC divisional heads jointly issued a public statement highlighting the significant disclosure, financial reporting and other risks associated with emerging market investments, including the PCAOB's continued inability to inspect audit work papers in China. The 2018 joint statement and the 2020 public statement reflect a heightened regulatory interest in this issue. In response to the U.S. President Trump's Memorandum on Protecting United States Investors from Significant Risks from Chinese Companies, on August 6, 2020, the U.S. President's Working Group on Financial Markets, or the PWG, released a report where it recommends that the SEC take steps to enhanced listing requirements on companies from certain jurisdictions, such as China, that do not provide the PCAOB with sufficient access to audit working papers. The proposed enhanced listing standards require, as a condition to initial and continued exchange listing, unrestricted PCAOB access to work papers of the principal audit firm for the audit of the listed company. Companies that are unable to satisfy this standard as a result of governmental restrictions may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The proposed new listing standards provide for a transition period until January 1, 2022 for currently listed companies. After this transition period, if currently listed companies were unable to meet the enhanced listing standards, then they would become subject to securities exchange rules and processes that could lead to possible de-listing if not cured. The measures in the PWG report are presumably subject to the standard SEC rulemaking process before becoming effective. On August 10, 2020, the SEC announced that SEC Chairman Jay Clayton had directed the SEC staff to prepare proposals in response to the PWG report, and that the SEC was soliciting public comments and information with respect to these proposals. The PCAOB's inspections of other firms outside China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. However, it remains unclear what additional actions the SEC and the stock exchanges will take in response to the PWG report.
This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in our ADSs are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm's audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in our ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
In addition, as part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China's, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, which if passed, would require the SEC to maintain a list of issuers for which PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the NYSE of issuers included on the SEC's list for three consecutive years. On May 20, 2020, the U.S. Senate passed S. 945, the Holding Foreign Companies Accountable Act, or the Kennedy Bill. On July 21, 2020, the U.S. House of Representatives approved its version of the National Defense Authorization Act for Fiscal Year 2021, which contains provisions comparable to the Kennedy Bill. As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China's, U.S. President Donald J. Trump signed into law on December 18, 2020 the Holding Foreign Companies Accountable Act, which will require the SEC to propose rules within 90 days after its enactment to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded "over the
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counter" if the auditor of the registrant's financial statements is not subject to PCAOB inspection for three consecutive years after the law becomes effective. Enactment of this legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of the ADSs could be adversely affected, and we could be delisted if we are unable to cure the situation to meet the PCAOB inspection requirement in time. It is unclear if and when any of such proposed legislations will be enacted. See "We could be delisted if we are unable to meet the PCAOB inspection requirements in time."
We could be delisted if we are unable to meet the PCAOB inspection requirements in time.
On December 18, 2020, the Holding Foreign Companies Accountable Act was enacted. In essence, the act requires the SEC to prohibit securities of any foreign companies from being listed on U.S. securities exchanges or traded "over-the-counter" if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. Our independent registered public accounting firm is located in and organized under the laws of the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, and therefore our auditors are not currently inspected by the PCAOB.
The enactment of the Holding Foreign Companies Accountable Act and any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of our ADSs could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, we could be delisted from the Nasdaq Global Market and our ADSs will not be permitted for trading "over-the-counter" either. Such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.
Proceedings instituted by the SEC against certain PRC-based accounting firms, including the affiliate of our independent registered public accounting firm, or any related adverse regulatory development in the PRC, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act.
In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC's rules and regulations thereunder by failing to provide to the SEC the firms' audit work papers with respect to certain PRC-based companies that are publicly traded in the United States.
On January 22, 2014, the administrative law judge presiding over the matter rendered an initial decision that each of the firms had violated the SEC's rules of practice by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months.
On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms' audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed
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dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019.
While we cannot predict if the SEC will further challenge the four China-based accounting firms' compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions, if the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our ordinary shares or ADSs or the termination of the registration of our ordinary shares or ADSs under the Exchange Act, or both, which would substantially reduce or effectively terminate the trading of our ordinary shares or ADSs in the United States.
Risks Related to the ADSs and This Offering
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
An active trading market for our ordinary shares or the ADSs may not develop and the trading price for the ADSs may fluctuate significantly.
We have applied to list the ADSs on the Nasdaq Global Market. We have no current intention to seek a listing for our ordinary shares on any stock exchange. Prior to the completion of this offering, there has been no public market for the ADSs or our ordinary shares, and we cannot assure you that a liquid public market for the ADSs will develop. If an active public market for the ADSs does not develop following the completion of this offering, the market price and liquidity of the ADSs may be materially and adversely affected. The initial public offering price for the ADSs will be determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the trading price of the ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.
The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.
The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:
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Any of these factors may result in large and sudden changes in the trading volume and price of the ADSs.
In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management's attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.
The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline.
The sale or availability for sale, or perceived sale or availability for sale, of substantial amounts of the ADSs could adversely affect their market price.
Sales of substantial amounts of the ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. The
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ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. There will be ADSs (equivalent to ordinary shares) outstanding immediately after this offering, or ADSs (equivalent to ordinary shares) if the underwriters exercise their over-allotment option in full. [In connection with this offering, we, our directors and executive officers and our existing shareholders have agreed not to sell any ordinary shares or ADSs for 180 days after the date of this prospectus without the prior written consent of the underwriters, subject to certain exceptions. However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc.] We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs. See "Underwriting" and "Shares Eligible for Future Sale" for a more detailed description of the restrictions on selling these securities after this offering.
Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.
We will adopt amended and restated memorandum and articles of association that will become effective immediately prior to the completion of this offering. Our new memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, including ordinary shares represented by ADSs. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and the ADSs may be materially and adversely affected.
We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree, and such use may not produce income or increase the ADS price.
We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase the ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value. Currently, we do not have any plans, commitments or understandings to acquire complementary business, assets and technologies.
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We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, or to terminate the deposit agreement, without the prior consent of the ADS holders.
We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. We and the depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment are disadvantageous to ADS holders, ADS holders will only receive 30 days' advance notice of the amendment, and no prior consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to terminate the ADS facility at any time for any reason. For example, terminations may occur when we decide to list our shares on a non-U.S. securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility will terminate, ADS holders will receive at least 90 days' prior notice, but no prior consent is required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that is disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying ordinary shares, but will have no right to any compensation whatsoever.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial.
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No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the voting of the underlying ordinary shares represented by your ADSs.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights attached to the ordinary shares underlying your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Where any matter is to be put to a vote at a general meeting, then upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying ordinary shares represented by your ADSs in accordance with your instructions. You will not be able to directly exercise your right to vote with respect to the underlying ordinary shares unless you cancel and withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting.
When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the ordinary shares represented by your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our post-offering memorandum and articles of association that will become effective immediately prior to completion of this offering, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the underlying ordinary shares represented by your ADSs and from becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, upon our instruction the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying ordinary shares represented by your ADSs.
In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the underlying ordinary shares represented by your ADSs are voted and you may have no legal remedy if the underlying ordinary shares represented by your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.
Under the deposit agreement, if you do not vote, the depositary may give us a discretionary proxy to vote the ordinary shares underlying the ADSs at shareholders' meetings if we have timely provided the depositary with notice of meeting and related voting materials and (i) we have instructed the depositary that we wish a discretionary proxy to be given, (ii) we have informed the depositary that there is no substantial opposition as to a matter to be voted on at the meeting, and (iii) a matter to be voted on at the meeting would not have a material adverse impact on shareholders.
The effect of this discretionary proxy is that you cannot prevent the underlying ordinary shares represented by the ADSs from being voted, except under the circumstances described above. This may make it more difficult for ADS holders to influence the management of the company. Holders of ordinary shares are not subject to this discretionary proxy.
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Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.
If you purchase the ADSs in this offering, you will pay more for each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of approximately US$ per ADS, assuming that no outstanding options to acquire ordinary shares are exercised. This number represents the difference between the assumed initial public offering price of US$ per ADS, being the mid-point of the estimated range of the initial offering price shown on the front cover of this prospectus, and our pro forma net tangible book value per ADS as of , 2019, after giving effect to this offering. You may experience further dilution to the extent that our ordinary shares are issued upon exercise of any share options. See "Dilution" for a more complete description of how the value of your investment in ADSs will be diluted upon completion of this offering.
Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of the ADSs for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may, subject to the provisions of our articles of association, by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.
You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933 but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other
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action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
You may experience dilution of your holdings due to the inability to participate in rights offerings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an "emerging growth company."
Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and the Nasdaq Global Market, impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company's internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an "emerging growth company," we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the number of additional costs we may incur or the timing of such costs.
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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2020 Revision) (as amended) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association that will become effective immediately prior to completion of this offering to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulties in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see "Description of Share CapitalDifferences in Corporate Law."
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Our current operations are primarily conducted in China. In addition, some of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of Civil Liabilities."
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As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq listing standards.
As a Cayman Islands company listed on the Nasdaq Global Market, we are subject to the Nasdaq listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq listing standards. We may elect to rely on home country practice to be exempted from the corporate governance requirements. As a result, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Global Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could subject U.S. investors in our ADSs or ordinary shares to significant adverse U.S. federal income tax consequences.
In general, a non-U.S. corporation will be a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income, or the income test, or (ii) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income, or the asset test. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the ordinary shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes interest, dividends, gains from certain property transactions, rents and royalties (other than certain rents or royalties derived in the active conduct of a trade or business). Cash is a
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passive asset for PFIC purposes. Goodwill is an active asset under the PFIC rules to the extent attributable to activities that produce active income.
The assets shown on our balance sheet are expected to consist primarily of cash and cash equivalents for the foreseeable future. Therefore, whether we will satisfy the asset test for the current or any future taxable year will depend largely on the value of our goodwill and on how quickly we utilize the cash in our business. We cannot give any assurance as to whether we will be a PFIC for the current or any future taxable year because (i) the value of our goodwill may be determined by reference to the market price of our ADSs, which may be volatile given the nature and early stage of our business, (ii) we expect to hold a significant amount of cash, and (iii) a company's PFIC status is an annual determination that can be made only after the end of each taxable year. In addition, prior to commercialization of our product candidates, we could be a PFIC for any taxable year in which our interest and other investment income constitutes 75% or more of our total gross income.
If we were a PFIC for any taxable year during which a U.S. investor owns our ADSs or ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. investor. See "TaxationMaterial U.S. Federal Income Tax ConsequencesPassive Foreign Investment Company Rules."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "likely to" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:
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You should read thoroughly this prospectus and the documents that we refer to in this prospectus with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, 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 qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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We estimate that we will receive net proceeds from this offering of approximately US$ million, or approximately US$ million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for the following purposes:
The net proceeds from this offering, together with our cash and cash equivalents, will not be sufficient for us to fund any of our product candidates through regulatory approval, our preclinical development pipeline through Phase I clinical trials, or any product candidates resulting from our discovery pipeline into clinical trials. As a result, we will need to raise additional capital to complete the development and commercialization of our products candidates.
If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. In utilizing the proceeds from this offering, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions, and only if we satisfy the applicable government registration and approval requirements. We cannot assure you that we will be able to meet these requirements on a timely basis, if at all. See "Risk FactorsRisks Related to Doing Business in ChinaPRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business."
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We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. In the future, we may rely on dividends from our subsidiaries, including our PRC subsidiary, for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See "PRC RegulationRegulations on Foreign Exchange and Dividend Distribution."
Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may, subject to the provisions of our post-offering articles of association, by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares."
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The following table sets forth our capitalization as of September 30, 2020:
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You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Notes:
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public offering price and other terms of this offering determined at pricing. Assuming the number of ADSs offered by us as set forth on the cover page of this prospectus remains the same, and after deduction of underwriting discounts and commissions and the estimated offering expenses payable by us, a US$1.00 change in the assumed initial public offering price of US$ per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease each of additional paid-in capital and total shareholders' equity (deficit) by US$ million.
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If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.
Our net tangible book value as of September 30, 2020 was approximately US$ million, or per ordinary share and US$ per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting pro forma as adjusted net tangible book value per ordinary share from the public offering price per ordinary share.
Without taking into account any other changes in such net tangible book value after September 30, 2020, other than to give effect to (i) the conversion of all of our preferred shares into ordinary shares on a one-to-one basis, which will occur automatically immediately prior to the completion of this offering and (ii) our issuance and sale of ADSs offered in this offering at an initial public offering price of US$ per ADS, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2020 would have been approximately US$ million, or US$ per ordinary share and US$ per ADS, to existing shareholders and an immediate dilution in net tangible book value of US$ per ordinary share, or US$ per ADS, to purchasers of ADSs in this offering.
The following table illustrates the dilution on a per ordinary share basis at the initial public offering price per ordinary share is US$ and all ADSs are exchanged for ordinary shares:
|
Per Share | Per ADS | |||||
---|---|---|---|---|---|---|---|
Assumed initial public offering price per ordinary share |
US$ | US$ | |||||
Pro forma net tangible book value per ordinary share after giving effect to the automatic conversion of all of our outstanding preferred shares |
US$ | US$ | |||||
Pro forma as adjusted net tangible book value per ordinary share to give effect to the automatic conversion of all of our outstanding preferred shares and this offering |
US$ | US$ | |||||
Increase in net tangible book value per share attributable to new investors in the offering |
US$ | US$ | |||||
Amount of dilution in pro forma net tangible book value per share to new investors in the offering |
US$ | US$ |
The pro forma information discussed above is illustrative only.
The following table summarizes, on a pro forma as adjusted basis as of September 30, 2020, the differences between the existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or ordinary shares) purchased from us in this offering, the total consideration paid and the average price per ordinary share paid and per ADS at the initial public offering price of US$ per ADS before deducting estimated underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does not include
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ordinary shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.
The discussion and tables above also assume no exercise of any awards outstanding as of the date of this prospectus. As of the date of this prospectus, the aggregate number of our ordinary shares underlying our outstanding awards under the 2019 Plan is 3,601,522, excluding awards that were forfeited, cancelled or exercised after the relevant grant dates. We have not granted any awards under the 2021 Plan. To the extent that any outstanding stock options are exercised, or new awards are issued under our equity incentive plans, or we issue additional equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders and/or holders of ADSs.
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ENFORCEABILITY OF CIVIL LIABILITIES
Cayman Islands
We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We enjoy the following benefits:
However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to, the following:
Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.
Substantially all of our operations are conducted in China, and a significant portion of our assets are located in China. A majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We have appointed Cogency Global Inc., located at 10E 40th Street, 10th Floor, New York, New York 10016, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.
Walkers (Hong Kong), our counsel as to Cayman Islands law, and Tian Yuan Law Firm, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:
We have been advised by our Cayman Islands legal counsel, Walkers (Hong Kong), that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the securities laws of the United States or any State, so
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far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands, will, at common law, recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits of the underlying dispute, based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For such a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty nor inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
PRC
We have been advised by Tian Yuan Law Firm, our PRC legal counsel, that there is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts or Cayman courts obtained against us or these persons predicated upon the civil liability provisions of the U.S. federal and state securities laws. Tian Yuan Law Firm has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law and other applicable laws and regulations based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements. However, it would be difficult for foreign shareholders to establish sufficient nexus to the PRC by virtue only of holding the ADSs or ordinary shares.
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CORPORATE HISTORY AND STRUCTURE
Corporate History
In February 2011, Adagene Inc. was incorporated under the laws of the Cayman Islands as our offshore holding company.
In December 2011, we established Adagene (Hong Kong) Limited, or Adagene Hong Kong, a wholly-owned subsidiary incorporated under the laws of Hong Kong, as our intermediary holding company. In February 2012, Adagene Hong Kong incorporated Adagene (Suzhou) Limited, or Adagene Suzhou, in China, through which we commenced our research and development activities in China.
In September 2017, we established a wholly-owned subsidiary in the state of Delaware, the United States, Adagene Incorporated, to conduct our research and development activities in the United States to facilitate the discovery and development of product candidates and expand our global presence, we have further incorporated several subsidiaries overseas, such as Australia, Singapore and Switzerland.
We are a holding company and do not directly own any substantive business operations in the PRC. We currently focus our business operations within the PRC through Adagene Suzhou. We (Adagene Inc.), however, hold certain intellectual properties and outsource certain research and development activities related to these intellectual properties to our subsidiaries. See "Risk FactorsRisks Related to Doing Business in the PRC."
Corporate Structure
The following diagram illustrates our corporate structure as of the date of this prospectus, including our material subsidiaries:
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for the years ended December 31, 2018 and 2019, summary consolidated balance sheet data as of December 31, 2018 and 2019 and summary consolidated cash flow data for the years ended December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared in accordance with U.S. GAAP. The following selected consolidated statements of comprehensive loss for the nine months ended September 30, 2019 and 2020, selected consolidated balance sheet data as of September 30, 2020 and selected consolidated cash flows data for the nine months ended September 30, 2019 and 2020 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the periods presented. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
Selected Consolidated Statements of Comprehensive Loss Data
The following table presents our selected consolidated statements of comprehensive loss data for the years ended December 31, 2018 and 2019 and our selected unaudited interim condensed
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consolidated statements of comprehensive loss data for the nine months ended September 30, 2019 and 2020.
|
For the Year Ended
December 31, |
For the
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2018 | 2019 | 2019 | 2020 | |||||||||
|
US$ | US$ | US$ | US$ | |||||||||
|
(in thousands)
|
||||||||||||
Revenue: |
|||||||||||||
Licensing revenue |
1,511 | 480 | | 310 | |||||||||
Expenses: |
|||||||||||||
Research and development expenses |
(16,081 | ) | (16,212 | ) | (11,518 | ) | (23,568 | ) | |||||
Administrative expenses |
(2,765 | ) | (3,438 | ) | (2,268 | ) | (7,448 | ) | |||||
| | | | | | | | | | | | | |
Total operating expenses |
(18,846 | ) | (19,650 | ) | (13,786 | ) | (31,016 | ) | |||||
Loss from operations |
(17,335 | ) | (19,170 | ) | (13,786 | ) | (30,706 | ) | |||||
Interest income |
711 | 923 | 712 | 613 | |||||||||
Interest expense |
(91 | ) | (138 | ) | (102 | ) | (114 | ) | |||||
Other income |
902 | 723 | 217 | 655 | |||||||||
Foreign exchange gain (loss), net |
13 | 22 | (68 | ) | (77 | ) | |||||||
Change in fair value of warrant liabilities |
534 | 1,207 | 1,207 | | |||||||||
| | | | | | | | | | | | | |
Loss before income tax |
(15,266 | ) | (16,432 | ) | (11,818 | ) | (29,629 | ) | |||||
Income tax expense |
| | | | |||||||||
Net loss attributable to Adagene Inc.'s shareholders |
(15,266 | ) | (16,432 | ) | (11,818 | ) | (29,629 | ) | |||||
Other comprehensive income (loss): |
|||||||||||||
Foreign currency translation adjustments, net of nil tax |
(11 | ) | 66 | 281 | (215 | ) | |||||||
| | | | | | | | | | | | | |
Total comprehensive loss attributable to Adagene Inc.'s shareholders |
(15,277 | ) | (16,367 | ) | (11,537 | ) | (29,844 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss attributable to Adagene Inc.'s shareholders |
(15,266 | ) | (16,432 | ) | (11,818 | ) | (29,629 | ) | |||||
Deemed contribution from convertible redeemable preferred shareholders |
1,186 | | | | |||||||||
Accretion of convertible redeemable preferred shares to redemption value |
(223 | ) | (246 | ) | (184 | ) | (186 | ) | |||||
| | | | | | | | | | | | | |
Net loss attributable to ordinary shareholders |
(14,303 | ) | (16,678 | ) | (12,002 | ) | (29,815 | ) | |||||
Weighted average number of ordinary shares used in per share calculation: |
|||||||||||||
Basic |
15,159 | 15,178 | 15,173 | 15,757 | |||||||||
Diluted |
15,159 | 15,178 | 15,173 | 15,757 | |||||||||
Net loss per ordinary share |
|||||||||||||
Basic |
(0.94 | ) | (1.10 | ) | (0.79 | ) | (1.89 | ) | |||||
Diluted |
(0.94 | ) | (1.10 | ) | (0.79 | ) | (1.89 | ) |
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Selected Consolidated Balance Sheet Data
The following table presents our selected consolidated balance sheet data as of December 31, 2018 and 2019 and our selected unaudited interim condensed consolidated balance sheet data as of September 30, 2020:
|
As of December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of
September 30, 2020 |
|||||||||
|
2018 | 2019 | ||||||||
|
(in USD thousands)
|
|||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
16,058 | 92,533 | 82,895 | |||||||
Short-term investments |
33,000 | 8,000 | | |||||||
Total current assets |
51,817 | 103,923 | 86,606 | |||||||
Total assets |
54,417 | 105,889 | 89,077 | |||||||
Current liabilities: |
|
|
|
|||||||
Amounts due to related parties |
3,674 | 1,896 | 2,387 | |||||||
Accruals and other current liabilities |
2,574 | 2,540 | 2,789 | |||||||
Short-term borrowings |
2,331 | 717 | 2,203 | |||||||
Total current liabilities |
10,346 |
7,181 |
10,417 |
|||||||
Long-term borrowings |
| 1,516 | 3,135 | |||||||
Total liabilities |
10,488 |
8,697 |
13,610 |
|||||||
Total mezzanine equity |
84,955 | 154,201 | 154,387 | |||||||
Shareholders' deficit: |
|
|
|
|||||||
Ordinary shares (par value of US$0.0001 per share; 500,000,000 and 500,000,000 shares authorized; 15,159,136, 15,193,136 and 16,466,897 shares issued and outstanding as of December 31, 2018 and 2019 and September 30, 2020, respectively) |
2 | 2 | 2 | |||||||
Subscriptions receivable from shareholders |
(197 | ) | (197 | ) | (1,975 | ) | ||||
Additional paid-in capital |
6,405 | 6,790 | 16,500 | |||||||
Accumulated other comprehensive loss |
(411 | ) | (345 | ) | (560 | ) | ||||
Accumulated deficit |
(46,826 | ) | (63,258 | ) | (92,887 | ) | ||||
| | | | | | | | | | |
Total shareholders' deficit |
(41,027 | ) | (57,009 | ) | (78,921 | ) |
Selected Consolidated Cash Flow Data
The following table presents our selected consolidated cash flow data for the years ended December 31, 2018 and 2019 and our selected unaudited interim condensed consolidated cash flow data the nine months ended September 30, 2019 and 2020.
|
Year Ended
December 31, |
Nine Months
Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2018 | 2019 | 2019 | 2020 | |||||||||
|
(in USD thousands)
|
||||||||||||
Net cash used in operating activities |
(14,265 | ) | (18,154 | ) | (11,791 | ) | (19,988 | ) | |||||
Net cash generated (used in) from investing activities |
(29,510 | ) | 24,856 | 18,942 | 7,434 | ||||||||
Net cash generated from financing activities |
51,058 | 69,694 | 16,310 | 3,097 | |||||||||
Effect of exchange rate on cash and cash equivalents |
39 | 78 | 153 | (180 | ) | ||||||||
Net increase in cash and cash equivalents |
7,322 | 76,474 | 23,614 | (9,638 | ) | ||||||||
Cash and cash equivalents at the beginning of year/period |
8,736 | 16,058 | 16,058 | 92,533 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at the end of year/period |
16,058 | 92,533 | 39,673 | 82,895 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
We are a platform-driven, clinical-stage biopharmaceutical company committed to transforming the discovery and development of novel antibody-based cancer immunotherapies. Our platform is designed to generate therapeutic antibody candidates with unique functional epitopes and species cross-reactivity. These features enable our novel drug discovery strategy to advance from lead identification through vigorous preclinical modeling to biomarker-guided mono- and combination immunotherapy development in clinical settings. We have pioneered a dynamic interface design to harness the conformational diversity of antibodies, which enlarges epitope sampling of a given drug target for differentiated therapeutic antibody development. Our platform is designed to enable the rapid development of precision immunotherapy candidates, through the identification of predictive biomarkers for patient stratification and preselection. We aim to push the boundaries of antibody discovery and engineering through the precise design, construction, and selection of antibody product candidates intractable to traditional antibody technology.
We have developed our proprietary Dynamic Precision Library, or DPL, platform to explore the dynamic conformational diversity of protein sequences, and the flexible binding sites of antibody sequences in particular, as a new paradigm for antibody drug discovery. Our DPL platform samples a potentially infinite number of dynamic binding interface structures arising from the conformational diversity of a finite number of antibody amino acid sequences, allowing us to exponentially expand the universe of candidate antibody binding sites far beyond conventional natural or synthetic antibody repertoires. By exploiting conformational diversity through the combination of our proprietary computational algorithms and artificial intelligence, we have designed and precisely constructed approximately one trillion (1012) antibody sequences in our DPL. These antibodies feature broad epitope (the portion of an antigen that are recognized by an antibody) coverage and robust chemistry, manufacturing, and control, or CMC, attributes. Our DPL platform is designed to enable high fidelity translation from preclinical to clinical studies by identifying antibodies well suited for broad species cross-reactivity against the transiently accessible epitopes of challenging targets.
By leveraging our proprietary DPL platform, we have developed a robust pipeline of innovative product candidates in various stages of development, ranging from research and discovery to preclinical and clinical development. Our highly differentiated clinical-stage pipeline consists of ADG106, ADG126 and ADG116. We also have a robust preclinical pipeline in various stages of development.
Since our inception in 2011, our operations have focused on organizing and staffing our company, conducting preclinical studies and clinical trials, business planning, establishing our intellectual property portfolio and raising capital. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have financed operations mainly through the private placements of our preferred shares. From November 2014 to December 2019, we raised an aggregate of US$155.5 million of gross proceeds from issuance of our preferred shares.
Since inception, we have incurred significant operating losses. Our net losses were US$15.3 million and US$16.4 million for the years ended December 31, 2018 and 2019, respectively. For the nine months ended September 30, 2020, our net loss was US$29.6 million. As of September 30, 2020, we
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had accumulated deficit of US$92.9 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
Beginning in January 2020, the emergence and wide spread of COVID-19 has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in the United States and China and elsewhere. Substantially all of our operating and workforce are based in the United States and China. Consequently, the COVID-19 outbreak could potentially delay patient's access to hospital and the progress of our clinical trials, including patient enrollment, which may adversely affect our business operations, financial condition and operating results for 2020. The extent of the impact of the COVID-19 pandemic on our business, operations and regulatory and commercialization timelines will depend on certain developments, including the duration and spread of the outbreak and its impact on clinical trials, regulatory authorities and our key scientific and management personnel as well as its impact on our partners, laboratory sites, and other third parties with whom we collaborate. See "Risk FactorsRisks relating to obtaining regulatory approval of our drug candidatesThe COVID-19 pandemic could adversely impact our business, including our clinical trials." We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our business operations, including those that may be required by government authorities, or that we determine are in the best interests of our employees, partners and shareholders. At this point, the extent to which the COVID-19 pandemic may impact our business, operations and regulatory and commercialization timelines remains uncertain.
Key Components of Results of Operations
Revenue
Licensing revenue. Our licensing revenue is currently comprised of royalties, milestone payments, license fees and reimbursement income. Our licensing and collaboration revenue for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2020 was primarily derived from granting licenses to use and otherwise exploit certain of our intellectual properties. To date, we have not generated any revenue from the sale of products and do not expect to generate any revenue from product sales in the near future.
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Expenses
Research and Development Expenses. Our research and development expenses consist principally of (1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to pre-clinical testing of our technologies under development and clinical trials such as payments to contract research organizations, or CRO, and contract manufacturing organization, or CMO, investigators and clinical trial sites that conduct the clinical studies; (3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation and amortization, and facility related expenses, (4) other research and development expenses.
For the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2019 and 2020, our research and development expenses were US$16.1 million, US$16.2 million, US$11.5 million and US$23.6 million, respectively. The increase is primarily due to increased share-based compensation and expansion of staff and an increase in contract manufacturing costs in light of the progression of the programs.
Our research and development expenses may vary substantially from period to period according to the status of our research and development activities. The timing of expenses is impacted by the commencement of clinical trials and enrollment of patients in clinical trials. Research and development expenses are expected to increase as we advance the clinical development of ADG106, ADG126 and ADG116, and further advance the research and development of our other product candidates. The successful development of our product candidates is uncertain.
The following table summarizes our research and development expenses for our clinical-stage product candidates, preclinical product candidates and research pipeline for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2019 and 2020, respectively.
|
For the Year
Ended December 31, |
For the Nine
Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2018 | 2019 | 2019 | 2020 | |||||||||
|
US$ | US$ | US$ | US$ | |||||||||
|
(in thousands)
|
||||||||||||
ADG106 |
5,145 | 5,742 | 3,609 | 6,528 | |||||||||
ADG126 |
1,210 | 2,326 | 1,169 | 11,315 | |||||||||
ADG116 |
6,812 | 5,329 | 4,630 | 2,537 | |||||||||
Preclinical product candidates, research pipeline and others |
2,914 | 2,814 | 2,110 | 3,188 | |||||||||
Total |
16,081 | 16,212 | 11,518 | 23,568 |
At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
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A change in the outcome of any of these variables with respect to the development of our product candidates or any other current or future product candidates could mean a significant change in the costs and timing associated with the development of such product candidate. For example, if we are required to conduct additional clinical trials or other testing of any of our product candidates beyond those that are contemplated or if we experience significant delays in enrollment in any clinical trials, we could incur significant additional costs and the clinical development timeline for our product candidates may be delayed.
Administrative expenses. Our administrative expenses consist primarily of wages, salaries and benefits for personnel other than research and development staff. We expect our administrative expenses to increase in absolute amount in the foreseeable future as we incur additional costs as a result of operating as a public company and as we advance our product candidates through clinical development, which will also increase our general and administrative expenses.
Interest income
Interest income consists primarily of interest income derived from our term deposit.
Other income
Other income primarily includes government subsidies that Adagene Suzhou received from local government in the PRC. The receipt of such government subsidies is not dependent on our performance of any obligations.
Taxation
Cayman Islands
We were incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income, corporation or capital gains tax in the Cayman Islands. In addition, our payment of dividends, if any, is not subject to withholding tax in the Cayman Islands.
Hong Kong
Our subsidiaries in Hong Kong, including Adagene (Hong Kong) Limited, our wholly-owned subsidiary, are subject to Hong Kong profits tax on their activities conducted in Hong Kong at a uniform tax rate of 16.5%. Under Hong Kong tax law, our subsidiary in Hong Kong is exempted from income tax on their foreign-derived income and there is no withholding tax in Hong Kong on remittance of dividends. No provision for Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax during fiscal years 2019 or 2020.
PRC
Our subsidiaries in China are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Pursuant to the PRC Enterprise Income Tax Law, or EIT Law, which became effective on January 1, 2008, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. In accordance with the implementation rules of EIT Law, a qualified Technology Advanced Service Enterprises, or TASE, is eligible for a preferential tax rate of 15%. The TASE certificate is effective for three years. An entity must file required supporting documents with the tax authority and ensure fulfillment of the relevant TASE criteria before using the preferential rate. An entity could apply for
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the TASE certificate every year. Adagene Suzhou was first recognized as a qualified TASE in March 2015 and renewed in December 2018. Adagene Suzhou can enjoy the preferential tax rate of 15% from 2015 to 2021. In addition, the research and development expenses of Adagene Suzhou are subject to a 75% super-deduction for the income tax. The enterprise income tax is calculated based on the entity's global income as determined under PRC tax laws and accounting standards.
We are subject to VAT at a rate of 3%, 6%, or 13% on the services we provide and related surcharges. We are also subject to surcharges on VAT payments in accordance with PRC law.
As a Cayman Islands holding company, we may receive dividends from Adagene Suzhou. The PRC EIT Law and its implementing rules provide that dividends paid by a PRC entity to a nonresident enterprise for income tax purposes is subject to PRC withholding tax at a rate of 10%, subject to reduction by an applicable tax treaty with China. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to apply the reduced withholding tax rate: (i) it must be a company; (ii) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (iii) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Nonresident Taxpayers to Enjoy Treatment under Tax Treaties, or SAT Circular 35, which became effective on January 1, 2020, 2015. SAT Circular 35 provides that nonresident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, nonresident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, Adagene (Hong Kong) Limited may be able to benefit from the 5% withholding tax rate for the dividends it receives from its PRC subsidiaries, if it satisfies the conditions prescribed under SAT Circular 81 and other relevant tax rules and regulations. However, according to SAT Circular 81 and SAT Circular 35, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a "resident enterprise" under the PRC EIT Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See "Risk FactorsRisks Related to Doing Business in ChinaIf we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders."
Results of Operations
The following table summarizes our consolidated results of operations for the periods presented. This information should be read together with our consolidated financial statements and related notes
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included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
|
For the Year Ended
December 31, |
For the Nine Months
Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2018 | 2019 | 2019 | 2020 | |||||||||
|
US$ | US$ | US$ | US$ | |||||||||
|
(in thousands)
|
||||||||||||
Revenue: |
|||||||||||||
Licensing revenue |
1,511 | 480 | | 310 | |||||||||
Expenses: |
|||||||||||||
Research and development expenses |
(16,081 | ) | (16,212 | ) | (11,518 | ) | (23,568 | ) | |||||
Administrative expenses |
(2,765 | ) | (3,438 | ) | (2,268 | ) | (7,448 | ) | |||||
| | | | | | | | | | | | | |
Total operating expenses |
(18,846 | ) | (19,650 | ) | (13,786 | ) | (31,016 | ) | |||||
Loss from operations |
(17,335 | ) | (19,170 | ) | (13,786 | ) | (30,706 | ) | |||||
Interest income |
711 | 923 | 712 | 613 | |||||||||
Interest expense |
(91 | ) | (138 | ) | (102 | ) | (114 | ) | |||||
Other income |
902 | 723 | 217 | 655 | |||||||||
Foreign exchange gain (loss), net |
13 | 22 | (68 | ) | (77 | ) | |||||||
Change in fair value of warrant liabilities |
534 | 1,207 | 1,207 | | |||||||||
| | | | | | | | | | | | | |
Loss before income tax |
(15,266 | ) | (16,432 | ) | (11,818 | ) | (29,629 | ) | |||||
Income tax expense |
| | | | |||||||||
| | | | | | | | | | | | | |
Net loss attributable to Adagene Inc.'s shareholders |
(15,266 | ) | (16,432 | ) | (11,818 | ) | (29,629 | ) | |||||
Other comprehensive income (loss): |
|||||||||||||
Foreign currency translation adjustments, net of nil tax |
(11 | ) | 66 | 281 | (215 | ) | |||||||
| | | | | | | | | | | | | |
Total comprehensive loss attributable to Adagene Inc.'s shareholders |
(15,277 | ) | (16,367 | ) | (11,537 | ) | (29,844 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss attributable to Adagene Inc.'s shareholders |
(15,266 | ) | (16,432 | ) | (11,818 | ) | (29,629 | ) | |||||
Deemed contribution from convertible redeemable preferred shareholders |
1,186 | | | | |||||||||
Accretion of convertible redeemable preferred shares to redemption value |
(223 | ) | (246 | ) | (184 | ) | (186 | ) | |||||
| | | | | | | | | | | | | |
Net loss attributable to ordinary shareholders |
(14,303 | ) | (16,678 | ) | (12,002 | ) | (29,815 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average number of ordinary shares used in per share calculation: |
|||||||||||||
Basic |
15,159 | 15,178 | 15,173 | 15,757 | |||||||||
Diluted |
15,159 | 15,178 | 15,173 | 15,757 | |||||||||
Net loss per ordinary share |
|||||||||||||
Basic |
(0.94 | ) | (1.10 | ) | (0.79 | ) | (1.89 | ) | |||||
Diluted |
(0.94 | ) | (1.10 | ) | (0.79 | ) | (1.89 | ) |
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
Licensing revenue
Our licensing revenue increased from nil for the nine months ended September 30, 2019 to US$0.3 million for the nine months ended September 30, 2020. Our licensing revenue generated in the nine months ended September 30, 2020 are a payment from Celgene (now Bristol-Myers Squibb), in connection with providing certain sequences related to antibody discovery services to Celgene.
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Research and development expenses
The following table sets forth a breakdown of the major components of our research and development expenses in absolute amounts and as a percentage of our total research and development expenses for the periods indicated:
|
For the Nine Months Ended
September 30 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||||||||
|
US$ | % | US$ | % | |||||||||
|
(in thousands, except percentages)
|
||||||||||||
Research and development expenses |
|||||||||||||
Payroll and other related costs of personnel |
3,349 | 29.1 | % | 9,847 | 41.8 | % | |||||||
Costs related to clinical trials |
1,869 | 16.2 | % | 3,110 | 13.2 | % | |||||||
Costs related to preclinical testing |
3,780 | 32.8 | % | 7,143 | 30.3 | % | |||||||
Costs to develop the product candidates |
1,173 | 10.2 | % | 1,414 | 6.0 | % | |||||||
Other research and development expenses |
1,347 | 11.7 | % | 2,054 | 8.7 | % | |||||||
| | | | | | | | | | | | | |
Total |
11,518 | 100.0 | % | 23,568 | 100.0 | % | |||||||
| | | | | | | | | | | | | |
Our research and development expenses increased by 104.6% from US$11.5 million for the nine months ended September 30, 2019 to US$23.6 million for the nine months ended September 30, 2020, primarily attributable to (i) an increase of US$6.5 million in payroll and other related costs of personnel primarily due to increased share-based compensation and expansion of staff and (ii) an increase of US$4.6 million in costs related to preclinical testing and clinical trials primarily due to increased contract manufacturing costs in light of the progression of the programs.
Administrative expenses
Our administrative expenses increased by 228.4% from US$2.3 million for the nine months ended September 30, 2019 to US$7.4 million for the nine months ended September 30, 2020, primarily attributable to (i) an increase of US$1.5 million in employee compensations due to an increase in average payroll and an increase in the number of employees and (ii) an increase of US$2.9 million in the share-based compensation expenses.
Loss from operations
As a result of the foregoing, our loss from operations increased by 122.7% from approximately US$13.8 million in the nine months ended September 30, 2019 to approximately US$30.7 million in the nine months ended September 30, 2020.
Interest income
Our interest income was US$0.6 million for the nine months ended September 30, 2020, as compared to US$0.7 million for the nine months ended September 30, 2019, representing a decrease of US$0.1 million. This decrease was primarily attributable to a decrease of cash balance and amount of short-term investments.
Other income
Our other income increased from US$0.2 million for the nine months ended September 30, 2019 to US$0.7 million for the nine months ended September 30, 2020, primarily attributable to (i) an increase in government subsidies received by Adagene Suzhou to support our ongoing operations in Jiangsu Province during the nine months ended September 30, 2020 and (ii) an exclusivity payment from ADC Therapeutics pursuant to our collaboration arrangement with ADC Therapeutics, which is not related to our major operation activities.
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Foreign exchange loss, net
Our net foreign exchange loss decreased by 13.8% from US$67.7 thousand for the nine months ended September 30, 2019 to US$77.0 thousand for the nine months ended September 30, 2020. This loss of foreign exchange was primarily attributable to the weakening of Renminbi against U.S. dollars which negatively impacted our Renminbi denominated portfolio held by Adagene Suzhou. This improvement was primarily due to the positive effect of the fluctuation of Reminbi against U.S. dollars.
Change in fair value of warrant liabilities
We recorded a gain from change in the fair value of warrant liabilities of US$1.2 million for the nine months ended September 30, 2019 and of nil for the nine months ended September 30, 2020. The change was primarily because the warrants to subscribe Series C-2 Preferred Shares expired on April 1, 2019.
Net loss attributable to Adagene Inc.'s shareholders
As a result of the foregoing, our net loss for the period increased by 150.7% from US$11.8 million for the nine months ended September 30, 2019 to US$29.6 million for the nine months ended September 30, 2020.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Licensing revenue
Our licensing revenue decreased by 68.2% from US$1.5 million in 2018 to US$0.5 million in 2019. For the year ended December 31, 2018, we received a payment of US$1.5 million from Guilin Sanjin Group Co., Ltd., or Sanjin, pursuant to our out-licensing arrangement. The relevant rights under the license were granted to Sanjin in 2018. For the year ended December 31, 2019, we recognized a US$0.5 million service fee received from Celgene in connection with providing certain sequences related to antibody discovery services.
Research and development expenses
The following table sets forth a breakdown of the major components of our research and development expenses in absolute amounts and as a percentage of our total research and development expenses for the periods indicated:
|
For the year ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||||||||
|
US$ | % | US$ | % | |||||||||
|
(in thousands, except percentages)
|
||||||||||||
Research and development expenses |
|||||||||||||
Payroll and other related costs of personnel |
4,039 | 25.1 | % | 4,880 | 30.1 | % | |||||||
Costs related to clinical trials |
997 | 6.1 | % | 3,361 | 20.7 | % | |||||||
Costs related to preclinical testing |
8,020 | 49.9 | % | 4,726 | 29.2 | % | |||||||
Costs to develop the product candidates |
1,790 | 11.1 | % | 1,599 | 9.9 | % | |||||||
Other research and development expenses |
1,255 | 7.8 | % | 1,645 | 10.1 | % | |||||||
| | | | | | | | | | | | | |
Total |
16,081 | 100 | % | 16,212 | 100 | % | |||||||
| | | | | | | | | | | | | |
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Our research and development expenses remained relatively stable and increased by 0.8% from US$16.1 million in 2018 to US$16.2 million in 2019, which was mainly attributable to an increase of clinical costs associated with the Phase I clinical trial of ADG106 and ADG116, partially offset by a decrease of contract manufacturing costs, due to ADG106's advance from preclinical development stage into clinical trial stage.
Administrative expenses
Our administrative expenses increased by 24.3% from US$2.8 million in 2018 to US$3.4 million in 2019. The increase was primarily due to the increase in the employee compensation due to a rise in average payroll and an increase in the number of employees.
Loss from operations
As a result of the foregoing, our loss from operations increased by 10.6% from approximately US$17.3 million in 2018 to approximately US$19.2 million in 2019.
Interest income
Our interest income was US$0.9 million in 2019, as compared to US$0.7 million in 2018, representing an increase of US$0.2 million. This increase was primarily attributable to the increase of the balance of fixed deposits.
Other income
Our other income was US$0.7 million in 2019, as compared to US$0.9 million in 2018, representing a decrease of US$0.2 million. This decrease was primarily due to the decrease in government subsidies during the year of 2019.
Foreign exchange gain, net
Our net foreign exchange gain increased by 72.2% from US$12.7 thousand to US$21.9 thousand, primarily attributable to further appreciation of Renminbi against U.S. dollars in 2019 following 2018.
Change in fair value of warrant liabilities
We recorded a gain from change in the fair value of warrant liabilities of US$0.5 million and US$1.2 million in 2018 and 2019, respectively. The change in the fair value of warrant liabilities was primarily attributable to the change in fair value of warrants due to the passage of time as approaching to the expiration date of the warrants.
Net Loss attributable to Adagene Inc.'s shareholders
As a result of the foregoing, our net loss increased by 7.6% from US$15.3 million in 2018 to US$16.4 million in 2019.
Liquidity and Capital Resources
Since the inception, we have incurred net losses and negative cash flow from our operations. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval and subsequently commercialize one of our current or future drug candidates. We expect to
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incur additional operating losses in the near future and our operating expenses will increase as we continue to expand our research and development capabilities, invest in preclinical tests and clinical trials and increase our efforts in obtaining regulatory approvals. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing and manufacturing. Moreover, following the completion of this offering, we expect to incur additional costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations.
Historically, we have financed our operations principally through proceeds from the issuance and sale of preferred shares in private placement transactions. For more information of our equity financing, see "Description of Share CapitalHistory of Securities Issuances." As of September 30, 2020, we had US$82.9 million in cash and cash equivalents. Our cash and cash equivalents consist primarily of bank deposits and highly liquid investments, which have original maturities of three months or less when purchased. In February 2019, we entered into a three-year bank facility agreement with Shanghai Pudong Development Bank, pursuant to which we are entitled to borrow up to RMB7.5 million at a fixed annual interest rate of 5.46%, and as of the date of this prospectus, the outstanding balance due under such facility was RMB5.9 million. In June 2019, we entered into another three-year bank facility agreement with the same bank, pursuant to which we are entitled to borrow up to RMB6.0 million at a fixed annual interest rate of 5.23%, and as of the date of this prospectus, the outstanding balance due under such facility was RMB4.7 million. In addition, in June 2020, we borrowed a loan with amount of RMB10.0 million from Agricultural Bank of China Limited for a term of one year and at the interest rate of 4.20% per annum. In September 2020, we borrowed a one-year term loan with amount of RMB5.0 million from Bank of Ningbo Co., Ltd. at the interest rate of 4.20% per annum. In September 2020, we also entered into a three-year bank facility agreement with Shanghai Pudong Development Bank, pursuant to which we are entitled to borrow up to RMB16.5 million at a fixed annual interest rate of 4.27%, as of the date of this prospectus, the outstanding balance due under such facility was RMB16.5 million. In November 2020, we entered into two one-year term loans with amount of RMB5.0 million each from China Merchant Bank Co., Ltd. at the interest rate of 4.10% per annum, as of the date of this prospectus, the outstanding balance due under such facilities was RMB10.0 million.
We intend to finance our future working capital requirements and capital expenditures primarily from funds raised from financing activities, including the net proceeds we will receive from this offering.
Based on our current operating plan, we believe that our current cash and cash equivalents and proceeds from this offering will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. In that time, we expect that our expenses will increase substantially as we fund new and ongoing research and development activities and working capital needs. The assumptions on which our estimates are based may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our product candidates.
In utilizing the proceeds that we expect to receive from this offering, we may make capital contributions to our subsidiaries in PRC, the United States, Australia, Hong Kong, Singapore and Switzerland, acquire or establish new subsidiaries, or give loans to our subsidiaries. However, uses of the proceeds by our PRC subsidiary are subject to PRC regulations. See "Risk FactorsRisks Relating to Doing Business in ChinaPRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us
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from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business." and "Use of Proceeds."
Our operations are primarily based in China. A significant portion of our transactions are settled in Renminbi and our financial statements are presented in U.S. dollars. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign currencies for current account items, including profit distributions, interest payments and trade- and service-related foreign exchange transactions, without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.
The following table presents our selected consolidated cash flow data for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2019 and 2020.
|
For the
Year Ended December 31, |
For the
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2018 | 2019 | 2019 | 2020 | |||||||||
|
US$
|
US$
|
US$
|
US$
|
|||||||||
|
(in thousands)
|
||||||||||||
Net cash used in operating activities |
(14,265 | ) | (18,154 | ) | (11,791 | ) | (19,988 | ) | |||||
Net cash (used in) generated from investing activities |
(29,510 | ) | 24,856 | 18,942 | 7,434 | ||||||||
Net cash generated from financing activities |
51,058 | 69,694 | 16,310 | 3,097 | |||||||||
Effect of exchange rate on cash and cash equivalents |
39 | 78 | 153 | (180 | ) | ||||||||
Net increase in cash and cash equivalents |
7,322 | 76,474 | 23,614 | (9,638 | ) | ||||||||
Cash and cash equivalents at the beginning of year/period |
8,736 | 16,058 | 16,058 | 92,533 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at the end of year/period |
16,058 | 92,533 | 39,673 | 82,895 | |||||||||
| | | | | | | | | | | | | |
Operating activities
Net cash used in operating activities was US$20.0 million in the nine months ended September 30, 2020. The difference between our net loss of US$29.6 million and the net cash used in operating activities was mainly due to (i) an increase in prepayments and other current assets of US$1.8 million due to our prepaid service fees to our vendor, and (ii) a decrease in contract liabilities of US$0.1 million, partially offset by (i) an increase in share-based compensation of US$8.0 million, (ii) an increase in accounts payable of US$0.5 million (iii) a decrease in accounts receivable of US$0.5 million and (iv) an increase in accruals and other current liabilities of US$0.2 million.
Net cash used in operating activities was US$18.2 million in 2019. The difference between our net loss of US$16.4 million and the net cash used in operating activities was mainly due to (i) a decrease in amount due to related parties of US$1.8 million due to our payment of services fees to Wuxi Biologics, (ii) an increase in amount due from related parties of US$0.7 million, and (iii) change in fair value of warrant liabilities of US$1.2 million, partially offset by depreciation and amortization of US$0.8 million.
Net cash used in operating activities was US$14.3 million in 2018. The difference between our net loss of US$15.3 million and the net cash used in operating activities was mainly due to (i) an increase in prepayments and other current assets of US$1.3 million, (ii) a decrease in accruals and other current liabilities of US$0.9 million, and (iii) a decrease in fair value of warrant liabilities of US$0.5 million,
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partially offset by (i) an increase in amount due to related parties of US$2.1 million, (ii) an increase in accounts payable of US$0.4 million, and (ii) depreciation and amortization of US$0.9 million.
Investing activities
Net cash generated from investing activities was US$7.4 million in the nine months ended September 30, 2020, which was primarily attributable to (i) withdrawal of short-term investments of US$8.0 million and (ii) proceeds from disposal of property, equipment and software of US$0.01 million, partially offset by purchase of property, equipment and software of US$0.6 million.
Net cash generated from investing activities was US$24.9 million in 2019, which was primarily attributable to withdrawal of short-term investments of US$44.0 million, partially offset by placement of short-term investments of US$19.0 million.
Net cash used in investing activities was US$29.5 million in 2018, which was primarily attributable to placement of short-term investments of US$58.0 million, partially offset by withdrawal of short-term investments of US$29.0 million.
Financing activities
Net cash generated from financing activities was US$3.1 million in the nine months ended September 30, 2020, which was mainly attributable to proceeds from borrowings of US$4.5 million, partially offset by repayment of borrowings of US$0.9 million.
Net cash generated from financing activities was US$69.7 million in 2019, which was mainly attributable to proceeds from issuance of convertible redeemable preferred shares and warrants of US$69.0 million, partially offset by repayment of borrowings of US$2.4 million.
Net cash generated from financing activities was US$51.1 million in 2018, which was mainly attributable to proceeds from issuance of convertible redeemable preferred shares and warrants of US$50.0 million, partially offset by repayment of borrowings of US$1.4 million.
Capital Expenditures
Our capital expenditures are incurred primarily in connection with research and development equipment. Our capital expenditures were US$0.5 million, US$0.2 million and US$0.6 million, respectively, in 2018, 2019 and the nine months ended September 30, 2020. We intend to fund our future capital expenditures with our existing cash balance and proceeds from this offering. We will continue to make capital expenditures to meet the expected growth of our business.
Commitments
The following table sets forth our commitments as of December 31, 2019.
|
Payments Due by Years Ending | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total |
Less than
1 year |
1 - 3 years | 3 - 5 years |
More than
5 years |
|||||||||||
|
(in thousands)
|
|||||||||||||||
Short-term and long-term borrowings |
2,555 | 1,039 | 1,516 | | | |||||||||||
| | | | | | | | | | | | | | | | |
Operating Leases(1) |
257 | 174 | 83 | | | |||||||||||
| | | | | | | | | | | | | | | | |
Total commitments |
2,812 | 1,213 | 1,599 | | | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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Holding Company Structure
Adagene Inc. is a holding company with no material operations of its own. Adagene Inc. holds certain intellectual properties and outsources certain research and development activities related to these intellectual properties to its subsidiaries. We conduct our operations primarily through our subsidiaries. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
In addition, our subsidiary in China is permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. Pursuant to the law applicable to China's foreign investment enterprise, our subsidiaries that are foreign investment enterprises in the PRC have to make appropriation from their after-tax profit, as determined under PRC GAAP, to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our subsidiary. Appropriation to the other two reserve funds are at our subsidiary's discretion.
As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to our PRC subsidiaries only through loans or capital contributions, and to our consolidated affiliated entity only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. See "Risk FactorsRisks Related to Doing Business in ChinaPRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business." As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries when needed.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Critical Accounting Policies, Judgments and Estimates
Basis of presentation
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
Principles of Consolidation
Our consolidated financial statements include the financial statements of Adagene Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.
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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, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in our consolidated financial statements include, but are not limited to, the useful lives and impairment of long-lived assets, tax valuation allowance, share-based compensation expenses and the fair value of warrant liabilities. Management bases the estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.
Foreign currency translation
The functional currency of Adagene Inc., Adagene (Hong Kong) Limited and Adagene Incorporated is the U.S. dollar, or US$. The functional currency of our PRC subsidiary is Renminbi, or RMB. The functional currency of our Australia subsidiary is Australian dollar, or AU$. The determination of the respective functional currency is based on the criteria stated in Accounting Standard Codification, or ASC, 830, Foreign Currency Matters. We use US$ as our reporting currency. The financial statements of our PRC subsidiary and Australia subsidiaries are translated from the functional currency to the reporting currency.
Transactions denominated in foreign currencies are re-measured into the functional currency at the exchange rates quoted by the People's Bank of China, or the PBOC, prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical costs in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of comprehensive loss.
Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as accumulated comprehensive loss and are shown as a separate component of other comprehensive loss in the consolidated statements of comprehensive loss.
Revenue recognition
At contract inception of collaboration and out-licensing arrangement, we analyze the arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements or ASC 808, to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently.
Under the criteria of Accounting Standard Codification, or ASC, 606, Revenue from Contracts with Customers (Topic 606), or ASC 606, we recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. We adopted ASC 606 for all periods presented. To determine revenue recognition for arrangements that an entity determines are within the scope of
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ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect substantially all the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. We review the contract to determine which performance are distinct and represent a promise to provide distinct goods or services or a series of distinct goods or services as defined by the standard. We recognize as revenue the amount of the transaction price that is allocated to each performance obligation as and when that performance obligation is satisfied.
Licenses of Intellectual Property: Upfront non-refundable payments for licensing our intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, we recognize revenues from non-refundable, up-front fees allocated to the license at a point in time, when the transfer of control of the license to the licensee occurs and the licensee is able to use and benefit from the license.
Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and to the extent that a significant reversal of cumulative revenue would not occur in future periods, estimates the amount to be included in the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
To date, no milestone payments or royalty payments were received. Substantially all of our revenue has been derived from its out-licensing agreements with respect to licensed products such as DNA sequences, cell lines, etc., and such revenues are recognized when the customer obtains control of the licensed product, which occurs at a point in time, upon delivery to the customer.
Contract assets and contract liabilities: When a customer pays consideration before we transfer products or services, we record our obligation as a contract liability; when we satisfy our performance obligations by providing products or services to a customer before the customer pays consideration and before payment is due, we recognize our rights to consideration as a contract asset.
Fair value measurements
We apply ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair value measurements. ASC 820
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establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2Includes other inputs that are directly or indirectly observable in the marketplace.
Level 3Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
The carrying amounts of cash and cash equivalent, short-term investments, accounts receivable, amounts due to related parties and other current assets, accounts payable, amounts due to related parties, accrued liabilities and other current liabilities and short-term borrowings approximate their fair values because of their generally short maturities. The carrying amount of long-term borrowings approximate their fair values since they bear interest rates which approximate market interest rates.
We measured our warrant liabilities at fair value on a recurring basis. As our warrants are not traded in an active market with readily observable prices, we use significant unobservable inputs to measure the fair value of warrant liabilities. These instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement.
The following table presents a reconciliation of all financial instruments measured at fair value on a recurring basis using Level 3 unobservable inputs:
We did not transfer any assets or liabilities in or out of Level 3 during the year ended December 31, 2018 and 2019.
We had no financial assets and liabilities measured and recorded at fair value on a nonrecurring basis as of December 31, 2018 and 2019.
Research and development expenses
Elements of research and development expenses primarily include (1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to pre-clinical testing of our technologies under development and clinical trials such as payments to contract research organizations, or CRO, and contract manufacturing organizations, or CMO, investigators and clinical trial sites that conduct the clinical studies; (3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation and amortization, and facility related expenses,
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(4) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to our research and development services and have no alternative future uses. As of December 31, 2019, we have several ongoing clinical studies in various clinical trial stages. The contracts with CRO and CMO are generally cancellable, with notice, at our option. We did not record any accrued expenses related to cancellation of CRO or CMO contracts as of December 31, 2019 as we did not have any plan to cancel the existing CRO or CMO contracts.
Income taxes
We follow the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes, or ASC 740. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.
We evaluate our uncertain tax positions using the provisions of ASC 740, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements.
We recognize in the consolidated financial statements the benefit of a tax position which is "more likely than not" to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. It is our policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.
We have incurred net accumulated operating losses for income tax purposes since our inception. We believe that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, we have provided full valuation allowances for the deferred tax assets as of December 31, 2018 and 2019. There was no income tax expense for the years ended December 31, 2018 and 2019, as our subsidiaries did not have any taxable profits.
Share-based compensation
We grant restricted shares and stock options to eligible employees and nonemployees and accounts for share-based compensation in accordance with ASC 718, CompensationStock Compensation.
Share-based compensation awards are measured at the grant date fair value of the awards and recognized as expenses a) immediately at the grant date if no vesting conditions are required; or b) for share-based awards granted with only service conditions, using the straight-line method over the vesting period; or c) for share-based awards granted with service conditions and performance conditions, using the graded vesting method over the vesting period if and when the company concludes that it is probable that the performance conditions will be achieved.
A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. We calculate incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested awards, we recognize incremental compensation cost in the period when the modification occurs. For awards not being fully vested, we recognize the sum of the incremental compensation expense and the remaining unrecognized
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compensation expense for the original awards over the remaining requisite service period after modification.
The fair value of share options was determined using the binomial option valuation model, with the assistance from an independent third-party appraiser. The binomial model requires the input of highly subjective assumptions, including the expected volatility, the exercise multiple, the risk-free rate and the dividend yield. For expected volatility, we have made reference to historical volatility of several comparable companies in the same industry. The exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested share options. The risk-free rate for periods within the contractual life of the share options is based on the market yield of U.S. Treasury Bonds in effect at the time of grant. The dividend yield is based on the expected dividend policy over the contractual life of the share options. The estimated fair value of the ordinary shares, at the share option grant dates, was determined with the assistance from an independent third-party appraiser. Our management is ultimately responsible for the determination of the estimated fair value of its ordinary shares.
The assumptions used to estimate the fair value of the share options granted are as follows:
|
|
For the nine months
ended September 30 |
||||
---|---|---|---|---|---|---|
|
For the year ended
December 31, 2019 |
|||||
|
2019 | 2020 | ||||
Risk-free interest rate |
1.78%-2.73% | 2.73% | 0.71%-0.83% | |||
Dividend yield |
0% | | | |||
Expected volatility range |
67.5%-71.0% | 71.0% | 72.3%-73.1% | |||
Exercise multiple |
2.2-2.8 | 2.2 | 2.2-2.8 | |||
Contractual life |
10 years | 10 years | 10 years |
Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of comprehensive loss over the period of the borrowings using the effective interest method.
Internal Control Over Financial Reporting
Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with the audit of our consolidated financial statements as of and for the three fiscal years ended December 31, 2018 and 2019, our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting as at December 31, 2019. As defined in standards established by the PCAOB, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The two material weaknesses that have been identified related to:
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Such material weaknesses, if not timely remedied, may lead to significant misstatements in our consolidated financial statements in the future.
To remediate our identified material weakness, we are in the process of adopting several measures to improve our internal control over financial reporting, including (i) hiring more qualified accounting personnel, with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and setting up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; and (iii) preparing comprehensive accounting policies, manuals and closing procedures to improve the quality and accuracy of our period-end financial closing process.
We expect that we will incur significant costs in the implementation of such measures. However, we cannot assure you that all these measures will be sufficient to remediate our material weakness in time, or at all. See "Risk factorsRisks Relating to Our OperationsIf we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected."
As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company's internal control over financial reporting.
Quantitative and Qualitative Disclosure about Market Risk
Interest rate risk
Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We have not used any derivative financial instruments to manage our interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.
Foreign exchange risk
We are a global business enterprise with part of our operations based in the PRC. A part of our transactions were settled in Renminbi, and our financial statements are presented in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risks should be limited, the value of your investment in the ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because a portion of value of our business is effectively denominated in Renminbi, while the ADSs representing our ordinary shares will be traded in U.S. dollars.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China's political and economic conditions and by China's foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation subsided and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the
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Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. While appreciating approximately by 7% against the U.S. dollar in 2017, the Renminbi in 2018 depreciated approximately by 5% against the U.S. dollar. Since October 1, 2016, the US$ has joined the International Monetary Fund (IMF)'s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen and the British pound. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no guarantee that the RMB will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amounts available to us.
We estimate that we will receive net proceeds of approximately US$ million from this offering, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, based on the assumed initial offering price of US$ per ADS, the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus.
Inflation risk
Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2018 and 2019 were increases of 1.9% and 4.5%, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.
Recently Issued Accounting Pronouncements
For detailed discussion on recent accounting pronouncements, see Note 2 to our Consolidated Financial Statements.
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OVERVIEW
We are a platform-driven, clinical-stage biopharmaceutical company committed to transforming the discovery and development of novel antibody-based cancer immunotherapies. Our platform is designed to generate therapeutic antibody candidates with unique functional epitopes and species cross-reactivity as highlighted by our immunotherapy pipeline. These features enable our novel drug discovery strategy to advance from lead identification through vigorous preclinical modeling to biomarker-guided mono- and combination immunotherapy development in clinical settings. We have pioneered a dynamic interface design to harness the conformational diversity of antibodies, which enlarges epitope sampling of a given drug target for differentiated therapeutic antibody development. We aim to push the boundaries of antibody discovery and engineering through the precise design, construction, and selection of antibody product candidates intractable to traditional antibody technology.
Life is motion. The motion of proteins and their dynamic interactions trigger a cascade of complex biological and pharmacological effects. Our core technology is built upon our fundamental understanding of the role that protein folding and the motion of molecules play in giving rise to dynamic conformational diversity, where an amino acid sequence can adopt multiple structures and functions. Our approach recognizes that a protein's native state is not accurately represented by a single static structure but rather by a variety of structures in dynamic equilibrium, resulting in a high level of functional diversity, in contrast to the conventional static antibody drug discovery paradigm of "one sequence, one structure and one function."
We have developed our proprietary AI-Powered DPL platform to explore the dynamic conformational diversity of protein sequences, and the flexible binding sites of antibody sequences in particular, as a new paradigm for antibody drug discovery. Our DPL platform combines artificial intelligence, or AI, algorithms and ever-increasing big data in antibody sequence, structure, binding epitope and affinity from public and our own proprietary databases to design, construct and screen high-quality proprietary antibody libraries with well-defined sequence, scaffold and biophysical attributes for antibody drug discovery. Powered by computational physics in combination with AI and big data, our DPL platform samples a potentially infinite number of dynamic binding interface structures arising from the conformational diversity of a finite number of antibody amino acid sequences, allowing us to exponentially expand the universe of candidate antibody binding sites far beyond conventional natural or synthetic antibody repertoires. By exploiting conformational diversity, we have designed and precisely constructed approximately one trillion (1012) antibody sequences in our DPL. These antibodies feature broad epitope (the portion of an antigen that are recognized by an antibody) coverage and robust chemistry, manufacturing, and control, or CMC, attributes.
We believe our AI-powered antibody discovery and engineering DPL platform significantly increase R&D productivity for antibody drug discovery, as illustrated by our clinical anti-CD137 and anti-CTLA-4 programs. DPL library screening against CD137 or CTLA-4 antigens has yielded a large number of high affinity primary hits. The abundant discovery hits with diversified binding epitopes show the power of our AI-powered DPL platform not only in creating novel antibodies in targeting different epitopes of a given antigen, but also in targeting the conserved epitope across different species of a given antigen with broad species cross-reactivity from human, monkey to mouse, which enables us to study their efficacy and safety in extensive immuno-competent or syngeneic animal models, to explore their pharmacodynamics and predictive biomarkers in responding vs nonresponding tumor models in vivo, and to understand their deep target biology and novel MOA before testing them in human clinical trials to look for their clinical signals consistent with their MOA. Our DPL platform empowers us to engage the dynamic epitope of the conformationally dynamic target which might be challenging using conventional antibody discovery approaches. We believe that the high-affinity and cross-reactive primary hits from our AI-Powered DPL library screening save time and cost from discovery to early clinical
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proof of concept. The broad species cross-reactivity of the primary hits also streamlines lead identification and potentially enables high fidelity translation from preclinical to clinical studies. Furthermore, we believe our AI-powered dynamic precision library expands the diversity at the start of discovery to maximize the chance that suitable leads are found on the first pass and improve the probability of success for the overall R&D process.
Translational fidelity from preclinical modeling to informed clinical development is one of the top challenges to developing cancer immunotherapies. Most traditionally developed antibodies do not cross react between their human and murine targets due to their limited species cross-reactivity, making it very difficult to reliably evaluate the same antibody in both the preclinical and clinical settings. Some of the most contentious issues related to preclinical and clinical studies of CD137 and CTLA-4, the targets of our lead product candidates, immunotherapies are traceable to the differences between the antibodies used for preclinical and clinical studies. For example, according to Frost & Sullivan, two of the leading clinical anti-CD137 agonist antibodies bind to different epitopesc and exhibit dramatic differences in their respective clinical safety and efficacy results, underscoring the importance of finding suitable species cross-reactive antibodies like those we have utilized for comprehensive preclinical evaluation before entering clinical trials.
We believe that it is essential to model the interactions between tumors and an intact host immune system in vivo to evaluate the therapeutic potential of antibodies in preclinical studies. The flexibility of antibody binding interface is fundamental to the NEObody technology of our DPL Platform and allows us to generate species cross-reactive antibodies to assess the safety and efficacy potential of mono- and combination therapy candidates in syngeneic animal models before launching clinical trials. We use syngenic animal models which are known for their intact in vivo immune systems to provide the original proof of concept for cancer immunotherapies by blocking immune check points with monoclonal antibodies, or mAbs. We believe that the use of species cross-reactive antibodies, rather than surrogate antibodies used in traditional syngeneic mouse models, should facilitate the translational relevance and clinical utility of these well-established preclinical models for determining optimal dose, schedule, sequencing, combination synergy, risk and benefit features. The results from the assessment of new species cross-reactive antibodies in rigorous preclinical models may allow us to control the scope and cost of clinical trials, enable the identification of potential clinical biomarkers useful to monitor clinical pharmacological and safety signals, and help preselect patients for precision mono- and combination therapies.
The figure below illustrates how our DPL platform integrates our computational algorithm-enabled high-throughput screening and functional antibody evaluation for preclinical candidates suitable for clinical development as explained above.
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Our DPL platform is further composed of three proprietary enabling technologies tailored to three key attributes of antibody-based therapeutic modalities:
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We believe that comprehensive in vivo preclinical evaluations are the key to assess the efficacy and safety potential of tailor-made antibody candidates before progressing them into lengthy and costly clinical trials. NEObody, SAFEbody and POWERbody technologies are all designed to facilitate favorable druggability, manageable CMC attributes, and reduced immunogenicity. As highlighted by our lead product candidates, such as ADG106, ADG126 and ADG116, our NEObody technology allows us to engineer and select species cross-reactive NEObodies designed to dynamically adapt to unique and evolutionally conserved epitopes. ADG126 has been further engineered using our SAFEbody technology to address the safety concerns associated with existing CTLA-4 therapeutics.
The figure below shows how our NEObody, SAFEbody, and POWERbody technologies on the one hand and DPL platform on the other hand are inter-connected and utilized for the building of our product pipeline of mono- and combination immunotherapies.
Notes:
Our most advanced NEObody product candidate, ADG106, is a fully human ligand-blocking agonistic anti-CD137 mAb currently being evaluated in Phase Ib clinical trials in the United States and China. ADG106 is designed to target a unique epitope of CD137 that is different from other anti-CD137 antibodies currently under clinical development. Epitope mapping and X-ray structural analysis of ADG106 with CD137 have shown in preclinical studies that ADG106 is capable of binding to CD137 in a fashion similar to its natural ligand, CD137L. Our first SAFEbody product candidate, ADG126, is a fully human anti-CTLA-4 masked antibody designed to address the safety concerns associated with existing CTLA-4 therapeutics. It is designed to enhance the safety features by masking the antibody binding site of ADG126, which would be unmasked in the TME, where the activated ADG126 would block CTLA-4 and deplete regulatory T-cells by means of enhanced antibody-
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dependent cellular cytotoxicity, or ADCC. In preclinical studies, ADG126 was tolerated at doses of up to 200 mg/kg in nonhuman primate models. As ADG126 is also species cross-reactive in humans, cynomolgus monkeys and mice, we believe that preclinical studies of ADG126 will support the rational design of clinical trials to expedite its development. Our third product candidate, ADG116, is a fully human anti-CTLA-4 NEObody. Epitope mapping and X-ray structural analysis have shown that in preclinical studies, ADG116 is capable of binding to a novel epitope of CTLA-4 different from ipilimumab, the only CTLA-4 mAb approved globally. The dynamic interface of ADG116 enabled not only its species cross-reactivity with human, cynomolgus monkey, and mouse CTLA-4 for preclinical studies, but also its dynamic engagement on a unique epitope of CTLA-4 to trigger a novel MOA distinct from ipilimumab by softer ligand blocking and stronger regulatory T-cell depletion via strong ADCC.
Our species cross-reactive ADG106, ADG126 and ADG116 have enabled a deep understanding of the interaction between tumor and host immune system in vivo in syngeneic animal models. This understanding has been utilized to design and guide the clinical development of rational, mechanism-based mono- and combination therapies using ADG106, ADG126 and ADG116. Because there is limited clinical safety and efficacy data available for anti-CD137 agonists, we have followed our preclinical and mechanistic study for the clinical development of ADG106. We observed three patients with Grade 3 liver enzyme increase; among them, one patient with abnormal liver enzyme baseline showed a Grade 3 AST increase. ADG106 showed preliminary clinical antitumor activity in patients who have progressed after several lines of treatment in our completed Phase Ia dose escalation and ongoing Phase Ib dose expansion trials in the United States and China. It is very encouraging to observe the clinical response in connection with the changes in PD biomarkers due to target engagement in a dose dependent manner. We have also observed a correlation with a potential predictive biomarker for patient selection in three patients with more than 30% tumor shrinkage across different indications in retrospective analysis in our ongoing Phase I trials. This predictive biomarker is related to the CD137 pathway. We intend to further explore this predictive biomarker in order to guide our development of precision mono- and combination immunotherapies based on our preclinical and preliminary clinical data.
Our Pipeline
By leveraging our proprietary DPL platform, we have developed a robust pipeline of innovative product candidates in various stages of development, ranging from research and discovery to preclinical and clinical development. Our highly differentiated clinical-stage pipeline consists of ADG106, ADG126 and ADG116. We also have a robust preclinical pipeline in various stages of development. In addition, we have out-licensed the Greater China rights of ADG104, a PD-L1 mAb under clinical development, to our partner, Sanjin. We have the right to apply for the patents derived from our core and key technologies pertaining to ADG104 in the rest of the world and we retain a majority of the economic benefits derived from ADG104 in the rest of the world.
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The following chart provides an overview of the status of each of our clinical-stage and IND-enabling study stage programs at clinical or IND-enabling stages, for which we have global rights.
ADG106: Novel agonistic anti-CD137 NEObody candidate
ADG106, is a fully human ligand-blocking, agonistic anti-CD137 immunoglobulin G4, or IgG4, mAb generated using our NEObody technology. ADG106 is being developed for the treatment of advanced solid tumors and non-Hodgkin's lymphoma, or NHL. CD137 stimulates the immune system to attack cancer cells and is a key driver for T-cell and natural killer cell, or NK cell, proliferation. ADG106 is designed to target a unique conserved epitope of CD137 with a novel MOA for CD137 agonism by its natural ligand-like binding and potent cross-linking by Fcg receptors. The broad species cross-reactivity of ADG106 observed in preclinical studies has enabled us to explore robust translational studies concerning the biology of CD137 in mouse, rat, nonhuman primate, and human, especially for anti-CD137 as a single agent and in combination therapies in immuno-competent syngeneic tumor models. In preclinical studies to date, we observed that ADG106 had encouraging antitumor activity and was well tolerated as a monotherapy and in combination with the existing standard-of-care, or SOC, and other immuno-oncology therapies, which was confirmed in the Phase I clinical trials in cancer patients as a monotherapy. These data indicate that ADG106 has the potential to address the limitations of other existing anti-CD137 therapies.
As of the November 30, 2020, the Data Cut-off Date, we have completed the Phase Ia dose escalation in each of our Phase I studies of ADG106 in both the United States and China as a monotherapy in patients with advanced or metastatic solid tumors and/or NHL. We are currently in the Phase Ib dose expansion phase for both trials in the United States and China. ADG106 was dose escalated up to 10 mg/kg and is well tolerated at dose expansion at 3 mg/kg, 5 mg/kg and at 300mg and 400 mg flat doses. A total number of 92 patients have been dosed. Both clinical trials, namely ADG106-1001 and ADG106-1002, have limited Treatment Emergent Adverse Effects, or TEAEs, liver toxicity or hematologic abnormalities. We observed three patients with ³Grade 3 liver enzyme increase; among them, one patient with abnormal liver enzyme baseline showed a Grade 3 AST increase. Two patients developed hemolytic anemia in ADG106-1002 which were controlled; one of the two patients received prior therapies which were known to cause autoimmune hemolytic anemia. One patient with a solid tumor who previously failed chemotherapies, radiotherapy, and an anti-PD-L1 related antibody treatment showed a partial response to ADG106 treatment with a 40% tumor size reduction after two treatment cycles. In addition, two NHL patients showed more than a 30% tumor size reduction after
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one and two ADG106 treatment cycles, respectively. Furthermore, biomarker studies showed target engagement with specific PD biomarkers indicative of immune system activation, and clinical response correlated with changes in CD137 target engagement. These data are encouraging given that the enrolled population was not preselected and was heavily pretreated. We have identified a potential predictive biomarker which correlates with patient response to ADG106 treatment from a retrospective analysis of the ongoing Phase I clinical trial. Based on this finding, we are in the process of preparing an additional Phase II trial which we expect to initiate in 2021 and for which we intend to stratify and preselect patients using this predictive biomarker to potentially enhance clinical response of patients to ADG106 treatment. We also plan to pursue potential registrational trials evaluating ADG106 in biomarker enriched patient populations.
We have also evaluated ADG106 in combination with other therapies including chemotherapies, immune modulators, and immuno-oncology therapies in preclinical studies. Data from combination studies in tumor bearing mice showed that the combination of ADG106 with immune checkpoint inhibitors, including an anti-PD-1/L1 mAb or anti-CTLA-4 mAb, enhanced in vivo antitumor activity. We plan to explore the combination of ADG106 with other targeted antibody therapies for the treatment of hematologic malignancies and solid tumors. We also have identified tumor-specific biomarkers that we believe may correlate with ADG106 antitumor activity in multiple mouse tumor models. These preclinical study findings are consistent with the interim results from our ongoing Phase Ib clinical trials.
Going forward, we are focusing on evaluating combinations of ADG106 with various therapies in clinical trials. We have received NMPA approval for the ADG106-1008 study in China, which is a Phase Ib/II combination trial of ADG106 with anti-PD-1 in advanced solid tumors and hematological malignancies. We are also in the preparation for a submission of a Clinical Trial Notification, or CTN, for our ADG106-1003 clinical trial in Australia, which will combine ADG106 with anti-PD-1, and other therapies in advanced solid tumors and hematological malignancies.
We have observed responses to ADG106 in all three T cell lymphoma patients enrolled in the ADG106-1002 Phase I trial. We are enrolling additional patients in our ADG106-1002 trial and will conduct an investigator initiated trial in the United Sates to further explore ADG106 as a monotherapy and in combination with other therapies in T cell lymphoma. We expect to submit an Orphan Drug Designation application to the FDA for ADG106 requesting for an expedited regulatory pathway for this indication. The diagram below illustrates our clinical development plan for ADG106:
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ADG126: Novel anti-CTLA-4 SAFEbody candidate
Our most advanced SAFEbody program, ADG126, is a masked fully-human anti-CTLA-4 mAb engineered to address the safety concerns associated with existing CTLA-4 therapeutics, while maintaining potency when locally activated in the TME. The FDA approval of ipilimumab validated anti-CTLA-4 for cancer treatment. However, due to its on-target off-tumor toxicity, the approved indications for ipilimumab are limited, which we believe has caused sales of ipilimumab to trail other immuno-oncology therapies such as anti-PD-1/L1 antibodies.
ADG126 is designed to address the toxicity and efficacy issues related to the MOA of existing approved CTLA-4 immuno-oncology therapies and to expand the potential of CTLA-4 as a target for the treatment of cancer. In preclinical studies, ADG126 was tolerated at doses of up to 200 mg/kg in nonhuman primate models. We believe the encouraging preclinical tolerability of ADG126 suggests its potential in combination with other immunotherapies such as an anti-PD-1/PD-L1 antibody or an anti-CD137 antibody, including ADG106.
To better address the unmet clinical need for a safe and potent anti-CTLA-4 antibody for chemotherapy-free mono- and combination immunotherapy, we have submitted a CTN and received HREC approval for an ADG126 Phase I dose escalation trial in Australia and are expecting to commence patient enrollment by February 2021. We also have received approval from the FDA to initiate the Phase I clinical trial of ADG126 in the United States in 2021. These two Phase I dose escalation trials will test five doses at 0.1, £0.3, £1, £3, and £10 mg/kg, based on our preclinical primate toxicity study in comparison with ipilimumab. We anticipate that these clinical trials will allow us to determine the ADG126 effective dose in late 2021. Meanwhile, we are preparing IND submissions to initiate ADG126 clinical trials in China. The diagram below illustrates our clinical development plan for ADG126:
ADG116: Novel anti-CTLA-4 NEObody candidate
ADG116 is a fully-human ligand-blocking anti-CTLA-4 mAb generated using our NEObody technology. ADG116 is designed to target a unique conserved epitope of CTLA-4. In preclinical studies, ADG116 was observed to have softer CTLA-4 ligand blocking and stronger ADCC for depleting regulatory T-cells than ipilimumab. In a head-to-head in vivo efficacy study, ADG116 was observed to have a five-fold greater preclinical potency in comparison with ipilimumab. In addition, ADG116 was observed to induce antitumor responses concomitant with reduced immunosuppressive
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regulatory T-cell and enhanced cytotoxic T lymphocyte (CD8+ T-cells) activities in the TME. We believe that these preclinical results support the further clinical evaluation of ADG116 both as monotherapy and combination therapy for a wide range of tumor types, as illustrated in the diagram below.
As of January 15, 2021, we have successfully completed dose escalation at the first three doses in ADG116-1003 clinical trial in Australia, including dose level at 0.03mg/kg, the dose level used for the first patient who suffered a fatal incident in the ADG116 Phase I trial in the United States. As of January 15, 2021, no dose limiting toxicity or treatment related serious adverse events have been observed in any of the patients treated. There was no treatment induced liver toxicity and all three patients treated at 0.03mg/kg showed normal liver enzyme level post ADG116 treatment. The Safety Review Committee approved dose escalation for ADG116-1003 clinical trial to 0.1mg/kg. The ADG116-1001 Phase I trial in the United States was placed on clinical hold on September 30, 2019 by the FDA, after we reported to the FDA the death of the only patient dosed in the trial. The FDA removed the clinical hold on December 5, 2019 after we submitted an amendment to the study protocol.
Our Global Partnerships and Collaborations
We have a successful track record of collaborations and partnerships with global biopharmaceutical companies and academic institutions. So far, we have established multiple collaboration programs and will continue to seek partnership opportunities where we can leverage our proprietary technology platform to develop novel antibodies to address unmet medical needs. Over the past two years, we have established partnerships and collaborations with multiple biopharmaceutical companies.
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monospecific antibody that targets PD-L1 and is in Phase Ib and Phase II clinical trials concurrently in China, and the second being an undisclosed monoclonal antibody, which Sanjin and its affiliates have recently filed an IND application that has been accepted by the NMPA;
We are also working with global biopharmaceutical companies to potentially develop additional strategic partnerships.
Our Team and Investors
We were founded in 2011 by Dr. Peter Luo and is led by an experienced management team. Dr. Luo, who previously founded the biopharmaceutical company Abmaxis which was subsequently acquired by Merck, has a proven track record of more than two decades in antibody discovery and engineering using a multidisciplinary approach that combines computational and experimental technology based on physical, chemical, and biological sciences. Our management team is composed of industry veterans with extensive experience in therapeutic antibody research and development and collectively has decades of experience in molecular biology, immunotherapy, immunology, antibody discovery, protein engineering, and clinical development. Our management team brings a strong history of leadership, innovation, and research and development experience at leading companies, including Merck/Abmaxis, Affomix/Illumina, Amgen, AnaptysBio, Bristol-Myers Squibb, Celgene, Corixa, Forty Seven Inc., Xencor, Novartis, Pfizer, Prometheus, Quanticel, and Teva Biopharmaceuticals. Our company is further supported by a strong group of investors that share our commitment to developing next-generation immuno-oncology therapies for the treatment of cancers. Our investors include leading institutional investors such as F-Prime, Eight Roads, General Atlantic, GP Healthcare Capital, Sequoia China and Wuxi AppTec.
OUR STRATEGIES
We are utilizing our proprietary DPL platform to design, construct and develop novel immunotherapies and precision antibodies to address unmet patient needs globally. Our strategy encompasses the following key elements:
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obtained authorization from the Australian Therapeutic Goods Administration under a CTN for ADG126, our second-generation CTLA-4 antibody that is designed to activate in the TME, for a Phase I trial in Australia and expect to commence patient enrollment as soon as possible. The FDA also authorized us to proceed with our ADG126-1001 Phase I trial in the United States, subject to submission of a revised agreed-upon protocol to the FDA. We expect both trials to support our global development for our SAFEbody ADG126. In addition, we obtained authorization from the Australian Therapeutic Goods Administration under a CTN to start a Phase I trial of ADG116 in July 2020. Five patients at three different dose levels were subsequently dosed. We intend to use clinical data collected from the Australia trial to facilitate effective clinical development in the United States. We intend to continue to explore the use of our product candidates as monotherapies by focusing on different tumor types and as combination therapies by conducting combination studies with various immuno-oncology agents, such as an anti-PD-1/L1 mAb. We are planning to expand the cohorts in our clinical trials with patients with responsive cancer types or biomarker enriched patients to seek expedited development in the United States and China. We plan to further assess the combination of ADG106 and an anti-PD-1/L1 mAb, or anti-CTLA-4 mAb for the treatment of solid tumors and hematologic malignancies in a clinical setting. We intend to build a CTLA-4 franchise by exploring the use of our product candidates as tolerable and potent monotherapies and in combination therapies with other cancer therapies, such as chemotherapy, targeted small molecule drugs, multiple-tyrosine kinase inhibitor drugs and other immune checkpoint inhibitors.
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ANTIBODIES FOR THE TREATMENT OF CANCER
Cancer treatment has traditionally included chemotherapy, radiation, surgery or a combination of these approaches. Small molecule target therapy can be effective in certain types of cancer, but they can also cause toxicities that may have life-threatening consequences, lower quality of life or untimely termination of treatment. Furthermore, these small molecule agents offer limited efficacy in many types of cancer. Over the last 20 years, a new paradigm of cancer research and treatment has emerged that involves targeted therapies, including mAbs. Monoclonal antibodies are proteins derived from living organisms that bind to targets, called antigens, on tumor cells to inhibit tumor growth. As a product class, immunotherapeutic mAbs have transformed oncology treatment and represent some of the most effective and top selling immunotherapies currently approved by the FDA and available on the market. The success of conventional immunotherapeutic mAbs has been hindered by limited efficacy and by safety and tolerability concerns. Administration of these mAbs may cause systemic side effects, as well as localized, organ-specific damage. Much of this toxicity is a direct consequence of the fact that healthy tissues express some of the same antigens that conventional immunotherapeutic mAbs target on cancerous cells.
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More recently, immuno-oncology has emerged as a promising new field of cancer therapy that aims to enhance antitumor immune responses by, for example, overcoming mechanisms that cancer cells have developed to evade the immune system. Some cancer cells overly express proteins, called immune checkpoints, which apply brakes to the immune system, and enable the tumor cells to evade destruction. Immune checkpoint inhibitors nivolumab, pembrolizumab and ipilimumabantibodies targeting these immune inhibitory proteinsrelease these brakes to allow the immune system to destroy tumor cells. These drugs have shown promising efficacy and are currently being explored for multiple solid and hematological cancer indications. Although these drugs have demonstrated promising results, only a minority of patients receive durable benefit from treatment with these mAbs alone. Most recently, combination regimens of immunotherapy agents have demonstrated signs of improved efficacy in larger numbers of patients. However, many of these combinations have significant toxicity and tolerability issues, due in part to the activation of the immune system in both healthy and cancerous environments.
In the past decade, new modalities of highly potent mAb-based therapies have emerged. ADCs represent one such modality. These agents are comprised of two functional units chemically fused or conjugated to each other: a cytotoxic drug payload and a mAb. ADCs combine the targeting abilities of the antibody with the cancer-killing ability of cytotoxic drugs, leading to better specificity in targeting tumor cells compared to traditional chemotherapy. Bispecific antibodies, another class of second-generation biologics, have the ability to simultaneously bind a cancer cell and a T-cell, leading to the destruction of the cancerous cell by the T-cell. This ability improves the potency of bispecific antibodies compared to first-generation immunotherapeutic mAbs.
While all of these potent new therapies have shown promise, none addresses a key limitation of antibody-based therapeuticsexpression of targets in healthy tissue, which leads to off-tumor toxicity and limits clinical use.
OUR PIPELINE
By leveraging our proprietary DPL platform, we have developed a robust pipeline of innovative product candidates in various stages of development, ranging from research and discovery to preclinical and clinical development. Our highly differentiated pipeline consists of our lead clinical-stage candidates, ADG106, ADG126 and ADG116. We also have a robust preclinical pipeline in various stages of development. In addition, we have out-licensed the Greater China rights of ADG104, a PD-L1 mAb in Phase Ib and Phase II trials concurrently in China to our partner Sanjin. We have the right to apply for the patents derived from our core and key technologies pertaining to ADG104 in the rest of the world and we retain a majority of the economic benefits derived from ADG104 in the rest of the world.
ADG106: Novel Agonistic Anti-CD137 NEObody Candidate
Summary
Our lead product candidate, ADG106, is a fully human ligand-blocking, agonistic anti-CD137 IgG4 mAb designed to target a unique conserved epitope of CD137. As of the Data Cut-off Date, we have completed the Phase Ia dose escalation in each of our Phase I studies of ADG106 as a monotherapy in patients with advanced or metastatic solid tumors and/or NHL in both the United States and China. ADG106 was well-tolerated in the completed Phase Ia dose escalation of the Phase I clinical trials. Early efficacy signals were also observed with tumor size reduction, significant target modulations and increased T-cell and NK proliferation, consistent with MOA.
Mechanism of Action
CD137 is a member of the tumor necrosis factor, or TNF, receptor superfamily. As illustrated in the figure below, the binding of an antibody to this receptor induces a co-stimulatory signal on activated enhanced cytotoxic T lymphocyte, or CD8+ T-cells, and natural killer, or NK cells, resulting in proliferation, and increased pro-inflammatory cytokine secretion and cytolytic function. CD137 co-stimulation is a clinically validated pathway for T-cell activation and its antitumor response is highlighted by the approval of a CD137-targeting CAR-T therapy by the FDA. Because most tumors are killed by cytotoxic T-cells in an antigen specific manner, we believe agents that mediate CD8+ T-cell activation can impart strong cytolytic activity. Therefore, we believe that CD137 agonists are promising candidates with potential to enhance and mediate long lasting antitumor immunity.
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ADG106 is designed to bind to activated human CD4+ and CD8+ T-cells with low nanomolar affinity and block CD137 ligand binding in a concentration-dependent manner to disable its reverse signaling. As shown in the figure below, ADG106 is designed to target a unique conserved epitope of CD137 with a novel MOA for CD137 agonism by its natural ligand-like binding and potent cross-linking by Fcg receptors. ADG106 has not been observed to bind to unstimulated naïve T-cells, which have no detectable level of CD137 expression. ADG106 is also designed to bind to activated NK cells to boost their cytotoxic and ADCC functions.
Notes:
"APC" refers to antigen-presenting cells;
"DC" refers to dendritic cells.
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The MOA of ADG106 in tumor TME is illustrated below.
Notes:
"DC" refers to denritic cells;
"Treg" refers to regulatory T-cell.
Market Opportunity and Competition
CD137 is an inducible costimulatory receptor expressed on activated T-cells in the TME. Agonistic mAbs targeting CD137 have been developed to harness CD137 signaling for cancer immunotherapy. An anti-CD137 agonist would possess the potential to target a wide spectrum of cancer types both as a monotherapy and in combination with various other therapies, especially in the chemotherapy-free setting, including anti-PD-1, anti-PD-L1 and anti-CTLA-4 antibodies, three proven immune checkpoint inhibitors. Although we believe there is compelling evidence that supports the therapeutic potential of a CD137 agonist, there are currently no marketed CD137 agonist drugs. According to Frost & Sullivan, there are two advanced CD137 agonist antibodies in clinical development. However, clinical development of one of these antibodies has been hampered by inflammatory liver toxicity, despite initial signs of efficacy. The other CD137 antibody under clinical development has demonstrated better safety features, but is a less potent CD137 agonist. One of the key challenges of CD137 agonist clinical development is CD137 agonist specific toxicity. Previous clinical trials have shown CD137 antibodies cause immune anomalies, notably polyclonal activation of CD8+ T-cells and secretion of inflammatory cytokines, which affect the function of the liver, spleen, and bone marrow. We believe that it is therefore critical to develop therapeutic candidates that are designed to maximize potency of CD137 agonism while minimizing CD137 agonist specific toxicity.
According to the Frost & Sullivan Report, the global CD137 monoclonal antibody market will emerge in 2023 and is estimated to reach US$0.6 billion and US$7.2 billion in 2024 and 2035 respectively, with a CAGR of 25.4% from 2024 to 2035. The China CD137 monoclonal antibody market is estimated to emerge in 2028 and is expected to grow to US$1.3 billion in 2035.
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Global and China CD137 Antibody Market, 2019-2035E
Source: Frost & Sullivan Report
Summary of Clinical Trial Data
Overview: We have completed Phase Ia dose escalation and are conducting cohort expansion in each of our two Phase I trials of ADG106 as a monotherapy in patients with advanced or metastatic solid tumors and/or NHL in the United States, or the ADG106-1001 clinical trial, and in China, or the ADG106-1002 clinical trial. As of the Data Cut-off Date, ADG106 was dose escalated up to 10 mg/kg and had been observed to be well-tolerated at dose expansion at 3 mg/kg, 5 mg/kg and at 300 mg and 400 mg flat doses for a total number of 92 patients dosed. Liver enzyme elevation of ³ Grade 3 was reported in three patients, with one determined to be not treatment related. We also observed tumor shrinkage in some patients.
Trial Design: Our Phase I clinical trials were designed to evaluate the safety and tolerability of ADG106, as well as its pharmacokinetics, or PK, immunogenicity, and preliminary clinical response. There were two parts to the dose escalation study: the accelerated titration phase at 0.03, 0.1, and 0.3 mg/kg and a conventional "3+3" dose escalation phase at 1, 3, 5 and 10 mg/kg. ADG106 was administered once every three weeks by intravenous infusion.
Dose-expansion cohorts started at dose levels that were observed to be well-tolerated in the dose escalation phase and showed evidence of clinical and biological activities. Patients with advanced or metastatic solid tumors or NHL, who were refractory or relapsed after exhausting almost all available therapies, were enrolled for a maximum of 24 months unless they withdrew earlier due to disease progression, intolerable toxicity, or withdrawal of consent. The protocol allowed for up to 52 patients in ADG106-1001 and 124 patients in ADG106-1002 to be enrolled in the accelerated titration, dose escalation, and dose expansion phases.
The primary objective of the Phase I clinical trials, including both the dose escalation phase and dose expansion phase, is to assess safety and tolerability at increasing dose levels of ADG106 as a monotherapy in patients with advanced or metastatic solid tumors and/or NHL. The secondary objectives of the Phase I clinical trial are to characterize the PK profile of ADG106 and to evaluate the immunogenicity of ADG106 and potential antitumor activity of ADG106. An exploratory objective of such Phase I clinical trial is to identify potential biomarkers of patients who respond to treatment with ADG106.
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The endpoints of ADG106 Phase I trial are:
Primary endpoint:
Secondary endpoints:
Status: As of Data Cut-off Date, the Phase Ia dose escalation portion of the ADG106-1001 Phase I clinical trial in the United States and the ADG106-1002 Phase I clinical trial in China had been completed and the Phase Ib/II dose expansion phase for both trials was ongoing. We plan to complete the Phase I trials and initiate biomarker-driven global Phase II trials in 2021.
As of the Data Cut-off Date, 92 patients were enrolled, among whom 35 patients were enrolled and treated in the ADG106-1001 clinical trial and 57 patients were enrolled and treated in the ADG106-1002 clinical trial. Thirty-eight patients were enrolled in the dose escalation phase and
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54 patients were enrolled in the dose expansion phase. Patients in the expansion cohort of both trials were still on the study treatment. The patient demographics and baseline parameters are listed below:
Patient Demographics
|
ADG106-1001 (n=35) | ADG106-1002 (n=57) | ||
---|---|---|---|---|
Age (Years) |
||||
Median (Max, Min) |
61(82, 25) | 50(72, 21) | ||
Sex |
||||
Female |
19 | 19 | ||
Male |
16 | 38 | ||
Race |
||||
African American |
1 | |||
Chinese |
3 | 57 | ||
Caucasian |
31 | |||
Eastern Cooperative Oncology Group ("ECOG") Performance Status |
||||
0 |
3 | 45 | ||
1 |
32 | 12 | ||
Number of Prior Systemic Regimens |
||||
Median (Min, Max) |
5 (0, 14) | 3 (0, 10) | ||
Cancer Types |
||||
|
Colorectal Cancer (n=7) | Nasopharyngeal Cancer (n=14) | ||
|
Renal Cell Carcinoma(n=4) | Non-small Cell Lung Cancer (n=13) | ||
|
Follicular Lymphoma (n=3) | Non-Hodgkin's lymphoma n=10) | ||
|
Head and Neck Squamous Cell Carcinoma (n=3) | Adenoid Cystic Cancer (n=5) | ||
|
Esophageal Carcinoma (n=2) | Cervical Cancer (n=4) | ||
|
Anal Cancer (n=2) | Others (n=11) | ||
|
Other (n=14) |
Safety Assessment: As of the Data Cut-off Date, 35 patients and 57 patients were enrolled in the two Phase I trials in the United States and China, respectively. ADG106 is generally well tolerated at 3mg/kg and 5mg/kg with dose escalation up to 10mg/kg. We observed limited TEAEs, liver toxicity or hematologic abnormalities in both trials.
As of the Data Cut-off Date, 35 patients enrolled in the ADG106-1001 clinical trial in United States had safety assessments. 24 of 35 (69%) patients discontinued ADG106 treatment (19 patients discontinued due to progression disease, 3 patients discontinued due to adverse events). Two DLTs were observed, including a Grade 2 hypoglossal nerve disorder at 5 mg/kg and a Grade 3 adrenal insufficiency at 10mg/kg cohorts. Across all dose cohorts, liver function tests showed two patients with >Grade 3 AST increase, including one patient who had abnormal baseline liver enzyme exhibited Grade3 AST increase. Hematologic tests showed two patients with Grade 3 hemoglobin decreases, and five patients had Grade 3 lymphocyte decreases.
As of the Data Cut-off Date, 57 patients enrolled in the ADG106-1002 clinical trial in China had safety assessments. 45 of 57 (68.9%) patients discontinued ADG106 treatment (31 patients discontinued due to progression disease, 7 patients discontinued due to adverse events, 5 due to withdrawal of consent and 2 due to clinical deterioration). One DLT (Grade 4 neutrophil count decreased, 10mg/kg) was observed in one patient with mantle cell lymphoma. Across all dose cohorts of 57 patients, only one patient showed Grade 3 AST and ALT liver enzyme increases. Two patients dosed at 5mg/kg or 10mg/kg experienced Grade 3 and 4 hemolytic anemia, respectively. Both patients were treated and subsequently recovered.
Clinical Efficacy Assessment: As of the Data Cut-off Date, 71 of 92 patients enrolled in both trials received post-treatment scans and were evaluated for preliminary efficacy assessment. The responses observed in these patients included one partial response, 39 stable disease, and 31 progressive disease. The disease control rate was 56% (40 of 71 patients). Three patients enrolled in ADG106-1002 clinical trial achieved greater than 30% tumor shrinkage. One patient with a solid tumor had a partial response
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with an approximately 40% tumor size reduction in the target lesions and two NHL patients showed tumor shrinkage of 32% and 33% at the end of the Cycle two. A third ADG106-1002 NHL patient showed a tumor size reduction of 17% and a patient with esophageal carcinoma enrolled in ADG106-1001 achieved 18% tumor shrinkage.
As of the Data Cut-off Date, of the 71 patients who received post-treatment scans, 23 were enrolled in ADG106-1001 clinical trial. The observed responses were 12 stable disease and 11 progressive disease and a disease control rate of 52% (12 of 23 patients). Tumor shrinkage and a decrease in SUV scores on PET CT images were observed in three patients, including one patient with stage IV follicular lymphoma who was refractory to multiple prior therapies including rituximab, another patient with endometrial carcinoma, and a third patient with esophageal carcinoma.
As of the Data Cut-off Date, of the 71 patients who received post-treatment scans, 48 were enrolled in ADG106-1002 clinical trial. The observed responses were one partial response, 27 stable disease, and 20 progressive disease with a disease control rate of 58% (28 of 48 patients). One patient with nasopharyngeal carcinoma demonstrated partial response with an approximately 40% tumor size reduction in the target lesion.
All three patients with T cell lymphoma enrolled in ADG106-1002 responded to ADG106 treatment and showed tumor size reductions of 32%, 33%, and 17%. Given its unmet medical needs, we are exploring Orphan Drug Designation with the FDA. In addition, we are collaborating with principal investigators who specialize in T cell lymphoma to conduct both investigator-initiated trials and an Adagene-sponsored trial to further validate the anti-tumor activities of ADG106 in this indication. We believe these efforts may lead to expedited regulatory approval of ADG106 for T cell lymphoma.
In conclusion, we observed a disease control rate of 56% among 92 patients including one patient with refractory nasopharyngeal carcinoma who had failed four prior therapies including anti-PD-L1 and four other patients with deep responses that exhibited 33%, 32%, 18%, and 17% tumor size reductions. Six patients remained on ADG106 treatment for over six months including one patient who received 3 mg/kg ADG106 treatment for over one year.
Case 1: Patient A with NHL, who relapsed after multiple chemotherapies and stem cell transplantation achieved 33% tumor size reduction after one dose of ADG106 at 3 mg/kg.
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Case 2: Patient B with solid tumor (stage IV), who relapsed after multiple lines of treatment (chemotherapies, radiotherapy, target therapy, and immune checkpoint inhibition therapy), showed 40% tumor size reduction after two doses of ADG106 at 5 mg/kg.
Pharmacodynamic Biomarker Measure of CD137 Target Modulation: As shown below, we have observed stimulation of T-cell proliferation and expansion in one patient treated with ADG106, evidenced by an increase in percentage of Ki-67 protein (an indicator of proliferative activity).
As illustrated below, we have also observed increased proliferation of NK cells in patients treated with ADG106 after the first cycle of treatment. Dose dependent stimulations of the identified immune cell subpopulation following ADG106 treatment at doses of 0.1, 0.5, and 1.5 mg/kg (see figure below on the right) were observed. No significant difference was observed from £1.5 to 10 mg/kg, suggesting that the drug may have saturated CD137 receptors on the target cells at the doses ³1.5 mg/kg. This is the
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first report of an anti-CD137 antibody drug showing stimulation of NK cell proliferation in human. This finding also clarifies the MOA of ADG106, suggesting involvement of diverse immune cells in ADG106 mediated anti-tumor activities in human.
Our ADG106 Phase I clinical trials enrolled cancer patients without regard to cancer types. As shown in the figure below on the left, the effect of ADG106 on soluble CD137 was not tumor type specific, but rather a universal event observed for most of the patients. As seen in the figures below, we observed dose-dependent increases in the biomarker level in patient serum after ADG106 treatment and correlation of the change of the soluble CD137 with patient response.
Identification of a Potential Predictive Biomarker for ADG106 Treatment Response: We have identified a potential predictive biomarker that correlated with patient treatment responses based on a retrospective analysis of pretreatment biopsy specimens from 28 patients with clinical outcome data as shown in the diagram below on the right panel. As of the Data Cut-off Date, three patients who achieved greater than 30% tumor shrinkage after ADG106 treatment were found to be biomarker positive. One Phase Ia patient who was treated with a low dose of ADG106 was biomarker positive and
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showed stable disease, as shown in the waterfall plot below on the left panel. Twenty-four biomarker negative patients did not show significant response as measured by tumor size reduction in CT images.
We have developed a high sensitivity multiplex IHC assay to measure the expression of the predictive biomarker and obtained a CLIA certification that allows us to perform biomarker testing of clinical formalin-fixed paraffin-embedded, or FFPE specimens as a reference lab. We measured expression of the predictive biomarker in 746 tumor microarray, or TMA, samples from patients with 14 different tumor types and identified biomarker positive expression of up to 42% in various types of solid tumors and hematological malignancies.
We will stratify and preselect patients using this biomarker in the upcoming Phase II clinical trials in 2021. In the early stage of the Phase II clinical trials, biomarker positive and negative patients will be identified using our multiplex IHC clinical trial assay in order to prospectively validate the predictive biomarker. After an interim analysis, we intend to collaborate with a diagnostic partner to identify patients for clinical trial enrollment using an analytically validated investigational diagnostic assay in the next stage of the Phase II clinical trials. This tumor biomarker test may be developed as companion diagnostic to facilitate AD106 registration according to FDA requirements.
Summary of Preclinical Studies and Results
Overview: ADG106 was evaluated extensively in both in vitro and in vivo preclinical studies. ADG106 was observed in in vitro studies to enhance activation of, and cytokine release by, primed T-cells alone or in combination with other immunomodulatory agents. ADG106 was also observed to have potent antitumor activities in vivo as a monotherapy in a dose dependent manner in multiple tumor models. When combined with a variety of cancer therapeutics, ADG106 exhibited antitumor activity in vivo in animal models, including in immunotherapy resistant models. Our mechanistic analyses suggest that ADG106 promotes an antitumor response by stimulating infiltration and expansion of CD4+ and CD8+ T-cells in tumors. ADG106 was well tolerated in animals, with a no-observed-adverse-effect-level, or NOAEL, ³ 100 mg/kg/dose and ³ 200 mg/kg/dose in rats and cynomolgus monkeys, respectively. These findings support our belief that the ADG106-boosted immune response could offer an effective alternative solution for cancer immunotherapy as a monotherapy and in combination with other therapies, especially for PD-1/PD-L1 resistant patient populations.
Preclinical Pharmacology: Our in vitro studies showed that ADG106 bound with high affinity and specificity to a unique epitope of CD137 that blocks the CD137L ligand binding with subsequent enhancement and proliferation of T-cells and pro-inflammatory interferon-g responses. Interferon-g is a master checkpoint regulator for many cytokines that targets a common component of many heterodimeric cytokine receptors.
ADG106 was species cross-reactive against human, mouse, and cynomolgus monkey CD137 and was active as a monotherapy in multiple preclinical tumor models. As shown below (left figure), in an
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H22 liver cancer syngeneic mouse model, ADG106 was observed to have potent in vivo antitumor activities as a monotherapy in a dose dependent manner. As shown below (right figure), tumors treated with ADG106 showed increased CD4+ and CD8+ infiltration compared to an isotype control.
As illustrated in the figure below, ADG106 also showed a potent and durable antitumor response in a CT26 colon cancer syngeneic mouse model. ADG106 treatment induced a complete response, or CR, in six out of eight mice. These CR mice received reinnoculation of CT26 tumor cells, or rechallenge, and remained tumor-free without additional ADG106 treatment, indicating development of antitumor memory response elicited by ADG106. Tumors treated with ADG106 showed increased CD4+ and CD8+ infiltration compared to an isotype control, similar to the H22 liver cancer model (data not shown). These data are consistent with the mechanism of ADG106 as a CD137 agonist in stimulating T-cell proliferation, activation, and infiltration into the TME to induce an antitumor effect.
Patient stratification: Understanding which patient populations may preferentially benefit from ADG106 treatment is important in designing clinical trials. Our preclinical studies have identified a biomarker that is associated with in vivo sensitivity of tumor models to ADG106 treatment. We determined biomarker level in ten syngeneic mouse tumor models and tested ADG106 in vivo in these
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ten models. In the seven models that were biomarker positive, four models were sensitive to ADG106 treatment while three were resistant or less sensitive to ADG106. The three biomarker negative models were resistant to ADG106 treatment. Additionally, the three resistant or less sensitive biomarker positive models showed synergistic effect to ADG106 treatments in combination with anti-CTLA-4 or anti-PD-L1. As illustrated in the figures below, among two T-cell lymphoma models, the biomarker positive model was observed to be sensitive to ADG106 treatment (see figure below on the left) and the biomarker negative model was observed to be resistant to ADG106 treatment (see figure below on the right). This biomarker provides a potential mechanism for stratifying patients that may benefit from ADG106 treatment in future clinical trials.
In addition to monotherapy antitumor activities, we observed that ADG106 had potent antitumor activities in combination with other therapies in preclinical studies. As shown below, ADG106 produced a synergistic effect with an anti-PD-1/L1 therapy, and SOC, in in vivo tumor models, including models that are resistant to current PD-1/PD-L1 and SOC therapies.
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In a syngeneic tumor that is biomarker (mentioned above) positive, although ADG106 did not show anti-tumor activity in this model, combination of ADG106 with atezolizumab (Tecentriq), an approved anti-PD-L1 antibody that blocks PD-1/PD-L1 interaction, showed enhanced antitumor response compared to the corresponding monotherapies.
As demonstrated below, ADG106 was also observed to show antitumor activities when combined with our CTLA-4 antibody ADG116 in a mouse tumor model that is biomarker (mentioned above)
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positive, while ADG106 alone did not show antitumor activities. We believe that this data provides a strong rationale for combining our pipeline programs including ADG106 with ADG116.
Clinical Development Plan
We have completed the Phase Ia dose escalation portion of each of our Phase I clinical trials and are conducting a Phase Ib cohort expansion phase using the selected doses in several indications. Our ADG106 Phase Ia clinical trials are designed to evaluate the safety, tolerability, and PK of repeat ascending doses of ADG106 in advanced or metastatic solid tumors and NHL. The secondary objective of these trials is to characterize the PK profile of ADG106, to evaluate and potentially identify a maximum tolerated dose or optimal dose of ADG106, assess relevant biomarkers, and evaluate preliminary signs of antitumor activity.
Our ongoing Phase Ib clinical trials are designed to evaluate the preliminary signs of antitumor activity. Based on Phase Ib data, we expect to choose the indications to be further explored in our future trials, for which plan to stratify and preselect patients based on their biomarker status to improve the response rate of ADG106. As a part of our strategies to ensure success of ADG106 clinical development, we may also explore niche indications for expedited approval. We may consider testing different dosages, different dosing schedules as well as ADG106 as a monotherapy or in combination with other immunotherapies in different disease subgroups and/or different disease stages. There are also investigator-initiated trials of ADG106, sponsored in Singapore by investigators, targeting various indications.
We are evaluating combinations of ADG106 with various therapies in clinical trials. We have received NMPA approval for the ADG106-1008 study in China which is a Phase Ib/II combination trial of ADG106 with anti-PD-1 in advanced solid tumors and hematological malignancies. We are also in the preparation for a submission of a CTN for ADG106-1003 study in Australia which is to combine ADG106 with anti-PD-1, anti-VEGF, and anti-CD20 antibodies in advanced solid tumors and hematological malignancies.
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ADG126: Novel Anti-CTLA-4 SAFEbody Candidate
Summary
Our most advanced SAFEbody program, ADG126, is a fully human anti-CTLA-4 mAb generated using our SAFEbody technology designed to address the safety concerns with associated existing CTLA-4 therapeutics, while maintaining efficacy in the TME. Our proprietary SAFEbody technology is designed to enable ADG126 to be activated only in tumor tissues rather than healthy tissues. In preclinical studies, we observed that ADG126 had an enhanced therapeutic window and improved safety features. Furthermore, in PD studies of ADG126, it was observed that while the CTLA-4 binding affinity was masked in an intact ADG126 antibody, once the masking peptide was cleaved off of ADG126, its high binding affinity to CTLA-4 was restored.
Mechanism of Action
ADG126 is a fully human anti-CTLA-4 mAb. The masking moiety in ADG126 functions to block the interaction between ADG126 and its target CTLA-4 protein. Once ADG126 enters the TME, proteases overexpressed in the TME cleave off the masking moiety, and the antibody is then activated, binding to CTLA-4 and inhibiting its function. ADG126 is locally activated specifically in the TME, rather than systemically, to stimulate antitumor immune response. The following diagram illustrates the activation process of ADG126 in tumor tissue.
We believe that activated ADG126 potentiates T-cell immune response by blocking the inhibitory effect of CTLA-4. ADG126/ADG116 is designed to target CTLA-4 conserved epitope with species cross-reactivity for translational fidelity.
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Moreover, ADG126 has been observed in preclinical animal studies to mediate effector functions to eliminate CTLA-4 expressing cells, particularly regulatory T-cells, primarily through ADCC. These actions of ADG126 could lead to enhanced activation and proliferation of tumor infiltrating T-effector cells and reduced T-regulatory cell function, which may contribute to a general increase in T-cell responsiveness, including an enhanced antitumor immune response. The below diagram illustrates the MOA of activated ADG126.
Notes:
"ADCP" refers to antibody-dependent cell-mediated phagocytosis;
"MHC" refers to major histocompatibility complex;
"TCR" refers to T-cell receptor;
Market Opportunity and Competition
According to Frost & Sullivan, as of December 31, 2020, ipilimumab is the only marketed CTLA-4 drug targeting cancer and it has been approved for six indications including monotherapy and combination therapies approved by the FDA. While ipilimumab is the only marketed CTLA-4 antibody drug, there are over ten CTLA-4 antibodies in clinical development globally, according to Frost & Sullivan. There are currently no marketed CTLA-4 antibody drugs in China, but at least seven CTLA-4 antibodies in clinical development, according to Frost & Sullivan.
The global total CTLA-4 inhibitors market reached US$1.5 billion in 2019 and is estimated to reach US$3.8 billion and US$11.9 billion in 2024 and 2035, respectively, representing a CAGR of 11.0% from 2024 to 2035, according to the Frost & Sullivan Report.
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Breakdown of Global CTLA-4 Inhibitors Market By Category, 2015-2035E
Source: Frost & Sullivan Report
Primary limitation of CTLA-4 antibodies is toxicity. We believe that the continued expansion of indications, and the launch of innovative novel CTLA-4 antibodies with potential for improved safety and better efficacy may increase the market for CTLA-4 antibodies significantly.
Summary of Preclinical Studies
Preclinical Pharmacology: We observed in PD studies that ADG126, in its intact SAFEbody form, bound weakly to CTLA-4. However, once the proteases cleaved off the masking peptide, ADG126 was activated and bound at a high affinity to human, cynomolgus monkey and mouse CTLA-4, as shown in the figures below. Activated ADG126 was observed to lead to the release of CD80/CD86 ligands from CTLA-4 sequestration, and stimulation of CD28 signaling to boost T-cell activity. It also targets
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regulatory T-cells for depletion within the TME by means of ADCC, to mediate antitumor T-cell immunity.
We evaluated the in vivo antitumor efficacy of ADG126 in syngeneic mouse tumor models. As shown in the figures below, in these studies, ADG126 was observed to inhibit tumor growth in different mouse tumor models as a monotherapy.
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As shown in the figure below, ADG126 synergized with an anti-PD-1 antibody to elicit a stronger anti-tumor response than ADG126 or the anti-PD-1 antibody alone in a Lewis lung cancer syngeneic mouse model.
ADG126 treatment was observed to specifically deplete regulatory T-cells in the tumor, but not in peripheral tissues. The following figures illustrate the reduction of CTLA-4 expression in infiltrating lymphocytes, or TILs (see figure below on the left) and regulatory T-cell depletion (see figure below on the right) by ADG126 in CT26 tumor model.
Preclinical Toxicology: We performed preclinical toxicology studies designed to assess the toxicity features of ADG126. We selected cynomolgus monkeys and mice as toxicology species for animal toxicity evaluation. No abnormal findings attributable to ADG126 were observed. We utilized a nonobese diabetic mouse model to determine percentage of survival with AD126 treatment. All mice survived after six treatments of ADG126 at 50 mg/kg.
In a four-week GLP repeat-dose toxicology studies, intravenous infusion of ADG126 to cynomolgus monkeys at 5, 30, or 200 mg/kg/dose once weekly for five doses followed by a 28-day recovery period was well-tolerated. Adverse, but reversible, microscopic findings of minimal to moderate mixed perivascular infiltrates were observed at 200 mg/kg in both sexes in the kidney, liver, pancreas, epididymis, skin, and were observed in the ovaries in females, and the connective tissue associated with the mesenteric lymph node and thyroid gland. The NOAEL was considered to be 30 mg/kg/dose and the highest non-severely toxic dose was considered to be 200 mg/kg/dose.
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Clinical Development Plan
The Australian Therapeutic Goods Administration authorized us to initiate a Phase I trial of ADG126-1001 in Australia. The first site of ADG126-1001 has been approved by the Australian authorities, investigational products have been released, and the site is ready to start patient screening. In addition, three potential patients have been identified for enrollment in the ADG126-1001 trial and we expect to commence patient enrollment by February. We also have received approval from the FDA to initiate the Phase I clinical trial of ADG126 in the United States in 2021. These two Phase I dose escalation trials will test five doses at 0.1, 0.3, 1, 3, and 10 mg/kg, based on our preclinical primate toxicity study in comparison with ipilimumab. We anticipate that these clinical trials will allow us to determine the ADG126 effective dose in late 2021. Meanwhile, we are preparing IND submissions to initiate ADG126 clinical trials in China.
ADG116: Novel Anti-CTLA-4 NEObody Candidate
Summary
ADG116 is a fully human anti-CTLA-4 antibody generated using our NEObody technology, designed to enhance the efficacy and to address toxicity concerns associated with existing CTLA-4 therapeutics. In our preclinical studies, ADG116 was observed to potentiate CD28 signaling and T-cell immune responses (cytokine production) in the presence of primary stimulatory signaling. Furthermore, ADG116 reduced immunosuppressive regulatory T-cell activity and enhanced CD8+ T-cells activity in the TME to induce antitumor responses. We believe these preclinical results support the further clinical evaluation of ADG116 both as a monotherapy and in combination with other therapies for a wide range of tumor types. In July 2020, we obtained authorization from the Australian Therapeutic Goods Administration under a CTN to start a Phase I clinical trial of ADG116. As of January 15, 2021, we have successfully completed dose escalation at the first three doses in our ADG116-1003 clinical trial in Australia, including a dose level at 0.03mg/kg, which was the dose level used for the first patient who suffered a fatal incident in the ADG116 Phase I trial in the United States. As of January 15, 2021, no dose limiting toxicity or treatment related serious adverse events have been observed in any of the patients treated. There was no treatment induced liver toxicity and all three patients treated at 0.03mg/kg showed normal liver enzyme level post ADG116 treatment. The ADG116-1001 Phase I trial in the United States was placed on clinical hold on September 30, 2019 by the FDA, after we reported to the FDA the death of the only patient dosed in the trial. The FDA removed the clinical hold on December 5, 2019 after we submitted an amendment to the study protocol.
Mechanism of Action
ADG116 is designed to target a unique conserved epitope of CTLA-4. In preclinical studies, ADG116 was observed to have softer CTLA-4 ligand blocking and stronger ADCC for regulatory T-cell depletion than ipilimumab. Based on the PD results observed in our preclinical studies, we believe that ADG116 has the potential to specifically bind to human CTLA-4, or hCTLA-4, without binding to other CD28 family receptors, which could potentially block the CTLA-4/CD80 and CTLA-4/CD86 ligand interactions. We believe that ADG116 potentiates CD28 signaling and T-cell immune response in the presence of a primary stimulatory signaling. Moreover, ADG116 has been observed in preclinical animal studies to mediate effector functions to eliminate CTLA-4 expressing cells, particularly regulatory T-cells, primarily through ADCC by NK cells. These actions of ADG116 could lead to enhanced activation and proliferation of tumor infiltrating T-effector cells and reduced T-regulatory cell function, which may contribute to a general increase in T-cell responsiveness, including an enhanced antitumor immune response.
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Clinical Trial Design
The following summarizes the Australia clinical trial design of ADG116. During the accelerated titration phase, one patient per dose level will be treated. If the patient experiences a DLT or two Grade 2 or above drug-related toxicity, as agreed upon by the investigator and sponsor, the dose level will be expanded according to a "3+3" dose escalation design. During the traditional "3+3" dose escalation phase, from the dosage level at 0.03mg/kg onwards, dose escalation will follow a traditional "3+3" design with three or six patients treated at each dosage level, depending on the incidence of DLTs. Initially, three patients will be enrolled into the dosage level with the sentinel patient treated at least 24 hours before the subsequent patients. Duration of treatment is expected to continue up to two years, if the investigator considers that continued treatment could benefit the patient, or until disease progression and/or unacceptable toxicity, or withdrawal of informed consent.
The primary objectives of the dose escalation stage of the planned clinical trial will be to assess DLT and recommended Phase II dose, or RP2D. The safety profile of ADG116 will also be assessed in terms of severity, seriousness, and frequency of AEs, laboratory results, vital signs, physical examinations, and ECGs of patients enrolled in the study. The secondary objectives of the planned clinical trial are to (i) assess plasma PK parameters; (ii) evaluate anti-drug antibodies, or ADAs, in patients' blood before, during and after treatment with ADG116; (iii) evaluate objective response in accordance with RECIST v1.1 and/or iRECIST; and (iv) evaluate preliminary evidence of antitumor activity of ADG116, as characterized by ORR, DCR, duration of response, or DOR, duration of stable disease, PFS, and OS. The exploratory objective is to identify PD biomarkers for ADG116, including but not limited to cytokines, plasma proteins, immune cells, and tissue biomarkers.
The endpoints of ADG116 Phase I trial are:
Primary endpoints:
Secondary endpoints:
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Summary of Preclinical Studies and Results
We extensively evaluated ADG116 in both in vitro and in vivo preclinical studies. Our in vivo efficacy studies were conducted in mice, and safety evaluations were conducted in both cynomolgus monkeys and rats. ADG116 was observed to show robust in vivo anti-tumor activity in multiple syngeneic mouse tumor models. Ipilimumab was included as a benchmark and was compared with ADG116 in a series of our preclinical studies. In these preclinical studies, we observed that ADG116 had a potential advantage over ipilimumab in potentiating T-cell activation. While ADG116 has softer CTLA-4 ligand blocking, it was observed to have superior ability in eliminating CTLA-4 positive regulatory T-cells via ADCC in tumors resulting in enhanced antitumor responses. ADG116 was well tolerated in rats and cynomolgus monkeys at doses up to 30 mg/kg in GLP-compliant four-week repeat-dose toxicology studies.
Preclinical Pharmacology: We evaluated ADG116 as a monotherapy in vivo in an H22 liver cancer syngeneic mouse model. As shown in the figure below, ADG116 was observed to induce an encouraging antitumor response at low doses in a dose-dependent manner (see figure below on the left). Additionally, ADG116 was observed to inhibit tumor growth of large tumors in the same model (see figure below on the right).
As illustrated in the below figure, in a liver cancer tumor rechallenge study, ADG116 was observed to induce significant antitumor response. Fifty-nine days after the initial tumor inoculation and more than 30 days after the last ADG116 treatment, mice were then rechallenged with the same tumor. We observed that mice that responded to the initial ADG116 treatment remained tumor-free even without additional ADG116 treatment while naïve mice developed tumors, indicating the development of antitumor memory response elicited by ADG116.
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Since ADG116 was observed to exhibit strong ADCC activity in vitro, we evaluated the ability of ADG116 to deplete regulatory T-cells in vivo in a CT26 mouse colon cancer syngeneic model. ADG116 treatment was observed to specifically deplete regulatory T-cells in the tumor, but not in peripheral blood mononuclear cells, or PBMCs, or lymph nodes. The following figure shows significant regulatory T-cell depletion (left figure) and inhibition of CTLA-4 expression (right figure) in tumors by ADG116.
In a series of preclinical studies, we compared the effect of ADG116 to ipilimumab. We believe that these studies suggest that ADG116 has a unique MOA compared to ipilimumab and has a potential advantage over ipilimumab in eliciting antitumor responses. These preclinical trial results support the further clinical evaluation of ADG116 as a monotherapy and in combination with other therapies for a wide range of tumor types.
In the CTLA-4 blockade bioassay illustrated in the figure below on the left, ADG116 was observed to exhibit weaker blocking than ipilimumab of CTLA-4's ability to inhibit CD80- and CD86-induced IL-2 production. This result supports our belief that ADG116 can function as a CTLA-4 checkpoint inhibitor with weaker activity than ipilimumab, which may result in less systemic autoimmune side effects on normal tissues. On the other hand, ADG116 was observed to exhibit notably stronger ADCC activity than ipilimumab in the in vitro assay shown in the figure below on the right. Since CTLA-4 is expressed on regulatory T-cells, we believe that ADG116 offers a potential advantage over ipilimumab
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in depleting regulatory T-cells by means of ADCC. We subsequently investigated this in vivo in a syngeneic mouse tumor model.
To compare ADG116's in vivo antitumor activity to ipilimumab, we utilized a subcutaneous MC38 mouse syngeneic colon cancer model in hCTLA-4, knock-in, or KI, C57BL/6 mice. We selected the hCTLA-4 KI mice as ipilimumab does not cross-react with mouse CTLA-4. As shown in the figure below, ADG116 was observed in this study to exhibit stronger antitumor activity than ipilimumab (ADG116 at 0.2 mg/kg induced equivalent antitumor response as 1 mg/kg of ipilimumab).
As shown in the figure below, we measured tumor infiltrating regulatory T-cells in the subcutaneous hCTLA-4 KI MC38 mouse colon cancer model after ADG116 or ipilimumab treatment. Among the TILs, the percentage of regulatory T-cells was observed to be significantly reduced after ADG116 treatment while the regulatory T-cell reduction after ipilimumab treatment was not significant. Notably, we observed that regulatory T-cell depletion by ADG116 occurred only in the TME, and not in PBMCs or the spleen. We
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believe that these results provide a mechanistic rationale for the enhanced in vivo antitumor activity of ADG116 compared to ipilimumab. ADG116 may reduce the immunosuppressive regulatory T-cell activity specifically in the TME to enhance antitumor immune responses.
As illustrated below, in addition to evaluating the efficacy of ADG116 as a monotherapy, we also evaluated ADG116 in combination therapies. ADG116 was observed to have an antitumor effect with an anti-PD-1 treatment in a Lewis lung cancer syngeneic mouse model.
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We also examined the effects of ADG116 in combination with our CD137 agonistic antibody, ADG106, in a B16F10 melanoma syngeneic mouse model. As shown below, we observed that the combination of ADG116 with ADG106 enhanced the antitumor activity compared with ADG116 or ADG106 alone.
Preclinical Toxicology: We performed preclinical toxicology studies in cynomolgus monkeys and rats to evaluate the toxicity of ADG116. There were no abnormal findings in the single-dose toxicology studies. We observed that ADG116 was well tolerated in both cynomolgus monkeys and rats at up to 200 mg/kg. In a GLP-compliant, four-week repeat-dose toxicology study, ADG116 was tolerated at doses up to 30 mg/kg/dose (five doses per week). In this study, ADG116 related hematology parameter changes, serum chemistry changes, mononuclear infiltration of predominantly lymphocytes with fewer macrophages into the parenchyma of numerous organs were the primary test article-related effects evaluated. These changes were reversible at £ 30 mg/kg/dose, and consistent with the biological role of CTLA-4 in regulating and maintaining peripheral immune tolerance. The NOAEL was considered to be 30 mg/kg/dose in both rats and cynomolgus monkeys.
Clinical Development Plan
As of January 15, 2021, we have successfully completed the three dose escalation at 0.003 mg/kg, 0.01mg/kg and 0.03mg/kg in the Phase I clinical trial of ADG116 in Australia. 0.03mg/kg was the dose that we had initiated a Phase I trial of ADG116 in the United States. We intend to use clinical data collected from the Australia trial to facilitate clinical development in the United States. We also have a Phase I clinical trial open in the United States for ADG116 as a monotherapy in patients with advanced/metastatic solid tumors; however, we are not currently enrolling patients in this clinical trial.
DEEP, BROAD, DIFFERENTIATED PRECLINICAL DISCOVERY PIPELINE
In addition to our three clinical-stage product candidates, ADG106, ADG126 and ADG116, we are building a deep, broad and differentiated preclinical pipeline. Utilizing our DPL platform and three platform technologies NEObody, SAFEbody, and POWERbody, we have built a portfolio of programs that are at various stages of the drug discovery and development process. We have the ability to build multiple generations of drugs against the same targets, e.g., CD137 and CTLA-4, representing the depth of our preclinical pipeline, as shown in the illustration below.
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We have also built a preclinical and discovery pipeline against multiple validated and novel targets, representing the breadth of our preclinical and discovery pipeline. As shown on the pipeline chart below, our SAFEbody programs include multiple SAFE NEObodies, such as SAFE CD47 NEObody, as well as a number of undisclosed SAFEbodies. The class of anti-CD47 therapies has attracted significant interests from leading biopharmaceutical companies given its significant potential. Our POWERbody programs include an immuno-oncology antagonist program, an immuno-oncology agonist program, multiple SAFE antibody drug conjugate, or ADC, programs and multiple SAFE bispecific T-cell engager programs, which include CD20xCD3 SAFE bispecific antibody, or bsAb, and HER2xCD3 SAFE bsAb.
Below is an example of our POWERbody preclinical discovery program, which is tumor-associated antigen, or TAA, and CD3 bispecific T-cell engager program.
SAFEbody TAAxCD3 BsAb T-cell Engager Program
Summary
Bispecific T-cell engager antibodies have been explored as a means to recruit cytolytic T-cells to kill tumor cells. This is based on the simultaneous recognition of an antigen on tumor cells and binding to the CD3 epsilon chain, or CD3e, within the T-cell receptor complex on T-cells that bridges malignant tumor cells directly to CD3+ T-cells. Blinatumomab, or Blincyto, the first bispecific T-cell engager reactive with the B-cell antigen CD19, was approved by the FDA in 2014 for the treatment of neoplasms. While early studies showed promising clinical efficacy, bispecific T-cell engagers were also hampered by severe dose-limiting toxicities primarily manifesting as cytokine release syndrome which resulted in a prohibitively narrow therapeutic window.
Through our DPL platform, we have developed a deep pipeline of bispecific T-cell engager antibodies for both liquid and solid tumors. To address the safety issues of current CD3 T-cell engager antibodies, we leveraged our proprietary SAFEbody technology to develop differentiated bispecific T-cell engagers.
Our TAAxCD3 SAFE-bsAbs comprise anti-human TAA and CD3 SAFEbodies and are intended for the treatment of TAA+ malignancies. Our TAAxCD3 SAFE-bsAb in their activated forms have been observed to stimulate T-cell activation and TAA+ tumor cell killing. We did not observe our
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TAAxCD3 SAFE-bsAbs to have visible cytokine release syndrome and other adverse events in exploratory toxicity studies in cynomolgus monkeys. Our TAAxCD3 SAFE-bsAbs highlight a potential new approach in tumor immunotherapy and provide a rationale for safe and effective treatment of TAA+ tumors. Based on our preclinical studies, we are moving forward with generating stable cell lines and CMC development of our two TAAxCD3 SAFE-bsAb programs.
Preclinical Studies
To evaluate the functional activity of parental and SAFE-bsAbs, we tested our bsAbs in multiple cell-based assays. As shown below, the TAAxCD3 parental-bsAb significantly stimulated CD3 signaling in a Jurkat cell-based NFAT reporter assay. Furthermore, the TAAxCD3 parental-bsAb was observed to significantly increase IFNg secretion from CD8+ T-cells and induce TAA overexpressing tumor cell death by activating CD8+ T-cells in the T-cell-dependent cellular cytotoxicity assay. These results suggest that our CD3 bsAb potentially stimulated T-cells to kill tumor cells. Consistent with our expectation, the masked SAFE-bsAb was observed to have lower activity in these functional assays.
Exploratory Toxicity Study in Cynomolgus Monkeys
As current efforts in developing therapeutic CD3-based T-cell engagers are impeded by severe dose-limiting toxicities, primarily manifesting as non-specific cytokine release syndrome, we evaluated the safety results while developing CD3 bsAbs with our SAFEbody technology. Particularly, we evaluated the cytokine and immune-associated events, for TAAxCD3 bsAbs in cynomolgus monkeys.
Cynomolgus monkeys were dosed intravenously with our TAAxCD3 parental- or SAFE-bsAbs. We observed significant IL-6 release with the parental-bsAb; while we did not observe SAFE-bsAb induced IL-6 release at any of the three-dose levels during the testing period, which indicates a noticeable improvement in safety results by SAFEbody masking.
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The cynomolgus monkey treated with the parental-bsAb died approximately 12 hours after first dosing at 0.2 mg/kg, likely due to acute cytokine release syndrome, which is consistent with severe dose-limiting toxicities observed in other bispecific T-cell engager antibodies. Moreover, total T-cells were nearly undetectable at three hours following the initial parental-bsAb treatment at 0.2 mg/kg. The SAFE-bsAb treated cynomolgus monkey also exhibited reduction of total T-cell counts, but to a lesser degree, and absolute lymphocyte counts rebounded at 24 hours after each dosing of SAFE-bsAb.
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OUR PLATFORM
Overview
Our proprietary DPL platform is built upon our insights into precise and dynamic antibody-antigen interaction. As such, our DPL platform has been designed to enable the discovery of antibodies with better developability properties. By addressing the challenges in traditional antibody design and engineering, we believe that our DPL platform will enable us to improve the efficacy and safety profile of antibody therapeutics. Our DPL platform is empowered by our computational platform, artificial intelligence and three innovative technologies: NEObody, SAFEbody, and POWERbody.
AI-Powered Antibody Discovery
We believe that efficient drug discovery requires significant commitment to resolve three key challenges: 1) the selection of targets with preclinical and/or clinical validation; 2) the availability of abundant hits at discovery stage for the identification of Pre-Clinical Candidates, or PCC, that usually takes a highly iterative process from target-to-hits, lead identification and lead optimization; and 3) deep understanding of target biology and MOA from detailed molecular, cellular, in vivo preclinical and human disease models. To address these challenges and to improve antibody R&D productivity, we have designed and built our AI-powered DPL platform to provide sufficient discovery capacity, capable of generating abundant high quality hits against targets, and then selecting the right leads for extensive preclinical testing in order to understand their MOAs, their efficacy and safety potential before going for clinical proof of concept testing. Our current focus on oncology portfolio is to establish early clinical proof of concept, preferably in Phase I trials.
We believe that it is critical to pair the right PCC with the specific epitope of a chosen target. The affinity and precise orientation by which the specific epitope of a given target is engaged by the PCC can have a profound impact on the pharmacology and toxicity of drug candidate. Therefore, we believe precision design and engineering of antibody-based drugs make a fundamental difference on the success of a drug discovery program. As demonstrated by extensive preclinical data of our ADG106, ADG126 and ADG116 programs and early clinical data of our ADG106 program, targeting the conserved epitope of CD137 by ADG106 and that of CTLA-4 by ADG126/ADG116, respectively, across humans, monkeys and mice can give rise to novel biological and pharmacological activities. The broad species cross-reactivity of these NEObody drug candidates above can facilitate seamless translational studies from different immune-competent syngeneic tumor models to monkeys, and then subsequent clinical trials in humans. The novel MOA and biology concerning CD137 and CTLA-4 targets include their regulation in peripheral and tumor microenvironments, the involvement of different immune cells upon target engagement such as NK cells by anti-CD137 ADG106 agonist and T-regulatory cells by anti-CTLA-4 specific antibodies ADG116 and ADG126. We believe these examples provide strong support for our proposal to search for "The Right PCC" that is paired with the specific epitope of a given target in order to unlock the biology of such target and its pathway and to facilitate a deep understanding of its MOA in triggering a cascade of biological and pharmacological events leading to disease control.
In order to search for "The Right PCC", our proprietary DPL platform uses a deep learning approach to explore the conformational diversity of antibody binding sites. Our DPL platform combines AI algorithms and ever-increasing big data in antibody sequence, structure, and binding epitope and affinity from public and our own proprietary databases to design, construct and screen high-quality proprietary antibody libraries with well-defined sequence, scaffold and biophysical attributes for antibody drug discovery. Our computational engine combines software, AI and visualization tools to mine, organize, compute, and interactively explore these immense multidimensional big data sets. We iteratively inform wetlab experimentation with in silico computation, and vice versa. By exploiting conformational diversity through the combination of our proprietary computational algorithms with AI,
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we have designed and precisely constructed approximately one trillion (1012) antibody sequences in our DPL. These antibodies feature broad epitope (the portion of an antigen that are recognized by an antibody) coverage and robust CMC attributes. The antibodies discovered can be further engineered into NEObody, SAFEbody and POWERbody antibodies depending on the targeted product profile of a given therapeutic target.
Our ADG106, ADG126 and ADG116 clinical programs illustrate how our AI-powered DPL platform has improved our R&D productivity. Our DPL library is a large physical phage library (~1012) that contain our AI-powered synthetic designer antibodies with flexible antibody binding interface. The combination of binding interface flexibility with the variation of amino acid sequences in the antigen binding interface exponentially increases the conformational diversity of our AI-powered DPL libraries, far beyond conventional natural or synthetic antibody libraries. Our AI-Powered DPL library screening against CD137 or CTLA4 antigens have yielded a large number of high affinity primary hits. For example, our anti-CD137 agonist antibody ADG106 was identified from 60 high affinity primary hits with a wide range of epitope diversity in terms of their species cross-reactivity, which compared favorably with the number and epitope diversity of high affinity anti-CD137 antibody hits reported by our global peers on their publicly filed documents. Our anti-CTLA-4 antibody ADG116 was identified from 74 high affinity primary hits with a wide range of epitope diversity in terms of their species cross-reactivities: 19 clones are human, monkey, canine and mouse cross-reactive; 12 clones are human and monkey cross reactive but weak mouse cross-reactive; 32 clones are human and monkey cross-reactive; 11 clones only recognize human CTLA-4. The abundant discovery hits with diversified binding epitopes for varying degree of species cross-reactivity show the power of our AI-powered DPL platform not only in creating novel ADG106 and ADG116 NEObodies in targeting different epitopes of a given antigen, but also in targeting the conserved epitope across different species of a given antigen for both CD137 and CTLA-4 to enable translational studies from immune-competent animal tumor models to human patients due to their broad species cross-reactivities.
We believe that the high affinity and species cross-reactive primary hits from our DPL library screening saves time cost from primary hits to straight PCC. The broad species cross-reactivity of the primary hits also streamlines lead identification through simple syngeneic tumor models for safety and efficacy testing. The robust CMC attributes of our DPL library are designed to also eliminate the requirement to optimize antibody sequences before starting CMC process for IND enabling and formulation studies. Furthermore, we believe our AI-powered dynamic precision library of approximately one trillion (1012) antibody sequences expands the diversity at the start of discovery to maximize the chance that suitable leads are found on the first pass. Therefore, our DPL platform is designed to substantially improve the probability of success for the overall R&D process. In conclusion, we believe our AI-powered antibody discovery and engineering DPL platform significantly increases R&D productivity for antibody drug discovery. It has enabled us to generate highly differentiated PCC molecules that we believe can target the conserved epitope across different species for novel MOAs and also facilitate seamless translational studies from animals to human via their broad species cross-reactivity.
Briefly, our AI-powered antibody discovery engine includes six steps:
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epitope in order to learn the landscape of the epitope space and their correlation with antibody binding interface.
The following diagram illustrates how AI algorithms and big data empower rapid antibody discovery with improved productivity:
NEObodyTM
NEObody technology is a fully synthetic phage display and yeast display-based antibody discovery technology, which we believe is differentiated from other synthetic antibody technologies through its innovative designs and precise constructions. Our designs are based on critical insights gained from
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extensive studies of antibody structural variability made possible by our proprietary in-house developed computational tools.
Innovative antibody library design: We believe that diversity of an antibody library should be defined at the quaternary structural level, instead of the traditional primary amino acid sequence level. Comparison of structural and sequence diversity revealed that variability as assessed by structural alignments was generally lower than the variability observed with sequence alignments. Based on our deep understanding of chemical principles governing antibody folding and extensive analysis of a vast number of antibody structural variability, through novel statistical tools developed in-house, we have redefined the antibody hyper-variable regions, or HVRs, that are critical for antigen recognition. These HVRs, as defined based on structural variability, are distinct from but complementary with complementarity-determining regions that are traditionally defined based on amino acid sequence variability. In addition, we have defined and designed dynamic motifs which adopt multiple conformations and incorporated them into our DPL antibody library design to enable the coverage of a wide range of structural diversity with a limited number of amino acid sequences.
Broad epitope coverage, particularly of evolutionarily conserved epitopes: NEObody technology enables us to discover antibodies targeting numerous epitopes against a broad range of antigens. In particular, we focus on the antibodies targeting the conserved epitopes of divergent antigens. These species cross-reactive antibodies not only have the potential to reveal new biological functions of the targets, but also facilitate preclinical studies using various immune intact animal models, resulting in high fidelity translation from preclinical to clinical studies. Our NEObody technology has been evaluated in preclinical studies with numerous antigens, including some difficult antigens such as membrane or oligomeric proteins. The success criteria in our preclinical assays include high affinity of primary hits with diverse antibody sequences, broad epitope coverage, as well as favorable CMC development properties. For example, ADG106 was discovered using our NEObody technology to target a conserved epitope of CD137 that mostly overlaps with its ligand binding site, which we believe enables ADG106 to activate CD137 in its natural ligand-like fashion, with complete blocking of CD137L, which may differentiate it from two other investigational leading CD137 agonistic antibodies.
Enhanced developability profiles: NEObody technology is designed to preemptively eliminate the chemically unstable sites, or combinations of "problematic" sites that may pose risk for downstream manufacturing processes. This precision design strategy coupled with precision oligonucleotides and library construction have resulted in our high-quality antibody discovery libraries. The primary hits from these libraries generally lack severe "problematic" and spurious amino acid sites, and therefore, may offer promising characteristics for further development.
SAFEbodyTM
SAFEbody is our proprietary differentiated precision antibody masking technology designed to enable an antibody to bind its target specifically only after conditional activation of the antibody in target tissues. By engineering our antibody therapeutic candidates to selectively activate in the TME, our SAFEbody technology is designed to improve safety and tolerability of antibody therapeutics while simultaneously maintaining clinical activity. Through this technology, we believe we can provide a
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solution to on-target off-tumor toxicity, one of the long-lasting challenges with many approved antibody therapeutics.
Activation in the TME: SAFEbody technology is designed to mask an antibody binding interface with a masking motif, which then prevents an antibody from binding to its target in healthy tissues. The masking motif is designed to activate or unmask the antibody binding in the TME where certain activation conditions such as a protease is upregulated as compared to healthy tissues, allowing the antibody to bind to and attack the tumor. Our SAFEbody enabled therapeutic candidates are therefore designed to be activated predominantly in the TME while remaining largely in an inactive state in healthy tissues.
Innovative masking moiety library design: Leveraging computational biology, we have designed multiple masking libraries with structured scaffolds and balanced chemistry of amino acids with favorable attributes for masking, easier manufacturing processes, and lower immunogenicity.
Precision masking without self-inhibition: To differentiate from other masking technologies, our antibody masking moieties have been designed and discovered in the right context in an effort to provide greater expression and specificity with no self-inhibition upon activation. We employ sophisticated screening processes for rapid discovery of highly masked SAFEbody product candidates subject to systematic tuning of the masking efficiency to match the target biology.
Improved pharmacology and safety features: We believe our SAFEbody technology has the potential to also reduce the dose-limiting toxicities observed in combination therapies and thus potentially enable new combinations with other cancer therapies that were previously difficult to use. Our SAFEbody technology may also provide favorable for PK and PD profiles for antibodies and ADCs to reduce the drug clearance from circulation in healthy tissues.
Our SAFEbody technology has been applied to multiple target antibodies that have been either discovered with NEObody technology or supplied by our partners. Our ADG126 was discovered by combining SAFEbody technology with its parental antibody discovered through our NEObody technology.
POWERbodyTM
In recent years, multiple modalities have been developed to enhance the potency of traditional antibody drugs. These include Fc engineering for enhanced ADCC or cross-linking efficiency, ADCs and TCEs. Some of them, such as TCEs, can be so potent that only micrograms of the active ingredient are needed for a single dose, in contrast to regular antibody where hundreds of milligrams or even grams are required for a single dose. NEObodies can be converted into SAFEbodies which can be further reformatted into SAFEbody ADCs, bispecific TCEs, and Fc engineered antibodies with enhanced potency and safety profile. We refer these to as POWERbodies to indicate their enhanced potency and safety profile.
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We believe SAFEbodies can be applied to these potent modalities. Since an unmasked ADC, TCE, or Fc engineered antibody can be so potent, there is the risk that it will cause severe toxicity due to damage to healthy tissues or fast lysis of tumor cells, resulting in a narrow therapeutic window, as is frequently observed with some ADC drugs or TCEs that have been FDA approved or are in clinical development. We believe our POWERbodies enabled by our SAFEbody technology with potent ADC, TCE, etc., due to their inactivity in circulation and specific local activation in TME, could significantly reduce toxicity and at the same time retain efficacy.
POWERbody technology aims to boost the efficacy of antibody candidates with safety profiles enhanced by our SAFEbody technology. We believe our POWERbody technology will unleash the full power of antibody-based therapeutics to kill cancer cells with enhanced safety, achieving full potential in antibody based therapies such as bispecific TCEs and ADCs.
COLLABORATIONS WITH BIOPHARMACEUTICAL COMPANIES
We enter into collaborations with biotechnology and pharmaceutical companies to advance the development and commercialization of our technology platforms and product candidates. We seek collaborations that will allow us to retain significant future participation in product sales through royalties paid on net sales. For example, we have entered into agreements with ADC Therapeutics to develop antibody drug conjugates against tumor targets using our SAFEbody technology. In addition, we have also out-licensed the Greater China rights to an anti-PD-L1 antibody and second antibody candidate to Dragon Boat Pharmaceuticals and its affiliates. Our collaborations empower our growth in many ways, including generating cash flow and revenues that partially offset expenditures on our internal research and development programs, expanding our knowledge base regarding antibody technology across multiple targets and antibodies provided by our partners, and providing us with future pipeline opportunities through opt-in licensing rights to new product candidates created using our technology. Below are the highlights of collaborations we formed with our business partners:
ADC Therapeutics Agreements
In April 2019, we entered into a material transfer and collaboration agreement (the "ADCT Collaboration Agreement") and a license agreement (the "ADCT License Agreement") with ADC Therapeutics, a late clinical-stage oncology-focused biotechnology company pioneering the development and commercialization of highly potent and targeted ADCs.
ADCT Collaboration Agreement
Pursuant to the ADCT Collaboration Agreement, we agreed to generate masked antibodies with our SAFEbody technology that could be combined with the pyrrolobenzodiazepine-based cytotoxic payload used in ADC Therapeutics' ADCs to create novel ADCs. ADC Therapeutics entered into the ADCT Collaboration Agreement with us to evaluate the use of our SAFEbody technology with respect to up to two exclusive targets selected by ADC Therapeutics. Upon our delivery of certain initial results, ADC Therapeutics has the option to license our SAFEbody technology with respect to one or both targets as further detailed below. ADC Therapeutics has not yet exercised such options as of September 15, 2020.
Both parties are required to use commercially reasonable efforts to perform certain development obligations under the ADCT Collaboration Agreement. Additionally, we are subject to exclusivity obligations to ADC Therapeutics under the ADCT Collaboration Agreement with respect to (i) the targets for which ADC Therapeutics has a license or an option to license and (ii) the use or licensing of our intellectual property that is necessary or useful to the development plan under the ADCT Collaboration Agreement or that would preclude us from granting to ADC Therapeutics the licenses under the ADCT License Agreement. ADC Therapeutics owns intellectual property that are specific to
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the SAFEbodies that we develop under the ADCT Collaboration Agreement with respect to the two elected targets, and we will own all intellectual property developed under the ADCT Collaboration Agreement that relates generally to our SAFEbody platform.
Under the ADCT Collaboration Agreement, we are eligible to receive up to US$1,600,000 in consideration for our exclusivity obligations, upon achievement of certain development milestones and upon ADC Therapeutics' election to proceed with development for the two elected targets. As of the date of this prospectus, we have received US$437,500 in aggregate payments under the ADCT Collaboration Agreement. ADC Therapeutics has the right to terminate the ADCT Collaboration Agreement at any time and for any reason in its entirety or on a target-by-target basis upon thirty days' prior written notice to us. Either party may terminate the ADCT Collaboration Agreement, in its entirety or on a target-by-target basis, upon the other party's uncured material breach of the agreement or the other party's insolvency-related events.
ADCT License Agreement
Subject to the exercise of the options contained in the ADCT Collaboration Agreement, we have granted ADC Therapeutics, with respect to each elected target, an exclusive, worldwide, perpetual and irrevocable (subject only to the termination provisions) license (with the right to grant sublicenses) to develop, make, use, commercialize and import the antibody drug conjugates that comprise masked antibodies generated by us under these programs. Subject to certain conditions, including the exercise by ADC Therapeutics of its first option to license our SAFEbody technology, ADC Therapeutics will grant us the option to negotiate a license to develop, manufacture and commercialize ADCs containing our SAFEbody technology in Greater China.
Under the ADCT License Agreement, if ADC Therapeutics exercises both of its options granted thereunder, we could be eligible to receive up to US$166,090,000 in aggregate milestone payments, in addition to mid-single-digit percentage net sales-based tiered royalties on products licensed under the ADCT License Agreement, subject to certain reductions. Royalties, if any, will be payable on a country-by-country and product-by-product basis, until the earlier of (i) the tenth anniversary of the first commercial sale of such product or (ii) the expiration of the last-to-expire patent licensed under the agreement in such country, unless earlier terminated by the parties, following which any licenses granted to ADC Therapeutics under the ADCT License Agreement shall become fully paid up, perpetual and irrevocable. In addition to the contingent milestone and royalty payments, if ADC Therapeutics exercises both of its options granted under the ADCT Collaboration Agreement, we are also entitled to a mid-six-figure dollar amount annual maintenance fee. ADC Therapeutics has not yet exercised the options contained in the ADCT Collaboration Agreement as of the date of this prospectus. Therefore, we have not received any payment under the ADCT License Agreement.
ADC Therapeutics has the right to terminate the ADCT License Agreement before the expiration of the royalty term on a product-by-product basis or in its entirety (i) for any reason or no reason upon thirty days' written notice to us, or (ii) if ADC Therapeutics chooses to discontinue the development or sale of the applicable licensed product worldwide. Each party has certain rights to terminate the ADCT License Agreement with prior written notice upon the other party's uncured material breach or insolvency.
Sanjin Collaboration/ Out-Licensing Agreements
2018 Collaboration Agreements
In December 2018, we entered into (i) a collaboration agreement (the "Sanjin Greater China Agreement") that covers Greater China with Guilin Sanjin Pharmaceutical Co., Ltd. ("Sanjin") and certain of its subsidiaries (collectively, "Sanjin Parties") and (ii) a collaboration agreement (the "Sanjin ROW Agreement", together with the Sanjin Greater China Agreement, the "2018 Sanjin Agreements")
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that covers the regions other than Greater China with Sanjin. Pursuant to the Sanjin Greater China Agreement, we transferred the Chinese intellectual property directly related to a monospecific antibody molecule that binds to the PD-L1 target (the "PD-L1 Project"), including patent rights, patent application rights and technologies based on the core sequence of the molecule, to Sanjin Parties. Sanjin Parties will own all the Chinese intellectual property developed in the exercise of Sanjin Parties' rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. We also granted Sanjin Parties a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the PD-L1 Project for the purposes of exploiting its rights and performing its obligations under the agreement. Sanjin Parties will enjoy all the economic benefits deriving from the PD-L1 Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. Sanjin Parties will pay us (i) within the validity period of the patent of PD-L1 molecule, single-digit percentage of net sales of the products that use the licensed antibody after such products enter the market and (ii) a low to mid-low double-digit percentage of the profits resulting from any transfer of the license to any third parties depending on the timing of the transfer relative to the development stage of the product. We also received a low-seven figure dollar upfront fee upon the effectiveness of the agreement from Sanjin Parties.
Pursuant to the Sanjin ROW Agreement, we granted Sanjin a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that we controlled before we entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between us and Sanjin's affiliates in connection with the collaboration will be jointly owned. We have the right to apply for the patents derived from our core and key technologies pertaining to the PD-L1 molecule in the rest of the world and we retain a majority of the economic benefits derived from the Sanjin ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case we intend to transfer to a third party our share of economic interests in any country outside of Greater China, we must notify Sanjin and Sanjin will receive a right of first refusal if it pays us a deposit equal to a low double-digit percentage of the consideration that we expect to receive from such third party. If Sanjin waives the right of first refusal, we can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in our notice to Sanjin.
Under the 2018 Sanjin Agreements, we agreed not to (i) independently develop any monospecific antibodies that bind to the PD-L1 target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreements. The exclusivity obligation does not prevent us from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and probody against PD-L1 target and (ii) continuing to provide antibody screening service that were commenced before the execution of the Sanjin Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either non-breaching party may terminate the 2018 Sanjin Agreements if the other party's ability to comply with its respective obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Sanjin Parties will return to us all the intellectual property transferred by us to the Sanjin Parties as well as documents and data provided by us under the 2018 Sanjin Agreements. The 2018 Sanjin Agreements are governed by PRC law.
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2019 Collaboration Agreements
In May 2019, we entered into (i) a collaboration agreement that covers Greater China (the "Dragon Boat Greater China Agreement") and (ii) a collaboration agreement that covers the regions other than Greater China (the "Dragon Boat ROW Agreement," together with the Dragon Boat Greater China Agreement, the "2019 Dragon Boat Agreements"), with Dragon Boat Biopharmaceutical (Shanghai) Limited. ("Dragon Boat"), a subsidiary of Sanjin. Pursuant to the Dragon Boat Greater China Agreement, we will transfer the Chinese intellectual property directly related to a certain monospecific antibody molecule (the "Specified Molecule") that binds to a specified target (the "Specified Project"), including the patent rights, patent application rights and technologies based on the core sequence of the molecule, to Dragon Boat. Dragon Boat will own all the Chinese intellectual property developed in the exercise of Dragon Boat's rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. We also granted Dragon Boat a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the Specified Project for the purposes of exploiting its rights and performing its obligations under the agreement. Dragon Boat will enjoy all the economic benefits deriving from the Specified Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. and will pay us (i) RMB6,000,000 (equivalent to approximately US$0.9 million) milestone payments and (ii) a single-digit percentage of net sales of the products that within the validity period of the patent of the Specified Molecule use the licensed antibody after such products enter the market. Dragon Boat also paid us a mid-six figure dollar upfront fee upon the signing of the agreement.
Pursuant to the Dragon Boat ROW Agreement, we granted Dragon Boat a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that we controlled before we entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between us and Dragon Boat in connection with the collaboration will be jointly owned. We have the right to apply for the patents derived from our core and key technologies pertaining to the Specified Molecule in the rest of the world and we retain a majority of the economic benefits derived from the Dragon Boat ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case we intend to transfer to a third party our share of economic interests in any country outside of Greater China, we must notify Dragon Boat and Dragon Boat will receive a right of first refusal if it pays us a deposit equal to a low double-digit percentage of the consideration that we expect to receive from such third party. If Dragon Boat waives the right of first refusal, we can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in our notice to Dragon Boat.
Under the 2019 Dragon Boat Agreements, we agreed not to (i) independently develop any monospecific antibodies that bind to the specified target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreements. The exclusivity obligation does not prevent us from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and probody against the specific target and (ii) continuing to provide antibody screening service that were commenced before the execution of the Dragon Boat Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either nonbreaching party may terminate the 2019 Dragon Boat Agreements if the other party's ability to comply with its obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to
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take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Dragon Boat will return to us all the intellectual property transferred by us to Dragon Boat as well as documents and data provided by us under the 2019 Dragon Boat Agreements. The 2019 Dragon Boat Agreements are governed by PRC law.
As of the date of this prospectus, we have received approximately US$1.5 million and US$0.6 million in aggregate payments under the 2018 Sanjin Agreements and the 2019 Dragon Boat Agreements, respectively.
INTELLECTUAL PROPERTY
Protection of our intellectual property is fundamental to the long-term success of our business. Specifically, our success is dependent on our ability to obtain and maintain protection for our technology and the know-how related to our business, defend and enforce our intellectual property rights, and operate our business without infringing, misappropriating, or otherwise violating valid and enforceable intellectual property rights of others. Our patent strategy is focused on seeking coverage for our core technologies and products, such as the DPL platform, ADG106, ADG126, and ADG116. We also rely on trade secret protection of our confidential information and know-how relating to our proprietary technology, platforms and product candidates, and continuing innovation to develop, strengthen, and maintain our proprietary position in our technology, platforms and product candidates. We expect to rely on data exclusivity, market exclusivity, patent term adjustment and patent term extensions when available.
As of January 15, 2021, we own two issued patents and nine pending patent applications in China and we also own two issued patents and seven pending applications in Europe filed with the European Patent Office, thirteen pending patent applications in the United States and 67 pending patent applications in other jurisdictions. Our patents and patent applications cover our key technologies and products, including the DPL platform, ADG106, ADG126, and ADG116. Excluding any patent term adjustment and patent term extension, our currently issued patents are expected to expire from 2033 to 2034. If any patents issue from our pending patent applications, excluding any patent term adjustments and patent term extension, such patents will be expected to expire from 2033 to 2041. The following table summarizes material pending patent applications in the United States, China, Europe and under Patent Cooperation Treaty, or PCT, covering our product candidates, including ADG106, ADG126, ADG116 and ADG104.
Product Candidates
|
Title of Patent
Application |
Type of
Patent Applications(1) |
Jurisdiction | |||
---|---|---|---|---|---|---|
ADG106 | Anti-CD137 molecules and uses thereof | Composition of matter/ method of use/ method of making | United States of America China and European Patent Office | |||
Combination therapy comprising anti-CD137 antibodies | method of treatment/ method of use | United States of America | ||||
ADG126 |
|
Anti-CTLA4 antibodies and methods of making and using the same |
|
Composition of matter/ method of use/ method of making |
|
United States of America, China and European Patent Office |
ADG116 |
|
Anti-CTLA4 antibodies and methods of making and using the same |
|
Composition of matter/ method of use/ method of making |
|
United States of America, China and European Patent Office |
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Product Candidates
|
Title of Patent
Application |
Type of
Patent Applications(1) |
Jurisdiction | |||
---|---|---|---|---|---|---|
ADG104 |
|
Anti-PD-L1 antibodies and use thereof |
|
Composition of matter/ method of use/ method of making |
|
United States of America and European Patent Office |
The following table summarizes material issued patents in Europe and China covering our proprietary technologies.
Application No.
|
Title of Patent | Type of Patent(1) | Jurisdiction | |||
---|---|---|---|---|---|---|
13877452.6 | An Integrated System for Library Construction, Affinity Binder Screening and Expression Thereof | Method | European Patent Office | |||
201380074656.1 |
|
An Integrated System for Library Construction, Affinity Binder Screening and Expression Thereof |
|
Method |
|
China |
14908246.3 |
|
Methods and Systems for Autoinduction of Protein Expression |
|
Method |
|
European Patent Office |
201410789857.6 |
|
Filter Vector System And Its Applications |
|
Method |
|
China |
We continually assess and refine our intellectual property strategy as we develop new platform technologies and product candidates. To that end, we are prepared to file additional patent applications relating to the new technologies that we develop if our intellectual property strategy requires such filings, or where we seek to adapt to competition or seize business opportunities. In addition to filing and prosecuting patent applications in China and the United States, we may elect to file counterpart patent applications in additional countries and regions where we believe such foreign filing is likely to be beneficial.
As with other biopharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property position for our platform technologies and product candidates will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, our owned pending patent applications, and any patent applications that we may in the future file or license from third parties may not result in the issuance of patents. In addition, the term of individual issued patents depends upon the legal term for patents in the countries in which they are obtained. In most countries in which we have filed or intend to file in the future, including the United States, the patent term is 20 years from the earliest filing date of a nonprovisional patent application. We intend to seek patent term extensions to any of our issued patents in any jurisdiction where these are available; however, there is no guarantee that the applicable authorities will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. The life of a patent, and the protection it affords, is therefore limited and once the patent life of our issued patents
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has expired, we may face competition, including from other competing technologies. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We seek to ensure that investments made into the development of our technology are protected by relying on a combination of patents, trademarks, copyrights, trade secrets and contractual rights, including license agreements. In addition to our patent portfolio described above, as of January 15, 2021, our PRC subsidiary owns 25 registered trademarks relating to various aspects of our operations, and two registered domain names in China. To protect our rights, we seek to enter into confidentiality agreements, nondisclosure agreements and employee disclosure and invention assignment agreements with our employees, contractors and other third parties who may have or need access to our confidential information. We have also employed internal policies, encryptions and data security measures to protect our proprietary rights. However, there can be no assurance that our efforts will be successful. If our employees, contractors or other third parties violate these agreements or otherwise infringe upon, misappropriate or otherwise violate our intellectual property rights, we may seek to enforce our rights against such parties. In addition, from time to time, third parties may initiate litigation against us alleging infringement, misappropriation or other violation of their proprietary rights or declaring their noninfringement of our intellectual property rights. An adverse result in any such proceeding could enjoin the commercialization of our technology platform and product candidates, result in significant damages, and have a material adverse effect on our business. Even if we are successful in any such litigation, we may be required to incur significant costs and dedicate significant personnel time in defending such litigation. For more information on these and other risks related to intellectual property, see "Risk FactorsRisks Related to Our Intellectual Property".
MANUFACTURING AND SUPPLY
We do not currently operate a cGMP-compliant manufacturing facility. We currently outsource the GMP manufacturing and quality control testing and cGMP quality assurance release of clinical trial material to WuXi Biologics. We have entered into a framework agreement with Wuxi Biologics, under which it provides services to us on a project-by-project basis. We are also working with other qualified manufacturers to provide diversified manufacturing and supply services. We also monitor the manufacturing activities of clinical trial material to ensure the compliance with local and international cGMP and applicable regulations. We have assembled a seasoned internal team with rich experience to drive and monitor the manufacturing process. Currently, Wuxi Biologics obtains raw materials and supplies for manufacturing activities from multiple suppliers who we believe have sufficient capacity to meet our demands. We expect to continue our relationships with WuXi Biologics but are continuously evaluating multiple vendors globally to ensure continuous supply of products for global clinical trials.
COMPETITION
The biotechnology and pharmaceutical industries are highly competitive and characterized by continuing technological advancement, significant competition and an emphasis on intellectual property. While we believe that our management's research, development and commercialization experience provide us with competitive advantages, we face potential competition from many different sources, including global biopharmaceutical companies, major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for the research, development, manufacturing and commercialization of cancer immunotherapies. Any product candidates that we successfully develop and commercialize will compete with new immunotherapies and other drug products that may become available in the future. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer and more
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effective, have fewer or less severe side effects or are more convenient than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we do.
We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop cancer treatments. There are many other companies that have commercialized and/or are developing immuno-oncology treatments for cancer, including large pharmaceutical and biotechnology companies. Many of our competitors have significantly greater financial, technical and human resources than we have, and mergers and acquisitions in the biopharmaceutical industry may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunities 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 lead product candidate, ADG106, is an investigational fully human ligand-blocking, agonistic anti-CD137 IgG4 mAb that is designed to target a unique conserved epitope of CD137. While potentially unique for this type of product candidate, we expect our primary competition to be with other clinical-stage CD137 agonist product candidates. According to Frost & Sullivan, there are no marketed CD137 agonist drugs. The two leading molecules in clinical trials are utomilumab (PF-05082566) from Pfizer and urelumab (BMS-663513) from BMS. The following chart reflects CD137 agonist mAb programs in the global pipeline:
ADG126 and ADG116 are investigational, fully human anti-CTLA-4 mAbs generated through our NEObody and SAFEbody technologies, respectively. We expect our primary competition to be within the CTLA-4 antibody market, especially with ipilimumab. According to Frost & Sullivan, as of July 31, 2020, Yervoy (ipilimumab) from BMS is the only market CTLA-4 drug targeting cancer with six indications including monotherapy and combination therapies approved by FDA.
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In January 2020, BMS submitted a biologics license application, or BLA, with the FDA for Opdivo in combination with Yervoy for the first-line treatment of patients with metastatic or recurrent NSCLC with no EGFR or ALK genomic tumor aberrations. In April 2020, the FDA approved Opdivo plus Yervoy, administered concomitantly with a limited course of chemotherapy, for the first-line treatment of patients with metastatic or recurrent NSCLC with no EGFR or ALK genomic tumor aberrations.
While Yervoy is the only marketed CTLA-4 antibody drug, there are over ten CTLA-4 antibody monotherapies and combination therapies in clinical development globally, according to Frost & Sullivan. Among the pipeline candidates, tremelimumab by AstraZeneca, as part of a combination therapy with durvalumab, is undergoing Phase III clinical trial for six different indications. Four other drug candidates are undergoing Phase II clinical trial, according to Frost & Sullivan.
There are no marketed CTLA-4 antibody drugs in China, but at least seven CTLA-4 antibodies pipelines are in clinical development, according to the Frost & Sullivan Report. For example, BMS has submitted a new drug application for ipilimumab; tremelimumab by AstraZeneca has entered Phase III clinical trials for indications including NSCLC, small cell lung cancer and melanoma. Major limitations of CTLA-4 mAbs include toxicity. According to the Frost & Sullivan Report, nivolumab and ipilimumab combination therapy has shown relatively higher toxicity in clinical studies even at lower dosages, which was observed from the published clinical data. We believe that the continued expansion of indications, and the launch of innovative novel CTLA-4 antibodies with potential for higher safety and better efficacy may increase the market for CTLA-4 antibodies significantly.
EMPLOYEES
We had a total of 199 employees as of September 30, 2020. The following table sets forth the numbers of our employees categorized by function as of September 30, 2020. We also engage consultants and part-time staff as and when appropriate.
Function
|
Number
of Employees |
||||||
---|---|---|---|---|---|---|---|
Research and Development |
162 | ||||||
Computational Biology and Informatics |
25 | ||||||
Technology Development |
74 | ||||||
Drug Discovery |
40 | ||||||
Clinical Development |
23 | ||||||
General Administration |
34 | ||||||
HR |
6 | ||||||
Finance |
9 | ||||||
IT |
5 | ||||||
Administration |
14 | ||||||
Business Development and Marketing |
3 | ||||||
| | | | | | | |
Total |
199 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Our success depends on our ability to attract, motivate, train and retain qualified personnel. We believe we offer our employees competitive compensation packages and an environment that encourages self-development. We regularly recruit new talents through campus events and colleague referral to build and develop our own talent pool. Through employee succession planning, we help employees understand their career path within Adagene, motivate them to remain in the organization and to achieve their personal career goals. Other initiatives for talent retention include executive coaching, employee surveys or engagement, training and development, compensation and rewards. As a result of these efforts, we have generally been able to attract and retain qualified personnel and maintain a stable core management team.
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As required by regulations in China, we participate in various employee social security plans that are organized by municipal and provincial governments, including pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. We have granted, and plan to continue to grant, share-based incentive awards to our employees in the future to incentivize their contributions to our growth and development.
We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes. None of our employees is subject to a collective bargaining agreement.
FACILITIES
Our headquarter is based in Suzhou, China, where we have our main administrative and laboratory offices, which are approximately 2,946 square meters in size. The expiration dates of the lease agreements for this facility range from March 31, 2021 to October 7, 2023. We also have a 2,673 square feet facility in San Diego, California for laboratory, research and development functions, the lease for which expires on August 31, 2023. We believe our current facilities are sufficient to meet our near-term needs and we do not expect difficulties in renewing lease agreements for our facilities.
INSURANCE
We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees. We maintain property insurance, general liability insurance, products/completed operations insurance, auto and international auto liability insurance, workers compensation insurance, international workers compensation insurance, accident and health insurance and director and officer liabilities insurance. We consider our insurance coverage sufficient and in line with market practice for our business operations in the industry.
LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings or be subject to claims 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, results of operations, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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United States Regulation
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.
In the United States, the FDA regulates biologic products under the Federal Food, Drug and Cosmetic Act, its implementing regulations and other laws, including, in the case of biologics, the Public Health Service Act. Our product candidates are subject to regulation by the FDA as biologics. Biologics require the submission of a BLA and licensure, which constitutes approval, by the FDA before being marketed in the United States. None of our product candidates has been approved by the FDA for marketing in the United States, and we currently have no BLAs pending. Failure to comply with applicable FDA or other requirements at any time during product development, clinical testing, the approval process or after approval may result in administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, suspension or revocation of approved applications, warning letters, product recalls, product seizures, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:
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Preclinical and Clinical Development
Prior to beginning the first clinical trial with a product candidate in the United States, we must submit an IND application to the FDA. An IND application is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND application is on the general investigational plan and the protocol(s) for clinical trials. The IND application also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. If the IND sponsor is not able to address FDA's concerns satisfactorily within the 30-day time frame, the IND may be placed on clinical hold. The IND sponsor and the FDA must resolve any outstanding concerns or questions before the IND is cleared by the FDA and the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Generally, a separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board, or DSMB, which provides recommendation on whether or not a study should move forward at designated check points based on access to certain data from the study. The DSMB may recommend halting of the clinical trial if it determines that there is an unacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
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diseases and with no available therapies, it may be possible to obtain BLA approval based on data from Phase II trials if a positive benefit risk profile is demonstrated.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
BLA Submission and Review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product's chemistry, manufacturing, controls and proposed labeling, among other things. The submission of a BLA requires payment of a substantial application user fee to the FDA unless a waiver or exemption applies.
Once an original BLA has been submitted, FDA has 60 days to determine whether the application can be filed. If FDA determines that an application to be deficient, on its face, in a way that precludes a complete review, FDA may not accept the application for review and may issue a refuse-to-file letter to the sponsor. If FDA determines the application is filable, the FDA's goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facilities in which it is manufactured, processed, packed, or held meets standards designed to assure the product's continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
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After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the commercial product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product's safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates. The fast track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a fast track product has opportunities for frequent interactions with the review team during product development and, once a BLA is submitted, the product may be eligible for priority review. A fast track product may also be eligible for rolling review, in which case the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.
A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase I and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.
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Any marketing application for a biologic submitted to the FDA for approval, including a product with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition compared to marketed products. For products containing new molecular entities, priority review designation means the FDA's goal is to take action on the marketing application within six months of the 60-day filing date (compared with ten months under standard review).
Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well- controlled post-marketing clinical trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
In 2017, FDA established a new regenerative medicine advanced therapy, or RMAT, designation as part of its implementation of the 21st Century Cures Act, which was signed into law in December 2016. The RMAT designation program is intended to fulfill the 21st Century Cures Act requirement that FDA facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like fast track and breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with the FDA to discuss the development plan for the product candidate and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. Once approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under accelerated approval through the submission of clinical evidence, clinical trials, patient registries, or other sources of real-world evidence such as electronic health records; through the collection of larger confirmatory datasets; or through post-approval monitoring of all patients treated with the therapy prior to approval.
Fast track designation, breakthrough therapy designation, priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development or approval process.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making available a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA
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grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Post-Approval Requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
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The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product's labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer's communications on the subject of off-label use of their products.
Biosimilars and Reference Product Exclusivity
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical trial or studies. Interchangeability requires that a product be biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered to a patient more than once, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the FDA may not approve a biosimilar product until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA containing that applicant's own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the competing product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed "interchangeable" by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
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The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate implementation and impact of the BPCIA is subject to significant uncertainty.
Other Healthcare Laws and Compliance Requirements
Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation:
If their operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to significant penalties, including, without limitation, civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.
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Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological product for which we obtain regulatory approval. Sales of any product depend, in part, on the extent to which such product will be covered by third-party payers, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payers. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. As there is no uniform policy of coverage and reimbursement for drug products among third-party payers in the United States, coverage and reimbursement policies for drug products can differ significantly from payer to payer. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time-consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage or adequate reimbursement will be obtained. It is difficult to predict at this time what government authorities and third-party payers will decide with respect to coverage and reimbursement for our drug products. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization.
In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Third-party payers are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payer not to cover a product could reduce physician usage and patient demand for the product.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the healthcare system. There is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded healthcare programs, and increased governmental control of drug pricing.
In March 2010, the ACA was signed into law, which substantially changed the way healthcare is financed by both governmental and private insurers in the United States, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions of particular import to the pharmaceutical and biotechnology industries, including, but not limited to, those governing enrollment in federal healthcare programs, a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and annual fees based on pharmaceutical companies' share of sales to federal healthcare programs.
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Since its enactment, there have been judicial, Congressional, and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the 2020 federal spending package permanently eliminates, effective January 1, 2020, the ACA-mandated "Cadillac" tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. In addition, the Tax Act was enacted, which, among other things, removes penalties for not complying with ACA's individual mandate to carry health insurance. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review this case, although it is unclear when or how the Supreme Court will rule. It is also unclear how other efforts to challenge, repeal or replace the ACA will impact the ACA.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers, which will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2020, unless additional Congressional action is taken. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
At the federal level, the Trump administration's budget proposal for fiscal year 2021 includes a US$135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. Further, the Trump administration released a "Blueprint," or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out- of-pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. For example, in May 2019, the Centers for Medicare & Medicaid Services, or CMS, issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS's policy change that was effective January 1, 2019. Most recently, in July 2020, President Trump also signed a number of executive orders that attempt to implement several of the Administration's proposals. While some of measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product.
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PRC Regulation
We are subject to a variety of PRC laws, rules and regulations affecting many aspects of our business. This section sets out a summary of the major relevant laws, regulations, rules and policies which may have material impact on our business and operations.
Regulations on Company Establishment and Foreign Investment
The establishment, operation and management of corporate entities in China are governed by the Company Law of PRC, or the PRC Company Law, which was promulgated by the Standing Committee of the National People's Congress, or the NPC, in December 1993 and further amended in December 1999, August 2004, October 2005, December 2013 and October 2018, respectively. According to the PRC Company Law, companies are generally classified into two categories: limited liability companies and companies limited by shares. The PRC Company Law also applies to foreign-invested limited liability companies. According to the PRC Company Law, where laws on foreign investment have other stipulations, such stipulations shall prevail.
Investment activities in the PRC by foreign investors are governed by the Guiding Foreign Investment Direction, which was promulgated by the State Council in February 2002 and came into effect in April 2002, and the Special Administrative Measures for the Access of Foreign Investment (Negative List), or the Negative List, which was promulgated by the Ministry of Commerce of the PRC, or the MOFCOM, and the National Development and Reform Commission, or the NDRC, in June 2020 and came into effect in July 2020. The Negative List sets out the restrictive measures in a unified manner, such as the requirements on shareholding percentages and management, for the access of foreign investments, and the industries that are prohibited from receiving foreign investment. The Negative List covers 12 industries, and any field not falling under the Negative List shall be administered under the principle of equal treatment to domestic and foreign investment.
Foreign Investment Law of the PRC, or the Foreign Investment Law, was promulgated by the NPC in March 2019 and came into effect in January 2020. When the Foreign Investment Law came into effect, the Law on Wholly Foreign-owned Enterprises of the PRC, the Law on Sino-foreign Equity Joint Ventures of the PRC and the Law on Sino-foreign Cooperative Joint Ventures of the PRC were repealed simultaneously. The investment activities of foreign natural persons, enterprises or other organizations (collectively, the "foreign investors") directly or indirectly within the territory of China shall comply with and be governed by the Foreign Investment Law. Such activities include: 1) establishing by foreign investors of foreign-invested enterprises in China alone or jointly with other investors; 2) acquiring by foreign investors of shares, equity, property shares, or other similar interests of Chinese domestic enterprises; 3) investing by foreign investors in new projects in China alone or jointly with other investors; and 4) other forms of investment prescribed by laws, administrative regulations or the State Council.
In December 2019, the State Council promulgated the Regulations on Implementing the Foreign Investment Law of the PRC, which came into effect in January 2020. When the Regulations on Implementing the Foreign Investment Law of the PRC came into effect, the Regulation on Implementing the Sino-Foreign Equity Joint Venture Enterprise Law of the PRC, Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise, the Regulations on Implementing the Wholly Foreign-Invested Enterprise Law of the PRC and the Regulations on Implementing the Sino-Foreign Cooperative Joint Venture Enterprise Law of the PRC were repealed simultaneously.
In December 2019, the MOFCOM and the State Administration for Market Regulation, or the SAMR promulgated the Measures on Reporting of Foreign Investment Information, which came into effect in January 2020. When the Measures on Reporting of Foreign Investment Information came into effect, the Interim Measures for the Administration of Filing for Establishment and Changes in Foreign
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Investment Enterprises were repealed simultaneously. Since January 1, 2020, for foreign investors carrying out investment activities directly or indirectly in China, the foreign investors or foreign-invested enterprises shall submit investment information to the relevant commerce administrative authorities according to the Measure on Reporting of Foreign Investment Information.
Regulation on Pharmaceutical Product Development, Approval and Registration
Drug Regulatory Regime
The Drug Administration Law of the PRC, or the Drug Administration Law, was promulgated by the Standing Committee of the NPC, in September 1984. The two latest amendments to the Drug Administration Law were the amendment promulgated in April 2015 and in August 2019. The Regulations for the Implementation of the Drug Administration Law was promulgated by the State Council in August 2002, and was last amended in March 2019. The Drug Administration Law and the Regulations for the Implementation of the Drug Administration Law have jointly established the legal framework for the administration of pharmaceutical products in China, including the research, development and manufacturing of new drugs. The Drug Administration Law applies to entities and individuals engaged in the development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and provides for a framework for the administration of pharmaceutical manufacturers, pharmaceutical trading companies and medicinal preparations of medical institutions, and the development, research, manufacturing, distribution, packaging, pricing and advertisements of pharmaceutical products. The Regulations for the Implementation of the Drug Administration Law, at the same time, provide the detailed implementation regulations for the Drug Administration Law.
In 2017, the drug regulatory system entered a new and significant period of reform. The General Office of the State Council and the General Committee of China Communist Party jointly issued Opinions on Deepening the Reform of the Evaluation and Approval Systems and Encouraging Innovation on Drugs and Medical Devices, or the Innovation Opinions. The expedited programs, the record-filing system, the prioritized review mechanism, the acceptance of foreign clinical data under the Innovation Opinions and other recent reforms encourage drug manufacturers to seek marketing approval in China first for the development of drugs in highly prioritized therapeutic areas, such as oncology or rare diseases.
To implement the regulatory reform introduced by Innovation Opinions, the Standing Committee of the NPC, the National Medical Products Administration, or the NMPA, a newly formed government authority as well as other authorities, are currently responsible for revising the laws, regulations and rules governing the pharmaceutical products and the industry.
In August 2019, the Standing Committee of the NPC promulgated the new Drug Administration Law, or the 2019 Amendment, which came into effect in December 2019. The 2019 Amendment contains many of the major reform initiatives implemented by the Chinese government since 2015, including but not limited to the Marketing Authorization Holder, or the MAH, system, conditional approvals of drugs, traceability system of drugs, and the cancellation of relevant certification according to the Good Manufacturing Practice, or the GMP, and the Good Supply Practice, or the GSP.
Regulatory Authorities
Pharmaceutical products in China are monitored and supervised on a national scale by the NMPA. The local provincial medical products administrative authorities are responsible for supervision and administration of drugs within their respective administrative regions. The NMPA was newly formed under the SAMR. The NMPA's predecessor, the State Drug Administration, or the SDA, was replaced by the State Food and Drug Administration, or the SFDA, which was later reorganized into the China
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Food and Drug Administration, or the CFDA, as part of the institutional reforms implemented by the State Council.
The primary responsibilities of the NMPA include:
In 2013, the Ministry of Health, or the MOH, and the National Population and Family Planning Commission were integrated into the National Health and Family Planning Commission of the PRC, or the NHFPC. In March 2018, the First Session of the Thirteenth NPC approved the State Council Institutional Reform Proposal, according to which, NHFPC and certain other governmental authorities were consolidated into the National Health Commission, or the NHC. The responsibilities of the NHC include coordinating the formulation of national drug policies, the national essential medicine system and the National Essential Medicines List and drafting the administrative rules for the procurement, distribution and use of national essential medicines.
According to the Decision of the CFDA on Adjusting the Approval Procedures under the Administrative Approval Items for Certain Drugs, which was promulgated by the CFDA in March 2017 and came into effect in May 2017, the Investigational New Drug Application, or the IND, approval should be issued by the Center for Drug Evaluation, or the CDE, on behalf of the CFDA.
Regulations on Clinical Trials and Registration of Drugs
Administrative Measures for Drug Registration
In July 2007, the SFDA promulgated the amended version of the Administrative Measures for Drug Registration, or the Registration Measures, which became effective in October 2007. The Registration Measures mainly cover: (1) definitions of drug registration applications and regulatory responsibilities of drug administration; (2) general requirements for drug registration, including application for registration of new drugs, generic drugs, imported drugs and supplemental application, as well as application for re-registration; (3) clinical trials; (4) application, examination and approval of new drugs, generic drugs and imported drugs; (5) supplemental applications and re-registrations of drugs; (6) inspections; (7) registration standards and specifications; (8) time limit; (9) re-examination; and (10) liabilities and other supplementary provisions.
According to the Registration Measures, drug registration applications are divided into three different types, namely Domestic New Drug Application, Domestic Generic Drug Application and Imported Drug Application. Drugs which fall into one of three general types are divided according to the drug's working mechanism, namely whether the drug is classified as a chemical medicine, a
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biological product, a traditional Chinese medicine or a natural medicine. New Drug Application, or NDA, refers to an application for registration of a drug that has not yet been marketed for sale in China. In addition, the registration of drugs that change the dosage form of the marketed drugs, change the route of administration and increase the new indications shall be reported in accordance with the application procedures for new drugs. Under the Registration Measures, a Category 1 drug refers to a new drug that has never been marketed in any country, and such drug is eligible for special review or fast track approval by the NMPA.
In January 2020, the SAMR released the amended Administrative Measures for Drug Registration, or the Amended Registration Measures, which came into effect in July 2020. The Amended Registration Measures provide detailed procedural and substantive requirements for the key regulatory concepts established by the Drug Administration Law, and confirms a number of reform actions that have been taken in the past years, including but not limited to: (i) the full implementation of the MAH system and implied approval of the commencement of clinical trial; (ii) the implementation of associated review of drugs, excipients and packaging materials; and (iii) the introduction of four procedures for expedited registration of drugs, which are procedures for ground-breaking therapeutic drugs, procedures for conditional approval, procedures for prioritized reviews and approval, and procedures for special examination and approval. Detailed implementation rules for drug classification and requirements for corresponding application materials will be promulgated by the NMPA.
In March 2016, the CFDA issued the Reform Plan for Registration Category of Chemical Medicine, which outlined the reclassifications of drug applications under the Registration Measures. According to the Reform Plan for Registration Category of Chemical Medicine, Category 1 drugs refer to innovative new drugs that have not been marketed anywhere in the world. Improved new drugs that are not marketed anywhere in the world fall into Category 2 drugs. Generic drugs, that have equivalent quality and efficacy to the originator's drugs and have been marketed abroad but not yet in China, can be classified as Category 3 drugs. Generic drugs, that have equivalent quality and efficacy to the originator's drugs and have been marketed in China, fall into Category 4 drugs. Category 5 drugs are drugs which have already been marketed abroad, but are not yet approved in China. Category 1 drugs and Category 5 drugs can be registered through the Domestic New Drug Application and the Imported Drug Application Procedures under the Registration Measures, respectively.
The SFDA promulgated the Administrative Provisions on Special Examination and Approval of Registration of New Drugs in January 2009, according to which, the SFDA conducts special examination and approval for new drug registration applications when: (1) the effective constituent of drug extracted from plants, animals, minerals, etc., as well as the preparations thereof have never been marketed in China, and the material medicines and the preparations thereof are newly discovered; (2) the chemical raw material medicines as well as the preparations thereof and the biological product have not been approved for marketing at home and abroad; (3) the new drugs have obvious clinical treatment advantages for such diseases as AIDS, malignant tumors and orphan diseases, etc. or (4) the new drugs treat diseases currently with no effective methods of treatment.
The Special Examination and Approval of Registration of New Drugs provides that the applicant may file for special examination and approval at the clinical trial application stage if the product candidate falls within items (1) or (2). The provisions provide that for product candidates that fall within items (3) or (4), the application for special examination and approval cannot be made until filing for production.
Accelerated Approval for Clinical Trial and Registration
The Innovation Opinions established a framework for reforming the evaluation and approval system for drugs, medical devices and equipment. The Innovation Opinions enhanced the standard of
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approval for drug registration and accelerated the evaluation and approval process for innovative drugs as well as drug clinical trials.
The CFDA released the Circular Concerning Several Policies on Drug Registration Review and Approval in November 2015, which further clarified the measures and policies for simplifying and accelerating the approval process of clinical trials, including:
The NMPA released the Circular on Adjusting Evaluation and Approval procedures for Clinical Trials for Drugs in July 2018, according to which, within 60 days after the acceptance of and the fees paid for the IND application, the applicant may conduct the clinical trials for the drug in accordance with the clinical trial protocol submitted, if the applicant has not received any negative or questioning opinion from the CDE. Such approval process has been further enacted into the 2019 Amendment.
Trial Exemptions and Acceptance of Foreign Data
The NMPA issued the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data in July 2018, as one of the implementing rules for the Innovation Opinions, which provides that overseas clinical data can be submitted for the drug registration applications in China. Such applications can be in the form of waivers to China-based clinical trials, bridging trials and direct NDAs. According to the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data, sponsors may use the data of foreign clinical trials to support drug registration in China, provided that sponsors must ensure the authenticity, completeness, accuracy and traceability of foreign clinical trial data and such data must be obtained consistent with the relevant requirements under the Good Clinical Trial Practice of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use, or the ICH. Sponsors must also comply with other relevant sections of the Registration Measures when applying for drug registrations in China using foreign clinical trial data.
The NMPA now officially permits, and its predecessor agencies have permitted on a case-by-case basis in the past, drugs approved outside of China to be approved in China on a conditional basis without pre-approval clinical trials being conducted in China. Specifically, the NMPA and the NHC released the Procedures for Reviewing and Approval of Clinical Urgently Needed Overseas New Drugs in October 2018, permitting drugs that have been approved within the last ten years in the United States, the EU or Japan and that prevent or treat orphan diseases, or prevent or treat serious life-threatening illnesses for which there is either no effective therapy in China, or for which the
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foreign-approved drug would have clear clinical advantages. Applicants will be required to establish a risk mitigation plan and may be required to complete trials in China after the drug has been marketed. The CDE has developed a list of qualifying drugs that meet the foregoing criteria.
Clinical Trial Process and Good Clinical Practices
According to the Registration Measures, a clinical trial consists of Phases I, II, III and IV. Phase I refers to the initial clinical pharmacology and safety evaluation studies in humans. Phase II refers to the preliminary evaluation of a product candidate's therapeutic effectiveness and safety for particular indications in patients, to provide evidence and support for the design of Phase III clinical trials and to settle the administrative dose regimen. Phase III refers clinical trials undertaken to confirm the therapeutic effectiveness and safety on patients with target indications, to evaluate the overall benefit-risk relationships of the drug, and ultimately to provide sufficient evidence for the review of drug registration application. Phase IV refers to a new drug's post-marketing study to assess therapeutic effectiveness and adverse reactions when the drug is widely used, to evaluate the overall benefit-risk relationships of the drug when used among the general population or specific groups and to adjust the administration dose.
To improve the quality of clinical trials, the SFDA promulgated the Good Clinical Trial Practice for Drugs in August 2003, or the GCP Rules, which was replaced by the revised Good Clinical Trial Practice for Drugs, the Revised GCP Rules, promulgated by the NMPA and the NHC in April 2020 and coming into effect in July 2020. According to the Administration of Quality of Drug Clinical Practice, clinical trial means systematical investigation of drugs conducted on human subjects (patients or healthy volunteers) to prove or reveal the function, adverse reactions and/or absorption, distribution, metabolism and excretion of the drug being investigated. The purpose of a clinical trial is to determine the therapeutic efficacy and safety of the drug. The Revised GCP Rules provide comprehensive and substantive requirements on the design and conduct of clinical trials in China. In particular, the Revised GCP Rules enhance the protection for study subjects and tighten the control over bio-samples collected under clinical trials.
The Revised GCP Rules also set out the qualifications and requirements for the investigators and centers participating in clinical trial, who must: (i) have professional certification at a clinical trial center, professional knowledge, training experience and capability of clinical trial, and be able to provide the latest resume and relevant qualification documents per request; (ii) be familiar with the trial protocol, investigator's brochure and relevant information of the trial drug provided by the applicant; (iii) be familiar with and comply with the Revised GCP Rules and relevant laws and regulations relating to clinical trials; (iv) keep a copy of the authorization form on work allocation signed by investigators; (v) accept supervision and inspection organized by the applicant and inspection by the drug regulatory authorities; and (vi) in the case of investigators and clinical trial centers authorizing other individual or institution to undertake certain responsibilities and functions relating to clinical trial, they shall ensure such individual or institution are qualified and establish complete procedures to ensure the responsibilities and functions are fully performed and generate reliable data.
Communication with the CDE
According to the Circular on Adjusting Evaluation and Approval Procedures for Clinical Trials for Drugs, where the application for clinical trial of new investigational drug has been approved, upon the completion of Phases I and II clinical trials and prior to Phase III clinical trial, the applicant shall submit the application for Communication Session to the CDE to discuss the key technical questions including the design of Phase III clinical trial protocol. Within 60 days after the acceptance of and the fees paid for the IND application, the applicant may conduct the clinical trials for the drug in accordance with the clinical trial protocol submitted, if the applicant has not received any negative or questioning opinion from the CDE.
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The NMPA promulgated the Administrative Measures for Communication on the Research, Development and Technical Evaluation of Drugs in September 2018, according to which, during the research and development periods and in the registration applications of, among others, the innovative new drugs, the applicants may propose to conduct communication meetings with the CDE. The communication meetings can be classified into three types. Type I meetings are convened to address key safety issues in clinical trials of drugs and key technical issues in the research and development of breakthrough therapeutic drugs. Type II meetings are held during the key research and development periods of drugs, mainly including meetings before the IND application, meetings upon the completion of Phase II trials and before the commencement of Phase III trials, meetings before submitting a marketing application for a new drug, and meetings for risk evaluation and control. Type III meetings refer to meetings not classified as Type I or Type II.
Drug Clinical Trial Registration
According to the Registration Measures, upon obtaining the approval of its IND applications and before conducting a clinical trial, an applicant shall file a registration form with the SFDA containing various details, including the clinical trial protocol, the name of the principal researcher of the leading institution, the names of participating institutions and researchers, an approval letter from the ethics committee, and a sample of the informed consent form, with a copy sent to the competent provincial administration departments where the trial institutions will be located. The CFDA released the Announcement on Drug Clinical Trial Information Platform in September 2013, according to which, instead of the aforementioned registration field with the CFDA, all clinical trials approved by the CFDA and conducted in China shall complete a clinical trial registration and publish trial information through the Drug Clinical Trial Information Platform. The applicant shall complete the trial pre-registration within one month after obtaining the approval of the clinical trial approval in order to obtain the trial's unique registration number and complete registration of certain follow-up information before the first subject's enrollment in the trial. If the registration is not completed within one year after the approval of the IND applications, the applicant shall submit an explanation, and if the first submission is not completed within three years, the approval of the IND applications shall automatically expire.
New Drug Application
According to the Registration Measures, drug registration applications include domestic NDA, domestic generic drug application and imported drug application. Drugs are classified into chemical drugs, biological products and traditional Chinese medicine or natural drugs. When Phases I, II and III clinical trials have been completed, the applicant may apply to the SFDA for approval of the NDA. The SFDA then determines whether to approve the application according to the comprehensive evaluation opinion provided by the CDE.
Pilot Plan for the MAH System
The Innovation Opinions provide a pilot plan for the MAH system.
Under the authorization of the Standing Committee of the NPC, the General Office of the State Council issued the Pilot Plan for the Drug Marketing Authorization Holder Mechanism in May 2016, which provides a detailed pilot plan for the MAH system in 10 Chinese provinces. Under the MAH system, domestic drug research and development institutions and individuals in the pilot regions are eligible to be holders of drug registrations without having to become drug manufacturers. The marketing authorization holders may engage contract manufacturers for manufacturing, provided that the contract manufacturers are licensed and located within the pilot regions. Drugs that qualify for the MAH system are: (1) new drugs (including but not limited to drugs under category I to category IV of chemical drugs, and targeted preparation, sustained release preparation, controlled release preparation
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under category V of chemical drugs, biological products approved as category I and VII drugs and biosimilars under the Registration Measures) approved after the implementation of the MAH system; (2) generic drugs approved as category III or IV drugs under the Reform Plan for Registration Category of Chemical Medicine; (3) previously approved generics that have passed equivalence assessments against original drugs; and (4) previously approved drugs whose licenses were held by drug manufacturers originally located within the pilot regions, but which have moved out of the pilot regions due to corporate mergers or other reasons.
The CFDA promulgated the Circular on the Matters Relating to Promotion of the Pilot Program for the Drug Marketing Authorization Holder System in August 2017. It clarified the legal liability of the MAH, who is responsible for managing the whole manufacturing and marketing chain and the whole life cycle of drugs and legally liable for preclinical drug study, clinical trials, manufacturing, marketing, distribution and adverse drug reaction monitoring. According to the Circular on the Matters Relating to Promotion of the Pilot Program for the Drug Marketing Authorization Holder System, the MAH shall submit a report of drug manufacturing, marketing, prescription, techniques, pharmacovigilance, quality control measures and other situations to the CFDA within 20 working days after the end of each year.
According to the Pilot Plan for the Drug Marketing Authorization Holder Mechanism, the pilot plan was originally set for a three-year period and was scheduled to expire in November 2018. The Standing Committee of the NPC promulgated the Decision of Extending the Pilot Period of Authorizing the State Council to Carry Out the Pilot Plan for the Drug Marketing Authorization Holder Mechanism in Certain Places in October 2018, which extended the term of the MAH system to November 4, 2019.
According to the 2019 Amendment, which came into effect on December 1, 2019, the MAH system will be applicable throughout the country and the legal representative and the key person-in-charge of a drug MAH shall be fully responsible for the quality of drugs.
International Multi-Center Clinical Trials
The International Multi-Center Clinical Trial Guidelines (Trial), or the Multi-Center Clinical Trial Guidelines, which was promulgated by the CFDA in January 2015 and came into effect in March 2015, provided guidance on the implementation of Multi-Regional Clinical Trials, or the MRCT, in China. According to the Multi-Center Clinical Trial Guidelines, international multi-center clinical trial applicants may simultaneously perform clinical trials in different centers using the same clinical trial protocol. Where the applicants plan to implement the international multi-center clinical trials in the PRC, the applicants shall comply with relevant laws and regulations, such as the Drug Administration Law, the Implementing Regulations of the Drug Administration Law and the Registration Measures, execute the GCP Rules, make reference to universal international principles such as the ICH-GCP and comply with the laws and regulations of the countries involved in the international multi-center clinical trials. Where the applicants plan to use the data derived from the international multi-center clinical trials for approval of a drug registration in the PRC, it shall involve at least two countries, including China, and shall satisfy the requirements for clinical trials set forth in the Multi-Center Clinical Trial Guidelines, Registration Measures and other related laws and regulations.
In April 2020, the NMPA and the NHC promulgated the Revised GCP Rules, which came into effect in July 2020. The Revised GCP Rules summarize the requirements for initiating an MRCT, that is, before initiating an MRCT: (i) the applicant shall ensure that all the centers participating in the clinical trial comply with the trial protocol; (ii) the applicant shall provide each center with the same trial protocol, and each center shall comply with the same unified evaluation criterion for clinical trial and laboratory data and the same guidance for case report form; (iii) each center shall use the same case report form to record the data of each human subject obtained during the trial; (iv) before
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initiating a clinical trial, a written document is required to specify the responsibilities of the investigators of each center; and (v) the applicant shall ensure the communication among the investigators of each center.
Data derived from international multi-center clinical trials can be used for the new drug applications with the NMPA. When using international multi-center clinical trial data to support new drug applications in China, applicants shall submit the completed global clinical trial report, statistical analysis report and database, along with relevant supporting data in accordance with the content and format requirements under the International Conference on Harmonization-Common Technical Document; subgroup research results summary and comparative analysis shall also be conducted concurrently. Leveraging the clinical trial data derived from international multi-center clinical trials conducted by our partners, we may avoid unnecessarily repetitive clinical trials and thus further accelerate the NDA process in China.
The CFDA released the Decision on Adjusting Items concerning the Administration of Imported Drug Registration in October 2017, which includes the following key points:
Approval of Human Genetic Resources
The Interim Administrative Measures on Human Genetic Resources, promulgated by the Ministry of Science and Technology and the MOH in June 1998, aimed at protecting and fairly utilizing human genetic resources in the PRC. The Ministry of Science and Technology promulgated the Service Guide for Administrative Licensing Items concerning Examination and Approval of Sampling, Collecting, Trading or Exporting Human Genetic Resources, or Taking Such Resources out of the PRC in July 2015, according to which, the sampling, collection or research activities of human genetic resources by a foreign-invested sponsor fall within the scope of international cooperation, and the cooperating Chinese organization shall apply for approval of the China Human Genetic Resources Management Office through an online system. The Ministry of Science and Technology further promulgated the Circular on Optimizing the Administrative Examination and Approval of Human Genetic Resources in October 2017 and October 2020, which became effective in December 2017 and October 2020, respectively and simplified the approval of sampling and collecting human genetic resources for listing a drug in the PRC.
The Regulations of the PRC on the Administration of Human Genetic Resources, which was promulgated by the State Council in May 2019 and came into effect in July 2019, further stipulates that, in order to obtain marketing authorization for relevant drugs and medical devices in China, no approval is required in international clinical trial cooperation using China's human genetic resources at
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clinical institutions without export of human genetic resource materials. However, the type, quantity and usage of the human genetic resource to be used shall be filed with the administrative department of science and technology under the State Council before clinical trials.
Regulations on Drug Manufacturing and Distribution
Drug Manufacturing
According to the Drug Administration Law and the Implementing Regulations of the Drug Administration Law, a drug manufacturing enterprise is required to obtain a drug manufacturing license from the relevant provincial drug administration authority of the PRC. The grant of such license is subject to an inspection of the manufacturing facilities, and an inspection to determine whether the sanitary condition, quality assurance systems, management structure and equipment meet the required standards. According to the Implementing Regulations of the Drug Administration Law and the Measures on the Supervision and Administration of the Manufacture of Drugs, which was promulgated in August 2004, amended in November 2017 and January 2020 and came into effect in July 2020, the drug manufacturing license is valid for five years and shall be renewed at least six months prior to its expiration date upon a re-examination by the relevant authority. In addition, the name, legal representative, registered address and type of the enterprise specified in the drug manufacturing certificate shall be identical to that set forth in the business license as approved and issued by the industrial and commercial administrative department. To the extent the MAH does not manufacture the drug internally but through a contract manufacturing organization, the MAH shall apply for drug manufacturing license with the provincial counterpart of the NMPA, subject itself to inspections and other regulatory oversight by the agency.
The Good Manufacturing Practice for Drugs was promulgated in March 1988 and was amended in December 1992 and June 1999 and January 2011. The latest amendment was in June 2020 and will come into effect in October 2020. The Good Manufacturing Practice for Drugs comprises a set of detailed standard guidelines governing the manufacture of drugs, which include institution and staff qualifications, production premises and facilities, equipment, hygiene conditions, production management, quality controls, product operation, raw material management, maintenance of sales records, management of customer complaints and adverse event reports.
Drug Distribution
According to the Drug Administration Law, its implementing regulations and the Measures for the Supervision and Administration of Circulation of Pharmaceuticals, which was promulgated by the SFDA in December 2006 and came into effect in May 2007, pharmaceutical enterprises shall be responsible for the quality of the pharmaceuticals that they manufacture, operate, use, purchase, sell, transport, or store.
According to the Measures for the Administration of Pharmaceutical Operation Certificate, which was promulgated in February 2004 and amended in November 2017 by the CFDA, a Medicine Operation Certificate is valid for five years. Each holder of the Medicine Operation Certificate must apply for an extension of its permit six months prior to expiration. The establishment of a wholesale pharmaceutical distribution company requires the approval of provincial medicine administrative authorities. Upon approval, the authority will grant a Medicine Operation Certificate in respect of the wholesale pharmaceutical product distribution company. The establishment of a retail pharmacy store requires the approval of the local medicine administrative authorities at or above the county level. Upon approval, the authority will grant a Medicine Operation Certificate in respect of the retail pharmacy store.
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Other PRC Government Regulations
Regulations on Intellectual Property Rights
In terms of international conventions, China has entered into (including but not limited to) the Agreement on Trade-Related Aspects of Intellectual Property Rights, the Paris Convention for the Protection of Industrial Property, the Madrid Agreement Concerning the International Registration of Marks and the Patent Cooperation Treaty.
Patents
According to the Patent Law of the PRC, which was promulgated by the Standing Committee of the NPC in March 1984, amended in September 1992, August 2000 and December 2008, and came into effect in October 2009, and the Implementation Rules of the Patent Law of the PRC, which was promulgated by the State Council in June 2001 and amended in December 2002 and January 2010, there are three types of patents in the PRC: invention patents, utility model patents and design patents. The protection period is 20 years for an invention patent and 10 years for a utility model patent and a design patent, commencing from their respective application dates. Any individual or entity that utilizes a patent or conducts any other activities that infringe a patent without prior authorization of the patent holder shall pay compensation to the patent holder and is subject to a fine imposed by relevant administrative authorities and, if constituting a crime, shall be held criminally liable in accordance with the law. According to the Patent Law of the PRC, any organization or individual that applies for a patent in a foreign country for an invention or utility model patent established in China is required to report to the NIPA for confidentiality examination.
Trade Secrets
According to the PRC Anti-Unfair Competition Law, which was promulgated by the Standing Committee of the NPC in September 1993 and amended in November 2017 and April 2019, respectively, the term "trade secrets" refers to technical and business information that is unknown to the public, has utility, may create business interests or profits for its legal owners or holders, and is maintained as a secret by its legal owners or holders. Under the PRC Anti-Unfair Competition Law, business persons are prohibited from infringing others' trade secrets by: (1) obtaining the trade secrets from the legal owners or holders by any unfair methods such as theft, bribery, fraud, coercion, electronic intrusion, or any other illicit means; (2) disclosing, using or permitting others to use the trade secrets obtained illegally under item (1) above; (3) disclosing, using or permitting others to use the trade secrets, in violation of any contractual agreements or any requirements of the legal owners or holders to keep such trade secrets in confidence; or (4) instigating, inducing or assisting others to violate a confidentiality obligation or to violate a rights holder's requirements on keeping confidentiality of trade secrets, disclosing, using or permitting others to use the trade secrets of the rights holder. If a third party knows or should have known of the above-mentioned illegal conduct but nevertheless obtains, uses or discloses trade secrets of others, the third party may be deemed to have committed a misappropriation of the others' trade secrets. The parties whose trade secrets are being misappropriated may petition for administrative corrections, and regulatory authorities may stop any illegal activities and fine infringing parties.
Trademarks
According to the Trademark Law of the PRC promulgated by the Standing Committee of the NPC in August 1982, and amended in February 1993, October 2001, August 2013 and April 2019, respectively, the period of validity for a registered trademark is ten years, commencing on the date of registration. The registrant shall go through the formalities for renewal within twelve months prior to the expiry date of the trademark if continued use is intended. Where the registrant fails to do so, a
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grace period of six months may be granted. The validity period for each renewal of registration is ten years, commencing on the day immediately after the expiry of the preceding period of validity for the trademark. In the absence of a renewal upon expiry, the registered trademark shall be cancelled. Industrial and commercial administrative authorities have the authority to investigate any behavior that infringes the exclusive right under a registered trademark in accordance with the law. In case of a suspected criminal offense, the case shall be timely referred to a judicial authority and decided according to the law.
Domain Names
Domain names are protected under the Administrative Measures on the Internet Domain Names, which was promulgated by the Ministry of Industry and Information Technology in August 2017, and the Implementing Rules on Registration of National Top-level Domain Names, which was promulgated by China Internet Network Information Center in and came into effect in June 2019. The Ministry of Industry and Information Technology is the main regulatory body responsible for the administration of PRC internet domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and the applicants become domain name holders upon successful registration.
Regulations on Product Liability
In addition to the strict new drug approval process, certain PRC laws have been promulgated to protect the rights of consumers and to strengthen the control of medical products in the PRC. Under current PRC laws, manufacturers and vendors of defective products in the PRC may incur liability for loss and injury caused by such products. According to the General Principles of the Civil Law of the PRC promulgated in April 1986 and amended in August 2009 and General Rules of the Civil Law of the People's Republic of China promulgated in March 2017 and took effect in October 2017 (collectively, the "PRC Civil Law"), the manufacturer or vendor of a defective product which causes property damage or physical injury to any person may be subject to civil liability for such damage or injury.
In February 1993, the Product Quality Law of the PRC, or the Product Quality Law, was promulgated to supplement the PRC Civil Law, aiming to protect the legitimate rights and interests of the end-users and consumers and to strengthen the supervision and control of the quality of products. The Product Quality Law was last revised in December 2018. According to the revised Product Quality Law, manufacturers who produce defective products may be subject to civil or criminal liability and have their business licenses revoked.
The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated in October 1993 and amended in October 2013 to protect consumer rights when they purchase or use goods and services. According to which, all business operators must comply with this law when they manufacture or sell goods and/or provide services to customers. Under the latest amendment, all business operators shall protect the customers' privacy and keep any consumer information they obtain during the business operation strictly confidential. In addition, in extreme situations, pharmaceutical product manufacturers and operators may be subject to criminal liability if their goods or services lead to the death or injuries of customers or other third parties.
Regulations on Tort
According to the Tort Law of the PRC promulgated by the Standing Committee of the NPC in December 2009, if damages to other persons are caused by defective products due to the fault of third parties, such as the parties providing transportation or warehousing, the producers and the sellers of the products have the right to recover their respective losses from such third parties. If defective
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products are identified after they have been put into circulation, the producers or the sellers shall take remedial measures such as issuance of a warning, recall of products, etc., in a timely manner. The producers or the sellers shall be liable under tort if they fail to take remedial measures in a timely manner or have not made efforts to take remedial measures, thus causing damages. If the products are produced or sold with known defects, causing deaths or severe adverse health issues, the infringed party has the right to claim punitive damages in addition to compensatory damages.
Regulations on Environment Protection
Pursuant to the Environmental Protection Law of the PRC promulgated by the Standing Committee of the NPC, in December 1989, amended in April 2014 and effective in January 2015, any entity which discharges or will discharge pollutants during its course of operations or other activities must implement effective environmental protection safeguards and procedures to control and properly treat waste gas, waste water, waste residue, dust, malodorous gases, radioactive substances, noise vibrations, electromagnetic radiation and other hazards produced during such activities. According to the provisions of the Environmental Protection Law, in addition to other relevant laws and regulations of the PRC, the Ministry of Environmental Protection and its local counterparts take charge of administering and supervising said environmental protection matters.
Pursuant to the Environmental Protection Law, the environmental impact statement on any construction project must assess the pollution that the project is likely to produce and its impact on the environment, and stipulate preventive and curative measures; the statement shall be submitted to competent administrative department of environmental protection for approval. Installations for the prevention and control of pollution in construction projects must be designed, built and commissioned together with the principal part of the project.
Pursuant to the Law of the People's Republic of China on Environment Impact Assessment, which was promulgated in October 2002 and most recently amended in December 2018, the State implements a classification-based management on the environmental impact assessment of construction projects according to the impact of the construction projects on the environment. Construction units shall prepare an Environmental Impact Report or an Environmental Impact Statement, or fill out the Environmental Impact Registration Form.
Pursuant to the Regulations on Urban Drainage and Sewage Disposal, which was promulgated in October 2013 and came into effect in January 2014, and the Measures for the Administration of Permits for the Discharge of Urban Sewage into the Drainage Network, which was promulgated in January 2015 and came into effect in March 2015, drainage entities covered by urban drainage facilities shall discharge sewage into urban drainage facilities in accordance with the relevant provisions of the state. Where a drainage entity needs to discharge sewage into urban drainage facilities, it shall apply for a drainage license in accordance with the provisions of these Measures. The drainage entity that has not obtained the drainage license shall not discharge sewage into urban drainage facilities.
Regulations on Fire Protection
The Fire Prevention Law of the PRC, or the Fire Prevention Law, was adopted in April 1998 and last amended in April 2019. The Fire Prevention Law provides that fire control design and construction of a construction project shall comply with the State's fire control technical standards. Developers, designers, builders and project supervisors shall be responsible for the quality of the fire control design and construction of the construction project pursuant to the law. Development project fire safety design examinations and acceptance systems shall be implemented for development projects which are required to have fire safety design in accordance with the national fire protection technical standards.
According to the Eight Measures for the Public Security Fire Department to Deepen Reform and Serve Economic and Social Development promulgated by the Ministry of Public Security of the PRC in
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August 2015, the fire protection design and completion acceptance fire protection record of construction projects with an investment of less than RMB300,000 or a building area of less than 300 square meters (or below the limit set by the housing and urban construction department of the provincial people's government) was no longer required.
Regulations on Foreign Exchange and Dividend Distribution
Foreign Exchange Control
According to the PRC Regulation for the Foreign Exchange promulgated by the State Council in January 1996, which was amended in January 1997 and August 2008, and the Regulation on the Administration of the Foreign Exchange Settlement, Sales and Payment promulgated by the People's Bank of China in June 1996, foreign exchanges required for distribution of profits and payment of dividends may be purchased from designated foreign exchange banks in the PRC upon presentation of a board resolution authorizing distribution of profits or payment of dividends.
According to the Circular of the State Administration of Foreign Exchange, or the SAFE, on Further Improving and Adjusting the Foreign Exchange Policies on Direct Investment and its appendix promulgated in November 2012 and amended in May 2015, October 2018 and December 2019 by the SAFE, (1) the opening of and payment into foreign exchange accounts under direct investment accounts are no longer subject to approval by the SAFE; (2) reinvestment with legal income of foreign investors in China is no longer subject to approval by SAFE; (3) the procedures for capital verification and confirmation that foreign-funded enterprises need to go through are simplified; (4) purchase and external payment of foreign exchange under direct investment accounts are no longer subject to approval by SAFE; (5) domestic transfer of foreign exchange under direct investment account is no longer subject to approval by SAFE; and (6) the administration over the conversion of foreign exchange capital of foreign-invested enterprises is improved. Later, the SAFE promulgated the Circular on Further Simplifying and Improving Foreign Exchange Administration Policies in Respect of Direct Investment in February 2015, which was further amended in December 2019 and prescribed that the bank instead of the SAFE can directly handle the foreign exchange registration and approval under foreign direct investment while the SAFE and its branches indirectly supervise the foreign exchange registration and approval under foreign direct investment through the bank.
The Provisions on the Administration of Foreign Exchange in Foreign Direct Investments by Foreign Investors, which were promulgated by the SAFE in May 2013 and amended in October 2018 and December 2019, regulate and clarify the administration over foreign exchange administration in foreign direct investments.
According to the Circular on the Reform of the Management Method for the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises promulgated by the SAFE in Mach 2015 and amended in December 2019, and the Circular on the Reform and Standardization of the Management Policy of the Settlement of Capital Projects promulgated by the SAFE in June 2016, the settlement of foreign exchange by foreign invested enterprises shall be governed by the policy of foreign exchange settlement on a discretionary basis. However, the settlement of foreign exchange shall only be used for their own operational purposes within the business scope of the foreign invested enterprises and follow the principles of authenticity.
Dividend Distribution
The SAFE promulgated the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control in January 2017, which stipulates several capital control measures with respect to outbound remittance of profits from domestic entities to offshore entities, including the following: (1) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial
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statements; and (2) domestic entities shall hold income to account for previous years' losses before remitting the profits. Moreover, domestic entities shall make detailed explanations of sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
Foreign Exchange Registration of Offshore Investment by PRC Residents
The SAFE promulgated the SAFE Circular 37 in July 2014. The SAFE Circular 37 requires PRC residents (including PRC institutions and individuals) to register with local branches of SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or the SPV, directly established or indirectly controlled by PRC residents for offshore investment and financing with their legally owned assets or interests in domestic enterprises, or their legally owned offshore assets or interests. Such PRC residents are also required to amend their registrations with the SAFE when there is a change to the basic information of the SPV, such as changes of a PRC resident individual shareholder, the name or operating period of the SPV, or when there is a significant change to the SPV, such as changes of the PRC individual resident's increase or decrease of its capital contribution in the SPV, or any share transfer or exchange, merger, division of the SPV.
The Circular on Further Simplifying and Improving Foreign Exchange Administration Policies in Respect of Direct Investment, which was promulgated in February 2015 and effective in June 2015 and further amended in December 2019, provides that PRC residents may register with qualified banks instead of the SAFE in connection with their establishment or control of an offshore entity established for the purpose of overseas direct investment. The SAFE and its branches shall implement indirect supervision over foreign exchange registration of direct investment via the banks.
Failure to comply with the registration procedures set forth in the SAFE Circular 37 may result in restrictions on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate, the capital inflow from the offshore entities and settlement of foreign exchange capital, and may also subject relevant onshore company or PRC residents to penalties under PRC foreign exchange administration regulations.
Regulations on Labor
Labor Law and Labor Contract Law
According to the PRC Labor Law, which was promulgated by the Standing Committee of the NPC in July 1994 and amended in August 2009 and December 2018, respectively, the PRC Labor Contract Law, which was promulgated by the Standing Committee of the NPC in June 2007 and amended in December 2012 and came into effect July 2013, and the Implementing Regulations of the Employment Contracts Law of the PRC, which was promulgated by the State Council in September 2008, labor contracts in written form shall be executed to establish labor relationships between employers and employees. In addition, wages cannot be lower than the local minimum wage. The employers must establish a system for labor safety and sanitation, strictly abide by State rules and standards, provide education regarding labor safety and sanitation to its employees, provide employees with labor safety and sanitation conditions and necessary protection materials in compliance with State rules, and carry out regular health examinations for employees engaged in work involving occupational hazards.
Social Insurance and Housing Provident Funds
According to the Social Insurance Law of PRC, which was promulgated by the Standing Committee of the NPC in October 2010 and came into effect in July 2011, and further amended in December 2018, and the Interim Regulations on the Collection and Payment of Social Security Funds, which was promulgated by the State Council in January 1999 and amended in March 2019, and the Regulations on the Administration of Housing Provident Funds, which was promulgated by the State
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Council in April 1999 and amended in March 2002 and March 2019, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity insurance and to housing provident funds. Any employer who fails to contribute may be fined and ordered to make good the deficit within a stipulated time limit.
Regulations on Taxation
Enterprise Income Tax
According to the Enterprise Income Tax Law promulgated by the NPC in March 2007 and amended in February 2017 and December 2018, and the Implementation Rules of the Enterprise Income Tax Law of the PRC promulgated by the State Council in December 2007 and amended in April 2019, other than a few exceptions, the income tax rate for both domestic enterprises and foreign-invested enterprises is 25%. Enterprises are classified as either "resident enterprises" or "non-resident enterprises". Besides enterprises established within the PRC, enterprises established outside China whose "de facto management bodies" are located in China are considered "resident enterprises" and subject to the uniform 25% enterprise income tax rate for their global income. A non-resident enterprise refers to an entity established under foreign law whose "de facto management bodies" are not within the PRC but which have an establishment or place of business in the PRC, or which do not have an establishment or place of business in the PRC but have income sourced within the PRC. An income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident enterprise investors that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
According to the Notice on Promoting the Implementation of Corporate Income Tax Policies for Advanced Technology Service Enterprises Nationwide, or the Notice, since January 2017, an enterprise which is recognized as an "Advanced Technology Service Enterprises" under the Notice enjoys a reduced enterprise income tax rate of 15%.
According to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, or the Double Tax Avoidance Arrangement, which was promulgated and came into effect in August 2006, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties which was promulgated by the State Administration of Taxation, the STA, in February 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. Based on the Announcement on Certain Issues with Respect to the "Beneficial Owner" in Tax Treaties, which was promulgated by the STA in February 2018 and came into effect in April 2018, if an applicant's business activities do not constitute substantive business activities, it could result in the negative determination of the applicant's status as a "beneficial owner", and consequently, the applicant could be precluded from enjoying the above-mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement.
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Value Added Tax
According to the Provisional Regulations of the PRC on Value-Added Tax, effective in January 1994 and further amended in November 2008, February 2016, and November 2017, and its implementation rules effected in January 1994 and amended in December 2008 and October 2011, except stipulated otherwise, taxpayers who sell goods, labor services or tangible personal property leasing services or import goods shall be subject to a 17% tax rate; taxpayers who sell transport services, postal services, basic telecommunications services, construction services, or real property leasing services, sell real property, transfer the land use right shall be subject to an 11% tax rate, and taxpayers who sell services or intangible assets shall be subject to a 6% tax rate.
According to the Circular of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates adopted in April 2018, as of May 2018, where a taxpayer engages in a taxable sales activity for the value-added tax purpose or imports goods, the previous applicable 17% and 11% rates are adjusted to 16% and 10%.
According to the Announcement on Relevant Policies for Deepening Value-Added Tax Reform, effective in April 2019, the 16% VAT tax rate, which applies to the sales or imported goods of a VAT general taxpayer, will be lowered to 13%; and the 10% VAT tax rate will be lowered to 9%.
According to the Measures for the Exemption of Value-Added Tax from Cross-Border Taxable Activities in the Collection of Value-Added Tax in Lieu of Business Tax (for Trial Implementation) revised in June 2018, if domestic enterprises provide cross-border taxable activities such as professional technical services, technology transfer, software services, the above-mentioned cross-border taxable activities are exempt from VAT.
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Executive Officers, Key Employees and Directors
The following table sets forth information regarding our directors and executive officers as of the date of this prospectus.
Executive Officers
|
Age | Position/Title | |||
---|---|---|---|---|---|
Peter (Peizhi) Luo, Ph.D. | 55 | Co-Founder, Chief Executive Officer and Chairman of the Board | |||
Fangyong (Felix) Du, Ph.D. | 51 | Chief Technology Officer | |||
Hua Gong, M.D., Ph.D. | 53 | Chief Operating Officer & Head of Clinical Development and Precision Medicine | |||
JC Xu, M.D., Ph.D. | 56 | Chief Scientific Officer | |||
Qinghai Zhao, Ph.D. | 60 | Chief Manufacturing Officer | |||
Man Kin (Raymond) Tam, M.B.A., B. Eng. | 43 | Chief Financial Officer and Director Nominee# |
Key Employees
|
Age | Position/Title | |||
---|---|---|---|---|---|
Yan Li, M.B.A. | 46 | Senior Vice President, Bioinformatics and Information Technology | |||
Xiaohong (Kristine) She | 54 | Senior Vice President, Head of Clinical Operations | |||
Guizhong Liu, Ph.D. | 50 | Head of Biology and Pharmacology | |||
Alexander Goergen | 34 | Head of Business Development | |||
Yuren (Ron) Wang, Ph.D. | 59 | Head of Portfolio Management |
Non-Employee Directors
|
Age | Position/Title | |||
---|---|---|---|---|---|
Daniel Auerbach, M.B.A.* | 62 | Director | |||
Chong Xu, Ph.D.* | 39 | Director | |||
Yu Miao | 32 | Director | |||
Yunxia Yang* | 47 | Director | |||
Lefei Sun | 41 | Director | |||
Andy (Yiu Leung) Cheung | 61 | Independent Director Nominee# | |||
Min Li | 58 | Independent Director Nominee# |
Executive Officers
Peter (Peizhi) Luo, Ph.D. is our Co-Founder and has served as our Chief Executive Officer since November 2011 and Chairman of the Board of the Directors since February 2018. Dr. Luo served as the first lead scientist in computational protein design and protein laboratory at Xencor (Nasdaq: XNCR) from July 1998 to August 2000. In September 2000, Dr. Luo founded Abmaxis Inc. and served as its Co-Founder, Chief Technology Officer, president, and director. In May 2006, Dr. Luo led the acquisition of Abmaxis Inc. by Merck & Co. (NYSE: MRK), after which Dr. Luo served as a director of Biologics Technology at Merck, and Chief Technology Officer of Abmaxis, the subsidiary of Merck & Co. Throughout his career, Dr. Luo also led the business development efforts in connection with collaborations and strategic partnerships with multiple global partners. Dr. Luo received his bachelor's degree in applied chemistry in technical physics from Peking University in 1986, master's
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degree in applied physics from The Institute of High Energy Physics of the Chinese Academy of Sciences in 1989, and Ph.D. degree in chemistry from The University of Chicago in 1995. Dr. Luo also completed his postdoctoral research in protein folding at Stanford University in 1998. Dr. Luo's spouse is Xiaohong (Kristine) She who is our Senior Vice President, Head of Clinical Operations.
Fangyong (Felix) Du, Ph.D. joined us as Vice Precedent of Technology Development in January 2012 and has served as our Chief Technology Officer since May 2019. Dr. Du has over 20 years of experience in biological research and discovery industry, and has published numerous peer-reviewed articles in world-renowned scientific journals such as Nature and Science. Dr. Du worked at Affomix from October 2009 to July 2010 and Illumina (Nasdaq: ILMN) from July 2010 to January 2012, and then joined the Company in January 2012 as the Vice President of Technology Development. Dr. Du received his bachelor's degree and master's degree in physiology and biophysics in 1991 and 1994, respectively, from Peking University, and his Ph.D. degree in biology from the California Institute of Technology in 2001. Dr. Du also completed his postdoctoral research from Yale University in 2007.
Hua Gong, M.D., Ph.D. has served as our Chief Operating Officer and Head of Clinical Development and Precision Medicine since July 2020. Dr. Gong served as the principal scientist of Pfizer (NYSE: PFE) from January 1999 to March 2009. From April 2009 to October 2011, she served as the associate director of Prometheus Diagnostics & Therapeutics. From November 2011 to January 2013, Dr. Gong served as an executive director of Premier Research. From January 2013 to June 2020, she served as the senior director and head of genomics biomarker of Novartis. Dr. Gong received her M.D. degree from An Hui Medical University in 1989, master's degree in biostatistics from Sun Yat-Sen University of Medical Sciences in 1992 and Ph.D. degree in cancer biology from Wayne State University in 1999.
JC Xu, M.D., Ph.D. has served as our Chief Scientific Officer since August 2020. Dr. Xu has more than 20 years of experience in oncology drug discovery and development, and more than four years of experience in business development, strategy, and operations in the biopharmaceutical industry in the United States. Prior to joining Adagene, Dr. Xu was head of R&ED China Strategy at Celgene now BMS from 2017 to 2020. Prior to that, Dr. Xu was Director of Strategy & Operations at Celgene Quanticel Research and Director of Biology at Quanticel Pharmaceuticals from 2012 to 2017. Prior to Quanticel, Dr. Xu worked in leadership roles at a number of biopharmaceutical companies, including Pfizer, Amgen, and Corixa.
Dr. Xu received her M.D. degree from Beijing Medical University (now Peking University Health Science Center) in 1987 and her Ph.D. degree in Immunology from University of Alabama at Birmingham in 1993. She completed her post-doctoral training at DNAX Research Institute (now Merck Palo Alto) in 1996. She is an inventor of more than 120 issued and pending patents and has published more than 50 articles in peer-reviewed journals.
Qinghai Zhao, Ph.D. has served as our Chief Manufacturing Officer since October 2020. Dr. Zhao has more than 25 years of experience in protein therapeutics development and defining product development strategy from early stage IND through commercial filing. Prior to joining Adagene, Dr. Zhao was Vice President of Technical Development and Manufacturing at Forty Seven Inc. (NASDAQ:FTSV) from 2017 to October 2020. Prior to that, Dr. Zhao was vice president of CMC/Manufacturing at AnaptysBio (NASDAQ:ANAB) from 2016 to 2017. Prior to AnaptysBio, Dr. Zhao worked as an Executive Director and the Head of CMC at NGM Biopharmaceuticals from 2014 to 2016. Dr. Zhao also held various positions at Human Genome Sciences, Inc., Cogenesys and Teva Biopharmaceuticals USA from 2001 to 2014. Dr. Zhao received his bachelor's degree from Shanghai Chemical Engineering Institute (now East China University of Sciences and Technology) in 1982, master's degree from Shanghai Medical University (now merged with Fudan University) in 1986 and Ph.D. degree from University of Uppsala in 1998.
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Man Kin (Raymond) Tam has served as our Chief Financial Officer since September 2019 and will serve as our director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Tam has over 20 years of management experience in finance and banking across the Asia-Pacific region. Mr. Tam worked in HSBC and J.P. Morgan Chase Bank, N.A. from 1999 to 2010. Mr. Tam served as project director of Mineralogy Pty Limited and Chief Financial Officer of Resourcehouse Limited from April 2010 to October 2015. From October 2015 to August 2019, Mr. Tam consecutively served as the Chief Financial Officer of China Regenerative Medicine International Limited (HKEx: 8158), Beijing Gas Blue Sky Holdings Limited (HKEx: 6828), and AgenTus Therapeutics, Inc. Mr. Tam is a fellow of CPA Australia, a member of the American Institute of Certified Public Accountants and the Hong Kong Institute of Certified Public Accountants. He is also a CFA and FRM charter-holder. He received his bachelor's degree in civil & resources engineering from the University of Auckland in 1997, master's degree in practising accounting from Monash University in 2001 and an Executive Master of Business Administration degree from the University of Western Ontario in 2005.
Key Employees
Yan Li, M.B.A. has served as our Senior Vice President of Bioinformatics and Information Technology since November 2011. Ms. Li has over 25 years of experience in software development, with about 20 years focusing on the development of informatics software tools for antibody library design and analysis. Ms. Li served as the senior software engineer and applications scientist at Abmaxis from November 2001 to May 2006. Following the acquisition of Abmaxis by Merck & Co, Ms. Li worked at Merck & Co from May 2006 to December 2010. She received the Merck Award for Excellence in "Innovative Technologies" with the team and a Special Award for her contribution. Ms. Li received her bachelor's degree in information science from East China University of Science and Technology in 1995 and a Master of Business Administration degree in 2010 from Santa Clara University.
Xiaohong (Kristine) She has served as our Senior Vice President, Head of Clinical Operations since November 2011. Ms. She has over 20 years of laboratory and laboratory management experience in the renowned laboratories in the United States and has completed multiple projects in molecular biology and immunology at the labs of University of Chicago, the Genome Center at Stanford University, neurological animal studies at Stanford Palo Alto Veteran's Hospital, and cloning and functional screening of cDNA libraries at Caltech. Her work has been published in Nature, Science, Biotechnology, among many other notable publications. Ms. She received her bachelor's degree in microbiology from Wuhan University in 1986 and master's degree in biochemistry and microbiology from the Institute of Microbiology of the Chinese Academy of Sciences in 1989. Ms. She's spouse is Peter (Peizhi) Luo, Ph.D., our Co-Founder, Chief Executive Officer and Chairman of the Board.
Guizhong Liu, Ph.D. has served as our Head of Biology and Pharmacology since October 2015. Dr. Liu has over 15 years of experience in drug discovery and development, both in small molecule kinase inhibitors and large molecule antibodies in oncology and immunology field. He has published over 40 peer-reviewed papers in high-profile journals involving key signalling pathways and targets in cancer biology. From July 2007 to August 2011, Dr. Liu served as an assistant professor of the department of oncological science at Mount Sinai School of Medicine. Prior to joining us, Dr. Liu served as head of molecular cancer biology in CrownBio from October 2011 to September 2015. Dr. Liu received his bachelor's degree in biology in 1992 and master's degree in cell biology in 1995 from Beijing Normal University and Ph.D. degree in cell biology from Peking Union Medical College in 1998. He also completed his postdoctoral training in cancer biology at Mount Sinai School of Medicine in 2004.
Alexander Goergen has served as our Head of Business Development since October 2017 when he joined the Company. Mr. Goergen has worked in various roles at the Covance, TRC and International AIDS Vaccine Initiative from October 2008 to October 2012. Prior to joining us, Alexander worked in
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business development for Catalent Pharma Solutions Biologics Division since October 2012. Mr. Goergen completed many licensing, manufacturing, and cell line development programs both domestically and internationally during his previous employment. Mr. Goergen received his bachelor's degree in Chemistry from Lafayette College in 2008 and master's degree in Biotechnology from the University of Wisconsin-Madison in 2011.
Yuren (Ron) Wang, Ph.D. has served as our Head of Portfolio Management since September 2019. Dr. Wang served as the senior director of business development in Reaction Biology Corporation from March 2013 to December 2018. Prior to joining us, he served as the vice president of R&D research for Jemincare Therapeutics (USA), responsible for the scientific evaluation of projects, in-licensing and portfolio management from December 2018 to August 2019. Dr. Wang received his bachelor's degree in plant science from Shandong Agricultural University in 1982, master's degree in biochemistry from the Graduate School of Chinese Academy of Agricultural Sciences in 1986 and Ph.D. degree in cell and molecular biology from the University of Pennsylvania in 1996. He also completed his postdoctoral training in molecular pharmacology at the University of Pennsylvania in 1999.
Non-Employee Directors
Daniel Auerbach has served as our director since July 2013. He joined Fidelity in 1994 and has been serving as the senior managing partner of Eight Roads, a proprietary investment arm backed by Fidelity. Mr. Auerbach held key board roles with a multitude of companies, including the former director of Alibaba Group, Wuxi Pharmatech during 2005 to 2007, Innovent (HKEx: 1801) during 2011 to 2018, Hua Medicine (HKEx: 2552) during 2010 to 2018 and others. Mr. Auerbach received his bachelor's degree in Economics and Foreign Languages from Dartmouth College in 1980 and Master of Business Administration degree from The Harvard Business School in 1987.
Chong Xu, Ph.D. has served as our director since May 2020. Dr. Xu joined F-Prime Capital in 2015 and is currently serving as its principal. Prior to joining F-Prime Capital, Dr. Xu worked at McKinsey & Company's Boston office as a consulting professional from September 2014 to October 2015. Dr. Xu also worked at Massif Partners from April 2011 to May 2012 as an investment professional. From December 2009 to April 2011, Dr. Xu served as an investment professional at Affirmed Healthcare. Dr. Xu received his bachelor's degree in biology from Zhejiang University in 2001, a Ph.D. degree in cell biology from University of Virginia in 2009, and an MBA degree from Darden School of Business in 2014.
Yu Miao has served as our director since May 2020. He also serves as the executive director of GP Healthcare Capital Co., Ltd, mainly responsible for equity investment focusing on healthcare industry. Prior to joining GP Healthcare Capital in April 2015, Mr. Yu worked at Eli Lilly & Co. focusing on quality assurance from July 2011 to June 2012 and Oriza Seed Fund Management Co., Ltd., focusing on equity investment from July 2014 to April 2015. Mr. Miao received his bachelor's degree in pharmacy from China Pharmaceutical University in 2011, and master's degree in pharmaceutical science from Northeastern University in 2014.
Yunxia Yang has served as our director since June 2019. She has also served as a managing director of Sequoia Capital China since May 2015 where she focuses on healthcare investment. Ms. Yang has also served as a director of Burning Rock Biotech Ltd since January 2017. Before starting in venture capital, Ms. Yang worked as a product manager at GE Healthcare from June 2006 to July 2007 and a business development manager at Johnson & Johnson from July 2009 to April 2011. She then worked at Legend Capital, where she led investment in areas covering gene diagnostics, medical devices and healthcare service, as a member of the healthcare team from April 2011 to May 2015. Ms. Yang received her master's degree in clinical science from Huazhong Technology University in 1997 and Master of Business Administration degree from Duke University in 2009.
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Lefei Sun has served as our director since December 2019. Mr Sun has been a non-executive director of Hong Kong Asia Medical Holding Limited, a leading hospital management group in Asia with hospital assets such as Wuhan Asia Heart Hospital, from November 2018. He is also a non-executive director of various biotech companies such as Ocumension Therapeutics (HKEx: 1477) and CANbridge Pharmaceuticals Inc. Mr. Sun has served as head of China healthcare at General Atlantic since May 2018, and has been a managing director since January 2020, in charge of private equity investment and portfolio management in healthcare and life sciences sectors. From December 2014 to April 2018, Mr. Sun was a founding partner and a member of investment committee of Beijing HuaTai Ruihe Investment Fund Management Company (LLP), also known as Huatai Healthcare Investment Fund. Prior to joining General Atlantic, Mr. Sun served as various investment roles at Hony Capital, Credit Suisse, OrbiMed, Orchid Asia, and as a management consultant at McKinsey & Company, all in the healthcare sector. Mr. Sun obtained his master's degree in neurosciences from Johns Hopkins University School of Medicine in 2006, and his bachelor's degree in mathematics and physics from Tsinghua University in 2002.
Andy (Yiu Leung) Cheung will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Cheung has many years of auditing and accounting professional experience. Mr. Cheung was deputy area managing partner of Ernst & Young ("EY") in Asia Pacific overseeing the business operations, finance, information technology and risk management functions from July 2018 to June 2020. Mr. Cheung was the assurance leader for EY in Greater China from July 2013 to June 2018. Mr. Cheung has served as an independent non-executive director of JW (Cayman) Therapeutics Co. Ltd (HKEX:2126) since October 2020. Mr. Cheung received his bachelor's degree in accounting and finance from the University of Lancaster in the United Kingdom in June 1982. He obtained a master's degree in accounting and finance from London School of Economics in the United Kingdom in August 1983. Mr. Cheung is a member of Hong Kong Institute of Certified Public Accountants.
Min Li will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Dr. Min Li is the founder, CEO and director of SciNeuro Pharmaceuticals, a biotechnology company headquartered in Shanghai focused on developing innovative therapeutics for CNS diseases. Dr. Li was formerly Senior Vice President, Global Head of Neuroscience R&D at GSK from 2013 to 2019. During his employment with GSK, he also served as General Manager of GSK R&D China, the highest-ranking officer at the country level. Before moving into industry, Dr. Li had served as a tenured Professor of Neuroscience at Johns Hopkins University School of Medicine for over 20 years. Dr. Li served on scientific advisory boards, non-profit and corporate boards that include multinational corporations (Corning, Pfizer and Merck), disease foundations (RYR-foundation, AHA) and biotech companies (Xencor, Affymax, Datavant, Icagen, and Coda Biotechnologies). He is also an Adjunct Professor of Neuroscience at Johns Hopkins School of Medicine. Dr. Li received his B.S. degree in biochemistry from Wuhan University in 1984 and his Ph.D. in molecular immunology from Johns Hopkins University in 1990. As a Helen Hay Whitney Fellow, he performed postdoctoral research at University of California San Francisco. With a Sloan Award, in 1994 he returned to Johns Hopkins to join the faculty as an Esther A & Joseph Klingenstein Neuroscience Fellow. Dr. Li has published more than 120 scientific articles and holds patents in biotechnologies. His research and scholarship were recognized internationally with awards including being a fellow of American Association for Advancement of Science and an established fellow of American Heart Association.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Each of our executive officers is employed for a period of twelve months, which will be renewed automatically and extended automatically for a period of twelve months unless the executive or us gives prior written
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notice. We may terminate an executive officer's employment for cause at any time without advance notice in certain events. We may terminate an executive officer's employment by giving a prior written notice or by paying certain compensation. An executive officer may terminate his or her employment at any time by giving a prior written notice.
Each executive officer has agreed to hold, unless expressly consented to by us, at all times during and after the termination of his or her employment agreement, in strict confidence and not to use, any of our confidential information or the confidential information of our customers and suppliers. In addition, each executive officer has agreed to be bound by certain non-competition and non-solicitation restrictions during the term of his or her employment and for a maximum of two years following the last date of employment.
We plan to enter into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
Board of Directors
Our board of directors will consist of six directors, including two independent directors, namely Andy (Yiu Leung) Cheung and Min Li, upon the SEC's declaration of effectiveness of our registration statement on Form F-1 to which this prospectus forms a part. A director is not required to hold any shares in our company to qualify to serve as a director. The Corporate Governance Rules of the Nasdaq generally require that a majority of an issuer's board of directors must consist of independent directors. However, the Corporate Governance Rules of the Nasdaq permit foreign private issuers like us to follow "home country practice" in certain corporate governance matters. We rely on this "home country practice" exception and do not have a majority of independent directors serving on our board of directors.
A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his or her interest at a meeting of our directors. A general notice given to the directors by any director to the effect that he or she is a member, shareholder, director, partner, officer or employee of any specified company or firm and is to be regarded as interested in any contract or transaction with that company or firm shall be deemed a sufficient declaration of interest for the purposes of voting on a resolution in respect to a contract or transaction in which he/she has an interest, and after such general notice it shall not be necessary to give special notice relating to any particular transaction. A director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he/she may be interested therein and if he/she does so, his/her vote shall be counted and he/she may be counted in the quorum at any meeting of the directors at which any such contract or proposed contract or arrangement is considered, subject to any separate requirement for Audit Committee approval under applicable law or the Listing Rules of the Nasdaq. Our board of directors may exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party. None of our directors has a service contract with us that provides for benefits upon termination of service as a director.
Committees of the Board of Directors
Prior to the completion of this offering, we intend to establish an audit committee, a compensation committee and a nominating and corporate governance committee under our board of directors. We intend to adopt a charter for each of the three committees prior to the completion of this offering. Each committee's members and functions are described below.
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Audit Committee. Our audit committee will consist of Andy (Yiu Leung) Cheung and Min Li, and is chaired by Andy (Yiu Leung) Cheung. We have determined that Andy (Yiu Leung) Cheung and Min Li satisfy the requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq and meet the independence standards under Rule 10A-3 under the Securities Exchange Act of 1934, as amended. We have determined that Andy (Yiu Leung) Cheung qualifies as an "audit committee financial expert." The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
Compensation Committee. Our compensation committee will consist of Peter Luo, Andy (Yiu Leung) Cheung and Min Li and is chaired by Peter Luo We have determined that Andy (Yiu Leung) Cheung and Min Li satisfy the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive
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officers. Our Chief Executive Officer may not be present at any committee meeting during which their compensation is deliberated upon. The compensation committee is responsible for, among other things:
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee will consist of Peter Luo, Andy (Yiu Leung) Cheung and Min Li, and is chaired by Peter Luo. We have determined that Andy (Yiu Leung) Cheung and Min Li satisfy the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq. The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
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Duties and Functions of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonable prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. The functions and powers of our board of directors include, among others, (i) convening shareholders' annual general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends, (iii) appointing officers and determining their terms of offices and responsibilities, (iv) exercising the borrowing powers of our company, and (v) approving the transfer of shares of our company, including the registering of such shares in our share register.
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the board of directors. Other than Andy (Yiu Leung) Cheung, Min Li and Man Kin (Raymond) Tam, each director is not subject to a term of office and holds office until such time as his successor takes office or until the earlier of his death, resignation or removal from office pursuant to the applicable provisions of our memorandum and articles of association. The initial term of our independent director nominees, namely Andy (Yiu Leung) Cheung and Min Li, is two-year from the effectiveness of the appointment. The initial term of our non-independent director nominee, Man Kin (Raymond) Tam, is one-year from the effectiveness of the appointment. The initial term for each of Andy (Yiu Leung) Cheung, Min Li and Man Kin (Raymond) Tam is subject to re-appointment by the board of directors and affirmative vote of Chairman of the board of directors. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be of unsound mind; (iii) resigns by notice in writing to our company; (iv) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; (v) is prohibited by law from being a director; or (vi) is removed from office pursuant to any other provisions of our post-offering amended and restated memorandum and articles of association.
Interested Transactions
A director may, subject to any separate requirement for audit and risk committee approval under applicable law or applicable Nasdaq listing rules, vote in respect of any contract or transaction in which he or she is interested, provided that the nature of the interest of any directors in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2019, we paid an aggregate of US$0.6 million in cash to our executive officers, and we paid US$72,000 cash compensation to our then non-executive director, Mr. Tom Beck, for the fiscal year ended December 31, 2019. We did not pay any cash compensation to other non-executive directors. For the fiscal year ended December 31, 2019, we did not set aside or
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accrue expenses related to pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiary is required by law to make contributions equal to certain percentages of each employee's salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. For share incentive grants to our directors and executive officers, see "Share Incentive Plan."
Share Incentive Plan
Adagene Inc. Second Amended and Restated Share Incentive Plan
In November 2015, we adopted Adagene Inc. Share Incentive Plan, or the 2015 Plan, which was later superseded and replaced by Adagene Inc. Amended and Restated Share Incentive Plan, or the 2017 Plan, in September 2017. In December 2019, we adopted the Second Amended and Restated Share Incentive Plan, or the 2019 Plan, to supersede and replace the 2017 Plan. The terms of the 2015 Plan, the 2017 Plan and the 2019 Plan are substantially the same other than the maximum aggregate number of shares we may issue under the respective plan.
The purpose of the 2019 Plan is to attract, motivate, retain and reward certain officers, employees, directors and other eligible persons and to further link the interests of award recipients with those of our shareholders generally. The 2019 Plan provides for the issuance of up to an aggregate of 11,391,131 of our ordinary shares. Upon the effectiveness of our registration statement on Form F-1, we will terminate the authority to grant additional awards under the 2019 Plan and all future awards will be granted under the 2021 Plan. Therefore, the effective maximum number of shares issuable under the 2019 Plan will be 10,728,501. As of the date of this prospectus, the aggregate number of our ordinary shares underlying our outstanding awards under the 2019 Plan is 3,601,522, excluding awards that were forfeited, cancelled or exercised after the relevant grant dates. The term of the awards will expire not more than ten years after the date of grant.
The following paragraphs summarize the principal terms of the 2019 Plan.
Types of Awards. The 2019 Plan permits the awards of options, share appreciation rights, ordinary shares or restricted shares.
Plan Administration. The 2019 Plan shall be administrated by our board of directors or one or more committees appointed by the board of directors or another committee (within its delegated authority), the Plan Administrator.
Promissory Notes. The promissory notes with respect to the 2019 Plan, or the 2019 Promissory Notes are full recourse, repayable within a period of time determined by the Plan Administrator, which should not exceed five years (subject to certain early repayment events), and bear interest at the interest rate determined by the Plan Administrator but not less than the interest rate necessary to avoid the imputation of interest under United States Internal Revenue Code of 1986, as amended or other applicable tax law. Certain plan participants previously purchased our shares with such promissory notes. The current amount outstanding under these notes (which is also the largest aggregate amount outstanding since the first issuance of the promissory notes) was US$1.8 million immediately.
Repayment of the Promissory Notes. The terms, repayment provisions, and collateral release provisions of the note and the pledge securing the note shall conform with all applicable rules and regulations, including those of the Federal Reserve Board of the United States and any applicable law, as then in effect.
Eligibility. The plan administrators may decide that an award under the 2019 Plan be granted to any employee, officer or director of the Company or its affiliates, or that it be granted to any consultant or adviser who provides services to the Company or its affiliates.
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Award Agreements. Each award under the 2019 Plan shall be evidenced by an award agreement in the form approved by the plan administrators. The terms of the award agreements will be determined by the plan administrators and consistent with the terms of the 2019 Plan.
Conditions of Award. The plan administrators shall determine the participants, types of awards, numbers of shares to be covered by awards, terms and conditions of each award, including, but not limited to, the price and number of securities to be offered or awarded, the installments (if applicable) in which such awards will become exercisable or will vest, performance targets (if applicable), the events of termination or reversion of such awards.
Transfer Restrictions. With a few exceptions, no right of interest of a participant in any award may be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge. This restriction does not apply to (i) transfers to our company, (ii) transfers by gift or domestic relations order to one or more family members, (iii) the designation of a beneficiary to receive benefits if a participant dies or transfers by will, (iv) permitted transfers or exercises on behalf of a participant by the participant's duly authorized legal representative if the participant has suffered a disability.
Reduction or Clawback of Awards. The awards granted under the 2019 Plan are subject to the terms of our recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of awards or any ordinary shares or other cash or property received with respect to the awards (including any value received from a disposition of the shares acquired upon payment of the Awards).
Amendment and Termination of the 2019 Plan. The board of directors may, at any time, terminate or, from time to time, amend, modify or suspend the 2019 Plan, in whole or in part. No awards may be granted during any period that the board of directors suspends the 2019 Plan. To the extent then required by applicable law or listing agency, any amendment to the 2019 Plan may be subject to shareholder approval. Unless earlier terminated by the board of directors, the 2019 Plan will terminate at the close of business on the day before the 10th anniversary of the date the board of directors approved the 2019 Plan.
Adagene Inc. 2021 Performance Incentive Plan
In January 2021, our board of directors adopted, and our shareholders approved, the 2021 Performance Incentive Plan, or the 2021 Plan, to provide an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The terms of the 2021 Plan are summarized below. Employees, officers, directors and consultants that provide services to us or one of our subsidiaries may be selected to receive awards under the 2021 Plan.
Our board of directors or a committee appointed by the board administers the 2021 Plan. The plan administrator has broad authority to:
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A total of 2,994,000 of our ordinary shares is authorized for issuance with respect to awards granted under the 2021 Plan. The share limit will automatically increase on the first trading day in January of each year (commencing with 2022) by an amount equal to (1) 5% of the total number of our outstanding ordinary shares on December 31 of the prior year, or (2) such lesser number as determined by our board of directors. Any shares subject to awards granted under the 2021 Plan or our Second Amended and Restated Share Incentive Plan that are not paid, delivered or exercised before they expire or are canceled or terminated, or otherwise fail to vest, as well as shares used to pay the purchase or exercise price of such awards or related tax withholding obligations, will become available for new award grants under the 2021 Plan. As of the date of this prospectus, no awards have been granted under the 2021 Plan, and the full number of shares authorized under the 2021 Plan is available for award purposes.
Awards under the 2021 Plan may be in the form of incentive or nonqualified stock options, share appreciation rights, share bonuses, restricted shares, share units, restricted share units and other forms of awards including cash awards. Awards under the plan generally will not be transferable other than by will or the laws of descent and distribution, except that the plan administrator may authorize certain transfers.
Options and share appreciation rights may not be granted under the 2021 Plan at exercise prices below the fair market value of the underlying ordinary shares on the date of grant, except that the plan administrator may grant such awards with exercise prices below the fair market value of the underlying shares to service-providers who are not subject to U.S. taxes. The maximum term of options and share appreciation rights granted under the plan is ten years. Incentive stock options granted to any 10% owner of our ordinary shares must have an exercise price that is at least 110% of the fair market value of our ordinary shares on the grant date and a maximum term of five years. These and other awards may also be issued solely or in part for services. Awards are generally paid in cash or our ordinary shares. The plan administrator may provide for the deferred payment of awards and may determine the terms applicable to deferrals.
As is customary in incentive plans of this nature, the number and type of shares available under the 2021 Plan and any outstanding awards, as well as the exercise or purchase prices of awards, will be subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, share splits, share dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the shareholders.
Generally, and subject to limited exceptions set forth in the 2021 Plan, if we dissolve or undergo certain corporate transactions such as a merger, business combination or other reorganization, or a sale of all or substantially all of our assets, all awards then-outstanding under the 2021 Plan will become fully vested or paid, as applicable, and will terminate or be terminated in such circumstances, unless the plan administrator provides for the assumption, substitution or other continuation of the award. The plan administrator also has the discretion to establish other change in control provisions with respect to awards granted under the 2021 Plan. For example, the administrator could provide for the acceleration
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of vesting or payment of an award in connection with a corporate event that is not described above and provide that any such acceleration shall be automatic upon the occurrence of any such event.
Our board of directors may amend or terminate the 2021 Plan at any time, but no such action will affect any outstanding award in any manner materially adverse to a participant without the consent of the participant. Plan amendments will be submitted to shareholders for their approval as required by applicable law or deemed necessary or advisable by the board. The 2021 Plan is not exclusive; our board of directors and compensation committee may grant shares and performance incentives or other compensation, in shares or cash, under other plans or authority.
The plan will terminate on January 16, 2031. However, the plan administrator will retain its authority until all outstanding awards are exercised or terminated.
The following table summarizes, as of the date of this prospectus, the number of ordinary shares under outstanding awards that we granted to our directors and executive officers under the 2019 Plan, which replaced the 2015 Plan, excluding awards that were exercised, forfeited or canceled after the relevant grant dates.
Name
|
Ordinary
Shares Underlying Equity Awards Granted |
Exercise
Price (US$/Share) |
Date of Grant |
Date of
Expiration |
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Executive Officers |
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Peter (Peizhi) Luo, Ph.D. |
287,415 | $13.85 | January 16, 2021 | January 16, 2031 | |||||
Fangyong (Felix) Du, Ph.D. |
111,744 | $13.85 | January 16, 2021 | January 16, 2031 | |||||
Hua Gong, M.D., Ph.D. |
* | $2.26 | August 2020 | August 2030 | |||||
JC Xu, M.D., Ph.D. |
* | $2.26 | August 2020 | August 2030 | |||||
Qinghai Zhao, Ph.D. |
* | $2.26 | October 2020 | October 2030 | |||||
Man Kin (Raymond) Tam, M.B.A., B. Eng. |
* | $1.83 | August 2020 | August 2030 | |||||
|
* | $1.48 | March 2020 | March 2030 | |||||
Non-Employee Directors |
|||||||||
Daniel Auerbach, M.B.A. |
| | | | |||||
Chong Xu, Ph.D. |
| | | | |||||
Yu Miao |
| | | | |||||
Yunxia Yang, M.B.A. |
| | | | |||||
Lefei Sun |
| | | | |||||
Andy (Yiu Leung) Cheung (independent director nominee) |
| | | | |||||
Min Li (independent director nominee) |
| | | | |||||
All directors and executive officers as a group |
2,112,986 | Various dates from March 2020 to January 2021 | Various dates from March 2030 to January 2031 |
Note:
As of the date of this prospectus, our award holders other than our directors and executive officers as a group held outstanding awards to purchase 1,488,536 ordinary shares. For discussions of our accounting policies and estimates for awards granted pursuant to the 2019 Plan, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies, Judgments and EstimatesShare-based compensation."
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The following table sets forth information concerning the beneficial ownership of our ordinary shares as of the date of this prospectus, assuming conversion of all of our outstanding series A-1 preferred shares, series A-2 preferred shares, series B preferred shares, series C-1 preferred shares, series C-2 preferred shares and series C-3 preferred shares into ordinary shares, on a one-to-one basis by:
The calculations in the table below are based on 43,532,275 ordinary shares on an as-converted basis outstanding as of the date of this prospectus and ordinary shares outstanding immediately after the completion of this offering, including (i) ordinary shares to be sold by us in this offering in the form of ADSs, and (ii) 27,249,824 ordinary shares converted from our outstanding preferred shares, assuming that the underwriters do not exercise their option to purchase additional ADSs and excluding the 2,262,500 ordinary shares, issued but deemed to be not outstanding as of the date of this prospectus, held by Great Han Fortune LP.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security.
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These shares, however, are not included in the computation of the percentage ownership of any other person.
|
Ordinary Shares
Beneficially Owned Prior to this Offering |
Ordinary Shares Beneficially
Owned After this Offering |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number | %** | Number |
Percentage of total
ordinary shares on an as-converted basis*** |
Percentage of
aggregate voting power**** |
|||||||||||
Directors and Executive Officers: |
||||||||||||||||
Peter (Peizhi) Luo(1) |
10,449,636 | 23.5 | % | |||||||||||||
Fangyong (Felix) Du(2) |
1,052,188 | 2.4 | % | |||||||||||||
Hua Gong |
* | * | ||||||||||||||
JC Xu |
* | * | ||||||||||||||
Qinghai Zhao |
* | * | ||||||||||||||
Man Kin (Raymond) Tam |
* | * | ||||||||||||||
Daniel Auerbach |
| | ||||||||||||||
Chong Xu |
| | ||||||||||||||
Yunxia Yang |
| | ||||||||||||||
Yu Miao |
| | ||||||||||||||
Lefei Sun |
| | ||||||||||||||
Andy (Yiu Leung) Cheung (independent director nominee) |
| | ||||||||||||||
Min Li (independent director nominee) |
||||||||||||||||
All directors and executive officers as a group |
10,449,636 | 23.5 | % | |||||||||||||
Principal Shareholders: |
|
|
|
|
|
|||||||||||
Peter Luo act-in-concert group(3) |
10,449,636 | 23.5 | % | |||||||||||||
JSR Limited(4) |
5,353,242 | 12.3 | % | |||||||||||||
Asia Ventures II L.P.(5) |
4,826,037 | 11.1 | % | |||||||||||||
F-Prime Capital Partners Healthcare Fund III LP(6) |
4,826,037 | 11.1 | % | |||||||||||||
Wuxi Pharmatech Healthcare Fund I L.P.(7) |
4,706,946 | 10.8 | % | |||||||||||||
General Atlantic Singapore AI Pte. Ltd.(8) |
4,452,441 | 10.2 | % |
Notes:
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Exchange. The registered address of WuXi Pharmatech Healthcare Fund I L.P. is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
As of the date of this prospectus, 35.9% of our outstanding ordinary shares or outstanding preferred shares are held by record holders in the United States.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See "Description of Share CapitalHistory of Securities Issuances" for a description of issuances of our ordinary shares and preferred shares that have resulted in significant changes in ownership held by our major shareholders.
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The following is a summary of transactions since January 1, 2017 to which we have been a participant in which any of our then directors, executive officers or holders of more than 5% of any class of our voting securities at the time of such transaction, or any members of their immediate family, had or will have a direct or indirect material interest.
Employment Agreements and Indemnification Agreements
See "ManagementEmployment Agreements and Indemnification Agreements."
Private Placements
See "Description of Share CapitalHistory of Securities Issuances."
Share Incentives
See "ManagementShare Incentive Plan."
Other Related Party Transactions
Transactions with Peter Luo
In May 2014, we received a subsidy of US$84.6 thousand from the local government for attracting highly skilled personnel on behalf of Peter Luo, our Chairman, CEO and ordinary and preferred shareholder. We settled this transaction with Peter Luo in May 2020.
Transactions with WuXi AppTec Group
We received research and development services from WuXi AppTec Group, the parent company of one of our principal shareholders. The amounts for the purchase of the services were US$1.0 million and US$2.1 million in 2018 and 2019, respectively. As of December 31, 2018 and 2019, the amounts due to WuXi AppTec Group were US$0.2 million and US$0.4 million, respectively.
The amounts for the purchase of the services were US$1.3 million and US$2.3 million in the nine months ended September 30, 2019 and 2020, respectively. As of September 30, 2020, the amount due to WuXi AppTec Group was US$354.3 thousand.
Transactions with WuXi Biologics (Shanghai) Co., Ltd. or WuXi Biologics
We received research and development services, including provision of manufacturing and quality control testing services, from WuXi Biologics, an entity controlled by the ultimate controlling party of one of our principal shareholders. The amounts for the purchase of the services were US$6.5 million and US$3.6 million in 2018 and 2019, respectively. As of December 31, 2018 and 2019, the amounts due to WuXi Biologics were US$3.4 million and US$1.4 million, respectively.
The amounts for the purchase of the services were US$2.8 million and US$5.1 million in the nine months ended September 30, 2019 and 2020, respectively. As of September 30, 2020, the amount due to WuXi Biologics was US$2.0 million.
Director and Executive Officers
Exercise of Share Options
In October and November 2017, Dr. Peter (Peizhi) Luo, Xiaohong (Kristine) She and Dr. Fangyong (Felix) Du exercised their respective vested share options under the 2015 Plan. The payment for exercise of such share options is repaid in installments with nil interest. The aggregate
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exercise price for Dr. Luo, Ms. She and Dr. Du was US$365.0 thousand, US$67.4 thousand and US$173.4 thousand, respectively. Each of Dr. Luo, Ms. She and Dr. Du has settled the payments for their respective exercise of such share options.
Promissory Notes
The following table sets forth the material terms of the promissory notes issued in connection with the share purchase plans between us and our directors and executive officers:
Name of Director or Executive Officer
|
Latest Amount
Previously Outstanding |
|
---|---|---|
Peter (Peizhi) Luo |
US$4.2 million | |
Xiaohong (Kristine) She* |
US$0.6 million | |
Fangyong (Felix) Du |
US$1.5 million |
Note:
Xiaohong (Kristine) She is the spouse of Dr. Peter (Peizhi) Luo
All promissory notes were made pursuant to our 2019 Plan. All amounts outstanding under the promissory notes have been settled. For further information, see "ManagementShare Incentive PlanAdagene Inc. Second Amended and Restated Share Incentive PlansRepayment of the Promissory Notes."
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We are a Cayman Islands exempted company and our affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and Companies Law (2020 Revision) (as amended) of the Cayman Islands, which we refer to as the "Companies Law" below, and the common law of the Cayman Islands.
As of the date hereof, our authorized share capital consists of US$50,000 divided into 500,000,000 shares with a par value of US$0.0001, including: (i) 472,750,176 ordinary shares of par value US$0.0001 each, (ii) 7,844,371 series A preferred shares of par value US$0.0001 each (the "Series A Preferred Shares"), which are further divided into 5,473,957 series A-1 preferred shares of par value of US$0.0001 each (the "Series A-1 Preferred Shares"), 2,370,414 series A-2 preferred shares of par value of US$0.0001 each (the "Series A-2 Preferred Shares"), (iii) 7,494,537 series B preferred shares of par value US$0.0001 each (the "Series B Preferred Shares"), and (iv) 11,910,916 authorized series C preferred shares with par value of US$0.0001 each (the "Series C Preferred Shares"), which are further divided into 5,597,354 series C-1 preferred shares with par value of US$0.0001 each (the "Series C-1 Preferred Shares"), 1,861,121 series C-2 preferred shares with par value of US$0.0001 each (the "Series C-2 Preferred Shares") and 4,452,441 series C-3 preferred shares with par value of US$0.0001 each (the "Series C-3 Preferred Shares").
As of the date of this prospectus, there are 16,282,451 ordinary shares, excluding 2,262,500 ordinary shares, issued but deemed to be not outstanding as of the date of this prospectus, held by Great Han Fortune LP, 5,473,957 Series A-1 Preferred Shares, 2,370,414 Series A-2 Preferred Shares, 7,494,537 Series B Preferred Shares, 5,597,354 Series C-1 Preferred Shares, 1,861,121 Series C-2 Preferred Shares and 4,452,441 Series C-3 Preferred Shares issued and outstanding. All of our issued and outstanding shares are fully paid. Immediately prior to the completion of this offering, all of our issued and outstanding preferred shares will be converted into ordinary shares on a one-for-one basis ordinary shares.
We plan to adopt an amended and restated memorandum and articles of association, which will become effective and replace the current sixth amended and restated memorandum and articles of association in its entirety immediately prior to completion of this offering. Our authorized share capital immediately prior to completion of the offering will be US$80,000 divided into 800,000,000 shares comprising (i) 640,000,000 ordinary shares of a par value of US$0.0001 each, and (ii) 160,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as our board of directors may determine in accordance with our amended and restated memorandum and articles of association. We will issue ordinary shares represented by ADSs in this offering, assuming the underwriters do not exercise their over-allotment option. All awards under the 2019 Plan, regardless of grant dates, will entitle holders to an equivalent number of ordinary shares once the vesting and exercising conditions are met.
The following are summaries of material provisions of our post-offering amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares that we expect will become effective immediately prior to the completion of this offering.
Ordinary shares
General. Immediately prior to the completion of this offering, our authorized share capital is US$80,000 divided into 800,000,000 shares comprising (i) 640,000,000 ordinary shares of a par value of US$0.0001 each, and (ii) 160,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as our board of directors may determine in accordance with our amended and restated memorandum and articles of association. Holders of ordinary shares will have the same rights. All of our issued and outstanding ordinary shares are fully paid and non-assessable. Certificates
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representing the ordinary shares are issued in registered form. We may not issue share to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold, transfer and vote their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to our post-offering memorandum and articles of association and the Companies Law. In addition, our shareholders may, subject to the provisions of our articles of association, by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Our post-offering memorandum and articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of the share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law. No dividend may be declared and paid unless our directors determine that, immediately after the payment, we will be able to pay our debts as they become due in the ordinary course of business and we have funds lawfully available for such purpose.
Voting Rights. In respect of all matters subject to a shareholders' vote, holder of an each Ordinary Share is entitled to one vote for each Ordinary Share registered in his or her name on our register of members. Voting at any meeting of shareholders is by way of a poll unless a show of hands is permitted. A poll may be demanded by the chairman of such meeting or any one shareholder.
A quorum required for a meeting of shareholders consists of two or more shareholders holding not less than one-half of the votes attaching to the issued and outstanding shares entitled to vote at general meetings present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders' annual general meetings. Our post-offering memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we will specify the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined by our board of directors. We, however, will hold an annual shareholders' meeting during each fiscal year, as required by the Listing Rules of the Nasdaq Global Market. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Shareholders' annual general meetings and any other general meetings of our shareholders may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings, in which case the directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our post-offering memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders. Advance notice of at least seven (7) days is required for the convening of our annual general meeting and other general meetings in accordance with our post-offering memorandum and articles of association.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting, while a special resolution also requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. A special resolution will be required for important matters such as a change of name or making changes to our post-offering memorandum and articles of association.
Transfer of Ordinary Shares. Subject to the restrictions in our post-offering memorandum and articles of association as set out below, any of our shareholders may transfer all or any of his or her
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ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any Ordinary Share. Our board of directors may also decline to register any transfer of any Ordinary Share unless:
If our directors refuse to register a transfer, they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice requirement of the Nasdaq, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them. Any distribution of assets or capital to a holder of ordinary shares will be the same in any liquidation event.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or by an ordinary resolution of our shareholders. Our company may also repurchase any of our shares provided that the manner and terms of such purchase have been approved by our board of directors or by an ordinary resolution of our shareholders, or are otherwise authorized by our post-offering memorandum and articles of association. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company's profits or out of the proceeds of a fresh issue of shares
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made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if the Company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares. If at any time our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be varied with the consent in writing of holders of not less than a majority of the issued shares of that class or series or with the sanction of a special resolution at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See "Where You Can Find Additional Information."
Issuance of Additional Shares. Our post-offering memorandum and articles of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our post-offering memorandum and articles of association also authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions. Some provisions of our post-offering memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.
Changes in Capital.
We may from time to time by ordinary resolution:
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We may by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capital redemption reserve in any manner permitted by law.
Exempted Company. We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
"Limited liability" means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder's shares of the company.
Register of Members
Under the Companies Law, we must keep a register of members and there should be entered therein:
Under the Companies Law, the register of members of our company is prima facie evidence of the matters set out therein (that is, the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter of the Companies Law to have legal title to the shares as set against its name in the register of members. Upon completion of this offering, we will perform the procedure necessary to immediately update the register of members to record and give effect to the issuance of shares by us to the Depositary (or its nominee) as the depositary. Once our register of members has been updated, the
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shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name.
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Differences in Corporate Law
The Companies Law is derived, to a large extent, from the older Companies Acts of England, but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements. The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) "merger" means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a "consolidation" means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a declaration as to the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose, a company is a "parent" of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provided that the dissenting shareholder complies strictly with the procedures set out in the Companies Law. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
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Separate from the statutory provisions relating to mergers and consolidations, the Companies Law also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three- fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
The Companies Law also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of a dissenting minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders' Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against or derivative actions in the name of the company to challenge actions where:
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company's memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our post-offering memorandum and articles of
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association provide that that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person's dishonesty, willful default or fraud, in or about the conduct of our company's business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our post-offering memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, 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.
Directors' Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the companya duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Under our post-offering memorandum and articles of association, directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our company must declare the nature of their interest at a meeting of the board of directors.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its
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certificate of incorporation. The Companies Law and our post-offering memorandum and articles of association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles of association. Our post-offering memorandum and articles of association allow our shareholders holding in aggregate not less than twenty percent of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders' meeting, our post-offering memorandum and articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings not called by such shareholders. As an exempted Cayman Islands company, we are not obliged by law to call shareholders' annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder's voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering memorandum and articles of association, directors not appointed by Peter Peizhi Luo, JSR Limited, and General Atlantic Singapore AI Pte. Ltd. may be removed with or without cause, by an ordinary resolution of our shareholders. A director shall hold office until the expiration of his or her term or his or her successor shall have been elected and qualified, or until his or her office is otherwise vacated. In addition, a director's office shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsound mind or dies; (iii) resigns his office by notice in writing to the company; (iv) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; (v) is prohibited by law from being a director; or (vi) is removed from office pursuant to any other provisions of our post-offering memorandum and articles of association.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an "interested shareholder" for
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three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target's outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target's board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of the Company are required to comply with fiduciary duties which they owe to the Company under Cayman Islands laws, including the duty to ensure that, in their opinion, any such transactions must be entered into bona fide in the best interests of the company, and are entered into for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation's outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our post-offering memorandum and articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of not less than a majority of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation's governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Law and our post-offering memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of our shareholders.
Rights of Nonresident or Foreign Shareholders. There are no limitations imposed by our post-offering memorandum and articles of association on the rights of nonresident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our post-offering amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
History of Securities Issuances
The following is a summary of securities issuances by Adagene Inc. in the past three years.
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Ordinary Shares
From August 17, 2017 to January 19, 2021, we issued a total of 6,761,534 ordinary shares to employees for an aggregate consideration of US$7.9 million upon the exercise of certain share incentive awards. For the purpose of this paragraph only, such number of shares includes the 2,262,500 ordinary shares, issued but deemed to be not outstanding as of the date of this prospectus, held by Great Han Fortune LP.
Preferred Shares
On February 2, 2018, we issued a total of 3,358,412 Series C-1 Preferred Shares to SCC Venture VI Holdco, Ltd., Gopher Harvest Co-Investment Fund LP and AVICT Global Holdings Limited for an aggregate consideration of US$30.0 million.
On March 19, 2018, we issued a total of 1,679,206 Series C-1 Preferred Shares to King Star Med LP and WEALTHY TECHNOLOGIES LIMITED for an aggregate consideration of US$15.0 million.
On May 16, 2018, we issued 559,736 Series C-1 Preferred Shares to Chief Strategic International Limited for a consideration of US$5.0 million.
On June 13, 2019, we issued a total of 1,567,260 Series C-2 Preferred Shares to Mega Prime Development Limited, Poly Platinum Enterprises Limited and Chief Strategic International Limited for an aggregate consideration of US$16.0 million.
On November 21, 2019, we issued 293,861 Series C-2 Preferred Shares to MODEST CHAMPION LIMITED for a consideration of US$3.0 million.
On December 19, 2019, we issued 4,452,441 Series C-3 Preferred Shares to General Atlantic Singapore AI Pte. Ltd. for a consideration of US$50.0 million.
Warrant
On February 2, 2018, we granted warrants to SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP to purchase up to a total of US$7.5 million worth of Series C-2 Preferred Shares at the exercise price of US$10.2089 per share (as may be adjusted from time to time). The warrants were not exercised and have expired.
Award Grants
We have granted awards to purchase our ordinary shares to certain of our directors, executive officers and employees pursuant to the 2015 Plan and the 2019 Plan. As of the date of this prospectus, the aggregate number of our ordinary shares underlying our outstanding awards under the 2019 Plan is 3,601,522. We have not granted any awards under the 2021 Plan. See "ManagementShare Incentive Plan."
Share Cancellation
On January 16, 2021, certain management members surrendered a total of 491,119 ordinary shares for cancellation to settle the balance due under their respective promissory notes issued in connection with the share purchase plans.
Shareholders' Agreements
We entered into a Fifth Amended and Restated Shareholders Agreement and a Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement (collectively, "Shareholders Agreements")
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on December 19, 2019 with our shareholders, which consist of holders of our ordinary shares, Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series B Preferred Shares, Series C-1 Preferred Shares, Series C-2 Preferred Shares and Series C-3 Preferred Shares.
The Shareholders Agreements provide for certain special rights, including information and inspection rights, right of participation, right of first refusal, co-sale right, drag-along right, redemption, liquidation and protective provisions. Except for board representation right and registration right, all preferred shareholders' rights will automatically terminate upon the completion of this offering.
Board Representation
Each of Asia Ventures II L.P., F-Prime Capital Partners Healthcare Fund III LP and JSR Limited shall have the right to designate, appoint, remove and replace and reappoint one director so long as they each hold at least five percent of the shares outstanding on a fully-diluted basis and an as-converted basis, respectively. Notwithstanding of the foregoing, each of Asia Ventures II L.P. and F-Prime Capital Partners Healthcare Fund III LP will cease to have such board representation right upon the effectiveness of our post-offering memorandum and articles of association.
As long as Wuxi Pharmatech Healthcare Fund I L.P. holds at least five percent of the shares outstanding on a fully-diluted basis, it shall have the right to nominate one independent non-executive director and such one independent non-executive director shall be appointed and agreed by the board.
As long as Peter Luo holds any shares or is employed by us or any of our controlled affiliates, he shall have the right to designate, appoint, remove and replace and reappoint one director. Notwithstanding of the foregoing, our post-offering memorandum and articles of association will provide that for as long as Pete Luo holds or beneficially owns any shares or is employed by us or any of our subsidiaries, he will serve as one of our directors and the Chairman of the Board of Directors. In addition, during the period commencing upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part, and ending on the earlier of (i) the date upon which Peter Luo beneficially owns less than five percent of the shares outstanding on a fully diluted basis, (ii) the death or legal determination of Peter Luo's incapacity or (iii) the termination of Peter Luo as an executive officer or principal scientific advisor to us or any of our subsidiaries or for cause (as determined under his related employment or consulting arrangements and subject to all related cure provisions), Peter Luo shall have the right to designate, appoint, remove and replace and reappoint one additional director.
As long as General Atlantic Singapore AI Pte. Ltd. and its affiliates hold at least five percent of the shares outstanding on a fully-diluted basis, they shall have the right to designate, appoint, remove and replace and reappoint one director.
Registration Rights
Pursuant to our Fifth Amended and Restated Shareholders Agreement dated December 19, 2019, we have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the agreement.
Demand Registration Rights. At any time or from time to time after the date that is six months after the closing of the IPO, holders holding thirty percent or more of the voting power of the then outstanding registrable securities held by all holders may request in writing that we effect a registration on any internationally recognized exchange that is reasonably acceptable to such requesting holders. Upon receipt of such a request, we shall (x) promptly give written notice of the proposed registration to all other holders and (y) as soon as practicable, use its good faith commercially reasonable efforts to cause the registrable securities specified in the request, together with any registrable securities of any holder who requests in writing to join such registration within fifteen (15) days after our delivery of
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written notice, to be registered and/or qualified for sale and distribution in such jurisdiction as the initiating holders may request. We shall be obligated to consummate no more than two registrations that have been declared and ordered effective; provided that if the registrable securities sought to be included in the registration are not fully included in the registration for any reason other than solely due to the action or inaction of the holders including registrable securities in such registration, such registration shall not be deemed to constitute one of the registration rights granted. We shall not be obligated to take any action to effect any registration unless the aggregate proceeds from the offering that is the subject of the registration exceeds US$5,000,000 and at least 40% of the registrable securities then outstanding shall participate in such registration. Furthermore, we have the right to defer filing of a registration statement if, after receiving a request from holders, we furnish to the holders a certificate signed by our chief executive officer stating that, in the good faith judgment of the board, it would be detrimental to us or our members for a registration statement to be filed in the near future, but we may not (i) utilize this right for more than ninety days on any one occasion or more than once during any twelve-month period, or (ii) register any other of our securities during such period.
Registration on Form F-3 or Form S-3. We shall use our good faith commercially reasonable efforts to qualify for registration on Form F-3 or Form S-3. If we qualify for registration on Form F-3 or Form S-3 (or any comparable form for registration in a jurisdiction other than the United States), holders holding ten percent or more of the voting power of the then outstanding registrable securities held by all holders may request us in writing to file, in any jurisdiction in which we have had a registered underwritten public offering, a registration statement on Form F-3 or Form S-3 (or any comparable form for registration in a jurisdiction other than the United States). We shall be obligated to consummate no more than two registrations that have been declared and ordered effective within any twelve-month period; provided that if the registrable securities sought to be included in the registration are not fully included in such registration for any reason other than solely due to the action or inaction of the holders including registrable securities in such registration, such registration shall not be deemed to constitute one of the registration rights granted. We shall not be obligated to take any action to effect any registration unless the aggregate proceeds from the offering that is the subject of the registration exceeds US$5,000,000. Furthermore, we have the right to defer filing of a registration statement if, after receiving a request from holders, we furnish to the holders a certificate signed by our chief executive officer stating that, in the good faith judgment of the board, it would be detrimental to us or our members for a registration statement to be filed in the near future, but we may not (i) utilize this right for more than ninety days on any one occasion or more than once during any twelve-month period, or (ii) register any other of our securities during such period.
Piggyback Registration Rights. If we propose to register for our own account any of our equity securities, or for the account of any holder (other than a holder of registrable securities who is a party to the shareholder agreement) of equity securities any of such holder's equity securities, in connection with the public offering of such securities, we shall promptly give each holder written notice of such registration and, upon the written request of any holder given within fifteen days after delivery of such notice, we shall use our good faith commercially reasonable efforts to include in such registration any registrable securities thereby requested to be registered by such holder. If a holder decides not to include all or any of its registrable securities in such registration by us, 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 us.
Expenses of Registration. We will bear all registration expenses. Each holder, however, should bear its proportionate share of all of the underwriting discounts and selling commissions applicable to the sale of registrable securities.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Receipts
JPMorgan Chase Bank, N.A. ("JPMorgan"), as depositary, will issue the ADSs which you will be entitled to receive in this offering. Each ADS will represent an ownership interest in a designated number of shares which we will deposit with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary, yourself as an ADR holder and all other ADR holders, and all beneficial owners of an interest in the ADSs evidenced by ADRs from time to time.
The depositary's office is located at 383 Madison Avenue, Floor 11, New York, NY 10179.
The ADS to share ratio is subject to amendment as provided in the form of ADR (which may give rise to fees contemplated by the form of ADR). In the future, each ADS will also represent any securities, cash or other property deposited with the depositary but which they have not distributed directly to you.
A beneficial owner is any person or entity having a beneficial ownership interest ADSs. A beneficial owner need not be the holder of the ADR evidencing such ADS. If a beneficial owner of ADSs is not an ADR holder, it must rely on the holder of the ADR(s) evidencing such ADSs in order to assert any rights or receive any benefits under the deposit agreement. A beneficial owner shall only be able to exercise any right or receive any benefit under the deposit agreement solely through the holder of the ADR(s) evidencing the ADSs owned by such beneficial owner. The arrangements between a beneficial owner of ADSs and the holder of the corresponding ADRs may affect the beneficial owner's ability to exercise any rights it may have.
An ADR holder shall be deemed to have all requisite authority to act on behalf of any and all beneficial owners of the ADSs evidenced by the ADRs registered in such ADR holder's name for all purposes under the deposit agreement and ADRs. The depositary's only notification obligations under the deposit agreement and the ADRs is to registered ADR holders. Notice to an ADR holder shall be deemed, for all purposes of the deposit agreement and the ADRs, to constitute notice to any and all beneficial owners of the ADSs evidenced by such ADR holder's ADRs.
Unless certificated ADRs are specifically requested, all ADSs will be issued on the books of our depositary in book-entry form and periodic statements will be mailed to you which reflect your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you will receive which reflect your ownership of ADSs.
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker or financial institution to find out what those procedures are.
As an ADR holder or beneficial owner, we will not treat you as a shareholder of ours and you will not have any shareholder rights. Cayman Island law governs shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Your rights are those of an ADR holder or of a beneficial owner. Such rights derive from the terms of the deposit agreement to be entered into among us, the depositary and all holders and beneficial owners from time to time of ADRs issued under the deposit agreement and, in the case of a beneficial owner, from the arrangements between the beneficial owner and the holder of the corresponding ADRs. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee will actually be the
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registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf.
The following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. You can read a copy of the deposit agreement which is filed as an exhibit to the registration statement of which this prospectus forms a part. You may also obtain a copy of the deposit agreement at the SEC's Public Reference Room which is located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. You may also find the registration statement and the attached deposit agreement on the SEC's website at http://www.sec.gov.
Share Dividends and Other Distributions
How will I receive dividends and other distributions on the shares underlying my ADSs?
We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after converting any cash received into U.S. dollars (if it determines such conversion may be made on a reasonable basis) and, in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch or affiliate of JPMorgan to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. Such division, branch and/or affiliate may charge the depositary a fee in connection with such sales, which fee is considered an expense of the depositary. You will receive these distributions in proportion to the number of underlying securities that your ADSs represent.
Except as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner:
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it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not timely furnish such evidence, the depositary may:
If the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific registered ADR holder, the depositary may choose any method of distribution that it deems practicable for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent the retained items.
Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices.
The depositary is not responsible if it fails to determine that any distribution or action is lawful or reasonably practicable.
There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period. All purchases and sales of securities will be handled by the depositary in accordance with its then current policies, which are currently set forth on the "Disclosures" page (or successor page) of www.adr.com (as updated by the depositary from time to time, "ADR.com").
Deposit, Withdrawal and Cancellation
How does the depositary issue ADSs?
The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the depositary in connection with such issuance. In the case of the ADSs to be issued under this prospectus, we will arrange with the underwriters named herein to deposit such shares.
Shares deposited in the future with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of JPMorgan Chase Bank, N.A., as depositary for the benefit of holders of ADRs or in such other name as the depositary shall direct.
The custodian will hold all deposited shares (including those being deposited by or on our behalf in connection with the offering to which this prospectus relates) for the account and to the order of the depositary, in each case for the benefit of ADR holders. ADR holders and beneficial owners thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit
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agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as "deposited securities".
Deposited securities are not intended to, and shall not, constitute proprietary assets of the depositary, the custodian or their nominees. Beneficial ownership in deposited securities is intended to be, and shall at all times during the term of the deposit agreement continue to be, vested in the beneficial owners of the ADSs representing such deposited securities. Notwithstanding anything else contained herein, in the deposit agreement, in the form of ADR and/or in any outstanding ADSs, the depositary, the custodian and their respective nominees are intended to be, and shall at all times during the term of the deposit agreement be, the record holder(s) only of the deposited securities represented by the ADSs for the benefit of the ADR holders. The depositary, on its own behalf and on behalf of the custodian and their respective nominees, disclaims any beneficial ownership interest in the deposited securities held on behalf of the ADR holders.
Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name or upon the order of the person entitled thereto evidencing the number of ADSs to which such person is entitled. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositary's direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holder's name. An ADR holder can request that the ADSs not be held through the depositary's direct registration system and that a certificated ADR be issued.
How do ADR holders cancel an ADS and obtain deposited securities?
When you turn in your ADR certificate at the depositary's office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares to you or upon your written order. Delivery of deposited securities in certificated form will be made at the custodian's office. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.
The depositary may only restrict the withdrawal of deposited securities in connection with:
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Record Dates
The depositary may, after consultation with us if practicable, fix record dates (which, to the extent applicable, shall be as near as practicable to any corresponding record dates set by us) for the determination of the registered ADR holders who will be entitled (or obligated, as the case may be):
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all subject to the provisions of the deposit agreement.
Voting Rights
How do I vote?
If you are an ADR holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. As soon as practicable after receipt from us of notice of any meeting at which the holders of shares are entitled to vote, or of our solicitation of consents or proxies from holders of shares, the depositary shall fix the ADS record date in accordance with the provisions of the deposit agreement, provided that if the depositary receives a written request from us in a timely manner and at least 30 days prior to the date of such vote or meeting, the depositary shall, at our expense, distribute to the registered ADR holders a "voting notice" stating (i) final information particular to such vote and meeting and any solicitation materials, (ii) that each ADR holder on the record date set by the depositary will, subject to any applicable provisions of Cayman Islands law, be entitled to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the deposited securities represented by the ADSs evidenced by such ADR holder's ADRs and (iii) the manner in which such instructions may be given or deemed given in accordance with the deposit agreement, including instructions for giving a discretionary proxy to a person designated by us. Each ADR holder shall be solely responsible for the forwarding of voting notices to the beneficial owners of ADSs registered in such ADR holder's name. There is no guarantee that ADR holders and beneficial owners generally or any holder or beneficial owner in particular will receive the notice described above with sufficient time to enable such ADR holder or beneficial owner to return any voting instructions to the depositary in a timely manner.
Following actual receipt by the ADR department responsible for proxies and voting of ADR holders' instructions (including, without limitation, instructions of any entity or entities acting on behalf of the nominee for DTC), the depositary shall, in the manner and on or before the time established by the depositary for such purpose, endeavor to vote or cause to be voted the deposited securities represented by the ADSs evidenced by such ADR holders' ADRs in accordance with such instructions insofar as practicable and permitted under the provisions of or governing deposited securities.
To the extent that (A) we have provided the depositary with at least 35 days' notice of the proposed meeting, (B) the voting notice will be received by all ADR holders and beneficial owners no less than 10 days prior to the date of the meeting and/or the cut-off date for the solicitation of consents, and (C) the depositary does not receive instructions on a particular agenda item from an ADR holder (including, without limitation, any entity or entities acting on behalf of the nominee for DTC) in a timely manner, such ADR holder shall be deemed, and in the deposit agreement the depositary is instructed to deem such ADR holder, to have instructed the depositary to give a discretionary proxy for such agenda item(s) to a person designated by us to vote the deposited securities represented by the ADSs for which actual instructions were not so given by all such ADR holders on such agenda item(s), provided that no such instruction shall be deemed given and no discretionary proxy shall be given unless (1) we inform the depositary in writing (and we agree to provide the depositary with such instruction promptly in writing) that (a) we wish such proxy to be given with respect to such agenda item(s), (b) there is no substantial opposition existing with respect to such agenda item(s) and (c) such agenda item(s), if approved, would not materially or adversely affect the rights of holders of shares, and (2) the depositary has obtained an opinion of counsel, in form and substance satisfactory to the depositary, confirming that (i) the granting of such discretionary proxy does not subject the depositary to any reporting obligations in the Cayman Islands, (ii) the granting of
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such proxy will not result in a violation of the laws, rules, regulations or permits of the Cayman Islands, (iii) the voting arrangement and deemed instruction as contemplated herein will be given effect under the laws, rules and regulations of the Cayman Islands, and (iv) the granting of such discretionary proxy will not under any circumstances result in the shares represented by the ADSs being treated as assets of the depositary under the laws, rules or regulations of the Cayman Islands.
The depositary may from time to time access information available to it to consider whether any of the circumstances described above exist, or request additional information from us in respect thereto. By taking any such action, the depositary shall not in any way be deemed or inferred to have been required, or have had any duty or responsibility (contractual or otherwise), to monitor or inquire whether any of the circumstances described above existed. In addition to the limitations provided for in the deposit agreement, ADR holders and beneficial owners are advised and agree that (a) the depositary will rely fully and exclusively on us to inform it of any of the circumstances set forth above, and (b) neither the depositary, the custodian nor any of their respective agents shall be obliged to inquire or investigate whether any of the circumstances described above exist and/or whether we complied with our obligation to timely inform the depositary of such circumstances. Neither the depositary, the custodian nor any of their respective agents shall incur any liability to ADR holders or beneficial owners (i) as a result of our failure to determine that any of the circumstances described above exist or our failure to timely notify the depositary of any such circumstances or (ii) if any agenda item which is approved at a meeting has, or is claimed to have, a material or adverse effect on the rights of holders of shares. Because there is no guarantee that ADR holders and beneficial owners will receive the notices described above with sufficient time to enable such ADR holders or beneficial owners to return any voting instructions to the depositary in a timely manner, ADR holders and beneficial owners may be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us in such circumstances, and neither the depositary, the custodian nor any of their respective agents shall incur any liability to ADR holders or beneficial owners in such circumstances.
ADR holders are strongly encouraged to forward their voting instructions to the depositary as soon as possible. For instructions to be valid, the ADR department of the depositary that is responsible for proxies and voting must receive them in the manner and on or before the time specified, notwithstanding that such instructions may have been physically received by the depositary prior to such time. The depositary will not itself exercise any voting discretion in respect of deposited securities. The depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given or deemed to be given in accordance with the deposit agreement, including instructions to give a discretionary proxy to a person designated by us, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy (or deemed to have been instructed to grant a discretionary proxy in accordance with the deposit agreement), or for the effect of any such vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by any law, regulation, or requirement of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in connection with any meeting of or solicitation of consents or proxies from holders of deposited securities, distribute to the registered holders of ADRs a notice that provides such ADR holders with or otherwise publicizes to such ADR holders instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).
We have advised the depositary that under Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis
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in accordance with our constituent documents, the depositary will refrain from voting and the voting instructions received by the depositary from ADR holders shall lapse. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by ADR holders or beneficial owners.
There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Reports and Other Communications
Will ADR holders be able to view our reports?
The depositary will make available for inspection by ADR holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities.
Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to the depositary, it will distribute the same to registered ADR holders.
Fees and Expenses
What fees and expenses will I be responsible for paying?
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, or upon which a share distribution or elective distribution is made or offered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall also be incurred by the ADR holders, the beneficial owners, by any party depositing or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
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behalf of ADR holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary's or its custodian's compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against ADR holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such ADR holders or by deducting such charge from one or more cash dividends or other cash distributions);
To facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other cash distributions and other corporate actions, the depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A. (the "Bank") and/or its affiliates in order to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars. For certain currencies, foreign exchange transactions are entered into with the Bank or an affiliate, as the case may be, acting in a principal capacity. For other currencies, foreign exchange transactions are routed directly to and managed by an unaffiliated local custodian (or other third party local liquidity provider), and neither the Bank nor any of its affiliates is a party to such foreign exchange transactions.
The foreign exchange rate applied to an foreign exchange transaction will be either (a) a published benchmark rate, or (b) a rate determined by a third party local liquidity provider, in each case plus or minus a spread, as applicable. The depositary will disclose which foreign exchange rate and spread, if any, apply to such currency on the "Disclosures" page (or successor page) of ADR.com. Such applicable foreign exchange rate and spread may (and neither the depositary, the Bank nor any of their affiliates is under any obligation to ensure that such rate does not) differ from rates and spreads at which comparable transactions are entered into with other customers or the range of foreign exchange rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the relevant currency pair on the date of the foreign exchange transaction. Additionally, the timing of execution of an foreign exchange transaction varies according to local market dynamics, which may include regulatory requirements, market hours and liquidity in the foreign exchange market or other factors. Furthermore, the Bank and its affiliates may manage the associated risks of their position in the market in a manner they deem appropriate without regard to the impact of such activities on the depositary, us, holders or beneficial owners. The spread applied does not reflect any gains or losses that may be earned or incurred by the Bank and its affiliates as a result of risk management or other hedging related activity.
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Notwithstanding the foregoing, to the extent we provide U.S. dollars to the depositary, neither the Bank nor any of its affiliates will execute a foreign exchange transaction as set forth herein. In such case, the depositary will distribute the U.S. dollars received from us.
Further details relating to the applicable foreign exchange rate, the applicable spread and the execution of foreign exchange transactions will be provided by the depositary on ADR.com. Each holder and beneficial owner by holding or owning an ADR or ADS or an interest therein, and we, each acknowledge and agree that the terms applicable to foreign exchange transactions disclosed from time to time on ADR.com will apply to any foreign exchange transaction executed pursuant to the deposit agreement.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary.
The right of the depositary to receive payment of fees, charges and expenses survives the termination of the deposit agreement, and shall extend for those fees, charges and expenses incurred prior to the effectiveness of any resignation or removal of the depositary.
The fees and charges described above may be amended from time to time by agreement between us and the depositary.
The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to ADR holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.
Payment of Taxes
ADR holders or beneficial owners must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If any taxes or other governmental charges (including any penalties and/or interest) shall become payable by or on behalf of the custodian or the depositary with respect to any ADR, any deposited securities represented by the ADSs evidenced thereby or any distribution thereon, including, without limitation, any Chinese Enterprise Income Tax owing if the Circular Guoshuifa [2009] No. 82 issued by the Chinese State Administration of Taxation (SAT) or any other circular, edict, order or ruling, as issued and as from time to time amended, is applied or otherwise, such tax or other governmental charge shall be paid by the ADR holder thereof to the depositary and by holding or owning, or having held or owned, an ADR or any ADSs evidenced thereby, the ADR holder and all beneficial owners thereof, and all prior ADR holders and beneficial owners thereof, jointly and severally, agree to indemnify, defend and save harmless each of the depositary, us and its and our agents in respect of such tax or other governmental charge. Notwithstanding the depositary's right to seek payment from current and former beneficial owners, by holding or owning, or having held or owned, an ADR, the ADR holder thereof (and prior ADR holder thereof) acknowledges and agrees that the depositary has no obligation to seek payment of amounts owing from any current or former beneficial owner. If an ADR holder owes any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash
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distributions, or (ii) sell deposited securities (by public or private sale) and deduct the amount owing from the net proceeds of such sale. In either case the ADR holder remains liable for any shortfall. If any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities until such payment is made. If any tax or governmental charge is required to be withheld on any cash distribution, the depositary may deduct the amount required to be withheld from any cash distribution or, in the case of a non-cash distribution, sell the distributed property or securities (by public or private sale) in such amounts and in such manner as the depositary deems necessary and practicable to pay such taxes and distribute any remaining net proceeds or the balance of any such property after deduction of such taxes to the ADR holders entitled thereto.
As an ADR holder or beneficial owner, you will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective officers, directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (ii) any distributions of shares or other property not made to holders of ADRs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us:
If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. ADR holders must be given at least 30 days' notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADR holders or beneficial owners. Such notice need not describe in detail the specific amendments effectuated thereby, but must identify to ADR holders and beneficial owners a means to access the text of such amendment. If an ADR holder continues to hold an ADR or ADRs after being so notified, such ADR holder and any beneficial owner are deemed to agree to such amendment and to be bound by the deposit agreement as so amended. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law.
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Any amendments or supplements which (i) are reasonably necessary (as agreed by us and the depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act of 1933 or (b) the ADSs or shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by ADR holders, shall be deemed not to prejudice any substantial rights of ADR holders or beneficial owners. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the form of ADR to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the deposit agreement in such circumstances may become effective before a notice of such amendment or supplement is given to ADR holders or within any other period of time as required for compliance.
Notice of any amendment to the deposit agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the ADR holders identifies a means for ADR holders and beneficial owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the SEC's, the depositary's or our website or upon request from the depositary).
How may the deposit agreement be terminated?
The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADRs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered ADR holders unless a successor depositary shall not be operating under the deposit agreement within 60 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 60th day after our notice of removal was first provided to the depositary.
If the shares are not listed or quoted for trading on a stock exchange or in a securities market as of the date so fixed for termination, then after such date fixed for termination (a) all direct registration ADRs shall cease to be eligible for the direct registration system and shall be considered ADRs issued on the ADR register maintained by the depositary and (b) the depositary shall use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any of its nominees shall thereafter be a holder of ADRs. At such time as the ADSs cease to be DTC eligible and/or neither DTC nor any of its nominees is a holder of ADRs, the depositary shall (a) instruct its custodian to deliver all shares and/or deposited securities to us along with a general stock power that refers to the names set forth on the ADR register maintained by the depositary and (b) provide us with a copy of the ADR register maintained by the depositary. Upon receipt of such shares and/or deposited securities and the ADR register maintained by the depositary, we have agreed to use our best efforts to issue to each register ADR holder a share certificate representing the shares represented by the ADSs reflected on the ADR register maintained by the depositary in such registered ADR holder's name and to deliver such share certificate to the registered ADR holder at the address set forth on the ADR register maintained by the depositary. After providing such instruction to the custodian and delivering a copy of the ADR register to us, the depositary and its agents will perform no further acts under the deposit agreement or the ADRs and shall cease to have any obligations under the deposit agreement and/or the ADRs. After we receive the copy of the ADR register and the shares and/or deposited securities from the depositary, we shall be discharged from all obligations under the deposit agreement
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except (i) to distribute the shares to the registered ADR holders entitled thereto and (ii) for its obligations to the depositary and its agents.
If the shares are listed or quoted for trading on a stock exchange or in a securities market as of the date so fixed for termination, then instead of the provisions in the prior paragraph, after the date so fixed for termination, the depositary and its agents will perform no further acts under the deposit agreement or the ADRs, except to receive and hold (or sell) distributions on shares and/or deposited securities and deliver shares and/or deposited securities being withdrawn. As soon as practicable after the date so fixed for termination, the depositary has agreed to use its reasonable efforts to sell the shares and/or deposited securities and shall thereafter (as long as it may lawfully do so) hold in an account (which may be a segregated or unsegregated account) the net proceeds of such sales, together with any other cash then held by it under the deposit agreement, without liability for interest, in trust for the pro rata benefit of the registered ADR holders not theretofore surrendered. After making such sale, the depositary shall be discharged from all obligations in respect of the deposit agreement and the ADRs, except to account for such net proceeds and other cash. After the date so fixed for termination, we shall be discharged from all obligations under the deposit agreement except for our obligations to the depositary and its agents.
Notwithstanding anything to the contrary, in connection with any such termination, the depositary may, in its sole discretion and without notice to us, establish an unsponsored American depositary share program (on such terms as the depositary may determine) for our shares and make available to ADR holders a means to withdraw the shares represented by the ADSs issued under the deposit agreement and to direct the deposit of such shares into such unsponsored American depositary share program, subject, in each case, to receipt by the depositary, at its discretion, of the fees, charges and expenses provided for under the deposit agreement and the fees, charges and expenses applicable to the unsponsored American depositary share program.
Limitations on Obligations and Liability to ADR holders
Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs
Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any distribution in respect thereof, and from time to time in the case of the production of proofs as described below, we or the depositary or its custodian may require:
The issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADRs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADR register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to withdraw shares may
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only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders' meeting, or the payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental regulations relating to ADRs or to the withdrawal of deposited securities.
The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents, provided, however, that no disclaimer of liability under the Securities Act of 1933 is intended by any of the limitations of liabilities provisions of the deposit agreement. The deposit agreement provides that each of us, the depositary and our respective agents will:
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Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADRs, any ADRs or otherwise related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of JPMorgan. Notwithstanding anything to the contrary contained in the deposit agreement or any ADRs, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or omission to act on the part of the custodian except to the extent that any registered ADR holder has incurred liability directly as a result of the custodian having (i) committed fraud or willful misconduct in the provision of custodial services to the depositary or (ii) failed to use reasonable care in the provision of custodial services to the depositary as determined in accordance with the standards prevailing in the jurisdiction in which the custodian is located. The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such as, but not limited to, pricing, proxy voting, corporate actions, class action litigation and other services in connection with the ADRs and the deposit agreement, and use local agents to provide services such as, but not limited to, attendance at any meetings of security holders of issuers. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services. The depositary shall not have any liability for the price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.
The depositary has no obligation to inform ADR holders or beneficial owners about the requirements of the laws, rules or regulations or any changes therein or thereto of the Cayman Islands, Hong Kong, the People's Republic of China, the United States or any other country or jurisdiction or of any governmental or regulatory authority or any securities exchange or market or automated quotation system.
Additionally, none of the depositary, the custodian or us, or any of their or our respective directors, officers, employees, agents or affiliates shall be liable for the failure by any registered holder of ADRs or beneficial owner therein to obtain the benefits of credits or refunds of non-U.S. tax paid against such ADR holder's or beneficial owner's income tax liability. The depositary is under no obligation to provide the ADR holders and beneficial owners, or any of them, with any information about our tax status. None of the depositary, custodian, us or any of their or our respective directors, officers, employees, agents or affiliates shall incur any liability for any tax or tax consequences that may be incurred by registered ADR holders or beneficial owners on account of their ownership or disposition of ADRs or ADSs.
Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given or deemed to be given pursuant to the terms of the deposit agreement, including instructions to
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give a discretionary proxy to a person designated by us, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed (or deemed to have been instructed to grant a discretionary proxy in accordance with the deposit agreement), or for the effect of any such vote. The depositary may rely upon instructions from us or our counsel in respect of any approval or license required for any currency conversion, transfer or distribution. The depositary shall not incur any liability for the content of any information submitted to it by us or on our behalf for distribution to ADR holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us. The depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary. Subject to certain customary exceptions, neither the depositary nor us, nor any of its or our agents shall be liable to the other for any indirect, special, punitive or consequential damages (excluding reasonable fees and expenses of counsel) or lost profits, in each case of any form incurred by any of them, or liable to any other person or entity (including, without limitation holders or beneficial owners of ADRs and ADSs) for any indirect, special, punitive or consequential damages (including fees and expenses of counsel) or lost profits, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
In the deposit agreement each party thereto (including, for avoidance of doubt, each ADR holder and beneficial owner) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory). No provision of the deposit agreement or the ADRs is intended to constitute a waiver or limitation of any rights which an ADR holder or any beneficial owner may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
The depositary and its agents may own and deal in any class of securities of our company and our affiliates and in ADRs.
Disclosure of Interest in ADSs
To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of, or interest in, deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, you as ADR holders or beneficial owners agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof. We reserve the right to instruct you as ADS holders to deliver your ADSs for cancellation and withdrawal of the deposited securities so as to permit us to deal directly with the holder thereof as a holder of shares and, by holding an ADS or an interest therein, you and beneficial owners will be agreeing to comply with such instructions.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositary's direct registration system. Registered holders of ADRs may inspect such records at the depositary's office at all reasonable times, but solely for the purpose of communicating with other ADR holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be
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closed at any time or from time to time, when deemed expedient by the depositary or, in the case of the issuance book portion of the ADR Register, when reasonably requested by the Company solely in order to enable the Company to comply with applicable law.
The depositary will maintain facilities for the delivery and receipt of ADRs.
Appointment
In the deposit agreement, each registered holder of ADRs and each beneficial owner, upon acceptance of any ADSs or ADRs (or any interest in any of them) issued in accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to:
Governing Law
The deposit agreement, the ADSs and the ADRs are governed by and construed in accordance with the internal laws of the State of New York. In the deposit agreement, we have submitted to the non-exclusive jurisdiction of the courts of the State of New York and appointed an agent for service of process on our behalf. Any action based on the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby may also be instituted by the depositary against us in any competent court in the Cayman Islands, Hong Kong, the People's Republic of China and the United States.
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Under the deposit agreement, by holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each irrevocably agree that any legal suit, action or proceeding against or involving ADR holders or beneficial owners brought by us or the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may be instituted in a state or federal court in New York, New York, irrevocably waive any objection which you may have to the laying of venue of any such proceeding, and irrevocably submit to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. By holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each also irrevocably agree that any legal suit, action or proceeding against or involving the depositary brought by ADR holders or beneficial owners, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York.
Notwithstanding the foregoing, (i) the depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or indirectly based on, arising out of or relating to the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, including without limitation any question regarding its or their existence, validity, interpretation, performance or termination, against any other party or parties to the deposit agreement (including, without limitation, against ADR holders and beneficial owners of interests in ADSs), by having the matter referred to and finally resolved by an arbitration conducted under the terms described below, and (ii) the depositary may in its sole discretion require, by written notice to the relevant party or parties, that any dispute, suit, action, controversy, claim or proceeding against the depositary by any party or parties to the deposit agreement (including, without limitation, by ADR holders and beneficial owners of interests in ADSs) shall be referred to and finally settled by an arbitration conducted under the terms described below. Any such arbitration shall be conducted in the English language either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).
Jury Trial Waiver
In the deposit agreement, each party thereto (including, for the avoidance of doubt, each holder and beneficial owner of, and/or holder of interests in, ADSs or ADRs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory), including any claim under the U.S. federal securities laws.
If we or the depositary were to oppose a jury trial demand based on such waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable state and federal law, including whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. The waiver to right to a jury trial in the deposit agreement is not intended to be deemed a waiver by any holder or beneficial owner of ADSs of our or the depositary's compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have ADSs outstanding, representing ordinary shares, or approximately % of our outstanding ordinary shares, assuming the underwriters do not exercise their option to purchase additional ADSs. All of the ADSs sold in this offering will be freely transferable by persons other than our "affiliates" without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs, and while our ADSs have been approved for listing on the Nasdaq, we cannot assure you that a regular trading market will develop in the ADSs. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.
Lock-up Agreements
We, [our directors, executive officers and existing shareholders] have agreed with the underwriters, subject to some exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our ordinary shares, in the form of ADSs or otherwise, or any securities convertible into or exchangeable or exercisable for our ordinary shares, in the form of ADSs or otherwise, for a period of [180] days after the date of this prospectus. After the expiration of the [180]-day period, the ordinary shares or ADSs held by our directors, executive officers and our existing shareholders may be sold subject to the restrictions under Rule 144 under the Securities Act or by means of registered public offerings.
Rule 144
All of our ordinary shares outstanding prior to this offering are "restricted shares" as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements. Under Rule 144 as currently in effect, a person who is not deemed to have been our affiliate at any time during the three months preceding a sale and who has beneficially owned our restricted shares for at least six months is generally entitled to sell the restricted securities without registration under the Securities Act beginning 90 days after the date of this prospectus, subject to certain additional restrictions.
Our affiliates who have beneficially owned "restricted securities" for at least six months may sell within any three-month period a number of restricted shares that does not exceed the greater of the following:
Affiliates who sell restricted securities under Rule 144 may not solicit orders or arrange for the solicitation of orders, and they are also subject to certain manner of sale provisions and notice requirements and the availability of current public information about us. In addition, in each case, shares held by our affiliates would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
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Persons who are not our affiliates are only subject to one of these additional restrictions, the requirement of the availability of current public information about us, and this additional restriction does not apply if they have beneficially owned our restricted shares for more than one year.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory stock or option plan or other written agreement relating to compensation is eligible to resell such ordinary shares 90 days after we became a reporting company under the Exchange Act in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
Registration Rights
Upon the completion of this offering, holders of our registrable securities will be entitled to request that we register their shares under the Securities Act, following the expiration of the lock-up agreements described above. See "Description of Share CapitalShareholders' AgreementsRegistration Rights."
Form S-8
We intend to file a registration statement on Form S-8 under the Securities Act covering all ordinary shares which are either subject to outstanding options or may be issued upon exercise or vesting of any options or other equity awards which may be granted or issued in the future pursuant to our share incentive plan. We expect to file this registration statement as soon as practicable after the date of this prospectus. Shares registered under any registration statements will be available for sale in the open market, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions and the lock-up described below.
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The following discussion of Cayman Islands, PRC and U.S. federal income tax consequences of an investment in the ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in the ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Walkers (Hong Kong), our Cayman Islands counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the opinion of Tian Yuan Law Firm, our PRC legal counsel.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or holders of our ADSs or ordinary shares levied by the government of the Cayman Islands, except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the ADSs or ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the ADSs or ordinary shares, nor will gains derived from the disposal of the ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.
Material PRC Income Tax Considerations
Under the PRC EIT Law, which became effective on January 1, 2008 and amended on December 29, 2019, an enterprise established outside the PRC with "de facto management bodies" within the PRC is considered a "resident enterprise" for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the PRC EIT Law, a "de facto management body" is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
In addition, the SAT Circular 82 issued by the SAT in April 2009 specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: (a) senior management personnel and departments that are responsible for daily production, operation and management; (b) financial and personnel decision-making bodies; (c) key properties, accounting books, company seal, minutes of board meetings and shareholders' meetings; and (d) half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued the SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on resident status and administration on post-determination matters. Our company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. As such, we do not believe that our company meets all of the conditions above or is a PRC resident enterprise for PRC tax purposes. For the same reasons, we believe our other entities outside China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body." There can be no assurance that the PRC government will ultimately take a view that is consistent with
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us. If the PRC tax authorities determine that our Cayman Islands holding company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders (including our ADS holders). In addition, nonresident enterprise shareholders (including our ADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether in practice non-PRC shareholders of our company would be able to obtain the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. See "Risk FactorsRisks Related to Doing Business in ChinaIf we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders."
Material U.S. Federal Income Tax Considerations
In the opinion of Davis Polk & Wardwell LLP, the following are material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of our ADSs or ordinary shares. This discussion is not a comprehensive description of all of the tax considerations that may be relevant to your decision to acquire the ADSs or ordinary shares. This discussion applies to you only if you are a U.S. Holder that acquires ADSs in this offering and holds the ADSs or underlying ordinary shares as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of your particular circumstances, including alternative minimum and Medicare contribution tax considerations, and tax consequences applicable to you if you are subject to special rules, such as:
If you are a partnership for U.S. federal income tax purposes, the U.S. federal income tax consequences to your partners will generally depend on their status and your activities. Partnerships holding ADSs or ordinary shares and their partners should consult their tax advisers as to the particular U.S. federal income tax consequences of acquiring, owning or disposing of the ADSs or ordinary shares.
This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, and the income tax treaty between the United States and the PRC, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.
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For purposes of this discussion, you are a "U.S. Holder" if for U.S. federal income tax purposes you are a beneficial owner of ADSs or ordinary shares and:
In general, if you own ADSs you will be treated as the owner of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying ordinary shares represented by those ADSs.
Taxation of Distributions
Except as described under "Passive Foreign Investment Company Rules" below, distributions paid on ADSs or ordinary shares, other than certain pro rata distributions of ordinary shares, will generally be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect that any distributions will be reported to you as dividends. Dividends will not be eligible for the dividends-received deduction generally available to United States corporations under the Code. Subject to applicable limitations, dividends paid on our ADSs to certain non-corporate U.S. Holders may be taxable at a favorable rate. Dividends will be included in your income on the date of your, or in the case of ADSs, the depositary's, receipt of the dividend. The amount of any dividend income paid in non-U.S. currency will be its U.S. dollar value calculated by reference to the spot rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss, which will be United States source, if the dividend is converted into U.S. dollars after the date of receipt.
Dividends will be treated as foreign-source income for foreign tax credit purposes. As described in "PRC Taxation", dividends paid by us may be subject to PRC withholding tax. For U.S. federal income tax purposes, the amount of the dividend income will include any amounts withheld in respect of PRC withholding tax. Subject to applicable limitations, which vary depending upon your circumstances, PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided in the Treaty) generally will be creditable against your U.S. federal income tax liability. The rules governing foreign tax credits are complex and you should consult your tax advisers regarding the creditability of foreign tax credits in your particular circumstances. In lieu of claiming a credit, you may elect to deduct PRC taxes in computing its taxable income, subject to applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.
Sale or Other Disposition of ADSs or Ordinary Shares
Except as described under "Passive Foreign Investment Company Rules" below, gain or loss realized on the sale or other taxable disposition of ADSs or ordinary shares will be capital gain or loss, and will be long-term capital gain or loss if you held the ADSs or ordinary shares for more than one year. The amount of the gain or loss will equal the difference between your tax basis in the ADSs or ordinary shares disposed of and the amount realized on the disposition, in each case as determined in
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U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
As described in "PRC Taxation" gains on the sale of ADSs or ordinary shares may be subject to PRC taxes. You are entitled to use foreign tax credits to offset only the portion of your U.S. federal income tax liability that is attributable to foreign-source income. Because under the Code capital gains of U.S. persons are generally treated as U.S.-source income, this limitation may preclude you from claiming a credit for all or a portion of any PRC taxes imposed on any such gains. However, if you are eligible for the benefits of the Treaty, you may elect to treat the gain as PRC-source and therefore claim foreign tax credits in respect of PRC taxes on such disposition gains. You should consult your tax advisor regarding their eligibility for the benefits of the Treaty and the creditability of any PRC tax on disposition gains in your particular circumstances.
Passive Foreign Investment Company Rules
In general, a non-U.S. corporation will be a passive foreign investment company, or a PFIC, for any taxable year in which (i) 75% or more of its gross income consists of passive income, or the income test, or (ii) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income, or the asset test. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the ordinary shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes interest, dividends, gains from certain property transactions, rents and royalties (other than certain rents or royalties derived in the active conduct of a trade or business). Cash is a passive asset for PFIC purposes. Goodwill is an active asset under the PFIC rules to the extent attributable to activities that produce active income.
The assets shown on our balance sheet are expected to consist primarily of cash and cash equivalents for the foreseeable future. Therefore, whether we will satisfy the asset test for the current or any future taxable year will depend largely on the value of our goodwill and on how quickly we utilize the cash in our business. We cannot give any assurance as to whether we will be a PFIC for the current or any future taxable year because (i) the value of our goodwill may be determined by reference to the market price of our ADSs, which may be volatile given the nature and early stage of our business, (ii) we expect to hold a significant amount of cash, and (iii) a company's PFIC status is an annual determination that can be made only after the end of each taxable year. In addition, prior to commercialization of our product candidates, we could be a PFIC for any taxable year in which our interest and other investment income constitutes 75% or more of our total gross income.
If we were a PFIC for any taxable year and any of our subsidiaries were also a PFIC (any such entity, a "Lower-tier PFIC"), you would be deemed to own a proportionate amount (by value) of the ordinary shares of each Lower-tier PFIC and would be subject to U.S. federal income tax according to the rules described in the subsequent paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) dispositions of shares of Lower-tier PFICs, in each case as if you held your proportionate share of these shares directly, even though you will not receive the proceeds of those distributions or dispositions.
Generally, if we are a PFIC for any taxable year during which you own ADSs or ordinary shares, gain recognized upon a disposition (including, under certain circumstances, a pledge) of ADSs or ordinary shares will be allocated ratably over your holding period for the ADSs or ordinary shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC will be taxed as ordinary income. The amount allocated to each other taxable year will be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge will be imposed on the resulting tax liability for each relevant taxable year. Further, to the extent that any distribution received by you on your ADSs or ordinary shares exceeds 125% of the
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average of the annual distributions on the ADSs or ordinary shares received during the preceding three years or your holding period, whichever is shorter, that distribution will be subject to taxation in the same manner.
If we are a PFIC for any taxable year during which you own ADSs or ordinary shares, we will generally continue to be treated as a PFIC with respect to you for all succeeding years during which you own ADSs or ordinary shares, even if we cease to meet the threshold requirements for PFIC status. If we are a PFIC for any taxable year but cease to be PFIC for subsequent years, you should consult your tax advisor regarding the availability of a "deemed sale" election that would allow you to eliminate the continuing PFIC status under certain circumstances.
Alternatively, if we are a PFIC and if our ADSs or ordinary shares are "regularly traded" on a "qualified exchange," you may be able to make a mark-to-market election that would result in tax treatment different from the general tax treatment described in the preceding paragraphs. Our ADSs will be treated as "regularly traded" in any calendar year in which more than a de minimis quantity of the ADSs, as the case may be, are traded on a qualified exchange on at least 15 days during each calendar quarter. The Nasdaq Global Market, on which the ADSs expected to be listed, is a qualified exchange for this purpose. If you make the mark-to-market election, you generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If you make the election, your tax basis in the ADSs will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs in a year in which we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election) and any remaining loss will be capital loss. There is no provision under U.S. federal income tax law that provides for a right to make a mark-to-market election with respect to any lower-tier PFICs that are not publicly traded.
We do not intend to provide the information that would otherwise enable you to make a "qualified electing fund election," which would result in alternate treatment if we were a PFIC for any taxable year.
If you own ADSs or ordinary shares during any year in which we are a PFIC, you generally will be required to file annual reports on Internal Revenue Service Form 8621 (or any successor form) with respect to us. Additionally, if we are a PFIC for the taxable year in which we paid a dividend or the prior taxable year, the favorable rate discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. You should consult your tax adviser regarding our PFIC status for any taxable year and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds from the sale or exchange of our ADSs or ordinary shares that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) you are a corporation or other exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
Certain U.S. Holders who are individuals (and certain specified entities) may be required to report information relating to their ownership of ordinary shares, or non-U.S. accounts through which ADSs or ordinary shares are held. You should consult your tax adviser regarding your reporting obligations with respect to the ADSs or ordinary shares.
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We and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. Goldman Sachs (Asia) L.L.C., Morgan Stanley & Co. LLC and Jefferies LLC are the representatives of the underwriters.
Underwriters
|
Number
of ADSs |
|
---|---|---|
Goldman Sachs (Asia) L.L.C. |
||
Morgan Stanley & Co. LLC |
||
Jefferies LLC |
||
China Renaissance Securities (Hong Kong) Limited |
||
Total: |
||
| | |
The underwriters are committed to take and pay for all of the ADSs being offered, if any are taken, other than the ADSs covered by the option described below unless and until this option is exercised.
Certain of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers or sales in the United States will be conducted by broker-dealers registered with the SEC. Goldman Sachs (Asia) L.L.C. will offer ADSs in the United States through its SEC-registered broker-dealer affiliate in the United States, Goldman Sachs & Co. LLC. China Renaissance Securities (Hong Kong) Limited will offer ADSs in the United States through its SEC-registered broker-dealer affiliate in the United States, China Renaissance Securities (US) Inc.
The underwriters have an option to buy up to an additional ADSs from us to cover sales by the underwriters of a greater number of ADSs than the total number set forth in the table above. They may exercise that option for 30 days. If any ADSs are purchased pursuant to this option, the underwriters will severally purchase ADSs in approximately the same proportion as set forth in the table above.
The following table shows the per ADS and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional ADSs.
|
No Exercise | Full Exercise | |||||
---|---|---|---|---|---|---|---|
Per ADS |
US$ | US$ | |||||
Total |
US$ | US$ |
ADSs 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 ADSs sold by the underwriters to securities dealers may be sold at a discount of up to US$ per ADS from the initial public offering price. After the initial offering of the ADSs, the representatives may change the offering price and the other selling terms. The offering of the ADSs by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.
[We, our officers, directors and existing shareholders have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their ordinary shares or ADSs or securities convertible into or exchangeable for ordinary shares or ADSs during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior
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written consent of the representatives. This agreement does not apply to any existing employee benefit plans. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.]
Prior to the offering, there has been no public market for the ADSs. The initial public offering price has been negotiated among the representatives and us. Among the factors to be considered in determining the initial public offering price of the ADSs, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
An application has been made to quote the ADSs on the Nasdaq Global Market under the symbol "ADAG".
In connection with the offering, the underwriters may purchase and sell ADSs in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of ADSs than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A "covered short position" is a short position that is not greater than the amount of additional ADSs for which the underwriters' option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional ADSs or purchasing ADSs in the open market. In determining the source of ADSs to cover the covered short position, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which they may purchase additional ADSs pursuant to the option described above. "Naked" short sales are any short sales that create a short position greater than the amount of additional ADSs for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of ADSs made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased ADSs sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, 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 our ADSs, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the Nasdaq Global Market, in the over-the-counter market or otherwise.
We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately US$ .
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of ADSs to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to
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underwriters and selling group members that may make internet distributions on the same basis as other allocations.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
The underwriters do not intend sales to discretionary accounts to exceed % of the total number of ADSs offered by them.
The address of Goldman Sachs (Asia) L.L.C. is 68th Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong. The address of Morgan Stanley & Co. LLC is 1585 Broadway Avenue, New York, New York 10036, United States. The address of Jefferies LLC is 520 Madison Avenue, New York, New York 10022, United States. The address of China Renaissance Securities (Hong Kong) Limited is Units 8107-08, Level 81, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong.
Selling Restrictions
No action may be taken in any jurisdiction other than the United States that would permit a public offering of the ADSs or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither the prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable laws, rules and regulations of any such country or jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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Australia
This document has not been lodged with the Australian Securities & Investments Commission and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act, any offer made to you under this document is void and incapable of acceptance;
Bermuda
The ADSs may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act of 2003 of Bermuda which regulates the sale of securities in Bermuda.
Additionally, non-Bermudian persons (including companies) may not carry on or engage in any trade or business in Bermuda unless such persons are permitted to do so under applicable Bermuda legislation.
British Virgin Islands
The ADSs are not being, and may not be offered to the public or to any person in the British Virgin Islands for purchase or subscription by us or on our behalf. The ADSs may be offered to companies incorporated under the BVI Business Companies Act, 2004 (British Virgin Islands) (each a BVI Company), but only where the offer will be made to, and received by, the relevant BVI Company entirely outside of the British Virgin Islands.
This prospectus has not been, and will not be, registered with the Financial Services Commission of the British Virgin Islands. No registered prospectus has been or will be prepared in respect of the ADSs for the purposes of the Securities and Investment Business Act 2010, or SIBA, or the Public Issuers Code of the British Virgin Islands.
The ADSs may be offered to persons located in the British Virgin Islands who are "qualified investors" for the purposes of SIBA. Qualified investors include (i) certain entities which are regulated by the Financial Services Commission in the British Virgin Islands, including banks, insurance companies, licensees under SIBA and public, professional and private mutual funds; (ii) a company, any securities of which are listed on a recognized exchange; and (iii) persons defined as "professional investors" under SIBA, which is any person (a) whose ordinary business involves, whether for that
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person's own account or the account of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of our property; or (b) who has signed a declaration that he, whether individually or jointly with his spouse, has a net worth in excess of US$1,000,000 and that he consents to being treated as a professional investor.
Canada
The ADSs may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the ADSs must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts , or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Cayman Islands
This prospectus does not constitute an invitation or offer to the public in the Cayman Islands of the ADSs, whether by way of sale or subscription. ADSs or ordinary shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.
Dubai International Finance Center
This document relates to an Exempt Offer, as defined in the Offered Securities Rules module of the DFSA Rulebook, or the OSR, in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to Persons, as defined in the OSR, of a type specified in those rules. It must not be delivered to, or relied on by, any other Person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The ADSs to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the ADSs offered should conduct their own due diligence on the ADSs. If you do not understand the contents of this document you should consult an authorized financial adviser.
European Economic Area
In relation to each Member State of the European Economic Area (each an "EEA State"), no ADSs have been offered or will be offered pursuant to the offering contemplated by this prospectus to the public in that EEA State prior to the publication of a prospectus in relation to the ADSs which has been approved by the competent authority in that EEA State or, where appropriate, approved in another EEA State and notified to the competent authority in that EEA State, all in accordance with
278
the EU Prospectus Regulation, except that it may make an offer to the public in that EEA State of any ADSs at any time under the following exemptions under the EU Prospectus Regulation:
For the purposes of this provision, the expression an "offer to the public" in relation to the ADSs in any EEA State means the communication in any form and by any means of sufficient information on the terms of the offer and any ADSs to be offered so as to enable an investor to decide to purchase or subscribe for any ADSs, and the expression "EU Prospectus Regulation" means Regulation (EU) 2017/1129.
Hong Kong
The ADSs may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs 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 ADSs 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.
Israel
This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus may be distributed only to, and is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds; provident funds; insurance companies; banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange Ltd., underwriters, each purchasing for their own account; venture capital funds; entities with equity in excess of NIS 50 million and "qualified individuals," each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors. Qualified investors shall be required to submit written confirmation that they fall within the scope of the Addendum.
Japan
The ADSs have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, and ADSs will not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan,
279
including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to any exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Korea
The ADSs may not be offered, sold and delivered directly or indirectly, or offered or sold to any person for reoffering or resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to the applicable laws and regulations of Korea, including the Korea Securities and Exchange Act and the Foreign Exchange Transaction Law and the decrees and regulations thereunder. The ADSs have not been registered with the Financial Services Commission of Korea for public offering in Korea. Furthermore, the ADSs may not be resold to Korean residents unless the purchaser of the ADSs complies with all applicable regulatory requirements (including but not limited to government approval requirements under the Foreign Exchange Transaction Law and its subordinate decrees and regulations) in connection with the purchase of the ADSs.
Kuwait
Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990 "Regulating the Negotiation of Securities and Establishment of Investment Funds," its Executive Regulations and the various Ministerial Orders issued pursuant thereto or in connection therewith, have been given in relation to the marketing and sale of the ADSs, these may not be marketed, offered for sale, nor sold in the State of Kuwait. Neither this prospectus (including any related document), nor any of the information contained therein is intended to lead to the conclusion of any contract of whatsoever nature within Kuwait.
Malaysia
No prospectus or other offering material or document in connection with the offer and sale of the securities has been or will be registered with the Securities Commission of Malaysia, or Commission, for the Commission's approval pursuant to the Capital Markets and Services Act 2007. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Malaysia other than (i) a closed end fund approved by the Commission; (ii) a holder of a Capital Markets Services License; (iii) a person who acquires the securities as principal, if the offer is on terms that the securities may only be acquired at a consideration of not less than RM250,000 (or its equivalent in foreign currencies) for each transaction; (iv) an individual whose total net personal assets or total net joint assets with his or her spouse exceeds RM3 million (or its equivalent in foreign currencies), excluding the value of the primary residence of the individual; (v) an individual who has a gross annual income exceeding RM300,000 (or its equivalent in foreign currencies) per annum in the preceding twelve months; (vi) an individual who, jointly with his or her spouse, has a gross annual income of RM400,000 (or its equivalent in foreign currencies), per annum in the preceding twelve months; (vii) a corporation with total net assets exceeding RM10 million (or its equivalent in a foreign currencies) based on the last audited accounts; (viii) a partnership with total net assets exceeding RM10 million (or its equivalent in foreign currencies); (ix) a bank licensee or insurance licensee as defined in the Labuan Financial Services and Securities Act 2010; (x) an Islamic bank licensee or takaful licensee as defined in the Labuan Financial Services and Securities Act 2010; and (xi) any other person as may be specified by the Commission; provided that, in the each of the preceding categories (i) to (xi), the distribution of the securities is made by a holder of
280
a Capital Markets Services License who carries on the business of dealing in securities. The distribution in Malaysia of this prospectus is subject to Malaysian laws. This prospectus does not constitute and may not be used for the purpose of public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiring the registration of a prospectus with the Commission under the Capital Markets and Services Act 2007.
People's Republic of China
This prospectus has not been and will not be circulated or distributed in China, and ADSs may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any PRC resident except pursuant to applicable PRC laws and regulations.
Qatar
In the State of Qatar, the offer contained herein is made on an exclusive basis to the specifically intended recipient thereof, upon that person's request and initiative, for personal use only and shall in no way be construed as a general offer for the sale of securities to the public or an attempt to do business as a bank, an investment company or otherwise in the State of Qatar. This prospectus and the underlying securities have not been approved or licensed by the Qatar Central Bank or the Qatar Financial Centre Regulatory Authority or any other regulator in the State of Qatar. The information contained in this prospectus shall only be shared with any third parties in Qatar on a need to know basis for the purpose of evaluating the contained offer. Any distribution of this prospectus by the recipient to third parties in Qatar beyond the terms hereof is not permitted and shall be at the liability of such recipient.
Saudi Arabia
This prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority. The Capital Market Authority does not make any representation as to the accuracy or completeness of this prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this prospectus. Prospective purchasers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this prospectus you should consult an authorized financial adviser.
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 our ADSs may not be circulated or distributed, nor may our ADSs 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 (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where our ADSs are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an
281
accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor; 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 ADSs under Section 275 of the SFA, except: (1) to an institutional investor (for corporations under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than US$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or (3) where the transfer is by operation of law.
South Africa
Due to restrictions under the securities laws of South Africa, the ADSs are not offered, and the offer shall not be transferred, sold, renounced or delivered, in South Africa or to a person with an address in South Africa, unless one or other of the following exemptions applies:
No "offer to the public" (as such term is defined in the South African Companies Act, No. 71 of 2008 (as amended or re-enacted) (the "South African Companies Act")) in South Africa is being made in connection with the issue of the ADSs. Accordingly, this document does not, nor is it intended to, constitute a "registered prospectus" (as that term is defined in the South African Companies Act) prepared and registered under the South African Companies Act and has not been approved by, and/or filed with, the South African Companies and Intellectual Property Commission or any other regulatory authority in South Africa. Any issue or offering of the ADSs in South Africa constitutes an offer of the ADSs in South Africa for subscription or sale in South Africa only to persons who fall within the exemption from "offers to the public" set out in section 96(1)(a) of the South African Companies Act. Accordingly, this document must not be acted on or relied on by persons in South Africa who do not fall within section 96(1)(a) of the South African Companies Act (such persons being referred to as "SA Relevant Persons"). Any investment or investment activity to which this document relates is available in South Africa only to SA Relevant Persons and will be engaged in South Africa only with SA relevant persons.
282
Switzerland
The ADSs will not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland.
Neither this prospectus nor any other offering or marketing material relating to our company or the ADSs have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of the ADSs will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of the ADSs has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (the "CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the ADSs.
Taiwan
The ADSs have not been and will not be registered or filed with, or approved by, the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or relevant laws and regulations that require a registration, filing or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer or sell the ADSs in Taiwan.
United Arab Emirates
This prospectus is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates, or the UAE. The ADSs have not been and will not be registered under Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and the Emirates Security and Commodity Exchange, or with the UAE Central Bank, the Dubai Financial Market, the Abu Dhabi Securities Market or with any other UAE exchange.
The offering, the ADSs and interests therein have not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities in the UAE, and do not constitute a public offer of securities in the UAE in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise.
In relation to its use in the UAE, this prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the ADSs may not be offered or sold directly or indirectly to the public in the UAE.
United Kingdom
In relation to the United Kingdom, no ADSs have been offered or will be offered pursuant to the offering contemplated by this prospectus to the public in the United Kingdom prior to the publication of a prospectus in relation to the ADSs which has been approved by the Financial Conduct Authority in accordance with the UK Prospectus Regulation, except that it may make an offer to the public in the United Kingdom of any ADSs at any time under the following exemptions under the UK Prospectus Regulation:
283
provided that no such offer of the ADSs shall require the Company or any underwriter to publish a prospectus pursuant to Article 3 of the UK Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
In the United Kingdom, the offer is only addressed to, and is directed only at, "qualified investors" within the meaning of Article 2(e) of the UK Prospectus Regulation, who are also (i) persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); (ii) high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Order; or (iii) persons to whom it may otherwise lawfully be communicated (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
For the purposes of this provision, the expression an "offer to the public" in relation to the ADSs in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any ADSss to be offered so as to enable an investor to decide to purchase or subscribe for any ADSs, and the expression "UK Prospectus Regulation" means the UK version of Regulation (EU) No 2017/1129 as amended by The Prospectus (Amendment etc.) (EU Exit) Regulations 2019, which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.
284
EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the FINRA filing fee and the Nasdaq listing fee, all amounts are estimates.
SEC Registration Fee |
US$ | |||
Nasdaq Listing Fee |
US$ | |||
FINRA Filing Fee |
US$ | |||
Printing and Engraving Expenses |
US$ | |||
Legal Fees and Expenses |
US$ | |||
Accounting Fees and Expenses |
US$ | |||
Miscellaneous |
US$ | |||
| | | | |
Total |
US$ | |||
| | | | |
| | | | |
| | | | |
285
We are being represented by Davis Polk & Wardwell LLP with respect to certain legal matters of U.S. federal securities and New York state law. Certain legal matters with respect to U.S. federal and New York State law in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP. The validity of the ordinary shares represented by the ADSs offered in this offering and other certain legal matters as to Cayman Islands law will be passed upon for us by Walkers (Hong Kong). Legal matters as to PRC law will be passed upon for us by Tian Yuan Law Firm and for the underwriters by Commerce & Finance Law Offices. Davis Polk & Wardwell LLP may rely upon Walkers (Hong Kong) with respect to matters governed by Cayman Islands law and Tian Yuan Law Firm with respect to matters governed by PRC law. Latham & Watkins LLP may rely upon Commerce & Finance Law Offices with respect to matters governed by PRC law.
286
The financial statements as of December 31, 2018 and 2019 and for the years then ended included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The offices of PricewaterhouseCoopers Zhong Tian LLP are located at 11th Floor, PricewaterhouseCoopers Center, Link Square 2, 202 Hu Bin Road, Huangpu District, Shanghai 200021, the People's Republic of China.
287
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement (including amendments and exhibits to the registration statement) on Form F-1 under the Securities Act. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information we have filed electronically with the SEC.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
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ADAGENE INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Adagene Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Adagene Inc. and its subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive loss, of changes in shareholders' deficit and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai,
the People's Republic of China
September 22, 2020
We have served as the Company's auditor since 2020.
F-2
ADAGENE INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2018 AND 2019
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ADAGENE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ADAGENE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
|
Ordinary shares |
|
|
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Subscriptions
receivable from shareholders |
|
Accumulated
other comprehensive loss |
|
|
|||||||||||||||||
|
Number of
shares |
Amount |
Additional
paid-in capital |
Accumulated
deficit |
Total
shareholders' deficit |
|||||||||||||||||
|
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||
Balance as of January 1, 2018 |
15,159,136 | 1,516 | (197,068 | ) | 7,687,811 | (399,405 | ) | (32,745,740 | ) | (25,652,886 | ) | |||||||||||
Net loss |
| | | | | (15,266,184 | ) | (15,266,184 | ) | |||||||||||||
Other comprehensive loss |
| | | | (11,288 | ) | | (11,288 | ) | |||||||||||||
Share-based compensation |
| | | 126,540 | | | 126,540 | |||||||||||||||
Modification of convertible redeemable preferred shares |
| | | (1,186,187 | ) | | 1,186,187 | | ||||||||||||||
Accretion of convertible redeemable preferred shares to redemption value |
| | | (222,846 | ) | | | (222,846 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2018 |
15,159,136 | 1,516 | (197,068 | ) | 6,405,318 | (410,693 | ) | (46,825,737 | ) | (41,026,664 | ) | |||||||||||
Net loss |
| | | | | (16,432,308 | ) | (16,432,308 | ) | |||||||||||||
Other comprehensive income |
| | | | 65,799 | | 65,799 | |||||||||||||||
Exercise of share options (Note 9) |
34,000 | 3 | | 18,697 | | | 18,700 | |||||||||||||||
Share-based compensation |
| | | 611,711 | | | 611,711 | |||||||||||||||
Accretion of convertible redeemable preferred shares to redemption value |
| | | (246,184 | ) | | | (246,184 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2019 |
15,193,136 | 1,519 | (197,068 | ) | 6,789,542 | (344,894 | ) | (63,258,045 | ) | (57,008,946 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ADAGENE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
The accompanying notes are an integral part of these consolidated financial statements.
F-6
1. ORGANIZATION AND BASIS OF PRESENTATION
Adagene Inc. (the "Company") is a limited liability company incorporated in the Cayman Islands on February 25, 2011. The Company, together with its subsidiaries (collectively, the "Group") are principally engaged in research, development and production of monoclonal antibody drugs for cancers.
As of December 31, 2019, the Company's principal subsidiaries are as follows:
Entity
|
Date of
incorporation |
Place of
incorporation |
Percentage of legal
ownership by the Company |
Principal activities | |||||
---|---|---|---|---|---|---|---|---|---|
Adagene (Hong Kong) Limited |
December 12, 2011 | Hong Kong | 100 | % | Investment holding | ||||
Adagene Incorporated |
September 20, 2017 | The United States of America | 100 | % |
Research and development
of innovative medicines |
||||
Adagene (Suzhou) Limited |
February 28, 2012 | The People's Republic of China ("PRC" or "China") | 100 | % |
Research and development
of innovative medicines |
||||
Adagene Australia PTY Ltd. |
May 30, 2018 | Australia | 100 | % |
Research and development
of innovative medicines |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompany consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
Principles of Consolidation
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.
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, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in the Group's consolidated financial statements include, but are not limited to, the useful lives and impairment of long-lived assets, tax valuation allowance, share-based compensation expenses and the fair value of warrant liabilities. Management bases the estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.
F-7
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign currency translation
The functional currency of the Company, Adagene (Hong Kong) Limited and Adagene Incorporated is the United States dollar ("US$"). The functional currency of the Company's PRC subsidiary is Renminbi ("RMB"). The functional currency of the Company's Australia subsidiary is Australian dollar ("AU$"). The determination of the respective functional currency is based on the criteria stated in Accounting Standard Codification ("ASC") 830, Foreign Currency Matters. The Company uses US$ as its reporting currency. The financial statements of the Company's PRC and Australia subsidiaries are translated from the functional currency to the reporting currency.
Transactions denominated in foreign currencies are remeasured into the functional currency at the exchange rates quoted by the People's Bank of China (the "PBOC") prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical costs in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of comprehensive loss.
Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as accumulated comprehensive loss and are shown as a separate component of other comprehensive loss in the consolidated statements of comprehensive loss.
Cash and cash equivalents
Cash and cash equivalents primarily consist of cash and demand deposits which are highly liquid. The Group considers highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase of three months or less to be cash equivalents. All cash and cash equivalents are unrestricted as to withdrawal and use.
Short-term investments
Short-term investments are deposits at bank with maturities of greater than three months, but less than twelve months. Short-term investments are stated at cost, which approximates fair value. Interest earned is included in interest income.
Accounts receivable and allowance for doubtful accounts
Account receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. Accounts receivable are carried at net realizable value. An allowance for doubtful accounts is recorded in the period when collection of the amount is no longer probable. In evaluating the collectability of receivable balances, the Group considers specific evidence including the aging of the receivable, the customer's payment history, its current credit-worthiness and other factors. Accounts receivable are written off when management determines a balance is uncollectable after all collection efforts have ceased.
F-8
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair value measurements
The Group applies ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2Includes other inputs that are directly or indirectly observable in the marketplace.
Level 3Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
The carrying amounts of cash and cash equivalent, short-term investments, accounts receivable, amounts due to related parties and other current assets, accounts payable, amounts due to related parties, accrued liabilities and other current liabilities and short-term borrowings approximate their fair values because of their generally short maturities. The carrying amount of long-term borrowings approximate their fair values since they bear interest rates which approximate market interest rates.
As more fully described in Note 8, the Group has issued warrants to purchase its preferred shares. The Group measured its warrant liabilities at fair value on a recurring basis. As the Group's warrants are not traded in an active market with readily observable prices, the Group uses significant unobservable inputs to measure the fair value of warrant liabilities. These instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement.
The following table presents a reconciliation of all financial instruments measured at fair value on a recurring basis using Level 3 unobservable inputs:
F-9
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Group did not transfer any assets or liabilities in or out of Level 3 during the years ended December 31, 2018 and 2019.
The Group had no financial assets and liabilities measured and recorded at fair value on a nonrecurring basis as of December 31, 2018 and 2019.
Property, equipment and software
Property and equipment and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets as follows:
Category
|
Estimated Useful Life | |
---|---|---|
Machinery and laboratory equipment |
5 years | |
Vehicles |
4 years | |
Furniture and tools |
3 - 5 years | |
Electronic equipment |
3 years | |
Computer software |
3 - 5 years | |
Leasehold improvements |
Lesser of lease terms or estimated useful lives of the assets |
Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterments that extend the useful lives of property, equipment and software are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation and amortization from the asset and accumulated depreciation and amortization accounts with any resulting gain or loss reflected in the consolidated statements of comprehensive loss.
Impairment of long-lived assets
The Group evaluates the recoverability of its long-lived assets, including fixed assets and intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, the Group measures impairment by comparing the carrying amount of the assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. The adjusted carrying amount of the assets is the new cost basis and is depreciated over the assets' remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
No impairment loss was recorded for the years ended December 31, 2018 and 2019.
F-10
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment reporting
In accordance with ASC 280, Segment Reporting, the Group's chief operating decision maker ("CODM") has been identified as the Chief Executive Officer. The Group's CODM reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group. The Group operates and manages it business as a single segment. No geographical segments are presented as substantially all of the Group's long-lived assets are located in the PRC.
Revenue recognition
At contract inception of collaboration and out-licensing arrangements, the Group analyzes its arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements ("ASC 808") to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Group first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently. Under the criteria of Accounting Standard Codification ("ASC") 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), the Group recognizes revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.
The Group adopted ASC 606 for all periods presented. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Group only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. The Group reviews the contract to determine which performance obligations are distinct and represent a promise to provide distinct goods or services or a series of distinct goods or services as defined by the standard. The Group recognizes as revenue the amount of the transaction price that is allocated to each performance obligation as and when that performance obligation is satisfied.
Licenses of Intellectual Property: Upfront non-refundable payments for licensing the Group's intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, the Group recognizes revenues from non-refundable, up-front fees allocated to the license at a point in time, when the transfer of control of the license to the licensee occurs and the licensee is able to use and benefit from the license.
F-11
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Group evaluates whether the milestones are considered probable of being reached and to the extent that a significant reversal of cumulative revenue would not occur in future periods, estimates the amount to be included in the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Group recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Group re-evaluates the probability of achieving such development milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Group recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
To date, no milestone payments or royalty payments were received. Substantially all of the Group's revenue has been derived from its out-licensing agreements with respect to licensed products such as DNA sequences, cell lines, etc., and such revenues are recognized when the customer obtains control of the licensed product, which occurs at a point in time, upon delivery to the customer.
Contract assets and contract liabilities
When a customer pays consideration before the Group transfers products or services, the Group records its obligation as a contract liability; When the Group satisfies its performance obligations by providing products or services to a customer before the customer pays consideration and before payment is due, the Group recognizes its rights to consideration as a contract asset.
Research and development expenses
Elements of research and development expenses primarily include (1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to pre-clinical testing of the Group's technologies under development and clinical trials such as payments to contract research organizations ("CRO") and contract manufacturing organizations ("CMO"), investigators and clinical trial sites that conduct the clinical studies; (3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation and amortization, and facility related expenses, (4) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to the Group's research and development services and have no alternative future uses. As of December 31, 2019, the Group has several ongoing clinical studies in various clinical trial stages. The contracts with CRO and CMO are generally cancellable, with notice, at the Group's option. The Group did not record any accrued expenses related to cancellation of CRO or CMO contracts as of December 31, 2019 as the Group did not have any plan to cancel the existing CRO or CMO contracts.
F-12
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Government subsidies
Government subsidies primarily consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the governments. The Group's PRC based subsidiary received government subsidies from certain local government. The Group's government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has set certain conditions for the subsidies. Other subsidies are the subsidies that the local government has not set any conditions and are not tied to future trends or performance of the Group, receipt of such subsidy income is not contingent upon any further actions or performance of the Group and the amounts do not have to be refunded under any circumstances. The Group recorded specific subsidies as other non-current liabilities when received and recognized as other income when the conditions are met. Other subsidies are recognized as other income upon receipt as further performance by the Group is not required.
Leases
Leases are classified at the inception date as either a capital lease or an operating lease. The Group assesses a lease to be a capital lease if any of the following conditions exists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property's estimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease.
All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over their respective lease terms. The Group leases certain office space under non-cancelable operating lease agreements. Certain lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purpose of recognizing lease expense on straight-line basis over the term of the lease.
Comprehensive loss
Comprehensive loss is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Accumulated other comprehensive loss of the Group includes foreign currency translation adjustments related to the Group and its subsidiaries whose functional currency is not US$.
Income taxes
The Group follows the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"). Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on
F-13
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.
The Group evaluates its uncertain tax positions using the provisions of ASC 740, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements.
The Group recognizes in the consolidated financial statements the benefit of a tax position which is "more likely than not" to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. It is the Group's policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.
Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of comprehensive loss over the period of the borrowings using the effective interest method.
Share-based compensation
The Group applies ASC 718, CompensationStock Compensation ("ASC 718"), to account for its employee share-based payments awards granted to certain directors, executives and employees. Share options granted are classified as equity awards and are measured based on the grant date fair value of the equity instrument issued, and recognized as compensation costs using the straight-line method over the requisite service period, which is generally the vesting period of the share options, with a corresponding impact reflected in additional paid-in capital.
A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. The Group calculates incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested awards, the Group recognizes incremental compensation cost in the period when the modification occurs. For awards not being fully vested, the Group recognizes the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.
Net loss per share
In accordance with ASC 260, Earnings Per Share, basic net loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of unrestricted ordinary shares outstanding during the year using the two-class method. Under the two-class method, net loss is allocated between ordinary shares and other participating securities based on dividends declared (or
F-14
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed. The Company's convertible redeemable preferred shares are participating securities because they are entitled to receive dividends or distributions on an as converted basis. Diluted net loss per share is calculated by dividing net loss attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares include ordinary shares issuable upon the conversion of the convertible redeemable preferred shares using the if-converted method, and ordinary shares issuable upon the exercise of share options, using the treasury stock method. Ordinary share equivalents are excluded from the computation of diluted earnings per share if their effects are anti-dilutive. For the periods presented herein, the computation of basic net loss per share using the two-class method is not applicable as the Group is in a net loss position and the participating securities do not have contractual rights and obligations to share in the losses of the Group.
Employee defined contribution plan
As stipulated by the regulations of the PRC, full-time employees of the Group are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Group is required to accrue for these benefits based on certain percentages of the qualified employees' salaries. The Group is required to make contributions to the plans out of the amounts accrued. The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group's obligations are limited to the amounts contributed. The Group has no further payment obligations once the contributions have been paid. The Group recorded employee benefit expenses of US$947,244 and US$1,145,165 for the years ended December 31, 2018 and 2019, respectively.
Concentration of risks
Concentration of credit risk
As of December 31, 2018 and 2019, the aggregate amount of cash and cash equivalents and short-term investments of US$422,210 and US$801,923 respectively, were held at major financial institutions located in the PRC, and US$48,636,245 and US$99,730,865, respectively, were deposited with major financial institutions located outside the PRC. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions.
Accounts receivable are typically unsecured and denominated in US$ and are derived from revenues earned from customers. As of December 31, 2019, the accounts receivable balance is from one customer. The Group manages credit risk of accounts receivable through ongoing monitoring of the outstanding balances.
F-15
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of suppliers
A significant portion of the Group's research and development services were purchased from its one supplier, who collectively accounted for 40.67% and 23.13% of the Group's total research and development services purchases for the years ended December 31, 2018 and 2019, respectively.
Business and economic risk
The Group believes that changes in any of the following areas could have a material adverse effect on the Group's future consolidated financial position, results of operations or cash flows: changes in the overall demand for services; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards; changes in certain strategic relationships; regulatory considerations and risks associated with the Group's ability to attract employees necessary to support its growth. The Group's operations could also be adversely affected by significant political, regulatory, economic and social uncertainties in the PRC.
Foreign currency exchange rate risk
A significant portion of the Group's businesses are transacted in RMB, which is not a freely convertible currency. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People's Bank of China (the "PBOC"). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into US$ or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers' invoices, shipping documents and signed contracts.
From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For U.S. dollar against RMB, there was appreciation of approximately 5.7% and 1.3% in the years ended December 31, 2018 and 2019, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
The functional currency and the reporting currency of the Company are the US$. However, most of the expenses of the Group are denominated in RMB. Any significant fluctuation of the valuation of RMB may materially affect the Group's cash flows, expenses, losses and financial position, and the value of any dividends payable on the American Depositary Shares in US$.
Recently issued accounting pronouncements
The Group is an emerging growth company ("EGC") as defined by the Jumpstart Our Business Startups Act ("JOBS Act"). The JOBS Act provides that an EGC can take advantage of extended transition periods for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. The Group elected to take advantage of the extended transition periods. However, this election will not apply should the Group cease to be classified as an EGC.
F-16
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 2016, the FASB issued ASU No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10 ("ASU 2018-10"), Codification Improvements to Topic 842, Leases, which clarifies certain aspects of the guidance issued in ASU 2016-02; and ASU No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). In November 2019, the FASB issued ASU No. 2019-10, Financial InstrumentsCredit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), Effective Dates ("ASU 2019-10"), which extends the adoption date for certain registrants. The updated guidance is effective for the Group for annual reporting periods beginning January 1, 2021 and interim periods within annual periods beginning January 1, 2022. Early adoption is permitted. The Group does not plan to early adopt the new lease standards and the Group expects that applying the ASU 2016-02 would materially increase the assets and liabilities due to the recognition of right-of-use assets and lease liabilities on its consolidated balance sheets, with an immaterial impact on its consolidated statements of comprehensive loss and consolidated statements of cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Group's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10, which extends the adoption date for certain registrants. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within fiscal years beginning after December 15, 2023. The Group does not plan to early adopt ASU 2016-13 and is currently in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, CompensationStock Compensation (Topic 718): Improvements to nonemployee share-based payment accounting ("ASU 2018-07"). The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity's adoption date of Topic 606. The Group adopted on January 1, 2018 this guidance which do not have a significant impact on the consolidated financial statements.
F-17
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Group elected to early adopt this ASU and applied this guidance retrospectively to all periods presented. The impact of this ASU to the consolidated financial statements is immaterial.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer and precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The update is effective in fiscal years beginning after December 15, 2021, and interim periods therein, and early adoption is permitted for entities that have adopted ASC 606. This guidance should be applied retrospectively to the date of initial application of Topic 606. The Group elected to early adopt this ASU and applied this guidance retrospectively to all periods presented. The impact of this ASU to the consolidated financial statements is immaterial.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes as part of the FASB's overall initiative to reduce complexity in accounting standards. The amendments include removal of certain exceptions to the general principles of ASC 740, Income taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal years beginning after December 15, 2022, and interim periods therein, and early adoption is permitted. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively. The Group does not plan to early adopt ASU 2019-12 and is currently evaluating the impact on its financial statements of adopting this guidance.
F-18
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
3. ACCOUNTS RECEIVABLE, NET
|
As of
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Accounts receivable |
| 480,000 | |||||
Allowance for doubtful accounts |
| | |||||
| | | | | | | |
|
| 480,000 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
4. PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of the following:
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Deposits(a) |
970,407 | 970,394 | |||||
Interest receivables |
260,173 | 227,278 | |||||
Prepayments |
295,476 | 211,435 | |||||
Others |
62,433 | 67,866 | |||||
| | | | | | | |
|
1,588,489 | 1,476,973 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Note (a): The deposits represented the amounts that the Group paid to its CRO vendors for various outsourced research and development programs according to the terms of respective CRO agreement. The Group expects to recover the deposits when the programs end.
5. PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software consist of the following:
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Machinery and laboratory equipment |
3,408,277 | 3,462,343 | |||||
Leasehold improvements |
779,837 | 767,205 | |||||
Electronic equipment |
576,421 | 605,882 | |||||
Furniture and tools |
100,016 | 98,396 | |||||
Vehicles |
81,452 | 80,133 | |||||
Software |
64,761 | 71,056 | |||||
| | | | | | | |
Total property, equipment and software |
5,010,764 | 5,085,015 | |||||
Less: accumulated depreciation and amortization |
(2,460,008 | ) | (3,205,690 | ) | |||
| | | | | | | |
Net book value |
2,550,756 | 1,879,325 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation and amortization expenses recognized for the years ended December 31, 2018 and 2019 were US$909,002 and US$816,686, respectively.
F-19
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
6. ACCRUALS AND OTHER CURRENT LIABILITIES
Accrued liabilities and other current liabilities consist of the following:
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Payroll and related liabilities |
2,230,898 | 2,370,523 | |||||
Professional service fees |
93,801 | 145,157 | |||||
Utility and maintenance |
102,120 | 4,595 | |||||
Other taxes and surcharge |
32,982 | | |||||
Others |
114,640 | 19,889 | |||||
| | | | | | | |
|
2,574,441 | 2,540,164 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
7. BORROWINGS
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Current |
|||||||
Short-term borrowings: |
|||||||
Bank loans |
2,331,274 | 716,723 | |||||
Current portion of long-term borrowings |
| 322,525 | |||||
| | | | | | | |
Total current borrowings |
2,331,274 | 1,039,248 | |||||
| | | | | | | |
Non-Current |
|||||||
Long-term borrowings: |
|||||||
Bank loans |
| 1,515,868 | |||||
| | | | | | | |
Total non-current borrowings |
| 1,515,868 | |||||
| | | | | | | |
Total borrowings |
2,331,274 | 2,555,116 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Short-term borrowings
In April 2017, the Group borrowed a loan with amount of RMB4,000,000 (equivalent to approximately US$612,164) from Agricultural Bank of China Limited for a term of one year and at the interest rate of 4.79% per annum. The borrowing was guaranteed by Peter Luo, who is the Chairman, Chief Executive Officer and a principal shareholder of the Company. The borrowing was repaid in March 2018.
In May 2017, the Group borrowed a loan with the amount of RMB3,000,000 (equivalent to approximately US$459,123) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 4.79% per annum and the borrowing was repaid in May 2018. In June 2017, the Group borrowed a loan with the amount of RMB2,000,000 (equivalent to approximately US$306,082) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 4.79% per annum. The borrowing was repaid in June 2018.
F-20
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
7. BORROWINGS (Continued)
In March 2018, the Group borrowed a loan with the amount of RMB3,000,000 (equivalent to approximately US$437,114) from Bank of Jiangsu Co., Ltd. for a term of one year and at the interest rate of 5.22% per annum. The borrowing was repaid in March 2019. In June 2018, the Group borrowed a loan with the amount of RMB2,000,000 (equivalent to approximately US$291,409) from Bank of Jiangsu Co., Ltd. for a term of one year and at the interest rate of 5.22% per annum. The borrowing was repaid in June 2019. These borrowings with Bank of Jiangsu Co., Ltd were guaranteed by Peter Luo and Kristine She. Peter Luo is the Chairman, Chief Executive Officer and a principal shareholder of the Company. Kristine She is one of the senior management personnel of the Company.
In May 2018, the Group borrowed a loan with the amount of RMB3,000,000 (equivalent to approximately US$437,114) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 5.00% per annum. The borrowing was repaid in May 2019. In June 2018, the Group borrowed a loan with the amount of RMB2,000,000 (equivalent to approximately US$291,409) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 5.00% per annum. The borrowing was repaid in June 2019.
In July 2018, the Group borrowed a loan with amount of RMB6,000,000 (equivalent to approximately US$874,228) from Agricultural Bank of China Limited for a term of one year and at the interest rate of 5.22% per annum. The borrowing was guaranteed by Peter Luo, who is the Chairman, Chief Executive Officer and a principal shareholder of the Company. The borrowing was repaid in July 2019.
In September 2019, the Group borrowed a loan with amount of RMB5,000,000 (equivalent to approximately US$716,723) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 4.35% per annum.
Long-term borrowings
In February 2019, the Group borrowed a loan with amount of RMB7,500,000 (equivalent to approximately US$1,075,084) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years and at the interest rate of 5.46% per annum. The Group repaid RMB375,000 (equivalent to approximately US$53,754) in August 2019. As of December 31, 2019, RMB1,250,000 (equivalent to approximately US$179,181) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing".
In June 2019, the Group borrowed a loan with amount of RMB6,000,000 (equivalent to approximately US$860,067) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years and at the interest rate of 5.23% per annum. The Group repaid RMB300,000 (equivalent to approximately US$43,004) in December 2019. As of December 31, 2019, RMB1,000,000 (equivalent to approximately US$143,344) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing".
F-21
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
7. BORROWINGS (Continued)
Future maturities of short-term borrowings and long-term borrowings
Future principal maturities of short-term borrowings and long-term borrowings as of December 31, 2019 are as followings:
|
US$ | |||
---|---|---|---|---|
2020 |
1,039,248 | |||
2021 |
870,818 | |||
2022 |
645,050 | |||
| | | | |
|
2,555,116 | |||
| | | | |
| | | | |
| | | | |
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
In November 2011, the Company issued convertible notes ("Series Pre-A Convertible Notes") to certain investors in the amount of 4,590,908. The notes carried a simple interest (non-compounding) of 6% per annum as set out in the note purchase agreement. All outstanding principal balance and accrued but unpaid interest of the notes should be automatically converted into the convertible redeemable preferred shares of the Company at a price no more than US$1 per share.
In November 2014, the Company issued 5,473,957 Series A-1 convertible redeemable preferred shares ("Series A-1 Preferred Shares") to certain investors upon conversion of the Company's Series Pre-A convertible notes at a conversion price of US$1 per share. Concurrently, the Company issued 2,370,414 Series A-2 convertible redeemable preferred shares ("Series A-2 Preferred Shares") to certain investors at US$1.27 per share for a total consideration of US$3,000,000. Series A-1 Preferred Shares and Series A-2 Preferred Shares are collectively referred to as the Series A Preferred Shares.
From January through June 2016, the Company issued 7,494,537 Series B convertible redeemable preferred shares ("Series B Preferred Shares") to certain investors at US$3.74 per share for a total consideration of US$27,999,995.
From February through May 2018, the Company issued 5,597,354 Series C-1 convertible redeemable preferred shares ("Series C-1 Preferred Shares") to certain investors at US$8.93 per share for a total consideration of US$50,000,033. Concurrently, in February 2018, the Company also issued warrants to two Series C-1 investors at nil consideration ("Series C-1 Warrants"). The Series C-1 Warrants allowed the holders to purchase Series C-2 Preferred Shares (defined below) at the exercise price of US$10.21 per share for a total consideration of up to US$7,500,000. Series C-1 Warrants were exercisable, in whole or in part, at any time from the warrant issuance date to the earlier of i) April 1, 2019, ii) a deemed liquidation event or iii) the closing of the Qualified IPO. Series C-1 Warrants expired on April 1, 2019.
From June through November 2019, the Company issued 1,861,121 Series C-2 convertible redeemable preferred shares ("Series C-2 Preferred Shares") to certain investors at US$10.21 per share for a total consideration of US$18,999,999.
F-22
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
In December 2019, the Company issued 4,452,441 Series C-3 convertible redeemable preferred shares ("Series C-3 Preferred Shares") to a certain investor at US$11.23 per share for a total consideration of US$50,000,000.
Series C-1 Preferred Shares, Series C-2 Preferred Shares and Series C-3 Preferred Shares are collectively referred to as the Series C Preferred Shares.
The key features of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares (collectively the "Preferred Shares") are as follows:
Dividends
Each holder of the Preferred Shares will be entitled to receive non-cumulative dividends when declared by the Board of Directors prior and in preference to ordinary shareholders. The dividend should be paid at the rate of 6% of the original issue price per share per annum on each Preferred Shares in the sequence of Series C Preferred Shares and Preferred Shares other than the Series C Preferred Shares. After the preferential dividends relating to the Preferred Shares have been paid in full or declared and set apart in any fiscal year of the Company, any additional dividends out of funds or assets legally available therefore may be declared in that fiscal year for the Shares and, if such additional dividends are declared, the preferred shareholders shall be entitled to participate on an as converted-basis pro-rata in any dividends or distributions paid to the ordinary shareholders.
Voting
Each Preferred Share has voting rights equivalent to the number of ordinary shares to which it is convertible at the record date. The Preferred Shares shall vote separately as a class with respect to certain specified matters. Otherwise, the preferred shareholders and ordinary shareholders shall vote together as a single class.
Liquidation preference
In the event of any liquidation, dissolution or winding up of the Company, or the cessation of the business of the Company or of a substantial portion of the business of the Company, whether voluntary or involuntary, or any deemed liquidation event (unless waived by the preferred shareholders), the preferred shareholders shall be entitled to receive a per share amount equal to 100% of the original issue price of the respective series of the Preferred Shares, in the sequence of Series C Preferred Shares, Series B Preferred Shares and Series A Preferred Shares. After such liquidation amounts have been paid in full, the preferred shareholders are entitled to receive a simple interest accruing on each Preferred Share at 6% of its original issue price per annum from the date of issuance of such Preferred Share to the date of distribution of such amount, in the sequence of Series C Preferred Shares, Series B Preferred Shares and Series A Preferred Shares. After such interest amounts have been paid in full, any remaining funds or assets of the Company legally available for distribution to shareholders shall be distributed on a pro rata basis among the preferred shareholders, on an as-converted basis, together with the ordinary shareholders.
F-23
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
Conversion
Each Preferred Share may be converted at any time into ordinary shares at the option of the preferred shareholders based on the then-effective conversion price. The initial conversion ratio is 1:1, subject to adjustment in the event of share splits, share combinations, ordinary share dividends or distributions, other dividends, reorganizations, mergers, consolidations, reclassifications, exchanges, substitutions, or dilutive issuance.
All Preferred Shares are converted automatically into ordinary shares at the then effective applicable conversion price upon the earlier of a Qualified Public Offering (public offering of the Company's shares with an offering price (exclusive of underwriting commissions and expenses) that reflects a market capitalization (immediately prior to the public offering) of not less than US$650,000,000 and with an aggregate proceeds of no less than US$75 million)or a date specified by written consent or agreement of the holders of at least 80% of the voting power of the then outstanding Preferred Shares.
Redemption
The Preferred Shares are redeemable upon request by the holders of the majority outstanding Preferred Shares if the Company fails to consummate a Qualified Public Offering or complete a deemed liquidation event on or before March 31, 2025 at the redemption price equal to the original issue price plus any declared but unpaid dividends.
Accounting for Preferred Shares
The Preferred Shares are classified as mezzanine equity in the consolidated balance sheets because they are contingently redeemable upon the occurrence of an event outside of the Company's control (e.g. the Company not achieving a Qualified Public Offering or a deemed liquidation event before March 31, 2025 ("Target QIPO Date")). The Preferred Shares were determined to be mezzanine equity with no embedded feature to be bifurcated and no beneficial conversion features to be recognized. The Preferred Shares are initially recorded at their respective issuance date fair value, net of issuance cost and fair value allocated to the detachable warrants. The Company did not incur material issuance cost for any Preferred Shares issued.
The Company concluded that the Preferred Shares are not currently redeemable, but are probable to become redeemable. The Company accreted changes in the redemption value over the period from the date of issuance to the earliest redemption date using the interest method. No accretion charge was recorded as the redemption value is fixed to original issue price for the years presented, except for Series C-1 Preferred Shares issued with detachable warrants.
Modification of Preferred Shares
The Company made several amendments to the Preferred Shares, mainly including: 1) added redemption rights for Series A Preferred Shares upon the issuance of the Series B Preferred Shares; 2) extended the Target QIPO Date upon the issuance of the Series C-1 Preferred Shares and the Series C-3 Preferred Shares. These amendments are accounted for as modifications rather than extinguishments as the fair values of these Preferred Shares immediately after the amendments were
F-24
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
not significantly different from their respective fair values immediately before the amendment. When Preferred Shares are modified and such modification results in value transfer between preferred shareholders and ordinary shareholders, the value transferred is treated as a deemed dividend to or deemed contribution from the preferred shareholders.
On February 2, 2018, the Target QIPO Date was extended from January 19, 2023 to February 2, 2025 (7th anniversary of Series C-1 closing) upon issuance of Series C-1 Preferred Shares. On the date of the modifications, the Company assessed the total fair value of preferred shares immediately before and after the change of the terms with the assistance from an independent third-party appraiser. The combined change in fair value of Preferred Shares immediately before and after the modification was US$1,186,187. The increase in fair value of the ordinary shares of is US$1,186,187, in substance, a transfer of wealth mostly from the preferred shareholders to the ordinary shareholder, and therefore are recorded as deemed contribution from the Preferred Shareholders.
The Company's Preferred Shares activities for the periods presented are summarized below:
The warrants are freestanding instruments and classified as liabilities in accordance with ASC 480. The warrants are initially recognized at fair value, with subsequent changes in fair value recorded currently in earnings. The Company recognized gains from the decrease in fair value of the warrants of US$534,305 and US$1,207,415 for the years ended December 31, 2018 and 2019, respectively.
The Company has measured the warrant liabilities at fair values on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2018. The Group used the Black-Scholes option pricing model to estimate the fair value of warrant liabilities using the following assumptions:
|
For the year
ended December 31, 2018 |
|
---|---|---|
Risk-free interest rate |
1.92%, 2.37% | |
Exercise price |
US$10.2089 | |
Maturity date |
01/04/2019 | |
Estimated volatility rate |
63.78%, 71.00% |
F-25
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
The model requires the input of highly subjective assumptions including the risk-free rate interest rate, maturity date, estimated volatility rate and fair value of underlying preferred shares. The risk-free rate for periods within the contractual life is based on the US treasury strip bond with maturity similar to the maturity of the warrants as of valuation dates. For expected volatilities, the Company has made reference to the historical daily stock prices volatilities of ordinary shares of several comparable companies in the same industry as the Company. The estimated fair value of the preferred shares was determined with assistance from an independent third-party valuation firm.
The significant unobservable inputs used in the fair value measurement of the warrant liabilities include risk-free interest rate, interval between valuation date and maturity date, estimated volatility rate and fair value of underlying preferred shares. Significant decreases in interval between valuation date and maturity date, estimated volatility rate and fair value of underlying preferred shares would result in a significantly lower fair value measurement. Significant increases in risk-free interest rate would result in a significantly lower fair value measurement.
9. SHARE-BASED COMPENSATION
On November 7, 2015, the Company adopted a share incentive plan ("2015 Plan"). Under the 2015 Plan, the Company's Board of Directors has approved that a maximum aggregate number of shares that may be issued pursuant to all awards granted shall be 4,336,126. In September 2017, the Company replaced 2015 Plan with the amended and restated share incentive plan ("2017 Plan") and increased the maximum number of shares issuable to 6,336,126. In December 2019, the Company replaced 2017 Plan with the second amended and restated share incentive plan ("2019 Plan") and further increased the maximum number of shares issuable to 11,391,131. The terms of the 2015 Plan, 2017 Plan and 2019 Plan are substantially the same other than the maximum aggregate number of shares the Company may issue under the respective plan.
Share options granted to each grantee under the Share Inventive Plan will generally be exercisable upon the grantee renders service to the Company in accordance with a stipulated vesting schedule. Grantees are generally subject to a vesting schedule of no longer than five years, under which the grantee earns an entitlement to vest a certain percentage of his option grants at the end of each month
F-26
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
9. SHARE-BASED COMPENSATION (Continued)
or year of completed service. The share option awards shall expire no more than 10 years from their grant dates.
|
Number of
Options |
Weighted-
Average Exercise Price |
Weighted-
Average Grant Date Fair Value |
Weighted
Average Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
US$ per
option |
US$ per
option |
Years
|
US$
|
|||||||||||
Outstanding at January 1, 2018 |
848,828 | 0.38 | 3.75 | 8.56 | 4,907,569 | |||||||||||
Forfeited |
(274,500 | ) | 0.55 | 5.71 | | | ||||||||||
| | | | | | | | | | | | | | | | |
Outstanding at January 1, 2019 |
574,328 | 0.30 | 2.80 | 7.14 | 3,734,644 | |||||||||||
Granted |
372,500 | 1.26 | 5.46 | | | |||||||||||
Exercised |
(34,000 | ) | 0.55 | 5.71 | | | ||||||||||
Forfeited |
(46,800 | ) | 1.22 | 5.75 | | | ||||||||||
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2019 |
866,028 | 0.65 | 3.67 | 7.27 | 6,328,171 | |||||||||||
| | | | | | | | | | | | | | | | |
Vested and expected to vest at December 31, 2019 |
866,028 | 0.65 | 3.67 | 7.27 | 6,328,171 | |||||||||||
Exercisable at December 31, 2019 |
527,278 | 0.34 | 2.60 | 6.26 | 4,018,019 | |||||||||||
| | | | | | | | | | | | | | | | |
The aggregate intrinsic value in the table above represents the difference between the exercise price of the awards and the fair value of the underlying ordinary shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant ordinary shares.
The aggregate fair value of the equity awards vested during the years ended December 31, 2018 and 2019 was US$165,609 and US$366,113, respectively. As of December 31, 2019, there was US$1,554,053 of total unrecognized employee share-based compensation expense, may be adjusted for actual forfeitures occurring in the future. Total unrecognized compensation cost will be recognized over a weighted-average period of 3.32 years.
Fair value of share options
The fair value of share options was determined using the binomial option valuation model, with the assistance from an independent third-party appraiser. The binomial model requires the input of highly subjective assumptions, including the expected volatility, the exercise multiple, the risk-free rate and the dividend yield. For expected volatility, the Group has made reference to historical volatility of several comparable companies in the same industry. The exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested share options. The risk-free rate for periods within the contractual life of the share options is based on the market yield of U.S. Treasury Bonds in effect at the time of grant. The dividend yield is based on the expected dividend policy over the contractual life of the share options. The estimated fair value of the ordinary shares, at the share option grant dates, was determined with the assistance from an independent third-party appraiser.
F-27
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
9. SHARE-BASED COMPENSATION (Continued)
The assumptions used to estimate the fair value of the share options granted are as follows:
|
For the year
ended December 31, 2019 |
|
---|---|---|
Risk-free interest rate |
1.78% - 2.73% | |
Dividend yield |
0% | |
Expected volatility range |
67.5% - 71.0% | |
Exercise multiple |
2.2 - 2.8 | |
Contractual life |
10 years |
Total share-based compensation expenses recognized for the years ended December 31, 2018 and 2019 were as follows:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Research and development expenses |
126,540 | 404,620 | |||||
Administrative expenses |
| 207,091 | |||||
| | | | | | | |
Total share-based compensation expenses |
126,540 | 611,711 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Up to the date of the issuance of these consolidated financial statements, some proceeds of the subscription capital arising from the exercise of vested share options by certain employees remained outstanding and such amount was presented as subscriptions receivable, a contra-equity balance on the consolidated balance sheets as of December 31, 2018 and 2019, respectively.
10. COLLABORATION ARRANGEMENTS
Guilin Sanjin Pharmaceutical Co., Ltd. License Agreement
In December 2018, the Group entered into (i) a collaboration agreement (the "Sanjin Greater China Agreement") that covers Greater China with Guilin Sanjin Pharmaceutical Co., Ltd. ("Sanjin") and certain of its subsidiaries (collectively, "Sanjin Parties") and (ii) a collaboration agreement (the "Sanjin ROW Agreement", together with the Sanjin Greater China Agreement, the "2018 Sanjin Agreements") that covers the regions other than Greater China with Sanjin. Pursuant to the Sanjin Greater China Agreement, the Group licensed the Chinese intellectual property directly related to a monospecific antibody molecule that binds to the PD-L1 target (the "PD-L1 Project"), including patent rights, patent application rights and technologies based on the core sequence of the molecule, to Sanjin Parties. Sanjin Parties will own all the Chinese intellectual property developed in the exercise of Sanjin Parties' rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. The Group also granted Sanjin Parties a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the PD-L1 Project for the purposes of exploiting its rights and performing its obligations under the agreement. Sanjin Parties will enjoy all the economic benefits
F-28
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
10. COLLABORATION ARRANGEMENTS (Continued)
deriving from the PD-L1 Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. Sanjin Parties will pay the Group (i) single-digit percentage of net sales of the products that use the licensed antibody after such products enter the market and (ii) a low to mid-low double-digit percentage of the profits resulting from any transfer of the license to any third parties depending on the timing of the transfer relative to the development stage of the product. The Group also received RMB10,000,000 (equivalent to approximately US$1,511,168) upfront fee upon the effectiveness of the agreement from Sanjin Parties.
Pursuant to the Sanjin ROW Agreement, the Group granted Sanjin a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that the Group controlled before the Group entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between the Group and Sanjin's affiliates in connection with the collaboration will be jointly owned. The Group retain the ownership of patent rights of key intellectual property pertaining to PD-L1 outside of the Greater China. In addition, all the results obtained by Sanjin relating to the research and development of any new antibody developed under the agreement will be owned by Sanjin. The Group retain a majority of the economic benefits derived from the Sanjin ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case the Group intend to transfer to a third party our share of economic interests in any country outside of Greater China, the Group must notify Sanjin and Sanjin will receive a right of first refusal if it pays the Group a deposit equal to a low double-digit percentage of the consideration that the Group expect to receive from such third party. If Sanjin waives the right of first refusal, the Group can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in our notice to Sanjin.
The Group agreed not to (i) independently develop any monospecific antibodies that bind to the PD-L1 target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreement. The exclusivity obligation does not prevent the Group from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and masked antibody against PD-L1 target and (ii) continuing to provide antibody screening service that were commenced before the execution of the Sanjin Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either non-breaching party may terminate the 2018 Sanjin Agreements if the other party's ability to comply with its respective obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Sanjin Parties will return to the Group all the intellectual property, documents and data provided by the Group under the 2018 Sanjin Agreements.
In the event that the failure of the development of the product candidate solely arises from the Group's research and development basis specified under this agreement, Sanjin has the right to claim
F-29
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
10. COLLABORATION ARRANGEMENTS (Continued)
back all the payment made to the Group. The Group considers the possibility of occurrence of such event is very remote.
For the year ended December 31, 2018, the Group recognized revenue of RMB10,000,000 (equivalent to approximately US$1,511,168) for this agreement.
Dragon Boat Biopharmaceutical (Shanghai) Limited License Agreement
In May 2019, the Group entered into (i) a collaboration agreement that covers Greater China (the "Dragon Boat Greater China Agreement") and (ii) a collaboration agreement that covers the regions other than Greater China (the "Dragon Boat ROW Agreement," together with the Dragon Boat Greater China Agreement, the "2019 Dragon Boat Agreements"), with Dragon Boat Biopharmaceutical (Shanghai) Limited ("Dragon Boat"), a subsidiary of Sanjin. Pursuant to the Dragon Boat Greater China Agreement, the Group will license the Chinese intellectual property directly related to a certain monospecific antibody molecule that binds to a specified target (the "Specified Project"), including the patent rights, patent application rights and technologies based on the core sequence of the molecule, to Dragon Boat. Dragon Boat will own all the Chinese intellectual property developed in the exercise of Dragon Boat's rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. The Group also granted Dragon Boat a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the Specified Project for the purposes of exploiting its rights and performing its obligations under the agreement. Dragon Boat will enjoy all the economic benefits deriving from the Specified Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. and will pay the Group (i) certain high-six figure dollar milestone payments upon the achievement of certain milestones (including milestones of launch of pre-clinical safety evaluation animal test, obtaining Investigational New Drug ("IND") approval in PRC and completion of clinical phase I test in PRC) and (ii) a single-digit percentage of net sales of the products that use the licensed antibody after such products enter the market.
Pursuant to the Dragon Boat ROW Agreement, the Group granted Dragon Boat a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that the Group controlled before the Group entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between the Group and Dragon Boat in connection with the collaboration will be jointly owned. The Group retain the ownership of patent rights of key intellectual property pertaining to the specified target outside of the Greater China. In addition, all the results obtained by Dragon Boat relating to the research and development of any new antibody developed under the agreement will be owned by Dragon Boat. The Group retains a majority of the economic benefits derived from the Dragon Boat ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case the Group intend to transfer to a third party our share of economic interests in any country outside of Greater China, the Group must notify Dragon Boat and Dragon Boat will receive a right of first refusal if it pays the
F-30
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
10. COLLABORATION ARRANGEMENTS (Continued)
Group a deposit equal to a low double-digit percentage of the consideration that the Group expects to receive from such third party. If Dragon Boat waives the right of first refusal, the Group can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in our notice to Dragon Boat.
Under the 2019 Dragon Boat Agreements, the Group agreed not to (i) independently develop any monospecific antibodies that bind to the specified target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreements. The exclusivity obligation does not prevent the Group from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and masked antibody against the specific target and (ii) continuing to provide antibody screening service that were commenced before the execution of the Dragon Boat Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either nonbreaching party may terminate the 2019 Dragon Boat Agreements if the other party's ability to comply with its obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Dragon Boat will return to the Group all the intellectual property, documents and data provided by the Group under the 2019 Dragon Boat Agreements.
In the event that the failure of the development of the product candidate solely arises from the Group's research and development basis specified under this agreement, Dragon Boat has the right to claim back all the payment made to the Group.
For the year ended December 31, 2019, no revenue was recognized for this agreement since the licensed product has not been transferred to Dragon Boat.
As of December 31, 2019, upfront fee of RMB4,000,000 (equivalent to approximately US$573,378) that was received by the Group was recorded as contract liabilities in the consolidated balance sheets, as the performance obligation had not been satisfied by the Group.
ADC Therapeutics SA License and Collaboration Agreements
In April 2019, the Group entered into a material transfer and collaboration agreement (the "ADCT Collaboration Agreement") and a license agreement (the "ADCT License Agreement") with ADC Therapeutics SA ("ADC Therapeutics"). These two agreements are combined as a single contract as the agreements were negotiated as a package with a single commercial objective.
ADCT Collaboration Agreement
Pursuant to the ADCT Collaboration Agreement, the Group agreed to generate masked antibodies with respect to up to two exclusive targets selected by ADC Therapeutics. Upon our delivery of certain initial results, ADC Therapeutics has the option to license the Group's technology with respect to one or both targets as further detailed below. ADC Therapeutics has not yet exercised such options as of December 31, 2019.
F-31
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
10. COLLABORATION ARRANGEMENTS (Continued)
Under the ADCT Collaboration Agreement, the Group is eligible to receive up to a low-seven-figure dollar amount in consideration for the Group's exclusivity obligations, upon achievement of certain development milestones (including milestones of delivery of certain amino acid sequences and successful outcome of the first in-vivo study) and upon ADC Therapeutics' election to proceed with development for the two elected targets. Apart from performance obligation to deliver the amino acid sequences of the corresponding masking peptides, the Group is not required to perform any additional research and development services. ADC Therapeutics has the right to terminate the ADCT Collaboration Agreement at any time and for any reason in its entirety or on a target-by-target basis upon thirty days' prior written notice to the Group. Either party may terminate the ADCT Collaboration Agreement, in its entirety or on a target-by-target basis, upon the other party's uncured material breach of the agreement or the other party's insolvency-related events.
The Group also granted ADC Therapeutics an exclusive target reservation right for one year from the commencement of the agreement and an option to renewal for another year with a consideration of low-six-figure dollar amount.
ADCT License Agreement
Subject to the exercise of the options contained in the ADCT Collaboration Agreement, the Group has granted ADC Therapeutics, with respect to each elected target, an exclusive, worldwide, perpetual and irrevocable (subject only to the termination provisions) license (with the right to grant sublicenses) to develop, make, use, commercialize and import the antibody drug conjugates that comprise masked antibodies generated by the Group under these programs.
Under the ADCT License Agreement, if ADC Therapeutics exercises both of its options granted thereunder, the Group could be eligible to receive up to a low-nine-figure dollar amount in development and regulatory milestone payments upon the achievement of certain milestones (including milestones of successful completion of Good Laboratory Practice Toxicology studies, launch of clinical trials and start of commercial sales in difference countries and etc.) and up to a mid-eight-figure dollar amount in sales milestone payments, in addition to mid-single-digit percentage net sales-based tiered royalties on products licensed under the ADCT License Agreement, subject to certain reductions. Royalties, if any, will be payable on a country-by-country and product-by-product basis, until the earlier of (i) the tenth anniversary of the first commercial sale of such product or (ii) the expiration of the last-to-expire patent licensed under the agreement in such country, unless earlier terminated by the parties, following which any licenses granted to ADC Therapeutics under the ADCT License Agreement shall become fully paid up, perpetual and irrevocable.
ADC Therapeutics has the right to terminate the ADCT License Agreement before the expiration of the royalty term on a product-by-product basis or in its entirety (i) for any reason or no reason upon thirty days' written notice to the Group, or (ii) if ADC Therapeutics chooses to discontinue the development or sale of the applicable licensed product worldwide. Each party has certain rights to terminate the ADCT License Agreement with prior written notice upon the other party's uncured material breach or insolvency.
For the years ended December 31, 2018 and 2019, no revenue was recognized for this agreement since the licensed product has not been transferred to ADC Therapeutics.
F-32
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
10. COLLABORATION ARRANGEMENTS (Continued)
As of December 31, 2019, upfront fee of US$225,000 and exclusive target reservation right of US$100,000 that were received by the Group were recorded as contract liabilities in the consolidated balance sheets, as the performance obligation had not been satisfied by the Group.
Signal Pharmaceuticals LLC
In January 2019, the Group entered into an agreement with Signal Pharmaceuticals LLC, a subsidiary of Celgene Corporation, for a purchase order of delivery of certain sequences with total consideration of US$480,000. For the year ended December 31, 2019, the Group recognized revenue of US$480,000 upon delivery of such sequences.
11. INCOME TAX EXPENSE
PRC
Effective from January 1, 2008, the PRC's statutory, Enterprise Income Tax ("EIT") rate is 25%. In accordance with the implementation rules of EIT Law, a qualified "Technology Advanced Service Enterprises" ("TASE") is eligible for a preferential tax rate of 15%. The TASE certificate is effective for three years. An entity must file required supporting documents with the tax authority and ensure fulfillment of the relevant TASE criteria before using the preferential rate. An entity could apply for the TASE certificate every year.
Adagene (Suzhou) Limited was first recognized as a qualified TASE in March 2015 and renewed in December 2018. Adagene (Suzhou) Limited was authorized to enjoy the preferential tax rate of 15% from 2015 to 2021.
Cayman Islands
Adagene Inc. is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands Adagene Inc. is not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
Hong Kong
Adagene (Hong Kong) Limited is incorporated in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant Hong Kong tax laws. The applicable tax rate in Hong Kong is 16.5%. For the years ended December 31, 2018 and 2019, Adagene (Hong Kong) Limited did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earnings in Hong Kong for any of the periods presented. Under the Hong Kong tax law, Adagene (Hong Kong) Limited is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
F-33
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
11. INCOME TAX EXPENSE (Continued)
Australia
Adagene Australia Pty Ltd. is incorporated in Australia. Companies registered in Australia are subject to Australia profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant Australia tax laws. The applicable tax rate in Australia is 30%. Adagene Australia Pty Ltd. has no taxable income for all periods presented, therefore, no provision for income taxes is required.
United States
Adagene Incorporated is incorporated in U.S. and is subject to U.S. federal corporate income tax at a rate of 21%. Adagene Incorporated is also subject to state income tax in California of 8.84%. Adagene Incorporated has no taxable income for all periods presented, therefore, no provision for income taxes is required. Reconciliation between the income tax expense computed by applying the statutory tax rate to loss before income tax and the actual provision for income tax is as follows:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Loss before income tax |
(15,266,184 | ) | (16,432,308 | ) | |||
Income tax computed at respective applicable tax rate |
(30,560 | ) | 27,875 | ||||
Research and development super-deduction(a) |
(579,090 | ) | (230,126 | ) | |||
Non-deductible expenses |
4,010 | 3,306 | |||||
Changes in valuation allowance |
605,640 | 198,945 | |||||
| | | | | | | |
Income tax expense |
| | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Note (a): Due to the impacts of research and development super-deduction, the Group's subsidiary, Adagene (Suzhou) Limited did not have any taxable profit for the years ended December 31, 2018 and 2019.
F-34
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
11. INCOME TAX EXPENSE (Continued)
Deferred tax assets and liabilities
Deferred taxes were measured using the enacted tax rates for the periods in which the temporary differences are expected to be reversed. The tax effects of temporary differences that give rise to the deferred tax balances as of December 31, 2018 and 2019 are as follows:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Deferred tax assets: |
|||||||
Net operating loss carry forward |
735,717 | 928,989 | |||||
Depreciation and amortization of property, equipment and software |
4,213 | 9,886 | |||||
| | | | | | | |
Gross deferred tax assets |
739,930 | 938,875 | |||||
Less: valuation allowance |
(739,930 | ) | (938,875 | ) | |||
| | | | | | | |
Total deferred tax assets, net |
| | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Movement of the valuation allowance is as follows:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Balance as of January 1 |
134,290 | 739,930 | |||||
Addition |
605,640 | 198,945 | |||||
| | | | | | | |
Balance as of December 31 |
739,930 | 938,875 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized in the foreseeable future. In making such determination, the Group evaluates a variety of positive and negative factors including the Group's operating history, accumulated deficit, the existence of taxable temporary differences and reversal periods.
The Group has incurred net accumulated operating losses for income tax purposes since its inception. The Group believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Group has provided full valuation allowances for the deferred tax assets as of December 31, 2018 and 2019.
The Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2018 and 2019, the Group did not have any significant unrecognized uncertain tax positions.
F-35
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
12. NET LOSS PER SHARE
Basic and diluted net loss per share for the years ended December 31, 2018 and 2019 are calculated as follows:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Numerator: |
|||||||
Net loss attributable to Adagene Inc.'s shareholders |
(15,266,184 | ) | (16,432,308 | ) | |||
Deemed contribution from convertible redeemable preferred shareholders |
1,186,187 | | |||||
Accretion of convertible redeemable preferred shares to redemption value |
(222,846 | ) | (246,184 | ) | |||
| | | | | | | |
Net loss attributable to ordinary shareholders |
(14,302,843 | ) | (16,678,492 | ) | |||
| | | | | | | |
Denominator: |
|||||||
Weighted-average number of ordinary shares outstandingbasic and diluted |
15,159,136 | 15,178,232 | |||||
| | | | | | | |
Net Loss per sharebasic and diluted |
(0.94 | ) | (1.10 | ) |
The effects of all outstanding convertible redeemable preferred shares and share options have been excluded from the computation of diluted loss per share for the years ended December 31, 2018 and 2019 as their effects would be anti-dilutive.
The potentially dilutive securities that have not been included in the calculation of diluted net loss per share as their inclusion would be anti-dilutive are as follows:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
Convertible redeemable preferred shares |
20,430,200 | 21,977,914 | |||||
Share options |
293,133 | 582,526 |
13. UNAUDITED PRO FORMA NET LOSS PER SHARE
The unaudited pro forma net loss per ordinary share is computed using the weighted-average number of ordinary shares outstanding and the automatic conversion of all of the Group's outstanding mezzanine equity into ordinary shares upon the closing of the Group's Qualified Public Offering, as if it had occurred on January 1, 2019. The Group believes the unaudited pro forma net loss per share provides material information to investors, as the automatic conversion of the Group's outstanding mezzanine equity. The disclosure of pro forma net loss per ordinary share provides an indication of net loss per ordinary share that is comparable to what will be reported by the Group as a public company following the closing of the Qualified Public Offering.
F-36
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
13. UNAUDITED PRO FORMA NET LOSS PER SHARE (Continued)
The unaudited basic and diluted pro forma net loss per share is calculated as follows:
14. RELATED PARTY TRANSACTIONS
Name of related parties
|
Relationship | |
---|---|---|
Peter Luo |
Chairman, Chief Executive Officer and a principal shareholder of the Company | |
Four senior management personnel |
Management and ordinary shareholders of the Company | |
WuXi AppTec Co., Ltd. ("WuXi AppTec Group") |
A principal shareholder of the Group | |
WuXi Biologics (Shanghai) Co., Ltd. |
Controlled by the ultimate controlling party of a principal shareholder of the Group |
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
WuXi AppTec Group |
39,250 | 739,051 | |||||
Four senior management personnel(i) |
622,420 | 350,865 | |||||
Peter Luo(i) |
508,359 | 338,818 | |||||
WuXi Biologics (Shanghai) Co., Ltd. |
| 4,452 | |||||
| | | | | | | |
Total amounts due from related parties |
1,170,029 | 1,433,186 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-37
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
14. RELATED PARTY TRANSACTIONS (Continued)
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
WuXi Biologics (Shanghai) Co., Ltd. |
3,368,735 | 1,379,741 | |||||
WuXi AppTec Group |
220,888 | 432,784 | |||||
Peter Luo(ii) |
84,625 | 83,254 | |||||
| | | | | | | |
Total amounts due to related parties |
3,674,248 | 1,895,779 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Receipt of CRO and CMO services: |
|||||||
WuXi Biologics (Shanghai) Co., Ltd. |
6,535,512 | 3,567,962 | |||||
WuXi AppTec Group |
969,079 | 2,136,344 | |||||
| | | | | | | |
|
7,504,591 | 5,704,306 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
15. COMMITMENTS AND CONTINGENCIES
Operating lease commitments
Future minimum payments under non-cancelable operating leases with initial terms in excess of one year consist of the following as of December 31, 2019:
|
US$ | |||
---|---|---|---|---|
For the years ending: |
||||
2020 |
173,854 | |||
2021 |
83,305 | |||
| | | | |
Total |
257,159 | |||
| | | | |
| | | | |
| | | | |
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The Group's lease arrangements have no renewal options, rent escalation clauses, restrictions or contingent rents and are all executed with third parties. For the years ended
F-38
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
15. COMMITMENTS AND CONTINGENCIES (Continued)
December 31, 2018 and 2019, total rental related expenses for all operating leases amounted to US$176,268 and US$175,812, respectively.
Contingencies
The Group is currently not involved in any legal or administrative proceedings that may have a material adverse impact on the Group's business, financial position or results of operations.
16. RESTRICTED NET ASSETS
The Group's ability to pay dividends may depend on the Group receiving distributions of funds from its PRC subsidiary. Relevant PRC statutory laws and regulations permit payments of dividends by the Group's PRC subsidiary only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Group's PRC subsidiary.
In accordance with the Company law of the PRC, a domestic enterprise is required to provide statutory reserves of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise's PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the Board of Directors, from the profits determined in accordance with the enterprise's PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. The Group's PRC subsidiary was established as domestic invested enterprise and therefore is subject to the above mentioned restrictions on distributable profits.
As of December 31, 2018 and 2019, the total restricted net assets of the Company's subsidiary incorporated in PRC and subjected to restriction amounted to approximately US$1,267,900 and US$1,267,900, respectively. Other subsidiaries are not subjected to such restriction.
As a result of these PRC laws and regulations subject to the limit discussed above that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends, as general reserve fund, the Group's PRC subsidiary is restricted in their ability to transfer a portion of their net assets to the Group.
Foreign exchange and other regulations in the PRC further restrict the Company's PRC subsidiaries from transferring funds to the Company in the form of dividends, loans and advances.
Since the Group has a consolidated shareholders' deficit, its net asset base for purposes of calculating the proportionate share of restricted net assets of consolidated subsidiaries should be zero. Therefore, the restrictions placed on the net assets of the Company's PRC subsidiaries with positive equity would result in the 25 percent threshold being exceeded and a corresponding requirement to provide parent company financial information (Note 18).
17. SUBSEQUENT EVENTS
The Group evaluated subsequent events through September 22, 2020, the date these consolidated financial statements were issued.
F-39
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
17. SUBSEQUENT EVENTS (Continued)
In March and August 2020, pursuant to the 2019 Plan, the Board of Directors of the Company passed resolutions and granted 1,944,565 and 4,028,808 share options to certain employees, respectively.
In June 2020, the Group borrowed a loan with amount of RMB10,000,000 (equivalent to approximately US$1,412,529) from Agricultural Bank of China Limited for a term of one year and at the interest rate of 4.20% per annum.
Beginning in January 2020, the emergence and wide spread of the novel Coronavirus ("COVID-19") has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China, US and elsewhere. Substantially all of the Group's operating and workforce are concentrated in China and US. Consequently, the COVID-19 outbreak could potentially delay patient's access to hospital and the progress of clinical trials of the Group, which may adversely affect the Group's business operations, financial condition and operating results for 2020. The extent to which COVID-19 impacts the business and financial results of the Group in the longer term will depend on future developments, which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The Group will continue to evaluate the impact on the results of operation, financial position and cash flows of the Group and react actively as the situation evolves.
Events subsequent to original issuance of consolidated financial statements (Unaudited)
In October 2020, pursuant to the 2019 Plan, the Board of Directors of the Company passed resolutions and granted 340,000 share options to certain employees.
On November 9, 2020, the Company passed a board resolution to waive the vesting schedules and conditions of 2,375,000 share options granted to certain management members. Pursuant to this board resolution, these management members exercised all these share options and as a result, 2,375,000 ordinary shares were issued to them. These management members paid the exercise price by issuing recourse promissory notes. These ordinary shares are subject to the Company's repurchase rights before the share awards meet certain conditions.
In November 2020, the Group borrowed two loans with the amount of RMB5,000,000 (equivalent to approximately US$760,086) and RMB5,000,000 (equivalent to US$760,086) from China Merchants Bank Co., Ltd., respectively. Both of these two loans have a term of one year and bear an interest rate of 4.10% per annum.
On January 16, 2021, the Company passed a board resolution whereby certain management members surrendered a total of 491,119 ordinary shares as repayment for their respective promissory notes issued in connection with the exercising of options granted to them. In the meantime, the Company further granted these management members the right to repurchase the surrendered shares by way of new option grants.
Pursuant to the same board resolution, the 2021 Performance Incentive Plan was also adopted, under which an aggregate of 2,994,000 ordinary shares shall be reserved for issuance, and the share limit will automatically increase on the first trading day in January of each year (commencing with 2022) by an amount equal to (1) 5% of the total number of the Company's outstanding ordinary shares on December 31 of the prior year, or (2) such lesser number as determined by the board of directors.
F-40
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
18. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 I(3), "General Notes to Financial Statements" and concluded that it was applicable for the Company to disclose the financial statements for the parent company.
The subsidiaries did not pay any dividends to the Company for the years presented. For the purpose of presenting parent company only financial information, the Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as "Investments (deficit) in subsidiaries" and the loss of the subsidiaries is presented as "share of losses of subsidiaries". Certain information and footnote disclosures generally included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted. The footnote disclosures contain supplemental information relating to the operations of the Company, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company.
The Company did not have significant capital and other commitments, long-term obligations, other long-term debt, or guarantees as of December 31, 2018 and 2019.
Balance sheets
F-41
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
18. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (Continued)
Balance sheets (Continued)
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' DEFICIT (CONTINUED) |
|||||||
Mezzanine equity: |
|||||||
Series A-1 convertible redeemable preferred shares (par value of US$0.0001 per share; 5,473,957 and 5,473,957 shares authorized, issued and outstanding as of December 31, 2018 and 2019, respectively) |
5,473,957 | 5,473,957 | |||||
Series A-2 convertible redeemable preferred shares (par value of US$0.0001 per share; 2,370,414 and 2,370,414 shares authorized, issued and outstanding as of December 31, 2018 and 2019, respectively) |
3,000,000 | 3,000,000 | |||||
Series B convertible redeemable preferred shares (par value of US$0.0001 per share; 7,494,537 and 7,494,537 shares authorized, issued and outstanding as of December 31, 2018 and 2019, respectively) |
27,999,995 | 27,999,995 | |||||
Series C-1 convertible redeemable preferred shares (par value of US$0.0001 per share; 5,597,354 and 5,597,354 shares authorized, issued and outstanding as of December 31, 2018 and 2019, respectively) |
48,481,159 | 48,727,343 | |||||
Series C-2 convertible redeemable preferred shares (par value of US$0.0001 per share; nil and 1,861,121 shares authorized, issued and outstanding as of December 31, 2018 and 2019, respectively) |
| 18,999,999 | |||||
Series C-3 convertible redeemable preferred shares (par value of US$0.0001 per share; nil and 4,452,441 shares authorized, issued and outstanding as of December 31, 2018 and 2019, respectively) |
| 50,000,000 | |||||
| | | | | | | |
Total mezzanine equity |
84,955,111 | 154,201,294 | |||||
| | | | | | | |
Shareholders' deficit: |
|||||||
Ordinary shares (par value of US$0.0001 per share; 500,000,000 and 500,000,000 shares authorized; 15,159,136 and 15,193,136 shares issued and outstanding as of December 31, 2018 and 2019, respectively) |
1,516 | 1,519 | |||||
Subscriptions receivable from shareholders |
(197,068 | ) | (197,068 | ) | |||
Additional paid-in capital |
6,405,318 | 6,789,542 | |||||
Accumulated other comprehensive loss |
(410,693 | ) | (344,894 | ) | |||
Accumulated deficit |
(46,825,737 | ) | (63,258,045 | ) | |||
| | | | | | | |
Total shareholders' deficit |
(41,026,664 | ) | (57,008,946 | ) | |||
| | | | | | | |
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' DEFICIT |
54,990,692 | 109,254,125 | |||||
| | | | | | | |
F-42
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
18. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (Continued)
Statements of comprehensive loss
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Revenues |
|||||||
Service revenue from a related party(b) |
| 288,983 | |||||
Expenses |
|||||||
Research and development expenses |
(15,803,341 | ) | (18,318,724 | ) | |||
Third parties |
(1,810,899 | ) | 2,844,722 | ||||
Related parties |
(13,992,442 | ) | 15,474,002 | ||||
Administrative expenses |
(556,382 | ) | (787,568 | ) | |||
| | | | | | | |
Loss from operations |
(16,359,723 | ) | (18,817,309 | ) | |||
Interest income |
691,448 | 908,981 | |||||
Foreign exchange loss, net |
| (47 | ) | ||||
Change in fair value of warrant liabilities |
534,305 | 1,207,415 | |||||
Equity in income (share of losses) of subsidiaries |
(132,214 | ) | 268,652 | ||||
| | | | | | | |
Loss before income tax |
(15,266,184 | ) | (16,432,308 | ) | |||
Income tax expense |
| | |||||
| | | | | | | |
Net loss attributable to Adagene Inc.'s shareholders |
(15,266,184 | ) | (16,432,308 | ) | |||
Other comprehensive income (loss) |
|||||||
Foreign currency translation adjustments, net of nil tax |
(11,288 | ) | 65,799 | ||||
| | | | | | | |
Total comprehensive loss attributable to Adagene Inc.'s shareholders |
(15,277,472 | ) | (16,366,509 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss attributable to Adagene Inc.'s shareholders |
(15,266,184 | ) | (16,432,308 | ) | |||
Deemed contribution from convertible redeemable preferred shareholders |
1,186,187 | | |||||
Accretion of convertible redeemable preferred shares to redemption value |
(222,846 | ) | (246,184 | ) | |||
| | | | | | | |
Net loss attributable to ordinary shareholders |
(14,302,843 | ) | (16,678,492 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-43
ADAGENE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
18. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (Continued)
Statements of cash flows
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Net cash used in operating activities |
(16,346,700 | ) | (14,521,997 | ) | |||
Net cash generated from (used in) investing activities |
(28,535,658 | ) | 25,941,876 | ||||
Net cash generated from financing activities |
50,018,733 | 68,999,999 | |||||
| | | | | | | |
Net increase in cash and cash equivalents |
5,136,375 | 80,419,878 | |||||
Cash and cash equivalents at the beginning of year |
5,611,906 | 10,748,281 | |||||
| | | | | | | |
Cash and cash equivalents at the end of year |
10,748,281 | 91,168,159 | |||||
| | | | | | | |
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Adagene (Hong Kong) Limited(i) |
2,522,425 | 3,032,766 | |||||
Adagene Incorporated(i) |
5,300,000 | 2,790,233 | |||||
WuXi AppTec Group |
| 517,168 | |||||
Adagene Australia PTY Ltd.(i) |
| 22,557 | |||||
| | | | | | | |
Total amounts due from related parties |
7,822,425 | 6,362,724 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
As of December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2018 | 2019 | |||||
|
US$
|
US$
|
|||||
Adagene (Suzhou) Limited(ii) |
8,812,400 | 9,126,474 | |||||
Adagene Incorporated(ii) |
571,543 | 1,743,435 | |||||
WuXi AppTec Group |
| 377,752 | |||||
Adagene (Hong Kong) Limited |
13 | 13 | |||||
| | | | | | | |
Total amounts due to related parties |
9,383,956 | 11,247,674 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-44
ADAGENE INC.
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2019 AND
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
AS OF
SEPTEMBER 30, 2020
The accompanying notes are an integral part of these unaudited interim condensed consolidated
financial statements.
F-45
ADAGENE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-46
ADAGENE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
AND 2020
|
Ordinary shares |
|
|
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Subscriptions
receivable from shareholders |
|
Accumulated
other comprehensive loss |
|
|
|||||||||||||||||
|
Number of
shares |
Amount |
Additional
paid-in capital |
Accumulated
deficit |
Total
shareholders' deficit |
|||||||||||||||||
|
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||
Balance as of January 1, 2019 |
15,159,136 | 1,516 | (197,068 | ) | 6,405,318 | (410,693 | ) | (46,825,737 | ) | (41,026,664 | ) | |||||||||||
Net loss |
| | | | | (11,818,357 | ) | (11,818,357 | ) | |||||||||||||
Other comprehensive income |
| | | | 281,021 | | 281,021 | |||||||||||||||
Exercise of share options (Note 9) |
34,000 | 3 | | 18,697 | | | 18,700 | |||||||||||||||
Share-based compensation |
| | | 438,888 | | | 438,888 | |||||||||||||||
Accretion of convertible redeemable preferred shares to redemption value |
| | | (184,014 | ) | | | (184,014 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2019 |
15,193,136 | 1,519 | (197,068 | ) | 6,678,889 | (129,672 | ) | (58,644,094 | ) | (52,290,426 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2020 |
15,193,136 | 1,519 | (197,068 | ) | 6,789,542 | (344,894 | ) | (63,258,045 | ) | (57,008,946 | ) | |||||||||||
Net loss |
| | | | | (29,629,414 | ) | (29,629,414 | ) | |||||||||||||
Other comprehensive income |
| | | | (214,780 | ) | | (214,780 | ) | |||||||||||||
Exercise of share options (Note 9) |
1,273,761 | 127 | (1,777,474 | ) | 1,849,894 | | | 72,547 | ||||||||||||||
Share-based compensation |
| | | 8,045,711 | | | 8,045,711 | |||||||||||||||
Accretion of convertible redeemable preferred shares to redemption value |
| | | (185,627 | ) | | | (185,627 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2020 |
16,466,897 | 1,646 | (1,974,542 | ) | 16,499,520 | (559,674 | ) | (92,887,459 | ) | (78,920,509 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated
financial statements.
F-47
ADAGENE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
|
For the nine months ended
September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Cash flows from operating activities: |
|||||||
Net loss |
(11,818,357 | ) | (29,629,414 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||
Depreciation and amortization |
602,687 | 647,220 | |||||
Loss on disposal of property, equipment and software |
| 323 | |||||
Share-based compensation |
438,888 | 8,045,711 | |||||
Change in fair value of warrant liabilities |
(1,207,415 | ) | | ||||
Foreign exchange loss, net |
67,673 | 76,986 | |||||
Changes in operating assets and liabilities: |
|||||||
Accounts receivable, net |
| 480,000 | |||||
Prepayments and other current assets |
(420,268 | ) | (1,826,809 | ) | |||
Amounts due from related parties |
(64,915 | ) | 1,025,805 | ||||
Other non-current assets |
6,334 | 4,759 | |||||
Accounts payable |
(70,722 | ) | 494,591 | ||||
Contract liabilities |
985,539 | (106,015 | ) | ||||
Amounts due to related parties |
(540,456 | ) | 490,911 | ||||
Accruals and other current liabilities |
230,081 | 248,997 | |||||
Other non-current liabilities |
| 58,736 | |||||
| | | | | | | |
Net cash used in operating activities |
(11,790,931 | ) | (19,988,199 | ) | |||
| | | | | | | |
Cash flows from investing activities: |
|||||||
Placement of short-term investments |
(19,000,000 | ) | | ||||
Withdrawal of short-term investments |
38,000,000 | 8,000,000 | |||||
Proceeds from disposal of property, equipment and software |
| 8,040 | |||||
Purchase of property, equipment and software |
(57,545 | ) | (574,447 | ) | |||
| | | | | | | |
Net cash generated from investing activities |
18,942,455 | 7,433,593 | |||||
| | | | | | | |
Cash flows from financing activities: |
|||||||
Proceeds from employee's exercise of share-options |
| 72,547 | |||||
Proceeds from borrowings |
2,699,114 | 4,505,342 | |||||
Proceeds from issuance of convertible redeemable preferred shares and warrants |
16,000,001 | | |||||
Payment of deferred initial public offering cost |
| (543,926 | ) | ||||
Repayment of borrowings |
(2,389,081 | ) | (936,825 | ) | |||
| | | | | | | |
Net cash generated from financing activities |
16,310,034 | 3,097,138 | |||||
| | | | | | | |
Effect of exchange rate on cash and cash equivalents |
152,933 | (180,480 | ) | ||||
Net increase in cash and cash equivalents |
23,614,491 | (9,637,948 | ) | ||||
Cash and cash equivalents at the beginning of period |
16,058,455 | 92,532,788 | |||||
| | | | | | | |
Cash and cash equivalents at the end of period |
39,672,946 | 82,894,840 | |||||
| | | | | | | |
Supplemental cashflow disclosures: |
|||||||
Interest paid |
101,506 | 113,733 | |||||
Non-cash activities: |
|||||||
Accretion of convertible redeemable preferred shares to redemption value |
184,014 | 185,627 | |||||
Payables for deferred initial public offering cost |
| 21,450 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-48
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2019 AND 2020
1. ORGANIZATION
Adagene Inc. (the "Company") is a limited liability company incorporated in the Cayman Islands on February 25, 2011. The Company, together with its subsidiaries (collectively, the "Group") are principally engaged in research, development and production of monoclonal antibody drugs for cancers.
As of September 30, 2020, the Company's principal subsidiaries are as follows:
Entity
|
Date of
incorporation |
Place of
incorporation |
Percentage
of legal ownership by the Company |
Principal activities | |||||
---|---|---|---|---|---|---|---|---|---|
Adagene (Hong Kong) Limited |
December 12, 2011 | Hong Kong | 100 | % | Investment holding | ||||
Adagene Incorporated |
September 20, 2017 | The United States of America | 100 | % | Research and development of innovative medicines | ||||
Adagene (Suzhou) Limited |
February 28, 2012 | The People's Republic of China ("PRC" or "China") | 100 | % | Research and development of innovative medicines | ||||
Adagene Australia PTY Ltd. |
May 30, 2018 | Australia | 100 | % | Research and development of innovative medicines | ||||
Adagene PTE. Ltd. |
March 27, 2020 | Singapore | 100 | % | Research and development of innovative medicines | ||||
Adagene AG |
August 31, 2020 | Switzerland | 100 | % | Research and development of innovative medicines |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and applicable rules and regulations of the Securities and Exchange Commission regarding financial reporting that are consistent with those used in the preparation of the Company's audited consolidated financial statements for the year ended December 31, 2019. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.
In the opinion of management, the Group's unaudited interim condensed consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the Group's financial position as of September 30, 2020, and results of operations and cash flows for the nine months ended September 30, 2019 and 2020. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019, and related notes included in the Group's audited consolidated financial statements. The financial information as of December 31, 2019 presented in the unaudited interim
F-49
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
condensed consolidated financial statements is derived from the audited consolidated financial statements as of December 31, 2019. Significant accounting policies followed by the Group in the preparation of the accompanying unaudited interim condensed consolidated financial statements are summarized below.
Revenue recognition
At contract inception of collaboration and out-licensing arrangements, the Group analyzes its arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements ("ASC 808") to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Group first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently. Under the criteria of Accounting Standard Codification ("ASC") 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), the Group recognizes revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.
The Group adopted ASC 606 for all periods presented. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Group only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. The Group reviews the contract to determine which performance obligations are distinct and represent a promise to provide distinct goods or services or a series of distinct goods or services as defined by the standard. The Group recognizes as revenue the amount of the transaction price that is allocated to each performance obligation as and when that performance obligation is satisfied.
Licenses of Intellectual Property: Upfront non-refundable payments for licensing the Group's intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, the Group recognizes revenues from non-refundable, up-front fees allocated to the license at a point in time, when the transfer of control of the license to the licensee occurs and the licensee is able to use and benefit from the license.
Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Group evaluates whether the milestones are considered probable of being reached and to the extent that a significant reversal of cumulative
F-50
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
revenue would not occur in future periods, estimates the amount to be included in the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Group recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Group re-evaluates the probability of achieving such development milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Group recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
To date, no milestone payments or royalty payments were received. Substantially all of the Group's revenue has been derived from its out-licensing agreements with respect to licensed products such as DNA sequences, cell lines, etc., and such revenues are recognized when the customer obtains control of the licensed product, which occurs at a point in time, upon delivery to the customer.
Contract assets and contract liabilities
When a customer pays consideration before the Group transfers products or services, the Group records its obligation as a contract liability; When the Group satisfies its performance obligations by providing products or services to a customer before the customer pays consideration and before payment is due, the Group recognizes its rights to consideration as a contract asset.
Research and development expenses
Elements of research and development expenses primarily include (1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to pre-clinical testing of the Group's technologies under development and clinical trials such as payments to contract research organizations ("CRO") and contract manufacturing organization ("CMO"), investigators and clinical trial sites that conduct the clinical studies; (3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation and amortization, and facility related expenses, (4) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to the Group's research and development services and have no alternative future uses.
Share-based compensation
The Company grants restricted shares and stock options to eligible employees and nonemployees and accounts for share-based compensation in accordance with ASC 718, CompensationStock Compensation.
F-51
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Share-based compensation awards are measured at the grant date fair value of the awards and recognized as expenses a) immediately at the grant date if no vesting conditions are required; or b) for share-based awards granted with only service conditions, using the straight-line method over the vesting period; or c) for share-based awards granted with service conditions and performance conditions, using the graded vesting method over the vesting period if and when the company concludes that it is probable that the performance conditions will be achieved.
A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. The Group calculates incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested awards, the Group recognizes incremental compensation cost in the period when the modification occurs. For awards not being fully vested, the Group recognizes the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.
Employee defined contribution plan
As stipulated by the regulations of the PRC, full-time employees of the Group are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Group is required to accrue for these benefits based on certain percentages of the qualified employees' salaries. The Group is required to make contributions to the plans out of the amounts accrued. The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group's obligations are limited to the amounts contributed. The Group has no further payment obligations once the contributions have been paid. The Group recorded employee benefit expenses of US$885,255 and US$663,034 for the nine months ended September 30, 2019 and 2020, respectively.
Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of comprehensive loss over the period of the borrowings using the effective interest method.
Recently issued accounting pronouncements
The Group is an emerging growth company ("EGC") as defined by the Jumpstart Our Business Startups Act ("JOBS Act"). The JOBS Act provides that an EGC can take advantage of extended transition periods for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. The Group elected to take advantage of the extended transition periods. However, this election will not apply should the Group cease to be classified as an EGC.
F-52
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 2016, the FASB issued ASU No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10 ("ASU 2018-10"), Codification Improvements to Topic 842, Leases, which clarifies certain aspects of the guidance issued in ASU 2016-02; and ASU No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). In November 2019, the FASB issued ASU No. 2019-10, Financial InstrumentsCredit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), Effective Dates ("ASU 2019-10"), which extends the adoption date for certain registrants. The updated guidance is effective for the Group for annual reporting periods beginning January 1, 2021 and interim periods within annual periods beginning January 1, 2022. Early adoption is permitted. The Group does not plan to early adopt the new lease standards and the Group expects that applying the ASU 2016-02 would materially increase the assets and liabilities due to the recognition of right-of-use assets and lease liabilities on its interim condensed consolidated balance sheets, with an immaterial impact on its interim condensed consolidated statements of comprehensive loss and interim condensed consolidated statements of cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Group's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10, which extends the adoption date for certain registrants. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within fiscal years beginning after December 15, 2023. The Group does not plan to early adopt ASU 2016-13 and is currently in the process of evaluating the impact of adoption of this guidance on its interim condensed consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, CompensationStock Compensation (Topic 718): Improvements to nonemployee share-based payment accounting ("ASU 2018-07"). The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
F-53
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
December 15, 2020. Early adoption is permitted, but no earlier than an entity's adoption date of Topic 606. The Group adopted on January 1, 2018 this guidance which do not have a significant impact on the interim condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer and precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The update is effective in fiscal years beginning after December 15, 2021, and interim periods therein, and early adoption is permitted for entities that have adopted ASC 606. This guidance should be applied retrospectively to the date of initial application of Topic 606. The Group does not plan to early adopt ASU 2018-18 and is currently evaluating the impact on its financial statements of adopting this guidance.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes as part of the FASB's overall initiative to reduce complexity in accounting standards. The amendments include removal of certain exceptions to the general principles of ASC 740, Income taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal years beginning after December 15, 2022, and interim periods therein, and early adoption is permitted. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively. The Group does not plan to early adopt ASU 2019-12 and is currently evaluating the impact on its financial statements of adopting this guidance.
3. ACCOUNTS RECEIVABLE, NET
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Accounts receivable |
480,000 | | |||||
Allowance for doubtful accounts |
| | |||||
| | | | | | | |
|
480,000 | | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-54
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
4. PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of the following:
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Deposits |
970,394 | 1,744,176 | |||||
Prepayments(a) |
211,435 | 1,417,962 | |||||
Interest receivables |
227,278 | 5,620 | |||||
Others |
67,866 | 136,024 | |||||
| | | | | | | |
|
1,476,973 | 3,303,782 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Note (a): The prepayments mainly represented the Group's prepaid service fees to its CRO and CMO vendors.
5. PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software consist of the following:
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Machinery and laboratory equipment |
3,462,343 | 3,791,884 | |||||
Electronic equipment |
605,882 | 851,996 | |||||
Leasehold improvements |
767,205 | 785,917 | |||||
Furniture and tools |
98,396 | 112,602 | |||||
Computer software |
71,056 | 102,986 | |||||
Vehicles |
80,133 | 82,087 | |||||
| | | | | | | |
|
5,085,015 | 5,727,472 | |||||
Accumulated depreciation and amortization |
(3,205,690 | ) | (3,883,090 | ) | |||
| | | | | | | |
|
1,879,325 | 1,844,382 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation and amortization expenses recognized for the nine months ended September 30, 2019 and 2020 were US$602,687 and US$647,220, respectively.
F-55
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
6. ACCRUALS AND OTHER CURRENT LIABILITIES
Accrued liabilities and other current liabilities consist of the following:
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Payroll and related liabilities |
2,370,523 | 2,407,232 | |||||
Professional service fees |
145,157 | 331,493 | |||||
Utility and maintenance |
4,595 | 19,176 | |||||
Others |
19,889 | 31,260 | |||||
| | | | | | | |
|
2,540,164 | 2,789,161 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
7. BORROWINGS
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Current |
|||||||
Short-term borrowings: |
|||||||
Bank loans |
716,723 | 2,202,611 | |||||
Current portion of long-term borrowings |
322,525 | 943,452 | |||||
| | | | | | | |
Total current borrowings |
1,039,248 | 3,146,063 | |||||
| | | | | | | |
Non-Current |
|||||||
Long-term borrowings: |
|||||||
Bank loans |
1,515,868 | 3,135,049 | |||||
| | | | | | | |
Total non-current borrowings |
1,515,868 | 3,135,049 | |||||
| | | | | | | |
Total borrowings |
2,555,116 | 6,281,112 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Short-term borrowing
In March 2018, the Group borrowed a loan with the amount of RMB3,000,000 (equivalent to approximately US$437,114) from Bank of Jiangsu Co., Ltd. for a term of one year and at the interest rate of 5.22% per annum. The borrowing was repaid in March 2019. In June 2018, the Group borrowed a loan with the amount of RMB2,000,000 (equivalent to approximately US$291,409) from Bank of Jiangsu Co., Ltd. for a term of one year and at the interest rate of 5.22% per annum. The borrowing was repaid in June 2019. These borrowings with Bank of Jiangsu Co., Ltd were guaranteed by Peter Luo and Kristine She. Peter Luo is the Chairman, Chief Executive Officer and a principal shareholder of the Company. Kristine She is one of the senior management personnel of the Company.
In May 2018, the Group borrowed a loan with the amount of RMB3,000,000 (equivalent to approximately US$437,114) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest
F-56
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
7. BORROWINGS (Continued)
rate of 5.00% per annum. The borrowing was repaid in May 2019. In June 2018, the Group borrowed a loan with the amount of RMB2,000,000 (equivalent to approximately US$291,409) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 5.00% per annum. The borrowing was repaid in June 2019.
In July 2018, the Group borrowed a loan with amount of RMB6,000,000 (equivalent to approximately US$874,228) from Agricultural Bank of China Limited for a term of one year and at the interest rate of 5.22% per annum. The borrowing was guaranteed by Peter Luo, who is the Chairman, Chief Executive Officer and a principal shareholder of the Company. The borrowing was repaid in July 2019.
In September 2019, the Group borrowed a loan with amount of RMB5,000,000 (equivalent to approximately US$716,723) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 4.35% per annum. The borrowing was repaid in September 2020.
In June 2020, the Group borrowed a loan with amount of RMB10,000,000 (equivalent to approximately US$1,412,529) from Agricultural Bank of China Limited for a term of one year and at the interest rate of 4.20% per annum.
In September 2020, the Group borrowed a loan with amount of RMB5,000,000 (equivalent to approximately US$734,204) from Bank of Ningbo Co., Ltd. for a term of one year and at the interest rate of 4.20% per annum.
Long-term borrowings
In February 2019, the Group borrowed a loan with amount of RMB7,500,000 (equivalent to approximately US$1,075,084) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years and at the interest rate of 5.46% per annum. The Group repaid RMB375,000 (equivalent to approximately US$53,754), RMB375,000 (equivalent to approximately US$53,365) and RMB 875,000 (equivalent to approximately US$125,148), in August 2019, February 2020 and August 2020 respectively. As of December 31, 2019 and September 30, 2020, RMB1,250,000 (equivalent to approximately US$179,181) and RMB3,375,000 (equivalent to approximately US$495,587) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing", respectively.
In June 2019, the Group borrowed a loan with amount of RMB6,000,000 (equivalent to approximately US$860,067) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years and at the interest rate of 5.23% per annum. The Group repaid RMB300,000 (equivalent to approximately US$43,003) and RMB300,000 (equivalent to approximately US$42,908) in December 2019 and June 2020, respectively. As of December 31, 2019 and September 30, 2020, RMB1,000,000 (equivalent to approximately US$143,344) and RMB1,400,000 (equivalent to approximately US$205,577) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing", respectively.
In September 2020, the Group borrowed a loan with amount of RMB16,500,000 (equivalent to approximately US$2,422,872) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years and at the interest rate of 4.27% per annum. As of September 30, 2020, RMB1,650,000
F-57
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
7. BORROWINGS (Continued)
(equivalent to approximately US$242,287) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowings".
Future maturities of short-term borrowings and long-term borrowings
Future principal maturities of short-term borrowings and long-term borrowings as of September 30, 2020 are as followings:
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
In November 2011, the Company issued convertible notes ("Series Pre-A Convertible Notes") to certain investors in the amount of 4,590,908. The notes carried a simple interest (non-compounding) of 6% per annum as set out in the note purchase agreement. All outstanding principal balance and accrued but unpaid interest of the notes should be automatically converted into the convertible redeemable preferred shares of the Company at a price no more than US$1 per share.
In November 2014, the Company issued 5,473,957 Series A-1 convertible redeemable preferred shares ("Series A-1 Preferred Shares") to certain investors upon conversion of the Company's Series Pre-A convertible notes at a conversion price of US$1 per share. Concurrently, the Company issued 2,370,414 Series A-2 convertible redeemable preferred shares ("Series A-2 Preferred Shares") to certain investors at US$1.27 per share for a total consideration of US$3,000,000. Series A-1 Preferred Shares and Series A-2 Preferred Shares are collectively referred to as the Series A Preferred Shares.
From January through June 2016, the Company issued 7,494,537 Series B convertible redeemable preferred shares ("Series B Preferred Shares") to certain investors at US$3.74 per share for a total consideration of US$27,999,995.
From February through May 2018, the Company issued 5,597,354 Series C-1 convertible redeemable preferred shares ("Series C-1 Preferred Shares") to certain investors at US$8.93 per share for a total consideration of US$50,000,033. Concurrently, in February 2018, the Company also issued warrants to two Series C-1 investors at nil consideration ("Series C-1 Warrants"). The Series C-1 Warrants allowed the holders to purchase Series C-2 Preferred Shares (defined below) at the exercise price of US$10.21 per share for a total consideration of up to US$7,500,000. Series C-1 Warrants were exercisable, in whole or in part, at any time from the warrant issuance date to the earlier of i) April 1, 2019, ii) a deemed liquidation event or iii) the closing of the Qualified IPO. Series C-1 Warrants expired on April 1, 2019.
F-58
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
From June through November 2019, the Company issued 1,861,121 Series C-2 convertible redeemable preferred shares ("Series C-2 Preferred Shares") to certain investors at US$10.21 per share for a total consideration of US$18,999,999.
In December 2019, the Company issued 4,452,441 Series C-3 convertible redeemable preferred shares ("Series C-3 Preferred Shares") to a certain investor at US$11.23 per share for a total consideration of US$50,000,000.
Series C-1 Preferred Shares, Series C-2 Preferred Shares and Series C-3 Preferred Shares are collectively referred to as the Series C Preferred Shares.
The key features of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares (collectively the "Preferred Shares") are as follows:
Dividends
Each holder of the Preferred Shares will be entitled to receive non-cumulative dividends when declared by the Board of Directors prior and in preference to ordinary shareholders. The dividend should be paid at the rate of 6% of the original issue price per share per annum on each Preferred Shares in the sequence of Series C Preferred Shares and Preferred Shares other than the Series C Preferred Shares. After the preferential dividends relating to the Preferred Shares have been paid in full or declared and set apart in any fiscal year of the Company, any additional dividends out of funds or assets legally available therefore may be declared in that fiscal year for the Shares and, if such additional dividends are declared, the preferred shareholders shall be entitled to participate on an as converted-basis pro-rata in any dividends or distributions paid to the ordinary shareholders.
Voting
Each Preferred Share has voting rights equivalent to the number of ordinary shares to which it is convertible at the record date. The Preferred Shares shall vote separately as a class with respect to certain specified matters. Otherwise, the preferred shareholders and ordinary shareholders shall vote together as a single class.
Liquidation preference
In the event of any liquidation, dissolution or winding up of the Company, or the cessation of the business of the Company or of a substantial portion of the business of the Company, whether voluntary or involuntary, or any deemed liquidation event (unless waived by the preferred shareholders), the preferred shareholders shall be entitled to receive a per share amount equal to 100% of the original issue price of the respective series of the Preferred Shares, in the sequence of Series C Preferred Shares, Series B Preferred Shares and Series A Preferred Shares. After such liquidation amounts have been paid in full, the preferred shareholders are entitled to receive a simple interest accruing on each Preferred Share at 6% of its original issue price per annum from the date of issuance of such Preferred Share to the date of distribution of such amount, in the sequence of Series C Preferred Shares, Series B Preferred Shares and Series A Preferred Shares. After such interest amounts have been paid in full, any remaining funds or assets of the Company legally available for distribution to shareholders shall be distributed on a pro rata basis among the preferred shareholders, on an as-converted basis, together with the ordinary shareholders.
F-59
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
Conversion
Each Preferred Share may be converted at any time into ordinary shares at the option of the preferred shareholders based on the then-effective conversion price. The initial conversion ratio is 1:1, subject to adjustment in the event of share splits, share combinations, ordinary share dividends or distributions, other dividends, reorganizations, mergers, consolidations, reclassifications, exchanges, substitutions, or dilutive issuance.
All Preferred Shares are converted automatically into ordinary shares at the then effective applicable conversion price upon the earlier of a Qualified Public Offering (public offering of the Company's shares with an offering price (exclusive of underwriting commissions and expenses) that reflects a market capitalization (immediately prior to the public offering) of not less than US$650,000,000 and with an aggregate proceeds of no less than US$75 million) or a date specified by written consent or agreement of the holders of at least 80% of the voting power of the then outstanding Preferred Shares.
Redemption
The Preferred Shares are redeemable upon request by the holders of the majority outstanding Preferred Shares if the Company fails to consummate a Qualified Public Offering or complete a deemed liquidation event on or before March 31, 2025 at the redemption price equal to the original issue price plus any declared but unpaid dividends.
Accounting for Preferred Shares
The Preferred Shares are classified as mezzanine equity in the consolidated balance sheets because they are contingently redeemable upon the occurrence of an event outside of the Company's control (e.g. the Company not achieving a Qualified Public Offering or a deemed liquidation event before March 31, 2025 ("Target QIPO Date")). The Preferred Shares were determined to be mezzanine equity with no embedded feature to be bifurcated and no beneficial conversion features to be recognized. The Preferred Shares are initially recorded at their respective issuance date fair value, net of issuance cost and fair value allocated to the detachable warrants. The Company did not incur material issuance cost for any Preferred Shares issued.
The Company concluded that the Preferred Shares are not currently redeemable, but are probable to become redeemable. The Company accreted changes in the redemption value over the period from the date of issuance to the earliest redemption date using the interest method. No accretion charge was recorded as the redemption value is fixed to original issue price for the years presented, except for Series C-1 Preferred Shares issued with detachable warrants.
Modification of Preferred Shares
The Company made several amendments to the Preferred Shares, mainly including: 1) added redemption rights for Series A Preferred Shares upon the issuance of the Series B Preferred Shares; 2) extended the Target QIPO Date upon the issuance of the Series C-1 Preferred Shares and the
F-60
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS (Continued)
Series C-3 Preferred Shares. These amendments are accounted for as modifications rather than extinguishments as the fair values of these Preferred Shares immediately after the amendments were not significantly different from their respective fair values immediately before the amendment. When Preferred Shares are modified and such modification results in value transfer between preferred shareholders and ordinary shareholders, the value transferred is treated as a deemed dividend to or deemed contribution from the preferred shareholders.
The Company's Preferred Shares activities for the periods presented are summarized below:
Mezzanine equity
|
Series A-1 | Series A-2 | Series B | Series C-1 | Series C-2 | Series C-3 | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||
Balance as of December 31, 2018 |
5,473,957 | 3,000,000 | 27,999,995 | 48,481,159 | | | 84,955,111 | |||||||||||||||
Issuance of Series C-2 Preferred Shares |
| | | | 16,000,001 | | 16,000,001 | |||||||||||||||
Accretion of Series C-1 Preferred Shares to redemption value |
| | | 184,014 | | | 184,014 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2019 |
5,473,957 | 3,000,000 | 27,999,995 | 48,665,173 | 16,000,001 | | 101,139,126 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2019 |
5,473,957 | 3,000,000 | 27,999,995 | 48,727,343 | 18,999,999 | 50,000,000 | 154,201,294 | |||||||||||||||
Accretion of Series C-1 Preferred Shares to redemption value |
| | | 185,627 | | | 185,627 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2020 |
5,473,957 | 3,000,000 | 27,999,995 | 48,912,970 | 18,999,999 | 50,000,000 | 154,386,921 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
9. SHARE-BASED COMPENSATION
On November 7, 2015, the Company adopted a share incentive plan ("2015 Plan"). Under the 2015 Plan, the Company's Board of Directors has approved that a maximum aggregate number of shares that may be issued pursuant to all awards granted shall be 4,336,126. In September 2017, the Company replaced 2015 Plan with the amended and restated share incentive plan ("2017 Plan") and increased the maximum number of shares issuable to 6,336,126. In December 2019, the Company replaced 2017 Plan with the second amended and restated share incentive plan ("2019 Plan") and further increased the maximum number of shares issuable to 11,391,131. The terms of the 2015 Plan, 2017 Plan and 2019 Plan are substantially the same other than the maximum aggregate number of shares the Company may issue under the respective plan.
Share options containing only service conditions granted to each grantee under the share incentive plan will generally be exercisable upon the grantee renders service to the Company in accordance with a stipulated vesting schedule. Grantees are generally subject to a vesting schedule of no longer than five years, under which the grantee earns an entitlement to vest a certain percentage of his option grants at the end of each month or year of completed service. The share option awards shall expire no more than 10 years from their grant dates.
Share options containing both service conditions and performance conditions granted to each grantee under the share incentive plan shall become eligible for vesting upon the occurrence of their applicable performance conditions (including but not limited to the occurrence of an initial public offering ("IPO"), the completion of business and operational goals, etc.). Upon being eligible for
F-61
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
9. SHARE-BASED COMPENSATION (Continued)
vesting, each such performance-based option shall vest in a series of four equal and continuous annual installments for each full year of services completed following the award date of such option.
As of September 30, 2020, the Company has granted 2,178,808 share options containing both service conditions and performance conditions. All other share options granted contain only service conditions.
On August 15, 2020, pursuant to board resolution, 184,692 share options that granted to a senior management was modified and the vesting period of the 184,692 share options has been shortened from 5 years to 4 years. Since the fair value of the modified award is lower than the fair value of the original award immediately before the modification, there is no incremental compensation cost to be recognized.
|
Number of
Options |
Weighted-
Average Exercise Price |
Weighted-
Average Grant Date Fair Value |
Weighted Average
Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
US$ per option
|
US$ per option
|
Years
|
US$
|
|||||||||||
Outstanding, January 1, 2019 |
574,328 | 0.30 | 2.80 | 7.14 | 3,734,644 | |||||||||||
Granted |
372,500 | 1.26 | 5.46 | | | |||||||||||
Exercised |
(34,000 | ) | 0.55 | 5.71 | | | ||||||||||
Forfeited |
(46,800 | ) | 1.22 | 5.75 | | | ||||||||||
| | | | | | | | | | | | | | | | |
Outstanding, December 31, 2019 |
866,028 | 0.65 | 3.67 | 7.27 | 6,328,171 | |||||||||||
Granted |
5,973,373 | 2.04 | 7.09 | | | |||||||||||
Exercised |
(1,273,761 | ) | 1.45 | 5.55 | | | ||||||||||
Forfeited |
(14,000 | ) | 1.39 | 6.45 | | | ||||||||||
| | | | | | | | | | | | | | | | |
Outstanding, September 30, 2020 |
5,551,640 | 1.96 | 6.91 | 9.55 | 37,495,526 | |||||||||||
| | | | | | | | | | | | | | | | |
Vested and expected to vest at September 30, 2020 |
5,551,640 | 1.96 | 6.91 | 9.55 | 37,495,526 | |||||||||||
Exercisable at September 30, 2020 |
412,387 | 0.91 | 4.86 | 7.32 | 3,217,567 | |||||||||||
| | | | | | | | | | | | | | | | |
The aggregate intrinsic value in the table above represents the difference between the exercise price of the awards and the fair value of the underlying ordinary shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant ordinary shares.
The aggregate fair value of the equity awards vested during the nine months ended September 30, 2019 and 2020 was US$ 243,927 and US$7,699,049, respectively. As of September 30, 2020, there was US$ 20,941,290 of total unrecognized employee share-based compensation expense, may be adjusted for actual forfeitures occurring in the future. Total unrecognized compensation cost will be recognized over a weighted-average period of 3.42 years.
F-62
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
9. SHARE-BASED COMPENSATION (Continued)
Fair value of share options
The fair value of share options was determined using the binomial option valuation model, with the assistance from an independent third-party appraiser. The binomial model requires the input of highly subjective assumptions, including the expected volatility, the exercise multiple, the risk-free rate and the dividend yield. For expected volatility, the Group has made reference to historical volatility of several comparable companies in the same industry. The exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested share options. The risk-free rate for periods within the contractual life of the share options is based on the market yield of U.S. Treasury Bonds in effect at the time of grant. The dividend yield is based on the expected dividend policy over the contractual life of the share options. The estimated fair value of the ordinary shares, at the share option grant dates, was determined with the assistance from an independent third-party appraiser.
The assumptions used to estimate the fair value of the share options granted are as follows:
|
For the nine months ended
September 30, |
|||
---|---|---|---|---|
|
2019 | 2020 | ||
Risk-free interest rate |
2.73% | 0.71% - 0.83% | ||
Dividend yield |
| | ||
Expected volatility range |
71.0% | 72.3% - 73.1% | ||
Exercise multiple |
2.2 | 2.2 - 2.8 | ||
Contractual life |
10 years | 10 years |
Total share-based compensation expenses recognized for the nine months ended September 30, 2019 and 2020 were as follows:
|
For the nine months
ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Research and development expenses |
244,846 | 4,971,881 | |||||
Administrative expenses |
194,042 | 3,073,830 | |||||
| | | | | | | |
Total share-based compensation expenses |
438,888 | 8,045,711 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
10. COLLABORATION ARRANGEMENTS
Dragon Boat Biopharmaceutical (Shanghai) Limited License Agreement
In May 2019, the Group entered into (i) a collaboration agreement that covers Greater China (the "Dragon Boat Greater China Agreement") and (ii) a collaboration agreement that covers the regions other than Greater China (the "Dragon Boat ROW Agreement," together with the Dragon Boat Greater China Agreement, the "2019 Dragon Boat Agreements"), with Dragon Boat Biopharmaceutical (Shanghai) Limited ("Dragon Boat"), a subsidiary of Sanjin. Pursuant to the Dragon Boat Greater
F-63
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
10. COLLABORATION ARRANGEMENTS (Continued)
China Agreement, the Group will license the Chinese intellectual property directly related to a certain monospecific antibody molecule that binds to a specified target (the "Specified Project"), including the patent rights, patent application rights and technologies based on the core sequence of the molecule, to Dragon Boat. Dragon Boat will own all the Chinese intellectual property developed in the exercise of Dragon Boat's rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. The Group also granted Dragon Boat a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the Specified Project for the purposes of exploiting its rights and performing its obligations under the agreement. Dragon Boat will enjoy all the economic benefits deriving from the Specified Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. and will pay the Group (i) certain high-six figure dollar milestone payments upon the achievement of certain milestones (including milestones of launch of pre-clinical safety evaluation animal test, obtaining Investigational New Drug ("IND") approval in PRC and completion of clinical phase I test in PRC) and (ii) a single-digit percentage of net sales of the products that use the licensed antibody after such products enter the market.
Pursuant to the Dragon Boat ROW Agreement, the Group granted Dragon Boat a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that the Group controlled before the Group entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between the Group and Dragon Boat in connection with the collaboration will be jointly owned. The Group retain the ownership of patent rights of key intellectual property pertaining to the specified target outside of the Greater China. In addition, all the results obtained by Dragon Boat relating to the research and development of any new antibody developed under the agreement will be owned by Dragon Boat. The Group retains a majority of the economic benefits derived from the Dragon Boat ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case the Group intend to transfer to a third party our share of economic interests in any country outside of Greater China, the Group must notify Dragon Boat and Dragon Boat will receive a right of first refusal if it pays the Group a deposit equal to a low double-digit percentage of the consideration that the Group expects to receive from such third party. If Dragon Boat waives the right of first refusal, the Group can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in our notice to Dragon Boat.
Under the 2019 Dragon Boat Agreements, the Group agreed not to (i) independently develop any monospecific antibodies that bind to the specified target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreements. The exclusivity obligation does not prevent the Group from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and masked antibody against the specific target and (ii) continuing to provide antibody
F-64
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
10. COLLABORATION ARRANGEMENTS (Continued)
screening service that were commenced before the execution of the Dragon Boat Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either nonbreaching party may terminate the 2019 Dragon Boat Agreements if the other party's ability to comply with its obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Dragon Boat will return to the Group all the intellectual property, documents and data provided by the Group under the 2019 Dragon Boat Agreements.
For the nine months ended September 30, 2019 and 2020, no revenue was recognized for this agreement respectively since the licensed product has not been transferred to Dragon Boat.
As of September 30, 2020, upfront fee of RMB4,000,000 (equivalent to approximately US$579,836) that received by the Group was recorded as contract liabilities in the consolidated balance sheets, as the performance obligation had not been satisfied by the Group.
ADC Therapeutics SA License and Collaboration Agreements
In April 2019, the Group entered into a material transfer and collaboration agreement (the "ADCT Collaboration Agreement") and a license agreement (the "ADCT License Agreement") with ADC Therapeutics SA ("ADC Therapeutics"). These two agreements are combined as a single contract as the agreements were negotiated as a package with a single commercial objective.
ADCT Collaboration Agreement
Pursuant to the ADCT Collaboration Agreement, the Group agreed to generate masked antibodies with respect to up to two exclusive targets selected by ADC Therapeutics. Upon our delivery of certain initial results, ADC Therapeutics has the option to license the Group's technology with respect to one or both targets as further detailed below. ADC Therapeutics has not yet exercised such options as of September 30, 2020.
Under the ADCT Collaboration Agreement, the Group is eligible to receive up to a low-seven-figure dollar amount in consideration for the Group's exclusivity obligations, upon achievement of certain development milestones (including milestones of delivery of certain amino acid sequences and successful outcome of the first in-vivo study) and upon ADC Therapeutics' election to proceed with development for the two elected targets. Apart from performance obligation to deliver the amino acid sequences of the corresponding masking peptides, the Group is not required to perform any additional research and development services.
ADC Therapeutics has the right to terminate the ADCT Collaboration Agreement at any time and for any reason in its entirety or on a target-by-target basis upon thirty days' prior written notice to the Group. Either party may terminate the ADCT Collaboration Agreement, in its entirety or on a target-by-target basis, upon the other party's uncured material breach of the agreement or the other party's insolvency-related events.
F-65
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
10. COLLABORATION ARRANGEMENTS (Continued)
The Group also granted ADC Therapeutics an exclusive target reservation right for one year from the commencement of the agreement and an option to renewal for another year with a consideration of low-six-figure dollar amount.
ADCT License Agreement
Subject to the exercise of the options contained in the ADCT Collaboration Agreement, the Group has granted ADC Therapeutics, with respect to each elected target, an exclusive, worldwide, perpetual and irrevocable (subject only to the termination provisions) license (with the right to grant sublicenses) to develop, make, use, commercialize and import the antibody drug conjugates that comprise masked antibodies generated by the Group under these programs.
Under the ADCT License Agreement, if ADC Therapeutics exercises both of its options granted thereunder, the Group could be eligible to receive up to a low-nine-figure dollar amount in development and regulatory milestone payments upon the achievement of certain milestones (including milestones of successful completion of Good Laboratory Practice Toxicology studies, launch of clinical trials and start of commercial sales in difference countries and etc.) and up to a mid-eight-figure dollar amount in sales milestone payments, in addition to mid-single-digit percentage net sales-based tiered royalties on products licensed under the ADCT License Agreement, subject to certain reductions. Royalties, if any, will be payable on a country-by-country and product-by-product basis, until the earlier of (i) the tenth anniversary of the first commercial sale of such product or (ii) the expiration of the last-to-expire patent licensed under the agreement in such country, unless earlier terminated by the parties, following which any licenses granted to ADC Therapeutics under the ADCT License Agreement shall become fully paid up, perpetual and irrevocable.
ADC Therapeutics has the right to terminate the ADCT License Agreement before the expiration of the royalty term on a product-by-product basis or in its entirety (i) for any reason or no reason upon thirty days' written notice to the Group, or (ii) if ADC Therapeutics chooses to discontinue the development or sale of the applicable licensed product worldwide. Each party has certain rights to terminate the ADCT License Agreement with prior written notice upon the other party's uncured material breach or insolvency.
For the nine months ended September 30, 2019 and 2020, no revenue was recognized for this agreement respectively since the licensed product has not been transferred to ADC Therapeutics. For the nine months ended September 30, 2020, the Group recognized US$100,000 as other income due to the expiration of exclusive target reservation right, which is not related to the Group's major operation activity.
As of September 30, 2020, upfront fee of US$225,000 that received by the Group was recorded as contract liabilities in the consolidated balance sheets, as the performance obligation had not been satisfied by the Group.
F-66
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
11. INCOME TAX EXPENSE
The Group has incurred net accumulated operating losses for income tax purposes since its inception. The Group believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Group has provided full valuation allowances for the deferred tax assets as of December 31, 2019 and September 30, 2020.
12. NET LOSS PER SHARE
Basic and diluted net loss per share for the nine months ended September 30, 2019 and 2020 are calculated as follows:
|
For the nine months ended
September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Numerator: |
|||||||
Net loss attributable to Adagene Inc.'s shareholders |
(11,818,357 | ) | (29,629,414 | ) | |||
Accretion of convertible redeemable preferred shares to redemption value |
(184,014 | ) | (185,627 | ) | |||
| | | | | | | |
Net loss attributable to ordinary shareholders |
(12,002,371 | ) | (29,815,041 | ) | |||
| | | | | | | |
Denominator: |
|||||||
Weighted-average number of ordinary shares outstandingbasic and diluted |
15,172,711 | 15,757,463 | |||||
| | | | | | | |
Net loss per sharebasic and diluted |
(0.79 | ) | (1.89 | ) |
The effects of all outstanding convertible redeemable preferred shares and share options were excluded from the computation of diluted net loss per share for the nine months ended September 30, 2019 and 2020 as their effects would be anti-dilutive.
The potentially dilutive securities that have not been included in the calculation of diluted net loss per share as their inclusion would be anti-dilutive are as follows:
|
For the nine months ended
September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
Convertible redeemable preferred shares |
21,562,018 | 27,249,824 | |||||
Share options |
526,910 | 1,238,252 |
13. UNAUDITED PRO FORMA BALANCE SHEET AND NET LOSS PER SHARE
The unaudited pro forma balance sheet information as of September 30, 2020 assumes the automatic conversion of all of the outstanding convertible redeemable preferred shares into ordinary shares at a conversion ratio of 1:1, as if the conversion and expiry had occurred as of September 30, 2020.
The unaudited pro forma net loss per ordinary share is computed using the weighted-average number of ordinary shares outstanding and the automatic conversion of all of the Group's outstanding mezzanine equity into ordinary shares upon the closing of the Group's Qualified Public Offering, as if
F-67
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
13. UNAUDITED PRO FORMA BALANCE SHEET AND NET LOSS PER SHARE (Continued)
it had occurred on January 1, 2020. The Group believes the unaudited pro forma net loss per share provides material information to investors, as the automatic conversion of the Group's outstanding mezzanine equity. The disclosure of pro forma net loss per ordinary share provides an indication of net loss per ordinary share that is comparable to what will be reported by the Group as a public company following the closing of the Qualified Public Offering.
The unaudited basic and diluted pro forma net loss per share is calculated as follows:
14. RELATED PARTY TRANSACTIONS
Name of related parties
|
Relationship | |
---|---|---|
Peter Luo |
Chairman, Chief Executive Officer and a principal shareholder of the Company | |
Four senior management personnel |
Management and ordinary shareholders of the Company | |
WuXi AppTec Co., Ltd. ("WuXi AppTec Group") |
A principal shareholder of the Group | |
WuXi Biologics (Shanghai) Co., Ltd. |
Controlled by the ultimate controlling party of a principal shareholder of the Group |
F-68
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
14. RELATED PARTY TRANSACTIONS (Continued)
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
WuXi Biologics (Shanghai) Co., Ltd. |
4,452 | 367,900 | |||||
WuXi AppTec Group |
739,051 | 39,481 | |||||
Four senior management personnel(i) |
350,865 | | |||||
Peter Luo(i) |
338,818 | | |||||
| | | | | | | |
Total amounts due from related parties |
1,433,186 | 407,381 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
As of
December 31, |
As of
September 30, |
|||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
WuXi Biologics (Shanghai) Co., Ltd. |
1,379,741 | 2,032,352 | |||||
WuXi AppTec Group |
432,784 | 354,338 | |||||
Peter Luo(ii) |
83,254 | | |||||
| | | | | | | |
Total amounts due to related parties |
1,895,779 | 2,386,690 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
For the nine months
ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2019 | 2020 | |||||
|
US$
|
US$
|
|||||
Receipt of CRO and CMO services: |
|||||||
WuXi Biologics (Shanghai) Co., Ltd. |
2,815,862 | 5,107,176 | |||||
WuXi AppTec Group |
1,313,847 | 2,326,989 | |||||
| | | | | | | |
|
4,129,709 | 7,434,165 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-69
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
15. COMMITMENTS AND CONTINGENCIES
Operating lease commitments
Future minimum payments under non-cancelable operating leases with initial terms in excess of one year consist of the following as of September 30, 2020:
|
US$ | |||
---|---|---|---|---|
Remaining three months of 2020 |
80,459 | |||
2021 |
230,084 | |||
2022 |
144,949 | |||
2023 |
104,289 | |||
| | | | |
Total |
559,781 | |||
| | | | |
| | | | |
| | | | |
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The Group's lease arrangements have no renewal options, rent escalation clauses, restrictions or contingent rents and are all executed with third parties. For the nine months ended September 30, 2019 and 2020, total rental related expenses for all operating leases amounted to US$135,750 and US$116,061, respectively.
Contingencies
The Group is currently not involved in any legal or administrative proceedings that may have a material adverse impact on the Group's business, financial position or results of operations
16. SUBSEQUENT EVENTS
The Group evaluated subsequent events through January 19, 2021, the date these interim condensed consolidated financial statements were issued.
Beginning in January 2020, the emergence and wide spread of the novel Coronavirus ("COVID-19") has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China, US and elsewhere. Substantially all of the Group's operating and workforce are concentrated in China and US. Consequently, the COVID-19 outbreak could potentially delay patient's access to hospital and the progress of clinical trials of the Group, which may adversely affect the Group's business operations, financial condition and operating results for 2020. The extent to which COVID-19 impacts the business and financial results of the Group in the longer term will depend on future developments, which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The Group will continue to evaluate the impact on the results of operation, financial position and cash flows of the Group and react actively as the situation evolves.
In October 2020, pursuant to the 2019 Plan, the Board of Directors of the Company passed resolutions and granted 340,000 share options to certain employees.
On November 9, 2020, the Company passed a board resolution to waive the vesting schedules and conditions of 2,375,000 share options granted to certain management members. Pursuant to this board
F-70
ADAGENE INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020
16. SUBSEQUENT EVENTS (Continued)
resolution, these management members exercised all these share options and as a result, 2,375,000 ordinary shares were issued to them. These management members paid the exercise price by issuing recourse promissory notes. These ordinary shares are subject to the Company's repurchase rights before the share awards meet certain conditions.
In November 2020, the Group borrowed two loans with the amount of RMB5,000,000 (equivalent to approximately US$760,086) and RMB5,000,000 (equivalent to US$760,086) from China Merchants Bank Co., Ltd., respectively. Both of these two loans have a term of one year and bear an interest rate of 4.10% per annum.
On January 16, 2021, the Company passed a board resolution whereby certain management members surrendered a total of 491,119 ordinary shares as repayment for their respective promissory notes issued in connection with the exercising of options granted to them. In the meantime, the Company further granted these management members the right to repurchase the surrendered shares by way of new option grants.
Pursuant to the same board resolution, the 2021 Performance Incentive Plan was also adopted, under which an aggregate of 2,994,000 ordinary shares shall be reserved for issuance, and the share limit will automatically increase on the first trading day in January of each year (commencing with 2022) by an amount equal to (1) 5% of the total number of the Company's outstanding ordinary shares on December 31 of the prior year, or (2) such lesser number as determined by the board of directors.
F-71
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and Officers
Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences or committing a crime. Under our post-offering memorandum and articles of association, which will become effective immediately prior to the completion of this offering, to the fullest extent permissible under Cayman Islands law every director and officer of our company shall be indemnified against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him in connection with the execution or discharge of his duties, powers, authorities or discretions as a director or officer of our company, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere.
Pursuant to the form of indemnification agreements to be filed as Exhibit 10.2 to this Registration Statement, we will agree to indemnify our directors and executive officers against certain liabilities and expenses that they incur in connection with claims made by reason of their being a director or officer of our company.
The Underwriting Agreement, the form of which will be filed as Exhibit 1.1 to this Registration Statement, will also provide for indemnification of us and our officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, 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.
Item 7. Recent Sales of Unregistered Securities
During the past three years, we have issued the following securities (including options to acquire our ordinary shares) without registering the securities under the Securities Act. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering. None of the transactions involved an underwriter.
Purchaser
|
Date of Issuance |
Title and
Number of Securities |
Consideration | |||
---|---|---|---|---|---|---|
SCC Venture VI Holdco, Ltd. | February 2, 2018 | 1,679,206 series C-1 preferred shares | US$15,000,011.36 | |||
Gopher Harvest Co-Investment Fund LP |
|
February 2, 2018 |
|
559,735 series C-1 preferred shares |
|
US$5,000,000.80 |
AVICT Global Holdings Limited |
|
February 2, 2018 |
|
1,119,471 series C-1 preferred shares |
|
US$10,000,010.55 |
King Star Med LP |
|
March 19, 2018 |
|
1,119,471 series C-1 preferred shares |
|
US$10,000,000.00 |
WEALTHY TECHNOLOGIES LIMITED |
|
March 19, 2018 |
|
559,735 series C-1 preferred shares |
|
US$5,000,000.00 |
II-1
Purchaser
|
Date of Issuance |
Title and
Number of Securities |
Consideration | |||
---|---|---|---|---|---|---|
Chief Strategic International Limited | May 16, 2018 | 559,736 series C-1 preferred shares | US$5,000,010.00 | |||
Mega Prime Development Limited |
|
June 13, 2019 |
|
685,676 series C-2 preferred shares |
|
US$6,999,998.00 |
Poly Platinum Enterprises Limited |
|
June 13, 2019 |
|
489,769 series C-2 preferred shares |
|
US$5,000,003.00 |
Chief Strategic International Limited |
|
June 13, 2019 |
|
391,815 series C-2 preferred shares |
|
US$4,000,000.00 |
MODEST CHAMPION LIMITED |
|
November 21, 2019 |
|
293,861 series C-2 preferred shares |
|
US$2,999,998.00 |
General Atlantic Singapore AI Pte. Ltd. |
|
December 19, 2019 |
|
4,452,441 series C-3 preferred shares |
|
US$50,000,000.00 |
Certain directors, officers and employees |
|
From August 17, 2017 to January 19, 2021 |
|
6,761,534 ordinary shares# |
|
US$7,912,715.40 |
Options and Warrants |
|
|
|
|
|
|
SCC Venture VI Holdco, Ltd. |
|
February 2, 2018 |
|
Warrant to purchase up to US$5,625,000 worth of series C-2 preferred shares* |
|
N/A |
Gopher Harvest Co-Investment Fund LP |
|
February 2, 2018 |
|
Warrant to purchase up to US$1,875,000 worth of series C-2 preferred shares* |
|
N/A |
Certain directors, officers and employees |
|
From August 17, 2017 to January 19, 2021 |
|
Option to purchase 7,154,992 ordinary shares |
|
Past and future services provided by these individuals to us |
Notes:
Item 8. Exhibits and Financial Statement Schedules
See Exhibit Index for a complete list of all exhibits filed as part of this registration, which Exhibit Index is incorporated herein by reference.
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements and the notes thereto.
II-2
The undersigned hereby undertakes:
(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 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 of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, 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 of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, 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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II-5
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on January 19, 2021.
Adagene Inc. | ||||||
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By: |
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/s/ PETER (PEIZHI) LUO |
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Name: | Peter (Peizhi) Luo | |||||
Title: | Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Peter (Peizhi) Luo as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, in connection with this registration statement, including to sign in the name and on behalf of the undersigned, this registration statement and any and all amendments thereto, including post-effective amendments and registrations filed pursuant to Rule 462 under the U.S. Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on January 19, 2021 in the capacities indicated:
Signature
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Title
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/s/ PETER (PEIZHI) LUO
Peter (Peizhi) Luo |
Chief Executive Officer, Director (principal executive officer) | |
/s/ YUNXIA YANG Yunxia Yang |
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Director |
/s/ YU MIAO Yu Miao |
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Director |
/s/ LEFEI SUN Lefei Sun |
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Director |
/s/ MAN KIN (RAYMOND) TAM Man Kin (Raymond) Tam |
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Chief Financial Officer (principal financial officer and principal accounting officer) |
II-6
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of Adagene Inc., has signed this registration statement or amendment thereto in New York on January 19, 2021.
Authorized U.S. Representative | ||||||
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By: |
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/s/ COLLEEN A. DE VRIES |
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Name: | Colleen A. De Vries | |||||
Title: | Senior Vice President |
II-7
THE COMPANIES LAW (REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SIXTH AMENDED AND RESTATED MEMORANDUM AND ARTICLES
OF
ASSOCIATION
OF
ADAGENE INC.
(adopted by a special resolution passed on December 19, 2019)
THE COMPANIES LAW (REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SIXTH AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION
OF
ADAGENE INC.
(adopted by a special resolution passed on December 19, 2019)
1. The name of the Company is Adagene Inc..
2. The Registered Office of the Company shall be at Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205, Cayman Islands, or at such other place in the Cayman Islands as the Directors may from time to time decide.
3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law (Revised) or as the same may be revised from time to time, or any other law of the Cayman Islands.
4. The Company has unrestricted corporate capacity. Without limitation to the foregoing, as provided by Section 27(2) of the Companies Law (Revised), the Company has and is capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit. Without in any way limiting the unrestricted nature of its objects, the Company may accept mortgages over land or any other property irrespective of location.
5. Nothing in any of the preceding paragraphs permits the Company to carry on any of the following businesses without being duly licensed, namely:
a. the business of a bank or trust company without being licensed in that behalf under the Banks and Trust Companies Law (Revised); or
b. insurance business from within the Cayman Islands or the business of an insurance manager, agent, sub-agent or broker without being licensed in that behalf under the Insurance Law (Revised); or
c. the business of company management without being licensed in that behalf under the Companies Management Law (Revised).
6. The liability of each Member is limited to the amount from time to time unpaid on such Members Shares.
7. The authorized share capital of the Company is US$50,000 divided into (i) 472,750,176 Ordinary Shares of par value US$0.0001 each, (ii) 7,844,371 Series A Preferred Shares of par value US$0.0001 each (the Series A Preferred Shares), which are further divided into 5,473,957 Series A-1 Preferred Shares of par value of US$0.0001 each (the Series A-1 Preferred Shares), 2,370,414 Series A-2 Preferred Shares of par value of US$0.0001 each (the Series A- 2 Preferred Shares), (iii) 7,494,537 Series B Preferred Shares of par value US$0.0001 each (the Series B Preferred Shares), and (iv) 11,910,916 authorized Series C Preferred Shares with par value of US$0.0001 each (the Series C Preferred Shares), which are further divided into 5,597,354 Series C-1 Preferred Shares with par value of US$0.0001 each (the Series C-1 Preferred Shares), 1,861,121 Series C-2 Preferred Shares with par value of US$0.0001 each (the Series C-2 Preferred Shares) and 4,452,441 Series C-3 Preferred Shares with par value of US$0.0001 each (the Series C-3 Preferred Shares).
8. If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 193 of the Companies Law (Revised) and, subject to the provisions of the Companies Law (Revised) and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.
9. Capitalised terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company.
THE COMPANIES LAW (REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SIXTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
ADAGENE INC.
(adopted by a special resolution passed on December 19, 2019)
INTERPRETATION
1. In these Articles Table A in the First Schedule to the Statute does not apply and, unless there is something in the subject or context inconsistent therewith:
Additional Consideration |
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shall have the meaning set forth in Article 7.2D hereof. |
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Affiliate |
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shall have the meaning set forth in the Restated Shareholders Agreement. |
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Articles |
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means these articles of association of the Company as originally formed or as from time to time altered by Special Resolution. |
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Auditor |
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means the Person for the time being performing the duties of auditor of the Company (if any). |
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Automatic Conversion |
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shall have the meaning set forth in Article 7.3C hereof. |
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Board or Board of Directors |
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means the board of directors of the Company. |
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Business Day |
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means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Singapore, Hong Kong, the Cayman Islands or the United States. |
Charter Documents |
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means, with respect to a particular legal entity, the articles or certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity. |
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Commission |
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means (i) with respect to any offering of securities in the United States, the Securities and Exchange Commission of the United States or any other federal agency at the time administering the Securities Act, and (ii) with respect to any offering of securities in a jurisdiction other than the United States, the regulatory body of the jurisdiction with authority to supervise and regulate the offering or sale of securities in that jurisdiction. |
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Company |
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means the above named company. |
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Control |
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of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms Controlled and Controlling have meanings correlative to the foregoing. |
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Conversion Price |
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with respect to a series of Preferred Shares, initially means the applicable Original Issue Price for such series of Preferred Shares (such initial Conversion Price and the rate at which a series of Preferred Shares may be converted into Ordinary Shares, shall be subject to adjustment from time to time as provided in Article 7.3E hereof). |
Convertible Securities |
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shall have the meaning set forth in Article 7.3E(5)(a)(ii) hereof. |
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Deemed Liquidation Event |
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means any of the following events: |
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(1) (A) any consolidation, amalgamation, scheme of arrangement or merger of a Group Company with or into any other Person or other reorganization in which the Members or shareholders of the Company immediately prior to such consolidation, amalgamation, merger, scheme of arrangement or reorganization own less than a majority of such Group Companys voting power in the aggregate immediately after such consolidation, merger, amalgamation, scheme of arrangement or reorganization, or (B) any transaction or series of related transactions to which a Group Company is a party in which in excess of fifty percent (50%) of such Group Companys voting power is transferred; or |
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(2) a sale, transfer, lease or other disposition of all or substantially all of the assets or business of any Group Company (or any series of related transactions resulting in such sale, transfer, lease or other disposition of all or substantially all of the assets of such Group Company), or entering into a license granting exclusive rights for substantially all of a Group Companys intellectual property in substantially all of the world; |
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provided that corporate activities taken solely for the purpose of achieving a Qualified IPO that has been duly approved in accordance with the Restated Shareholders Agreement and these Articles shall not in any case be a Deemed Liquidation Event. |
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Director |
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means a director serving on the Board for the time being of the Company and shall include an alternate Director appointed in accordance with these Articles. |
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Drag Holder |
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shall have the meaning ascribed to such term in Article 117. |
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Electronic Record |
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has the same meaning as given in the Electronic Transactions Law (Revised). |
Equity Securities |
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means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing. |
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ESOP |
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means the Companys Second Amended and Restated Share Incentive Plan (as amended) duly approved by the Board covering the grant or issuance of up to 11,391,131 Ordinary Shares (or options therefor) (as adjusted in connection with share splits or share consolidation, reclassification or other similar event) to employees, officers, directors, or consultants of a Group Company. |
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Exempted Distribution |
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means (a) a dividend payable solely in Ordinary Shares, (b) the purchase, repurchase or redemption of Ordinary Shares by the Company at no more than the original issuance price from terminated employees, officers or consultants upon such termination in accordance with the ESOP, or pursuant to the exercise of a contractual right of first refusal held by the Company, if any, or pursuant to written contractual arrangements with the Company approved by the Board, and (c) the redemption of the Preferred Shares in connection with the conversion of such Preferred Shares into Ordinary Shares pursuant to these Articles. |
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Founder Director |
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shall have the meaning ascribed to such term in Article 61.D. |
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Governmental Authority |
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means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization. |
Group Company |
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means each of the Company and all of its direct or indirect Subsidiaries, and Group refers to all of the Group Companies collectively. |
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Initial Consideration |
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shall have the meaning set forth in Article 7.2D hereof. |
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Interested Transaction |
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shall have the meaning set forth in Article 80 hereof. |
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IPO |
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means the first firm underwritten registered public offering by the Company of its Ordinary Shares pursuant to a registration statement that is filed with and declared effective by either the Commission under the United States Securities Act of 1933, as amended, or another Governmental Authority for a public offering in a jurisdiction other than the United States. |
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Liquidation Event |
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shall have the meaning set forth in Article 7.2A. |
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Majority Preferred Holders |
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means the holders of at least a majority of the voting power of the then outstanding Preferred Shares (voting together as a single class and on an as converted basis). |
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Member |
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has the same meaning as in the Statute. |
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Memorandum |
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means the memorandum of association of the Company as originally formed or as from time to time altered by Special Resolution. |
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New Securities |
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shall have the meaning set forth in Article 7.3E(5)(a)(iii) hereof. |
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ODI Approvals |
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means the examination, approval and/or recordal procedures required by the relevant PRC governmental authorities with respect to the overseas investment by an enterprise established under the laws of the PRC, including without limitation approvals from competent authorities in charge of the overseas investment by PRC entities and the registrations with competent Ministry of Commerce of the Peoples Republic of China, National Development and Reform Commission and State Administration of Foreign Exchange office (if applicable). |
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Options |
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shall have the meaning set forth in Article 7.3E(5)(a)(i) hereof. |
Ordinary Resolution |
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means a resolution of a duly constituted general meeting of the Company passed by a simple majority of the votes cast by, or on behalf of, the Members entitled to vote present in person or by proxy and voting at the meeting, or a written resolution as provided in Article 39. |
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Ordinary Share |
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means an ordinary share of US$0.0001 par value per share in the capital of the Company having the rights attaching to it as set out herein. |
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Original Issue Date |
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with respect to a series of Preferred Shares, means the date on which the first share of such series of Preferred Shares was issued. |
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Original Issue Price |
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means (i) US$1.00 for Series A-1 Preferred Shares (ii) US$1.265601 for Series A-2 Preferred Shares, (iii) US$3.736054 for Series B Preferred Shares, (iv) US$8.9328 for Series C-1 Preferred Shares, (v) US$10.2089 for Series C-2 Preferred Shares, or (vi) US$11.2298 for Series C-3 Preferred Shares, in each case as adjusted for share splits, share dividends, combinations, recapitalizations and similar events. |
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Person |
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means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature. |
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PRC |
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means the Peoples Republic of China, but solely for the purposes hereof excludes the Hong Kong Special Administrative Region, Macau Special Administrative Region and the island of Taiwan. |
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Preferred Directors |
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means the directors elected pursuant to sections A, B, C, E, F and G of Article 61 hereof. |
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Preferred Shares |
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means the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares. |
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Qualified IPO |
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means the closing of a firm commitment underwritten public offering of the Ordinary Shares (or depositary receipts or depositary shares therefor) in the United States pursuant to an effective registration statement under the United States Securities Act of 1933, as amended, with an implied pre-offering market capitalization of the Company (based on the last pre- effectiveness pricing or low-end of the price range information contained in the final draft of such registration statement filed with the Commission) of no less than six hundred and fifty million US Dollars (US$650,000,000) and an aggregate proceeds of no less than US$75 million, before deduction of underwriting discounts and registration expenses, or in an underwritten public offering of the Ordinary Shares (or depositary receipts or depositary shares therefor) in another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange approved by the Majority Preferred Holders, voting as a single class, so long as such offering satisfies the foregoing pre-offering valuation and gross proceeds requirements. |
Register of Members |
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means the register maintained in accordance with the Statute and includes (except where otherwise stated) any duplicate Register of Members. |
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Registered Office |
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means the registered office for the time being of the Company. |
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Related Party |
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means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, and any Affiliate of any of the foregoing. |
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Repurchased Shares |
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shall have the meaning in Article 7.5A. |
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Repurchase Date |
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shall have the meaning in Article 7.5A. |
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Repurchase Price |
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shall have the meaning in Article 7.5C. |
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Repurchase Request |
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shall have the meaning in Article 7.5A. |
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Requesting Series A Holders |
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shall have the meaning in Article 7.5A. |
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Requesting Series B Holders |
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shall have the meaning in Article 7.5A. |
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Requesting Series C Holders |
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shall have the meaning in Article 7.5A. |
Restated ROFR Agreement |
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means the Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement among the Company and certain Members dated December 19, 2019, as amended from time to time. |
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Restated Shareholders Agreement |
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means the Fifth Amended and Restated Shareholders Agreement entered into by and among the Company and certain Members on December 19, 2019, as amended from time to time. |
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Seal |
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means the common seal of the Company and includes every duplicate seal. |
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Series A Preferred Shares |
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means, collectively, the Series A-1 Preferred Shares and the Series A-2 Preferred Shares, and each a Series A Preferred Share. |
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Series A-1 Preferred Share |
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means a Series A-1 Preferred Share of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
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Series A-2 Preferred Share |
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means a Series A-2 Preferred Share of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
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Series B Preferred Share |
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means a Series B Preferred Share of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
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Series C Preferred Shares |
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means, collectively, the Series C-1 Preferred Shares, the Series C-2 Preferred Shares and the Series C-3 Preferred Shares, and each a Series C Preferred Share. |
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Series C Repurchase Notice |
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shall have the meaning in Article 7.5A. |
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Series C-1 Preferred Shares |
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means a Series C-1 Preferred Share of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
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Series C-2 Preferred Shares |
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means a Series C-2 Preferred Share of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
Series C-3 Preferred Shares |
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means a Series C-3 Preferred Share of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
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Series C-3 Shareholder |
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means General Atlantic Singapore AI Pte. Ltd. and any Affiliate thereof that holds any Series C-3 Preferred Shares. |
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Share and Shares |
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means a share or shares in the capital of the Company and includes a fraction of a share. |
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Special Resolution |
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has the same meaning as in the Statute. |
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Statute |
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means the Companies Law of the Cayman Islands as amended and every statutory modification or re- enactment thereof for the time being in effect. |
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Subsidiary |
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means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person. |
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Target QIPO Date |
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shall have the meaning in Article 7.5A. |
2. In the Articles:
2.1 words importing the singular number include the plural number and vice-versa;
2.2 words importing the masculine gender include the feminine gender;
2.3 written and in writing include all modes of representing or reproducing words in visible form, including in the form of an Electronic Record;
2.4 references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced from time to time;
2.5 any phrase introduced by the terms including, include, in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms;
2.6 the term voting power refers to the number of votes attributable to the Shares (on an as-converted basis) in accordance with the terms of the Memorandum and these Articles;
2.7 the term day means calendar day (unless the term Business Day is used), and month means calendar month;
2.8 the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning;
2.9 references to any documents shall be construed as references to such document as the same may be amended, supplemented or novated from time to time;
2.10 all references to dollars or to US$ are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies); and
2.11 headings are inserted for reference only and shall be ignored in construing these Articles.
2.12 For purposes of these Articles, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, Series C-1 Preferred Shares, Series C-2 Preferred Shares and Series C-3 Preferred Shares shall be deemed to be separate series of Preferred Shares.
2.13 For the avoidance of doubt, each other Article herein is subject to the provisions of Article 7, and subject to the requirements of the Statute, in the event of any conflict, the provisions of Article 7 shall prevail over any other Article herein.
COMMENCEMENT OF BUSINESS
3. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit notwithstanding that any part of the Shares may not have been allotted. The Company shall have perpetual existence until wound up or struck off in accordance with the Statute and these Articles.
4. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company, including the expenses of registration.
ISSUE OF SHARES
5. Subject to the provisions, if any, in the Memorandum (and to any direction that may be given by the Company in a general meeting) and to the provisions of the Memorandum and these Articles (including Article 7) and without prejudice to any rights, preferences and privileges attached to any existing Shares, the Directors may allot, issue, grant options or warrants over or otherwise dispose of the Shares and may designate, allot and issue the Shares from time to time in one or more series/classes. In the event that any Preferred Shares shall be converted pursuant to Article 7.3 hereof, the Preferred Shares so converted shall be cancelled and shall not be re-issuable by the Company.
6. The Company shall not issue Shares to bearer.
RIGHTS, PREFERENCES AND PRIVILEGES OF SHARES
7. Certain rights, preferences and privileges of the Preferred Shares of the Company are as follows:
7.1 Dividends Rights.
A. Preference.
(1) Each holder of Series C Preferred Shares shall be entitled to receive dividends at the rate of 6% per year of its Original Issue Price per annum for each Series C Preferred Share held by such holder, payable out of funds or assets when and as such funds or assets become legally available therefor on parity with each other, prior and in preference to and satisfied before, any dividend or distribution on any other Preferred Share and Ordinary Share except for an Exempted Distribution. Such dividends shall accrue from day to day based on the actual issuance date of such Series C Preferred Share and shall be non-cumulative; however, such dividends shall be payable only when, as, and if, declared by the Board of Directors.
(2) After the preferential dividends relating to the Series C Preferred Shares under Article 7.1A(1) above have been paid in full or declared and set apart in any fiscal year of the Company, any additional dividends out of funds or assets legally available therefore may be declared in that fiscal year for each holder of each series of Preferred Shares (other than the Series C Preferred Shares) at the rate of 6% per year of its Original Issue Price per annum for each such series of Preferred Shares held by such holder, payable on parity with each other, prior and in preference to and satisfied before, any dividend or distribution on any Ordinary Shares except for an Exempted Distribution. Such dividends shall accrue from day to day based on the actual issuance date of such other Preferred Share and shall be non- cumulative; however, such dividends shall be payable only when, as, and if, declared by the Board of Directors.
(3) After the preferential dividends relating to the Preferred Shares under Articles 7.1A(1) and 7.1A(2) above have been paid in full or declared and set apart in any fiscal year of the Company, any additional dividends out of funds or assets legally available therefore may be declared in that fiscal year for the Shares and, if such additional dividends are declared, the holders of each series of Preferred Shares shall be entitled to participate on an as converted-basis pro-rata in any dividends or distributions paid to the holders of Ordinary Shares.
B. Restriction; Participation. Except for an Exempted Distribution, no dividend or distribution, whether in cash, in property, or in any other shares of the Company, shall be declared, paid, set aside or made with respect to the Ordinary Shares at any time unless (i) all declared but unpaid dividends on the Preferred Shares set forth in Article 7.1A (if any) have been paid in full, and (ii) a dividend or distribution is likewise declared, paid, set aside or made, respectively, at the same time with respect to each outstanding Preferred Share such that the dividend or distribution declared, paid, set aside or made to the holder thereof shall be equal to the dividend or distribution that such holder would have received pursuant to this Article 7.1B if such Preferred Share had been converted into Ordinary Shares immediately prior to the record date for such dividend or distribution, or if no such record date is established, the date such dividend or distribution is made, and if such share then participated in and the holder thereof received such dividend or distribution.
7.2 Liquidation Rights.
A. Liquidation Preferences. In the event of any liquidation, dissolution or winding up of the Company, or the cessation of the business of the Group or of a substantial portion of the business of the Group (the Liquidation Event), whether voluntary or involuntary, or any Deemed Liquidation Event (unless waived in writing by the holders of at least 75% of the voting power of the then outstanding Preferred Shares (voting together as a single class and on an as converted basis)), all assets and funds resulting from such Liquidation Event or Deemed Liquidation Event that are legally available for distribution to the Members (after satisfaction of all creditors claims and claims that may be preferred by law including those related to employees and taxation) shall be distributed to the Members of the Company as follows:
(1) First, the holders of the Series C Preferred Shares then outstanding shall be entitled to receive with respect to each Series C Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series B Preferred Shares, Series A Preferred Shares or Ordinary Shares by reason of their ownership of such shares, the amount equal to 100% of its Original Issue Price. If the assets and funds thus distributed among the holders of the Series C Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (1), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (1).
(2) Second, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series C Preferred Shares pursuant to Article 7.2A(1), the holders of the Series B Preferred Shares then outstanding shall be entitled to receive with respect to each Series B Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series A Preferred Shares or Ordinary Shares by reason of their ownership of such shares, the amount equal to 100% of its Original Issue Price. If the assets and funds thus distributed among the holders of the Series B Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (2), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (2).
(3) Third, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series B Preferred Shares pursuant to Article 7.2A(2), the holders of the Series A Preferred Shares then outstanding shall be entitled to receive with respect to each Series A Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Ordinary Shares by reason of their ownership of such shares, the amount equal to 100% of its Original Issue Price. If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (3), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (3).
(4) Fourth, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series A Shares pursuant to Article 7.2A(3), the holders of the Series C Preferred Shares shall be entitled to receive with respect to each Series C Preferred Share by reason of their ownership of such shares a simple interest accruing on such Series C Preferred Share at 6% of its Original Issue Price per annum from the date of issuance of such Series C Preferred Share to the date of distribution of such amount. If the assets and funds thus distributed among the holders of the Series C Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (4), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (4).
(5) Fifth, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series C Shares pursuant to Article 7.2A(4), the holders of the Series B Preferred Shares shall be entitled to receive with respect to each Series B Preferred Share by reason of their ownership of such shares a simple interest accruing on such Series B Preferred Share at 6% of its Original Issue Price per annum from the date of issuance of such Series B Preferred Share to the date of distribution of such amount. If the assets and funds thus distributed among the holders of the Series B Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (5), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (5).
(6) Sixth, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series B Shares pursuant to Article 7.2A(5), the holders of the Series A Preferred Shares shall be entitled to receive with respect to each Series A Preferred Share by reason of their ownership of such shares a simple interest accruing on such Series A Preferred Share at 6% of its Original Issue Price per annum from the date of issuance of such Series A Preferred Share to the date of distribution of such amount. If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (6), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (6).
(7) Seventh, if there are any assets or funds remaining after the payment has been distributed or paid in full to the applicable holders of each series of Preferred Shares pursuant to Articles 7.2A(1) through 7.2A(6), the remaining assets and funds of the Company available for distribution to the Members shall be distributed ratably among all Members according to the relative number of Ordinary Shares held by such Member (treating for this Article 7.2A(7) all Preferred Shares as if they had been converted to Ordinary Shares immediately prior to such Liquidation Event or Deemed Liquidation Event of the Company). If the assets and funds thus distributed among all Members shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (7), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among all Members in proportion to amount each such Member is otherwise entitled to receive pursuant to this subparagraph (7).
B. Trade Sale. Notwithstanding Article 7.2A above, in the event that the valuation of the Company implied in a Deemed Liquidation Event or Liquidation Event is no less than US$650 million, all assets and funds resulting from such Liquidation Event or Deemed Liquidation Event that are legally available for distribution to the Members (after satisfaction of all creditors claims and claims that may be preferred by law including those related to employees and taxation) shall be distributed ratably among all Members of the Company according to the relative number of Ordinary Shares held by such Member (treating for this Article 7.2B all Preferred Shares as if they had been converted to Ordinary Shares immediately prior to such Deemed Liquidation Event or Liquidation Event of the Company) without applying to liquidation distribution method set forth in Article 7.2A.
C. Valuation of Properties. In the event the Company proposes to distribute assets other than cash in connection with a Liquidation Event or a Deemed Liquidation Event, the value of the assets to be distributed to the Members shall be determined in good faith by the Board; provided that any securities not subject to investment letter or similar restrictions on free marketability shall be the fair market value thereof as determined in good faith by the Board; provided further that the method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value of the securities not subject to investment letter or similar restrictions on free marketability to reflect the fair market value thereof as determined in good faith by the Board. Regardless of the foregoing, the Majority Preferred Holders shall have the right to challenge any determination by the Board of value pursuant to this Article 7.2C, in which case the determination of value shall be made by an independent appraiser selected jointly by the Board and the Majority Preferred Holders, with the cost of such appraisal to be borne by the Company.
D. Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event, if any portion of the consideration payable to the Members is payable only upon satisfaction of contingencies (the Additional Consideration), the agreement entered into with the Persons providing the consideration in connection with such Deemed Liquidation Event shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration) shall be allocated among the Members in accordance with Article 7.2A 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 Members upon satisfaction of such contingencies shall be allocated among the Members in accordance with Article 7.2A after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Article 7.2D, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
E. Notices. In the event that the Company shall propose at any time to consummate a Liquidation Event of the Company or a Deemed Liquidation Event, then, in connection with each such event, subject to any necessary approval required in the Statute and these Articles, the Company shall send to all holders of the Preferred Shares at least ten (10) days prior written notice of the date when the same shall take place; provided, however, that the foregoing notice periods may be shortened or waived with the vote or written consent of the Majority Preferred Holders.
F. Enforcement. In the event the requirements of this Article 7.2 are not complied with, the Company shall, to the extent permitted by the Statute, forthwith either (i) cause the closing of the applicable transaction to be postponed until such time as the requirements of this Article 7.2 have been complied with, or (ii) cancel such transaction.
G. Cancellation of Dividend. In the event of a Liquidation Event or a Deemed Liquidation Event, all declared and unpaid dividend to the members of the Company shall be cancelled and no member shall be entitled to payment of any such dividends.
7.3 Conversion Rights
The holders of the Preferred Shares shall have the rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares:
A. Conversion Ratio. Each series of Preferred Share shall be convertible, at the option of the holder thereof, at any time after the applicable Original Issue Date into such number of fully paid and non-assessable Ordinary Shares as determined by dividing the applicable Original Issue Price for such series of Preferred Shares by the then-effective Conversion Price for such series Preferred Shares. The Conversion Price for a series of Preferred Shares shall be subject to adjustment as hereinafter provided.
B. Optional Conversion. Subject to the Statute and these Articles, any series of Preferred Share may, at the option of the holder thereof, be converted at any time after the date of issuance of such shares, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares based on the then-effective Conversion Price with respect to such series of Preferred Shares.
C. Automatic Conversion. Each series of Preferred Shares shall automatically be converted, based on the then-effective Conversion Price with respect to such Preferred Shares, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (i) the closing of a Qualified IPO, or (ii) the date specified by written consent or agreement of the holders of at least 80% of the voting power of the then outstanding Preferred Shares (voting together as a single class and on an as converted basis). Any conversion pursuant to this Article 7.3C shall be referred to as an Automatic Conversion.
D. Conversion Mechanism. The conversion hereunder of any applicable Preferred Shares shall be effected in the following manner:
(1) Except as provided in Articles 7.3D(2) and 7.3D(3) below, before any holder of any Preferred Shares shall be entitled to convert the same into Ordinary Shares, such holder shall surrender the certificate or certificates therefor duly endorsed (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor) (if any), at the office of the Company or of any transfer agent for such share to be converted, and shall give notice to the Company at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for Ordinary Shares (if applicable) are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver to such holder of applicable Preferred Shares, or to the nominee or nominees of such holder, a certificate or certificates (if applicable) for the number of Ordinary Shares to which such holder shall be entitled as aforesaid, and such conversion shall be deemed to have been made immediately prior to the close of business on the date of such notice and such surrender of the certificates representing the Preferred Shares, or affidavits of lost certificate, to be converted, the Register of Members of the Company shall be updated accordingly to reflect the same, and the Person or Persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Ordinary Shares as of such date.
(2) If the conversion is in connection with an underwritten public offering of securities, the conversion will be conditioned upon the closing with the underwriter(s) of the sale of securities pursuant to such offering and the Person(s) entitled to receive the Ordinary Shares issuable upon such conversion shall not be deemed to have converted the applicable Preferred Shares until immediately prior to the closing of such sale of securities.
(3) Upon the occurrence of an event of Automatic Conversion, the Company shall give all holders of Preferred Shares to be automatically converted at least ten (10) days prior written notice of the date fixed (which date shall in the case of a Qualified IPO be the latest practicable date immediately prior to the closing of a Qualified IPO) and the place designated for automatic conversion of all such Preferred Shares pursuant to this Article 7.3D. Such notice shall be given pursuant to Articles 105 through 109 to each record holder of such Preferred Shares at such holders address appearing on the Register of Members. On or before the date fixed for conversion, each holder of such Preferred Shares shall surrender the applicable certificate or certificates duly endorsed (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor) (if any) for all such shares to the Company at the place designated in such notice. On the date fixed for conversion, the Company shall effect such conversion and update its Register of Members to reflect such conversion, and upon surrender of the certificate or certificates of the shares to be converted, duly endorsed (or in lieu thereof upon delivery of an affidavit of lost certificate and indemnity therefor) (if any), the holder thereof shall be entitled to receive certificates (if applicable) for the number of Ordinary Shares into which such Preferred Shares have been converted. All certificates evidencing such Preferred Shares shall, from and after the date of conversion, be deemed to have been retired and cancelled and the Preferred Shares represented thereby converted into Ordinary Shares for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date.
(4) The Company may effect the conversion of Preferred Shares in any manner available under applicable law, including redeeming or repurchasing the relevant Preferred Shares and applying on behalf of the holders thereof the proceeds thereof towards payment for the new Ordinary Shares. For purposes of the repurchase or redemption, the Company may, subject to the Company being able to pay its debts in the ordinary course of business, make payments out of its capital.
(5) No fractional Ordinary Shares shall be issued upon conversion of any Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall at the discretion of the Board of Directors either (i) pay cash equal to such fraction multiplied by the fair market value for the applicable Preferred Share as determined and approved by the Board of Directors, or (ii) issue one whole Ordinary Share for each fractional share to which the holder would otherwise be entitled.
(6) Upon conversion, all declared but unpaid share dividends on the applicable Preferred Shares shall be paid in shares and all declared but unpaid cash dividends on the applicable Preferred Shares shall be paid either in cash or by the issuance of such number of further Ordinary Shares as equal to the value of such cash amount divided by the applicable conversion price, at the option of the holder of the applicable Preferred Shares.
E. Adjustment of Conversion Price. The Conversion Price shall be adjusted and re-adjusted from time to time prior to a Qualified IPO as provided below:
(1) Adjustment for Share Splits and Combinations. If the Company shall at any time, or from time to time, effect a subdivision of the outstanding Ordinary Shares, the Conversion Price of each class or series of Preferred Shares in effect immediately prior to such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time, or from time to time, combine the outstanding Ordinary Shares into a smaller number of shares, the Conversion Price of each class or series of Preferred Shares in effect immediately prior to such combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.
(2) Adjustment for Ordinary Share Dividends and Distributions. If the Company makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution to the holders of Ordinary Shares payable in additional Ordinary Shares, the Conversion Price of each class or series of Preferred Shares then in effect shall be decreased as of the time of such issuance (or in the event such record date is fixed, as of the close of business on such record date) by multiplying such Conversion Price immediately prior to such dividend or distribution by a fraction (i) the numerator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution.
(3) Adjustments for Other Dividends. If the Company at any time, or from time to time, makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution payable in securities of the Company other than Ordinary Shares or payable in any other asset or property (other than cash), then, and in each such event subject to compliance with Article 7.1A and to the extent not duplicative with Article 7.1A, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive, in addition to the number of Ordinary Shares issuable thereon, the amount of securities of the Company or other asset or property which the holder of such share would have received in connection with such event had the Preferred Shares been converted into Ordinary Shares immediately prior to such event, all subject to further adjustment as provided herein.
(4) Adjustments for Reorganizations, Mergers, Consolidations, Reclassifications, Exchanges, Substitutions. If at any time, or from time to time, any capital reorganization or reclassification of the Ordinary Shares (other than as a result of a share dividend, subdivision, split or combination otherwise treated above) occurs or the Company is consolidated, merged or amalgamated with or into another Person (other than a consolidation, merger or amalgamation treated as a liquidation in Article 7.2B), then in any such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive the kind and amount of shares and other securities and property which the holder of such shares would have received in connection with such event had the relevant Preferred Shares been converted into Ordinary Shares immediately prior to such event, all subject to further adjustment as provided herein, or with respect to such other securities or property, in accordance with any terms applicable hereto.
(5) Adjustments to Conversion Price for Dilutive Issuance.
(a) Special Definition. For purpose of this Article 7.3E(5), the following definitions shall apply:
(i) Options mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Convertible Securities approved in accordance with the Restated Shareholders Agreement and these Articles.
(ii) Convertible Securities shall mean any indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Ordinary Shares.
(iii) New Securities shall mean all Ordinary Shares issued (or, pursuant to Article 7.3E(5)(c), deemed to be issued) by the Company after the date on which these Articles are adopted, other than the following issuances, each duly approved in accordance with the Restated Shareholders Agreement and these Articles:
a). Ordinary Shares (or Options exercisable for such Ordinary Shares) (as appropriately adjusted for with share splits or share consolidation, share dividends, recapitalization, deduction, reclassification or other similar event) to the Group Companies employees, officers, directors, consultants or any other Persons qualified pursuant to the ESOP with each grant duly approved by the Board;
b). Ordinary Shares issued or issuable pursuant to a share split or sub-division, share dividend, combination, recapitalization or other similar transaction of the Company, as described in Article 7.3E(1) through Article 7.3E(4);
c). any Ordinary Shares issued pursuant to bona fide transactions with commercial lenders or lessors in connection with loans, credit arrangements, equipment financings or similar transactions, each such transaction having been duly approved by the Board or the Members in accordance with the Restated Shareholders Agreement and these Articles;
d). any Ordinary Shares issued pursuant to bona fide transactions with licensors, collaborator or strategic partners in connection with technology licensing, research, development or commercialization collaboration, strategic partnership or similar transactions, each such transaction having been duly approved by the Board or the Members in accordance with the Restated Shareholders Agreement and these Articles;
e). any Equity Securities of the Company issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity, in any case, duly approved in accordance with Article 7.4B;
f). any Series C-2 Preferred Shares issued under that certain Share Purchase Agreement among the Company and certain other parties thereto dated June 9, 2019 in accordance with the terms therein, and any Series C-3 Preferred Shares issued under pursuant to certain Share Purchase Agreement among the Company and certain other parties thereto dated October 15, 2019 in accordance with the terms therein;
g). Ordinary Shares issued upon the conversion of Preferred Shares;
h). any Equity Securities of the Company issued pursuant to a Qualified IPO.
(b) Waiver of Adjustment. No adjustment in the Conversion Price with respect to any series of Preferred Shares shall be made as the result of the issuance or deemed issuance of New Securities if the Company receives written notice from the Majority Preferred Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such New Issuance.
(c) Deemed Issuance of New Securities. In the event the Company at any time or from time to time after the applicable Original Issue Date for a series of Preferred Shares shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any series or class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of Ordinary Shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number for anti-dilution adjustments) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities or the exercise of such Options, shall be deemed to be New Securities issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which New Securities are deemed to be issued:
(i) no further adjustment in the Conversion Price with respect to such series of Preferred Shares shall be made upon the subsequent issue of Convertible Securities or Ordinary Shares upon the exercise of such Options or conversion or exchange of such Convertible Securities or upon the subsequent issue of Options for Convertible Securities or Ordinary Shares;
(ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company, or change in the number of Ordinary Shares issuable, upon the exercise, conversion or exchange thereof, any then effective Conversion Price with respect to any series of Preferred Shares computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect such change insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(iii) no readjustment pursuant to Article 7.3E(5)(c)(ii) shall have the effect of increasing the then effective applicable Conversion Price with respect to any Preferred Share to an amount which exceeds the applicable Conversion Price with respect to such Preferred Share that would have been in effect had no adjustments in relation to the issuance of such Options or Convertible Securities as referenced in Article 7.3E(5)(c)(ii) been made.
(iv) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities that have not been exercised, the then effective Conversion Price with respect to any series of Preferred Shares computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if:
(x) in the case of Convertible Securities or Options for Ordinary Shares, the only New Securities issued were the Ordinary Shares, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue of such exercised Options plus the consideration actually received by the Company upon such exercise or for the issue of all such Convertible Securities that were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange, and
(y) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the New Securities deemed to have been then issued was the consideration actually received by the Company for the issue of such exercised Options, plus the consideration deemed to have been received by the Company (determined pursuant to Article 7.3E(5)(e)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and
(v) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price with respect to any series of Preferred Shares which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price with respect to any series of Preferred Shares shall be adjusted pursuant to this Article 7.3E(5)(c) as of the actual date of their issuance.
(d) Adjustment of Conversion Price upon Issuance of New Securities. In the event of an issuance of New Securities, at any time after the Original Issue Date of a series Preferred Shares, for a consideration per Ordinary Share received by the Company (net of any selling concessions, discounts or commissions) less than the Conversion Price with respect to such series of Preferred Shares as in effect immediately prior to such issue, then and in such event, the Conversion Price with respect to such series of Preferred Shares shall be reduced, concurrently with such issue, to a price determined as set for the below:
NCP = OCP * (OS + (NP/OCP))/(OS + NS)
WHERE:
NCP = the new Conversion Price with respect to such series of Preferred Shares,
OCP = the Conversion Price with respect to such series of Preferred Shares in effect immediately before the issuance of the New Securities,
OS = the total outstanding Ordinary Shares immediately before the issuance of the New Securities plus the total Ordinary Shares issuable upon conversion of outstanding Convertible Securities and exercise of outstanding Options,
NP = the total consideration received for the issuance or sale of the New Securities, and
NS = the number of New Securities issued or sold or deemed issued or sold.
(e) Determination of Consideration. For purposes of this Article 7.3E(5), the consideration received by the Company for the issuance of any New Securities shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company excluding amounts paid or payable for accrued interest or accrued dividends and excluding any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance of any New Securities;
(2) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined and approved in good faith by the Board of Directors (so long as such approval includes the approval of at least three
(3) Preferred Directors); provided, however, that no value shall be attributed to any services performed by any employee, officer or director of any Group Company; (3) in the event New Securities are issued together with other Shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received which relates to such New Securities, computed as provided in clauses (1) and (2) above, as reasonably determined in good faith by the Board of Directors including the approval of at least three (3) Preferred Directors.
(ii) Options and Convertible Securities. The consideration per Ordinary Share received by the Company for New Securities deemed to have been issued pursuant to Article 7.3E(5)(c) hereof relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities (determined in the manner described in paragraph (i) above), plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of Ordinary Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(6) No Impairment. The Company will not, by amendment of these Articles, by taking any other corporate action or through any reorganization, recapitalization, transfer of assets, consolidation, merger, amalgamation, scheme of arrangement, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Article 7.3 and in the taking of all such action as may be necessary or appropriate to protect the conversion rights of the holders of Preferred Shares against impairment.
(7) Certificate of Adjustment. In the case of any adjustment or readjustment of the Conversion Price with respect to any series of Preferred Shares, the Company, at its sole expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall deliver such certificate by notice to each registered holder of such series of Preferred Shares, at the holders address as shown in the Companys books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any New Securities issued or sold or deemed to have been issued or sold, (ii) the number of New Securities issued or sold or deemed to be issued or sold, (iii) the Conversion Price with respect to such series of Preferred Shares in effect before and after such adjustment or readjustment, and (iv) the type and number of Equity Securities of the Company, and the type and amount, if any, of other property which would be received upon conversion of such Preferred Shares after such adjustment or readjustment.
(8) Notice of Record Date. In the event the Company shall propose to take any action of the type or types requiring an adjustment set forth in this Article 7.3E, the Company shall give notice to the holders of the relevant Preferred Shares, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the applicable Conversion Price with respect to the relevant Preferred Share, and the number, kind or class of shares or other securities or property which shall be deliverable upon the occurrence of such action or deliverable upon the conversion of the relevant Preferred Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least twenty (20) days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least thirty (30) days prior to the taking of such proposed action.
(9) Reservation of Shares Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares. If at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, in addition to such other remedies as shall be available to the holders of Preferred Shares, the Company and its Members will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purpose.
(10) Notices. Any notice required or permitted pursuant to this Article 7.3 shall be given in writing and shall be given in accordance with Articles 105 through 109.
(11) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or allotment of Ordinary Shares upon conversion of the Preferred Shares, excluding any tax or other charge imposed in connection with any transfer involved in the issue and allotment of Ordinary Shares in a name other than that in which such Preferred Shares so converted were registered.
7.4 Voting Rights.
A. General Rights. Subject to the provisions of the Memorandum and these Articles (including any Article providing for special voting rights), at all general meetings of the Company: (a) the holder of each Ordinary Share issued and outstanding shall have one vote in respect of each Ordinary Share held, and (b) the holder of a Preferred Share shall be entitled to such number of votes as equals the whole number of Ordinary Shares into which such holders collective Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Companys Members entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Companys Members is first solicited. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as converted basis (after aggregating all shares into which the Preferred Shares held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). To the extent that the Statute or the Articles allow the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares to vote separately as a class or series with respect to any matters, the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, shall have the right to vote separately as a class or series with respect to such matters.
B. Protective Provisions.
(1) Approval by Majority Preferred Holders. So long as no less than twenty-five percent (25%) of the Preferred Shares originally issued at the respective closings are outstanding, the Company shall not take, permit to occur, approve, authorize, or agree or commit to do any of the following, and each Member shall procure the Company not to, take, permit to occur, approve, authorize, or agree or commit to do any of the following, and the Company shall not permit any other Group Company to take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether in a single transaction or a series of related transactions, whether directly or indirectly, and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, unless approved in writing by the Majority Preferred Holders in advance:
(a) any amendment or change of the rights, preferences, privileges or powers of, or restrictions provided for the benefit of, any of the Preferred Shares;
(b) any creation, increase or decrease in the authorized number, or repurchase or redemption, of Preferred Shares, Ordinary Shares or any Equity Securities of any Group Company other than (w) the purchase, repurchase or redemption of Ordinary Shares by the Company at no more than the original issuance price from terminated employees, officers or consultants upon such termination in accordance with the ESOP, or pursuant to the exercise of a contractual right of first refusal held by the Company, if any, or pursuant to any share incentive plan option agreement or share incentive plan option exercise and ordinary share purchase agreement with the Company as approved by the Board, (x) the redemption of the Preferred Shares in connection with the conversion of such Preferred Shares into Ordinary Shares pursuant to these Articles (y) the redemption or repurchase of any Preferred Shares by the Company at the request of any holder of Preferred Shares in accordance with these Articles and the Restated Shareholders Agreement, and (z) increase or issuance of Equity Securities of a Group Company after which the Group Company remains a wholly owned subsidiary of the Company, directly or indirectly;
(c) authorize, create, issue, or reclassify (or grant any right or entitlement for acquiring or subscribing for or reclassifying) (x) any Equity Securities of the Company having any preference or priority as to rights or privileges superior to or on parity with any such preference or priority of any of the Preferred Shares, other than such exclusions specified in Articles 7.3E(5)(a)(iii)a) to 7.3E(5)(a)(iii)h), or (y) any Equity Securities of any other Group Company;
(d) any change of the size of the board of directors of any Group Company or change the manner in which the directors are appointed, other than changes pursuant to and in compliance with these Articles;
(e) a Deemed Liquidation Event or Liquidation Event;
(f) any amendment or modification to, or waiver under, the Charter Documents, other than amendments pursuant to and in compliance with Section 13.17 of the Restated Shareholders Agreement;
(g) any declaration, set aside or payment of a dividend or other distribution by the Company, or the adoption of or any change to the dividend policy;
(h) any merger, amalgamation, scheme of arrangement, reorganization, restructuring, or consolidation of any Group Company with any Person, or the purchase or other acquisition by any Group Company of assets, equity or business of another Person, or any sale, transfer or other disposal of all or substantially part of any Group Companys assets or business, or sale or exclusive license of all or substantially all of the intellectual property of any Group Company, unless such matter is approved by the Board which shall include the consent of at least four (4) Preferred Directors and such matter does not constitute a Deemed Liquidation Event;
(i) the entry into any contract or commitment by any Group Company with any Related Party that is not on arms length terms or with a value in excess of US$5,000,000 in a single transaction or a series of transactions (provided that transactions with WuXi AppTec Co., Ltd. or its Affiliates would not be subject to this cap if such transaction or a series of transactions are on arms length terms and in the ordinary course of business of the Group Companies), or the termination or material amendment of or waiver under any such contract or commitment, unless such matter is approved by the Board which shall include the consent of at least four (4) Preferred Directors (or a majority of the Preferred Directors if any director is recused from voting on such matter); and
(j) any action by any Group Company to authorize, approve or enter into any agreement or obligation with respect to any action listed above.
7.5 Repurchase Right.
A. Request for Repurchase. Subject to the terms and conditions of this Article 7.5 and the provisions of applicable law, if the Company fails to consummate a Qualified IPO or complete a Deemed Liquidation Event, each duly approved in accordance with the Restated Shareholders Agreement and these Articles on or before March 31, 2025 (the Target QIPO Date), upon the written request issued within one hundred and eighty (180) days after the Target QIPO Date by the holders of the majority of outstanding Series A Preferred Shares with respect to the shares of Series A Preferred Shares held by such holders (such holders, the Requesting Series A Holders), holders of the majority of the outstanding Series B Preferred Shares with respect to the shares of Series B Preferred Shares held by such holders (such holders, the Requesting Series B Holders),or holders of the majority of the outstanding Series C Preferred Shares with respect to the shares of Series C Preferred Shares held by such holders (such holders, the Requesting Series C Holders) (each such repurchase request, a Repurchase Request), the Company shall, on the date within sixty (60) Business Days upon receipt of any Repurchase Request (the Repurchase Date), repurchase out of funds legally available thereof, such number of Preferred Shares that such Requesting Series A Holders, Requesting Series B Holders or Requesting Series C Holders (as applicable) request to be repurchased which have not been converted into Ordinary Shares (the Repurchased Shares); provided that, (i) the Company shall, within ten (10) Business Days following the receipt of such Repurchase Request made by the Requesting Series A Holders, provide a notice (the Series A Repurchase Notice) to each of the other holders of the outstanding Series A Preferred Shares, and each such other holder of outstanding Series A Preferred Shares shall have a right to elect to have any or all of its Series A Preferred Shares to be repurchased by the Company on the Repurchase Date by delivering to the Company a written notice requesting such repurchase no later than ten (10) Business Days following its receipt of the Series A Repurchase Notice, and the Company shall be obligated to repurchase such shares on the Repurchase Date on the same terms and conditions of the repurchase of the Series A Preferred Shares held by the Requesting Series A Holders; (ii) the Company shall, within ten (10) Business Days following the receipt of such Repurchase Request made by the Requesting Series B Holders, provide a notice (the Series B Repurchase Notice) to each of the other holders of the outstanding Series B Preferred Shares, and each such other holder of outstanding Series B Preferred Shares shall have a right to elect to have any or all of its Series B Preferred Shares to be repurchased by the Company on the Repurchase Date by delivering to the Company a written notice requesting such repurchase no later than ten (10) Business Days following its receipt of the Series B Repurchase Notice, and the Company shall be obligated to repurchase such shares on the Repurchase Date on the same terms and conditions of the repurchase of the Series B Preferred Shares held by the Requesting Series B Holders; and (iii) the Company shall, within ten (10) Business Days following the receipt of such Repurchase Request made by the Requesting Series C Holders, provide a notice (the Series C Repurchase Notice) to each of the other holders of the outstanding Series C Preferred Shares, and each such other holder of outstanding Series C Preferred Shares shall have a right to elect to have any or all of its Series C Preferred Shares to be repurchased by the Company on the Repurchase Date by delivering to the Company a written notice requesting such repurchase no later than ten (10) Business Days following its receipt of the Series C Repurchase Notice, and the Company shall be obligated to repurchase such shares on the Repurchase Date on the same terms and conditions of the repurchase of the Series C Preferred Shares held by the Requesting Series C Holders.
Each such series of Preferred Shares called for repurchase as provided above shall be repurchased in cash at the Repurchase Price of such series of Preferred Shares and shall be paid from any source of funds legally available therefor.
B. Withdrawal or Termination of Request. A Repurchase Request may be withdrawn or terminated by the requesting Shareholders, but only with respect to the Shares of such series of Preferred Shares that had not been repurchased in full in cash as of the date such request for withdrawal or termination is made.
C. Repurchase Price. The repurchase price for each Preferred Share shall be an amount in cash equal to 100% of the applicable Original Issue Price for the applicable series of Preferred Shares plus any declared but unpaid dividends thereon (the Repurchase Price).
D. Insufficient Legally Available Fund. Notwithstanding any other provision set forth in this Article 7.5, if upon any Repurchase Date scheduled for the repurchase of Preferred Shares, the funds and assets of the Company legally available to repurchase such Shares shall be insufficient to repurchase all such Preferred Shares then scheduled to be repurchased, then:
(1) the holders of such Preferred Shares to be repurchased shall share ratably in any repurchase in proportion to the respective Repurchase Prices that would otherwise be payable in respect of such Preferred Shares held and elected to be repurchased by them upon such repurchase if all amounts payable on or with respect to such Preferred Shares were paid in full; and
(2) any Preferred Shares not repurchased shall be carried forward and shall be repurchased (together with any other Preferred Shares then scheduled to be repurchased) at the next such scheduled Repurchase Date to the full extent of legally available funds of the Company at such time.
Any such Preferred Shares not repurchased shall continue to be so carried forward until repurchased. Preferred Shares that are subject to repurchase hereunder but have not been repurchased due to insufficient legally available funds and assets of the Company shall continue to be outstanding and entitled to all dividend, liquidation, conversion and other rights, powers and preferences of the Preferred Shares respectively until three (3) days prior to the Repurchase Date upon which such Preferred Shares have been converted or repurchased.
E. Repurchase Notice. At least twenty (20) days prior to the Repurchase Date, written notice in accordance with the provisions hereof shall be given by the Company to each Shareholder (at the close of business on the Business Day next preceding the day on which notice is given), notifying such Shareholder of (a) the repurchase to be effected, (b) specifying the Repurchase Date(s), the applicable Repurchase Price, the number of Repurchased Shares, the place at which payment may be obtained and the date on which such holders conversion rights as to such Preferred Shares terminate (which date shall be three (3) days prior to each Repurchase Date with respect to the Preferred Shares to be repurchased on that date) and (c) calling upon holders of Repurchased Shares to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the Repurchased Shares (the Repurchase Notice).
F. Surrender of Certificates. On or before each designated Repurchase Date, each holder of a series of Preferred Shares to be repurchased shall (unless such holder has previously exercised such holders right to convert such Preferred Shares into Ordinary Shares as provided in Article 7.3 hereof), surrender the certificate(s) representing such Shares of such series of Preferred Shares to be repurchased to the Company, in the manner and at the place designated in the Repurchase Notice, and thereupon the Repurchase Price for such Preferred Shares shall be payable to the order of the person whose name appears in the Register of Members as the owner thereof, and each surrendered certificate shall be cancelled and retired. If less than all of the Preferred Shares represented by such certificate are repurchased, then the Company shall promptly issue a new certificate representing the Preferred Shares not repurchased.
G. Effect of Repurchase. If the Repurchase Notice shall have been duly given for a series of Preferred Shares, and if on any Repurchase Date the Repurchase Price for such series of Preferred Shares to be repurchased thereon is either paid or made available for payment through the deposit arrangements specified in Article 7.5H hereof, then notwithstanding that the certificates evidencing any of the such Preferred Shares so called for repurchase on such Repurchase Date shall not have been surrendered, such Preferred Shares shall not thereafter be transferred on the Companys books and the rights of all of the holders of such Preferred Shares with respect to such Preferred Shares shall terminate on such Repurchase Date, except only the right of the holders to receive the Repurchase Price from the Company or the payment agent, without interest, upon surrender of their certificate(s) therefor.
H. Deposit of Repurchase Price. On or prior to the Repurchase Date for any Preferred Shares, the Company may, at its option, deposit with an independent payment agent, a sum equal to the aggregate Repurchase Price for all Shares of each series of Preferred Shares called for repurchase on that Repurchase Date and not yet repurchased, with irrevocable instructions and authority to the payment agent to pay, on or after the Repurchase Date, the Repurchase Price to the respective holders of Preferred Shares upon the surrender of their share certificates. The deposit shall constitute full payment of the Preferred Shares called for repurchase on that Repurchase Date to their holders, and from and after the such Repurchase Date, such Preferred Shares shall be deemed to be repurchased and no longer outstanding, provided that the terms and conditions of such deposit and irrevocable instructions and authority to the payment agent are to the reasonable satisfaction of the holder(s) of the Repurchase Shares. Any funds so deposited and unclaimed at the end of one (1) year from such Repurchase Date shall be released or repaid to the Company, after which time the holders of Preferred Shares called for repurchase who have not claimed such funds shall be entitled to receive payment of the Repurchase Price only from the Company.
I. Alternative to Company Repurchase. Notwithstanding the provisions of this Article 7.5, the Company is entitled to satisfy its repurchase obligations with respect to any portion of the Preferred Shares subject to a Repurchase Request pursuant to this Article 7.5 by causing one or more third party Persons to purchase such Preferred Shares at the Repurchase Price within sixty (60) Business Days upon the receipt of the Repurchase Request.
REGISTER OF MEMBERS
8. The Company shall maintain or cause to be maintained the Register of Members in accordance with the Statute. The Register of Members shall be the only evidence as to who are the Members entitled to examine the Register of Members or to vote in person or by proxy at any meeting of Members.
FIXING RECORD DATE
9. The Directors may fix in advance a date as the record date for any determination of Members entitled to notice of or to vote at a meeting of the Members, or any adjournment thereof, and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within ninety (90) days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination.
10. If no record date is fixed for the determination of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is sent or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof.
CERTIFICATES FOR SHARES
11. A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or other Person authorised by the Directors. The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. All certificates surrendered to the Company for transfer shall be cancelled and, subject to these Articles, no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled.
12. The Company shall not be bound to issue more than one certificate for Shares held jointly by more than one Person and delivery of a certificate to one joint holder shall be a sufficient delivery to all of them.
13. If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating evidence, as the Directors may prescribe, and (in the case of defacement or wearing out) upon delivery of the old certificate.
TRANSFER OF SHARES
14. The Shares of the Company are subject to transfer restrictions as set forth in the Restated Shareholders Agreement and the Restated ROFR Agreement, by and among the Company and certain of its Members. The Company will register transfers of Shares that are made in accordance with such agreements and will not register transfers of Shares that are made in violation of such agreements. The instrument of transfer of any Share shall be in writing and shall be executed by or on behalf of the transferor (and, if the Directors so require, signed by the transferee). The transferor shall be deemed to remain the holder of a Share until the name of the transferee is entered in the Register of Members.
REDEMPTION AND REPURCHASE OF SHARES
15. Subject to the provision of the Statute, the Company is permitted to redeem, purchase or otherwise acquire any of the Companys Shares, so long as such redemption, purchase or acquisition (i) is pursuant to any redemption provisions set forth in these Articles, (ii) is pursuant to the ESOP, or (iii) is as otherwise agreed by the holder of such Share and the Company, subject in the case of clause (ii) or (iii) to compliance with any applicable restrictions set forth in the Restated Shareholders Agreement, the Restated ROFR Agreement, the Memorandum and these Articles.
16. Subject to the provisions of the Statute and these Articles, the Company may issue Shares that are to be redeemed or are liable to be redeemed at the option of the Member or the Company. Subject to the provisions of the Statute and these Articles, the Directors may authorize the redemption or purchase by the Company of its own Shares in such manner and on such terms as they think fit and may make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Statute, including out of capital.
VARIATION OF RIGHTS OF SHARES
17. Subject to Article 7, if at any time the share capital of the Company is divided into different classes of Shares, the rights attached to any class (unless otherwise provided by the terms of issue of the Shares of that class) may only be varied with the consent in writing of Members holding not less than a majority of the votes entitled to be cast by holders (in person or by proxy) of Shares on a poll at a general meeting of such class affected by the proposed variation of rights or with the sanction of a resolution of such Members holding not less than a majority of the votes which could be cast by holders (in person or by proxy) of Shares of such class on a poll at a general meeting but not otherwise.
18. For the purpose of the preceding Article, all of the provisions of these Articles relating to general meetings shall apply, to the extent applicable, mutatis mutandis, to every such separate meeting except that the necessary quorum shall be one or more Persons holding or representing by proxy at least a majority of the issued Shares of such class and that any Member holding Shares of such class, present in person or by proxy, may demand a poll.
19. Subject to Article 7, the rights conferred upon the holders of Shares or any class of Shares shall not, unless otherwise expressly provided by the terms of issue of such Shares, be deemed to be varied by the creation, re-designation, or issue of Shares ranking senior or pari passu therewith.
COMMISSION ON SALE OF SHARES
20. The Company may, with the approval of the Board, so far as the Statute permits, pay a commission to any Person in consideration of his or her subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares of the Company. Such commissions may be satisfied by the payment of cash and/or the issue of fully or partly paid-up Shares. The Company may also on any issue of Shares pay such brokerage as may be lawful.
NON-RECOGNITION OF INTERESTS
21. The Company shall not be bound by or compelled to recognise in any way (even when having notice thereof) any equitable, contingent, future or partial interest in any Share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any Share other than an absolute right to the entirety thereof in the registered holder.
TRANSMISSION OF SHARES
22. If a Member dies, the survivor or survivors where such Member was a joint holder, and his or her legal personal representatives where such Member was a sole holder, shall be the only Persons recognised by the Company as having any title to such Members interest. The estate of a deceased Member is not thereby released from any liability in respect of any Share that had been jointly held by such Member.
23. Any Person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors, elect either to become the holder of the Share or to have some Person nominated by him or her as the transferee, but the Directors shall, in any case, have the same right to decline or suspend registration as they would have had in the case of a transfer by that Member before his death or bankruptcy pursuant to Article 14. If he or she elects to become the holder, he or she shall give written notice to the Company to that effect.
24. If the Person so becoming entitled shall elect to be registered as the holder, such Person shall deliver or send to the Company a notice in writing signed by such Person stating that he or she so elects.
AMENDMENTS OF MEMORANDUM AND ARTICLES OF ASSOCIATION AND ALTERATION OF CAPITAL
25. Subject to Article 7, the Company may by Ordinary Resolution:
A. increase the share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine;
B. consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares;
C. by subdivision of its existing Shares or any of them divide the whole or any part of its share capital into Shares of smaller amount than is fixed by the Memorandum or into Shares without par value;
D. cancel any Shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any Person; and
E. perform any action not required to be performed by Special Resolution.
26. Subject to the provisions of the Statute and the provisions of these Articles as regards the matters to be dealt with by Ordinary Resolution, and subject further to Article 7, the Company may by Special Resolution:
A. change its name;
B. alter or add to these Articles;
C. alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and.
D. reduce its share capital and any capital redemption reserve fund.
REGISTERED OFFICE
27. Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its Registered Office.
GENERAL MEETINGS
28. All general meetings other than annual general meetings shall be called extraordinary general meetings.
29. The Company shall, if required by the Statute, in each year hold a general meeting as its annual general meeting, and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as the Directors shall appoint. At these meetings, the report of the Directors (if any) shall be presented.
30. The Directors may call general meetings, and they shall on a Members requisition forthwith proceed to convene an extraordinary general meeting of the Company.
31. A Members requisition is a requisition of Members of the Company holding, on the date of deposit of the requisition, not less than ten percent (10%) of the paid up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company.
32. The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists.
33. If the Directors do not within twenty-one (21) days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty- one (21) days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three (3) months after the expiration of the said twenty-one (21) days.
34. A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.
NOTICE OF GENERAL MEETINGS
35. At least ten (10) days notice shall be given of any general meeting unless such notice is waived either before, at or after such meeting both (i) by the Members (or their proxies) holding a majority of the aggregate voting power of all of the Ordinary Shares entitled to attend and vote thereat (including the Preferred Shares on an as converted basis), and (ii) by the Majority Preferred Holders (or their proxies), which shall include holders of a majority of Series C Preferred Shares. Every notice shall be exclusive of the day on which it is given or deemed to be given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner, if any, as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed both (i) by the Members (or their proxies) holding a majority of the aggregate voting power of all of the Ordinary Shares entitled to attend and vote thereat (including the Preferred Shares on an as converted basis), and (ii) by the Majority Preferred Holders (or their proxies), which shall include holders of a majority of Series C Preferred Shares.
36. The officer of the Company who has charge of the Register of Members of the Company shall prepare and make, at least two (2) days before every general meeting, a complete list of the Members entitled to vote at the general meeting, arranged in alphabetical order, and showing the address of each Member and the number of shares registered in the name of each Member. Such list shall be open to examination by any Member for any purpose germane to the meeting, during ordinary business hours, for a period of at least two (2) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member of the Company who is present.
PROCEEDINGS AT GENERAL MEETINGS
37. The holders of (i) a majority of the aggregate voting power of all of the Ordinary Shares entitled to notice of and to attend and vote at such general meeting (including the Preferred Shares on an as converted basis) and (ii) holders of at least 70% of all of the then issued and outstanding Preferred Shares, together present in person or by proxy or if a company or other non-natural Person by its duly authorised representative shall be a quorum. Subject to Article 40, no business shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business.
38. A Person may participate at a general meeting by conference telephone or other communications equipment by means of which all the Persons participating in the meeting can communicate with each other. Participation by a Person in a general meeting in this manner is treated as presence in person at that meeting.
39. Subject to these Articles (including without limitation, Article 7.4(B)), a resolution in writing (in one or more counterparts) shall be as valid and effective as if the resolution had been passed at a duly convened and held general meeting of the Company if:
A. in the case of a Special Resolution, it is signed by all Members required for such Special Resolution to be deemed effective under the Statute; or
B. in the case of any resolution passed other than as a Special Resolution, it is signed by Members for the time being holding Shares carrying in aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a general meeting at which all Shares entitled to vote thereon were present and voted (calculated in accordance with Article 7.4(A)) (or, being companies, signed by their duly authorised representative);
provided that (i) all resolutions proposed to be approved pursuant to this Article 39 shall be delivered to Members then each holding at least 2% of the Company on a fully-diluted basis; and (ii) any resolution passed by written consent of the Members in lieu of meeting shall be delivered to Members then each holding at least 2% of the Company on a fully- diluted basis within two (2) days after such resolution has been passed.
40. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any general meeting, the Members (or their proxies) holding a majority of the aggregate voting power of all of the Shares of the Company represented at the meeting may adjourn the meeting from time to time, until a quorum shall be present or represented.
41. The chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company, or if there is no such chairman, or if he or she shall not be present within ten (10) minutes after the time appointed for the holding of the meeting, or is unwilling or unable to act, the Directors present shall elect one of their number, or shall designate a Member, to be chairman of the meeting.
42. With the consent of a general meeting at which a quorum is present, the chairman may (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned, notice of the adjourned meeting shall be given as in the case of an original meeting.
43. A resolution put to the vote of the meeting shall be decided by poll and not on a show of hands.
44. On a poll a Member shall have one vote for each Ordinary Share he holds on an as converted basis, unless any Share carries special voting rights.
45. Except on a poll on a question of adjournment, a poll shall be taken as the chairman directs, and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded.
46. A poll on a question of adjournment shall be taken forthwith.
47. A poll on any other question shall be taken at such time as the chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is contingent thereon may proceed pending the taking of the poll.
VOTES OF MEMBERS
48. Except as otherwise required by law or these Articles or the Restated Shareholders Agreement, the Ordinary Shares and the Preferred Shares shall vote together on an as converted basis on all matters submitted to a vote of Members.
49. In the case of joint holders of record, the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register of Members.
50. A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote by his or her committee, receiver, or other Person on such Members behalf appointed by that court, and any such committee, receiver, or other Person may vote by proxy.
51. No Person shall be entitled to vote at any general meeting or at any separate meeting of the holders of a class or series of Shares unless he or she is registered as a Member (or is acting by proxy for a Member) on the record date for such meeting nor unless all calls or other monies then payable by such Member in respect of Shares have been paid.
52. No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive.
53. Votes may be cast either personally or by proxy. A Member may appoint more than one proxy or the same proxy under one or more instruments to attend and vote at a meeting.
54. A Member holding more than one Share need not cast the votes in respect of his or her Shares in the same way on any resolution and therefore may vote a Share or some or all such Shares either for or against a resolution and/or abstain from voting a Share or some or all of the Shares and, subject to the terms of the instrument appointing him or her, a proxy appointed under one or more instruments may vote a Share or some or all of the Shares in respect of which he or she is appointed either for or against a resolution and/or abstain from voting.
PROXIES
55. The instrument appointing a proxy shall be in writing, be executed under the hand of the appointor or of his or her attorney duly authorised in writing, or, if the appointor is a corporation, under the hand of an officer or attorney duly authorised for that purpose. A proxy need not be a Member of the Company.
56. The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, no later than the time for holding the meeting or adjourned meeting.
57. The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll.
58. Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the general meeting or adjourned meeting at which it is sought to use the proxy.
CORPORATE MEMBERS
59. Any corporation or other non-natural Person that is a Member may in accordance with its constitutional documents, or in the absence of such provision by resolution of its directors or other governing body, authorise such Person as it thinks fit to act as its representative at any meeting of the Company or any class of Members, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as the corporation could exercise if it were an individual Member.
SHARES THAT MAY NOT BE VOTED
60. Shares in the Company that are beneficially owned by the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding Shares at any given time.
APPOINTMENT OF DIRECTORS
61. The Company shall have a Board consisting of up to seven (7) authorized directors:
A. as long as Asia Ventures II L.P. holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board;
B. as long as F-Prime Capital Partners Healthcare Fund III LP holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board;
C. as long as Wuxi Pharmatech Healthcare Fund I L.P. holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to nominate one (1) independent non-executive director and such one (1) independent non- executive director shall be appointed and agreed by the Board;
D. as long as Peter Peizhi Luo holds any Shares of the Company or is employed by the Company or any of its Controlled Affiliates, Peter Peizhi Luo shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board (the Founder Director);
E. as long as JSR limited holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board;
F. as long as SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP collectively hold at least five percent (5%) of the Shares outstanding on a fully- diluted basis, SCC Venture VI Holdco, Ltd. shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board, provided, however, that so long as each of SCC Venture VI Holdco, Ltd. (and its Affiliate) and Gopher Harvest Co-Investment Fund LP (and its Affiliate) holds the same number of Shares it holds as of the date hereof, the foregoing five percent (5%) threshold in this Article 61(F) shall not apply from the date hereof until the closing of next round of equity financing of the Company; and
G. as long as the Series C-3 Shareholder holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, the Series C-3 Shareholder shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board
POWERS OF DIRECTORS
62. Subject to the provisions of the Statute, the Memorandum and these Articles and to any directions given by Special Resolution, the business of the Company shall be managed by or under the direction of the Directors who may exercise all the powers of the Company; provided, however, that the Company shall not carry out any action inconsistent with Article 7. No alteration of the Memorandum or these Articles and no such direction shall invalidate any prior act of the Directors that would have been valid if that alteration had not been made or that direction had not been given. A duly convened meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors.
63. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall determine.
64. Subject to Article 7, the Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
65. Subject to Article 7, the Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture shares, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.
VACATION OF OFFICE AND REMOVAL OF DIRECTOR
66. The office of a Director shall be vacated if:
A. such Director gives notice in writing to the Company that he or she resigns the office of Director; or
B. such Director dies, becomes bankrupt or makes any arrangement or composition with such Directors creditors generally; or
C. such Director is found to be or becomes of unsound mind.
67. Subject to Article 67B, any Director who shall have been elected by a specified group of Members may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the group of Members then entitled to elect such Director in accordance with Article 61, given at a special meeting of such Members duly called or by an action by written consent for that purpose. Any vacancy in the Board of Directors caused as a result of such removal or one or more of the events set out in Article 66 of any Director who shall have been elected by a specified group of Members, may be filled by, and only by, the affirmative vote of the group of Members then entitled to elect such Director in accordance with Article 61, given at a special meeting of such Members duly called or by an action by written consent for that purpose, unless otherwise agreed upon among such Members; provided further that the said approval process by the majority of the Board shall in no event unfairly deprive a specified groups right to appoint a replacement director in accordance with Article 61.
A. Notwithstanding anything contained to the contrary herein, the office of a director shall be vacated if the director is removed from office by notice addressed to him or her at his or her last known address and signed by all of his or her co-directors for such directors failure to act for the best interest of the Company and after a warning from his or her co- directors, failure to cure within thirty (30) days upon the receipt of the warning. Any director removed from office hereunder cannot be re-designated as a director. For the avoidance of doubt, the removal of a director pursuant to this Article 67B shall not affect the right of the specified group of Members to appoint a director to replace such removed director.
PROCEEDINGS OF DIRECTORS
68. A. A Director may by a written instrument appoint an alternate who need not be a Director, and an alternate is entitled to attend meetings in the absence of the Director who appointed him and to vote or consent in place of the Director. At all meetings of the Board of Directors, four (4) Preferred Directors (which shall include the Directors designated and appointed pursuant to Article 61.F and Article 61.G) and one (1) Founder Director shall be necessary and sufficient to constitute a quorum for the transaction of business. The vote of a majority of the Directors present (in person or in alternate) 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 Statute, the Memorandum or these Articles. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the next Business Day at the same time and place or to such other time or such other place as the Directors may determine, and if a quorum is still not satisfied due to the absence of same Preferred Director(s), the quorum shall be deemed satisfied for this meeting.
B. Notwithstanding anything to the contrary in these Articles, and without limiting any requirements under applicable law, neither the officers of the Group Companies nor any Director shall take, permit to occur, approve, authorize, or agree or commit to do any of the following, or cause any Group Company to take, permit to occur, approve, authorize, or agree or commit to do any of the following , any of the following without the approval of the Board, including the affirmative vote or consent of at least two thirds of the Preferred Directors:
(1) authorizing or consummating any merger, consolidation, share acquisition or other corporate reorganization, or any transaction or series of transaction in which in excess of 50% of the Companys voting power is transferred;
(2) authorizing or consummating a public offering of any securities of any Group Company; or
(3) liquidating, winding up, or proceeding with other voluntary proceeding seeking liquidation, administration (whether out of court or otherwise), readjustment or other relief under any bankruptcy, insolvency or similar law or the appointment of a trustee, receiver, administrator (whether out of court or otherwise) of liquidator or similar officers.
C. In the event of deadlock on any decision of the Directors, the Founder Director shall have a casting vote.
69. Subject to the provisions of these Articles, the Directors may regulate their proceedings as they think fit, provided however that the board meetings shall be held at least twice for each financial quarter unless the Board otherwise approves and that the written notice of each meeting given to the Directors shall include an agenda of the business to be transacted at the meeting.
70. A Person may participate in a meeting of the Directors or committee of the Board of Directors by conference telephone or other communications equipment by means of which all the Persons participating in the meeting can communicate with each other at the same time. Participation by a Person in a meeting in this manner is treated as presence in person at that meeting. Unless otherwise determined by the Directors, the meeting shall be deemed to be held at the place where the chairman is at the start of the meeting.
71. A resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Board of Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors, or committee of the Board of Directors as the case may be, duly convened and held.
72. Meetings of the Board of Directors may be called by any Director on forty-eight (48) hours notice to each Director in accordance with Articles 105 through 109.
73. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose.
74. The Directors may elect a chairman of their board and determine the period for which he or she is to hold office; but if no such chairman is elected, or if at any meeting the chairman shall not be present within ten (10) minutes after the time appointed for holding the same, the Directors present may choose one of their members to be chairman of the meeting.
75. All acts done by any meeting of the Directors or of a committee of the Board of Directors shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and qualified to be a Director.
PRESUMPTION OF ASSENT
76. A Director of the Company who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless the Directors dissent shall be entered in the minutes of the meeting or unless the Director shall file his or her written dissent from such action with the Person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such Person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.
DIRECTORS INTERESTS
77. Subject to Article 80, a Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his or her office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine.
78. Subject to Article 80, a Director may act by himself or herself or his or her firm in a professional capacity for the Company and such Director or firm shall be entitled to remuneration for professional services as if such Director were not a Director.
79. Subject to Article 80, a Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as Member or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received by such Director as a director or officer of, or from his or her interest in, such other company.
80. In addition to any further restrictions set forth in these Articles, no Person shall be disqualified from the office of Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director shall be in any way interested (each, an Interested Transaction) be or be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such Interested Transaction by reason of such Director holding office or of the fiduciary relation thereby established, and any such director may vote at a meeting of directors on any resolution concerning a matter in which that director has an interest (and if he votes his vote shall be counted) and shall be counted towards a quorum of those present at such meeting, in each case so long as the material facts of the interest of each Director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith to and are known by the other Directors. A general notice or disclosure to the Directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof that a Director is a member of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under this Article 80.
MINUTES
81. The Directors shall cause minutes to be made in books kept for the purpose of all appointments of officers made by the Directors, all proceedings at meetings of the Company or the holders of any series of Shares and of the Directors, and of committees of the Board of Directors including the names of the Directors present at each meeting.
DELEGATION OF DIRECTORS POWERS
82. Subject to these Articles, the Board of Directors may establish any committees and approve the delegation of any of their powers to any committee consisting of one or more Directors. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee.
83. The Board of Directors, including the approval of at least three (3) Preferred Directors, may also delegate to any managing Director or any Director holding any other executive office such of their powers as they consider desirable to be exercised by such Person provided that the appointment of a managing Director shall be revoked forthwith if he or she ceases to be a Director. Any such delegation may be made subject to any conditions the Board of Directors may impose, and either collaterally with or to the exclusion of their own powers and may be revoked or altered.
84. Subject to these Articles, the Directors may by power of attorney or otherwise appoint any company, firm, Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or authorised signatory of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such attorneys or authorised signatories as the Directors may think fit and may also authorise any such attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in him or her.
85. Subject to these Articles, the Directors may appoint such officers as they consider necessary on such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors may think fit. Unless otherwise specified in the terms of an officers appointment, an officer may be removed by resolution of the Directors or Members.
NO MINIMUM SHAREHOLDING
86. There is no minimum shareholding required to be held by a Director.
REMUNERATION OF DIRECTORS
87. The remuneration to be paid to the Directors, if any, shall be such remuneration as determined by the Board, including the approval of at least three (3) Preferred Directors. The Directors shall also be entitled to be paid all reasonable travelling, hotel and other out- of-pocket expenses properly incurred by them in connection with their attendance at meetings of the Board of Directors or committees of the Board of Directors, or general meetings of the Company, or separate meetings of the holders of any series of Shares or debentures of the Company, or otherwise in connection with the business of the Company.
88. The Directors may by resolution of the majority of the Board, including the approval of at least three (3) Preferred Directors, approve additional remuneration to any Director for any services other than his or her ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity, shall be in addition to his or her remuneration as a Director.
SEAL
89. The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of the Board of Directors authorised by the Board of Directors. Every instrument to which the Seal has been affixed shall be signed by at least one Person who shall be either a Director or some officer or other Person appointed by the Directors for the purpose.
90. The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used.
91. A Director or officer, representative or attorney of the Company may without further authority of the Directors affix the Seal over his or her signature alone to any document of the Company required to be authenticated by him or her under seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever.
DIVIDENDS, DISTRIBUTIONS AND RESERVE
92. Subject to the Statute and these Articles (including Article 7), the Directors may declare dividends and distributions on Shares in issue and authorise payment of the dividends or distributions out of the assets of the Company lawfully available therefor. No dividend or distribution shall be paid except out of the realised or unrealised profits of the Company, or out of the share premium account or as otherwise permitted by the Statute.
93. All dividends and distributions shall be declared and paid according to the provisions of Article 7.
94. The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) then payable by such Member to the Company on account of calls or otherwise.
95. Subject to the provisions of Article 7, the Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of shares, debentures or securities of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional Shares and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the basis of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors.
96. Any dividend, distribution, interest or other monies payable in cash in respect of Shares may be paid by wire transfer to the holder or by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the registered address of the holder who is first named on the Register of Members or to such Person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the Person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses or other monies payable in respect of the Share held by them as joint holders.
97. No dividend or distribution shall bear interest against the Company, except as expressly provided in these Articles.
98. Any dividend that cannot be paid to a Member and/or that remains unclaimed after six (6) months from the date of declaration of such dividend may, in the discretion of the Directors, be paid into a separate account in the Companys name, provided that the Company shall not be constituted as a trustee in respect of that account and the dividend shall remain as a debt due to the Member. Any dividend that remains unclaimed after a period of six (6) years from the date of declaration of such dividend shall be forfeited and shall revert to the Company.
CAPITALIZATION
99. Subject to these Articles, including but not limited to Article 7, the Directors may capitalise any sum standing to the credit of any of the Companys reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend as set forth in Article 7 hereof and to apply such sum on their behalf in paying up in full unissued Shares for allotment and distribution credited as fully paid-up to and amongst them in the proportion aforesaid. In such event, the Directors shall do all acts and things required to give effect to such capitalization, with full power to the Directors to make such provisions as they think fit for the case of Shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any Person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalization and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.
BOOKS OF ACCOUNT
100. The Directors shall cause proper books of account to be kept at such place as they may from time to time designate with respect to all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place, all sales and purchases of goods by the Company and the assets and liabilities of the Company. Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Companys affairs and to explain its transactions. The Directors shall from time to time determine whether and to what extent and at what times and places, and under what conditions or regulations, the accounts and books of the Company or any of them shall be open to inspection of Members not being Directors and no such Member shall have any right of inspecting any account or book or document of the Company except as conferred by the Statute or authorized by the Directors or the Company in general meeting or in a written agreement binding on the Company. The Company shall cause all books of account to be maintained for a minimum period of five years from the date on which they were prepared.
101. The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law.
AUDIT
102. The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the Directors, and may fix the Auditors remuneration.
103. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the Auditor.
104. Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company that is registered with the Registrar of Companies as an ordinary company, and at the next extraordinary general meeting following their appointment in the case of a company that is registered with the Registrar of Companies as an exempted company and at any other time during their term of office, upon request of the Directors or any general meeting of the Members.
NOTICES
105. Except as otherwise provided in these Articles, notices shall be in writing. Notice may be given by the Company to any Member or Director either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to such Member or Director (as the case may be) or to the address of such Member or Director as shown in the Register of Members or the Register of Directors (as the case may be) (or where the notice is given by electronic mail by sending it to the electronic mail address provided by such Member or Director).
106. Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a confirmation of delivery, and to have been effected at the expiration of two (2) days (not including Saturdays or Sundays or public holidays) after the letter containing the same is sent as aforesaid. Where a notice is sent by fax to a fax number provided by the intended recipient, service of the notice shall be deemed to be effected when the receipt of the fax is acknowledged by the recipient. Where a notice is given by electronic mail to the electronic mail address provided by the intended recipient, service shall be deemed to be effected when the receipt of the electronic mail is acknowledged by the recipient.
107. A notice may be given by the Company to the Person or Persons that the Company has been advised are entitled to a Share or Shares in consequence of the death or bankruptcy of a Member in the same manner as other notices that are required to be given under these Articles and shall be addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the Persons claiming to be so entitled, or at the option of the Company, by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.
108. Notice of every general meeting shall be given in any manner hereinbefore authorised to every Person shown as a Member in the Register of Members on the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the Register of Members and every Person upon whom the ownership of a Share devolves by reason of his or her being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his or her death or bankruptcy would be entitled to receive notice of the meeting, and no other Person shall be entitled to receive notices of general meetings.
109. Whenever any notice is required by law or these Articles to be given to any Director, member of a committee or Member, a waiver thereof in writing, signed by the Person or Persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
WINDING UP
110. If the Company shall be wound up, assets available for distribution amongst the Members shall be distributed, in accordance with Article 7.
111. If the Company shall be wound up, the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and, subject to Article 7, determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability.
INDEMNITY AND INSURANCE
112. To the maximum extent permitted by applicable law, the Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses that they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own fraud or dishonesty, and no such Director or officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director or officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other Persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his or her office or trust unless the same shall happen through the fraud or dishonesty of such Director or officer or trustee. Except with respect to proceedings to enforce rights to indemnification pursuant to this Article, the Company shall indemnify any such indemnitee pursuant to this Article in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Article shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition to the maximum extent provided by, and subject to the requirements of, applicable law, so long as the indemnitee agrees with the Company 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 indemnitee is not entitled to be indemnified for such expenses under this Article.
113. To the maximum extent permitted by applicable law, the Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall not be personally liable to the Company or its Members for monetary damages for breach of their duty in their respective offices, except such (if any) as they shall incur or sustain by or through their own fraud or dishonesty respectively.
114. The Board, on behalf of the Company, may purchase and maintain insurance for the benefit of any Director or other officer of the Company against any liability which, by virtue of any rule of law, would otherwise attach to such person in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the Company.
FINANCIAL YEAR
115. Unless the Directors otherwise prescribe, the financial year of the Company shall end on the 31st of December in each year and, following the year of incorporation, shall begin on the 1st of January in each year.
TRANSFER BY WAY OF CONTINUATION
116. If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution and the written consent of the Majority Preferred Holders, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.
DRAG-ALONG
117. If (i) the holders of a majority of the voting power of the then outstanding Ordinary Shares and (ii) the holders of more than fifty percent (50%) of the voting power of all Preferred Shares outstanding (on an as converted basis) (the Drag Holders) approve in writing a proposed Deemed Liquidation Event which implies a valuation of the Company of no less than US$650 million, then the Company shall promptly notify each other Member in writing of such approval and the material terms and conditions of such proposed Deemed Liquidation Event, whereupon each such shareholder shall, in accordance with instructions received from the Company, (i) vote all of such shareholders voting Equity Securities of the Company in favor of the Deemed Liquidation Event; (ii) otherwise consent in writing to the Deemed Liquidation Event; and (iii) sell or transfer all of its Equity Securities or the same percentage of its Equity Securities of the Company as the Drag Holders sell on the same terms and conditions as were agreed to by the Drag Holders; provided, however, that such terms and conditions, including with respect to price paid or received per Equity Security of the Company, may differ as between different classes of Equity Securities of the Company in accordance with their relative liquidation preferences as set forth in these Articles. Each shareholder furthermore agrees to make other customary covenants on a several but not joint and several basis and take all necessary actions in connection with the consummation of such Deemed Liquidation Event and to effect the sale and transfer under this Article 117 as reasonably requested by the Drag Holders, provided that it shall be liable only up to the net proceeds paid to such Member in connection with such Deemed Liquidation Event. Without limiting the foregoing sentence, no Member who is not an employee, officer, principal, founder or Controlling Member of a Group Company shall be required to make any representations or warranties other than with respect to itself (including without limitation due authorization, title to shares, enforceability of applicable agreements, and similar representations and warranties), and shall not be liable for the breach of any representation, warranty or covenant made by any other Person in connection with such Deemed Liquidation Event (except to the extent that (A) a Member may be liable, pro rata based on its share ownership and total amount of consideration in respect thereof in such Deemed Liquidation Event in proportion to, and does not exceed, the amount of consideration paid to such Member in connection with such Deemed Liquidation Event, to cover breach of representations and warranties of the Company and (B) funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any Member of any of identical representations, warranties and covenants provided by all Members with respect to the Company).
REDEMPTION FOR NON-COMPLIANCE
118. In the event that any Member that is a PRC individual or an entity incorporated or established in the PRC fails to obtain all approvals from Governmental Authority in connection with its holding of any Shares (including the ODI Approvals) where such failure could reasonably be expected to have a material adverse impact on any IPO of the Company (as determined by the Company) and such Member fails to cure such situation within 30 days after receiving written notice from the Company, then to the extent necessary to eliminate such potential material adverse impact on the IPO of the Company, the Company shall at the request of the Majority Preferred Holders and the majority of the holders of Ordinary Shares repurchase all of such Shares (the Non-Compliance Redeemed Shares) at the original subscription price thereof (as adjusted for any share dividends, combinations, splits, recapitalizations and the like). A repurchase pursuant to this Article shall be deemed an Exempted Distribution.
119. A written notice of redemption shall be given by the Company to such Member at its address listed on the Register of Members at least seven (7) days before the date for redemption (the Non-Compliance Redemption Date) set forth in the notice. The notice shall also set forth the applicable redemption price and the mechanics of redemption.
120. At the Non-Compliance Redemption Date, the Company shall pay the aggregate redemption price to such Member, and such Member shall surrender the share certificate(s) evidencing the Non-Compliance Redeemed Shares (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor). From and after the Non-Compliance Redemption Date, so long as the Company has made available such redemption price to such Member, the Non-Compliance Redeemed Shares shall, following the updating of the Register of Members, be treated as redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be Members with respect to such shares or have any rights or remedies with respect thereto (other than the right to receive the aggregate redemption price therefor).
121. Notwithstanding anything to the contrary contained herein, any Non-Compliance Redeemed Shares with respect to which the Company has failed to pay the redemption price as required shall continue to have all the powers, designations, preferences and other rights which such Shares enjoyed prior to the Non-Compliance Redemption Date until such time as the redemption price in respect of such Non-Compliance Redeemed Shares shall have been paid in full. If the Company cannot consummate the redemption of the Non- Compliance Redeemed Shares because of insufficient funds or limitations under applicable Law, the Company may, and shall at the request of the Majority Preferred Holders and the majority of the holders of Ordinary Shares, request the such Member to transfer the Non- Compliance Redeemed Shares to the other Members of the Company pro rata at a price equal to the original subscription price thereof, and the provisions above shall apply, mutatis mutandis.
THE COMPANIES ACT (AS AMENDED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SEVENTH AMENDED AND RESTATED
MEMORANDUM AND ARTICLES OF ASSOCIATION
OF
ADAGENE INC.
(ADOPTED BY SPECIAL RESOLUTION PASSED ON JANUARY 19, 2021 AND EFFECTIVE CONDITIONAL AND IMMEDIATELY PRIOR TO THE COMPLETION OF THE COMPANYS INITIAL PUBLIC OFFERING OF AMERICAN DEPOSITARY SHARES REPRESENTING ITS ORDINARY SHARES)
THE COMPANIES ACT (AS AMENDED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SEVENTH AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
ADAGENE INC.
(ADOPTED BY SPECIAL RESOLUTION PASSED ON JANUARY 19, 2021 AND EFFECTIVE CONDITIONAL AND IMMEDIATELY PRIOR TO THE COMPLETION OF THE COMPANYS INITIAL PUBLIC OFFERING OF AMERICAN DEPOSITARY SHARES REPRESENTING ITS ORDINARY SHARES)
1. The name of the Company is Adagene Inc. (the Company).
2. The registered office of the Company will be situated at the offices of Walkers Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9008, Cayman Islands or at such other location as the Directors may from time to time determine.
3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of the Companies Act (as amended) of the Cayman Islands (the Companies Act).
4. The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by Section 27(2) of the Companies Act.
5. The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.
6. The liability of the shareholders of the Company is limited to the amount from time to time, if any, unpaid on the shares respectively held by them.
7. The authorised share capital of the Company is US$80,000 divided into 800,000,000 shares comprising (i) 640,000,000 Ordinary Shares of a nominal or par value of US$0.0001 each, and (ii) 160,000,000 shares of a nominal or par value of US$0.0001 each of such class or classes (however designated) as the board of directors may determine in accordance with Article 9 of the Articles. Subject to the Companies Act and the Articles of Association, the Company shall have power to redeem or purchase any of its shares, and to sub-divide or consolidate the said shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.
8. The Company may exercise the power contained in Section 206 of the Companies Act to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction.
9. Capitalized terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company.
TABLE OF CONTENTS
CLAUSE |
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PAGE |
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TABLE A |
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1 |
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INTERPRETATION |
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1 |
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PRELIMINARY |
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5 |
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SHARES |
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5 |
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MODIFICATION OF RIGHTS |
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7 |
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CERTIFICATES |
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7 |
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FRACTIONAL SHARES |
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8 |
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LIEN |
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8 |
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CALLS ON SHARES |
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8 |
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FORFEITURE OF SHARES |
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9 |
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TRANSFER OF SHARES |
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10 |
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TRANSMISSION OF SHARES |
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10 |
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ALTERATION OF SHARE CAPITAL |
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11 |
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REDEMPTION, PURCHASE AND SURRENDER OF SHARES |
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11 |
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TREASURY SHARES |
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12 |
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GENERAL MEETINGS |
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12 |
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PROCEEDINGS AT GENERAL MEETINGS |
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13 |
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VOTES OF SHAREHOLDERS |
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15 |
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CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS |
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16 |
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CLEARING HOUSES |
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16 |
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DIRECTORS |
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16 |
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ALTERNATE DIRECTOR |
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18 |
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POWERS AND DUTIES OF DIRECTORS |
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19 |
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BORROWING POWERS OF DIRECTORS |
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20 |
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THE SEAL |
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20 |
DISQUALIFICATION OF DIRECTORS |
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20 |
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PROCEEDINGS OF DIRECTORS |
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20 |
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PRESUMPTION OF ASSENT |
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23 |
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DIVIDENDS |
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23 |
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ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION |
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24 |
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CAPITALISATION OF RESERVES |
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24 |
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SHARE PREMIUM ACCOUNT |
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25 |
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NOTICES |
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26 |
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INDEMNITY |
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27 |
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NON-RECOGNITION OF TRUSTS |
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28 |
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WINDING UP |
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28 |
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AMENDMENT OF ARTICLES OF ASSOCIATION |
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28 |
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CLOSING OF REGISTER OR FIXING RECORD DATE |
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28 |
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REGISTRATION BY WAY OF CONTINUATION |
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29 |
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DISCLOSURE |
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29 |
THE COMPANIES ACT (AS AMENDED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SEVENTH AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
ADAGENE INC.
(ADOPTED BY SPECIAL RESOLUTION PASSED ON JANUARY 19, 2021 AND EFFECTIVE CONDITIONAL AND IMMEDIATELY PRIOR TO THE COMPLETION OF THE COMPANYS INITIAL PUBLIC OFFERING OF AMERICAN DEPOSITARY SHARES REPRESENTING ITS ORDINARY SHARES)
TABLE A
The Regulations contained or incorporated in Table A in the First Schedule of the Companies Act shall not apply to the Company and the following Articles shall comprise the Articles of Association of the Company.
INTERPRETATION
1. In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context:
ADS means an American depositary share, each representing such number of Ordinary Shares as set out in the registration statements of the Company;
Affiliate means in respect of a Person, any other Person that, directly or indirectly, through (1) one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person, and (i) in the case of a natural person, shall include, without limitation, such persons spouse, parents, children, siblings, mother-in-law, father-in-law, brothers-in-law and sisters-in-law, a trust for the benefit of any of the foregoing, and a corporation, partnership or any other entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any other entity or any natural person which directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such entity;
Appointment Period means the period commencing upon the effectiveness of the Companys Registration Statement and ending on the earliest of (i) the date upon which Peter Peizhi Luo beneficially owns (as defined under Rule 13d-3 of the Exchange Act) less than five per cent (5%) of the Shares outstanding on a fully diluted basis, (ii) the death or legal determination of Peter Peizhi Luos incapacity and (iii) the termination of Peter Peizhi Luo as an executive officer or principal scientific advisor to the Company or any Group Company for cause (as determined under his related employment or consulting arrangements and subject to all related cure provisions);
Articles means these articles of association of the Company, as amended or substituted from time to time;
Board and Board of Directors and Directors means the directors of the Company for the time being, or as the case may be, the directors assembled as a board or as a committee thereof;
Chairman means the chairman of the Board of Directors;
Class or Classes means any class or classes of Shares as may from time to time be issued by the Company;
Commission means Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act;
Companies Act means the Companies Act (as amended) of the Cayman Islands;
Company means Adagene Inc., a Cayman Islands exempted company;
Companys Website means the website of the Company, the address or domain name of which has been notified to Shareholders;
Control means the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity;
day means calendar day;
Designated Stock Exchange means the national stock exchange in the United States on which any Shares and ADSs are listed for trading;
Designated Stock Exchange Rules means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares or ADSs on the Designated Stock Exchange;
electronic means the meaning given to it in the Electronic Transactions Law (as amended) of the Cayman Islands and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;
electronic communication means electronic posting to the Companys Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than a majority of the vote of the Board;
Exchange Act means the Securities Exchange Act of 1934, as amended;
Group Company means each of the Company and all of its direct or indirect Subsidiaries, and Group refers to all of the Group Companies collectively.
Independent Director means a Director who is an independent director as defined in the Designated Stock Exchange Rules;
Memorandum of Association means the memorandum of association of the Company, as amended or substituted from time to time;
month means calendar month;
Office means the registered office of the Company as required by the Companies Act;
Officer means the offices for the time being and from time to time of the Company;
Ordinary Resolution means a resolution:
(a) passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Shareholder is entitled by these Articles; or
(b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed;
Ordinary Shares means an ordinary share of par value of US$0.0001 each in the capital of the Company having the rights and subject to the restrictions set out in these Articles, including a fraction of a share;
paid up means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up;
Person means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires, other than in respect of a Director or Officer in which circumstances Person Shall mean any person or entity permitted to act as such in accordance with the laws of the Cayman Islands;
Register means the register of Shareholders of the Company required to be kept pursuant to the Companies Act;
Registration Statement means the Companys registration statement on Form F-1 (as it may be amended or supplemented) filed with the SEC under the Securities Act in connection with the initial public offering of American depositary shares representing its Ordinary Shares;
Seal means the common seal of the Company (if adopted) including any facsimile thereof;
SEC means the United States Securities and Exchange Commission;
Secretary means any Person appointed by the Directors to perform any of the duties of the secretary of the Company;
Securities Act means the United States Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time;
Share means a share in the capital of the Company. All references to Shares herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression Share shall include a fraction of a Share;
Shareholder means a Person who is registered as the holder of Shares in the Register and includes each subscriber to the Memorandum of Association pending entry in the Register of such subscriber;
Share Premium Account means the share premium account established in accordance with these Articles and the Companies Act;
signed means bearing a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a person with the intent to sign the electronic communication;
Special Resolution means a special resolution of the Company passed in accordance with the Companies Act being a resolution:
(a) passed by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Shareholder is entitled; or
(b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed;
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person;
Treasury Shares means Shares that were previously issued but were purchased, redeemed, surrendered or otherwise acquired by the Company and not cancelled;
United States means the United States of America, its territories, its possessions and all areas subject to its jurisdiction; and
year means calendar year.
2. In these Articles, save where the context requires otherwise:
(a) words importing the singular number shall include the plural number and vice versa;
(b) words importing the masculine gender only shall include the feminine gender and any Person as the context may require;
(c) the word may shall be construed as permissive and the word shall shall be construed as imperative;
(d) reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America;
(e) reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force;
(f) reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case;
(g) reference to in writing shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another;
(h) any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication; and
(i) any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Law (as amended). Sections 8 and 19 of the Electronic Transactions Law (as amended) shall not apply.
3. Subject to the last two preceding Articles, any words defined in the Companies Act shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.
PRELIMINARY
4. The business of the Company may be conducted as the Directors see fit.
5. The Office shall be at such address in the Cayman Islands as the Directors may from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine.
6. The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company. Such expenses may be amortised over such period as the Directors may determine and the amount so paid shall be charged against income and/or capital in the accounts of the Company as the Directors shall determine.
7. The Directors shall keep, or cause to be kept, the Register at such place or (subject to compliance with the Companies Act and these Articles) places as the Directors may from time to time determine. In the absence of any such determination, the Register shall be kept at the Office.
SHARES
8. Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Shareholders, cause the Company to:
(a) issue, allot or dispose of the same (whether in certificated form or non-certificated form, including fractions of a Share) to such Persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine;
(b) grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and
(c) grant options with respect to such Shares and issue warrants, convertible securities or similar instruments with respect thereto;
and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued.
9. The Directors, or the Shareholders by Ordinary Resolution, may authorise the division of Shares into any number of Classes and sub-classes and the different Classes and sub-classes shall be authorised, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by the Shareholders by Ordinary Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate. Notwithstanding Article 12, the Directors may issue from time to time, out of the authorised share capital of the Company (other than the authorised but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Shareholders; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including:
(a) the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof;
(b) whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares;
(d) whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption;
(e) whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Shareholders upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares;
(f) whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;
(g) whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares;
(i) the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and
(j) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof;
and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company is not obliged to issue, allot or dispose of shares if it is, in the opinion of the Directors, unlawful or impracticable. The Company shall not issue Shares to bearer.
10. The Company may insofar as may be permitted by law, pay a commission to any Person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also pay such brokerage as may be lawful on any issue of Shares.
11. The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason.
MODIFICATION OF RIGHTS
12. Whenever the capital of the Company is divided into different Classes (and as otherwise determined by the Directors), the rights attached to any such Class may, subject to any rights or restrictions for the time being attached to any Class, only be materially adversely varied or abrogated with the consent in writing of the holders of not less than a majority of the issued Shares of the relevant Class, or with the sanction of a special resolution passed at a separate meeting of the holders of the Shares of such Class by a majority of two-thirds of the votes cast at such a meeting. To every such separate meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis, apply, except that the necessary quorum shall be one or more Persons at least holding or representing by proxy one-third in nominal or par value amount of the issued Shares of the relevant Class (but so that if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that Class, every Shareholder of the Class shall on a poll have one vote for each Share of the Class held by him. For the purposes of this Article the Directors may treat all the Classes or any two or more Classes as forming one Class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes.
13. The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the Shares of that Class, be deemed to be materially adversely varied or abrogated by, inter alia, the creation, allotment or issue of further Shares ranking pari passu with or subsequent to them or the redemption or purchase of any Shares of any Class by the Company. The rights of the holders of Shares shall not be deemed to be materially adversely varied by the creation or issue of Shares with preferred or other rights including, without limitation, the creation of Shares with enhanced or weighted voting rights.
CERTIFICATES
14. Every Person whose name is entered as a Shareholder in the Register shall, without payment, be entitled to a certificate within one month after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the Share or Shares held by that person and the amount paid up thereon, provided that in respect of a Share or Shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. All certificates for Shares shall be delivered personally or sent through the post addressed to the Shareholder entitled thereto at such Shareholders address notified by such Shareholder to the Company prior to such delivery, or if absent of such notification, at the registered address of such Shareholder as appearing in the Register.
15. Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act.
16. Any two or more certificates representing Shares of any one Class held by any Shareholder may at the Shareholders request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of US$1.00 or such smaller sum as the Directors shall determine.
17. If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same Shares may be issued to the relevant Shareholder upon request subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit.
18. In the event that Shares are held jointly by several persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders.
FRACTIONAL SHARES
19. The Directors may issue fractions of a Share and, if so issued, a fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contributions, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the generality of the foregoing, voting and participation rights) and other attributes of a whole Share. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder such fractions shall be accumulated.
LIEN
20. The Company has a first and paramount lien on every Share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Company also has a first and paramount lien on every Share registered in the name of a Person indebted or under liability to the Company (whether he is the sole registered holder of a Share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). The Directors may at any time declare a Share to be wholly or in part exempt from the provisions of this Article. The Companys lien on a Share extends to any amount payable in respect of it.
21. The Company may sell, in such manner as the Directors may determine, any Share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the Persons entitled thereto by reason of his death or bankruptcy.
22. For giving effect to any such sale the Directors may authorise some Person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.
23. The proceeds of the sale after deduction of expenses, fees and commission incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the Person entitled to the Shares immediately prior to the sale.
CALLS ON SHARES
24. The Directors may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their Shares, and each Shareholder shall (subject to receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such Shares.
25. The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof.
26. If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the Person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part.
27. The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified.
28. The Directors may make arrangements on the issue of partly paid Shares for a difference between the Shareholders, or the particular Shares, in the amount of calls to be paid and in the times of payment.
29. The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid Shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction by Ordinary Resolution, eight percent per annum) as may be agreed upon between the Shareholder paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Shareholder paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.
FORFEITURE OF SHARES
30. If a Shareholder fails to pay any call or instalment of a call in respect of partly paid Shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.
31. The notice shall name a further day (not earlier than the expiration of fourteen days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the Shares in respect of which the call was made will be liable to be forfeited.
32. If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect.
33. A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit.
34. A Person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited. A certificate in writing under the hand of a Director that a Share has been duly forfeited on a date stated in the certificate, shall be conclusive evidence of the facts in the certificate as against all Persons claiming to be entitled to the Share.
35. The Company may receive the consideration, if any, given for a Share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture and may execute a transfer of the Share in favour of the Person to whom the Share is sold or disposed of and that Person shall be registered as the holder of the Share, and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale.
36. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a Share becomes due and payable, whether on account of the amount of the Share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified.
TRANSFER OF SHARES
37. The instrument of transfer of any Share shall be in any usual or common form or such other form as the Directors may determine and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Shareholder until the name of the transferee is entered in the Register in respect of the relevant Shares.
38. (a) Subject to the terms of issue thereof, the Directors may determine to decline to register any transfer of Shares without assigning any reason therefor.
(b) The Directors may also decline to register any transfer of any Share unless:
(i) the instrument of transfer is lodged with the Company, accompanied by the certificate for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
(ii) the instrument of transfer is in respect of only one Class of Shares;
(iii) the instrument of transfer is properly stamped, if required;
(iv) in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four;
(v) the Shares are free from any lien in favour of the Company; or
(vi) a fee of such maximum sum as the Designated Stock Exchange may determine to be payable or such lesser sum as the Board of Directors may from time to time require, is paid to the Company in respect thereof.
39. The registration of transfers may, on ten days notice being given by advertisement in such one or more newspapers or by electronic means or by any other means in accordance with the Designated Stock Exchange Rules, be suspended and the Register closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register closed for more than 30 days in any year.
40. All instruments of transfer that are registered shall be retained by the Company. If the Directors refuse to register a transfer of any Shares, they shall within three months after the date on which the transfer was lodged with the Company send to each of the transferor and the transferee notice of the refusal.
TRANSMISSION OF SHARES
41. The legal personal representative of a deceased sole holder of a Share shall be the only Person recognised by the Company as having any title to the Share. In the case of a Share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased holder of the Share, shall be the only Person recognised by the Company as having any title to the Share.
42. Any Person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder shall upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt Person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt Person before the death or bankruptcy.
43. A Person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Shareholder, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.
REGISTRATION OF EMPOWERING INSTRUMENTS
44. The Company shall be entitled to charge a fee not exceeding one dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument.
ALTERATION OF SHARE CAPITAL
45. The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into Shares of such Classes and amount, as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine.
46. The Company may by Ordinary Resolution:
(a) consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares;
(b) subdivide its existing Shares, or any of them into Shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived;
(c) convert all or any of its paid up Shares into stock and reconvert that stock into paid up Shares of any denomination; and
(d) cancel any Shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any Person and diminish the amount of its share capital by the amount of the Shares so cancelled.
47. The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by law.
REDEMPTION, PURCHASE AND SURRENDER OF SHARES
48. Subject to the Companies Act and these Articles, the Company may:
(a) issue Shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Shareholder on such terms and in such manner as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Ordinary Resolution;
(b) redeem or purchase its own Shares (including any redeemable Shares) on such terms and in such manner as have been approved by the Board or the Shareholders by Ordinary Resolution, or are otherwise authorised by these Articles;
(c) make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Act, including out of its capital; and
(d) accept the surrender for no consideration of any paid up Share (including any redeemable Share) on such terms and in such manner as the Directors may determine.
49. The holder of the Shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof. Any Share in respect of which notice of redemption has been given shall not be entitled to participate in the profits of the Company in respect of the period after the date specified as the date of redemption in the notice of redemption.
50. The redemption, purchase or surrender of any Share shall not be deemed to give rise to the redemption, purchase or surrender of any other Share.
51. The Directors may when making payments in respect of redemption or purchase of Shares, if authorised by the terms of issue of the Shares being redeemed or purchased or with the agreement of the holder of such Shares, make such payment either in cash or in specie including without limitation, interests in a special purpose vehicle holding assets of the Company or holding entitlement to the proceeds of assets held by the Company or in a liquidation structure.
TREASURY SHARES
52. Shares that the Company purchases, redeems or acquires (by way of surrender or otherwise) may, at the option of the Company, be cancelled immediately or held as Treasury Shares in accordance with the Companies Act. In the event that the Directors do not specify that the relevant Shares are to be held as Treasury Shares, such Shares shall be cancelled.
53. No dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the Companys assets (including any distribution of assets to Shareholders on a winding up) may be declared or paid in respect of a Treasury Share.
54. The Company shall be entered in the Register as the holder of the Treasury Shares provided that:
(a) the Company shall not be treated as a Shareholder for any purpose and shall not exercise any right in respect of the Treasury Shares, and any purported exercise of such a right shall be void;
(b) a Treasury Share shall not be voted, directly or indirectly, at any meeting of the Company and shall not be counted in determining the total number of issued shares at any given time, whether for the purposes of these Articles or the Companies Act, save that an allotment of Shares as fully paid bonus shares in respect of a Treasury Share is permitted and Shares allotted as fully paid bonus shares in respect of a treasury share shall be treated as Treasury Shares.
55. Treasury Shares may be disposed of by the Company on such terms and conditions as determined by the Directors.
GENERAL MEETINGS
56. All general meetings other than annual general meetings shall be called extraordinary general meetings.
57. (a) The Company may, but shall not (unless required by the Companies Act) be obliged to hold a general meeting in each year as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors.
(b) At these meetings the report of the Directors (if any) shall be presented.
58. (a) The Chairman or a majority of the Directors may call general meetings, and they shall on a Shareholders requisition forthwith proceed to convene an extraordinary general meeting of the Company.
(b) A Shareholders requisition is a requisition of Shareholders of the Company holding at the date of deposit of the requisition Shares which carry in aggregate not less than twenty percent (20%) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the deposit carry the right of voting at general meetings of the Company.
(c) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company, and may consist of several documents in like form each signed by one or more requisitionists.
(d) If the Directors do not within twenty-one (21) days from the date of the deposit of the requisition duly procdeed to convene a general meeting to be held within a further twenty-one (21) days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one (21) days.
(e) A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.
NOTICE OF GENERAL MEETINGS
59. At least seven (7) days notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed:
(a) in the case of an annual general meeting by all the Shareholders (or their proxies) entitled to attend and vote thereat; and
(b) in the case of an extraordinary general meeting by a majority in number of the Shareholders (or their proxies) having a right to attend and vote at the meeting, being a majority together holding not less than seventy five per cent (75%) in par value of the Shares giving that right.
60. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting.
PROCEEDINGS AT GENERAL MEETINGS
61. No business shall be transacted at any general meeting without the consent of all Shareholders entitled to receive notice of that meeting unless notice of such business has been given in the notice convening that meeting.
62. No business shall be transacted at any general meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business. The holders of Shares being not less than an aggregate of one-half of all Shares in issue present in person or by proxy and entitled to vote shall be a quorum for all purposes.
63. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the Shareholder or Shareholders present and entitled to vote shall form a quorum.
64. If the Directors wish to make this facility available for a specific general meeting or all general meetings of the Company, participation in any general meeting of the Company may be by means of a telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.
65. The chairman, if any, of the Directors shall preside as chairman at every general meeting of the Company.
66. If there is no such chairman, or if at any general meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, any Director or Person nominated by the Directors shall preside as chairman, failing which the Shareholders present in person or by proxy shall choose any Person present to be chairman of that meeting.
The chairman of the general meeting may with the consent of any general meeting at which a quorum is present (and shall if so directed by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen days or more, notice of the adjourned meeting shall be given in the manner provided for the original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.
67. The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine.
68. At any general meeting a resolution put to the vote of the meeting shall be decided by way of a poll save that the chairman of the meeting may, in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands, and where a show of hands is allowed pursuant to these Articles, before or on the declaration of the result of the show of hands, a poll may be demanded by the chairman of the meeting or any Shareholder present in person or by proxy. Where a resolution is voted on by a show of hands, a declaration by the chairman of the meeting that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution. For the purposes of these Articles, procedural and administrative matters are (i) the proposal of new resolutions which are not already set out in the notice convening the general meeting or any proposed amendments to the resolutions; and (ii) those that relate to the chairmans duties to maintain the orderly conduct of the meeting and/or allow the business of the meeting to be properly and effectively dealt with, whilst allowing all Shareholders a reasonable opportunity to express their views.
69. If a poll is required or is duly demanded it shall be taken in such manner as the chairman of the meeting directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was required or demanded.
70. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote.
71. All questions submitted to a meeting shall be decided by an Ordinary Resolution except where a greater majority is required by these Articles or by the Law. A poll demanded on the election of a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs.
VOTES OF SHAREHOLDERS
72. Subject to any rights and restrictions for the time being attached to any Share, on a show of hands every Shareholder present in person and every Person representing a Shareholder by proxy (or, if a corporation or other non-natural person, by its duly authorized representative or proxy) shall, at a general meeting or extraordinary general meeting of the Company, each have one (1) vote and on a poll every Shareholder and every Person representing a Shareholder by proxy (or, if a corporation or other non-natural person, by its duly authorized representative or proxy) shall have one (1) vote for each Share of which he or the Person represented by proxy is the holder.
73. In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy (or, if a corporation or other non-natural person, by its duly authorized representative or proxy), shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register.
74. Shares carrying the right to vote which are held by a Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may be voted in respect of Shares carrying the right to vote held by him, whether on a show of hands or on a poll, by his committee, or other Person in the nature of a committee appointed by that court, and any such committee or other Person, may vote in respect of such Shares by proxy.
75. No Shareholder shall be entitled to vote at any general meeting of the Company unless he is registered as a Shareholder on the record date for such meeting or unless all calls, if any, or other sums presently payable by him in respect of Shares carrying the right to vote held by him have been paid.
76. On a poll votes may be given either personally or by proxy.
77. Each Shareholder, other than a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)), may only appoint one proxy on a show of hand and on a poll, each such proxy is under no obligation to cast all his votes in the same way. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under Seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder. On a poll a Shareholder entitled to more than one vote need not use all his votes or cast all his votes in the same way.
78. An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked.
79. The instrument appointing a proxy shall be deposited at the Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company:
(a) not less than forty-eight (48) hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or
(b) in the case of a poll taken more than forty-eight (48) hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than twenty-four (24) hours before the time appointed for the taking of the poll; or
(c) where the poll is not taken forthwith but is taken not more than forty-eight (48) hours after it was demanded be delivered at the meeting at which the poll was demanded to the chairman or to the secretary or to any director;
provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The Chairman may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.
80. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll.
81. A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings of the Company (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held.
82. Votes given in accordance with the terms of an instrument of proxy, which has been deposited in accordance with Article 79, shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
83. Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorise such Person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or of the Directors or of a committee of Directors, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director.
CLEARING HOUSES
84. If a clearing house (or its nominee) is a Shareholder of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such person or persons as it thinks fit to act as its representative or representatives at any general meeting of the Company or at any general meeting of any class of Shareholders of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of Shares in respect of which each such person is so authorised. A person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual Shareholder holding the number and Class of Shares specified in such authorisation.
DIRECTORS
85.
(a) Unless otherwise determined by the Company in general meeting, the number of Directors shall not be more than nine (9). The Board of Directors shall have the right to change the size of the Board of Directors and determine the exact number of Directors.
(b) Subject to Article 85(f), the Board of Directors shall have a Chairman elected and appointed by a majority of the Directors then in office. The period for which the Chairman will hold office will also be determined by a majority of all of the Directors then in office. The Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, or if the Chairman is unable to or unwilling to act as the chairman of a meeting of the Directors, the attending Directors may choose one of their number to be the chairman of the meeting.
(c) For so long as Wuxi Pharmatech Healthcare Fund I L.P. holds no less than 5% of all the Shares in issue on a fully-diluted basis, it shall be entitled, by notice in writing to the Company, to nominate one (1) independent director (as contemplated by the terms of applicable Designated Stock Exchange Rules and/or SEC rules with respect to audit committee independence) and any such Person shall be appointed and agreed by the Board.
(d) For so long as JSR Limited holds no less than 5% of all the Shares in issue on a fully-diluted basis, it shall be entitled, by notice in writing to the Company, to appoint one (1) Person as a director of the Company and to remove, replace and/or reappoint any such Person so appointed.
(e) For so long as General Atlantic Singapore AI Pte. Ltd. and Affiliates thereof collectively hold no less than 5% of all the Shares in issue on a fully-diluted basis, General Atlantic Singapore AI Pte. Ltd. and Affiliates thereof shall be entitled, by notice in writing to the Company, to appoint one (1) Person as a director of the Company and to remove, replace and reappoint any such Person so appointed.
(f) For as long as Peter Peizhi Luo holds or beneficially owns (as defined under Rule 13d-3 of the Exchange Act) any Shares of the Company or is employed by the Company or any of its Subsidiaries, Peter Peizhi Luo shall occupy one (1) seat of the Board (the Founder Director) and shall serve as the Chairman of the Board of Directors.
(g) In addition to the Founder Director, during the Appointment Period, Peter Peizhi Luo shall be entitled, by notice in writing to the Company, to appoint one (1) Person as director of the Company and to remove, replace and/or reappoint such Person so appointed (the Additional Founder Director, together with the Founder Director, the Founder Directors).
(h) In addition to the Founder Directors, one (1) seat on the Board shall be reserved for and occupied by an executive officer of the Company who is responsible for clinical development or research and development.
(i) Subject to Article 85(d), (e), and (g), the Board of Directors may by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, appoint any person to be a Director either to fill a vacancy on the Board arising from the office of any Director being vacated in any of the circumstances described in Article 108 or as an addition to the existing Board. In the event of a vacancy arising from the office of an Independent Director being vacated, the Board may only appoint another Independent Director with the affirmative vote of the Founder Director to fill such vacancy.
(j) An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he or she has sooner vacated office) upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision.
(k) Each Director whose term of office expires shall be eligible for re-election at a meeting of the Shareholders or re-appointment by the Board; provided that no re-appointment of any Independent Director shall be effective without the affirmative vote of the Founder Director.
86. Subject to Article 85, any vacancy, including newly created directorships resulting from any increase in the authorised number of Directors or amendment of these Articles, and vacancies created by removal or resignation of a Director, may be filled by the consent of a majority of the Directors then in office, though less than a quorum, or by a sole remaining director, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced; provided, however, that where such vacancy occurs among the Directors elected by the holders of a class or series of shares under Article 85, such vacancy shall be filled and appointed in accordance with Article 85.
87. A Director (other than such Director appointed pursuant to Article 85) may be removed from office by Ordinary Resolution of the Company, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement) but with respect to a Director appointed pursuant to Article 85 and other shareholder agreement(s), only upon the vote or written consent of the Shareholders entitled to appoint such Director. Any vacancies created by the resignation, removal or death of a Director appointed pursuant to Article 85 shall be filled in such manner as stipulated in Article 85. The notice of any meeting at which a resolution to remove a Director shall be proposed or voted upon must contain a statement of the intention to remove that Director and such notice must be served on that Director not less than ten (10) days before the meeting. Such Director is entitled to attend the meeting and be heard on the motion for his removal.
88. The Board may, from time to time, and except as required by applicable law or Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives, which shall be intended to set forth the policies of the Company and the Board on various corporate governance related matters as the Board shall determine by resolution from time to time.
89. Subject to applicable law, Designated Stock Exchange Rules and the Articles, the Board may establish any committee of the Board as it deems appropriate from time to time, and committees of the Board shall have the rights, powers and privileges delegated to such committees by the Board from time to time.
90. A Director shall not be required to hold any Shares in the Company by way of qualification. A Director who is not a Shareholder of the Company shall nevertheless be entitled to attend and speak at general meetings.
91. The remuneration of the Directors may be determined by the Directors or by Ordinary Resolution.
92. The Directors shall be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other.
ALTERNATE DIRECTOR
93. Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be authorised to sign such written resolutions where they have been signed by the appointing Director, and to act in such Directors place at any meeting of the Directors. Every such alternate shall be entitled to attend and vote at meetings of the Directors as the alternate of the Director appointing him and where he is a Director to have a separate vote in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall not be an Officer solely as a result of his appointment as an alternate other than in respect of such times as the alternate acts as a Director. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them.
POWERS AND DUTIES OF DIRECTORS
94. Subject to the Companies Act, these Articles and to any resolutions passed in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution passed by the Company in general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been passed.
95. Subject to these Articles, the Directors may from time to time appoint any Person, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officers, one or more other executive officers, the office of president, one or more vice-presidents, treasurer, assistant treasurer, manager or controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. Any Person so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases from any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated.
96. The Directors may appoint any Person to be a Secretary (and if need be an assistant Secretary or assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the Company by Ordinary Resolution.
97. The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors.
98. The Directors may from time to time and at any time by power of attorney (whether under Seal or under hand) or otherwise appoint any company, firm or Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys or authorised signatory (any such person being an Attorney or Authorised Signatory, respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such Attorney or Authorised Signatory as the Directors may think fit, and may also authorise any such Attorney or Authorised Signatory to delegate all or any of the powers, authorities and discretion vested in him.
99. The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article.
100. The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any Person to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such Person.
101. The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any Person so appointed and may annul or vary any such delegation, but no Person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.
102. Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them.
103. Subject to the Companies Act and other provisions of these Articles (including Article 48), the Directors may agree with a Shareholder to waive or modify the terms applicable to such Shareholders subscription for Shares without obtaining the consent of any other Shareholder; provided that such waiver or modification does not amount to a variation or abrogation of the rights attaching to the Shares of any other Shareholders.
BORROWING POWERS OF DIRECTORS
104. The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, or to otherwise provide for a security interest to be taken in such undertaking, property or uncalled capital, and to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral, whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party.
THE SEAL
105. The Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose and every Person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence.
106. The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such Person or Persons as the Directors shall for this purpose appoint and such Person or Persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose.
107. Notwithstanding the foregoing, a Secretary or any assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company.
DISQUALIFICATION OF DIRECTORS
108. The office of a Director shall be vacated, if the Director:
(a) becomes bankrupt or makes any arrangement or composition with his creditors;
(b) dies or is found to be or becomes of unsound mind;
(c) resigns his office by notice in writing to the Company;
(d) is prohibited by any applicable Law or Designated Stock Exchange Rules from being a Director;
(e) without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or
(f) is removed from office pursuant to any other provision of these Articles.
PROCEEDINGS OF DIRECTORS
109. The Directors may meet together (either within or outside the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors present at a meeting. At any meeting of the Directors, each Director present in person or represented by his alternate or proxy shall be entitled to one vote. In case of an equality of votes the Chairman shall have a second or casting vote. A Director may, and a Secretary or assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. Any Director may appoint any Person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting of the Board which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Board may approve, and must be lodged with the chairman of the meeting of the Board at which such proxy is to be used, or first used, prior to the commencement of the meeting.
110. A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.
111. The quorum necessary for the transaction of the business of the Directors shall be not less than three (3) Directors provided that any quorum shall require the presence of the Founder Director; provided, however, that if such quorum cannot be obtained for a Board meeting after two (2) consecutive notices of such meeting have been sent by the Company with the first notice providing not less than seven (7) days prior notice and the second notice providing not less than five (5) days prior notice, then the attendance of any three (3) Directors shall constitute a quorum, provided further that matters discussed in such adjourned meeting shall be limited to those stated in the written notices and agendas of the Board meeting, and resolutions passed in such meeting shall be subject to notices and agendas of such meeting as well as copies of all board papers shall be sent to all the Directors and each Shareholder who appointed a director to the Board at least seven (7) days prior to the relevant Board meeting. If at any time there is only a sole Director, the quorum shall be one Director. A Director represented by an alternate Director or by proxy at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present.
112. A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm or is to be regarded as interested in any contract or other arrangement which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. Subject to the Designated Stock Exchange Rules and disqualification by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration.
113. A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement.
114. Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company.
115. The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording:
(a) all appointments of Officers made by the Directors;
(b) the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and
(c) all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors.
116. When the chairman of a meeting of the Directors signs the minutes of such meeting where a quorum was present the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings.
117. A resolution in writing signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and effectual as if it had been passed at a duly called and constituted meeting of Directors or committee of Directors, as the case may be. When signed a resolution may consist of several documents each signed by one or more of the Directors or his duly appointed alternate.
118. The continuing Directors may act notwithstanding any vacancy in their body but if and for so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose.
119. Subject to any regulations imposed on it by the Directors, a committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the meeting, or if the Chairman is unable to or unwilling to act as the chairman, the committee members present may choose one of their number to be chairman of the meeting.
120. A committee appointed by the Directors may meet and adjourn as it thinks proper. Subject to any regulations imposed on it by the Directors, questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote.
121. All acts done by any meeting of the Directors or of a committee of Directors, or by any Person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or Person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and was qualified to be a Director.
PRESUMPTION OF ASSENT
122. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward a written form of such dissent to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.
DIVIDENDS
123. Subject to any rights and restrictions for the time being attached to any Shares, or as otherwise provided for in the Companies Act and these Articles, the Directors may from time to time declare dividends (including interim dividends) and other distributions on Shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor.
124. Subject to any rights and restrictions for the time being attached to any Shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors.
125. The Directors may determine, before recommending or declaring any dividend, to set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors, be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds may be properly applied and pending such application may in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments as the Directors may from time to time think fit.
126. Any dividend may be paid in any manner as the Directors may determine. If paid by cheque it will be sent through the post to the registered address of the Shareholder or Person entitled thereto, or in the case of joint holders, to any one of such joint holders at his registered address or to such Person and such address as the Shareholder or Person entitled, or such joint holders as the case may be, may direct. Every such cheque shall be made payable to the order of the Person to whom it is sent or to the order of such other Person as the Shareholder or Person entitled, or such joint holders as the case may be, may direct.
127. The Directors when paying dividends to the Shareholders in accordance with the foregoing provisions of these Articles may make such payment either in cash or in specie and may determine the extent to which amounts may be withheld therefrom (including, without limitation, any taxes, fees, expenses or other liabilities for which a Shareholder (or the Company, as a result of any action or inaction of the Shareholder) is liable).
128. Subject to any rights and restrictions for the time being attached to any Shares, all dividends shall be declared and paid according to the amounts paid up on the Shares, but if and for so long as nothing is paid up on any of the Shares dividends may be declared and paid according to the par value of the Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share.
129. If several Persons are registered as joint holders of any Share, any of them may give effectual receipts for any dividend or other moneys payable on or in respect of the Share.
130. No dividend shall bear interest against the Company.
131. Any dividend unclaimed after a period of six years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company.
ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION
132. The books of account relating to the Companys affairs shall be kept in such manner as may be determined from time to time by the Directors.
133. The books of account shall be kept at the Office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors.
134. The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by law or authorised by the Directors or by Ordinary Resolution.
135. The accounts relating to the Companys affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited.
136. The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration.
137. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.
138. Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Shareholders.
139. The Directors in each year shall prepare, or cause to be prepared, an annual return and declaration setting forth the particulars required by the Companies Act and deliver a copy thereof to the Registrar of Companies in the Cayman Islands.
CAPITALISATION OF RESERVES
140. Subject to the Companies Act and these Articles, the Directors may:
(a) resolve to capitalise an amount standing to the credit of reserves (including a Share Premium Account, capital redemption reserve and profit and loss account), whether or not available for distribution;
(b) appropriate the sum resolved to be capitalised to the Shareholders in proportion to the nominal amount of Shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards:
(i) paying up the amounts (if any) for the time being unpaid on Shares held by them respectively, or
(ii) paying up in full unissued Shares or debentures of a nominal amount equal to that sum, and allot the Shares or debentures, credited as fully paid, to the Shareholders (or as they may direct) in those proportions, or partly in one way and partly in the other, but the Share Premium Account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued Shares to be allotted to Shareholders credited as fully paid;
(c) make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where Shares or debentures become distributable in fractions the Directors may deal with the fractions as they think fit;
(d) authorise a Person to enter (on behalf of all the Shareholders concerned) into an agreement with the Company providing for either:
(i) the allotment to the Shareholders respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalisation, or
(ii) the payment by the Company on behalf of the Shareholders (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing Shares,
and any such agreement made under this authority being effective and binding on all those Shareholders; and
(e) generally do all acts and things required to give effect to any of the actions contemplated by this Article.
141. Notwithstanding any provisions in these Articles, the Directors may resolve to capitalise any sum standing to the credit of any of the Companys reserve accounts or funds (including the Share Premium Account and capital redemption reserve fund) or any sum standing to the credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to:
(a). employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Shareholders;
(b). any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or Shareholders; or
(a) any depositary of the Company for the purposes of the issue, allotment and delivery by the depositary of ADSs to employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Shareholders.
SHARE PREMIUM ACCOUNT
142. The Directors shall in accordance with the Companies Act establish a Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any Share.
143. There shall be debited to any Share Premium Account on the redemption or purchase of a Share the difference between the nominal value of such Share and the redemption or purchase price provided always that at the determination of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Act, out of capital.
NOTICES
144. Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally, or by posting it by airmail or air courier service in a prepaid letter addressed to such Shareholder at his address such Shareholder may have specified in writing for the purpose of such service of notices (or if absent of such notification, at his address as appearing in the Register), or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by facsimile or by placing it on the Companys Website should the Directors deem it appropriate provided that the Company shall notify the Shareholders of the placement of such notice by any of the means set out above. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.
145. Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail.
146. Any Shareholder present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened.
147. Any notice or other document, if served by:
(a) post, shall be deemed to have been served five days after the time when the letter containing the same is posted;
(b) facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient;
(c) recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; or
(d) electronic mail, shall be deemed to have been served immediately upon the time of the transmission by electronic mail.
In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.
148. Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share.
149. Notice of every general meeting of the Company shall be given to:
(a) all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and
(b) every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting.
No other Person shall be entitled to receive notices of general meetings.
INFORMATION
150. No Shareholder shall be entitled to require discovery of any information in respect of any detail of the Companys trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Shareholders of the Company to communicate to the public.
151. The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Shareholders including, without limitation, information contained in the Register and transfer books of the Company.
INDEMNITY
152. Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these Articles), Secretary, assistant Secretary, or other Officer (but not including the Companys auditors) and the personal representatives of the same (each an Indemnified Person) shall be indemnified and secured harmless, to the fullest extent permitted by applicable law, against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Persons own dishonesty, wilful default or fraud as determined by a court of competent jurisdiction, in or about the conduct of the Companys business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere.
153. No Indemnified Person shall be liable:
(a) for the acts, receipts, neglects, defaults or omissions of any other Director or Officer or agent of the Company; or
(b) for any loss on account of defect of title to any property of the Company; or
(c) on account of the insufficiency of any security in or upon which any money of the Company shall be invested; or
(d) for any loss incurred through any bank, broker or other similar Person; or
(e) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Indemnified Persons part; or
(f) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of such Indemnified Persons office or in relation thereto;
unless the same shall happen through such Indemnified Persons own dishonesty, wilful default or fraud as determined by a court of competent jurisdiction.
FINANCIAL YEAR
154. Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each year and shall begin on January 1st in each year.
NON-RECOGNITION OF TRUSTS
155. No Person shall be recognised by the Company as holding any Share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or (except only as otherwise provided by these Articles or as the Companies Act requires) any other right in respect of any Share except an absolute right to the entirety thereof in each Shareholder registered in the Register.
WINDING UP
156. If the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Act, divide amongst the Shareholders in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Shareholders as the liquidator, with the like sanction, shall think fit, but so that no Shareholder shall be compelled to accept any asset upon which there is a liability.
157. If the Company shall be wound up, and the assets available for distribution amongst the Shareholders shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Shareholders in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Shareholders in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions.
AMENDMENT OF ARTICLES OF ASSOCIATION
158. Subject to the Companies Act and the rights attaching to the various Classes, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part.
CLOSING OF REGISTER OR FIXING RECORD DATE
159. For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholder for any other purpose, the Directors may provide that the Register shall be closed for transfers for a stated period which shall not exceed in any case 30 days. If the Register shall be so closed for the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders the Register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register.
160. In lieu of or apart from closing the Register, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination.
161. If the Register is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof.
REGISTRATION BY WAY OF CONTINUATION
162. The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.
DISCLOSURE
163. The Directors, or any service providers (including the Officers, the Secretary and the registered office agent of the Company) specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority or to any stock exchange on which securities of the Company may from time to time be listed any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company.
Adagene Inc. INCORPORATED IN THE CAYMAN ISLANDS UNDER THE COMPANIES LAW (AS AMENDED OR REVISED FROM TIME TO TIME) Certificate Number Number of Shares THE AUTHORISED CAPITAL OF THE COMPANY IS USD 80,000.00 DIVIDED INTO 800,000,000 ORDINARY SHARES OF PAR VALUE USD 0.0001 EACH THIS CERTIFIES THAT OF IS THE OWNER OF fully paid Ordinary shares of par value USD 0.0001 each IN THE COMPANY Adagene Inc. (the "Company") transferable on the books of the Company by the holder hereof in person or by a duly authorised attorney upon surrender of this certificate to the Company. This certificate and the shares represented are issued and shall be held subject to the provisions of the Memorandum and Articles of Association of the Company. EXECUTED on behalf of the Company this day of Director 9764755.1G3359.H19501 Exhibit 4.2
TABLE OF CONTENTS
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Page |
PARTIES |
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1 |
RECITALS |
|
1 |
Section 1. |
Certain Definitions |
|
(a) |
ADR Register |
1 |
(b) |
ADRs; Direct Registration ADRs |
1 |
(c) |
ADS |
1 |
(d) |
Beneficial Owner |
1 |
(e) |
Custodian |
2 |
(f) |
Deliver, execute, issue et al. |
2 |
(g) |
Delivery Order |
2 |
(h) |
Deposited Securities |
2 |
(i) |
Direct Registration System |
2 |
(j) |
Holder |
2 |
(k) |
Securities Act of 1933 |
2 |
(l) |
Securities Exchange Act of 1934 |
3 |
(m) |
Shares |
3 |
(n) |
Transfer Office |
3 |
(o) |
Withdrawal Order |
3 |
Section 2. |
Form of ADRs |
3 |
Section 3. |
Deposit of Shares |
3 |
Section 4. |
Issue of ADRs |
5 |
Section 5. |
Distributions on Deposited Securities |
5 |
Section 6. |
Withdrawal of Deposited Securities |
5 |
Section 7. |
Substitution of ADRs |
5 |
Section 8. |
Cancellation and Destruction of ADRs |
6 |
Section 9. |
The Custodian |
6 |
Section 10. |
Lists of Holders |
6 |
Section 11. |
Depositarys Agents |
7 |
Section 12. |
Resignation and Removal of the Depositary; Appointment of Successor Depositary |
7 |
Section 13. |
Reports |
8 |
Section 14. |
Additional Shares |
8 |
Section 15. |
Indemnification |
8 |
Section 16. |
Notices |
10 |
Section 17. |
Counterparts |
11 |
Section 18. |
No Third Party Beneficiaries; Holders and Beneficial Owners as Parties; Binding Effect |
11 |
Section 19. |
Severability |
11 |
Section 20. |
Governing Law; Consent to Jurisdiction |
11 |
Section 21. |
Agent for Service |
13 |
Section 22. |
Waiver of Immunities |
14 |
Section 23. |
Waiver of Jury Trial |
15 |
TESTIMONIUM |
15 |
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SIGNATURES |
15 |
EXHIBIT A
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Page |
FORM OF FACE OF ADR |
A-1 |
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Introductory Paragraph |
A-1 |
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(1) |
Issuance of ADSs |
A-2 |
(2) |
Withdrawal of Deposited Securities |
A-3 |
(3) |
Transfers, Split-Ups and Combinations of ADRs |
A-3 |
(4) |
Certain Limitations to Registration, Transfer etc. |
A-4 |
(5) |
Liability of Holder or Beneficial Owner for Taxes, Duties and Other Charges |
A-5 |
(6) |
Disclosure of Interests |
A-6 |
(7) |
Charges of Depositary |
A-7 |
(8) |
Available Information |
A-10 |
(9) |
Execution |
A-10 |
Signature of Depositary |
A-10 |
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Address of Depositarys Office |
A-10 |
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FORM OF REVERSE OF ADR |
A-11 |
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(10) |
Distributions on Deposited Securities |
A-12 |
(11) |
Record Dates |
A-13 |
(12) |
Voting of Deposited Securities |
A-13 |
(13) |
Changes Affecting Deposited Securities |
A-16 |
(14) |
Exoneration |
A-17 |
(15) |
Resignation and Removal of Depositary; the Custodian |
A-20 |
(16) |
Amendment |
A-21 |
(17) |
Termination |
A-21 |
(18) |
Appointment; Acknowledgements and Agreements |
A-23 |
(19) |
Waiver |
A-24 |
(20) |
Jurisdiction |
A-24 |
DEPOSIT AGREEMENT, dated as of _____________ __, 2021 (the Deposit Agreement), among Adagene Inc. and its successors (the Company), JPMORGAN CHASE BANK, N.A., as depositary hereunder (the Depositary), and all Holders (as defined below) and Beneficial Owners (as defined below) from time to time of American Depositary Receipts issued hereunder evidencing American Depositary Shares (ADSs) representing deposited Shares (as defined below). The Company hereby appoints the Depositary as depositary for the Deposited Securities (as defined below) and hereby authorizes and directs the Depositary to act in accordance with the terms set forth in this Deposit Agreement. All capitalized terms used herein have the meanings ascribed to them in Section 1 or elsewhere in this Deposit Agreement. The parties hereto agree as follows:
1. Certain Definitions.
(a) ADR Register is defined in paragraph (3) of the form of ADR (Transfers, Split-Ups and Combinations of ADRs).
(b) ADRs mean the American Depositary Receipts executed and delivered hereunder. ADRs may be either in physical certificated form or Direct Registration ADRs (as hereinafter defined). ADRs in physical certificated form, and the terms and conditions governing the Direct Registration ADRs, shall be substantially in the form of Exhibit A annexed hereto (the form of ADR). The term Direct Registration ADR means an ADR, the ownership of which is recorded on the Direct Registration System. References to ADRs shall include certificated ADRs and Direct Registration ADRs, unless the context otherwise requires. The form of ADR is hereby incorporated herein and made a part hereof; the provisions of the form of ADR shall be binding upon the parties hereto.
(c) Subject to paragraph (13) of the form of ADR (Changes Affecting Deposited Securities), each ADS evidenced by an ADR represents the right to receive, and to exercise the beneficial ownership interests in, the number of Shares specified in the form of ADR attached hereto as Exhibit A (as amended from time to time) that are on deposit with the Depositary and/or the Custodian and a pro rata share in any other Deposited Securities, subject, in each case, to the terms of this Deposit Agreement and the ADSs. The ADS(s)-to-Share(s) ratio is subject to amendment as provided in the form of ADR (which may give rise to fees contemplated in paragraph (7) thereof (Charges of Depositary)).
(d) Beneficial Owner means as to any ADS, any person or entity having a beneficial ownership interest in such ADS. A Beneficial Owner need not be the Holder of the ADR evidencing such ADS. If a Beneficial Owner of ADSs is not a Holder, it must rely on the Holder of the ADR(s) evidencing such ADSs in order to assert any rights or receive any benefits under this Deposit Agreement. The arrangements between a Beneficial Owner of ADSs and the Holder of the corresponding ADRs may affect the Beneficial Owners ability to exercise any rights it may have.
(e) Custodian means the agent or agents of the Depositary (singly or collectively, as the context requires) and any additional or substitute Custodian appointed pursuant to Section 9.
(f) The terms deliver, execute, issue, register, surrender, transfer or cancel, when used with respect to Direct Registration ADRs, shall refer to an entry or entries or an electronic transfer or transfers in the Direct Registration System, and, when used with respect to ADRs in physical certificated form, shall refer to the physical delivery, execution, issuance, registration, surrender, transfer or cancellation of certificates representing the ADRs.
(g) Delivery Order is defined in Section 3.
(h) Deposited Securities as of any time means all Shares at such time deposited under this Deposit Agreement and any and all other Shares, securities, property and cash at such time held by the Depositary or the Custodian in respect or in lieu of such deposited Shares and other Shares, securities, property and cash. Deposited Securities are not intended to, and shall not, constitute proprietary assets of the Depositary, the Custodian or their nominees. Beneficial ownership in Deposited Securities is intended to be, and shall at all times during the term of the Deposit Agreement continue to be, vested in the Beneficial Owners of the ADSs representing such Deposited Securities.
(i) Direct Registration System means the system for the uncertificated registration of ownership of securities established by The Depository Trust Company (DTC) and utilized by the Depositary pursuant to which the Depositary may record the ownership of ADRs without the issuance of a certificate, which ownership shall be evidenced by periodic statements issued by the Depositary to the Holders entitled thereto. For purposes hereof, the Direct Registration System shall include access to the Profile Modification System maintained by DTC which provides for automated transfer of ownership between DTC and the Depositary.
(j) Holder means the person or persons in whose name an ADR is registered on the ADR Register. For all purposes under the Deposit Agreement and the ADRs, a Holder shall be deemed to have all requisite authority to act on behalf of any and all Beneficial Owners of the ADSs evidenced by the ADR(s) registered in such Holders name.
(k) Securities Act of 1933 means the United States Securities Act of 1933, as from time to time amended.
(l) Securities Exchange Act of 1934 means the United States Securities Exchange Act of 1934, as from time to time amended.
(m) Shares mean the ordinary shares of the Company, and shall include the rights to receive Shares specified in paragraph (1) of the form of ADR (Issuance of ADSs).
(n) Transfer Office is defined in paragraph (3) of the form of ADR (Transfers, Split-Ups and Combinations of ADRs).
(o) Withdrawal Order is defined in Section 6.
2. Form of ADRs.
(a) Direct Registration ADRs. Notwithstanding anything in this Deposit Agreement or in the form of ADR to the contrary, ADSs shall be evidenced by Direct Registration ADRs, unless certificated ADRs are specifically requested by the Holder.
(b) Certificated ADRs. ADRs in certificated form shall be printed or otherwise reproduced at the discretion of the Depositary in accordance with its customary practices in its American depositary receipt business, or at the request of the Company typewritten and photocopied on plain or safety paper, and shall be substantially in the form set forth in the form of ADR, with such changes as may be required by the Depositary or the Company to comply with their obligations hereunder, any applicable law, regulation or usage or to indicate any special limitations or restrictions to which any particular ADRs are subject. ADRs may be issued in denominations of any number of ADSs. ADRs in certificated form shall be executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the Depositary. ADRs in certificated form bearing the facsimile signature of anyone who was at the time of execution a duly authorized officer of the Depositary shall bind the Depositary, notwithstanding that such officer has ceased to hold such office prior to the delivery of such ADRs.
(c) Binding Effect. Holders of ADRs, and the Beneficial Owners of the ADSs evidenced by such ADRs, shall each be bound by the terms and conditions of this Deposit Agreement and of the form of ADR, regardless of whether such ADRs are Direct Registration ADRs or certificated ADRs.
3. Deposit of Shares.
(a) Requirements. In connection with the deposit of Shares hereunder, the Depositary or the Custodian may require the following in a form satisfactory to it:
(i) a written order directing the Depositary to issue to, or upon the written order of, the person or persons designated in such order a Direct Registration ADR or ADRs evidencing the number of ADSs representing such deposited Shares (a Delivery Order);
(ii) proper endorsements or duly executed instruments of transfer in respect of such deposited Shares;
(iii) instruments assigning to the Depositary, the Custodian or a nominee of either any distribution on or in respect of such deposited Shares or indemnity therefor; and
(iv) proxies entitling the Custodian to vote such deposited Shares.
(b) Registration of Deposited Securities. As soon as practicable after the Custodian receives Deposited Securities pursuant to any such deposit or pursuant to paragraph (10) (Distributions on Deposited Securities) or (13) (Changes Affecting Deposited Securities) of the form of ADR, the Custodian shall present such Deposited Securities for registration of transfer into the name of the Depositary, the Custodian or a nominee of either, in each case for the benefit of Holders, to the extent such registration is practicable, at the cost and expense of the person making such deposit (or for whose benefit such deposit is made) and shall obtain evidence satisfactory to it of such registration. Deposited Securities shall be held by the Custodian for the account and to the order of the Depositary for the benefit of Holders of ADRs (to the extent not prohibited by law) at such place or places and in such manner as the Depositary shall determine. Notwithstanding anything else contained herein, in the form of ADR and/or in any outstanding ADSs, the Depositary, the Custodian and their respective nominees are intended to be, and shall at all times during the term of the Deposit Agreement be, the record holder(s) only of the Deposited Securities represented by the ADSs for the benefit of the Holders. The Depositary, on its own behalf and on behalf of the Custodian and their respective nominees, disclaims any beneficial ownership interest in the Deposited Securities held on behalf of the Holders.
(c) Delivery of Deposited Securities. Deposited Securities may be delivered by the Custodian to any person only under the circumstances expressly contemplated in this Deposit Agreement. To the extent that the provisions of or governing the Shares make delivery of certificates therefor impracticable, Shares may be deposited hereunder by such delivery thereof as the Depositary or the Custodian may reasonably accept, including, without limitation, by causing them to be credited to an account maintained by the Custodian for such purpose with the Company or an accredited intermediary, such as a bank, acting as a registrar for the Shares, together with delivery of the documents, payments and Delivery Order referred to herein to the Custodian or the Depositary.
4. Issue of ADRs. After any such deposit of Shares, the Custodian shall notify the Depositary of such deposit and of the information contained in any related Delivery Order by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by SWIFT, cable, telex or facsimile transmission. After receiving such notice from the Custodian, the Depositary, subject to this Deposit Agreement, shall properly issue at the Transfer Office, to or upon the order of any person named in such notice, an ADR or ADRs registered as requested and evidencing the aggregate ADSs to which such person is entitled.
5. Distributions on Deposited Securities. To the extent that the Depositary determines in its discretion that any distribution pursuant to paragraph (10) of the form of ADR (Distributions on Deposited Securities) is not practicable with respect to any Holder, the Depositary may make such distribution as it so deems practicable, including the distribution of foreign currency, securities or property (or appropriate documents evidencing the right to receive foreign currency, securities or property) or the retention thereof as Deposited Securities with respect to such Holders ADRs (without liability for interest thereon or the investment thereof).
6. Withdrawal of Deposited Securities. In connection with any surrender of an ADR for withdrawal of the Deposited Securities represented by the ADSs evidenced thereby, the Depositary may require proper endorsement in blank of such ADR (or duly executed instruments of transfer thereof in blank) and the Holders written order directing the Depositary to cause the Deposited Securities represented by the ADSs evidenced by such ADR to be withdrawn and delivered to, or upon the written order of, any person designated in such order (a Withdrawal Order). Directions from the Depositary to the Custodian to deliver Deposited Securities shall be given by letter, first class airmail postage prepaid, or, at the request, risk and expense of the Holder, by SWIFT, cable, telex or facsimile transmission. Delivery of Deposited Securities may be made by the delivery of certificates (which, if required by law shall be properly endorsed or accompanied by properly executed instruments of transfer or, if such certificates may be registered, registered in the name of such Holder or as ordered by such Holder in any Withdrawal Order) or by such other means as the Depositary may deem practicable, including, without limitation, by transfer of record ownership thereof to an account designated in the Withdrawal Order maintained either by the Company or an accredited intermediary, such as a bank, acting as a registrar for the Deposited Securities.
7. Substitution of ADRs. The Depositary shall execute and deliver a new Direct Registration ADR in exchange and substitution for any mutilated certificated ADR upon cancellation thereof or in lieu of and in substitution for such destroyed, lost or stolen certificated ADR, unless the Depositary has notice that such ADR has been acquired by a bona fide purchaser, upon the Holder thereof filing with the Depositary a request for such execution and delivery and a sufficient indemnity bond and satisfying any other reasonable requirements imposed by the Depositary.
8. Cancellation and Destruction of ADRs. All ADRs surrendered to the Depositary shall be cancelled by the Depositary. The Depositary is authorized to destroy ADRs in certificated form so cancelled in accordance with its customary practices.
9. The Custodian.
(a) Rights of the Depositary. Any Custodian in acting hereunder shall be subject to the directions of the Depositary and shall be responsible solely to it. The Depositary reserves the right to add, replace or remove a Custodian. The Depositary will give prompt notice of any such action, which will be advance notice if practicable. The Depositary may discharge any Custodian at any time upon notice to the Custodian being discharged.
(b) Rights of the Custodian. Any Custodian may resign from its duties hereunder by providing at least 30 days prior written notice to the Depositary. Promptly after the receipt of such written notice, the Depositary shall endeavor to appoint a substitute custodian or custodians, each of which shall be a Custodian hereunder upon the effectiveness of such resignation. Any Custodian ceasing to act hereunder as Custodian shall deliver, upon the instruction of the Depositary, all Deposited Securities held by it to a Custodian continuing to act.
(c) Notwithstanding anything to the contrary contained in this Deposit Agreement (including the ADRs) and, subject to the further limitations set forth in clause (o) of paragraph (14) of the form of ADR (Exoneration), the Depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or omission to act on the part of the Custodian except to the extent that any Holder has incurred liability directly as a result of the Custodian having (i) committed fraud or willful misconduct in the provision of custodial services to the Depositary or (ii) failed to use reasonable care in the provision of custodial services to the Depositary as determined in accordance with the standards prevailing in the jurisdiction in which the Custodian is located.
10. Lists of Holders. The Company shall have the right to inspect transfer records of the Depositary and its agents and the ADR Register, take copies thereof and require the Depositary and its agents to supply copies of such portions of such records as the Company may request. The Depositary or its agents shall furnish to the Company promptly upon the written request of the Company, a list of the names, addresses and holdings of ADSs by all Holders as of a date within seven days of the Depositarys receipt of such request.
11. Depositarys Agents. The Depositary may perform its obligations under this Deposit Agreement through any agent appointed by it, provided that the Depositary shall notify the Company of such appointment and shall remain responsible for the performance of such obligations as if no agent were appointed, subject to paragraph (14) of the form of ADR (Exoneration).
12. Resignation and Removal of the Depositary; Appointment of Successor Depositary.
(a) Resignation of the Depositary. The Depositary may at any time resign as Depositary hereunder by written notice of its election to do so delivered to the Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided.
(b) Removal of the Depositary. The Depositary may at any time be removed by the Company by providing no less than 60 days prior written notice of such removal to the Depositary, such removal to take effect on the later of (i) the 60th day after such notice of removal is first provided and (ii) the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided. Notwithstanding the foregoing, if upon the resignation or removal of the Depositary a successor depositary is not appointed within the applicable 60-day period as specified in paragraph (17) of the form of ADR (Termination), then the Depositary may elect to terminate this Deposit Agreement and the ADR and the provisions of said paragraph (17) shall thereafter govern the Depositarys obligations hereunder.
(c) Appointment of Successor Depositary. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, The City of New York. Every successor depositary shall execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor. The predecessor depositary, only upon payment of all sums due to it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than its rights to indemnification and fees owing, each of which shall survive any such removal and/or resignation), (ii) duly assign, transfer and deliver all right, title and interest to the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding ADRs. Any such successor depositary shall promptly mail notice of its appointment to such Holders. Any bank or trust company into or with which the Depositary may be merged or consolidated, or to which the Depositary shall transfer substantially all its American depositary receipt business, shall be the successor of the Depositary without the execution or filing of any document or any further act.
13. Reports. On or before the first date on which the Company makes any communication available to holders of Deposited Securities or any securities regulatory authority or stock exchange, by publication or otherwise, the Company shall transmit to the Depositary a copy thereof in English or with an English translation or summary. The Company has delivered to the Depositary, the Custodian and any Transfer Office, a copy of all provisions of or governing the Shares and any other Deposited Securities issued by the Company or any affiliate of the Company and, promptly upon any change thereto, the Company shall deliver to the Depositary, the Custodian and any Transfer Office, a copy (in English or with an English translation) of such provisions as so changed. The Depositary and its agents may rely upon the Companys delivery of all such communications, information and provisions for all purposes of this Deposit Agreement and the Depositary shall have no liability for the accuracy or completeness of any thereof.
14. Additional Shares. The Company agrees with the Depositary that neither the Company nor any company controlling, controlled by or under common control with the Company shall (a) issue (i) additional Shares, (ii) rights to subscribe for Shares, (iii) securities convertible into or exchangeable for Shares or (iv) rights to subscribe for any such securities or (b) deposit any Shares under this Deposit Agreement, except, in each case, under circumstances complying in all respects with the Securities Act of 1933. At the reasonable request of the Depositary where it deems necessary, the Company will furnish the Depositary with legal opinions, in forms and from counsels reasonably acceptable to the Depositary, dealing with such issues requested by the Depositary. The Depositary will not knowingly accept for deposit hereunder any Shares required to be registered under the Securities Act of 1933 unless a registration statement is in effect and will use reasonable efforts to comply with written instructions of the Company not to accept for deposit hereunder any Shares identified in such instructions at such times and under such circumstances as may reasonably be specified in such instructions in order to facilitate the Companys compliance with the requirements of the securities laws, rules and regulations in the United States.
15. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify, defend and save harmless each of the Depositary, the Custodian and their respective directors, officers, employees, agents and affiliates against any loss, liability or expense (including reasonable fees and expenses of counsel) which may arise out of acts performed or omitted, in connection with the provisions of this Deposit Agreement and of the ADRs, as the same may be amended, modified or supplemented from time to time in accordance herewith (i) by either the Depositary or a Custodian or their respective directors, officers, employees, agents and affiliates, except for any liability or expense directly arising out of the negligence or willful misconduct of the Depositary or its directors, officers or affiliates acting in their capacities as such hereunder, or (ii) by the Company or any of its directors, officers, employees, agents and affiliates.
The indemnities set forth in the preceding paragraph shall also apply to any liability or expense which may arise out of any misstatement or alleged misstatement or omission or alleged omission in any registration statement, proxy statement, prospectus (or placement memorandum), or preliminary prospectus (or preliminary placement memorandum) relating to the offer, issuance, withdrawal or sale of ADSs or the deposit, withdrawal, offer or sale of Shares, except to the extent any such liability or expense arises out of (i) information relating to the Depositary or its agents (other than the Company), as applicable, furnished in writing by the Depositary expressly for use in any of the foregoing documents and not changed or altered by the Company or any other person (other than the Depositary) or (ii) if such information is provided, the failure to state a material fact therein necessary to make the information provided, in light of the circumstance under which provided, not misleading.
(b) Indemnification by the Depositary. Subject to the limitations provided for in Section 15(c) below, the Depositary shall indemnify, defend and save harmless the Company against any direct loss, liability or expense (including reasonable fees and expenses of counsel) incurred by the Company in respect of this Deposit Agreement to the extent such loss, liability or expense is due to the negligence or willful misconduct of the Depositary.
(c) Damages or Lost Profits. Notwithstanding any other provision of this Deposit Agreement or the ADRs to the contrary, neither the Depositary nor the Company, nor any of their respective agents shall be liable to the other for any indirect, special, punitive or consequential damages (excluding reasonable fees and expenses of counsel) or lost profits, in each case of any form (collectively, Special Damages) incurred by any of them, or liable to any other person or entity (including, without limitation, Holders and Beneficial Owners) for any Special Damages, or any fees or expenses of counsel in connection therewith, whether or not foreseeable and regardless of the type of action in which such a claim may be brought; provided, however, that (i) notwithstanding the foregoing and, for the avoidance of doubt, the Depositary and its agents shall be entitled to legal fees and expenses in defending against any claim for Special Damages and (ii) to the extent Special Damages arise from or out of a claim brought by a third party (including, without limitation, Holders and Beneficial Owners) against the Depositary or any of its agents, the Depositary and its agents shall be entitled to full indemnification from the Company for all such Special Damages, and reasonable fees and expenses of counsel in connection therewith, unless such Special Damages are found to have been a direct result of the gross negligence or willful misconduct of the Depositary.
(d) Survival. The obligations set forth in this Section 15 shall survive the termination of this Deposit Agreement and the succession or substitution of any indemnified person.
16. Notices.
(a) Notice to Holders. Notice to any Holder shall be deemed given when first mailed, first class postage prepaid, to the address of such Holder on the ADR Register or received by such Holder. Failure to notify a Holder or any defect in the notification to a Holder shall not affect the sufficiency of notification to other Holders or to the Beneficial Owners of the ADSs evidenced by the ADRs held by such other Holders. The Depositarys only notification obligations under this Deposit Agreement and the ADRs shall be to Holders. Notice to a Holder shall be deemed, for all purposes of the Deposit Agreement and the ADRs, to constitute notice to any and all Beneficial Owners of the ADSs evidenced by such Holders ADRs.
(b) Notice to the Depositary or the Company. Notice to the Depositary or the Company shall be deemed given when first received by it at the address or facsimile transmission number set forth in (i) or (ii), respectively, or at such other address or facsimile transmission number as either may specify to the other by written notice:
(i) JPMorgan Chase Bank, N.A.
383 Madison Avenue, Floor 11
New York, New York, 10179
Attention: Depositary Receipts Group
Fax: (302) 220-4591
(ii) [Adagene Inc.
4F, Building C14
218 Xinghu St.
Suzhou Industrial Park,
Suzhou, Jiangsu Province
Peoples Republic of China
Attention: [NAME]
Fax: [FACSIMILE]
Email: accounting@adagene.com.cn;
[EMAIL ADDRESS]; [EMAIL ADDRESS]](1)
(1) To be confirmed by Company
17. Counterparts. This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one instrument. Delivery of an executed signature page of this Deposit Agreement by facsimile or other electronic transmission (including .pdf, .tif or similar format) shall be effective as delivery of a manually executed counterpart hereof.
18. No Third Party Beneficiaries; Holders and Beneficial Owners as Parties; Binding Effect. This Deposit Agreement is for the exclusive benefit of the Company, the Depositary and the Holders and their respective successors hereunder, and, except to the extent specifically set forth in Section 15 of this Deposit Agreement, shall not give any legal or equitable right, remedy or claim whatsoever to any other person. The Holders and Beneficial Owners from time to time shall be parties to this Deposit Agreement and shall be bound by all of the provisions hereof. A Beneficial Owner shall only be able to exercise any right or receive any benefit hereunder solely through the Holder of the ADR(s) evidencing the ADSs owned by such Beneficial Owner.
19. Severability. If any provision contained in this Deposit Agreement or in the ADRs is, or becomes, invalid, illegal or unenforceable in any respect, the remaining provisions contained herein and therein shall in no way be affected thereby.
20. Governing Law; Consent to Jurisdiction.
(a) Governing Law. The Deposit Agreement, the ADSs and the ADRs shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the application of the conflict of law principles thereof.
(b) By the Company. The Company irrevocably agrees that any legal suit, action or proceeding against or involving the Company brought by the Depositary or any Holder or Beneficial Owner, arising out of or based upon this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may be instituted in any state or federal court in New York, New York, and irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. The Company also irrevocably agrees that any legal suit, action or proceeding against or involving the Depositary brought by the Company, arising out of or based upon this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may only be instituted in a state or federal court in New York, New York. Notwithstanding the foregoing, subject to the federal securities law carve-out set forth in Section 20(d) below, the Depositary may refer any such suit, action or proceeding to arbitration in accordance with the provisions of the Deposit Agreement and, upon such referral, any such suit, action or proceeding instituted by the Company shall be finally decided in such arbitration rather than in such court.
(c) By Holders and Beneficial Owners. By holding or owning an ADR or ADS or an interest therein, Holders and Beneficial Owners each irrevocably agree that any legal suit, action or proceeding against or involving Holders or Beneficial Owners brought by the Company or the Depositary, arising out of or based upon this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may be instituted in a state or federal court in New York, New York, and by holding or owning an ADR or ADS or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. By holding or owning an ADR or ADS or an interest therein, Holders and Beneficial Owners each also irrevocably agree that any legal suit, action or proceeding against or involving the Depositary brought by Holders or Beneficial Owners, arising out of or based upon this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may only be instituted in a state or federal court in New York, New York. Notwithstanding the foregoing, subject to the federal securities law carve-out set forth in Section 20(d) below, the Depositary may refer any such suit, action or proceeding to arbitration in accordance with the provisions of the Deposit Agreement and, upon such referral, any such suit, action or proceeding instituted by Holders and/or Beneficial Owners shall be finally decided in such arbitration rather than in such court.
(d) Optional Arbitration. Notwithstanding anything in this Deposit Agreement to the contrary, each of the parties hereto (i.e. the Company, the Depositary and all Holders and Beneficial Owners) agrees that: (i) the Depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or indirectly based on, arising out of or relating to this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, including without limitation any question regarding its or their existence, validity, interpretation, performance or termination (a Dispute) against any other party or parties hereto (including, without limitation, Disputes, suits, actions or proceedings brought against Holders and Beneficial Owners), by having the Dispute referred to and finally resolved by an arbitration conducted under the terms set out below, and (ii) the Depositary may in its sole discretion require, by written notice to the relevant party or parties, that any Dispute, suit, action, controversy, claim or proceeding brought by any party or parties hereto (including, without limitation, Disputes, suits, actions or proceedings brought by Holders and Beneficial Owners) against the Depositary shall be referred to and finally settled by an arbitration conducted under the terms set out below; provided however, notwithstanding the Depositarys written notice under this clause (ii), to the extent there are specific federal securities law violation aspects to any claims against the Company and/or the Depositary brought by any Holder or Beneficial Owner, the federal securities law violation aspects of such claims brought by a Holder or Beneficial Owner against the Company and/or the Depositary may, at the option of such Holder or Beneficial Owner, remain in state or federal court in New York, New York and all other aspects, claims, Disputes, legal suits, actions and/or proceedings brought by such Holder or Beneficial Owner against the Company and/or the Depositary, including those brought along with, or in addition to, federal securities law violation claims, would be referred to arbitration in accordance herewith. Any such arbitration shall, at the Depositarys election, be conducted either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL) with the Hong Kong International Arbitration Centre serving as the appointing authority, and the language of any such arbitration shall be English. A notice of arbitration may be mailed to the Company at its address last specified for notices under this Deposit Agreement, and, if applicable, to any Holders at their addresses on the ADR Register, which notice to any such Holder, for the avoidance of doubt, shall be deemed, for all purposes of the Deposit Agreement and the ADRs, including, without limitation, the arbitration provisions contained in this clause (d), constitute notice to any and all Beneficial Owners of the ADSs evidenced by such Holders ADRs. In any case where the Depositary exercises its right to arbitrate hereunder, arbitration of the Dispute shall be mandatory and any pending litigation arising out of or related to such Dispute shall be stayed. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The number of arbitrators shall be three, each of whom shall be disinterested in the dispute or controversy, shall have no connection with any party thereto, and shall be an attorney experienced in international securities transactions. Each of the Company and the Depositary shall appoint one arbitrator and the two arbitrators shall select a third arbitrator who shall serve as chairperson of the tribunal. If a Dispute shall involve more than two parties, the parties shall attempt to align themselves in two sides (i.e., claimant and respondent), each of which shall appoint one arbitrator as if there were only two parties to such Dispute. If either or both parties fail to select an arbitrator, or if such alignment (in the event there are more than two parties) shall not have occurred, within thirty (30) calendar days after the Depositary serves the arbitration demand or the two arbitrators fail to select a third arbitrator within thirty (30) calendar days of the selection of the second arbitrator, the American Arbitration Association in the case of an arbitration in New York, or the Hong Kong International Arbitration Centre in the case of an arbitration in Hong Kong, shall appoint the remaining arbitrator or arbitrators in accordance with its rules. The parties and the American Arbitration Association and/or the Hong Kong International Arbitration Centre, as the case may be, may appoint the arbitrators from among the nationals of any country, whether or not the appointing party or any other party to the arbitration is a national of that country. The arbitrators shall have no authority to award damages against any party not measured by the prevailing partys actual damages and shall have no authority to award any consequential, special or punitive damages against any party and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Deposit Agreement. In all cases, the fees of the arbitrators and other costs incurred by the parties in connection with such arbitration shall be paid by the party (or parties) that is (or are) unsuccessful in such arbitration. No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, or to include in any arbitration any dispute as a representative or member of a class, or act in any arbitration in the interest of the general public or in a private attorney general capacity.
(e) Notwithstanding the foregoing or anything in this Deposit Agreement to the contrary, any suit, action or proceeding against the Company based on this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may be instituted by the Depositary in any competent court in the Cayman Islands, Hong Kong, the Peoples Republic of China and/or the United States, or, subject to the federal securities law carve-out set forth in Section 20(d) above, by the Depositary through the commencement of an arbitration pursuant to Section 20(d) of this Deposit Agreement.
21. Agent for Service.
(a) Appointment. The Company has appointed [NAME], [ADDRESS], New York, New York, [ZIP CODE], as its authorized agent (the Authorized Agent) upon which process may be served in any such suit, action or proceeding arising out of or based on this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby which may be instituted in any state or federal court in New York, New York by the Depositary or any Holder, and waives any other requirements of or objections to personal jurisdiction with respect thereto. Subject to the Companys rights to replace the Authorized Agent with another entity in the manner required were the Authorized Agent to have resigned, such appointment shall be irrevocable.
(b) Agent for Service of Process. The Company represents and warrants that the Authorized Agent has agreed to act as said agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding against the Company, by service by mail of a copy thereof upon the Authorized Agent (whether or not the appointment of such Authorized Agent shall for any reason prove to be ineffective or such Authorized Agent shall fail to accept or acknowledge such service), with a copy mailed to the Company by registered or certified air mail, postage prepaid, to its address provided in Section 16(b) hereof. The Company agrees that the failure of the Authorized Agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment or award rendered in any suit, action or proceeding based thereon. If, for any reason, the Authorized Agent named above or its successor shall no longer serve as agent of the Company to receive service of process, notice or papers in New York, the Company shall promptly appoint a successor that is a legal entity with offices in New York, New York, so as to serve and will promptly advise the Depositary thereof.
(c) Waiver of Personal Service of Process. In the event the Company fails to continue such designation and appointment in full force and effect, the Company hereby waives personal service of process upon it and consents that any such service of process may be made by certified or registered mail, return receipt requested, directed to the Company at its address last specified for notices hereunder, and service so made shall be deemed completed five (5) days after the same shall have been so mailed.
22. Waiver of Immunities. To the extent that the Company or any of its properties, assets or revenues may have or may hereafter be entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, including any arbitration, from the giving of any relief in any respect thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment or arbitration award, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or other matters under or arising out of or in connection with the Shares or Deposited Securities, the ADSs, the ADRs or this Deposit Agreement, the Company, to the fullest extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement.
23. Waiver of Jury Trial. EACH PARTY TO THIS DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL OWNER OF, AND/OR HOLDER OF INTERESTS IN, ADSS OR ADRS) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR THE COMPANY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE ADSs OR THE ADRs, THE DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR ANY OTHER THEORY), INCLUDING ANY CLAIM UNDER THE UNITED STATES FEDERAL SECURITIES LAWS. No provision of this Deposit Agreement or any ADR is intended to constitute a waiver or limitation of any rights which a Holder or any Beneficial Owner may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
[Signature page follows]
IN WITNESS WHEREOF, ADAGENE INC. and JPMORGAN CHASE BANK, N.A. have duly executed this Deposit Agreement as of the day and year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of ADSs issued in accordance with the terms hereof, or upon acquisition of any beneficial interest therein.
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[Signature Page to Deposit Agreement]
EXHIBIT A
ANNEXED TO AND INCORPORATED IN
DEPOSIT AGREEMENT
[FORM OF FACE OF ADR]
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AMERICAN DEPOSITARY RECEIPT
evidencing
AMERICAN DEPOSITARY SHARES
representing
ORDINARY SHARE[S]
of
ADAGENE INC.
(Incorporated under the laws of the Cayman Islands)
JPMORGAN CHASE BANK, N.A., a national banking association organized under the laws of the United States of America, as depositary hereunder (the Depositary), hereby certifies that is the registered owner (a Holder) of American Depositary Shares (ADSs), each (subject to paragraph (13) (Changes Affecting Deposited Securities)) representing [RATIO] ordinary share[s] (including the rights to receive Shares described in paragraph (1) (Issuance of ADSs), Shares and, together with any other securities, cash or property from time to time held by the Depositary in respect or in lieu of deposited Shares, the Deposited Securities), of Adagene Inc., a corporation organized under the laws of the Cayman Islands (the Company), deposited under the Deposit Agreement, dated as of ______________ __, 2021 (as amended from time to time, the Deposit Agreement), among the Company, the Depositary and all Holders and Beneficial Owners from time to time of American Depositary Receipts issued thereunder (ADRs), each of whom by accepting an ADR becomes a party thereto. The Deposit Agreement and this ADR (which includes the provisions set forth on the reverse hereof) shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the application of the conflict of law principles thereof. All capitalized terms used herein, and not defined herein, shall have the meanings ascribed to such terms in the Deposit Agreement.
(1) Issuance of ADSs.
(a) Issuance. This ADR is one of the ADRs issued under the Deposit Agreement. Subject to the other provisions hereof, the Depositary may so issue ADRs for delivery at the Transfer Office (as hereinafter defined) only against deposit of: (i) Shares in a form satisfactory to the Custodian; or (ii) rights to receive Shares from the Company or any registrar, transfer agent, clearing agent or other entity recording Share ownership or transactions.
(b) Lending. In its capacity as Depositary, the Depositary shall not lend Shares or ADSs.
(c) Representations and Warranties of Depositors. Every person depositing Shares under the Deposit Agreement represents and warrants that:
(i) such Shares and the certificates therefor are duly authorized, validly issued and outstanding, fully paid, nonassessable and legally obtained by such person,
(ii) all pre-emptive and comparable rights, if any, with respect to such Shares have been validly waived or exercised,
(iii) the person making such deposit is duly authorized so to do,
(iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim and
(v) such Shares (A) are not restricted securities as such term is defined in Rule 144 under the Securities Act of 1933 (Restricted Securities) unless at the time of deposit the requirements of paragraphs (c), (e), (f) and (h) of Rule 144 shall not apply and such Shares may be freely transferred and may otherwise be offered and sold freely in the United States or (B) have been registered under the Securities Act of 1933. To the extent the person depositing Shares is an affiliate of the Company as such term is defined in Rule 144, the person also represents and warrants that upon the sale of the ADSs, all of the provisions of Rule 144 which enable the Shares to be freely sold (in the form of ADSs) will be fully complied with and, as a result thereof, all of the ADSs issued in respect of such Shares will not be on the sale thereof, Restricted Securities.
Such representations and warranties shall survive the deposit and withdrawal of Shares and the issuance and cancellation of ADSs in respect thereof and the transfer of such ADSs.
(d) The Depositary may refuse to accept for such deposit any Shares identified by the Company in order to facilitate compliance with the requirements of the securities laws, rules and regulations of the United States, including, without limitation, the Securities Act of 1933 and the rules and regulations made thereunder.
(2) Withdrawal of Deposited Securities. Subject to paragraphs (4) (Certain Limitations to Registration, Transfer etc.) and (5) (Liability of Holder or Beneficial Owner for Taxes, Duties and Other Charges), upon surrender of (a) a certificated ADR in a form satisfactory to the Depositary at the Transfer Office or (b) proper instructions and documentation in the case of a Direct Registration ADR, the Holder hereof is entitled to delivery at, or to the extent in dematerialized form from, the Custodians office of the Deposited Securities at the time represented by the ADSs evidenced by this ADR. At the request, risk and expense of the Holder hereof, the Depositary may deliver such Deposited Securities at such other place as may have been requested by the Holder. Notwithstanding any other provision of the Deposit Agreement or this ADR, the withdrawal of Deposited Securities may be restricted only for the reasons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions may be amended from time to time) under the Securities Act of 1933.
(3) Transfers, Split-Ups and Combinations of ADRs. The Depositary or its agent will keep, at a designated transfer office (the Transfer Office), (a) a register (the ADR Register) for the registration, registration of transfer, combination and split-up of ADRs, and, in the case of Direct Registration ADRs, shall include the Direct Registration System, which at all reasonable times will be open for inspection by Holders and the Company for the purpose of communicating with Holders in the interest of the business of the Company or a matter relating to the Deposit Agreement and (b) facilities for the delivery and receipt of ADRs. The term ADR Register includes the Direct Registration System. Title to this ADR (and to the Deposited Securities represented by the ADSs evidenced hereby), when properly endorsed (in the case of ADRs in certificated form) or upon delivery to the Depositary of proper instruments of transfer, is transferable by delivery with the same effect as in the case of negotiable instruments under the laws of the State of New York; provided that the Depositary, notwithstanding any notice to the contrary, may treat the person in whose name this ADR is registered on the ADR Register as the absolute owner hereof for all purposes and neither the Depositary nor the Company will have any obligation or be subject to any liability under the Deposit Agreement or any ADR to any Beneficial Owner, unless such Beneficial Owner is the Holder hereof. Subject to paragraphs (4) and (5), this ADR is transferable on the ADR Register and may be split into other ADRs or combined with other ADRs into one ADR, evidencing the aggregate number of ADSs surrendered for split-up or combination, by the Holder hereof or by duly authorized attorney upon surrender of this ADR at the Transfer Office properly endorsed (in the case of ADRs in certificated form) or upon delivery to the Depositary of proper instruments of transfer and duly stamped as may be required by applicable law; provided that the Depositary may close the ADR Register at any time or from time to time when deemed expedient by it or, in the case of the issuance book portion of the ADR Register, when reasonably requested by the Company solely in order to enable the Company to comply with applicable law; provided further, that the Depositary shall have no liability and shall be indemnified by the Company in such event. At the request of a Holder, the Depositary shall, for the purpose of substituting a certificated ADR with a Direct Registration ADR, or vice versa, execute and deliver a certificated ADR or a Direct Registration ADR, as the case may be, for any authorized number of ADSs requested, evidencing the same aggregate number of ADSs as those evidenced by the certificated ADR or Direct Registration ADR, as the case may be, substituted.
(4) Certain Limitations to Registration, Transfer etc. Prior to the issue, registration, registration of transfer, split-up or combination of any ADR, the delivery of any distribution in respect thereof, or, subject to the last sentence of paragraph (2) (Withdrawal of Deposited Securities), the withdrawal of any Deposited Securities, and from time to time in the case of clause (b)(ii) of this paragraph (4), the Company, the Depositary or the Custodian may require:
(a) payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of Shares or other Deposited Securities upon any applicable register and (iii) any applicable charges as provided in paragraph (7) (Charges of Depositary) of this ADR;
(b) the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial or other ownership of, or interest in, any securities, compliance with applicable law, regulations, provisions of or governing Deposited Securities and terms of the Deposit Agreement and this ADR, as it may deem necessary or proper; and
(c) compliance with such regulations as the Depositary may establish consistent with the Deposit Agreement.
The issuance of ADRs, the acceptance of deposits of Shares, the registration, registration of transfer, split-up or combination of ADRs or, subject to the last sentence of paragraph (2) (Withdrawal of Deposited Securities), the withdrawal of Deposited Securities may be suspended, generally or in particular instances, when the ADR Register or any register for Deposited Securities is closed or when any such action is deemed advisable by the Depositary.
(5) Liability of Holder or Beneficial Owner for Taxes, Duties and Other Charges. If any tax or other governmental charges (including any penalties and/or interest) shall become payable by or on behalf of the Custodian or the Depositary with respect to this ADR, any Deposited Securities represented by the ADSs evidenced hereby or any distribution thereon, [including, without limitation, any Chinese enterprise income tax owed if the Circular Guoshuifa [2009] No. 82 issued by the Chinese State Administration of Taxation (SAT) or any other circular, edict, order or ruling, as issued and as from time to time amended, is applied or otherwise,](2) such tax or other governmental charge shall be paid by the Holder hereof to the Depositary and by holding or owning, or having held or owned, this ADR or any ADSs evidenced hereby, the Holder and all Beneficial Owners hereof and thereof, and all prior Holders and Beneficial Owners hereof and thereof, jointly and severally, agree to indemnify, defend and save harmless each of the Depositary, the Company and their respective agents in respect of such tax or other governmental charge. Neither the Depositary nor the Company, nor any of their respective agents, shall be liable to Holders or Beneficial Owners of the ADSs and ADRs for failure of any of them to comply with applicable tax laws, rules and/or regulations. Notwithstanding the Depositarys right to seek payment from current and former Beneficial Owners, by holding or owning, or having held or owned, an ADR, the Holder hereof (and prior Holder hereof) acknowledges and agrees that the Depositary has no obligation to seek payment of amounts owing under this paragraph (5) from any current or former Beneficial Owner. The Depositary may refuse to effect any registration, registration of transfer, split-up or combination hereof or, subject to the last sentence of paragraph (2) (Withdrawal of Deposited Securities), any withdrawal of such Deposited Securities until such payment is made. The Depositary may also deduct from any distributions on or in respect of Deposited Securities, or may sell by public or private sale for the account of the Holder hereof any part or all of such Deposited Securities (after attempting by reasonable means to notify the Holder hereof prior to such sale), and may apply such deduction or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder hereof remaining liable for any deficiency, and shall reduce the number of ADSs evidenced hereby to reflect any such sales of Shares. In connection with any distribution to Holders, the Company will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Company; and the Depositary and the Custodian will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Depositary or the Custodian. To the extent not prohibited by law, rule, regulation, fiduciary duty, contractual or confidential obligation or otherwise, the Depositary will forward to the Company such information actually in its possession from the transfer records maintained by it in accordance with its policies and procedures in its capacity as Depositary under the Deposit Agreement as the Company may reasonably request in writing to enable the Company to file any reports required to be filed by the Company with governmental authorities or agencies to comply with applicable law; provided, however, for the avoidance of doubt, the Depositary shall have no liability for the accuracy of any such information and shall not be required to incur or become subject to any risk, liability, cost or expense and shall be indemnified by the Company in connection with the foregoing. If the Depositary determines that any distribution in property other than cash (including Shares or rights) on Deposited Securities is subject to any tax that the Depositary or the Custodian is obligated to withhold, the Depositary may dispose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes, by public or private sale, and the Depositary shall distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes to the Holders entitled thereto. Each Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian and any of their respective officers, directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained which obligations shall survive any transfer or surrender of ADSs or the termination of the Deposit Agreement.
(2) Companys PRC counsel to confirm.
(6) Disclosure of Interests.
(a) General. To the extent that the provisions of or governing any Deposited Securities may require disclosure of or impose limits on beneficial or other ownership of, or interest in, Deposited Securities, other Shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, Holders and Beneficial Owners agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable Company instructions in respect thereof. The Company reserves the right to instruct Holders to deliver their ADSs for cancellation and withdrawal of the Deposited Securities so as to permit the Company to deal directly with the Holder thereof as a holder of Shares and Holders and Beneficial Owners agree to comply with such instructions. The Depositary agrees to cooperate with the Company in its efforts to inform Holders of the Companys exercise of its rights under this paragraph and agrees to consult with, and provide reasonable assistance, in each case without risk, liability or expense on the part of the Depositary, to the Company on the manner or manners in which the Company may implement such requirements with respect to any Holder; provided, however, for the avoidance of doubt, the Depositary shall be indemnified by the Company in connection with the foregoing.
(b) Jurisdiction Specific.
Any summary of the laws and regulations of the Cayman Islands and of the terms of the Companys constituent documents has been provided by the Company solely for the convenience of Holders, Beneficial Owners and the Depositary. While such summaries are believed by the Company to be accurate as of the date of the Deposit Agreement, (i) they are summaries and as such may not include all aspects of the materials summarized applicable to a Holder or Beneficial Owner, and (ii) they are provided by the Company as of the date of the Deposit Agreement and these laws and regulations and the Companys constituent documents may change after the date of the Deposit Agreement. Neither the Depositary nor the Company has any obligation to update any such summaries.
(7) Charges of Depositary.
(a) Rights of the Depositary. The Depositary may charge, and collect from, (i) each person to whom ADSs are issued, including, without limitation, issuances against deposits of Shares, issuances in respect of Share Distributions, Rights and Other Distributions (as such terms are defined in paragraph (10) (Distributions on Deposited Securities)), issuances pursuant to a stock dividend or stock split declared by the Company, or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or the Deposited Securities, and (ii) each person surrendering ADSs for withdrawal of Deposited Securities or whose ADSs are cancelled or reduced for any other reason, U.S.$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered, or upon which a Share Distribution or elective distribution is made or offered (as the case may be). The Depositary may sell (by public or private sale) sufficient securities and property received in respect of Share Distributions, Rights and Other Distributions prior to such deposit to pay such charge.
(b) Additional charges by the Depositary. The following additional charges shall also be incurred by the Holders, the Beneficial Owners, by any party depositing or withdrawing Shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuances pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the ADSs or the Deposited Securities or a distribution of ADSs pursuant to paragraph (10) (Distributions on Deposited Securities)), whichever is applicable:
(i) a fee of U.S.$0.05 or less per ADS held for any Cash distribution made, or for any elective cash/stock dividend offered, pursuant to the Deposit Agreement,
(ii) a fee for the distribution or sale of securities pursuant to paragraph (10) hereof, such fee being in an amount equal to the fee for the execution and delivery of ADSs referred to above which would have been charged as a result of the deposit of such securities (for purposes of this paragraph (7) treating all such securities as if they were Shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the Depositary to Holders entitled thereto,
(iii) an aggregate fee of U.S.$0.05 or less per ADS per calendar year (or portion thereof) for services performed by the Depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against Holders as of the record date or record dates set by the Depositary during each calendar year and shall be payable at the sole discretion of the Depositary by billing such Holders or by deducting such charge from one or more cash dividends or other cash distributions), and
(iv) a fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary and/or any of its agents (including, without limitation, the Custodian and expenses incurred on behalf of Holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the Shares or other Deposited Securities, the sale of securities (including, without limitation, Deposited Securities), the delivery of Deposited Securities or otherwise in connection with the Depositarys or its Custodians compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against Holders as of the record date or dates set by the Depositary and shall be payable at the sole discretion of the Depositary by billing such Holders or by deducting such charge from one or more cash dividends or other cash distributions).
(c) Other Obligations and Charges. The Company will pay all other charges and expenses of the Depositary and any agent of the Depositary (except the Custodian) pursuant to agreements from time to time between the Company and the Depositary, except:
(i) stock transfer or other taxes and other governmental charges (which are payable by Holders or persons depositing Shares);
(ii) SWIFT, cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or Holders delivering Shares, ADRs or Deposited Securities (which are payable by such persons or Holders); and
(iii) transfer or registration fees for the registration or transfer of Deposited Securities on any applicable register in connection with the deposit or withdrawal of Deposited Securities (which are payable by persons depositing Shares or Holders withdrawing Deposited Securities); there are no such fees in respect of the Shares as of the date of the Deposit Agreement.
(d) Foreign Exchange Related Matters. To facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other cash distributions and other corporate actions, the Depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A. (the Bank) and/or its affiliates in order to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars (FX Transactions). For certain currencies, FX Transactions are entered into with the Bank or an affiliate, as the case may be, acting in a principal capacity. For other currencies, FX Transactions are routed directly to and managed by an unaffiliated local custodian (or other third party local liquidity provider), and neither the Bank nor any of its affiliates is a party to such FX Transactions.
The foreign exchange rate applied to an FX Transaction will be either (a) a published benchmark rate, or (b) a rate determined by a third party local liquidity provider, in each case plus or minus a spread, as applicable. The Depositary will disclose which foreign exchange rate and spread, if any, apply to such currency on the Disclosures page (or successor page) of www.adr.com (as updated by the Depositary from time to time, ADR.com). Such applicable foreign exchange rate and spread may (and neither the Depositary, the Bank nor any of their affiliates is under any obligation to ensure that such rate does not) differ from rates and spreads at which comparable transactions are entered into with other customers or the range of foreign exchange rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the relevant currency pair on the date of the FX Transaction. Additionally, the timing of execution of an FX Transaction varies according to local market dynamics, which may include regulatory requirements, market hours and liquidity in the foreign exchange market or other factors. Furthermore, the Bank and its affiliates may manage the associated risks of their position in the market in a manner they deem appropriate without regard to the impact of such activities on the Company, the Depositary, Holders or Beneficial Owners. The spread applied does not reflect any gains or losses that may be earned or incurred by the Bank and its affiliates as a result of risk management or other hedging related activity.
Notwithstanding the foregoing, to the extent the Company provides U.S. dollars to the Depositary, neither the Bank nor any of its affiliates will execute an FX Transaction as set forth herein. In such case, the Depositary will distribute the U.S. dollars received from the Company.
Further details relating to the applicable foreign exchange rate, the applicable spread and the execution of FX Transactions will be provided by the Depositary on ADR.com. The Company, Holders and Beneficial Owners each acknowledge and agree that the terms applicable to FX Transactions disclosed from time to time on ADR.com will apply to any FX Transaction executed pursuant to the Deposit Agreement.
(e) The right of the Depositary to receive payment of fees, charges and expenses as provided above shall survive the termination of the Deposit Agreement. As to any Depositary, upon the resignation or removal of such Depositary, such right shall extend for those fees, charges and expenses incurred prior to the effectiveness of such resignation or removal.
(f) Disclosure of Potential Depositary Payments. The Depositary anticipates reimbursing the Company for certain expenses incurred by the Company that are related to the establishment and maintenance of the ADR program upon such terms and conditions as the Company and the Depositary may agree from time to time. The Depositary may make available to the Company a set amount or a portion of the Depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as the Company and the Depositary may agree from time to time.
(8) Available Information. The Deposit Agreement, the provisions of or governing Deposited Securities and any written communications from the Company, which are both received by the Custodian or its nominee as a holder of Deposited Securities and made generally available to the holders of Deposited Securities, are available for inspection by Holders at the offices of the Depositary and the Custodian, at the Transfer Office, on the website of the United States Securities and Exchange Commission (the Commission), or upon request from the Depositary (which request may be refused by the Depositary at its discretion). The Depositary will distribute copies of such communications (or English translations or summaries thereof) to Holders when furnished by the Company. The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and accordingly files certain reports with the Commission. Such reports and other information may be inspected and copied through the Commissions EDGAR system or at public reference facilities maintained by the Commission located at the date hereof at 100 F Street, NE, Washington, DC 20549.
(9) Execution. This ADR shall not be valid for any purpose unless executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the Depositary.
Dated:
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JPMORGAN CHASE BANK, N.A., as Depositary |
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By |
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Authorized Officer |
[FORM OF REVERSE OF ADR]
(10) Distributions on Deposited Securities. Subject to paragraphs (4) (Certain Limitations to Registration, Transfer etc.) and (5) (Liability of Holder or Beneficial Owner for Taxes, Duties and other Charges), to the extent practicable, the Depositary will distribute to each Holder entitled thereto on the record date set by the Depositary therefor at such Holders address shown on the ADR Register, in proportion to the number of Deposited Securities (on which the following distributions on Deposited Securities are received by the Custodian) represented by ADSs evidenced by such Holders ADRs:
(a) Cash. Any U.S. dollars available to the Depositary resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof authorized in this paragraph (10) (Cash), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain Holders, and (iii) deduction of the Depositarys and/or its agents fees and expenses in (1) converting any foreign currency to U.S. dollars by sale or in such other manner as the Depositary may determine to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner.
(b) Shares. (i) Additional ADRs evidencing whole ADSs representing any Shares available to the Depositary resulting from a dividend or free distribution on Deposited Securities consisting of Shares (a Share Distribution) and (ii) U.S. dollars available to it resulting from the net proceeds of sales of Shares received in a Share Distribution, which Shares would give rise to fractional ADSs if additional ADRs were issued therefor, as in the case of Cash.
(c) Rights. (i) Warrants or other instruments in the discretion of the Depositary representing rights to acquire additional ADRs in respect of any rights to subscribe for additional Shares or rights of any nature available to the Depositary as a result of a distribution on Deposited Securities (Rights), to the extent that the Company timely furnishes to the Depositary evidence satisfactory to the Depositary that the Depositary may lawfully distribute the same (the Company has no obligation to so furnish such evidence), or (ii) to the extent the Company does not so furnish such evidence and sales of Rights are practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Rights as in the case of Cash, or (iii) to the extent the Company does not so furnish such evidence and such sales cannot practicably be accomplished by reason of the nontransferability of the Rights, limited markets therefor, their short duration or otherwise, nothing (and any Rights may lapse).
(d) Other Distributions. (i) Securities or property available to the Depositary resulting from any distribution on Deposited Securities other than Cash, Share Distributions and Rights (Other Distributions), by any means that the Depositary may deem equitable and practicable, or (ii) to the extent the Depositary deems distribution of such securities or property not to be equitable and practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Other Distributions as in the case of Cash.
The Depositary reserves the right to utilize a division, branch or affiliate of JPMorgan Chase Bank, N.A. to direct, manage and/or execute any public and/or private sale of securities hereunder. Such division, branch and/or affiliate may charge the Depositary a fee in connection with such sales, which fee is considered an expense of the Depositary contemplated above and/or under paragraph (7) (Charges of Depositary). Any U.S. dollars available will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the Depositary in accordance with its then current practices. All purchases and sales of securities will be handled by the Depositary in accordance with its then current policies, which are currently set forth on the Disclosures page (or successor page) of ADR.com, the location and contents of which the Depositary shall be solely responsible for.
(11) Record Dates. The Depositary may, after consultation with the Company if practicable, fix a record date (which, to the extent applicable, shall be as near as practicable to any corresponding record date set by the Company) for the determination of the Holders who shall be responsible for the fee assessed by the Depositary for administration of the ADR program and for any expenses provided for in paragraph (7) hereof as well as for the determination of the Holders who shall be entitled to receive any distribution on or in respect of Deposited Securities, to give instructions for the exercise of any voting rights, to receive any notice or to act in respect of other matters and only such Holders shall be so entitled or obligated.
(12) Voting of Deposited Securities.
(a) Notice of any Meeting or Solicitation. As soon as practicable after receipt of notice of any meeting at which the holders of Shares are entitled to vote, or of solicitation of consents or proxies from holders of Shares or other Deposited Securities, the Depositary shall fix the ADS record date in accordance with paragraph (11) above provided that if the Depositary receives a written request from the Company in a timely manner and at least 30 days prior to the date of such vote or meeting, the Depositary shall, at the Companys expense, distribute to Holders a notice (the Voting Notice) stating (i) final information particular to such vote and meeting and any solicitation materials, (ii) that each Holder on the record date set by the Depositary will, subject to any applicable provisions of Cayman Islands law, be entitled to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by the ADSs evidenced by such Holders ADRs and (iii) the manner in which such instructions may be given or deemed given in accordance with paragraph 12(b)(ii) below, including instructions to give a discretionary proxy to a person designated by the Company. Each Holder shall be solely responsible for the forwarding of Voting Notices to the Beneficial Owners of ADSs registered in such Holders name. There is no guarantee that Holders and Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable such Holder or Beneficial Owner to return any voting instructions to the Depositary in a timely manner.
(b) Voting of Deposited Securities.
(i) Following actual receipt by the ADR department responsible for proxies and voting of Holders instructions (including, without limitation, instructions of any entity or entities acting on behalf of the nominee for DTC), the Depositary shall, in the manner and on or before the time established by the Depositary for such purpose, endeavor to vote or cause to be voted the Deposited Securities represented by the ADSs evidenced by such Holders ADRs in accordance with such instructions insofar as practicable and permitted under the provisions of or governing Deposited Securities. The Depositary will not itself exercise any voting discretion in respect of any Deposited Securities.
(ii) To the extent that (A) the Depositary has been provided with at least 35 days notice of the proposed meeting from the Company, (B) the Voting Notice will be received by all Holders and Beneficial Owners no less than 10 days prior to the date of the meeting and/or the cut-off date for the solicitation of consents, and (C) the Depositary does not receive instructions on a particular agenda item from a Holder (including, without limitation, any entity or entities acting on behalf of the nominee for DTC) in a timely manner, such Holder shall be deemed, and the Depositary is instructed to deem such Holder, to have instructed the Depositary to give a discretionary proxy for such agenda item(s) to a person designated by the Company to vote the Deposited Securities represented by the ADSs for which actual instructions were not so given by all such Holders on such agenda item(s), provided that no such instruction shall be deemed given and no discretionary proxy shall be given unless (1) the Company informs the Depositary in writing (and the Company agrees to provide the Depositary with such instruction promptly in writing) that (a) it wishes such proxy to be given with respect to such agenda item(s), (b) there is no substantial opposition existing with respect to such agenda item(s) and (c) such agenda item(s), if approved, would not materially or adversely affect the rights of holders of Shares, and (2) the Depositary has obtained an opinion of counsel, in form and substance satisfactory to the Depositary, confirming that (i) the granting of such discretionary proxy does not subject the Depositary to any reporting obligations in the Cayman Islands, (ii) the granting of such proxy will not result in a violation of the laws, rules, regulations or permits of the Cayman Islands, (iii) the voting arrangement and deemed instruction as contemplated herein will be given effect under the laws, rules and regulations of the Cayman Islands, and (iv) the granting of such discretionary proxy will not under any circumstances result in the Shares represented by the ADSs being treated as assets of the Depositary under the laws, rules or regulations of the Cayman Islands.
(iii) The Depositary may from time to time access information available to it to consider whether any of the circumstances described in (1)(b) or (1)(c) of subsection (ii) above exist, or request additional information from the Company in respect thereto. By taking any such action, the Depositary shall not in any way be deemed or inferred to have been required, or have had any duty or responsibility (contractual or otherwise), to monitor or inquire whether any of the circumstances described in (1)(b) or (1)(c) of subsection (ii) above existed. In addition to the limitations provided for in paragraph (14) hereof, Holders and Beneficial Owners are advised and agree that (a) the Depositary will rely fully and exclusively on the Company to inform the Depositary of any of the circumstances set forth in (1) of subsection (ii) above, and (b) neither the Depositary, the Custodian nor any of their respective agents shall be obliged to inquire or investigate whether any of the circumstances described in (1)(b) or (1)(c) of subsection (ii) above exist and/or whether the Company complied with its obligation to timely inform the Depositary of such circumstances. Neither the Depositary, the Custodian nor any of their respective agents shall incur any liability to Holders or Beneficial Owners (i) as a result of the Companys failure to determine that any of the circumstances described in (1)(b) or (1)(c) of subsection (ii) above exist or its failure to timely notify the Depositary of any such circumstances or (ii) if any agenda item which is approved at a meeting has, or is claimed to have, a material or adverse effect on the rights of holders of Shares. Because there is no guarantee that Holders and Beneficial Owners will receive the notices described above with sufficient time to enable such Holders or Beneficial Owners to return any voting instructions to the Depositary in a timely manner, Holders and Beneficial Owners may be deemed to have instructed the Depositary to give a discretionary proxy to a person designated by the Company in such circumstances, and neither the Depositary, the Custodian nor any of their respective agents shall incur any liability to Holders or Beneficial Owners in such circumstances.
(c) Alternative Methods of Distributing Materials. Notwithstanding anything contained in the Deposit Agreement or any ADR, the Depositary may, to the extent not prohibited by any law, rule or regulation or by the rules, regulations or requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the Depositary in connection with any meeting of or solicitation of consents or proxies from holders of Deposited Securities, distribute to the Holders a notice that provides Holders with or otherwise publicizes to Holders instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials). Holders are strongly encouraged to forward their voting instructions as soon as possible. Voting instructions will not be deemed received until such time as the ADR department responsible for proxies and voting has received such instructions, notwithstanding that such instructions may have been physically received by JPMorgan Chase Bank, N.A., as Depositary, prior to such time.
(d) Manner of Voting. The Depositary has been advised by the Company that under Cayman Islands law and the Memorandum and Articles of Association of the Company, each as in effect as of the date of the Deposit Agreement, voting at any meeting of shareholders of the Company is by show of hands unless a poll is (before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for a poll) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with the Memorandum and Articles of Association, the Depositary will refrain from voting and the voting instructions received by the Depositary from Holders shall lapse. The Depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by Holders of ADSs.
(13) Changes Affecting Deposited Securities.
(a) Subject to paragraphs (4) (Certain Limitations to Registration, Transfer etc.) and (5) (Liability of Holder or Beneficial Owner for Taxes, Duties and Other Charges), the Depositary may, in its discretion, and shall if reasonably requested by the Company, amend this ADR or distribute additional or amended ADRs (with or without calling this ADR for exchange) or cash, securities or property on the record date set by the Depositary therefor to reflect any change in par value, split-up, consolidation, cancellation or other reclassification of Deposited Securities, any Share Distribution or Other Distribution not distributed to Holders or any cash, securities or property available to the Depositary in respect of Deposited Securities from (and the Depositary is hereby authorized to surrender any Deposited Securities to any person and, irrespective of whether such Deposited Securities are surrendered or otherwise cancelled by operation of law, rule, regulation or otherwise, to sell by public or private sale any property received in connection with) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all the assets of the Company.
(b) To the extent the Depositary does not so amend this ADR or make a distribution to Holders to reflect any of the foregoing, or the net proceeds thereof, whatever cash, securities or property results from any of the foregoing shall constitute Deposited Securities and each ADS evidenced by this ADR shall automatically represent its pro rata interest in the Deposited Securities as then constituted.
(c) Promptly upon the occurrence of any of the aforementioned changes affecting Deposited Securities, the Company shall notify the Depositary in writing of such occurrence and as soon as practicable after receipt of such notice from the Company, may instruct the Depositary to give notice thereof, at the Companys expense, to Holders in accordance with the provisions hereof. Upon receipt of such instruction, the Depositary shall give notice to the Holders in accordance with the terms thereof, as soon as reasonably practicable.
(14) Exoneration.
(a) The Depositary, the Company, and each of their respective directors, officers, employees, agents and affiliates and each of them shall: (i) incur or assume no liability (including, without limitation, to Holders or Beneficial Owners) (A) if any present or future law, rule, regulation, fiat, order or decree of the Cayman Islands, Hong Kong, the Peoples Republic of China, the United States or any other country or jurisdiction, or of any governmental or regulatory authority or any securities exchange or market or automated quotation system, the provisions of or governing any Deposited Securities, any present or future provision of the Companys charter, any act of God, war, terrorism, epidemic, pandemic, nationalization, expropriation, currency restrictions, work stoppage, strike, civil unrest, revolutions, rebellions, explosions, computer failure or circumstance beyond its direct and immediate control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act which the Deposit Agreement or this ADR provides shall be done or performed by it or them (including, without limitation, voting pursuant to paragraph (12) hereof), or (B) by reason of any non-performance or delay, caused as aforesaid, in the performance of any act or things which by the terms of the Deposit Agreement it is provided shall or may be done or performed or any exercise or failure to exercise any discretion given it in the Deposit Agreement or this ADR (including, without limitation, any failure to determine that any distribution or action may be lawful or reasonably practicable); (ii) incur or assume no liability (including, without limitation, to Holders or Beneficial Owners) except to perform its obligations to the extent they are specifically set forth in this ADR and the Deposit Agreement without gross negligence or willful misconduct and the Depositary shall not be a fiduciary or have any fiduciary duty to Holders or Beneficial Owners; (iii) in the case of the Depositary and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities, the ADSs or this ADR; (iv) in the case of the Company and its agents hereunder be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities, the ADSs or this ADR, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required; and (v) not be liable (including, without limitation, to Holders or Beneficial Owners) for any action or inaction by it in reliance upon the advice of or information from any legal counsel, any accountant, any person presenting Shares for deposit, any Holder, or any other person believed by it to be competent to give such advice or information and/or, in the case of the Depositary, the Company. The Depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system.
(b) The Depositary. The Depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any Custodian that is not a branch or affiliate of JPMorgan Chase Bank, N.A. The Depositary shall not have any liability for the price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale. Notwithstanding anything to the contrary contained in the Deposit Agreement (including the ADRs) and, subject to the further limitations set forth in clause (o) of this paragraph (14), the Depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or omission to act on the part of the Custodian except to the extent that any Holder has incurred liability directly as a result of the Custodian having (i) committed fraud or willful misconduct in the provision of custodial services to the Depositary or (ii) failed to use reasonable care in the provision of custodial services to the Depositary as determined in accordance with the standards prevailing in the jurisdiction in which the Custodian is located.
(c) The Depositary, the Company and their respective agents may rely and shall be protected in acting upon any written notice, request, direction, instruction or document believed by them to be genuine and to have been signed, presented or given by the proper party or parties.
(d) The Depositary shall be under no obligation to inform Holders or Beneficial Owners about the requirements of the laws, rules or regulations or any changes therein or thereto of the Cayman Islands, Hong Kong, the Peoples Republic of China, the United States or any other country or jurisdiction or of any governmental or regulatory authority or any securities exchange or market or automated quotation system.
(e) The Depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, for the manner in which any voting instructions are given or deemed to be given in accordance with paragraph 12(b) hereof, including instructions to give a discretionary proxy to a person designated by the Company, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the Depositary is instructed to grant a discretionary proxy pursuant to paragraph (12) hereof or deemed to have been instructed to grant a discretionary proxy pursuant to paragraph (12)(b) hereof, or for the effect of any such vote.
(f) The Depositary may rely upon instructions from the Company or its counsel in respect of any approval or license required for any currency conversion, transfer or distribution.
(g) The Depositary and its agents may own and deal in any class of securities of the Company and its affiliates and in ADRs.
(h) Notwithstanding anything to the contrary set forth in the Deposit Agreement or an ADR, the Depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the Deposit Agreement, any Holder or Holders, any ADR or ADRs or otherwise related hereto or thereto to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators.
(i) None of the Depositary, the Custodian or the Company, or any of their respective directors, officers, employees, agents or affiliates shall be liable for the failure by any Holder or Beneficial Owner to obtain the benefits of credits or refunds of non-U.S. tax paid against such Holders or Beneficial Owners income tax liability.
(j) The Depositary is under no obligation to provide the Holders and Beneficial Owners, or any of them, with any information about the tax status of the Company. None of the Depositary, the Custodian or the Company, or any of their respective directors, officers, employees, agents and affiliates, shall incur any liability for any tax or tax consequences that may be incurred by Holders or Beneficial Owners on account of their ownership or disposition of the ADRs or ADSs.
(k) The Depositary shall not incur any liability for the content of any information submitted to it by or on behalf of the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement or for the failure or timeliness of any notice from the Company.
(l) Notwithstanding anything herein or in the Deposit Agreement to the contrary, the Depositary and the Custodian(s) may use third party delivery services and providers of information regarding matters such as, but not limited to, pricing, proxy voting, corporate actions, class action litigation and other services in connection herewith and the Deposit Agreement, and use local agents to provide services such as, but not limited to, attendance at any meetings of security holders of issuers. Although the Depositary and the Custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services.
(m) The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary.
(n) The Company has agreed to indemnify the Depositary and its agents under certain circumstances and the Depositary has agreed to indemnify the Company under certain circumstances.
(o) Notwithstanding any other provision of the Deposit Agreement or this ADR to the contrary, neither the Depositary nor the Company, nor any of their respective agents shall be liable to the other for any indirect Special Damages in any form incurred by any of them, or liable to any other person or entity (including, without limitation, Holders and Beneficial Owners) for any Special Damages, or any fees or expenses of counsel in connection therewith, whether or not foreseeable and regardless of the type of action in which such a claim may be brought; provided, however, that (i) notwithstanding the foregoing and, for the avoidance of doubt, the Depositary and its agents shall be entitled to legal fees and expenses in defending against any claim for Special Damages and (ii) to the extent Special Damages arise from or out of a claim brought by a third party (including, without limitation, Holders and Beneficial Owners) against the Depositary or any of its agents, the Depositary and its agents shall be entitled to full indemnification from the Company for all such Special Damages, and reasonable fees and expenses of counsel in connection therewith, unless such Special Damages are found to have been a direct result of the gross negligence or willful misconduct of the Depositary.
(p) No provision of the Deposit Agreement or this ADR is intended to constitute a waiver or limitation of any rights which Holders or Beneficial Owners may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
(15) Resignation and Removal of Depositary; the Custodian.
(a) Resignation. The Depositary may resign as Depositary by written notice of its election to do so delivered to the Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement.
(b) Removal. The Depositary may at any time be removed by the Company by no less than 60 days prior written notice of such removal, to become effective upon the later of (i) the 60th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement.
(c) The Custodian. The Depositary may appoint substitute or additional Custodians and the term Custodian refers to each Custodian or all Custodians as the context requires.
(16) Amendment. Subject to the last sentence of paragraph (2) (Withdrawal of Deposited Securities), the ADRs and the Deposit Agreement may be amended by the Company and the Depositary, provided that any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that shall otherwise prejudice any substantial existing right of Holders or Beneficial Owners, shall become effective 30 days after notice of such amendment shall have been given to the Holders. Every Holder and Beneficial Owner at the time any amendment to the Deposit Agreement so becomes effective shall be deemed, by continuing to hold such ADR, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder of any ADR to surrender such ADR and receive the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act of 1933 or (b) the ADSs or Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to prejudice any substantial rights of Holders or Beneficial Owners. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement or the form of ADR to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance. Notice of any amendment to the Deposit Agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the Commissions, the Depositarys or the Companys website or upon request from the Depositary).
(17) Termination. The Depositary may, and shall at the written direction of the Company, terminate the Deposit Agreement and this ADR by mailing notice of such termination to the Holders at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the Depositary shall have (i) resigned as Depositary hereunder, notice of such termination by the Depositary shall not be provided to Holders unless a successor depositary shall not be operating hereunder within 60 days of the date of such resignation, or (ii) been removed as Depositary hereunder, notice of such termination by the Depositary shall not be provided to Holders unless a successor depositary shall not be operating hereunder on the 60th day after the Companys notice of removal was first provided to the Depositary. Notwithstanding anything to the contrary herein, the Depositary may terminate the Deposit Agreement without notice to the Company, but subject to giving 30 days notice to the Holders, under the following circumstances: (i) in the event of the Companys bankruptcy or insolvency, (ii) if the Shares cease to be listed on an internationally recognized stock exchange, (iii) if the Company effects (or will effect) a redemption of all or substantially all of the Deposited Securities, or a cash or share distribution representing a return of all or substantially all of the value of the Deposited Securities, or (iv) there occurs a merger, consolidation, sale of assets or other transaction as a result of which securities or other property are delivered in exchange for or in lieu of Deposited Securities.
If the Shares are not listed or quoted for trading on a stock exchange or in a securities market as of the date so fixed for termination, then after such date fixed for termination (a) all Direct Registration ADRs shall cease to be eligible for the Direct Registration System and shall be considered ADRs issued on the ADR Register and (b) the Depositary shall use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any of its nominees shall thereafter be a Holder. At such time as the ADSs cease to be DTC eligible and/or neither DTC nor any of its nominees is a Holder, the Depositary shall (a) instruct its Custodian to deliver all Deposited Securities to the Company along with a general stock power that refers to the names set forth on the ADR Register and (b) provide the Company with a copy of the ADR Register (which copy may be sent by email or by any means permitted under the notice provisions of the Deposit Agreement). Upon receipt of such Deposited Securities and the ADR Register, the Company shall use its best efforts to issue to each Holder a Share certificate representing the Shares represented by the ADSs reflected on the ADR Register in such Holders name and to deliver such Share certificate to the Holder at the address set forth on the ADR Register. After providing such instruction to the Custodian and delivering a copy of the ADR Register to the Company, the Depositary and its agents will perform no further acts under the Deposit Agreement and this ADR and shall cease to have any obligations under the Deposit Agreement and/or the ADRs. After the Company receives the copy of the ADR Register and the Deposited Securities, the Company shall be discharged from all obligations under the Deposit Agreement except (i) to distribute the Shares to the Holders entitled thereto and (ii) for its obligations to the Depositary and its agents.
If the Shares are listed or quoted for trading on a stock exchange or in a securities market as of the date so fixed for termination, then instead of the provisions in the prior paragraph, after the date so fixed for termination, the Depositary and its agents will perform no further acts under the Deposit Agreement and this ADR, except to receive and hold (or sell) distributions on Deposited Securities and deliver Deposited Securities being withdrawn. As soon as practicable after the date so fixed for termination, the Depositary shall use its reasonable efforts to sell the Deposited Securities and shall thereafter (as long as it may lawfully do so) hold in an account (which may be a segregated or unsegregated account) the net proceeds of such sales, together with any other cash then held by it under the Deposit Agreement, without liability for interest, in trust for the pro rata benefit of the Holders of ADRs not theretofore surrendered. After making such sale, the Depositary shall be discharged from all obligations in respect of the Deposit Agreement and this ADR, except to account for such net proceeds and other cash. After the date so fixed for termination, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary and its agents.
Notwithstanding anything to the contrary, in connection with any termination pursuant to this paragraph (17), the Depositary may, in its sole discretion and without notice to the Company, establish an unsponsored American depositary share program (on such terms as the Depositary may determine) for the Shares and make available to Holders a means to withdraw the Shares represented by the ADSs issued under the Deposit Agreement and to direct the deposit of such Shares into such unsponsored American depositary share program, subject, in each case, to receipt by the Depositary, at its discretion, of the fees, charges and expenses provided for in paragraph (7) hereof and the fees, charges and expenses applicable to the unsponsored American depositary share program.
(18) Appointment; Acknowledgements and Agreements. Each Holder and each Beneficial Owner, upon acceptance of any ADSs or ADRs (or any interest in any of them) issued in accordance with the terms and conditions of the Deposit Agreement shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and the applicable ADR(s), (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof, and (c) acknowledge and agree that (i) nothing in the Deposit Agreement or any ADR shall give rise to a partnership or joint venture among the parties thereto, nor establish a fiduciary or similar relationship among such parties, (ii) the Depositary, its divisions, branches and affiliates, and their respective agents, may from time to time be in the possession of non-public information about the Company, Holders, Beneficial Owners and/or their respective affiliates, (iii) the Depositary and its divisions, branches and affiliates may at any time have multiple banking relationships with the Company, Holders, Beneficial Owners and/or the affiliates of any of them, (iv) the Depositary and its divisions, branches and affiliates may, from time to time, be engaged in transactions in which parties adverse to the Company or the Holders or Beneficial Owners and/or their respective affiliates may have interests, (v) nothing contained in the Deposit Agreement or any ADR(s) shall (A) preclude the Depositary or any of its divisions, branches or affiliates from engaging in any such transactions or establishing or maintaining any such relationships, or (B) obligate the Depositary or any of its divisions, branches or affiliates to disclose any such transactions or relationships or to account for any profit made or payment received in any such transactions or relationships, (vi) the Depositary shall not be deemed to have knowledge of any information held by any branch, division or affiliate of the Depositary and (vii) notice to a Holder shall be deemed, for all purposes of the Deposit Agreement and this ADR, to constitute notice to any and all Beneficial Owners of the ADSs evidenced by such Holders ADRs. For all purposes under the Deposit Agreement and this ADR, the Holder hereof shall be deemed to have all requisite authority to act on behalf of any and all Beneficial Owners of the ADSs evidenced by this ADR.
(19) Waiver. EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL OWNER OF, AND/OR HOLDER OF INTERESTS IN, ADSS OR ADRS) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR THE COMPANY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE ADSs OR THE ADRs, THE DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR ANY OTHER THEORY), INCLUDING ANY CLAIM UNDER THE UNITED STATES FEDERAL SECURITIES LAWS. No provision of the Deposit Agreement or this ADR is intended to constitute a waiver or limitation of any rights which a Holder or any Beneficial Owner may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
(20) Jurisdiction. By holding or owning an ADR or ADS or an interest therein, Holders and Beneficial Owners each irrevocably agree that any legal suit, action or proceeding against or involving Holders or Beneficial Owners brought by the Company or the Depositary, arising out of or based upon the Deposit Agreement, the ADSs, the ADRs or the transactions contemplated therein, herein, thereby or hereby, may be instituted in a state or federal court in New York, New York, and by holding or owning an ADR or ADS or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. By holding or owning an ADR or ADS or an interest therein, Holders and Beneficial Owners each also irrevocably agree that any legal suit, action or proceeding against or involving the Depositary brought by Holders or Beneficial Owners, arising out of or based upon the Deposit Agreement, the ADSs, the ADRs or the transactions contemplated therein, herein, thereby or hereby, may only be instituted in a state or federal court in New York, New York. Notwithstanding the above or anything in the Deposit Agreement to the contrary, in the Deposit Agreement each of the parties thereto (i.e. the Company, the Depositary and all Holders and Beneficial Owners) have agreed that: (i) the Depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or indirectly based on, arising out of or relating to the Deposit Agreement, the ADSs, the ADRs or the transactions contemplated therein, herein, thereby or hereby, including without limitation any question regarding its or their existence, validity, interpretation, performance or termination (a Dispute) against any other party or parties (including, without limitation, Disputes, suits, actions or proceedings brought against Holders and Beneficial Owners), by having the Dispute referred to and finally resolved by an arbitration conducted under the terms set out below, and (ii) the Depositary may in its sole discretion require, by written notice to the relevant party or parties, that any Dispute, suit, action, controversy, claim or proceeding brought by any party or parties to the Deposit Agreement (including, without limitation, Disputes, suits, actions or proceedings brought by Holders and Beneficial Owners) against the Depositary shall be referred to and finally settled by an arbitration conducted under the terms set out in the Deposit Agreement: provided however, notwithstanding the Depositarys written notice under this clause (ii), to the extent there are specific federal securities law violation aspects to any claims against the Company and/or the Depositary brought by any Holder or Beneficial Owner, the federal securities law violation aspects of such claims brought by a Holder or Beneficial Owner against the Company and/or the Depositary may, at the option of such Holder or Beneficial Owner, remain in state or federal court in New York, New York and all other aspects, claims, Disputes, legal suits, actions and/or proceedings brought by such Holder or Beneficial Owner against the Company and/or the Depositary, including those brought along with, or in addition to, federal securities law violation claims, would be referred to arbitration in accordance herewith. Any such arbitration shall, at the Depositarys election, be conducted either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL) with the Hong Kong International Arbitration Centre serving as the appointing authority, and the language of any such arbitration shall be English, in each case as provided in the Deposit Agreement.
FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
by and among
ADAGENE INC. AND ITS SUBSIDIARIES
ORDINARY SHAREHOLDERS NAMED HEREIN
SERIES A SHAREHOLDERS NAMED HEREIN
SERIES B SHAREHOLDERS NAMED HEREIN
AND
SERIES C SHAREHOLDERS NAMED HEREIN
DECEMBER 19, 2019
Table of Contents
FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
THIS FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (this Agreement) is entered into on December 19, 2019, by and among:
1. Adagene Inc., an exempted company organized under the laws of the Cayman Islands (the Company),
2. Adagene (Hong Kong) Limited (天演藥業(香港)有限公司), a company organized under the laws of Hong Kong (the Holdco Subsidiary);
3. Adagene (Suzhou) Limited (天演药业(苏州)有限公司), a company organized under the laws of the PRC (the WFOE);
4. Adagene Incorporated, a company organized under the laws of the State of Delaware (the US Subsidiary);
5. ADAGENE AUSTRALIA PTY LTD, a company incorporated and organized under the laws of Australia (the Australian Subsidiary);
6. each of the Persons named on Schedule A-1 hereto (collectively, the Ordinary Shareholders, and each an Ordinary Shareholder),
7. each of the Persons listed in Schedule A-2 and Schedule A-3 attached hereto (collectively, the Series A Shareholders),
8. each of the Persons listed in Schedule A-4 attached hereto (collectively, the Series B Shareholders); and
9. each of the Persons named on Schedule A-5, Schedule A-6 and Schedule A-7 hereto (collectively, the Series C Shareholders, and collectively with the Series A Shareholders and Series B Investors, the Investors, and each an Investor).
Each of the parties to this Agreement is referred to herein individually as a Party and collectively as the Parties. Capitalized terms used herein without definition shall have the meanings set forth in the Share Purchase Agreement (as defined below).
RECITALS
A The Company holds 100% issued and outstanding share capital of the Holdco Subsidiary, which holds 100% registered capital of the WFOE. The Company also holds 100% issued and outstanding shares of the US Subsidiary, which holds 100% issued and outstanding shares of the Australian Subsidiary.
B The Company entered into that certain Share Purchase Agreement with certain Series C Shareholder on October 15, 2019 with respect to the sale and purchase of Series C-3 Preferred Shares of the Company (the Share Purchase Agreement).
C The Share Purchase Agreement provides that the execution and delivery of this Agreement shall be a condition precedent to the consummation of the transactions contemplated under the Share Purchase Agreement.
D The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:
1. Definitions.
1.1 Defined Terms.
Capitalized terms used and not otherwise defined herein shall have the meaning ascribed to them below:
Accounting Standards means standards as close as possible to the generally accepted accounting principles in the United States, applied on a consistent basis, or other intentional accounting principles approved by the Investors applied on a consistent basis.
Affiliate means, (i) with respect to a Person that is a natural person, such Persons Relatives and any Person Controlled, directly or indirectly, by such Person or his/her Relatives, and (ii) with respect to a Person that is not a natural person, any Person which, directly or indirectly, Controls, is Controlled by or is under common Control with such Person, including, without limitation any member, managing member, general partner, limited partner, officer, employee, trustee or director of such Person or any trust for the benefit of any of the foregoing or any Affiliate of the foregoing and any venture capital fund now or hereafter existing which is Controlled by or under common Control with one or more general partners or shares the same management company with such Person. Notwithstanding the foregoing, the Parties acknowledge and agree that (a) the name Sequoia Capital is commonly used to describe a variety of entities (collectively, the Sequoia Entities) that are affiliated by ownership or operational relationship and engaged in a broad range of activities related to investing and securities trading and (b) notwithstanding any other provision of this Agreement to the contrary, this Agreement shall not be binding on, or restrict the activities of, any (i) Sequoia Entity outside of the Sequoia China Sector Group, (ii) entity primarily engaged in investment and trading in the secondary securities market; (iii) the ultimate beneficial owner of an Sequoia Entity (or its general partner or ultimate general partner) who is a natural Person, and such Persons relatives (including but without limitation, such Persons spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law), (iv) any officer, director or employee of a Sequoia Entity (or its general partner or ultimate general partner) and such Persons relatives, and (v) for the avoidance of doubt, any portfolio companies of any Sequoia Entity and portfolio companies of any affiliated investment fund or investment vehicle of any Sequoia Entity. For purposes of the foregoing, the Sequoia China Sector Group means all Sequoia Entities (whether currently existing or formed in the future) that are principally focused on companies located in, or with connections to, the Peoples Republic of China that are exclusively managed by Sequoia Capital. For the avoidance of doubt, each of SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP shall be deemed as an Affiliate of each other. For the avoidance of doubt, with respect to Asia Ventures II L.P. and F-Prime Capital Partners Healthcare Fund III LP, an Affiliate means (1) Eight Roads Holdings Limited (ERHL), a company incorporated in Bermuda, and any parent or subsidiary undertaking of, or entity under common control, with ERHL from time to time (ERHL and its subsidiary undertakings being the ERHL Group); (2) FIL Limited (FIL), a company incorporated in Bermuda, and any subsidiary undertaking of FIL from time to time (FIL and its subsidiary undertakings being the FIL Group); (3) FMR LLC (FMR), a Delaware corporation, and any subsidiary undertaking of FMR from time to time (FMR and its subsidiary undertakings being the FMR Group); (4) any director, officer, employee or shareholder of the ERHL Group, the FIL Group and/or the FMR Group or members of his family and any company, trust, partnership or other entity formed for his or any of their benefit from time to time (any or all of such individuals and entities being the Closely Related Shareholders); (5) any entity controlled by Closely Related Shareholders where control shall mean the power to direct the management and policies or appoint or remove members of the board of directors or other governing body of the entity, directly or indirectly, whether through the ownership of voting securities, contract or otherwise, and controlled shall be construed accordingly; (6) any affiliate of any member of the ERHL Group, the FIL Group and/or the FMR Group (where affiliate, for the purposes of this provision only, means (a) any entity controlled by any combination of any Closely Related Shareholders and, for purposes of this provision only, any member of the ERHL Group, the FIL Group and/or the FMR Group, and (b) the officers, partners and directors of any affiliate); and (7) any fund in which any member of the ERHL Group, the FIL Group and/or the FMR Group or any Closely Related Shareholder is a partner. For the avoidance of doubt, with respect to General Atlantic Singapore AI Pte. Ltd., Affiliate also includes (i) any direct or indirect shareholder of General Atlantic Singapore AI Pte. Ltd., (ii) any of such shareholders general partners, (iii) the fund manager managing such shareholder (and general partners, and officers thereof) and (iv) trusts controlled by or for the benefit of any natural person referred to in (ii) or (iii) above; provided that in no event shall any portfolio company owned, directly or indirectly, by investment funds managed by General Atlantic Service Company, L.P., be deemed an Affiliate of General Atlantic Singapore AI Pte. Ltd..
Applicable Securities Laws means (i) with respect to any offering of securities in the United States, or any other act or omission within that jurisdiction, the securities laws of the United States, including the Exchange Act and the Securities Act, and any applicable Law of any state of the United States, and (ii) with respect to any offering of securities in any jurisdiction other than the United States, or any related act or omission in that jurisdiction, the applicable Laws of that jurisdiction.
Board means the board of directors of the Company.
Business means the research, development, service, consulting, commercialization, transfer and license of technology relating to biologics including antibodies for therapeutic and/or diagnostic applications.
Business Day means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Hong Kong, Singapore, the Cayman Islands or the United States.
Charter Documents means, with respect to a particular legal entity, the articles or certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.
Closing means the Closing as defined in the Share Purchase Agreement.
Code means the United States Internal Revenue Code of 1986, as amended.
Commission means (i) with respect to any offering of securities in the United States, the Securities and Exchange Commission of the United States or any other federal agency at the time administering the Securities Act, and (ii) with respect to any offering of securities in a jurisdiction other than the United States, the regulatory body of the jurisdiction with authority to supervise and regulate the offering or sale of securities in that jurisdiction.
Consent means any consent, approval, authorization, release, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.
Control of a given Person shall mean the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms Controlled and Controlling have meanings correlative to the foregoing.
Deemed Liquidation Event means any of the following events:
(1) (A) any consolidation, amalgamation, scheme of arrangement or merger of a Group Company with or into any other Person or other reorganization in which the Members or shareholders of the Company immediately prior to such consolidation, amalgamation, merger, scheme of arrangement or reorganization own less than a majority of such Group Companys voting power in the aggregate immediately after such consolidation, merger, amalgamation, scheme of arrangement or reorganization, or (B) any transaction or series of related transactions to which a Group Company is a party in which in excess of fifty percent (50%) of such Group Companys voting power is transferred; or
(2) a sale, transfer, lease or other disposition of all or substantially all of the assets or business of any Group Company (or any series of related transactions resulting in such sale, transfer, lease or other disposition of all or substantially all of the assets of such Group Company), or entering into an exclusive license granting rights for substantially all of a Group Companys intellectual property in substantially all of the world;
provided that corporate activities taken solely for the purpose of achieving a Qualified IPO that has been duly approved in accordance with this Agreement and the Restated Memorandum and Articles shall not in any case be a Deemed Liquidation Event.
Equity Securities means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing.
ESOP means the Companys Second Amended and Restated Share Incentive Plan (as amended) duly approved by the Board covering the grant or issuance of up to 11,391,131 Ordinary Shares (or options therefor) (as amended from time to time and as adjusted in connection with share splits or share consolidation, reclassification or other similar event) to employees, officers, directors, contractors, advisors or consultants of the Group Companies.
Exchange Act means the United States Securities Exchange Act of 1934, as amended.
FCPA means Foreign Corrupt Practices Act of the United States of America, as amended from time to time.
Form F-1 means Form F-1 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.
Form F-3 means Form F-3 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.
Form S-1 means Form S-1 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.
Form S-3 means Form S-3 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.
Governmental Authority means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
Governmental Order means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
Group Company means each of the Company, the Holdco Subsidiary, the WFOE, the US Subsidiary and the Australian Subsidiary, together with each Subsidiary of any of the foregoing, and Group refers to all of Group Companies collectively.
Holders means the holders of Registrable Securities who are parties to this Agreement from time to time, and their permitted transferees that become parties to this Agreement from time to time.
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
Initiating Holders means, with respect to a request duly made under Section 2.1 or Section 2.2 to Register any Registrable Securities, the Holders initiating such request.
IPO means the first firm underwritten registered public offering by the Company of its Ordinary Shares pursuant to a Registration Statement that is filed with and declared effective by either the Commission under the Securities Act or another Governmental Authority for a public offering in a jurisdiction other than the United States.
Law or Laws means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any formally issued written interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.
Majority Investors means the holders of at least a majority of the voting power of the then outstanding Preferred Shares (voting together as a single class and calculated on as-converted basis).
Member has the meaning as in the Statute.
Ordinary Share Equivalents means any Equity Security which is by its terms convertible into or exchangeable or exercisable for Ordinary Shares, including without limitation, the Preferred Shares.
OFAC means the Treasury Departments Office of Foreign Assets Control of the United States.
Ordinary Shares means the Companys ordinary shares, par value US$0.0001 per share.
Original Issue Price has the meaning ascribed to such term in the Restated Memorandum and Articles.
Person means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.
PFIC means passive foreign investment company as defined in the Code.
PRC means the Peoples Republic of China, but solely for the purposes of this Agreement, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.
Preferred Director means each director of the Company other than the Founder Director.
Preferred Shares means, collectively, the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares.
Prior Agreement means the Fourth Amended and Restated Shareholders Agreement entered into by and among the Company and certain of its Members dated June 12, 2019.
Qualified IPO means the closing of a firm commitment underwritten public offering of the Ordinary Shares of the Company (or depositary receipts or depositary shares therefor) in the United States pursuant to an effective registration statement under the United States Securities Act of 1933, as amended, with an implied pre-offering market capitalization of the Company (based on the last pre-effectiveness pricing or low-end of the price range information contained in the final draft of such registration statement filed with the Commission) of no less than six hundred and fifty million US Dollars (US$650,000,000) and an aggregate gross proceeds of no less than US$75 million, before deduction of underwriting discounts and registration expenses, or in an underwritten public offering of the Ordinary Shares of the Company (or depositary receipts or depositary shares therefor) in another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange approved by the Majority Investors, voting as a single class, so long as such offering satisfies the foregoing pre-offering valuation and gross proceeds requirements.
Register of Members has the meaning ascribed to such term in the Restated Memorandum and Articles.
Registrable Securities means (i) the Ordinary Shares issued or issuable upon conversion of the Preferred Shares and (ii) any Ordinary Shares of the Company issued or issuable as a dividend or other distribution with respect to, in exchange for, or in replacement of, the shares referenced in (i) herein; excluding in all cases, however, any of the foregoing sold by a Person in a transaction other than an assignment pursuant to Section 13.3. For purposes of this Agreement, Registrable Securities shall cease to be Registrable Securities when such Registrable Securities have been disposed of pursuant to an effective Registration Statement.
Registration means a registration effected by preparing and filing a Registration Statement and the declaration or ordering of the effectiveness of that Registration Statement; and the terms Register and Registered have meanings concomitant with the foregoing.
Registration Statement means a registration statement prepared on Form F-1, F-3, S-1, or S-3 under the Securities Act, or on any comparable form in connection with registration in a jurisdiction other than the United States.
Related Party means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, and any Affiliate of any of the foregoing.
Relative of a natural person means the spouse of such person and any parent, grandparent, child, grandchild, sibling, cousin, in-law, uncle, aunt, nephew or niece of such person or spouse.
Restated Memorandum and Articles means the Sixth Amended and Restated Memorandum of Association and the Sixth Amended and Restated Articles of Association of the Company, as each may be amended and/or restated from time to time.
Restated Right of First Refusal & Co-Sale Agreement means the Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement among the Company and certain Investors dated on or about the date of this Agreement, as amended from time to time.
SAFE means the State Administration of Foreign Exchange of the PRC.
SAFE Regulation means any Law promulgate by SAFE, including without limitation, the Circular 37 issued by SAFE on July 4, 2014, titled Circular on Relevant Issues Relating to Domestic Residents Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (Hui Fa [2014] No. 37), effective on the same date.
Securities Act means the United States Securities Act of 1933, as amended.
Series A Preferred Shares means the Series A-1 Preferred Shares and the Series A-2 Preferred Shares.
Series A-1 Preferred Shares means the Series A-1 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series A-2 Preferred Shares means the Series A-2 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series B Preferred Shares means the Series B Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C Preferred Shares means, collectively, the Series C-1 Preferred Shares, the Series C-2 Preferred Shares and the Series C-3 Preferred Shares, and each a Series C Preferred Share.
Series C-1 Preferred Shares means the Series C-1 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C-2 Preferred Shares means the Series C-2 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C-3 Preferred Shares means the Series C-3 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C-3 Shareholder means General Atlantic Singapore AI Pte. Ltd. and any Affiliate thereof that holds any Series C-3 Preferred Shares.
Shares means the Ordinary Shares and the Preferred Shares.
Statute means the Companies Law of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in effect.
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.
Tax means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i)(a) and (i)(b) above.
Transaction Documents has the meaning set forth in the Share Purchase Agreement.
US means the United States of America.
1.2 Other Defined Terms.
The following terms shall have the meanings defined for such terms in the Sections set forth below:
Additional Consideration |
|
Section 12.11(iv) |
Agreement |
|
Preamble |
Arbitration Notice |
|
Section 13.5(i) |
Australian Subsidiary |
|
Recitals |
CFC |
|
Section 12.5 |
Company |
|
Preamble |
Confidential Information |
|
Section 12.4(i) |
Dispute |
|
Section 13.5(i) |
Exempt Registrations |
|
Section 3.4 |
Extended Participation Period |
|
Section 7.4 |
Founder |
|
Section 10.1(i)(d) |
Founder Director |
|
Section 10.1(i)(d) |
Fully Exercising Investor |
|
Section 7.4 |
HKIAC |
|
Section 13.5(ii) |
HKIAC Rules |
|
Section 13.5(ii) |
Holdco Subsidiary |
|
Preamble |
Indirect United States Shareholder |
|
Section 12.5 |
Initial Consideration |
|
Section 12.11(iv) |
Investor(s) |
|
Preamble |
Investors Partners |
|
Section 12.5 |
Liquidation Event |
|
Section 12.11(i) |
New Financing |
|
Section 10.1(iv) |
New Securities |
|
Section 7.3 |
Non-Competition Period |
|
Section 12.15 |
Ordinary Shareholders |
|
Preamble |
Participation Notice |
|
Section 7.4 |
Participation Period |
|
Section 7.4 |
Party(ies) |
|
Preamble |
Preemptive Right |
|
Section 7.1 |
Prohibited Payment |
|
Section 12.10 |
Pro Rata Share |
|
Section 7.2 |
Public Official |
|
Section 12.10 |
QIPO Date |
|
Section 12.12(i) |
Repurchase Date |
|
Section 12.12(i) |
Repurchase Notice |
|
Section 12.12(v) |
Repurchase Price |
|
Section 12.12(iii) |
Repurchase Request |
|
Section 12.12(i) |
Requesting Series A Holders |
|
Section 12.12(1) |
Requesting Series B Holders |
|
Section 12.12(i) |
Requesting Series C Holders |
|
Section 12.12(i) |
Rights Holder |
|
Section 7.1 |
Series A Repurchase Notice |
|
Section 12.12(i) |
Series A Shareholders |
|
Preamble |
Series B Repurchase Notice |
|
Section 12.12(i) |
Series B Shareholders |
|
Preamble |
Series C Repurchase Notice |
|
Section 12.12(i) |
Series C Shareholders |
|
Preamble |
Share Purchase Agreement |
|
Recitals |
Subpart F Income |
|
Section 12.5 |
Subsidiary Board |
|
Section 10.1(ii) |
US Subsidiary |
|
Preamble |
United States Shareholder |
|
Section 12.5 |
Violation |
|
Section 5.1(i) |
WFOE |
|
Preamble |
1.3 Interpretation.
For all purposes of this Agreement, except as otherwise expressly herein provided, (i) the terms defined in this Section 1 shall have the meanings assigned to them in this Section 1 and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards, (iii) all references in this Agreement to designated Sections and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement, (iv) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, (v) the words herein, hereof and hereunder and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision, (vi) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement, (vii) references to this Agreement, any other Transaction Documents and any other document shall be construed as references to such document as the same may be amended, supplemented or novated from time to time, (viii) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning, (ix) the term voting power refers to the number of votes attributable to the Shares (on an as-converted basis) in accordance with the terms of the Restated Memorandum and Articles, (x) the headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement, (xi) references to laws include any such law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made, and (xii) all references to dollars or to US$ are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies).
2. Demand Registration.
2.1 Registration Other Than on Form F-3 or Form S-3.
Subject to the terms of this Agreement, at any time or from time to time after the date that is six (6) months after the closing of the IPO, Holders holding thirty percent (30%) or more of the voting power of the then outstanding Registrable Securities held by all Holders may request in writing that the Company effect a Registration on any internationally recognized exchange that is reasonably acceptable to such requesting Holders. Upon receipt of such a request, the Company shall (x) promptly give written notice of the proposed Registration to all other Holders and (y) as soon as practicable, use its good faith commercially reasonable efforts to cause the Registrable Securities specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within fifteen (15) days after the Companys delivery of written notice, to be Registered and/or qualified for sale and distribution in such jurisdiction as the Initiating Holders may request. The Company shall be obligated to consummate no more than two (2) Registrations pursuant to this Section 2.1 that have been declared and ordered effective; provided that if the Registrable Securities sought to be included in the Registration pursuant to this Section 2.1 are not fully included in the Registration for any reason other than solely due to the action or inaction of the Holders including Registrable Securities in such Registration, such Registration shall not be deemed to constitute one of the Registration rights granted pursuant to this Section 2.1. The Company shall not be obligated to take any action to effect any Registration pursuant to this Section 2.1 unless the aggregate proceeds from the offering that is the subject of the Registration exceeds US$5,000,000 and at least 40% of the Registrable Securities then outstanding shall participate in such Registration.
2.2 Registration on Form F-3 or Form S-3.
The Company shall use its good faith commercially reasonable efforts to qualify for registration on Form F-3 or Form S-3. Subject to the terms of this Agreement, if the Company qualifies for registration on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), Holders holding ten percent (10%) or more of the voting power of the then outstanding Registrable Securities held by all Holders may request the Company in writing to file, in any jurisdiction in which the Company has had a registered underwritten public offering, a Registration Statement on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), including without limitation any registration statement filed under the Securities Act providing for the registration of, and the sale on a continuous or a delayed basis by the Holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission. Upon receipt of such a request, the Company shall (i) promptly give written notice of the proposed Registration to all other Holders and (ii) as soon as practicable, use its good faith commercially reasonable efforts to cause the Registrable Securities specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within fifteen (15) days after the Companys delivery of written notice, to be Registered and qualified for sale and distribution in such jurisdiction. The Company shall be obligated to consummate no more than two (2) Registrations that have been declared and ordered effective within any twelve (12)-month period pursuant to this Section 2.2; provided that if the Registrable Securities sought to be included in the Registration pursuant to this Section 2.2 are not fully included in such Registration for any reason other than solely due to the action or inaction of the Holders including Registrable Securities in such Registration, such Registration shall not be deemed to constitute one of the Registration rights granted pursuant to this Section 2.2. The Company shall not be obligated to take any action to effect any Registration pursuant to this Section 2.2 unless the aggregate proceeds from the offering that is the subject of the Registration exceeds US$5,000,000.
2.3 Right of Deferral.
(i) The Company shall not be obligated to Register or qualify Registrable Securities pursuant to this Section 2:
(1) if, within ten (10) days of the receipt of any request of the Holders to Register any Registrable Securities under Section 2.1 or Section 2.2, the Company gives notice to the Initiating Holders of its bona fide intention to effect the filing for its own account of a Registration Statement of Ordinary Shares within sixty (60) days of receipt of that request; provided, that the Company is actively employing in good faith its commercially reasonable efforts to cause that Registration Statement to become effective within sixty (60) days of receipt of that request; provided, further, that the Holders are entitled to join such Registration in accordance with Section 3 (other than an Exempt Registration);
(2) during the period starting with the date of filing by the Company of, and ending six (6) months following the effective date of any Registration Statement pertaining to Ordinary Shares of the Company other than an Exempt Registration; provided, that the Holders are entitled to join such Registration in accordance with Section 3;
(3) in any jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such Registration or qualification, unless the Company is already subject to service of process in such jurisdiction; or
(4) with respect to the registration on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), if Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States) (as the case may be) is not available for such offering by the Holders.
(ii) If, after receiving a request from Holders pursuant to Section 2.1 or Section 2.2 hereof, the Company furnishes to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board, it would be materially detrimental to the Company or its members for a Registration Statement to be filed in the near future, then the Company shall have the right to defer such filing for a period during which such filing would be materially detrimental, provided, that the Company may not utilize this right for more than ninety (90) days on any one occasion or more than once during any twelve (12) month period; provided, further, that the Company may not Register any other its securities during such period (except for Exempt Registrations).
2.4 Underwritten Offerings.
If, in connection with a request to Register Registrable Securities under Section 2.1 or Section 2.2, the Initiating Holders seek to distribute such Registrable Securities in an underwritten offering, they shall so advise the Company as a part of the request, and the Company shall include such information in the written notice to the other Holders described in Section 2.1 and Section 2.2. In such event, the right of any Holder to include its Registrable Securities in such Registration shall be conditioned upon such Holders participation in such underwritten offering and the inclusion of such Holders Registrable Securities in the underwritten offering (unless otherwise mutually agreed by the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwritten offering shall enter into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected for such underwritten offering by the Company and reasonably acceptable to the holders of a majority of the voting power of all Registrable Securities proposed to be included in such Registration. Notwithstanding any other provision of this Agreement, if the managing underwriter advises the Company that marketing factors (including without limitation the aggregate number of securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Registrable Securities to be underwritten in a Registration pursuant to Section 2.1 or Section 2.2, the underwriters may exclude the Registrable Securities requested to be Registered but only after first excluding all other Equity Securities from the Registration and underwritten offering and so long as the number of shares to be included in the Registration on behalf of the non-excluded Holders is allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such Holders to be included; provided that the Initiating Holders shall have the right to withdraw their request for Registration from the underwriting by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement, and such withdrawal request for Registration shall not be deemed to constitute one of the Registration rights granted pursuant to Section 2.1 or Section 2.2, as the case may be. If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from such underwritten offering shall be withdrawn from the Registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to a Holder to the nearest one hundred (100) shares.
3. Piggyback Registrations.
3.1 Registration of the Companys Securities.
Subject to the terms of this Agreement, if the Company proposes to Register for its own account any of its Equity Securities, or for the account of any holder (other than a Holder) of Equity Securities any of such holders Equity Securities, in connection with the public offering of such securities (except for Exempt Registrations), the Company shall promptly give each Holder written notice of such Registration and, upon the written request of any Holder given within fifteen (15) days after delivery of such notice, the Company shall use its good faith commercially reasonable efforts to include in such Registration any Registrable Securities thereby requested to be Registered by such Holder. If a Holder decides not to include all or any of its Registrable Securities in such Registration 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, all upon the terms and conditions set forth herein.
3.2 Right to Terminate Registration.
The Company shall have the right to terminate or withdraw any Registration initiated by it under Section 3.1 prior to the effectiveness of such Registration, whether or not any Holder has elected to participate therein. The expenses of such withdrawn Registration shall be borne by the Company in accordance with Section 4.3.
3.3 Underwriting Requirements.
(i) In connection with any offering involving an underwriting of the Companys Equity Securities, the Company shall not be required to Register the Registrable Securities of a Holder under this Section 3 unless such Holders Registrable Securities are included in the underwritten offering and such Holder enters into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected by the Company and setting forth such terms for the underwritten offering as have been agreed upon between the Company and the underwriters. In the event the underwriters advise Holders seeking Registration of Registrable Securities pursuant to this Section 3 in writing that market factors (including the aggregate number of Registrable Securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Registrable Securities to be underwritten, the underwriters may exclude all or such portion of the Registrable Securities which were requested to be Registered, but only after first excluding all other Equity Securities (except for securities sold for the account of the Company) from the Registration and underwriting and so long as the Registrable Securities to be included in such Registration on behalf of any non-excluded Holders are allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such Holders to be included. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to a Holder to the nearest one hundred (100) shares.
(ii) If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from the underwritten offering shall be withdrawn from the Registration.
3.4 Exempt Registrations.
The Company shall have no obligation to Register any Registrable Securities under this Section 3 in connection with a Registration by the Company (i) relating solely to the sale of securities to participants in a Company share plan, (ii) relating to a corporate reorganization or other transaction under Rule 145 of the Securities Act (or comparable provision under the Laws of another jurisdiction, as applicable), or (iii) on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities and does not permit secondary sales. (collectively, Exempt Registrations).
4. Registration Procedures.
4.1 Registration Procedures and Obligations.
Whenever required under this Agreement to effect the Registration of any Registrable Securities held by the Holders, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Commission a Registration Statement with respect to those Registrable Securities and use its good faith commercially reasonable efforts to cause that Registration Statement to become effective, and, upon the request of the Holders holding a majority in voting power of the Registrable Securities Registered thereunder, keep the Registration Statement effective until the distribution thereunder has been completed;
(ii) Prepare and file with the Commission amendments and supplements to that Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of Applicable Securities Laws with respect to the disposition of all securities covered by the Registration Statement;
(iii) Furnish to the Holders the number of copies of a prospectus, including a preliminary prospectus, required by Applicable Securities Laws, and any other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;
(iv) Use its good faith commercially reasonable efforts to Register and qualify the securities covered by the Registration Statement under the Applicable Securities Laws of any jurisdiction, as reasonably requested by the Holders, provided, that the Company shall not be required to qualify to do business or file a general consent to service of process in any such jurisdictions;
(v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in customary form, with the managing underwriter(s) of the offering;
(vi) Promptly notify each Holder of Registrable Securities covered by the Registration Statement at any time when a prospectus relating thereto is required to be delivered under Applicable Securities Laws of (a) the issuance of any stop order by the Commission, or (b) the happening of any event or the existence of any condition as a result of which any prospectus included in the 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 under which they were made, or if in the opinion of counsel for the Company it is necessary to supplement or amend such prospectus to comply with law, and at the request of any such Holder promptly prepare and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made or such prospectus, as supplemented or amended, shall comply with law;
(vii) Furnish, at the request of any Holder requesting Registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered for sale in connection with a Registration pursuant to this Agreement, (A) an opinion, dated the date of the sale, of the counsel representing the Company for the purposes of the Registration, in form and substance as is customarily given to underwriters in an underwritten public offering; and (B) comfort letters dated as of (x) the effective date of the final registration statement covering such Registrable Securities, and (y) the closing date of the sale of the Registrable Securities, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters;
(viii) Otherwise comply with all applicable rules and regulations of the Commission to the extent applicable to the applicable registration statement and use its commercially reasonable efforts to make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Act, no later than forty-five (45) days after the end of a twelve (12) month period (or ninety (90) days, if such period is a fiscal year) beginning with the first month of the Companys first fiscal quarter commencing after the effective date of such registration statement, which statement shall cover such twelve (12) month period, subject to any proper and necessary extensions;
(ix) Provide a transfer agent and registrar for all Registrable Securities Registered pursuant to the Registration Statement and, where applicable, a number assigned by the Committee on Uniform Securities Identification Procedures for all those Registrable Securities, in each case not later than the effective date of the Registration; and
(x) Take all reasonable action necessary to list the Registrable Securities on the primary exchange on which the Companys securities are then traded or, in connection with a Qualified IPO, the primary exchange on which the Companys securities will be traded.
4.2 Information from Holder.
It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the Registration of such Holders Registrable Securities.
4.3 Expenses of Registration.
All expenses, other than the underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement (which shall be borne by the Holders requesting Registration on a pro rata basis in proportion to their respective numbers of Registrable Securities sold in such Registration), incurred in connection with Registrations, filings or qualifications pursuant to this Agreement, including (without limitation) all Registration, filing and qualification fees, printers and accounting fees, fees and disbursements of counsel for the Company and reasonable fees and disbursement of one counsel for all selling Holders, shall be borne by the Company. The Company shall not, however, be required to pay for any expenses of any Registration proceeding begun pursuant to Section 2.1 or Section 2.2 of this Agreement if the Registration request is subsequently withdrawn at the request of the Holders holding a majority of the voting power of the Registrable Securities requested to be Registered by all Holder in such Registration (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be thereby Registered in the withdrawn Registration) unless the Holders of a majority of the voting power of the Registrable Securities then outstanding agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to Section 2.1 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (1) such demand registration); provided, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and the Company shall pay any and all such expenses.
5. Registration-Related Indemnification.
5.1 Company Indemnity.
(i) To the maximum extent permitted by Law, the Company will indemnify and hold harmless each Holder, such Holders partners, officers, directors, shareholders, members, and legal counsel, any underwriter (as defined in the Securities Act) and each Person, if any, who controls (as defined in the Securities Act) such Holder or underwriter, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under Laws which are applicable to the Company and relate to action or inaction required of the Company in connection with any Registration, qualification, or compliance, 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 (each a Violation): (a) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, on the effective date thereof (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), (b) the omission or alleged omission to state in the Registration Statement, on the effective date thereof (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), a material fact required to be stated therein or necessary to make the statements therein not misleading, or (c) any violation or alleged violation by the Company of Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws. The Company will reimburse, as incurred, each such Holder, underwriter or controlling person (within the meaning of the Securities Act) for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.
(ii) The indemnity agreement contained in this Section 5.1 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 or delayed), 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 solely out of or is solely based upon a Violation that occurs in reliance upon and in conformity with written information furnished for use in connection with such Registration by any such Holder, such Holders partners, officers, directors, and legal counsel, any underwriter (as defined in the Securities Act) and each Person, if any, who controls (as defined in the Securities Act) such Holder or underwriter.
5.2 Holder Indemnity.
(i) To the maximum extent permitted by Law, each selling Holder that has included Registrable Securities in a Registration will, severally and not jointly, indemnify and hold harmless the Company, its directors and officers, any other Holder selling securities in connection with such Registration, any underwriter (as defined in the Securities Act) and each Person, if any, who controls (within the meaning of the Securities Act) the Company, such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws, 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 solely in reliance upon and in conformity with written information furnished by such Holder for use in connection with such Registration; and each such Holder will reimburse, as incurred, any Person intended to be indemnified pursuant to this Section 5.2, for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability or action. No Holders liability under this Section 5.2 (when combined with any amounts paid by such Holder pursuant to Section 5.4) shall exceed the net proceeds received by such Holder from the offering of securities made in connection with that Registration.
(ii) The indemnity contained in this Section 5.2 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 or delayed).
5.3 Notice of Indemnification Claim.
Promptly after receipt by an indemnified party under Section 5.1 or Section 5.2 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 Section 5.1 or Section 5.2, deliver to the indemnifying party a written notice of the commencement thereof and 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 indemnifying parties. An indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonably incurred 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 differing 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, to the extent so prejudiced, of any liability to the indemnified party under this Section 5, but the omission 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 5. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
5.4 Contribution.
If any indemnification provided for in Section 5.1 or Section 5.2 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, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, 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 of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a 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; provided, however, that, in any such case: (A) no Holder will be required to contribute any amount (after combined with any amounts paid by such Holder pursuant to Section 5.2) in excess of the net proceeds to such Holder from the sale 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.
5.5 Underwriting Agreement.
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 shall control.
5.6 Survival.
The obligations of the Company and Holders under this Section 5 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Agreement, regardless of the expiration of any statutes of limitation or extensions of such statutes.
6. Additional Registration-Related Undertakings.
6.1 Reports under the Exchange Act.
With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any comparable provision of any Applicable Securities Laws that may at any time permit a Holder to sell securities of the Company to the public without Registration or pursuant to a Registration on Form F-3 or Form S-3 (or any comparable form in a jurisdiction other than the United States), the Company agrees to:
(i) make and keep public information available, as those terms are understood and defined in Rule 144 (or comparable provision, if any, under Applicable Securities Laws in any jurisdiction where the Companys securities are listed), at all times following ninety (90) days 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;
(ii) file with the Commission in a timely manner all reports and other documents required of the Company under all Applicable Securities Laws; and
(iii) at any time following ninety (90) days 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 by the Company, promptly furnish to any Holder holding Registrable Securities, upon request (a) a written statement by the Company that it has complied with the reporting requirements of all Applicable Securities Laws at any time after it has become subject to such reporting requirements or, at any time after so qualified, that it qualifies as a registrant whose securities may be resold pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Companys securities are listed), (b) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as filed by the Company with the Commission, and (c) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission, that permits the selling of any such securities without Registration or pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Companys Securities are listed).
6.2 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without the written consent of holders of a majority of the voting power of the then outstanding Registrable Securities held by all Holders (calculated on an as-converted to Ordinary Share basis), enter into any agreement with any holder or prospective holder of any Equity Securities of the Company that would allow such holder or prospective holder (i) to include such Equity Securities in any Registration filed under Section 2 or Section 3, unless under the terms of such agreement such holder or prospective holder may include such Equity Securities in any such Registration only to the extent that the inclusion of such Equity Securities will not reduce the amount of the Registrable Securities of the Holders that are included, (ii) to demand Registration of their Equity Securities, or (iii) cause the Company to include such Equity Securities in any Registration filed under Section 2 or Section 3 hereof on a basis pari passu with or more favorable to such holder or prospective holder than is provided to the Holders of Registrable Securities.
6.3 Market Stand-Off Agreement.
Each holder of Registrable Securities agrees, if so required by the managing underwriter(s), that it will not during the period commencing on the date of the final prospectus relating to the Companys IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days from the date of such final prospectus), (i) lend, offer, pledge, hypothecate, hedge, sell, make any short sale of, loan, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Equity Securities of the Company owned immediately prior to the date of the final prospectus relating to the IPO (other than those included in such offering), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such Equity Securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Equity Securities of the Company or such other securities, in cash or otherwise; provided, that (a) the forgoing provisions of this Section shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall not be applicable to any Holder unless all directors, officers and all other holders of at least one percent (1%) of the outstanding share capital of the Company (calculated on an as-converted to Ordinary Share basis) must be bound by restrictions at least as restrictive as those applicable to any such Holder pursuant to this Section, (y) this Section shall not apply to a Holder to the extent that any other Person subject to substantially similar restrictions is released in whole or in part, and (z) the lockup agreements shall permit a Holder to transfer their Registrable Securities to their respective Affiliates so long as the transferees enter into the same lockup agreement. The Investors agree to execute and deliver to the underwriters a lock-up agreement containing substantially similar terms and conditions as those contained herein. In order to enforce the foregoing covenant, the Company may place restrictive legends on the certificates and impose stop-transfer instructions with respect to the Registrable Securities of each shareholder (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such period.
6.4 Termination of Registration Rights.
The registration rights set forth in Section 2 and Section 3 of this Agreement shall terminate on the earlier of (i) the date that is five (5) years from the date of closing of an IPO, and (ii) with respect to any Holder, the date on which such Holder may sell all of such Holders Registrable Securities under Rule 144 of the Securities Act in any ninety (90)-day period without restriction.
6.5 Exercise of Ordinary Share Equivalents.
Notwithstanding anything to the contrary provided in this Agreement, the Company shall have no obligation to Register Registrable Securities which, if constituting Ordinary Share Equivalents, have not been exercised, converted or exchanged, as applicable, for Ordinary Shares as of the effective date of the applicable Registration Statement, but the Company shall cooperate and facilitate any such exercise, conversion or exchange as requested by the applicable Holder.
6.6 Intent.
The terms of Sections 2 through 6 are drafted primarily in contemplation of an offering of securities in the United States of America. The Parties recognize, however, the possibility that securities may be qualified or registered for offering to the public in a jurisdiction other than the United States of America where registration rights have significance or that the Company might effect an offering in the United States of America in the form of American Depositary Receipts or American Depositary Shares. Accordingly:
(i) it is their intention that, whenever this Agreement refers to a Law, form, process or institution of the United States of America but the parties wish to effectuate qualification or registration in a different jurisdiction where registration rights have significance, reference in this Agreement to the Laws or institutions of the United States shall be read as referring, mutatis mutandis, to the comparable Laws or institutions of the jurisdiction in question; and
(ii) it is agreed that the Company will not undertake any listing of American Depositary Receipts, American Depositary Shares or any other security derivative of the Ordinary Shares unless arrangements have been made reasonably satisfactory to the Majority Investors to ensure that the spirit and intent of this Agreement will be realized and that the Company is committed to take such actions as are necessary such that the Holders will enjoy rights corresponding to the rights hereunder to sell their Registrable Securities in a public offering in the United States of America as if the Company had listed Ordinary Shares in lieu of such derivative securities.
7. Preemptive Right.
7.1 General.
The Company hereby grants to each holder of Preferred Shares (each, a Rights Holder) the right of first refusal to purchase such Rights Holders Pro Rata Share (as defined below) (and any oversubscription, as provided below) of all (or any part) of any New Securities (as defined below) that the Company may from time to time issue after the date of this Agreement (the Preemptive Right).
7.2 Pro Rata Share.
A Rights Holders Pro Rata Share for purposes of the Preemptive Rights is the ratio of (a) the number of Ordinary Shares (including Preferred Shares on an as-converted basis) held by such Rights Holder, to (b) the total number of Ordinary Shares (including Preferred Shares on an as-converted basis) then outstanding immediately prior to the issuance of New Securities giving rise to the Preemptive Rights.
7.3 New Securities.
For purposes hereof, New Securities shall mean any Equity Securities of the Company issued after the Closing, except for:
(i) the option reserved by the Company and granted by the Board pursuant to the ESOP or the Ordinary Shares (as appropriately adjusted for share splits or share consolidation, share dividends, recapitalization, reduction, reclassification or other similar event) issuable to employees, officers, directors, contractor, advisors or consultants of the Group Companies upon exercise of the option pursuant to the ESOP as granted by Board;
(ii) any Equity Securities of the Company issued in connection with any share split, share dividend, reclassification or other similar event;
(iii) any Ordinary Shares issued pursuant to bona fide transactions with commercial lenders or lessors in connection with loans, credit arrangements, equipment financings or similar transactions, each such transaction having been duly approved by the Board or the Members in accordance with this Agreement and the Restated Memorandum and Articles;
(iv) any Ordinary Shares issued pursuant to bona fide transactions with licensors, collaborator or strategic partners in connection with technology licensing, research, development or commercialization collaboration, strategic partnership or similar transactions, each such transaction having been duly approved by the Board or the Members in accordance with this Agreement and the Restated Memorandum and Articles;
(v) any Equity Securities of the Company issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity, in any case, duly approved in accordance with Section 11;
(vi) any Equity Securities of the Company issued pursuant to a Qualified IPO;
(vii) any Ordinary Shares issued upon the conversion of the Preferred Shares; and
(viii) any Series C-2 Preferred Shares of the Company issued pursuant to the Share Subscription Agreement dated June 9, 2019 among the Company and other parties thereto, and any Series C-3 Preferred Shares of the Company issued pursuant to the Share Purchase Agreement.
7.4 Procedures.
In the event that the Company proposes to undertake an issuance of New Securities (in a single transaction or a series of related transactions), it shall give to each Rights Holder written notice of its intention to issue New Securities (the Participation Notice), describing the amount and type of New Securities, the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have ten (10) Business Days from the date of receipt of any such Participation Notice (the Participation Period) to agree in writing to purchase up to such Rights Holders Pro Rata Share of such New Securities for the price and upon the terms and conditions specified in the Participation 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 respond in writing within such ten (10) Business Day period, then such Rights Holder shall forfeit the right hereunder to purchase its Pro Rata Share of such New Securities, but shall not be deemed to forfeit any right with respect to any other issuance of New Securities. At the expiration of such ten (10) days period, the Company shall promptly notify each Rights Holder that elects to purchase or acquire all the shares available to it (each, a Fully Exercising Investor) of any other Rights Holders failure to do likewise. During the ten (10) day period commencing after the Company has given such notice (the Extended Participation Period), each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Rights Holders were entitled to subscribe but that were not subscribed for by the Rights Holders which is equal to the proportion that the Ordinary Shares issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Shares, by such Fully Exercising Investor bears to the Ordinary Shares issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Shares then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Section 7.4 shall occur within the later of ninety (90) days of the date that the Participation Notice is given and the date of initial sale of New Securities pursuant to Section 7.5.
7.5 Failure to Exercise.
Upon the expiration of the Participation Period (or the Extended Participation Period, as applicable), the Company shall have ninety (90) days thereafter to complete the sale of the New Securities described in the Participation Notice with respect to which the Preemptive Rights hereunder were not exercised at the same or higher price and upon non-price terms not more favorable to the purchasers thereof than specified in the Participation Notice. In the event that the Company has not issued and sold such New Securities within such ninety (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 7.
7.6 Optional Procedure.
Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of Sections 7.4 and 7.5, the Company may elect to give notice to the Rights Holders within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price, and terms of the New Securities. Each Rights Holder shall have twenty (20) days from the date notice is given to elect to purchase up to the number of New Securities that would, if purchased by such Rights Holder, maintain such Rights Holders percentage-ownership position, calculated as set forth in Section 7.2, before giving effect to the issuance of such New Securities. The closing of such sale shall occur within sixty (60) days of the date notice is given to the Rights Holders.
7.7 Termination of Preemptive Rights.
The rights and covenants set forth in this Section 7 shall terminate and be of no force and effect upon the earlier to occur of (a) immediately before the consummation of a Qualified IPO, (b) the consummation of a Deemed Liquidation Event, or (c) with respect to any Right Holder, when such Right Holder ceases to hold at least 0.5% of Ordinary Shares of the Company on a fully diluted and as converted to Ordinary Shares basis (including all Preferred Shares held by such holder of Preferred Shares on an as-converted to Ordinary Share basis).
8. Information Rights.
8.1 Delivery of Financial Statements.
The Company shall deliver to each Rights Holder who holds at least 0.5% of Ordinary Shares of the Company on a fully diluted and as converted to Ordinary Shares basis (including all Preferred Shares held by such holder of Preferred Shares on an as-converted to Ordinary Share basis) the following documents or reports:
(i) within one hundred and twenty (120) days after the end of each fiscal year of the Company, a consolidated income statement, and statement of cash flows for the Company for such fiscal year and a consolidated balance sheet for the Company as of the end of the fiscal year, all prepared in English and in accordance with the Accounting Standards consistently applied, such financial statements shall be audited and certified by a Big 4 accounting firm or such other independent public accountants selected by the Board of Directors;
(ii) within thirty (30) days of the end of each quarter, a consolidated unaudited income statement and a statement of cash flows for such quarter and a consolidated balance sheet for the Company as of the end of such quarter, in accordance with the Accounting Standards consistently applied throughout the period (except for customary year-end adjustments and except for the absence of notes);
(iii) an annual business and financial plan and budget of the Company for the following fiscal year thirty (30) days prior to the beginning of such fiscal year in reasonable detail; and
(iv) as soon as practicable, any other information reasonably requested by any such Rights Holder, provided that such requests shall not be more frequent than twice a year.
8.2 Termination of Information Rights.
The rights and covenants set forth in this Section 8 shall terminate and be of no force and effect upon the earlier to occur of (a) immediately before the consummation of a Qualified IPO, or (b) the consummation of a Deemed Liquidation Event.
9. Inspection Rights.
The Group Companies covenant and agree that each Rights Holder shall have the right, and they shall permit each Rights Holder and its advisors and auditors, to reasonably inspect the facilities, books and records of each Group Company at any time during regular working hours and in a manner so as not to interfere with the normal business operations of the Group Company on reasonable prior notice to such Group Company and to discuss the business, operation and conditions of any Group Company with any Group Companys directors, employees, accountants, legal counsels and investment bankers, provided that such Rights Holder shall bear the costs for its own representatives and that such inspection shall not be more frequent than twice a year. The rights and covenants set forth in this Section 9 shall terminate and be of no force and effect upon the earlier to occur of (a) immediately before the consummation of a Qualified IPO, (b) the consummation of a Deemed Liquidation Event, or (c) with respect to any Right Holder, when such Right Holder ceases to hold at least 0.5% of Ordinary Shares of the Company on a fully diluted and as converted to Ordinary Shares basis (including all Preferred Shares held by such holder of Preferred Shares on an as-converted to Ordinary Share basis).
10. Election of Directors.
10.1 Board of Directors.
(i) The Company shall have, and the Parties hereto agree to cause the Company to have, a Board consisting of up to seven (7) directors, and:
(a) as long as Asia Ventures II L.P. holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board;
(b) as long as F-Prime Capital Partners Healthcare Fund III LP holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board;
(c) as long as Wuxi Pharmatech Healthcare Fund I L.P. holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to nominate one independent non-executive director and such one independent non-executive director shall be appointed and agreed by the Board;
(d) as long as Peter Peizhi Luo (the Founder) holds any Shares in the Company or is employed by the Company or any of its Controlled Affiliates, the Founder shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board (the Founder Director);
(e) as long as JSR Limited holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, it shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board;
(f) as long as SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP collectively hold at least five percent (5%) of the Shares outstanding on a fully-diluted basis, SCC Venture VI Holdco, Ltd. shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board, provided, however, that so long as each of SCC Venture VI Holdco, Ltd. (and its Affiliate) and Gopher Harvest Co-Investment Fund LP (and its Affiliate) holds the same number of Shares it holds as of the date hereof, the foregoing five percent (5%) threshold in this Section 10.1(i)(f) shall not apply from the date hereof until the closing of next round of equity financing of the Company; and
(g) as long as the Series C-3 Shareholder holds at least five percent (5%) of the Shares outstanding on a fully-diluted basis, the Series C-3 Shareholder shall have the right to designate, appoint, remove and replace and reappoint one individual to occupy one (1) seat on the Board.
(ii) If requested by any Party entitled to appoint director to the Board pursuant to Section 10.1(i) hereof, the applicable Group Company shall, and the Parties hereto shall cause such Group Company to (i) no later than forty-five (45) days after the date of such request to have a board of directors or similar governing body (in each case, the Subsidiary Board), (ii) to ensure that the authorized size of each Subsidiary Board at all times be the same authorized size as the Board, and (iii) to ensure that the composition of such Subsidiary Board to at all times consist of the same persons as directors as those then on the Board.
(iii) In the event of a deadlock of any decision of the Board, the Founder Director shall have a casting vote.
(iv) Unless otherwise agreed to by the Company, the Series C-3 Shareholder shall lead or participate in the next round of equity financing of the Company (the New Financing), provided that (x) the terms of the New Financing shall be satisfactory to and approved by the Series C-3 Shareholder, (y) the New Financing shall consummate within twelve (12) months after the Closing, and (z) there has not been any breach of any Transaction Document by any Group Company or the Founder. If the Series C-3 Shareholder leads or participates in the New Financing, save for the director designated in accordance with Section 10.1(i)(g), the Series C-3 Shareholder shall not be entitled to appoint any additional director to the Board.
10.2 Voting Agreements
(i) With respect to each election of directors of the Board, each holder of voting securities of the Company shall vote at each meeting of shareholders of the Company, or in lieu of any such meeting shall give such holders written consent with respect to, as the case may be, all of such holders voting securities of the Company as may be necessary (i) to keep the authorized size of the Board at up to seven (7) directors, (ii) to cause the election or re-election as members of the Board, and during such period to continue in office, each of the individuals designated pursuant to Section 10.1, and (iii) against any nominees not designated pursuant to Section 10.1.
(ii) Any director designated pursuant to Section 10.1 may be removed from the Board, either for or without cause, upon written request of the Person or class of Persons then entitled to designate such director pursuant to Section 10.1 or by the holders of a majority of the then outstanding voting power of the Shares at any time when the Person or class of Persons are no longer entitled to designate such director pursuant to Section 10.1(i), and the Parties agree not to seek, vote for or otherwise effect the removal of any such director without such written request. Any Person or group of Persons then entitled to designate any individual to be elected as a director on the Board shall have the exclusive right at any time or from time to time to fill any vacancy caused by the death, disability, retirement, resignation or removal of any director occupying such position or any other vacancy therein. Each holder of voting securities of the Company agrees to always vote such holders respective voting securities of the Company at a meeting of the members of the Company (and given written consents in lieu thereof) in support of the foregoing.
(iii) The designation, appointment, removal, replacement and reappointment of directors to each Subsidiary Board shall be determined mutatis mutandis by the provisions of Sections 10.1 and 10.2.
10.3 Quorum.
The Board shall hold no less than two (2) Board meetings during each fiscal year. A meeting of the Board shall only proceed where there are present (whether in person or by means of a conference telephone or any other equipment which allows all participants in the meeting to speak to and hear each other simultaneously) five (5) directors designated and appointed pursuant to Section 10.1, including at least four (4) Preferred Directors (which shall include the directors designated and appointed pursuant to Section 10.1(i)(f) and Section 10.1(i)(g)) and one (1) Founder Director. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the next Business Day at the same time and place or to such other time or such other place as the directors of the Company may determine, and if a quorum is still not satisfied due to the absence of same Preferred Director, the quorum shall be deemed satisfied for this meeting.
10.4 Expenses.
The Company will promptly pay or reimburse each non-employee Board member and each non-employee Subsidiary Board member for all reasonable out-of-pocket expenses incurred in connection with attending board or committee meetings and otherwise performing their duties as directors and committee members.
10.5 Alternates.
Subject to applicable Law, each director of the Company shall be entitled to appoint an alternate to serve at any Board meeting, and such alternate shall be permitted to attend all Board meetings and vote on behalf of the director for whom she or he is serving as an alternate.
10.6 Board Proceedings
Notwithstanding anything to the contrary in this Agreement and the Restated Memorandum and Articles, and without limiting any requirements under applicable law, neither the officers or directors of the Group Companies shall take, permit to occur, approve, authorize, or agree or commit to do any of the following, or cause any Group Company to take, permit to occur, approve, authorize, or agree or commit to do any of the following, without the approval of the Board, including the affirmative vote or consent of at least two thirds of the Preferred Directors:
(i) authorizing or consummating any merger, consolidation, share acquisition or other corporate reorganization, or any transaction or series of transaction in which in excess of 50% of the Companys voting power is transferred;
(ii) authorizing or consummating a public offering of any securities of any Group Company; or
(iii) liquidating, winding up, or proceeding with other voluntary proceeding seeking liquidation, administration (whether out of court or otherwise), readjustment or other relief under any bankruptcy, insolvency or similar law or the appointment of a trustee, receiver, administrator (whether out of court or otherwise) of liquidator or similar officers.
11. Protective Provisions.
So long as no less than twenty-five percent (25%) of the Preferred Shares originally issued at the respective closings are outstanding, no Group Company shall take, permit to occur, approve, authorize, or agree or commit to do any of the following, and each Party shall procure the Group Companies not to, take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether in a single transaction or a series of related transactions, whether directly or indirectly, and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, unless approved in writing by the Majority Investors in advance:
(i) any amendment or change of the rights, preferences, privileges or powers of, or restrictions provided for the benefit of, any of the Preferred Shares;
(ii) any creation, increase or decrease in the authorized number, or repurchase or redemption, of Preferred Shares, Ordinary Shares or any Equity Securities of any Group Company other than (w) the purchase, repurchase or redemption of Ordinary Shares by the Company at no more than the original issuance price from terminated employees, officers or consultants upon such termination in accordance with the ESOP, or pursuant to the exercise of a contractual right of first refusal held by the Company, if any, or pursuant to any share incentive plan option agreement or share incentive plan option exercise and ordinary share purchase agreement with the Company as approved by the Board, (x) the redemption of the Preferred Shares in connection with the conversion of such Preferred Shares into Ordinary Shares pursuant to the Restated Memorandum and Articles, (y) the redemption or repurchase of any Preferred Shares by the Company at the request of any Investor in accordance with the Restated Memorandum and Articles or this Agreement, and (z) increase or issuance of Equity Securities of a Group Company after which the Group Company remains a wholly owned subsidiary of the Company, directly or indirectly;
(iii) authorize, create, issue, or reclassify (or grant any right or entitlement for acquiring or subscribing for or reclassifying) (x) any Equity Securities of the Company having any preference or priority as to rights or privileges superior to or on parity with any such preference or priority of the Preferred Shares, other than such exclusions specified in Articles 7.3E(5)(a)(iii)a) to 7.3E(5)(a)(iii)h) of the Restated Memorandum and Articles, or (y) any Equity Securities of any other Group Company;
(iv) any change of the size of the board of directors of any Group Company or change the manner in which the directors are appointed, other than changes pursuant to and in compliance with this Agreement;
(v) a Deemed Liquidation Event or Liquidation Event;
(vi) any amendment or modification to, or waiver under, the Charter Documents, other than amendments pursuant to and in compliance with Section 13.17 hereof;
(vii) any declaration, set aside or payment of a dividend or other distribution by the Company, or the adoption of or any change to the dividend policy;
(viii) any merger, amalgamation, scheme of arrangement, reorganization, restructuring, or consolidation of any Group Company with any Person, or the purchase or other acquisition by any Group Company of assets, equity or business of another Person, or any sale, transfer or other disposal of all or substantially part of any Group Companys assets or business, or sale or exclusive license of all or substantially all of the intellectual property of any Group Company, unless such matter is approved by the Board which shall include the consent of at least four (4) Preferred Directors and such matter does not constitute a Deemed Liquidation Event;
(ix) the entry into any contract or commitment by any Group Company with any Related Party that is not on arms length terms or with a value in excess of US$5,000,000 in a single transaction or a series of transactions (provided that transactions with WuXi AppTec Co., Ltd. or its Affiliates would not be subject to this cap if such transaction or a series of transactions are on arms length terms and in the ordinary course of business of the Group Companies), or the termination or material amendment of or waiver under any such contract or commitment, unless such matter is approved by the Board which shall include the consent of at least four (4) Preferred Directors (or a majority of the Preferred Directors if any director is recused from voting on such matter);
(x) any action by any Group Company to authorize, approve or enter into any agreement or obligation with respect to any action listed above.
The rights and covenants set forth in this Section 11 shall terminate and be of no force and effect upon the earlier to occur of (a) immediately before the consummation of a Qualified IPO; or (b) the closing of a Deemed Liquidation Event.
12. Additional Covenants.
12.1 Business of the Group Companies.
The business of each Group Company shall be restricted to the Business, except with the approval of the Board.
12.2 Accounting Standards; Fiscal Year; Internal Controls.
The Company shall cause the Group Companies to adopt and maintain December 31 as their fiscal year end and will maintain their books and records in accordance with sound business practices and implement and maintain an adequate system of procedures and controls with respect to finance, management, accounting, and anti-corruption compliance that meets international standards of good practice and is reasonably satisfactory to the Majority Investors to provide reasonable assurance that (i) transactions by it are executed in accordance with managements general or specific authorization, (ii) transactions by it are recorded as necessary to permit preparation of financial statements in conformity with the Accounting Standards and to maintain asset accountability, (iii) access to assets of it is permitted only in accordance with managements general or specific authorization, (iv) the recorded inventory of assets is compared with the existing tangible assets at reasonable intervals and appropriate action is taken with respect to any material differences, (v) segregating duties for cash deposits, cash reconciliation, cash payment, proper approval is established, and (vi) no personal assets or bank accounts of the employees, directors, officers are mingled with the corporate assets or corporate bank account, and no Group Company uses any personal bank accounts of any employees, directors, officers thereof during the operation of the business.
12.3 No Avoidance; Voting Trust.
The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed hereunder by the Company, and the Company will at all times in good faith assist and take action as appropriate in the carrying out of all of the provisions of this Agreement. Except any arrangement between SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP, each holder of Shares agrees that it shall not enter into any other agreements or arrangements of any kind with respect to the voting of any Shares or deposit any Shares in a voting trust or other similar arrangement.
12.4 Confidentiality.
(i) The terms and conditions of the Transaction Documents (collectively, the Confidential Information), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties including their Affiliates (which, for purposes of this Section 12.4, the term Affiliate shall not include any limited partner of such Party) and consultants, board of directors, senior management and representatives to any other Person unless such Confidential Information (a) is disclosed to agencies and advisors of the Company as long as such Persons are subject to the same confidential treatment of the disclosed information, or (b) is known or becomes known to the public in general (other than as a result of a breach of this Section 12.4(i) by such Investor), (c) is or has been independently developed or conceived by the Investor without use of the Companys Confidential Information, or (d) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company, or (e) written consent is acquired from the Majority Investors. Notwithstanding the foregoing: (i) each Party, as appropriate, may disclose any of the Confidential Information to its Affiliate and its and its Affiliates respective current or bona fide prospective investors, prospective permitted transferees, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) each Investor may disclose any of the Confidential Information to its fund manager and the employees thereof so long as such Persons are under appropriate nondisclosure obligations; (iii) if any Party is requested or becomes legally compelled (including without limitation, pursuant to the Applicable Securities Laws) to disclose the existence or content of any of the Confidential Information in contravention of the provisions of this Section, such Party shall promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy and in any event shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information; (iv) the Series C-3 Shareholder may disclose its investment in the Company on General Atlantics website in substantially the same form and substance as the other disclosures made by General Atlantic with respect to its other portfolio company investments; and (v) the Company and its Affiliates may disclose the Series C-3 Shareholders investments in the Company (without referencing or disclosing any Financing Terms) on the Group Companies website in substantially the same form and substance as the other disclosures made by the Company with respect to its other financings.
(ii) The provisions of this Section shall terminate and supersede the provisions of any separate nondisclosure agreement executed by any of the Parties hereto with respect to the transactions contemplated hereby, including without limitation, any term sheet, letter of intent, memorandum of understanding or other similar agreement entered into by the Company and the Investors in respect of the transactions contemplated hereby.
12.5 Controlled Foreign Corporation.
Each year, based on and in reliance of the information provided by the Investors, the Company shall make due inquiry with its tax advisors regarding whether the Company or any of its subsidiaries is treated as a Controlled Foreign Corporation (CFC) as defined in the Code, whether any portion of the Companys or any of its subsidiaries income is Subpart F Income (as defined in Section 952 of the Code) (Subpart F Income) and each Investors share, if any, of such Subpart F Income. The Company shall furnish the results of such inquiry to each Investor that is a United States Shareholder or has a beneficial owner that is a United States Shareholder (Indirect United States Shareholder) no later than sixty (60) days following the end of the Companys or applicable subsidiarys taxable year. In addition, for each year the Company determines that the Company or any of its subsidiaries is treated as a CFC, the Company shall furnish to such Investor, no later than sixty (60) days following the end of the Companys or applicable subsidiarys taxable year, any information reasonably necessary for such Investor (or its beneficial owner) to calculate its global intangible low-taxed income (as defined in Section 951A of the Code). Each Investor shall reasonably cooperate with the Company to provide information necessary for the Companys tax advisors to determine the status of such Investor, or such Investors Partners, as a United States Shareholder within the meaning of Section 951(b) of the Code, provided, however, that no Investor shall be required to provide any confidential information in connection with this determination. The Company shall make reasonable commercial efforts, and shall cause each of its subsidiaries to make reasonable commercial efforts, to provide each Investor in a timely manner (no later than seventy-five (75) days following the end of each taxable year commencing with the first taxable year for which the Company or any of its subsidiaries is a CFC) with the information in its possession or reasonably obtainable that is necessary to allow such Investor or such Investors Partners to comply with its U.S. tax filing and reporting obligations as a result of any of the Company and its subsidiaries being treated as a CFC. For purposes of this Agreement, the term Investors Partners shall mean each of the Investor partners, members, shareholders and other equity holders and any direct or indirect owners of such partners, members, shareholders and other equity holders. The Company shall be deemed to satisfy its obligations set forth in this Section 12.5 in the event that it is unable to provide the information related to the CFC status of the Company or any of its subsidiaries solely as the result of the failure of an Investor to provide any relevant information. The Company shall be required to provide the information described in this Section 12.5 to an Investor with an Indirect United States Shareholder only if the Investor requests in writing that the Company provide such information.
12.6 Passive Foreign Investment Company.
Each year, the Company shall make due inquiry with its tax advisors regarding the status of the Company and each of its Subsidiaries as a PFIC. The Company shall notify the Investors of the results of such determination no later than sixty (60) days following the end of the Companys or applicable subsidiarys taxable year. Without limiting the Companys obligations pursuant to this Section 12.6, in connection with a Qualified Electing Fund election made by an Investor or any of an Investors Partners pursuant to Section 1295 of the Code with respect to the Company or any of its subsidiaries or a Protective Statement filed by an Investor or any of an Investors Partners pursuant to Treasury Regulation Section 1.1295-3, as amended (or any successor thereto), with respect to the Company or any of its subsidiaries, the Company shall, and shall cause each of its subsidiaries to, provide the information requested by the Investor necessary for the Investor and the Investors Partners to comply with the U.S. tax filing and reporting obligations with respect to such Qualified Electing Fund election or Protective Statement, including without limitation a PFIC Annual Information Statement under Section 1295(b) of the Code, and a completed IRS Form 8621, no later than seventy-five (75) days following the end of each taxable year commencing with the first taxable year for which the Company or any of its subsidiaries is a PFIC.
12.7 Provision of U.S. Tax Reporting Information.
The Company shall make commercially reasonable efforts, and shall cause its Subsidiaries to make commercially reasonable efforts, to provide as promptly as possible, an Investor with the information in the Companys or any of its Subsidiaries possession or reasonably obtainable by the Company or any of its Subsidiaries as is reasonably requested by the Investor from time to time: (1) to establish whether the Company is or is likely to become a PFIC or CFC with respect to the Investors; (2) to allow such Investor or any of an Investors Partners to comply with their U.S. tax filing and reporting obligations for the prior calendar year, including the reporting of their respective pro rata share of Subpart F Income of the Company and any other information required from time to time on annual IRS Form 5471 and 926 or any equivalent or successor form, if and as required; (3) generally to comply with all obligations imposed on any Investor under the Code with respect to the Company as a possible PFIC or CFC, including without limitation all obligations arising out of a Qualified Electing Fund election, if made; and (4) to enable the Investors (and its respective equity holders) to comply with applicable U.S. federal income tax Laws.
12.8 Costs.
Any and all costs incurred by any Group Company in providing the information that it is required to provide, or is required to cause to be provided, and the cost incurred by the Group Company in taking the action, or causing the action to be taken, described in Sections 12.5, 12.6 and 12.7 shall be borne by the relevant Investors.
12.9 U.S. Tax Classification.
The Company is intended to be classified and treated as an association taxable as a corporation for U.S. tax purposes. If necessary to ensure such classification, the Investors shall cooperate to cause the Company to timely execute and file United States Internal Revenue Form 8832 electing to treat the Company as a corporation for U.S. Federal income tax purposes pursuant to Section 301.7701-3 of the U.S. Treasury Regulations. In connection therewith, each of the Investors hereby consent to such election and agrees to cooperate to effect such election. The Company shall furnish a copy of such Form 8832 as requested by an Investor promptly after the filing thereof. The Company shall not elect to be treated as anything other than an association taxable as a corporation for U.S. federal, state or local income tax purposes under U.S. Treasury Regulations section 301.7701-3(a) or under any corresponding provision of state or local law, without the prior written consent of all the Investors.
12.10 Anti-Bribery Compliance.
The Group Companies agree and covenant to make reasonable efforts to ensure that each of the Group Companies: (i) shall not and shall not permit any of its Subsidiaries or Affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to offer, promise, authorize or make any payment to, or otherwise contribute any item of value, directly or indirectly, to any third party, including any Public Official, in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption Law; (ii) shall and shall cause each of its Subsidiaries and Affiliates to cease all of its or their respective activities, as well as remediate any actions taken by such Group Company, its Subsidiaries or Affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption Law; (iii) shall comply with all applicable anti-bribery and anti-corruption laws and regulations, including, but not limited to, the FCPA and the UK Bribery Act; (iv) shall and shall cause each of its Subsidiaries and Affiliates to maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption Law; and (v) shall implement reasonable policies and procedures designed to prevent the Group Companies, or any person acting on its or their behalf, from making any Prohibited Payment in connection with the activities or operations of the Company. For purposes of this section Prohibited Payment means (a) any offer, gift, payment, promise to pay or authorization of the payment of any money or anything of value, directly or indirectly, to or for the use or benefit of any Public Official (including to or for the use or benefit of any other person if the Company knows, or has reasonable grounds for believing, that the other person would use such offer, gift, payment, promise or authorization of payment for the benefit of any such Public Official), for the purpose of influencing any act or decision or omission of any Public Official in order to obtain, retain or direct business to, or to secure any improper benefit or advantage for, the Company or any other person, or (b) any conduct constituting a violation of applicable law involving corruption or bribery; provided that any such offer, gift, payment, promise or authorization of payment shall not be considered a Prohibited Payment if it is lawful under applicable written laws and regulations, and Public Official means any executive, official, or employee of a governmental authority, political party or member of a political party, political candidate; executive, employee or officer of a public international organization; or director, officer or employee or agent of a wholly owned or partially state-owned or Controlled enterprise, including a PRC state-owned or Controlled enterprise.
12.11 Liquidation Rights.
(i) Liquidation Preferences. In the event of any liquidation, dissolution or winding up of any Group Company, or the cessation of the business of the Group or of a substantial portion of the business of the Group (the Liquidation Event), whether voluntary or involuntary, or any Deemed Liquidation Event (unless waived in writing by the holders of at least 75% of the voting power of the then outstanding Preferred Shares (voting together as a single class and on an as converted basis)), all assets and funds resulting from such Liquidation Event or Deemed Liquidation Event that are legally available for distribution to the Members of the Company (after satisfaction of all creditors claims and claims that may be preferred by law including those related to employees and taxation) shall be distributed to the Members of the Company as follows:
(a) First, the holders of the Series C Preferred Shares then outstanding shall be entitled to receive with respect to each Series C Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series B Preferred Shares, Series A Preferred Shares or Ordinary Shares by reason of their ownership of such shares, the amount equal to 100% of its Original Issue Price. If the assets and funds thus distributed among the holders of the Series C Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (a), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (a).
(b) Second, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series C Preferred Shares pursuant to Section 12.11(i)(a), the holders of the Series B Preferred Shares then outstanding shall be entitled to receive with respect to each Series B Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series A Preferred Shares or Ordinary Shares by reason of their ownership of such shares, the amount equal to 100% of its Original Issue Price. If the assets and funds thus distributed among the holders of the Series B Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (b), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (b).
(c) Third, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series B Preferred Shares pursuant to Section 12.11(i)(b), the holders of the Series A Preferred Shares then outstanding shall be entitled to receive with respect to each Series A Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Ordinary Shares by reason of their ownership of such shares, the amount equal to 100% of its Original Issue Price. If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (c), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (c).
(d) Fourth, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series A Shares pursuant to Section 12.11(i)(c), the holders of the Series C Preferred Shares shall be entitled to receive with respect to each Series C Preferred Share by reason of their ownership of such shares a simple interest accruing on such Series C Preferred Share at 6% of its Original Issue Price per annum from the date of issuance of such Series C Preferred Share to the date of distribution of such amount. If the assets and funds thus distributed among the holders of the Series C Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (d), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (d).
(e) Fifth, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series C Preferred Shares pursuant to Section 12.11(i)(d), the holders of the Series B Preferred Shares shall be entitled to receive with respect to each Series B Preferred Share by reason of their ownership of such shares a simple interest accruing on such Series B Preferred Share at 6% of its Original Issue Price per annum from the date of issuance of such Series B Preferred Share to the date of distribution of such amount. If the assets and funds thus distributed among the holders of the Series B Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (e), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (e).
(f) Sixth, if there are any assets or funds remaining after the payment has been distributed or paid in full to the holders of the Series B Shares pursuant to Section 12.11(i)(e), the holders of the Series A Preferred Shares shall be entitled to receive with respect to each Series A Preferred Share by reason of their ownership of such shares a simple interest accruing on such Series A Preferred Share at 6% of its Original Issue Price per annum from the date of issuance of such Series A Preferred Share to the date of distribution of such amount. If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (f), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the amount each such holder is otherwise entitled to receive pursuant to this subparagraph (f).
(g) Seventh, if there are any assets or funds remaining after the payment has been distributed or paid in full to the applicable holders of each series of Preferred Shares pursuant to Sections 12.11(i)(a) through 12.11(i)(f), the remaining assets and funds of the Company available for distribution to the Members of the Company shall be distributed ratably among all Members according to the relative number of Ordinary Shares held by such Member (treating for this Section 12.11(i)(g) all Preferred Shares as if they had been converted to Ordinary Shares immediately prior to such Liquidation Event or Deemed Liquidation Event of the Company). If the assets and funds thus distributed among all Members shall be insufficient to permit the payment to such holders of the full amounts payable pursuant to this subparagraph (g), then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among all Members in proportion to amount each such Member is otherwise entitled to receive pursuant to this subparagraph (g).
(ii) Trade Sale. Notwithstanding Section 12.11(i) above, in the event that the valuation of the Company implied in a Deemed Liquidation Event or Liquidation Event is no less than US$650 million, all assets and funds resulting from such Liquidation Event or Deemed Liquidation Event that are legally available for distribution to the Members (after satisfaction of all creditors claims and claims that may be preferred by law including those related to employees and taxation) shall be distributed ratably among all Members of the Company according to the relative number of Ordinary Shares held by such Member (treating for this Section 12.11(ii) all Preferred Shares as if they had been converted to Ordinary Shares immediately prior to such Deemed Liquidation Event or Liquidation Event of the Company) without applying to liquidation distribution method set forth in Section 12.11(i).
(iii) Valuation of Properties. In the event the Company proposes to distribute assets other than cash in connection with a Liquidation Event or a Deemed Liquidation Event, the value of the assets to be distributed to the Members shall be determined in good faith by the Board; provided that any securities not subject to investment letter or similar restrictions on free marketability shall be the fair market value thereof as determined in good faith by the Board; provided further that the method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value of the securities not subject to investment letter or similar restrictions on free marketability to reflect the fair market value thereof as determined in good faith by the Board. Regardless of the foregoing, the Majority Investors shall have the right to challenge any determination by the Board of value pursuant to this Section 12.11(iii), in which case the determination of value shall be made by an independent appraiser selected jointly by the Board and the Majority Investors, with the cost of such appraisal to be borne by the Company.
(iv) Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event, if any portion of the consideration payable to the Members is payable only upon satisfaction of contingencies (the Additional Consideration), the agreement entered into with the Persons providing the consideration in connection with such Deemed Liquidation Event shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration) shall be allocated among the Members in accordance with Section 12.11(i) 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 Members upon satisfaction of such contingencies shall be allocated among the Members in accordance with Section 12.11(i) after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Section 12.11(iv), consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
(v) Notices. In the event that the Company shall propose at any time to consummate a Liquidation Event of the Company or a Deemed Liquidation Event, then, in connection with each such event, subject to any necessary approval required in the Statute, this Agreement and the Restated Memorandum and Articles, the Company shall send to all holders of the Preferred Shares at least ten (10) days prior written notice of the date when the same shall take place; provided, however, that the foregoing notice periods may be shortened or waived with the vote or written consent of the Majority Investors.
(vi) Enforcement. In the event the requirements of this Section 12.11 are not complied with, the Company shall, to the extent permitted by the Statute, forthwith either (i) cause the closing of the applicable transaction to be postponed until such time as the requirements of this Section 12.11 have been complied with, or (ii) cancel such transaction.
(vii) Cancellation of Dividend. In the event of a Liquidation Event or a Deemed Liquidation Event, all declared and unpaid dividend to the members of the Company shall be cancelled and no member shall be entitled to payment of any such dividends.
12.12 Repurchase Right.
(i) Request for Repurchase. Subject to the terms and conditions of this Section 12.12 and the provisions of applicable law, if the Company fails to consummate a Qualified IPO or complete a Deemed Liquidation Event, each duly approved in accordance with this Agreement and the Restated Memorandum and Articles on or before March 31, 2025 (the QIPO Date), upon the written request issued within one hundred and eighty (180) days after the QIPO Date by the holders of the majority of outstanding Series A Preferred Shares with respect to the shares of Series A Preferred Shares held by such holders (such holders, the Requesting Series A Holders), holders of the majority of the outstanding Series B Preferred Shares with respect to the shares of Series B Preferred Shares held by such holders (such holders, the Requesting Series B Holders), or holders of the majority of the outstanding Series C Preferred Shares with respect to the shares of Series C Preferred Shares held by such holders (such holders, the Requesting Series C Holders) (each such repurchase request, a Repurchase Request), the Company shall, on the date within sixty (60) Business Days upon receipt of any Repurchase Request (the Repurchase Date), repurchase out of funds legally available thereof, such number of Preferred Shares that such Requesting Series A Holders, Requesting Series B Holders or Requesting Series C Holders (as applicable) request to be repurchased which have not been converted into Ordinary Shares (the Repurchased Shares); provided that, (i) the Company shall, within ten (10) Business Days following the receipt of such Repurchase Request made by the Requesting Series A Holders, provide a notice (the Series A Repurchase Notice) to each of the other holders of the outstanding Series A Preferred Shares, and each such other holder of outstanding Series A Preferred Shares shall have a right to elect to have any or all of its Series A Preferred Shares to be repurchased by the Company on the Repurchase Date by delivering to the Company a written notice requesting such repurchase no later than ten (10) Business Days following its receipt of the Series A Repurchase Notice, and the Company shall be obligated to repurchase such shares on the Repurchase Date on the same terms and conditions of the repurchase of the Series A Preferred Shares held by the Requesting Series A Holders; (ii) the Company shall, within ten (10) Business Days following the receipt of such Repurchase Request made by the Requesting Series B Holders, provide a notice (the Series B Repurchase Notice) to each of the other holders of the outstanding Series B Preferred Shares, and each such other holder of outstanding Series B Preferred Shares shall have a right to elect to have any or all of its Series B Preferred Shares to be repurchased by the Company on the Repurchase Date by delivering to the Company a written notice requesting such repurchase no later than ten (10) Business Days following its receipt of the Series B Repurchase Notice, and the Company shall be obligated to repurchase such shares on the Repurchase Date on the same terms and conditions of the repurchase of the Series B Preferred Shares held by the Requesting Series B Holders; and (iii) the Company shall, within ten (10) Business Days following the receipt of such Repurchase Request made by the Requesting Series C Holders, provide a notice (the Series C Repurchase Notice) to each of the other holders of the outstanding Series C Preferred Shares, and each such other holder of outstanding Series C Preferred Shares shall have a right to elect to have any or all of its Series C Preferred Shares to be repurchased by the Company on the Repurchase Date by delivering to the Company a written notice requesting such repurchase no later than ten (10) Business Days following its receipt of the Series C Repurchase Notice, and the Company shall be obligated to repurchase such shares on the Repurchase Date on the same terms and conditions of the repurchase of the Series C Preferred Shares held by the Requesting Series C Holders.
Each such series of Preferred Shares called for repurchase as provided above shall be repurchased in cash at the Repurchase Price of such series of Preferred Shares and shall be paid from any source of funds legally available therefor.
(ii) Withdrawal or Termination of Request. A Repurchase Request may be withdrawn or terminated by the requesting Shareholders, but only with respect to the Shares of such series of Preferred Shares that had not been repurchased in full in cash as of the date such request for withdrawal or termination is made.
(iii) Repurchase Price. The repurchase price for each Preferred Share shall be an amount in cash equal to 100% of the applicable Original Issue Price for the applicable series of Preferred Shares plus any declared but unpaid dividends thereon (the Repurchase Price).
(iv) Insufficient Legally Available Fund. Notwithstanding any other provision set forth in this Section 12.12, if upon any Repurchase Date scheduled for the repurchase of Preferred Shares, the funds and assets of the Company legally available to repurchase such Shares shall be insufficient to repurchase all such Preferred Shares then scheduled to be repurchased, then:
(1) the holders of such Preferred Shares to be repurchased shall share ratably in any repurchase in proportion to the respective Repurchase Prices that would otherwise be payable in respect of such Preferred Shares held and elected to be repurchased by them upon such repurchase if all amounts payable on or with respect to such Preferred Shares were paid in full; and
(2) any Preferred Shares not repurchased shall be carried forward and shall be repurchased (together with any other Preferred Shares then scheduled to be repurchased) at the next such scheduled Repurchase Date to the full extent of legally available funds of the Company at such time.
Any such Preferred Shares not repurchased shall continue to be so carried forward until repurchased. Preferred Shares that are subject to repurchase hereunder but have not been repurchased due to insufficient legally available funds and assets of the Company shall continue to be outstanding and entitled to all dividend, liquidation, conversion and other rights, powers and preferences of the Preferred Shares respectively until three (3) days prior to the Repurchase Date upon which such Preferred Shares have been converted or repurchased.
(v) Repurchase Notice. At least twenty (20) days prior to the Repurchase Date, written notice in accordance with the provisions hereof shall be given by the Company to each Shareholder (at the close of business on the Business Day next preceding the day on which notice is given), notifying such Shareholder of (a) the repurchase to be effected, (b) specifying the Repurchase Date(s), the applicable Repurchase Price, the number of Repurchased Shares, the place at which payment may be obtained and the date on which such holders conversion rights as to such Preferred Shares terminate (which date shall be three (3) days prior to each Repurchase Date with respect to the Preferred Shares to be repurchased on that date) and (c) calling upon holders of Repurchased Shares to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the Repurchased Shares (the Repurchase Notice).
(vi) Surrender of Certificates. On or before each designated Repurchase Date, each holder of a series of Preferred Shares to be repurchased shall (unless such holder has previously exercised such holders right to convert such Preferred Shares into Ordinary Shares as provided in Article 7.3 of the Restated Memorandum and Articles), surrender the certificate(s) representing such Shares of such series of Preferred Shares to be repurchased to the Company, in the manner and at the place designated in the Repurchase Notice, and thereupon the Repurchase Price for such Preferred Shares shall be payable to the order of the person whose name appears in the Register of Members as the owner thereof, and each surrendered certificate shall be cancelled and retired. If less than all of the Preferred Shares represented by such certificate are repurchased, then the Company shall promptly issue a new certificate representing the Preferred Shares not repurchased.
(vii) Effect of Repurchase. If the Repurchase Notice shall have been duly given for a series of Preferred Shares, and if on any Repurchase Date the Repurchase Price for such series of Preferred Shares to be repurchased thereon is either paid or made available for payment through the deposit arrangements specified in Section 12.12(viii) hereof, then notwithstanding that the certificates evidencing any of the such Preferred Shares so called for repurchase on such Repurchase Date shall not have been surrendered, such Preferred Shares shall not thereafter be transferred on the Companys books and the rights of all of the holders of such Preferred Shares with respect to such Preferred Shares shall terminate on such Repurchase Date, except only the right of the holders to receive the Repurchase Price from the Company or the payment agent, without interest, upon surrender of their certificate(s) therefor.
(viii) Deposit of Repurchase Price. On or prior to the Repurchase Date for any Preferred Shares, the Company may, at its option, deposit with an independent payment agent, a sum equal to the aggregate Repurchase Price for all Shares of each series of Preferred Shares called for repurchase on that Repurchase Date and not yet repurchased, with irrevocable instructions and authority to the payment agent to pay, on or after the Repurchase Date, the Repurchase Price to the respective holders of Preferred Shares upon the surrender of their share certificates. The deposit shall constitute full payment of the Preferred Shares called for repurchase on that Repurchase Date to their holders, and from and after the such Repurchase Date, such Preferred Shares shall be deemed to be repurchased and no longer outstanding, provided that the terms and conditions of such deposit and irrevocable instructions and authority to the payment agent are to the reasonable satisfaction of the holder(s) of the Repurchase Shares. Any funds so deposited and unclaimed at the end of one (1) year from such Repurchase Date shall be released or repaid to the Company, after which time the holders of Preferred Shares called for repurchase who have not claimed such funds shall be entitled to receive payment of the Repurchase Price only from the Company.
(ix) Alternative to Company Repurchase. Notwithstanding the provisions of this Section 12.12, the Company is entitled to satisfy its repurchase obligations with respect to any portion of the Preferred Shares subject to a Repurchase Request pursuant to this Section 12.12 by causing one or more third party Persons to purchase such Preferred Shares at the Repurchase Price within sixty (60) Business Days upon the receipt of the Repurchase Request.
12.13 Compliance with Laws
The Group Companies agree and covenant to make reasonable efforts to ensure that each of the Group Companies shall, at their own costs and expenses, fully comply with all applicable Laws and regulations of the jurisdiction of its incorporation as well as all requirements of the competent Governmental Authorities with respect to their conducting of business in all material respects, on a continuing basis, including but not limited to, tax regulations, anti-money laundry laws and regulations, the SAFE Regulations, OFAC regulations and other applicable sanctions laws and regulations, as amended, and any similar statute or law, rule, regulation, official policy, interpretation or pronouncement of any Governmental Authority.
12.14 Role of Series C Shareholders
(i) Use the name or brand of the Investors. Without the written consent of the Series C Shareholders, the Company, its Subsidiaries and their shareholders (excluding the Series C Shareholders), shall not use the name or brand of any Series C Shareholder or its Affiliates, claim itself as a partner of such Series C Shareholder or its Affiliates, or make any similar representations. Without the written approval of the Series C Shareholders, the Company, its Subsidiaries and their shareholders (excluding the Series C Shareholders), shall not make or cause to be made, any press release, public announcement or other disclosure to any third party, whether in marketing materials or not, in respect of this Agreement or any Series C Shareholders subscription of share interest of the Company.
(ii) Conflicts of Interest. Each Party hereto acknowledges that a representative of the relevant Series C Shareholders or their Affiliates is expected to serve as a director of the Board. Each Party hereto acknowledges that each Series C Shareholder and its Affiliates manage a separate investment business, such roles involve an inherent conflict of interest, and agree that each Series C Shareholder, its Affiliates and their representatives shall have no liability attributable to such conflicts of interest. Nevertheless, the Parties approve the roles of each Series C Shareholder and its Affiliates as described above.
12.15 Non-Competition
The Founder undertakes and covenants to the Investors that commencing from the date of this Agreement until the later of (x) the expiry of the twelve (12) months period after the date he ceases to be employed by any Group Company, and (y) the expiry of the twelve (12) months period after the date when he does not hold or beneficially own any shares or securities of any Group Company (the Non-Competition Period), he will not, without the prior written consent of the Investors, either on his own account or through any of his Affiliates, or in conjunction with or on behalf of any other Person: (i) carry out, be engaged, concerned or interested directly or indirectly whether as shareholder, director, employee, partner, agent or otherwise in any business in competition with, or otherwise related to, the Business engaged by any Group Company (except for a passive investment of less than two percent (2%) of the stock of any publicly traded company that engages in the foregoing); (ii) solicit or entice away or attempt to solicit or entice away from any Group Company, any Person, firm, company or organization who is an employee, customer, client, representative, agent or correspondent of such Group Company.
13. Miscellaneous.
13.1 Termination.
This Agreement shall terminate (i) upon mutual consent of the Parties hereto, or (ii) with respect to a Party which is a shareholder of the Company, when such shareholder no long holds any Shares. If this Agreement terminates, the Parties shall be released from their obligations under this Agreement, except in respect of any obligation stated, explicitly or otherwise, to continue to exist after the termination of this Agreement (including without limitation those under Sections 2 through 6, 12.14, Section 12.15 and Section 13). If any Party breaches this Agreement before the termination of this Agreement, it shall not be released from its obligations arising from such breach on termination.
13.2 Further Assurances.
Upon the terms and subject to the conditions herein, each of the Parties hereto agrees to use its commercially reasonable efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties hereto in doing, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement.
13.3 Assignments and Transfers; No Third Party Beneficiaries.
Except as otherwise provided herein, this Agreement and the rights and obligations of the Parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party. The Parties do not intend that any term of this Agreement should be enforceable, by virtue of the Contracts (Rights of Third Parties) Ordinance (Cap. 623 of the Laws of Hong Kong), by any Person who is not a party to this Agreement. The rights of any Investor hereunder (including, without limitation, the registration rights) are assignable (together with the related obligations) to a third party in connection with the transfer of Equity Securities of the Company held by such Investor, and any such transferee shall execute and deliver to the Company a deed of adherence or joinder becoming a party hereto as an Investor subject to the terms and conditions hereof (if not already so bound); provided, that in connection with any transfer of Preferred Shares by an Investor to a third party, such Investors rights under Sections 10.1(i) and 10.1(ii) in this Agreement may not be assigned to such third party transferee without prior approval of the Board. Any holder of Ordinary Shares transferred pursuant to the Restated Right of First Refusal & Co-Sale Agreement shall execute and deliver to the Company a deed of adherence or joinder becoming a party hereto as an Ordinary Shareholder subject to the terms and conditions hereof (if not already so bound). This Agreement and the rights and obligations of each other Party hereunder shall not otherwise be assigned without the mutual written consent of the other Parties except as expressly provided herein.
13.4 Governing Law.
This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the Laws of Hong Kong, without regard to the conflicts of law provisions of Hong Kong or of any other state.
13.5 Dispute Resolution.
(i) Any dispute, controversy, difference or claim (each, a Dispute) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the Arbitration Notice) to the other.
(ii) The Dispute shall be settled by arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre (the HKIAC) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the HKIAC Rules) in force when the Arbitration Notice is submitted. There shall be three (3) arbitrators. The HKIAC council shall select the arbitrators, who shall be qualified to practice law in Hong Kong.
(iii) The arbitral proceedings shall be conducted in English.
(iv) The costs of arbitration shall be borne by the losing party, unless otherwise determined by the arbitral tribunal.
(v) The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
(vi) The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.
(vii) Any Party to the Dispute shall be entitled to seek interim measures of protection and emergency relief, if possible, from any court of competent jurisdiction in accordance with the applicable Laws of that jurisdiction.
(viii) When any Dispute occurs and when any Dispute is under arbitration, except for the matters in Dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.
13.6 Notices.
Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule B (or at such other address as such Party may designate by fifteen (15) days advance written notice to the other Parties to this Agreement given in accordance with this Section). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a with a copy to address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.
13.7 Expenses.
If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.
13.8 Rights Cumulative; Specific Performance.
Each and all of the various rights, powers and remedies of a Party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party. Without limiting the foregoing, the Parties hereto acknowledge and agree irreparable harm may occur for which money damages would not be an adequate remedy in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.
13.9 Successor Indemnification.
If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, in each case as duly approved by the Board and the Members in accordance with this Agreement and the Restated Memorandum and Articles, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately before such transaction, whether such obligations are contained in the Restated Memorandum and Articles, or elsewhere, as the case may be.
13.10 Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.
13.11 Amendments and Waivers.
Any provision in 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 by the written consent of (i) the Company; (ii) the Majority Investors; and (iii) Persons holding at least a majority of the Ordinary Shares held by the Parties hereto; provided, however, that (1) no amendment or waiver shall be effective or enforceable in respect of a holder of any class or series of Shares if such amendment or waiver affects such holder materially and adversely differently from the other holders of the same class or series of Shares unless such holder consents in writing to such amendment or waiver, (2) any provision that specifically and expressly gives a right to a named Investor shall not be amended or waived without the prior written consent of such named Investor, and (3) any amendment that imposes any additional obligation or restriction on the Series C-3 Shareholder, regardless of whether as a named Investor or by virtue of its holding of Shares in the Company, shall require the written consent of the Series C-3 Shareholder. Notwithstanding the foregoing, any Party hereunder may waive any of its/his rights hereunder without obtaining the consent of any other Parties. Any amendment or waiver effected in accordance with this Section shall be binding upon all the Parties hereto.
13.12 No Waiver.
Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.
13.13 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
13.14 No Presumption.
The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.
13.15 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.
13.16 Entire Agreement.
This Agreement (including the Exhibits hereto) constitutes the full and entire understanding and agreement among the Parties with regard to the subjects hereof, and supersedes all other agreements between or among any of the Parties with respect to the subject matter hereof.
13.17 Agreement Controlling.
In the event of any conflict or inconsistency between any of the terms of this Agreement and any of the terms of any of the Charter Documents for any of the Group Companies, or in the event of any dispute related to any such Charter Document, the terms of this Agreement shall prevail in all respects, the Parties (other than the Company) shall give full effect to and act in accordance with the provisions of this Agreement over the provisions of the Charter Documents, and the Parties hereto (other than the Company) shall exercise all voting and other rights and powers (including to procure any required alteration to such Charter Documents to resolve such conflict or inconsistency) to make the provisions of this Agreement effective, and not to take any actions that impair any provisions in this Agreement.
In the event of inconsistency between the Restated Memorandum and Articles, the Restated Right of First Refusal & Co-Sale Agreement and this Agreement, this Agreement shall prevail.
13.18 Aggregation of Shares.
All Shares held or acquired by any Affiliates shall be aggregated together for the purpose of determining the availability of any rights of any Investor under this Agreement.
13.19 Use of English Language.
This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language shall have no interpretive effect. All documents or notices to be delivered pursuant to or in connection with this Agreement shall be in the English language or, if any such document or notice is not in the English language, accompanied by an English translation thereof, and the English language version of any such document or notice shall control for purposes thereof.
13.20 Effective Date.
This Agreement shall only take effect and become binding on and enforceable against the Parties subject to and upon the Closing as defined in the Share Purchase Agreement.
13.21 Amendment of Prior Agreement.
The Company, the Ordinary Shareholders, the Series A Shareholders, the Series B Shareholders, and the Series C Shareholders, consisting of all of the parties to the Prior Agreement, hereby amend and restate the Prior Agreement by entering this Agreement on the terms and conditions set forth herein, which shall amend, restate, supersede and replace in its entirety the Prior Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
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Adagene Inc. |
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Adagene (Hong Kong) Limited (天演藥業(香港)有限公司) |
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/s/ Peter Peizhi Luo |
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WFOE: |
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Adagene (Suzhou) Limited |
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(天演葯业(苏州)有限公司) |
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[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
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Adagene Incorporated |
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AUSTRALIAN SUBSIDIARY: |
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ADAGENE AUSTRALIA PTY LTD |
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Peter Peizhi Luo |
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[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
HOLDERS OF ORDINARY SHARES AND SERIES A-l PREFERRED SHARES:
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/s/ Peter Peizhi Luo |
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Peter Peizhi Luo |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
HOLDERS OF ORDINARY SHARES AND SERIES A-l PREFERRED SHARES:
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/s/ Ge Li |
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Ge Li |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
HOLDERS OF ORDINARY SHARES, SERIES A-l, SERIES A-2 AND SERIES B PREFERRED SHARES:
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ASIA VENTURES II L.P. |
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By: Asia Partners II, L.P., its General Partner |
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By: Eight Roads GP. as General Partner |
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By: |
/s/ Matthew Heath |
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Name: |
Matthew Heath |
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Title: |
Director |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
HOLDERS OF ORDINARY SHARES. SERIES A-l. SERIES A-2 AND SERIES B PREFERRED SHARES:
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F-Prime Capital Partners Healthcare Fund III LP |
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By: F-Prime Capital Partners Healthcare Advisors Fund III LP, its sole General Partner |
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By: Impresa Management LLC, its sole General Partner |
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By: |
/s/ Mary Bevelock Pendergast |
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Name: |
Mary Bevelock Pendergast |
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Title: |
Vice President |
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Address: |
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F-Prime Capital Partners Healthcare Fund III LP |
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c/o F-Prime Capital Partners |
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One Main Street, 13th Floor |
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Cambridge, MA 02142 |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
HOLDERS OF ORDINARY SHARES. SERIES A-l, SERIES A-2 AND SERIES B PREFERRED SHARES:
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WUXI PHARMATECH HEALTHCARE FUND I L.P. |
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By WuXi PharmaTech Fund I General Partner L.P., its general partner |
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By WuXi PharmaTech Investments (Cayman) Inc., its general partner |
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By: |
/s/ Edward Hu |
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Name: |
Edward Hu |
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Title: |
CFO / Authorized Signatory |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES B INVESTORS: |
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JSR LIMITED |
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By: |
/s/ Dongmei Ji |
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Name: |
Dongmei Ji |
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Title: |
Authorized Signatory |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
HOLDERS OF SERIES B AND SERIES C-l PREFERRED SHARES: |
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New World TMT Limited |
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By: |
/s/ Wong Chi Chiu Albert |
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Name: |
Wong Chi Chiu Albert |
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Title: |
Director |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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SCC Venture VI Holdco, Ltd. |
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By: |
/s/ Ip Siu Wai Eva |
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Name: |
Ip Siu Wai Eva |
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Title: |
Authorized Signatory |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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Gopher Harvest Co-Investment Fund LP |
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By: |
/s/ Yin Zhe |
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Name: |
Yin Zhe |
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Title: |
Director |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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AVICT GLOBAL HOLDINGS LIMITED |
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For and on behalf of |
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AVICT Global Holdings Limited |
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By: |
/s/ Jing Xiong |
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Name: |
Jing Xiong |
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Title: |
Authorized Signatory |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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KING STAR MED LP |
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By: |
/s/ Xianghong Lin |
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Name: |
Xianghong Lin |
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Title: |
Authorized Signatory |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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Chief Strategic International Limited |
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By: |
/s/ Fu Chi Kong |
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Name: |
Fu Chi Kong |
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Title: |
Director |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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Mega Prime Development Limited |
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By: |
/s/ Wang Jianping |
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Name: |
Wang Jianping |
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Title: |
Director |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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Modest Champion Limited |
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By: |
/s/ Lin Lei /s/ Xie Jia |
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Name: |
Lin Lei, Xie Jia |
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Title: |
Authorized Signatories |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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Poly Platinum Enterprises Limited |
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By: |
/s/ Yuezhong Li |
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Name: |
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Title: |
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[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
SERIES C SHAREHOLDERS: |
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GENERAL ATLANTIC SINGAPORE AI PTE. LTD. |
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By: |
/s/ Ong Yu Huat |
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Name: |
Ong Yu Huat |
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Title: |
Director |
[Adagene Inc. Fifth Amended and Restated Shareholders Agreement Signature Page]
SCHEDULE A-1
LIST OF ORDINARY SHAREHOLDERS
Schedule A-1 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE A-2
LIST OF SERIES A-1 SHAREHOLDERS
Schedule A-2 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE A-3
LIST OF SERIES A-2 SHAREHOLDERS
Schedule A-3 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE A-4
LIST OF SERIES B SHAREHOLDERS
Schedule A-4 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE A-5
LIST OF SERIES C-1 SHAREHOLDERS
Schedule A-5 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE A-6
LIST OF SERIES C-2 SHAREHOLDERS
Schedule A-6 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE A-7
LIST OF SERIES C-3 SHAREHOLDER
Schedule A-7 to Fifth Amended and Restated Shareholders Agreement
SCHEDULE B
ADDRESS FOR NOTICE
Schedule B to Fifth Amended and Restated Shareholders Agreement
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FOURTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
BY AND BETWEEN
ADAGENE INC.
NON-INVESTOR SHAREHOLDERS
AND
INVESTORS NAMED HEREIN
DECEMBER 19, 2019
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Table of Contents
1. |
Definitions |
2 |
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1.1 |
Definitions |
2 |
1.2 |
Other Defined Terms |
7 |
1.3 |
Interpretation |
7 |
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2. |
Restriction on Transfers; Rights of First Refusal and Co-Sale Rights |
8 |
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2.1 |
Restriction on Transfers |
8 |
2.2 |
Rights of First Refusal |
9 |
2.3 |
Right of Co-Sale |
11 |
2.4 |
Non-Exercise of Rights |
12 |
2.5 |
Limitations to Rights of First Refusal and Co-Sale |
13 |
2.6 |
Legend |
14 |
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3. |
Drag-Along Rights |
14 |
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4. |
Miscellaneous |
15 |
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4.1 |
Termination |
15 |
4.2 |
Further Assurances |
15 |
4.3 |
Assignments and Transfers; No Third Party Beneficiaries |
15 |
4.4 |
Governing Law |
15 |
4.5 |
Dispute Resolution |
16 |
4.6 |
Notices |
16 |
4.7 |
Expenses |
17 |
4.8 |
Rights Cumulative; Specific Performance |
17 |
4.9 |
Severability |
17 |
4.10 |
Amendments and Waivers |
17 |
4.11 |
No Waiver |
18 |
4.12 |
Delays or Omissions |
18 |
4.13 |
No Presumption |
18 |
4.14 |
Counterparts |
18 |
4.15 |
Entire Agreement |
18 |
4.16 |
Amendment and Restatement of Prior Agreement |
19 |
4.17 |
Agreement Controlling |
19 |
4.18 |
Aggregation of Shares |
19 |
4.19 |
Use of English Language |
19 |
4.20 |
Effective Date |
19 |
4.21 |
Market Stand-Off Agreement |
19 |
4.22 |
Additional Parties |
20 |
SCHEDULE A LIST OF NON-INVESTOR SHAREHOLDERS
SCHEDULE B LIST OF INVESTORS
SCHEDULE C LIST OF COMPETITORS
FOURTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO- SALE AGREEMENT
THIS FOURTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (this Agreement) is entered into on December 19, 2019, by and among:
1. Adagene Inc., an exempted company organized under the laws of the Cayman Islands (the Company),
2. Each of the Persons named on Schedule A hereto (collectively, the Non-Investor Shareholders, and each a Non-Investor Shareholder), and
3. each of the Persons listed in Schedule B attached hereto (collectively, the Investors, and each an Investor).
Each of the parties to this Agreement is referred to herein individually as a Party and collectively as the Parties. Capitalized terms used herein without definition shall have the meanings set forth in the Restated Shareholders Agreement.
RECITALS
A. The Company holds 100% of the issued and outstanding share capital of Adagene (Hong Kong) Limited (天演藥業(香港)有限公司), a company organized under the laws of Hong Kong (the Holdco Subsidiary), which holds an interest in 100% of the registered capital of Adagene (Suzhou) Limited (天演药业(苏州)有限公司), a company organized under the laws of the PRC (the WFOE). The Company also holds 100% issued and outstanding shares of Adagene Incorporated, a company organized under the laws of the State of Delaware (the US Subsidiary), which holds 100% issued and outstanding shares of ADAGENE AUSTRALIA PTY LTD, a company incorporated and organized under the laws of Australia (the Australian Subsidiary).
B. Certain Investor has agreed to purchase from the Company certain Series C-3 Preferred Shares pursuant to that certain Share Purchase Agreement dated October 15, 2019 by and among the Company and such Investor (the Share Purchase Agreement).
C. The Share Purchase Agreement provides that it is a condition precedent to the consummation of the transactions contemplated under the Share Purchase Agreement that the Parties enter into this Agreement.
D. The Company, the Founder, and certain other parties entered into a Third Amended and Restated Right of First Refusal and Co-Sale Agreement on June 12, 2019 (the Prior Agreement), and the Parties hereof desire to enter into this Agreement to terminate, supersede and restate the Prior Agreement in its entirety.
E. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:
1. Definitions.
1.1 Definitions. Capitalized terms used and not otherwise defined herein shall have the meaning ascribed to them below:
Affiliate means, (i) with respect to a Person that is a natural person, such Persons Relatives and any Person Controlled, directly or indirectly, by such Person or his/her Relatives, and (ii) with respect to a Person that is not a natural person, any Person which, directly or indirectly, Controls, is Controlled by or is under common Control with such Person, including, without limitation any member, managing member, general partner, limited partner, officer, employee, trustee or director of such Person or any trust for the benefit of any of the foregoing or any Affiliate of the foregoing and any venture capital fund now or hereafter existing which is Controlled by or under common Control with one or more general partners or shares the same management company with such Person. Notwithstanding the foregoing, the Parties acknowledge and agree that (a) the name Sequoia Capital is commonly used to describe a variety of entities (collectively, the Sequoia Entities) that are affiliated by ownership or operational relationship and engaged in a broad range of activities related to investing and securities trading and (b) notwithstanding any other provision of this Agreement to the contrary, this Agreement shall not be binding on, or restrict the activities of, any (i) Sequoia Entity outside of the Sequoia China Sector Group, (ii) entity primarily engaged in investment and trading in the secondary securities market; (iii) the ultimate beneficial owner of an Sequoia Entity (or its general partner or ultimate general partner) who is a natural Person, and such Persons relatives (including but without limitation, such Persons spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law), (iv) any officer, director or employee of a Sequoia Entity (or its general partner or ultimate general partner) and such Persons relatives, and (v) for the avoidance of doubt, any portfolio companies of any Sequoia Entity and portfolio companies of any affiliated investment fund or investment vehicle of any Sequoia Entity. For purposes of the foregoing, the Sequoia China Sector Group means all Sequoia Entities (whether currently existing or formed in the future) that are principally focused on companies located in, or with connections to, the Peoples Republic of China that are exclusively managed by Sequoia Capital. For the avoidance of doubt, each of SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP shall be deemed as an Affiliate of each other. For the avoidance of doubt, with respect to Asia Ventures II L.P. and F-Prime Capital Partners Healthcare Fund III LP, an Affiliate means (1) Eight Roads Holdings Limited (ERHL), a company incorporated in Bermuda, and any parent or subsidiary undertaking of, or entity under common control, with ERHL from time to time (ERHL and its subsidiary undertakings being the ERHL Group); (2) FIL Limited (FIL), a company incorporated in Bermuda, and any subsidiary undertaking of FIL from time to time (FIL and its subsidiary undertakings being the FIL Group); (3) FMR LLC (FMR), a Delaware corporation, and any subsidiary undertaking of FMR from time to time (FMR and its subsidiary undertakings being the FMR Group); (4) any director, officer, employee or shareholder of the ERHL Group, the FIL Group and/or the FMR Group or members of his family and any company, trust, partnership or other entity formed for his or any of their benefit from time to time (any or all of such individuals and entities being the Closely Related Shareholders); (5) any entity controlled by Closely Related Shareholders where control shall mean the power to direct the management and policies or appoint or remove members of the board of directors or other governing body of the entity, directly or indirectly, whether through the ownership of voting securities, contract or otherwise, and controlled shall be construed accordingly; (6) any affiliate of any member of the ERHL Group, the FIL Group and/or the FMR Group (where affiliate, for the purposes of this provision only, means (a) any entity controlled by any combination of any Closely Related Shareholders and, for purposes of this provision only, any member of the ERHL Group, the FIL Group and/or the FMR Group, and (b) the officers, partners and directors of any affiliate); and (7) any fund in which any member of the ERHL Group, the FIL Group and/or the FMR Group or any Closely Related Shareholder is a partner. For the avoidance of doubt, with respect to General Atlantic Singapore AI Pte. Ltd., Affiliate also includes (i) any direct or indirect shareholder of General Atlantic Singapore AI Pte. Ltd., (ii) any of such shareholders general partners, (iii) the fund manager managing such shareholder (and general partners, and officers thereof) and (iv) trusts controlled by or for the benefit of any natural person referred to in (ii) or (iii) above; provided that in no event shall any portfolio company owned, directly or indirectly, by investment funds managed by General Atlantic Service Company, L.P., be deemed an Affiliate of General Atlantic Singapore AI Pte. Ltd..
Business Day means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Hong Kong, Singapore, the Cayman Islands or the United States.
Board of Directors means the board of directors of the Company.
Charter Documents means, with respect to a particular legal entity, the articles or certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.
Competitor means each entity set forth in the list as attached hereto as Schedule C, which list may be updated by the Company no more than once every fiscal quarter as approved by the Board of Directors; provided, that none of the Sequoia Entities and their Affiliates (other than any portfolio companies controlled by the Sequoia Entities) shall be a Competitor.
Control or control of a given Person shall mean the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms Controlled and Controlling have meanings correlative to the foregoing.
Deemed Liquidation Event means any of the following events:
(1) (A) any consolidation, amalgamation, scheme of arrangement or merger of a Group Company with or into any other Person or other reorganization in which the Members or shareholders of the Company immediately prior to such consolidation, amalgamation, merger, scheme of arrangement or reorganization own less than a majority of such Group Companys voting power in the aggregate immediately after such consolidation, merger, amalgamation, scheme of arrangement or reorganization, or (B) any transaction or series of related transactions to which a Group Company is a party in which in excess of fifty percent (50%) of such Group Companys voting power is transferred; or
(2) a sale, transfer, lease or other disposition of all or substantially all of the assets or business of any Group Company (or any series of related transactions resulting in such sale, transfer, lease or other disposition of all or substantially all of the assets of such Group Company), or entering into a license granting exclusive rights for substantially all of a Group Companys intellectual property in substantially all of the world;
provided that corporate activities taken solely for the purpose of achieving a Qualified IPO that has been duly approved in accordance with the Restated Shareholders Agreement and the Restated Memorandum and Articles shall not in any case be a Deemed Liquidation Event.
Equity Securities means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing.
ESOP means the Companys Second Amended and Restated Share Incentive Plan (as amended) duly approved by the Board covering the grant or issuance of up to 11,391,131 Ordinary Shares (or options therefor) (as adjusted in connection with share splits or share consolidation, reclassification or other similar event) to employees, officers, directors, contractors, advisors or consultants of the Group Companies.
Founder means Peter Peizhi LUO.
Governmental Authority means any government of any nation or any federation, province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
Governmental Order means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
Group Company means each of the Company, the Holdco Subsidiary, the WFOE, the US Subsidiary and the Australian Subsidiary, together with each Subsidiary of any of the foregoing, and Group refers to all of Group Companies collectively.
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
IPO means the first firm underwritten registered public offering by the Company of its Ordinary Shares pursuant to a Registration Statement that is filed with and declared effective by either the Commission under the Securities Act or another Governmental Authority for a public offering in a jurisdiction other than the United States.
Law or Laws means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any formally issued written interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.
Majority Investors means the holders of a majority of the voting power of the outstanding Preferred Shares (voting together as a single class and on an as-converted basis) owned by the Investors.
Ordinary Share Equivalents means any Equity Security which is by its terms convertible into or exchangeable or exercisable for Ordinary Shares of the Company, including without limitation, the Preferred Shares.
Ordinary Shares means the Companys ordinary shares, par value US$0.0001 per share.
Person means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.
PRC means the Peoples Republic of China, but solely for the purposes of this Agreement, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.
Preferred Shares means the Series A Preferred Shares, Series B Preferred Shares and the Series C Preferred Shares.
Qualified IPO means the closing of a firm commitment underwritten public offering of the Ordinary Shares of the Company (or depositary receipts or depositary shares therefor) in the United States pursuant to an effective registration statement under the United States Securities Act of 1933, as amended, with an implied pre-offering market capitalization of the Company (based on the last pre-effectiveness pricing or low-end of the price range information contained in the final draft of such registration statement filed with the Commission) of no less than six hundred and fifty million US Dollars (US$650,000,000) and an aggregate gross proceeds of no less than US$75 million, before deduction of underwriting discounts and registration expenses, or in an underwritten public offering of the Ordinary Shares of the Company (or depositary receipts or depositary shares therefor) in another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange approved by the Majority Investors, voting as a single class, so long as such offering satisfies the foregoing pre-offering valuation and gross proceeds requirements.
Restated Memorandum and Articles means the Sixth Amended and Restated Memorandum of Association of the Company and the Sixth Amended and Restated Articles of Association of the Company, as each may be amended and/or restated from time to time.
Restated Shareholders Agreement means the Fifth Amended and Restated Shareholders Agreement entered into by and among the Company, the Founder, the Investors and any other parties thereto dated the date hereof, as amended from time to time.
Series A Preferred Shares means, collectively, the Series A-1 Preferred Shares and the Series A-2 Preferred Shares.
Series A-1 Preferred Shares means the Series A-1 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series A-2 Preferred Shares means the Series A-2 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series B Preferred Shares means the Series B Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C Preferred Shares means, collectively, the Series C-1 Preferred Shares, the Series C-2 Preferred Shares and the Series C-3 Preferred Shares.
Series C-1 Preferred Shares means the Series C-1 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C-2 Preferred Shares means the Series C-2 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C-3 Preferred Shares means the Series C-3 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Restated Memorandum and Articles.
Series C-3 Shareholder means General Atlantic Singapore AI Pte. Ltd. and any Affiliate thereof that holds any Series C-3 Preferred Shares.
Shareholder means each Party to this Agreement that owns Shares.
Shares means the Ordinary Shares and the Preferred Shares.
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.
1.2 Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:
Agreement |
Preamble |
Arbitration Notice |
Section 4.5(i) |
Australian Subsidiary |
Recitals |
Company |
Preamble |
Co-Sale Notice |
Section 2.3(i) |
Dispute |
Section 4.5(i) |
Drag Holder |
Section 3 |
Exercising Notice |
Section 2.2(ii)(a) |
Exercising Investor |
Section 2.2(ii)(a) |
HKIAC |
Section 4.5(ii) |
HKIAC Rules |
Section 4.5(ii) |
Holdco Subsidiary |
Recitals |
Holding Company |
Section 2.1(v) |
Investors |
Preamble |
Non-Investor Shareholders |
Preamble |
Offered Shares |
Section 2.2(i) |
Option Period |
Section 2.2(ii)(a) |
Other Restriction Agreements |
Section 2.1(vi) |
Party(ies) |
Preamble |
Permitted Transferee(s) |
Section 2.5 |
Prior Agreement |
Recitals |
Pro Rata Share |
Section 2.2(ii)(b) |
Proposed JSR Exit |
Section 2.1(iii) |
Remaining Shares |
Section 2.2(ii)(a) |
Selling Shareholder |
Section 2.3(i) |
Share Purchase Agreement |
Recitals |
Transfer |
Section 2.1(i) |
Transferor |
Section 2.2(i) |
Transfer Notice |
Section 2.2(i) |
US Subsidiary |
Recitals |
WFOE |
Recitals |
1.3 Interpretation. For all purposes of this Agreement, except as otherwise expressly herein provided, (i) the terms defined in this Section 1 shall have the meanings assigned to them in this Section 1 and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards (as defined in the Restated Shareholders Agreement), (iii) all references in this Agreement to designated Sections and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement, (iv) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, (v) the words herein, hereof and hereunder and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision, (vi) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement, (vii) references to this Agreement, and any other document shall be construed as references to such document as the same may be amended, supplemented or novated from time to time, (viii) the terms shall, will, and agrees are mandatory, and the term may is permissive, (ix) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning, (x) the term voting power refers to the number of votes attributable to the Shares (on an as-converted basis) in accordance with the terms of the Restated Memorandum and Articles, (xi) the headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement, (xii) references to laws include any such law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made, and (xiii) all references to dollars or to US$ are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies).
2. Restriction on Transfers; Rights of First Refusal and Co-Sale Rights.
2.1 Restriction on Transfers.
(i) Non-Investor Shareholders. A Non-Investor Shareholder shall not directly or indirectly sell, assign, transfer, pledge, hypothecate, or otherwise encumber or dispose of in any way or otherwise grant any interest or right with respect to (Transfer) all or any part of any interest in any Equity Securities of the Company now or hereafter owned or held by such Non-Investor Shareholder unless Sections 2.2, 2.3 and 2.4 are complied with.
(ii) Investors. For the avoidance of doubt, an Investor may freely Transfer any Equity Securities of the Company now or hereafter owned or held by it without limitation; provided that:
(a) such Transfer is effected in compliance with all applicable Laws;
(b) the transferee shall execute and deliver to the Company and other parties thereto a deed of adherence or joinder becoming a party to the Restated Shareholders Agreement and this Agreement as an Investor (if not already so bound) upon and after such Transfer; and
(c) with respect to the transfer by an Investor of any Preferred Share and if such transferee shall be a Competitor of the Company or other Group Companies, such transfer shall be approved by at least five (5) directors of the Company.
The Company will update its register of members upon the consummation of any such permitted Transfer.
(iii) Transfer by JSR Limited. In the event that JSR Limited intends to transfer (the Proposed JSR Exit) all of its Shares by reason of the expiration of the operation term of Shanghai Jinsha River Equity Investment Enterprise (Limited Partnership), JSR Limited shall notify the Company in writing of such intent. The Company shall use commercially reasonable efforts to assist JSR Limited to accomplish the Proposed JSR Exit in the next equity financing of the Company to the extent such assistance does not adversely impact the Companys ability to complete such equity financing in a manner satisfactory to the Company. Notwithstanding the foregoing, nothing in this Section 2.1(iii) shall be construed to impose any obligation on the Company to guarantee the completion of the Proposed JSR Exit.
(iv) Prohibited Transfers Void. Any Transfer of Equity Securities of the Company not made in compliance with this Agreement shall be null and void as against the Company, shall not be recorded on the books of the Company and shall not be recognized by the Company or any other Party.
(v) No Indirect Transfers. Each Non-Investor Shareholder agrees not to circumvent or otherwise avoid the transfer restrictions or intent thereof set forth in this Agreement or any Other Restriction Agreements, whether by holding the Equity Securities of the Company indirectly through another Person or by causing or effecting, directly or indirectly, the Transfer or issuance of any Equity Securities by any such Person, or otherwise. Any purported Transfer, sale or issuance of any Equity Securities of any company held by a Non-Investor Shareholder holding Shares in the Company (the Holding Company) in contravention of this Agreement shall be void and ineffective for any and all purposes and shall not confer on any transferee or purported transferee any rights whatsoever, and no Party (including without limitation, the Non-Investor Shareholder or Holding Company) shall recognize any such Transfer, sale or issuance.
(vi) Cumulative Restrictions. For purposes of clarity, the restrictions on Transfer set forth in this Agreement on a Party are cumulative with, and in addition to, the restrictions set forth in each other agreement imposing restrictions on Transfer by such Person of Equity Securities of the Company (collectively, the Other Restriction Agreements), including the Restated Shareholders Agreement, and not in lieu thereof.
2.2 Rights of First Refusal.
(i) Transfer Notice. If a Non-Investor Shareholder (each a Transferor) proposes to sell any Equity Securities of the Company or any interest therein to one or more third parties, then the Transferor shall give (i) the Company and (ii) each Investor, written notice of the Transferors intention to make the sale (the Transfer Notice), which shall include (i) a description of the Equity Securities to be sold (the Offered Shares), (ii) the identity and address of the prospective transferee and (iii) the consideration and the material terms and conditions upon which the proposed sale is to be made. The Transfer Notice shall certify that the Transferor has received a definitive offer from the prospective transferee and in good faith believes a binding agreement for the sale is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed Transfer.
(ii) Transfer by Transferors.
(a) if a Transferor proposes to sell any Equity Securities of the Company or any interest therein to one or more third parties, each Investor other than the Transferor shall have an option for a period of fifteen (15) days following receipt of the Transfer Notice (the Option Period) to apply to purchase the Offered Shares at the same price and subject to the same terms and conditions as described in the Transfer Notice, by notifying the Transferor and the Company in a written notice (the Exercising Notice) before the expiration of the Option Period which shall specify the number of such Offered Shares that it wishes to purchase. Each Investor delivering such Exercising Notice within the Option Period (the Exercising Investor) shall be entitled to purchase its Pro Rata Share of the Offered Shares at the same price and subject to the same terms and conditions as described in the Transfer Notice. If any Investor fails to deliver an Exercising Notice within the Option Period, such unexercised Pro Rata Share of the Offered Shares (the Remaining Shares) shall be allocated among the Exercising Investors that applied for more than their respective Pro Rata Share of the Offered Shares up to their respective Pro Rata Share of the Remaining Shares.
(b) For the purposes of this Section 2.2(ii), an Investors Pro Rata Share of such Offered Shares shall be equal to (i) the total number of such Offered Shares, multiplied by (ii) a fraction, the numerator of which shall be the aggregate number of Ordinary Shares held by such Investor on the date of the Transfer Notice (including all Preferred Shares held by such Investor on an as-converted to Ordinary Share basis) and the denominator of which shall be the total number of Ordinary Shares (including Preferred Shares on an as-converted to Ordinary Share basis) held by all Investors; and an Exercising Investors Pro Rata Share of the Remaining Shares shall be equal to (i) the total number of such Remaining Shares, multiplied by (ii) a fraction, the numerator of which shall be the aggregate number of Ordinary Shares held by such Exercising Investor on the date of the Transfer Notice (including all Preferred Shares held by such Investor on an as-converted to Ordinary Share basis) and the denominator of which shall be the total number of Ordinary Shares (including Preferred Shares on an as-converted to Ordinary Share basis) held by all Exercising Investors.
(c) Subject to applicable securities Laws, each Investor shall be entitled to apportion Offered Shares to be purchased among its Affiliates, provided that such Investor notifies the Company and the Transferor in writing and such Affiliates shall execute and deliver to the Company and the other parties thereto a deed of adherence or joinder becoming a party to the Restated Shareholders Agreement as an Investor (if not already so bound) upon and after such sale.
(iii) Procedure. If any Investor gives the Transferor notice that it or he desires to purchase Offered Shares, then payment for the Offered Shares to be purchased shall be made by check (if agreeable to the Transferor), or by wire transfer in immediately available funds of the appropriate currency, against delivery of such Offered Shares to be purchased, at a place agreed to by the Transferor and all the Exercising Investors and at the time of the scheduled closing therefor, but if they cannot agree, then at the principal executive offices of the Company on the fortieth (40th) day after the Companys receipt of the Transfer Notice, unless such notice contemplated a later closing date with the prospective third party transferee, or unless the value of the purchase price has not yet been established pursuant to Section 2.2(iv), in which case the closing shall be on such later date or as provided in Section 2.2(iv)(d). The Transferor shall have the right to terminate or withdraw any Transfer Notice and any intent to transfer Offered Shares at any time, whether or not any Investor has elected to purchase any Offered Shares offered hereby. The Company will update its register of members upon the consummation of any such sale.
(iv) Valuation of Property.
(a) Should the purchase price specified in the Transfer Notice be payable in property other than cash or evidences of indebtedness, the Investors (if any of the Investors exercised its right of first refusal above), shall have the right to pay the purchase price in the form of cash equal in amount to the fair market value of such property.
(b) If the Transferor and the Exercising Investors holding a majority of the Offered Shares elected to be purchased by all Exercising Investors cannot agree on such cash value within the Option Period or the Investors Option Period, as applicable, the valuation shall be made by an appraiser of internationally recognized standing mutually selected by the Transferor and all the Exercising Investors or, if they cannot agree on an appraiser within the Option Period, then the Transferor or any Exercising Investor may request the HKIAC council to designate an appraiser of internationally recognized standing, whose appraisal shall be determinative of such value and shall be final and binding on the Transferor and the Exercising Investors.
(c) The cost of such appraisal (and the cost, if any, of securing the appointment thereof by the HKIAC council) shall be shared equally by the Transferor, on the one hand, and the Exercising Investors pro rata based on the number of Offered Shares each Exercising Investor is purchasing, on the other hand.
(d) If the value of the purchase price offered by the prospective transferee is not determined within forty (40) days following the Companys receipt of the Transfer Notice from the Transferor, the closing of the purchase of Offered Shares by the Exercising Investors shall be held on or prior to the fifth (5th) Business Day after such valuation shall have been made pursuant to this Section 2.2(iv).
2.3 Right of Co-Sale.
(i) To the extent the Investors do not exercise their respective rights of first refusal under Section 2.2 as to all or any of the Offered Shares proposed to be sold by the Transferor to the third party transferee identified in the Transfer Notice, the Transferor shall give notice thereof to each Investor not exercising any right of first refusal pursuant to Section 2.2 (the Co-Sale Notice) (specifying in such Co-Sale Notice the number of remaining Offered Shares as well as the number of Ordinary Shares that such Investor would be eligible to include in such sale pursuant to its co-sale right hereunder), and each such Investor shall have the right to participate in such sale, to the third party transferee identified in the Transfer Notice, of the remaining Offered Shares not purchased pursuant to Section 2.2, on the same terms and conditions as specified in the Transfer Notice (but in no event less favorable than the terms and conditions offered to the Transferor) (and for the same consideration on an as converted to ordinary share basis) by notifying the Transferor in writing within fifteen (15) days following the date of the Co-Sale Notice (each such electing Investor, a Selling Shareholder). Such Selling Shareholders notice to the Transferor shall indicate the number of Equity Securities the Selling Shareholder wishes to sell under its right to participate. To the extent one or more Investors exercise such right of participation in accordance with the terms and conditions set forth below, the number of Offered Shares that the Transferor may sell in the Transfer to the third party transferee identified in the Transfer Notice shall be correspondingly reduced.
(ii) The total number of Equity Securities that each Selling Shareholder may elect to sell shall be equal to the product of (i) the aggregate number of the remaining Offered Shares being transferred to the third party transferee identified in the Transfer Notice after giving effect to the exercise of all rights of first refusal pursuant to Section 2.2 hereof, multiplied by (ii) a fraction, the numerator of which is the number of Ordinary Shares (including Preferred Shares on an as-converted to Ordinary Share basis) owned by such Selling Shareholder on the date of the Transfer Notice and the denominator of which is the total number of Ordinary Shares (including Preferred Shares on an as-converted to Ordinary Share basis) held by the Selling Shareholders and the Transferor.
(iii) Each Selling Shareholder shall effect its participation in the sale by promptly delivering to the Transferor for transfer to the prospective purchaser, before the applicable closing, one or more certificates, properly endorsed for transfer, which represent the type and number of Equity Securities which such Selling Shareholder elects to sell; provided, however that if the prospective third party purchaser objects to the delivery of Ordinary Share Equivalents in lieu of Ordinary Shares, such Selling Shareholder shall only deliver Ordinary Shares (and therefore shall convert any such Ordinary Share Equivalents into Ordinary Shares) and certificates corresponding to such Ordinary Shares, and the Company shall effect any such conversion concurrent with the actual transfer of such shares to the purchaser and contingent on such transfer.
(iv) The share certificate or certificates that a Selling Shareholder delivers to the Transferor pursuant to this Section 2.3 shall be transferred to the prospective purchaser in consummation of the sale of the Equity Securities pursuant to the terms and conditions specified in the Transfer Notice, and the Transferor shall concurrently therewith remit to such Selling Shareholder that portion of the sale proceeds to which such Selling Shareholder is entitled by reason of its participation in such sale. The Company will update its register of members upon the consummation of any such transfer.
(v) To the extent that any prospective purchaser prohibits the participation by a Selling Shareholder exercising its co-sale rights hereunder in a proposed Transfer or otherwise refuses to purchase shares or other securities from a Selling Shareholder exercising its co-sale rights hereunder, the Transferor shall not sell to such prospective purchaser any Equity Securities unless and until, simultaneously with such sale, the Transferor shall purchase from such Selling Shareholder such shares or other securities that such Selling Shareholder would otherwise be entitled to sell to the prospective purchaser pursuant to its co-sale rights for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice.
2.4 Non-Exercise of Rights.
(i) If the Investors do not elect to purchase all of the Offered Shares in accordance with Section 2.2, then, subject to the right of the Investors to exercise their rights to participate in the sale of Offered Shares within the time periods specified in Section 2.3, the Transferor shall have a period of ninety (90) days from the expiration of the Option Period in which to sell the remaining Offered Shares to the third party transferee identified in the Transfer Notice upon terms and conditions (including the purchase price) no more favorable to the purchaser than those specified in the Transfer Notice, so long as any such sale is effected in accordance with all applicable Laws. The Parties agree that each such transferee, prior to and as a condition to the consummation of any sale, shall execute and deliver to the Company and the other parties thereto a deed of adherence or joinder becoming a party to this Agreement as a Non-Investor Shareholder (if not already so bound) in connection with the Offered Shares, and the transfer shall not be effective and shall not be recognized by any Party until such documents and instruments are so executed and delivered.
(ii) In the event the Transferor does not consummate the sale of such Offered Shares to the third party transferee identified in the Transfer Notice within ninety (90) day period, the rights of the Investors under Section 2.2 and Section 2.3 shall be re-invoked and shall be applicable to each subsequent disposition of such Offered Shares by the Transferor until such rights lapse in accordance with the terms of this Agreement.
(iii) The exercise or non-exercise of the rights of the Investor under this Section 2 to purchase Equity Securities from a Transferor or participate in the sale of Equity Securities by a Transferor shall not adversely affect their rights to make subsequent purchases from the Transferor of Equity Securities or subsequently participate in sales of Equity Securities by the Transferor hereunder.
2.5 Limitations to Rights of First Refusal and Co-Sale.
Subject to the requirements of applicable Law, the restrictions under Section 2.1 and the right of first refusal and right of co-sale of the Investor under Sections 2.2 and 2.3 shall not apply to:
(a) any sale of Equity Securities of the Company to the public pursuant to a Qualified IPO,
(b) Transfer of any Equity Securities of the Company now or hereafter held by a Transferor to such Transferors parents, children, spouse, lineal descendants, or to a trustee, executor, or other fiduciary for the benefit of such Transferor or such Transferors parents, children, spouse for bona fide estate planning purposes, provided that such Transfer will not result in the occurrence of any Deemed Liquidation Event,
(c) Transfer of any Equity Securities of the Company now or hereafter held by a Transferor to its Affiliates,
(d) any sale of Equity Securities of the Company now or hereafter held by the Transferor in a Deemed Liquidation Event duly approved by the Board of Directors and the Members in accordance with the Restated Shareholders Agreement and the Restated Memorandum and Articles,
(e) to a repurchase of Shares to be transferred from a Non-Investor Shareholder by the Company at a price no greater than that originally paid by such Non-Investor Shareholder for such Shares to be transferred and pursuant to an agreement setting forth vesting and/or repurchase provisions duly approved by the Board of Directors, and
(f) to the purchase of Shares to be transferred from a Non-Investor Shareholder by the Company pursuant to an agreement entered into as duly approved by Board of Directors containing a right of first refusal in favor of the Company, provided that (x) any such agreement entered into prior to the date of this Agreement shall have been disclosed to the Investors in writing and (y) any such agreement entered into after the date of this Agreement shall have been duly approved by the Board of Directors,
(each such transferee pursuant to clauses (b), (c) and (d) above, a Permitted Transferee, and collectively, the Permitted Transferees); provided, that (i) such Transfer is effected in compliance with all applicable Laws, (ii) respecting any transfer pursuant to clause (b) above, the Transferor has provided the Majority Investors reasonable evidence of the bona fide estate planning purposes for such transfer, and (iii) each such Permitted Transferee, prior to the completion of the Transfer, shall execute and deliver to the Company a deed of adherence or joinder becoming a party hereto assuming the obligations of such Transferor under this Agreement and the applicable Other Restriction Agreements as a Transferor, with respect to the transferred Equity Securities; provided further, that the Transferor shall remain liable for any breach by such Permitted Transferee of any provision under this Agreement and the applicable Other Restriction Agreements.
2.6 Legend.
Each certificate representing Offered Shares held by the Non-Investor Shareholder or issued to any Permitted Transferee in connection with a transfer permitted by Section 2.5 hereof shall be endorsed with the following legend:
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO- SALE AGREEMENT BY AND AMONG THE SHAREHOLDER, THE COMPANY AND CERTAIN OTHER HOLDERS OF SHARES OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE REGISTERED OFFICE OF THE COMPANY.
Each Non-Investor Shareholder agrees that the Company may instruct its transfer agent (if any) to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in this Section 2 above to enforce the provisions of this Agreement, and the Company agrees to promptly do so. The legend shall be removed upon termination of this Agreement at the request of the holder.
3. Drag-Along Rights.
If (i) the holders of a majority of the voting power of the then outstanding Ordinary Shares and (ii) the Majority Investors (the Drag Holders) approve in writing a proposed Deemed Liquidation Event which implies a valuation of the Company of no less than US$650 million, then the Company shall promptly notify each other Shareholder in writing of such approval and the material terms and conditions of such proposed Deemed Liquidation Event, whereupon each such Shareholder shall, in accordance with instructions received from the Company, (i) vote all of such Shareholders voting Equity Securities of the Company in favor of the Deemed Liquidation Event; (ii) otherwise consent in writing to the Deemed Liquidation Event; and (iii) sell or transfer all of its Equity Securities or the same percentage of its Equity Securities of the Company as the Drag Holders sell on the same terms and conditions as were agreed to by the Drag Holders; provided, however, that such terms and conditions, including with respect to price paid or received per Equity Security of the Company, may differ as between different classes of Equity Securities of the Company in accordance with their relative liquidation preferences as set forth in the Restated Memorandum and Articles. Each Shareholder furthermore agrees to make other customary covenants on a several but not joint and several basis and take all necessary actions in connection with the consummation of such Deemed Liquidation Event and to effect the sale and transfer under this Section 3 as reasonably requested by the Drag Holders, provided that it shall be liable only up to the net proceeds paid to such Shareholder in connection with such Deemed Liquidation Event. Without limiting the foregoing sentence, no Shareholder who is not an employee, officer, the Founder or Controlling Shareholder of a Group Company shall be required to make any representations or warranties other than with respect to itself (including without limitation due authorization, title to shares, enforceability of applicable agreements, and similar representations and warranties), and shall not be liable for the breach of any representation, warranty or covenant made by any other Person in connection with such Deemed Liquidation Event (except to the extent that (A) a Shareholder may be liable, pro rata based on its share ownership and total amount of consideration in respect thereof in such Deemed Liquidation Event in proportion to, and does not exceed, the amount of consideration paid to such Shareholder in connection with such Deemed Liquidation Event, to cover breach of representations and warranties of the Company and (B) funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any Shareholder of any of identical representations, warranties and covenants provided by all Shareholders with respect to the Company)
4. Miscellaneous.
4.1 Termination.
This Agreement shall terminate and be of no further force or effect upon the earliest to occur of (i) the closing of a Qualified IPO or a liquidation, winding up or dissolution of the Company, or (ii) the closing of a Deemed Liquidation Event. If this Agreement terminates, the Parties shall be released from their obligations under this Agreement, except in respect of any obligation stated, explicitly or otherwise, to continue to exist after the termination of this Agreement. Subject to Section 2.5, the Section 2.1(ii)(c) hereof shall terminate with respect to any shareholder of Preferred Shares when such shareholder holds less than 0.5% of outstanding Ordinary Shares of the Company on a fully diluted and as converted to Ordinary Shares basis (including all Preferred Shares held by such Investor on an as-converted to Ordinary Share basis). If any Party breaches this Agreement before the termination of this Agreement, it shall not be released from its obligations arising from such breach on termination.
4.2 Further Assurances.
Upon the terms and subject to the conditions herein, each of the Parties hereto agrees to use its reasonable best efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties hereto in doing, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement.
4.3 Assignments and Transfers; No Third Party Beneficiaries.
Except as otherwise provided herein, this Agreement and the rights and obligations of the Parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party. The Parties do not intend that any term of this Agreement should be enforceable, by virtue of the Contracts (Rights of Third Parties) Ordinance (Cap. 623 of the Laws of Hong Kong), by any Person who is not a party to this Agreement. The rights of any Investor hereunder are assignable (together with the related obligations) to a third party in connection with the transfer of Equity Securities of the Company held by such Investor in accordance with this Agreement. Any such transferee shall execute and deliver to the Company a deed of adherence or joinder becoming a party hereto as an Investor subject to the terms and conditions hereof (if not already so bound). Except as provided above or as otherwise specifically provided herein, this Agreement and the rights and obligations of each Party hereunder shall not be assigned without the mutual written consent of the other Parties except as expressly provided herein.
4.4 Governing Law.
This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the Laws of Hong Kong, without regard to the conflicts of law provisions of Hong Kong or of any other state.
4.5 Dispute Resolution.
(i) Any dispute, controversy, difference or claim (each, a Dispute) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the Arbitration Notice) to the other.
(ii) The Dispute shall be settled by arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre (the HKIAC) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the HKIAC Rules) in force when the Arbitration Notice is submitted. There shall be three (3) arbitrators. The HKIAC council shall select the arbitrators, who shall be qualified to practice law in Hong Kong.
(iii) The arbitral proceedings shall be conducted in English.
(iv) The costs of arbitration shall be borne by the losing party, unless otherwise determined by the arbitral tribunal.
(v) The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
(vi) The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.
(vii) Any Party to the Dispute shall be entitled to seek interim measures of protection and emergency relief, if possible, from any court of competent jurisdiction in accordance with the applicable Laws of that jurisdiction.
(viii) When any Dispute occurs and when any Dispute is under arbitration, except for the matters in Dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.
4.6 Notices.
Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule B attached to the Restated Shareholders Agreement (or at such other address as such Party may designate by fifteen (15) days advance written notice to the other Parties to this Agreement given in accordance with this Section 4.6). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally- recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a with a copy to address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.
4.7 Expenses.
If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.
4.8 Rights Cumulative; Specific Performance.
Each and all of the various rights, powers and remedies of a Party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party. Without limiting the foregoing, the Parties hereto acknowledge and agree irreparable harm may occur for which money damages would not be an adequate remedy in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.
4.9 Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.
4.10 Amendments and Waivers.
Any provision in 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 by the written consent of (i) the Company; (ii) the Majority Investors; and (iii) Persons holding at least a majority of the Ordinary Shares held by the Parties hereto; provided, however, that (1) no amendment or waiver shall be effective or enforceable in respect of a holder of any class or series of Shares if such amendment or waiver affects such holder materially and adversely differently from the other holders of the same class or series of Shares unless such holder consents in writing to such amendment or waiver, (2) any provision that specifically and expressly gives a right to a named Investor shall not be amended or waived without the prior written consent of such named Investor, and (3) any amendment that imposes any additional obligation or restriction on the Series C-3 Shareholder, regardless of whether as a named Investor or by virtue of its holding of Shares in the Company, shall require the written consent of the Series C-3 Shareholder. Notwithstanding the foregoing, any Party hereunder may waive any of its/his rights hereunder without obtaining the consent of any other Parties. Any amendment or waiver effected in accordance with this Section shall be binding upon all the Parties hereto.
4.11 No Waiver.
Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.
4.12 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
4.13 No Presumption.
The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.
4.14 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.
4.15 Entire Agreement.
This Agreement together with the other instruments and agreements referenced herein constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. For the avoidance of doubt, the Parties hereby agree and acknowledge that the Founder is subject to further, additional restrictions under the terms of the Other Restriction Agreements.
4.16 Amendment and Restatement of Prior Agreement.
By entering into this Agreement, each holder of the Shares agrees that the Prior Agreement shall be terminated with immediate effect and replaced by this Agreement. In addition, all consents and approvals, as may be required for the purpose of entering into and/or the implementation of this Agreement and all transactions contemplated thereunder, from each or any of the holder of Ordinary Shares, Series A Preferred Shares, Series B Preferred Shares, and Series C Preferred Shares, to the extent applicable, under the Memorandum and Articles or any other agreement to which any of them are parties to and/or bound by such agreement are deemed to have been obtained and/or waived by the same.
4.17 Agreement Controlling.
In the event of any conflict or inconsistency between any of the terms of this Agreement and any of the terms of any of the Charter Documents for any of the Group Companies, or in the event of any dispute related to any such Charter Document, the terms of this Agreement shall prevail in all respects, the Parties shall give full effect to and act in accordance with the provisions of this Agreement over the provisions of such Charter Documents, and the Parties hereto shall exercise all voting and other rights and powers (including to procure any required alteration to such Charter Documents to resolve such conflict or inconsistency) to make the provisions of this Agreement effective, and not to take any actions that impair any provisions in this Agreement.
4.18 Aggregation of Shares.
All Shares held or acquired by any Affiliates shall be aggregated together for the purpose of determining the availability of any rights of the Investors under this Agreement.
4.19 Use of English Language.
This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language shall have no interpretive effect. All documents or notices to be delivered pursuant to or in connection with this Agreement shall be in the English language or, if any such document or notice is not in the English language, accompanied by an English translation thereof, and the English language version of any such document or notice shall control for purposes thereof.
4.20 Effective Date.
This Agreement shall only take effect and become binding on and enforceable against the Parties subject to and upon the Closing as defined in the Share Purchase Agreement.
4.21 Market Stand-Off Agreement.
Each Non-Investor Shareholder agrees, if so required by the managing underwriter(s), that it will not during the period commencing on the date of the final prospectus relating to the Companys IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days from the date of such final prospectus, (i) lend, offer, pledge, hypothecate, hedge, sell, make any short sale of, loan, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Equity Securities of the Company owned immediately prior to the date of the final prospectus relating to the IPO (other than those included in such offering), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such Equity Securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Equity Securities of the Company or such other securities, in cash or otherwise; provided, that (x) the forgoing provisions of this Section shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, (y) this Section shall not apply to a Non-Investor Shareholder to the extent that any other Person subject to substantially similar restrictions is released in whole or in part, and (z) the lockup agreements shall permit a Non- Investor Shareholder to transfer his/her Registrable Securities to his/her Permitted Transferees so long as the transferees enter into the same lockup agreement. The Non-Investor Shareholders agree to execute and deliver to the underwriters a lock-up agreement containing substantially similar terms and conditions as those contained herein. In order to enforce the foregoing covenant, the Company may place restrictive legends on the certificates and impose stop- transfer instructions with respect to the Equity Securities held by the Non-Investor Shareholders until the end of such period.
4.22 Additional Parties.
Except for the ESOP reserved by the Company, the Company hereby covenants and agrees that it shall not issue any Equity Securities to any Person other than the Investors unless such Person as a condition precedent to the issuance of such Equity Securities to such Person executes and delivers to the Company a deed of adherence or joinder whereby such Person shall become a Non-Investor Shareholder party to this Agreement and thereafter such Person shall be deemed a Non-Investor Shareholder for all purposes of this Agreement and the Company shall amend Schedule A hereto to include information with regard to such Person and deliver such updated schedule to each of the parties hereto. The provisions of this Section 4.22 may be waived with respect to any particular issuance of Equity Securities only with the prior written consent of the Majority Investors.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
COMPANY:
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Adagene Inc. |
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By: |
/s/ Peter Peizhi Luo |
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Name: |
Peter Peizhi Luo |
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
NON-INVESTOR SHAREHOLDER AND INVESTOR (solely in his capacity as the holder of Series A-l Preferred Shares):
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/s/ Peter Peizhi Luo |
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Peter Peizhi Luo |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
NON-INVESTOR SHAREHOLDER AND INVESTOR (solely in his capacity as the holder of Series A-l Preferred Shares):
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/s/ Ge Li |
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Ge Li |
[Adegene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS:
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ASIA VENTURES II L.P. |
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By: Asia Partners II, L.P., its General Partner |
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By: Eight Roads GP. as General Partner |
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By: |
/s/ Matthew Heath |
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Name: |
Matthew Heath |
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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F-Prime Capital Partners Healthcare Fund III LP |
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By: F-Prime Capital Partners Healthcare Advisors Fund III LP, its sole General Partner |
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By: Impresa Management LLC, its sole General Partner |
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By: |
/s/ Mary Bevelock Pendergast |
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Name |
Mary Bevelock Pendergast |
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Title: |
Vice President |
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Address: |
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F-Prime Capital Partners Healthcare Fund III LP |
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c/o F-Prime Capital Partners |
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One Main Street, 13th Floor |
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Cambridge, MA 02142 |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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WUXI PHARMATECH HEALTHCARE FUND I L.P. |
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By WuXi PharmaTech Fund I General Partner L.P., its general partner |
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By WuXi PharmaTech Investments (Cayman) Inc., its general partner |
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By: |
/s/ Edward Hu |
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Name: |
Edward Hu |
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Title: |
CFO / Authorized Signatory |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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JSR LIMITED |
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By: |
/s/ Dongmei Ji |
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Name: |
Dongmei Ji |
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Title: |
Authorized Signatory |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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New World TMT Limited |
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By: |
/s/ Wong Chi Chiu Albert |
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Name: |
Wong Chi Chiu Albert
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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SCC Venture VI Holdco, Ltd. |
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By: |
/s/ Ip Siu Wai Eva |
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Name: |
Ip Siu Wai Eva |
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Title: |
Authorized Signatory |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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Gopher Harvest Co-Investment Fund LP |
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By: |
/s/ Yin Zhe |
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Name: |
Yin Zhe |
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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AVICT GLOBAL HOLDINGS LIMITED |
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For and on behalf of AVICT Global Holdings Limited |
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By: |
/s/ Jing Xiong |
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Name: |
Jing Xiong |
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Title: |
Authorized Signatory |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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KING STAR MED LP |
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By: |
/s/ Xianghong Lin |
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Name: |
Xianghong Lin |
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Title: |
Authorized Signatory |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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Chief Strategic International Limited |
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By: |
/s/ Fu Chi Kong |
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Name: |
Fu Chi Kong |
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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Mega Prime Development Limited |
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By: |
/s/ Wang Jianping |
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Name: |
Wang Jianping |
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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Modest Champion Limited |
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By: |
/s/ Lin Lei /s/ Xie Jia |
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Name: |
Lin Lei, Xie Jia |
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Title: |
Authorized Signatories |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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Poly Platinum Enterprises Limited |
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By: |
/s/ Yuezhong Li |
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Name: |
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Title: |
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[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS: |
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GENERAL ATLANTIC SINGAPORE AI PTE. LTD. |
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By: |
/s/ Ong Yu Huat |
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Name: |
Ong Yu Huat |
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Title: |
Director |
[Adagene Inc. Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Signature Page]
SCHEDULE A
LIST OF NON-INVESTOR SHAREHOLDERS
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Passport Number / Place of |
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Name |
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Incorporation |
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Peter Peizhi Luo |
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[***] |
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Ge Li |
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[***] |
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Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Schedule A
SCHEDULE B
LIST OF INVESTORS
Asia Ventures II L.P.
F-Prime Capital Partners Healthcare Fund III LP
Wuxi Pharmatech Healthcare Fund I L.P.
JSR Limited
New World TMT Limited
Ge LI (solely in his capacity as the shareholder of Series A-1 Preferred Shares)
Peter Peizhi LUO (solely in his capacity as the shareholder of Series A-1 Preferred Shares)
SCC Venture VI Holdco, Ltd.
Gopher Harvest Co-Investment Fund LP
AVICT GLOBAL HOLDINGS LIMITED
King Star Med LP
Chief Strategic International Limited
Mega Prime Development Limited
Modest Champion Limited
Poly Platinum Enterprises Limited
General Atlantic Singapore AI Pte. Ltd.
Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Schedule B
SCHEDULE C
LIST OF COMPETITORS
Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement Schedule C
19 January 2021
Adagene Inc.
4F, Building C14, No. 218
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
Dear Sirs
ADAGENE INC.
We have acted as Cayman Islands legal advisers to Adagene Inc. (the Company) in connection with the Companys registration statement on Form F-1, including all amendments or supplements thereto (the Registration Statement), filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the U.S. Securities Act of 1933, as amended, relating to the offering by the Company of American Depositary Shares (ADSs) representing the Ordinary Shares of a par value of US$0.0001 each (the Ordinary Shares). We are furnishing this opinion as exhibit 5.1 to the Registration Statement.
For the purposes of giving this opinion, we have examined and relied upon the originals, copies or translations of the documents listed in Schedule 1. In giving this opinion we have relied upon the assumptions set out in Schedule 2, which we have not independently verified.
We are Cayman Islands Attorneys at Law and express no opinion as to any laws other than the laws of the Cayman Islands in force and as interpreted at the date of this opinion. We have not, for the purposes of this opinion, made any investigation of the laws, rules or regulations of any other jurisdiction.
Based upon the foregoing examinations and assumptions and upon such searches as we have conducted and having regard to legal considerations which we consider relevant, and subject to the qualifications set out in Schedule 3, and under the laws of the Cayman Islands, we give the following opinions in relation to the matters set out below.
1. The Company is an exempted company duly incorporated with limited liability, validly existing under the laws of the Cayman Islands and is in good standing with the Registrar of Companies in the Cayman Islands (the Registrar).
2. Based on our review of the Amended and Restated M&A (as defined in Schedule 1), the authorised share capital of the Company will become US$80,000 divided into 800,000,000 shares comprising (i) 640,000,000 Ordinary Shares of a nominal or par value of US$0.0001 each and (ii) 160,000,000 shares of a nominal or par value of US$0.0001 each immediately prior to completion of the offering of ADSs.
3. The issue and allotment of the Ordinary Shares pursuant to the Registration Statement has been duly authorized. When allotted, issued and fully paid for as contemplated in the Registration Statement and when appropriate entries have been made in the Register of Members of the Company, the Ordinary Shares will be validly issued, allotted and fully paid, and there will be no further obligation on the holder of any of the Ordinary Shares to make any further payment to the Company in respect of such Ordinary Shares.
WALKERS
4. The statements under the caption Taxation in the prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects.
We hereby consent to the use of this opinion in, and the filing hereof, as an exhibit to the Registration Statement and to the reference to our firm under the headings Enforceability of Civil Liabilities, Legal Matters and elsewhere in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the Rules and Regulations of the Commission thereunder.
This opinion is limited to the matters referred to herein and shall not be construed as extending to any other matter or document not referred to herein.
This opinion shall be construed in accordance with the laws of the Cayman Islands.
Yours faithfully
/S/ WALKERS (HONG KONG)
WALKERS (HONG KONG)
SCHEDULE 1
LIST OF DOCUMENTS EXAMINED
1. The Certificate of Incorporation dated 25 February 2011, the Sixth Amended and Restated Memorandum and Articles of Association as adopted on 19 December 2019, the Seventh Amended and Restated Memorandum and Articles of Association as conditionally adopted by special resolution on 19 January 2021 and effective upon the completion of the offering of the Companys American Depositary Shares on the Nasdaq Global Market (the Amended and Restated M&A), the Register of Members, Register of Directors and the Register of Mortgages and Charges of the Company, copies of which have been provided to us by its registered office in the Cayman Islands (together the Company Records).
2. A Certificate of Good Standing dated 18 January 2021 in respect of the Company issued by the Registrar (the Certificate of Good Standing).
3. The Cayman Online Registry Information System (CORIS), the Cayman Islands General Registrys online database, searched on 19 January 2021.
4. A copy of executed written resolutions of the Board of Directors of the Company dated 16 January 2021, and a copy of executed minutes of a meeting of the shareholders of the Company dated 19 January 2021 (the Resolutions).
5. A certificate from a director of the Company, a copy of which is attached hereto (the Directors Certificate).
6. The Registration Statement.
SCHEDULE 2
ASSUMPTIONS
1. The originals of all documents examined in connection with this opinion are authentic. All documents purporting to be sealed have been so sealed. All copies are complete and conform to their originals. Any translations are a true translation of the original document they purport to translate.
2. The Company Records are complete and accurate and all matters required by law and the Memorandum and Articles to be recorded therein are completely and accurately so recorded.
3. The Contents of the Directors Certificate are true and accurate as at the date of this opinion and there is no information not contained in the Directors Certificate that will in any way affect this opinion.
4. The conversion of any shares in the capital of the Company will be effected via legally available means under Cayman Islands law.
SCHEDULE 3
QUALIFICATIONS
1. Our opinion as to good standing is based solely upon receipt of the Certificate of Good Standing issued by the Registrar. The Company shall be deemed to be in good standing under section 200A of the Companies Act (as amended) of the Cayman Islands (the Companies Act) on the date of issue of the certificate if all fees and penalties under the Companies Act have been paid and the Registrar has no knowledge that the Company is in default under the Companies Act.
2. We accept no responsibility for any liability in relation to any opinion which was given in reliance on the Directors Certificate.
Adagene Inc.
4F, Building C14, No. 218
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
January 19, 2021
Walkers (Hong Kong)
15/F Alexandra House
18 Chater Road
Central
Hong Kong
Dear Sirs,
Adagene Inc. (the Company) Directors Certificate
I, Peter (Peizhi) Luo, being a director of the Company, am aware that you are being asked to provide a legal opinion (the Opinion) in relation to certain aspects of Cayman Islands law. Capitalised terms used in this certificate have the meaning given to them in the Opinion. I hereby certify that:
1. the amended and restated memorandum and articles of association of the Company as adopted by special resolution passed on 19 December 2019 remain in full force and effect and are otherwise unamended;
1. the minutes of a meeting of the shareholders of the Company dated 19 January 2021 was executed (and where by a corporate entity such execution has been duly authorised if so required) by and on behalf of all shareholders in the manner prescribed in the articles of association of the Company, the signatures and initials thereon are those of a person or persons in whose name the resolutions have been expressed to be signed, are in full force and effect at the date hereof and have not been amended, varied or revoked in any respect;
2. the written resolutions of the board of directors dated 16 January 2021 were executed by all the directors in the manner prescribed in the articles of association of the Company, the signatures and initials thereon are those of a person or persons in whose name the resolutions have been expressed to be signed, are in full force and effect at the date hereof and have not been amended, varied or revoked in any respect; and
3. there is no contractual or other prohibition (other than as arising under Cayman Islands law) binding on the Company prohibiting it from issuing and allotting the Ordinary Shares.
I confirm that you may continue to rely on this Certificate as being true and correct on the day that you issue the Opinion unless I have previously notified you personally to the contrary.
[Signature Page to Follow]
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New York |
Paris |
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Northern California |
Madrid |
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Washington DC |
Hong Kong |
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São Paulo |
Beijing |
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London |
Tokyo |
Davis Polk & Wardwell LLP |
212 450 4000 tel |
450 Lexington Avenue |
212 701 5800 fax |
New York, NY 10017 |
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January 19, 2021
Re: Registration Statement on Form F-1
Adagene Inc.
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
Dear Ladies and Gentlemen:
We are acting as United States counsel to Adagene Inc., a company incorporated in the Cayman Islands (the Company), in connection with the preparation of the Registration Statement on Form F-1 (the Registration Statement) and the related Prospectus (the Prospectus) filed with the Securities and Exchange Commission by the Company under the Securities Act of 1933, as amended (the Securities Act). The Prospectus has been filed in connection with the Companys offering of its American depositary shares (ADSs) representing the Companys ordinary shares, par value $0.0001 per share.
We have examined such matters of fact and law as we have deemed necessary or advisable for the purpose of our opinion.
We hereby confirm that our opinion as to the material U.S. federal income tax consequences to U.S. Holders of an investment in ADSs is set forth in full under the caption TaxationMaterial U.S. Federal Income Tax Considerations in the Prospectus.
We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States. We hereby consent to the use of our name under the captions TaxationMaterial U.S. Federal Income Tax Considerations and Legal Matters in the Prospectus and to the filing, as an exhibit to the Registration Statement, of this letter.
In giving such consent we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations thereunder.
Very truly yours, |
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/s/ Davis Polk & Wardwell LLP |
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Davis Polk & Wardwell LLP |
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ADAGENE INC.
SECOND AMENDED AND RESTATED SHARE INCENTIVE PLAN
PREFACE
This Plan is divided into two separate equity programs: (1) the option and share appreciation rights grant program set forth in Section 5 under which Eligible Persons (as defined in Section 3) may, at the discretion of the Administrator, be granted Options and/or SARs, and (2) the share award program set forth in Section 6 under which Eligible Persons may, at the discretion of the Administrator, be awarded restricted or unrestricted Ordinary Shares. Section 2 of this Plan contains the general rules regarding the administration of this Plan. Section 3 sets forth the requirements for eligibility to receive an Award grant under this Plan. Section 4 describes the authorized shares of the Company that may be subject to Awards granted under this Plan. Section 7 contains other provisions applicable to all Awards granted under this Plan. Section 8 provides definitions for certain capitalized terms used in this Plan and not otherwise defined herein.
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to promote the success of the Company and the interests of its shareholders by providing a means through which the Company may grant equity-based incentives to attract, motivate, retain and reward certain officers, employees, directors and other eligible persons and to further link the interests of Award recipients with those of the Companys shareholders generally.
2. ADMINISTRATION.
2.1 Administrator. This Plan shall be administered by and all Awards under this Plan shall be authorized by the Administrator. The Administrator means the Board or one or more committees appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of this Plan. Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law. A committee may delegate some or all of its authority to another committee so constituted. The Board or a committee comprised solely of directors may also delegate, to the extent permitted by the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and any other applicable law, to one or more officers of the Company, its powers under this Plan (a) to designate the officers and employees of the Company and its Affiliates who will receive grants of Awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such Awards. The Board may delegate different levels of authority to different committees with administrative and grant authority under this Plan. Unless otherwise provided in the Memorandum and Articles of Association of the Company or the applicable charter of any Administrator, a majority of the members of the acting Administrator shall constitute a quorum, and the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute action by the acting Administrator.
2.2 Plan Awards; Interpretation; Powers of Administrator. Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all on of Awards and the of this Plan (in the case of a committee or delegation to one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to:
(a) determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive Awards;
(b) grant Awards to Eligible Persons, determine the price and number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of Awards consistent with the express limits of this Plan, establish the installments (if any) in which such Awards will become exercisable or will vest (which may include, without limitation, performance and/or time-based schedules) or determine that no delayed exercisability or vesting is required, establish any applicable performance targets, and establish the events of termination or reversion of such Awards;
(c) approve the forms of Award Agreements, which need not be identical either as to type of Award or among Participants;
(d) construe and interpret this Plan and any Award Agreement or other agreements defining the rights and obligations of the Company, its Affiliates, and Participants under this Plan, make factual determinations with respect to the administration of this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the Awards;
(e) cancel, modify, or waive the Companys rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards, subject to any required consent under Section 7.7.4;
(f) accelerate or extend the vesting or exercisability or extend the term of any or all outstanding Awards (within the maximum ten-year term of Awards under Sections 5.4.2 and 6.5) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a termination of employment or services or other events of a personal nature);
(g) determine Fair Market Value for purposes of this Plan and Awards;
(h) determine the duration and purposes of leaves of absence that may be granted to Participants without constituting a termination of their employment for purposes of this Plan;
(i) determine whether, and the extent to which, adjustments are required pursuant to Section 7.3 hereof and authorize the termination, conversion, substitution or succession of awards upon the occurrence of an event of the type described in Section 7.3; and
(j) implement any procedures, steps, additional or different requirements as may be necessary to comply with any laws of the Peoples Republic of China (the PRC) that may be applicable to this Plan, any Award or any related documents, including but not limited to foreign exchange laws, tax laws and securities laws of the PRC.
2.3 Binding Determinations. Any action taken by, or inaction of, the Company, any Affiliate, the Board or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. Neither the Board nor the Administrator, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any Award), and all such persons shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time.
2.4 Reliance on Experts. In making any determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including employees of and professional advisors to the Company. No director, officer or agent of the Company or any of its Affiliates shall be liable for any such action or determination taken or made or omitted in good faith.
2.5 Delegation. The Administrator may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Company or any of its Affiliates or to third parties.
3. ELIGIBILITY.
Awards may be granted under this Plan only to those persons that the Administrator determines to be Eligible Persons. An Eligible Person means any person who qualifies as one of the following at the time of grant of the respective Award:
(a) an officer (whether or not a director) or employee of the Company or any of its Affiliates;
(b) any member of the Board; or
(c) any director of one of the Companys Affiliates, or any individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of the Company or one of its Affiliates, as applicable, in a capital raising transaction or as a market maker or promoter of that entitys securities) to the Company or one of its Affiliates.
An advisor or consultant may be selected as an Eligible Person pursuant to clause (c) above only if such persons participation in this Plan would not adversely affect (1) the Companys eligibility to rely on the Rule 701 exemption from registration under the Securities Act for the offering of shares issuable under this Plan by the Company, or (2) the Companys compliance with any other applicable laws.
An Eligible Person may, but need not, be granted one or more Awards pursuant to Section 5 and/or one or more Awards pursuant to Section 6. An Eligible Person who has been granted an Award under this Plan may, if otherwise eligible, be granted additional Awards under this Plan if the Administrator so determines. However, a persons status as an Eligible Person is not a commitment that any Award will be granted to that person under this Plan. Furthermore, an Eligible Person who has been granted an Award under Section 5 is not necessarily entitled to an Award under Section 6, or vice versa, unless otherwise expressly determined by the Administrator.
Each Award granted under this Plan must be approved by the Administrator at or prior to the grant of the Award.
4. SHARES SUBJECT TO THE PLAN.
4.1 Shares Available. Subject to the provisions of Section 7.3.1, the shares that may be delivered under this Plan will be the Companys authorized but unissued Ordinary Shares (and any of its Ordinary Shares held as treasury shares). The Ordinary Shares issued and delivered may be issued and delivered for any lawful consideration.
4.2 Share Limit. Subject to the provisions of Section 7.3.1 and further subject to the share counting rules of Section 4.3, the maximum number of Ordinary Shares that may be delivered pursuant to Awards granted under this Plan will not exceed 11,391,131 shares (the Share Limit) in the aggregate. As required under U.S. Treasury Regulation Section 1.422- 2(b)(3)(i), in no event will the number of Ordinary Shares that may be delivered pursuant to Incentive Stock Options granted under this Plan exceed the Share Limit.
4.3 Replenishment and Reissue of Unvested Awards. To the extent that an Award is settled in cash or a form other than Ordinary Shares, the shares that would have been delivered had there been no such cash or other settlement shall not be counted against the shares available for issuance under this Plan. No Award may be granted under this Plan unless, on the date of grant, the sum of (a) the maximum number of Ordinary Shares issuable at any time pursuant to such Award, plus (b) the number of Ordinary Shares that have previously been issued pursuant to Awards granted under this Plan, plus (c) the maximum number of Ordinary Shares that may be issued at any time after such date of grant pursuant to Awards that are outstanding on such date, does not exceed the Share Limit. Ordinary Shares that are subject to or underlie Options or SARs granted under this Plan that expire or for any reason are canceled or terminated without having been exercised (or Ordinary Shares subject to or underlying the unexercised portion of such Options or SARs in the case of Options or SARs that were partially exercised), as well as Ordinary Shares that are subject to Share Awards made under this Plan that are forfeited to the Company or otherwise repurchased by the Company prior to the vesting of such shares for a price not greater than the original purchase or issue price of such shares (as adjusted pursuant to Section 7.3.1) will again, except to the extent prohibited by law or applicable listing or regulatory requirements, be available for subsequent Award grants under this Plan. Shares that are exchanged by a Participant or withheld by the Company as full or partial payment in connection with any Award under this Plan, as well as any shares exchanged by a Participant or withheld by the Company or one of its Affiliates to satisfy the tax withholding obligations related to any Award, shall be available for subsequent Awards under this Plan. In the case of an exercise of a SAR, only the number of shares actually issued in respect of such exercise shall be charged against this Plans Share Limit. Adjustments to the Share Limit pursuant to this Section 4.3 are subject to any applicable limitations of the Code in the case of Awards intended to be Incentive Stock Options.
4.4 Reservation of Shares. The Company shall at all times reserve a number of Ordinary Shares sufficient to cover the Companys obligations and contingent obligations to deliver shares with respect to Awards then outstanding under this Plan.
5. OPTION AND SAR GRANT PROGRAM.
5.1 Option and SAR Grants in General. Each Option or SAR shall be evidenced by an Award Agreement in the form approved by the Administrator. The Award Agreement evidencing an Option or SAR shall contain the terms established by the Administrator for that Award, as well as any other terms, provisions, or restrictions that the Administrator may impose on the Option or SAR or any Ordinary Shares subject to the Option or SAR; in each case subject to the applicable provisions and limitations of this Section 5 and the other applicable provisions and limitations of this Plan. The Administrator may require that the recipient of an Option or SAR promptly execute and return to the Company his or her Award Agreement evidencing the Award. In addition, the Administrator may require that the spouse of any married recipient of an Option or SAR also promptly execute and return to the Company the Award Agreement evidencing the Award granted to the recipient or such other spousal consent form that the Administrator may require in connection with the grant of the Award.
5.2 Incentive Stock Option Status. The Administrator will designate each Option granted under this Plan to a U.S. resident as either an Incentive Stock Option or a Nonqualified Option, and such designation shall be set forth in the applicable Award Agreement. Any Option granted under this Plan to a U.S. resident that is not expressly designated in the applicable Award Agreement as an Incentive Stock Option will be deemed to be designated a Nonqualified Option under this Plan and not an incentive stock option within the meaning of Section 422 of the Code. Incentive Stock Options shall be subject to the provisions of Section 5.5 in addition to the provisions of this Plan applicable to Options generally. The Administrator may designate any Option granted under this Plan to a non-U.S. resident in accordance with the rules and regulations applicable to options in the jurisdiction in which such person is a resident.
5.3 Option or SAR Price.
5.3.1 Option Pricing Limits. Subject to the following provisions of this Section 5.3.1, the Administrator will determine the purchase price per share of the Ordinary Shares covered by each Option (the exercise price of the Option) at the time of the grant of the Option, which exercise price will be set forth in the applicable Award Agreement. In no case will the exercise price of an Option be less than the greatest of:
(a) the par value of an Ordinary Share;
(b) in the case of an Incentive Stock Option and subject to clause (c) below, 100% of the Fair Market Value of an Ordinary Share on the date of grant; or
(c) in the case of an Incentive Stock Option granted to a Participant described in Section 5.5.4, 110% of the Fair Market Value of an Ordinary Share on the date of grant.
5.3.2 Payment Provisions. The Company will not be obligated to deliver certificates for the Ordinary Shares to be purchased upon the exercise of an Option unless and until it receives full payment of the exercise price therefor, all related withholding obligations under Section 7.6 have been satisfied, and all other conditions to the exercise of the Option set forth herein or in the Award Agreement have been satisfied. The purchase price of any Ordinary Shares purchased upon the exercise of an Option must be paid in full at the time of each purchase in such lawful consideration as may be permitted or required by the Administrator, which may include, without limitation, one or a combination of the following methods:
(a) cash, check payable to the order of the Company, or electronic funds transfer;
(b) notice and third party payment in such manner as may be authorized by the Administrator;
(c) the delivery of previously owned Ordinary Shares;
(d) by a reduction in the number of Ordinary Shares otherwise deliverable pursuant to the Award;
(e) subject to such procedures as the Administrator may adopt, pursuant to a cashless exercise; or
(f) if authorized by the Administrator or specified in the applicable Award Agreement, by a promissory note of the Participant consistent with the requirements of Section 5.3.3.
In no event shall any shares newly-issued by the Company be issued for less than the minimum lawful consideration for such shares or for consideration other than consideration permitted by applicable law. Ordinary Shares used to satisfy the exercise price of an Option (whether previously- owned shares or shares otherwise deliverable pursuant to the terms of the Option) shall be valued at their Fair Market Value on the date of exercise. Unless otherwise expressly provided in the applicable Award Agreement, the Administrator may eliminate or limit a Participants ability to pay the purchase or exercise price of any Award by any method other than cash payment to the Company. The Administrator may take all actions necessary to alter the method of Option exercise and the exchange and transmittal of proceeds with respect to Participants resident in the PRC not having permanent residence in a country other than the PRC in order to comply with applicable PRC foreign exchange and tax regulations and any other applicable PRC laws and regulations.
5.3.3 Acceptance of Notes to Finance Exercise. The Company may, with the Administrators approval in each specific case, accept one or more promissory notes from any Eligible Person in connection with the exercise of any Option; provided that any such note shall be subject to the following terms and conditions:
(a) The principal of the note shall not exceed the amount required to be paid to the Company upon the exercise, purchase or acquisition of one or more Awards under this Plan and the note shall be delivered directly to the Company in consideration of such exercise, purchase or acquisition.
(b) The initial term of the note shall be determined by the Administrator; provided that the term of the note, including extensions, shall not exceed a period of five years.
(c) The note shall provide for full recourse to the Participant and shall bear interest at a rate determined by the Administrator, but not less than the interest rate necessary to avoid the imputation of interest under the Code or other applicable tax law, rules or regulations, and to avoid any adverse accounting consequences in connection with the exercise, purchase or acquisition.
(d) If the employment or services of the Participant by or to the Company and its Affiliates terminates, the unpaid principal balance of the note shall become due and payable on the 30th business day after such termination; provided, however, that if a sale of the shares acquired on exercise of the Option would cause such Participant to incur liability under Section 16(b) of the Exchange Act, the unpaid balance shall become due and payable on the 10th business day after the first day on which a sale of such shares could have been made without incurring such liability assuming for these purposes that there are no other transactions (or deemed transactions) in securities of the Company by the Participant subsequent to such termination.
(e) If required by the Administrator or by applicable law, the note shall be secured by a pledge of any shares or rights financed thereby or other collateral, in compliance with applicable law.
The terms, repayment provisions, and collateral release provisions of the note and the pledge securing the note shall conform with all applicable rules and regulations, including those of the Federal Reserve Board of the United States and any applicable law, as then in effect.
5.3.4 Base Price of SARs. The Administrator will determine the base price per share of the Ordinary Shares covered by each SAR at the time of the grant of the SAR, which base price will be set forth in the applicable Award Agreement.
5.4 Vesting; Term; Exercise Procedure.
5.4.1 Vesting. Except as provided in Section 5.8, an Option or SAR may be exercised only to the extent that it is vested and exercisable. The Administrator will determine the vesting and/or exercisability provisions of each Option or SAR (which may be based on performance criteria, passage of time or other factors or any combination thereof), which provisions will be set forth in the applicable Award Agreement. Unless the Administrator otherwise expressly provides, once exercisable an Option or SAR will remain exercisable until the expiration or earlier termination of the Option or SAR.
5.4.2 Term. Each Option and SAR shall expire not more than 10 years after its date of grant. Each Option and SAR will be subject to earlier termination as provided in or pursuant to Sections 5.6 and 7.3 or the terms of the applicable Award Agreement.
5.4.3 Exercise Procedure. Any exercisable Option or SAR will be deemed to be exercised when (a) the applicable exercise procedures in the related Award Agreement have been satisfied (or, in the absence of any such procedures in the related Award Agreement, the Company has received written notice of such exercise from the Participant), and (b) in the case of an Option, the Company has received any required payment made in accordance with Section 5.3 and Section 7.6, and (c) in the case of an Option or SAR, the Company has received any written statement required pursuant to Section 7.5.1.
5.4.4 Fractional Shares/Minimum Issue. Fractional share interests will be disregarded, but may be accumulated. The Administrator, however, may determine that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests. No Option or SAR may be exercised as to fewer than 100 shares (subject to adjustment pursuant to Section 7.3.1) at one time unless the number as to which the Award is exercised is the total number at the time then subject to the vested and exercisable portion of the Award.
5.5 Limitations on Grant and Terms of Incentive Stock Options.
5.5.1 US$100,000 Limit. To the extent that the aggregate Fair Market Value of shares with respect to which incentive stock options (within the meaning of Section 422 of the Code) first become exercisable by a Participant in any calendar year exceeds US$100,000, taking into account both Ordinary Shares subject to Incentive Stock Options under this Plan and shares subject to incentive stock options under all other plans of the Company or any of its Affiliates, such options will be treated as Nonqualified Options. For this purpose, the Fair Market Value of the shares subject to options will be determined as of the date the options were awarded. In reducing the number of options treated as incentive stock options to meet the US$100,000 limit, the most recently granted options will be reduced (recharacterized as Nonqualified Options) first. To the extent a reduction of simultaneously granted options is necessary to meet the US$100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which Ordinary Shares are to be treated as shares acquired pursuant to the exercise of an incentive stock option.
5.5.2 Other Code Limits. Incentive Stock Options may only be granted to individuals that are employees of the Company or one of its Affiliates and satisfy the other eligibility requirements of the Code. Any Award Agreement relating to Incentive Stock Options will contain or shall be deemed to contain such other terms and conditions as from time to time are required in order that the Option be an incentive stock option as that term is defined in Section 422 of the Code.
5.5.3 ISO Notice of Sale Requirement. Any Participant who exercises an Incentive Stock Option shall give prompt written notice to the Company of any sale or other transfer of the Ordinary Shares acquired on such exercise if the sale or other transfer occurs within (a) one year after the exercise date of the Option, or (b) two years after the grant date of the Option.
5.5.4 Limits on 10% Holders. No Incentive Stock Option may be granted to any person who, at the time the Incentive Stock Option is granted, owns (or is deemed to own under Section 424(d) of the Code) outstanding shares of the Company (or any of its Affiliates) possessing more than 10% of the total combined voting power of all classes of shares of the Company (or any of its Affiliates), unless the exercise price of such Incentive Stock Option is at least 110% of the Fair Market Value of the shares subject to the Incentive Stock Option and the Incentive Stock Option by its terms is not exercisable more than five years after the date the Incentive Stock Option is granted.
5.6 Effects of Termination of Employment on Options and SARs.
5.6.1 Dismissal for Cause. Unless otherwise provided in the applicable Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 5.4.2 or 7.3, if a Participants employment by or service to the Company or any of its Affiliates is terminated by such entity for Cause, the Participants Option or SAR will terminate on the Participants Severance Date, whether or not the Option or SAR is then vested and/or exercisable.
5.6.2 Death or Disability. Unless otherwise provided in the applicable Award Agreement (consistent with applicable securities laws) and subject to earlier termination pursuant to or as contemplated by Section 5.4.2 or 7.3, if a Participants employment by or service to the Company or any of its Affiliates terminates as a result of the Participants death or Total Disability:
(a) the Participant (or his or her Personal Representative or Beneficiary, in the case of the Participants Total Disability or death, respectively), will have until the date that is 12 months after the Participants Severance Date to exercise the Participants Option or SAR (or portion thereof) to the extent that it was vested and exercisable on the Severance Date;
(b) the Option or SAR, to the extent not vested and exercisable on the Participants Severance Date, shall terminate on the Severance Date; and
(c) the Option or SAR, to the extent exercisable for the 12-month period following the Participants Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the 12-month period.
5.6.3 Other Terminations of Employment. Unless otherwise provided in the applicable Award Agreement (consistent with applicable securities laws) and subject to earlier termination pursuant to or as contemplated by Section 5.4.2 or 7.3, if a Participants employment by or service to the Company or any of its Affiliates terminates for any reason other than a termination by such entity for Cause or because of the Participants death or Total Disability:
(a) the Participant will have until the date that is 3 months after the Participants Severance Date to exercise his or her Option or SAR (or portion thereof) to the extent that it was vested and exercisable on the Severance Date;
(b) the Option or SAR, to the extent not vested and exercisable on the Participants Severance Date, shall terminate on the Severance Date; and
(c) the Option or SAR, to the extent exercisable for the 3-month period following the Participants Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the 3-month period.
5.7 Option and SAR Repricing/Cancellation and Regrant/Waiver of Restrictions. Subject to Section 4 and Section 7.7 and the specific limitations on Options and SARs contained in this Plan, the Administrator from time to time may authorize, generally or in specific cases only, for the benefit of any Eligible Person, any adjustment in the exercise or base price, the vesting schedule, the number of shares subject to, or the term of, an Option or SAR granted under this Plan by cancellation of an outstanding Option or SAR and a subsequent regranting of the Option or SAR, by amendment, by substitution of an outstanding Option or SAR, by waiver or by other legally valid means. Such amendment or other action may result in, among other changes, an exercise or base price that is higher or lower than the exercise or base price of the original or prior Option or SAR, provide for a greater or lesser number of Ordinary Shares subject to the Option or SAR, or provide for a longer or shorter vesting or exercise period.
5.8 Early Exercise Options and SARs. The Administrator may, in its discretion, designate any Option or SAR as an early exercise Option or early exercise SAR which, by express provision in the applicable Award Agreement, may be exercised prior to the date such Option or SAR has vested. If the Participant elects to exercise all or a portion of an early exercise Option or SAR before it is vested, the Ordinary Shares acquired under the Option or SAR which are attributable to the unvested portion of the Option or SAR shall be Restricted Shares. The applicable Award Agreement will specify the extent (if any) to which and the time (if ever) at which the Participant will be entitled to dividends, voting and other rights in respect of such Restricted Shares prior to vesting, and the restrictions imposed on such shares and the conditions of release or lapse of such restrictions. Unless otherwise expressly provided in the applicable Award Agreement, such Restricted Shares shall be subject to the provisions of Sections 6.6 through 6.9, below.
6. SHARE AWARD PROGRAM.
6.1 Share Awards in General. Each Share Award shall be evidenced by an Award Agreement in the form approved by the Administrator. The Award Agreement evidencing a Share Award shall contain the terms established by the Administrator for that Share Award, as well as any other terms, provisions, or restrictions that the Administrator may impose on the Share Award; in each case subject to the applicable provisions and limitations of this Section 6 and the other applicable provisions and limitations of this Plan. The Administrator may require that the recipient of a Share Award promptly execute and return to the Company his or her Award Agreement evidencing the Share Award. In addition, the Administrator may require that the spouse of any married recipient of a Share Award also promptly execute and return to the Company the Award Agreement evidencing the Share Award granted to the recipient or such other spousal consent form that the Administrator may require in connection with the grant of the Share Award.
6.2 Types of Share Awards. The Administrator shall designate whether a Share Award shall be a Restricted Share Award, and such designation shall be set forth in the applicable Award Agreement.
6.3 Purchase Price.
6.3.1 Pricing Limits. Subject to the following provisions of this Section 6.3, the Administrator will determine the purchase price per share of the Ordinary Shares covered by each Share Award at the time of grant of the Award. In no case will such purchase price be less than the par value of the Ordinary Shares.
6.3.2 Payment Provisions. The Company will not be obligated to record in the Companys register of members, or issue certificates evidencing, Ordinary Shares awarded under this Section 6 unless and until it receives full payment of the purchase price therefor and all other conditions to the purchase, as determined by the Administrator, have been satisfied, at which point the relevant shares shall be issued and noted in the Companys register of members. The purchase price of any shares subject to a Share Award must be paid in full at the time of the purchase in such lawful consideration as may be permitted or required by the Administrator, which may include, without limitation, one or a combination of the methods set forth in clauses (a) through (f) in Section 5.3.2 and/or past services rendered to the Company or any of its Affiliates.
6.4 Vesting. The restrictions imposed on the Ordinary Shares subject to a Restricted Share Award (which may be based on performance criteria, passage of time or other factors or any combination thereof) will be set forth in the applicable Award Agreement.
6.5 Term. A Share Award shall either vest or be repurchased by the Company as provided in Section 6.8 not more than 10 years after the date of grant. Each Share Award will be subject to earlier termination as provided in or pursuant to Sections 6.8 and 7.3. Any payment of cash or delivery of shares in payment for a Share Award may be delayed until a future date if specifically authorized by the Administrator in writing and by the Participant.
6.6 Share Certificates; Fractional Shares. Share certificates evidencing Restricted Shares will bear a legend making appropriate reference to the restrictions imposed hereunder and will be held by the Company or by a third party designated by the Administrator until the restrictions on such shares have lapsed, the shares have vested in accordance with the provisions of the Award Agreement and Section 6.4, and any related loan has been repaid. Fractional share interests will be disregarded, but may be accumulated. The Administrator, however, may determine that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests.
6.7 Dividend and Voting Rights. Unless otherwise provided in the applicable Award Agreement, a Participant holding Restricted Shares will be entitled to cash dividend and voting rights for all Restricted Shares issued even though they are not vested, but such rights will terminate immediately as to any Restricted Shares which cease to be eligible for vesting or are repurchased by the Company.
6.8 Termination of Employment; Return to the Company. Unless the Administrator otherwise expressly provides, Restricted Shares subject to an Award that remain subject to vesting conditions that have not been satisfied by the time specified in the applicable Award Agreement (which may include, without limitation, the Participants Severance Date), will not vest and will be reacquired by the Company in such manner and on such terms as the Administrator provides, which terms shall include, to the extent not prohibited by law, return or repayment of the lower of (a) the Fair Market Value of the Restricted Shares at the time of the termination, or (b) if applicable, the original purchase price of the Restricted Shares, without interest. The Award Agreement shall specify any other terms or conditions of the repurchase if the Award fails to vest. Any other Share Award that has not been exercised as of a Participants Severance Date shall terminate on that date unless otherwise expressly provided by the Administrator in the applicable Award Agreement.
6.9 Waiver of Restrictions. Subject to Sections 4 and 7.7 and the specific limitations on Share Awards contained in this Plan, the Administrator from time to time may authorize, generally or in specific cases only, for the benefit of any Eligible Person, any adjustment in the vesting schedule, or the restrictions upon or the term of, a Share Award granted under this Plan by amendment, by substitution of an outstanding Share Award, by waiver or by other legally valid means.
7. PROVISIONS APPLICABLE TO ALL AWARDS.
7.1 Rights of Eligible Persons, Participants and Beneficiaries.
7.1.1 Employment Status. No Person shall have any claim or rights to be granted an Award (or additional Awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.
7.1.2 No Employment/Service Contract. Nothing contained in this Plan (or in any other documents under this Plan or related to any Award) shall confer upon any Eligible Person or Participant any right to continue in the employ or other service of the Company or any of its Affiliates, constitute any contract or agreement of employment or other service or affect an employees status as an employee at will, nor shall interfere in any way with the right of the Company or any Affiliate to change such persons compensation or other benefits, or to terminate his or her employment or other service, with or without cause at any time. Nothing in this Section 7.1.2, or in Section 7.3 or 7.15, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract. An Award Agreement shall not constitute a contract of employment or service.
7.1.3 Plan Not Funded. Awards payable under this Plan will be payable in Ordinary Shares or from the general assets of the Company, and (except as to the share reservation provided in Section 4.4) no special or separate reserve, fund or deposit will be made to assure payment of such Awards. No Participant, Beneficiary or other person will have any right, title or interest in any fund or in any specific asset (including Ordinary Shares, except as expressly provided) of the Company or any of its Affiliates by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan will create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company or any of its Affiliates and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right will be no greater than the right of any unsecured general creditor of the Company.
7.1.4 Charter Documents. The Memorandum and Articles of Association of the Company, as may lawfully be amended from time to time, may provide for additional restrictions and limitations with respect to the Ordinary Shares (including additional restrictions and limitations on the voting or transfer of Ordinary Shares) or priorities, rights and preferences as to securities and interests prior in rights to the Ordinary Shares. These restrictions and limitations are in addition to (and not in lieu of) those set forth in this Plan or any Award Agreement and are incorporated herein by this reference.
7.2 No Transferability; Limited Exception to Transfer Restrictions.
7.2.1 Limit on Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 7.2, by applicable law and by the Award Agreement, as the same may be amended:
(a) all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge;
(b) Awards will be exercised only by the Participant; and
(c) amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account of), and, in the case of Ordinary Shares, registered in the name of, the Participant.
In addition, the shares shall be subject to the restrictions set forth in the applicable Award Agreement.
7.2.2 Further Exceptions to Limits on Transfer. The exercise and transfer restrictions in Section 7.2.1 will not apply to:
(a) transfers to the Company;
(b) transfers by gift or domestic relations order to one or more family members (as that term is defined in SEC Rule 701 promulgated under the Securities Act) of the Participant, including transfers to a trust in which the Participant (or other family member) has more than 50% of the beneficial interest, a foundation in which the Participant (or other family member) controls the management of assets, or an entity in which the Participant (or other family member) owns more than 50% of the voting interest, so long as such transfer is expressly authorized by the Administrator and is in compliance with all applicable laws;
(c) the designation of a Beneficiary to receive benefits if the Participant dies or, if the Participant has died, transfers to or exercises by the Participants Beneficiary, or, in the absence of a validly designated Beneficiary, transfers by will or the laws of descent and distribution; or
(d) if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by the Participants duly authorized legal representative.
Notwithstanding anything else in this Section 7.2.2 to the contrary, but subject to compliance with all applicable laws, Incentive Stock Options and Restricted Share Awards will be subject to any and all transfer restrictions under the Code applicable to such awards or necessary to maintain the intended tax consequences of such Awards. Notwithstanding clause (b) above but subject to compliance with all applicable laws, any contemplated transfer by gift or domestic relations order to one or more family members of a Participant as referenced in clause (b) above is subject to the condition precedent that the transfer be approved by the Administrator in order for it to be effective. The Administrator may, in its sole discretion, withhold its approval of any such proposed transfer.
7.3 Adjustments; Changes in Control.
7.3.1 Adjustments. Subject to Section 7.3.2 below, upon (or, as may be necessary to effect the adjustment, immediately prior to) any reclassification, recapitalization, share split (including a share split in the form of a share dividend) or reverse share split; any merger, combination, consolidation, or other reorganization; any split-up, spin-off, or similar extraordinary dividend distribution in respect of the Ordinary Shares; or any exchange of Ordinary Shares or other securities of the Company, or any similar, unusual or extraordinary corporate transaction in respect of the Ordinary Shares; then the Administrator shall equitably and proportionately adjust (1) the number and type of shares of Ordinary Shares (or other securities) that thereafter may be made the subject of Awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan), (2) the number, amount and type of Ordinary Shares (or other securities or property) subject to any outstanding Awards, (3) the grant, purchase, exercise or base price of any outstanding Awards, and/or (4) the securities, cash or other property deliverable upon exercise or vesting of any outstanding Awards, in each case to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding Awards.
Unless otherwise expressly provided in the applicable Award Agreement, upon (or, as may be necessary to effect the adjustment, immediately prior to) any event or transaction described in the preceding paragraph or a sale of all or substantially all of the business or assets of the Company as an entirety, the Administrator shall equitably and proportionately adjust the performance standards applicable to any then-outstanding performance-based Awards to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding performance-based Awards.
It is intended that, if possible, any adjustments contemplated by the preceding two paragraphs be made in a manner that satisfies applicable legal, tax (including, without limitation and as applicable in the circumstances, Section 424 of the Code and Section 409A of the Code) and accounting (so as to not trigger any charge to earnings with respect to such adjustment) requirements.
Without limiting the generality of Section 2.3, any good faith determination by the Administrator as to whether an adjustment is required in the circumstances pursuant to this Section 7.3.1, and the extent and nature of any such adjustment, shall be conclusive and binding on all persons.
Unless otherwise expressly provided by the Administrator, in no event shall a conversion of one or more outstanding shares of the Companys preferred share (if any) or any new issuance of securities by the Company for consideration be deemed, in and of itself, to require an adjustment pursuant to this Section 7.3.1.
7.3.2 Consequences of a Change in Control Event. Upon the occurrence of a Change in Control Event, the Administrator may make provision for a cash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding Awards (or the cash, securities or other property deliverable to the holder(s) of any or all outstanding Awards) based upon, to the extent relevant in the circumstances, the distribution or consideration payable to holders of the Ordinary Shares upon or in respect of such event.
In addition, subject to Sections 7.3.4 and 7.3.5, upon (or, as may be necessary to effectuate the purposes of this acceleration, immediately prior to) the occurrence of a Change in Control Event:
(a) each Option and SAR will become immediately vested and exercisable; and
(b) Restricted Shares will immediately vest free of forfeiture restrictions and/or restrictions giving the Company the right to repurchase the shares at their original purchase price;
provided, however, that such acceleration provision shall not apply, unless otherwise expressly provided by the Administrator, with respect to any Award to the extent that the Administrator has made a provision for the substitution, assumption, exchange or other continuation or settlement of the Award, or the Award would otherwise continue in accordance with its terms, in the circumstances.
The foregoing Change in Control Event provisions shall not in any way limit the authority of the Administrator to accelerate the vesting of one or more Awards (as to all or only a portion of any Award) in such circumstances (including, but not limited to, a Change in Control Event) as the Administrator may determine to be appropriate, regardless of whether accelerated vesting of all or a portion of the Award(s) is otherwise required or contemplated by the foregoing in the circumstances.
The Administrator may adopt such valuation methodologies for outstanding Awards as it deems reasonable in the event of a cash, securities or other property settlement. In the case of Options and SARs, but without limitation on other methodologies, the Administrator may base such settlement solely upon the excess (if any) of the amount payable upon or in respect of such event over the exercise or base price of the Option or SAR, as applicable, to the extent of the then vested and exercisable shares subject to the Option or SAR.
In any of the events referred to in this Section 7.3.2, the Administrator may take such action contemplated by this Section 7.3.2 prior to such event (as opposed to on the occurrence of such event) to the extent that the Administrator deems the action necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying shares. Without limiting the generality of the foregoing, the Administrator may deem an acceleration to occur immediately prior to the applicable event and/or reinstate the original terms of the Award if an event giving rise to an acceleration does not occur.
7.3.3 Early Termination of Awards. Upon the occurrence of a Change in Control Event, each then-outstanding Award (whether or not vested and/or exercisable, but after giving effect to any accelerated vesting required in the circumstances pursuant to Sections 7.3.2, 7.3.4 and 7.3.5) shall terminate, subject to any provision that has been expressly made by the Administrator, through a plan of reorganization or otherwise, for the survival, substitution, assumption, exchange or other continuation or settlement of such Award and provided that, in the case of Options and SARs that will not survive or be substituted for, assumed, exchanged, or otherwise continued or settled in the Change in Control Event, the holder of such Award shall be given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding and vested Options and SARs (the vested portion of such Options and SARs determined after giving effect to any accelerated vesting required in the circumstances pursuant to Sections 7.3.2, 7.3.4 and 7.3.5) in accordance with their terms before the termination of the Awards (except that in no case shall more than ten days notice of accelerated vesting and the impending termination be required and any acceleration may be made contingent upon the actual occurrence of the event). For purposes of this Section 7.3, an Award shall be deemed to have been assumed if (without limiting other circumstances in which an Award is assumed) the Award continues after the Change in Control Event, and/or is assumed and continued by a Parent (as such term is defined in the definition of Change in Control Event) following a Change in Control Event, and confers the right to purchase or receive, as applicable and subject to vesting and the other terms and conditions of the Award, for each Ordinary Share subject to the Award immediately prior to the Change in Control Event, the consideration (whether cash, shares, or other securities or property) received in the Change in Control Event by the shareholders of the Company for each Ordinary Share sold or exchanged in such transaction (or the consideration received by a majority of the shareholders participating in such transaction if the shareholders were offered a choice of consideration); provided, however, that if the consideration offered for an Ordinary Share in the transaction is not solely the ordinary or common shares of a successor company or a Parent, the Administrator may provide for the consideration to be received upon exercise or payment of the Award, for each share subject to the Award, to be solely ordinary or common shares (as applicable) of the successor company or a Parent equal in Fair Market Value to the per share consideration received by the shareholders participating in the Change in Control Event.
7.3.4 Other Acceleration Rules. The Administrator may override the provisions of this Section 7.3 as to any Award by express provision in the applicable Award Agreement and may accord any Participant a right to refuse any acceleration, whether pursuant to the Award Agreement or otherwise, in such circumstances as the Administrator may approve. The portion of any Incentive Stock Option accelerated in connection with a Change in Control Event (or such other circumstances as may trigger accelerated vesting of the Incentive Stock Option) shall remain exercisable as an Incentive Stock Option only to the extent the applicable US$100,000 limitation on Incentive Stock Options is not exceeded. To the extent exceeded, the accelerated portion of the Option shall be exercisable as a Nonqualified Option.
7.3.5 Golden Parachute Limitation. Notwithstanding anything else contained in this Section 7.3 to the contrary, in no event shall any Award or payment be accelerated under this Section 7.3 to an extent or in a manner so that such Award or payment, together with any other compensation and benefits provided to, or for the benefit of, the Participant under any other plan or agreement of the Company or one of its Affiliates, would not be fully deductible by the Company or one of its Affiliates for federal income tax purposes because of Section 280G of the Code. If a holder of an Award would be entitled to benefits or payments hereunder and under any other plan or program that would constitute parachute payments as defined in Section 280G of the Code, then the holder may by written notice to the Company designate the order in which such parachute payments will be reduced or modified so that the Company or one of its Affiliates is not denied federal income tax deductions for any parachute payments because of Section 280G of the Code. Notwithstanding the foregoing, if a Participant is a party to an employment or other agreement with the Company or one of its Affiliates, or is a participant in a severance program sponsored by the Company or one of its Affiliates that contains express provisions regarding Section 280G and/or Section 4999 of the Code (or any similar successor provision), or the applicable Award Agreement includes such provisions, the Section 280G and/or Section 4999 provisions of such employment or other agreement or plan, as applicable, shall control as to the Awards held by that Participant (for example, and without limitation, a Participant may be a party to an employment agreement with the Company or one of its Affiliates that provides for a gross-up as opposed to a cut-back in the event that the Section 280G thresholds are reached or exceeded in connection with a change in control and, in such event, the Section 280G and/or Section 4999 provisions of such employment agreement shall control as to any Awards held by that Participant).
7.4 Termination of Employment or Services.
7.4.1 Events Not Deemed a Termination of Employment. Unless the Administrator otherwise expressly provides with respect to a particular Award, if a Participants employment by or service to the Company or an Affiliate terminates but immediately thereafter the Participant continues in the employ of or service to another Affiliate or the Company, as applicable, the Participant shall be deemed to have not had a termination of employment or service for purposes of this Plan and the Participants Awards. Unless the express policy of the Company or the Administrator otherwise provides, a Participants employment relationship with the Company or any of its Affiliates shall not be considered terminated solely due to any sick leave, military leave, or any other leave of absence authorized by the Company or any Affiliate or the Administrator; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than three months. In the case of any Participant on an approved leave of absence, continued vesting of the Award while on leave from the employ of or service with the Company or any of its Affiliates will be suspended until the Participant returns to service, unless the Administrator otherwise provides or applicable law otherwise requires. In no event shall an Award be exercised after the expiration of the term of the Award set forth in the Award Agreement.
7.4.2 Effect of Change of Affiliate Status. For purposes of this Plan and any Award, if an entity ceases to be an Affiliate, a termination of employment or service will be deemed to have occurred with respect to each Eligible Person in respect of such Affiliate who does not continue as an Eligible Person in respect of another Affiliate that continues as such after giving effect to the transaction or other event giving rise to the change in status unless the Affiliate that is sold, spun-off or otherwise divested (or its successor or a direct or indirect parent of such Affiliate or successor) assumes the Eligible Persons award(s) in connection with such transaction.
7.4.3 Administrator Discretion. Notwithstanding the provisions of Section 5.6 or 6.8, in the event of, or in anticipation of, a termination of employment or service with the Company or any of its Affiliates for any reason, the Administrator may accelerate the vesting and exercisability of all or a portion of the Participants Award, and/or, subject to the provisions of Sections 5.4.2 and 7.3, extend the exercisability period of the Participants Option or SAR upon such terms as the Administrator determines and expressly sets forth in or by amendment to the Award Agreement.
7.4.4 Termination of Consulting or Affiliate Services. If the Participant is an Eligible Person solely by reason of clause (c) of Section 3, the Administrator shall be the sole judge of whether the Participant continues to render services to the Company or any of its Affiliates, unless a written contract or the Award Agreement otherwise provides. If, in these circumstances, the Company or any Affiliate notifies the Participant in writing that a termination of the Participants services to the Company or any Affiliate has occurred for purposes of this Plan, then (unless the contract or the Award Agreement otherwise expressly provides), the Participants termination of services with the Company or Affiliate for purposes of this Plan shall be the date specified by the Company or Affiliate in the notice.
7.5 Compliance with Laws.
7.5.1 General. This Plan, the granting and vesting of Awards under this Plan, and the offer, issuance and delivery of Ordinary Shares, the acceptance of promissory notes and/or the payment of money under this Plan or under Awards are subject to compliance with all applicable federal and state laws, applicable foreign laws, rules and regulations (including but not limited to state and federal securities laws, and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any person acquiring any securities under this Plan will, if requested by the Company, provide such assurances and representations to the Company as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements.
7.5.2 Compliance with Securities Laws. No Participant shall sell, pledge or otherwise transfer Ordinary Shares acquired pursuant to an Award or any interest in such shares except in accordance with the express terms of this Plan and the applicable Award Agreement. Any attempted transfer in violation of this Section 7.5 shall be void and of no effect. Without in any way limiting the provisions set forth above, no Participant shall make any disposition of all or any portion of Ordinary Shares acquired or to be acquired pursuant to an Award, except in compliance with all applicable federal and state securities laws and unless and until:
(a) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement;
(b) such disposition is made in accordance with Rule 144 under the Securities Act; or
(c) such Participant notifies the Company of the proposed disposition and furnishes the Company with a statement of the circumstances surrounding the proposed disposition, and, if requested by the Company, furnishes to the Company an opinion of counsel acceptable to the Companys counsel, that such disposition will not require registration under the Securities Act and will be in compliance with all applicable state securities laws.
Notwithstanding anything else herein to the contrary, neither the Company or any Affiliate has any obligation to register the Ordinary Shares or file any registration statement under either federal or state securities laws, nor does the Company or any Affiliate make any representation concerning the likelihood of a public offering of the Ordinary Shares or any other securities of the Company or any Affiliate.
7.5.3 Share Legends. All certificates evidencing Ordinary Shares issued or delivered under this Plan shall bear the following legends and/or any other appropriate or required legends under applicable laws:
OWNERSHIP OF THIS CERTIFICATE, THE SHARES EVIDENCED BY THIS CERTIFICATE AND ANY INTEREST THEREIN ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFER UNDER APPLICABLE LAW AND UNDER AGREEMENTS WITH THE COMPANY, INCLUDING RESTRICTIONS ON SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION.
THE SHARES ARE SUBJECT TO THE COMPANYS RIGHT OF FIRST REFUSAL AND CALL RIGHTS TO REPURCHASE THE SHARES UNDER THE COMPANYS SHARE INCENTIVE PLAN AND AGREEMENTS WITH THE COMPANY THEREUNDER.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (ACT), AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE ACT, NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL TO THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH ANY OTHER APPLICABLE SECURITIES LAWS.
7.5.4 Confidential Information. Any financial or other information relating to the Company obtained by Participants in connection with or as a result of this Plan or their Awards shall be treated as confidential.
7.6 Tax Withholding. Upon any exercise, vesting, or payment of any Award or upon the disposition of Ordinary Shares acquired pursuant to the exercise of an Incentive Stock Option prior to satisfaction of the holding period requirements of Section 422 of the Code, the Company or any of its Affiliates shall have the right at its option to:
(a) require the Participant (or the Participants Personal Representative or Beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of any taxes which the Company or Affiliate may be required to withhold with respect to such Award event or payment;
(b) deduct from any amount otherwise payable (in respect of an Award or otherwise) in cash to the Participant (or the Participants Personal Representative or Beneficiary, as the case may be) the minimum amount of any taxes which the Company or Affiliate may be required to withhold with respect to such Award event or payment; or
(c) reduce the number of Ordinary Shares to be delivered by (or otherwise reacquire shares held by the Participant) the appropriate number of Ordinary Shares, valued at their then Fair Market Value, to satisfy the minimum withholding obligation.
In any case where a tax is required to be withheld (including taxes in the PRC where applicable) in connection with the delivery of Ordinary Shares under this Plan (including the sale of Ordinary Shares as may be required to comply with foreign exchange rules in the PRC for Participants resident in the PRC), the Administrator may in its sole discretion (subject to Section 7.5) grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, to have the Company reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their Fair Market Value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the minimum applicable withholding obligation on exercise, vesting or payment. In no event shall the shares withheld exceed the minimum whole number of shares required for tax withholding under applicable law. The Company may, with the Administrators approval, accept one or more promissory notes from any Eligible Person in connection with taxes required to be withheld upon the exercise, vesting or payment of any Award under this Plan; provided that any such note shall be subject to terms and conditions established by the Administrator and the requirements of applicable law. Any such note need not otherwise comply with the provisions of Section 5.3.3.
7.7 Plan and Award Amendments, Termination and Suspension.
7.7.1 Board Authorization. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any period that the Board suspends this Plan.
7.7.2 Shareholder Approval. To the extent then required by applicable law or any applicable listing agency or required under Sections 162, 422 or 424 of the Code or other applicable tax law, rules or regulations, to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to shareholder approval.
7.7.3 Amendments to Awards. Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on Awards to Participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a Participant, and (subject to the requirements of Sections 2.2 and 7.7.4) may make other changes to the terms and conditions of Awards.
7.7.4 Limitations on Amendments to Plan and Awards. No amendment, suspension or termination of this Plan or amendment of any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of the Company under any Award granted under this Plan prior to the effective date of such change. Changes, settlements and other actions contemplated by Section 7.3 shall not be deemed to constitute changes or amendments for purposes of this Section 7.7.
7.8 Privileges of Share Ownership. Except as otherwise expressly authorized by the Administrator, a Participant will not be entitled to any privilege of share ownership as to any Ordinary Shares not actually delivered to and held of record by the Participant. Except as expressly required by Section 7.3.1, no adjustment will be made for dividends or other rights as a shareholder for which a record date is prior to such date of delivery.
7.9 Share-Based Awards in Substitution for Awards Granted by Other Company. Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee share options, share appreciation rights, restricted shares or other share-based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Company or one of its Affiliates, in connection with a distribution, merger, amalgamation or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company or one of its Affiliates, directly or indirectly, of all or a substantial part of the shares or assets of the employing entity. The Awards so granted need not comply with other specific terms of this Plan, provided the Awards reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Ordinary Shares in the transaction and any change in the issuer of the security. Any shares that are delivered and any Awards that are granted by, or become obligations of, the Company, as a result of the assumption by the Company of, or in substitution for, outstanding awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Company or one of its Affiliates in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan.
7.10 Effective Date of the Plan. This Plan is effective upon the Effective Date, subject to approval by the shareholders of the Company within twelve months after the date the Board approves this Plan.
7.11 Term of the Plan. Unless earlier terminated by the Board, this Plan will terminate at the close of business on the day before the 10th anniversary of the Effective Date. After the termination of this Plan either upon such stated expiration date or its earlier termination by the Board, no additional Awards may be granted under this Plan, but previously granted Awards (and the authority of the Administrator with respect thereto, including the authority to amend such Awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.
7.12 Governing Law/Severability.
7.12.1 Choice of Law. This Plan, the Awards, all documents evidencing Awards and all other related documents will be governed by, and construed in accordance with, the laws of the Cayman Islands.
7.12.2 Severability. If it is determined that any provision of this Plan or an Award Agreement is invalid and unenforceable, the remaining provisions of this Plan and/or the Award Agreement, as applicable, will continue in effect provided that the essential economic terms of this Plan and the Award can still be enforced.
7.13 Captions. Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings will not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.
7.14 Non-Exclusivity of Plan. Nothing in this Plan will limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Ordinary Shares, under any other plan or authority.
7.15 No Restriction on Corporate Powers. The existence of this Plan, the Award Agreements, and the Awards granted hereunder, shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the Companys or any Affiliates capital structure or its business; (b) any merger, amalgamation, consolidation or change in the ownership of the Company or any Affiliate; (c) any issue of bonds, debentures, capital, preferred or prior preference shares ahead of or affecting the Companys authorized shares or the rights thereof; (d) any dissolution or liquidation of the Company or any Affiliate; (e) any sale or transfer of all or any part of the Company or any Affiliates assets or business; or (f) any other corporate act or proceeding by the Company or any Affiliate. No Participant, Beneficiary or any other person shall have any claim under any Award or Award Agreement against any member of the Board or the Administrator, or the Company or any employees, officers or agents of the Company or any Affiliate, as a result of any such action.
7.16 Other Company Compensation or Benefit Programs. Payments and other benefits received by a Participant under an Award made pursuant to this Plan shall not be deemed a part of a Participants compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Affiliate, except where the Administrator or the Board expressly otherwise provides or authorizes in writing. Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, awards or commitments under any other plans or arrangements of the Company or any Affiliate.
7.17 Clawback Policy. The Awards granted under this Plan are subject to the terms of the Companys recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of Awards or any Ordinary Shares or other cash or property received with respect to the Awards (including any value received from a disposition of the shares acquired upon payment of the Awards).
8. DEFINITIONS.
Administrator has the meaning given to such term in Section 2.1.
Affiliate means (a) any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, or (b) any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
Award means an award of any Option, SAR or Share Award, or any combination thereof, whether alternative or cumulative, authorized by and granted under this Plan.
Award Agreement means any writing, approved by the Administrator, setting forth the terms of an Award that has been duly authorized and approved.
Award Date means the date upon which the Administrator took the action granting an Award or such later date as the Administrator designates as the Award Date at the time of the grant of the Award.
Beneficiary means the person, persons, trust or trusts designated by a Participant, or, in the absence of a designation, entitled by will or the laws of descent and distribution, to receive the benefits specified in the Award Agreement and under this Plan if the Participant dies, and means the Participants executor or administrator if no other Beneficiary is designated and able to act under the circumstances.
Board means the Board of Directors of the Company.
Cause with respect to a Participant means (unless otherwise expressly provided in the applicable Award Agreement, or another applicable contract with the Participant that defines such term for purposes of determining the effect that a for cause termination has on the Participants Awards) a termination of employment or service based upon a finding by the Company or any of its Affiliates, acting in good faith and based on its reasonable belief at the time, that the Participant:
(a) has been negligent in the discharge of his or her duties to the Company or any Affiliate, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable of performing those duties;
(b) has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;
(c) has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or policy of the Company or any of its Affiliates; or has been convicted of, or pled guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations or similar offenses);
(d) has materially breached any of the provisions of any agreement with the Company or any of its Affiliates;
(e) has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business or assets of, the Company or any of its Affiliates; or
(f) has improperly induced a vendor or customer to break or terminate any contract with the Company or any of its Affiliates or induced a principal for whom the Company or any Affiliate acts as agent to terminate such agency relationship.
A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the Administrator) on the date on which the Company or any Affiliate first delivers written notice to the Participant of a finding of termination for Cause.
Change in Control Event means any of the following:
(a) Approval by shareholders of the Company (or, if no shareholder approval is required, by the Board alone) of the complete dissolution or liquidation of the Company, other than in the context of a Business Combination that does not constitute a Change in Control Event under paragraph (c) below;
(b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a Person)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (1) the then-outstanding Ordinary Shares of the Company (the Outstanding Company Ordinary Shares) or (2) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); provided, however, that, for purposes of this paragraph (b), the following acquisitions shall not constitute a Change in Control Event; (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate or a successor, (D) any acquisition by any entity pursuant to a Business Combination, (E) any acquisition by a Person described in and satisfying the conditions of Rule 13d-1(b) promulgated under the Exchange Act, or (F) any acquisition by a Person who is the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Ordinary Shares and/or the Outstanding Company Voting Securities on the Effective Date (or an affiliate, heir, descendant, or related party of or to such Person);
(c) Consummation of a reorganization, amalgamation, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any other entity a majority of whose outstanding voting shares or voting power is beneficially owned directly or indirectly by the Company (a Subsidiary), a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or shares of another entity by the Company or any of its Subsidiaries (each, a Business Combination), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Ordinary Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding ordinary or common shares and the combined voting power of the then- outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Companys assets directly or through one or more subsidiaries (a Parent)), and (2) no Person (excluding any individual or entity described in clauses (C), (E) or (F) of paragraph (b) above) beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, more than 50% of, respectively, the then-outstanding ordinary or common shares of the entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such entity, except to the extent that the ownership in excess of 50% existed prior to the Business Combination;
provided, however, that a transaction shall not constitute a Change in Control Event if it is in connection with the underwritten public offering of the Companys securities.
Code means the U.S. Internal Revenue Code of 1986, as amended from time to time.
Company means Adagene Inc., an exempted company organized under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, and its successors.
Effective Date means the date the Board approved this Plan.
Eligible Person has the meaning given to such term in Section 3 of this Plan. Exchange Act means the U.S. Securities Exchange Act of 1934, as amended from time to time.
Fair Market Value, for purposes of this Plan and unless otherwise determined or provided by the Administrator in the circumstances, means as follows:
(a) If the Ordinary Shares are listed or admitted to trade on the New York Stock Exchange or other national securities exchange (the Exchange), the Fair Market Value shall equal the closing price of an Ordinary Share as reported on the composite tape for securities on the Exchange for the date in question, or, if no sales of Ordinary Shares were made on the Exchange on that date, the closing price of an Ordinary Share as reported on said composite tape for the next preceding day on which sales of Ordinary Shares were made on the Exchange. The Administrator may, however, provide with respect to one or more Awards that the Fair Market Value shall equal the closing price of an Ordinary Share as reported on the composite tape for securities listed on the Exchange on the last trading day preceding the date in question or the average of the high and low trading prices of an Ordinary Share as reported on the composite tape for securities listed on the Exchange for the date in question or the most recent trading day.
(b) If the Ordinary Shares are not listed or admitted to trade on a national securities exchange, the Fair Market Value shall be the value as reasonably determined by the Administrator for purposes of the Award in the circumstances (with the expectation being that, in the case of a valuation as of a transaction in which Ordinary Shares or similar securities are being sold or exchanged, such determination by the Administrator will be principally based on the value of the consideration received by the holders of the securities sold or exchanged in such transaction).
The Administrator also may adopt a different methodology for determining Fair Market Value with respect to one or more Awards if a different methodology is necessary or advisable to secure any intended favorable tax, legal or other treatment for the particular Award(s) (for example, and without limitation, the Administrator may provide that Fair Market Value for purposes of one or more Awards will be based on an average of closing prices (or the average of high and low daily trading prices) for a specified period preceding the relevant date).
Any determination as to Fair Market Value made pursuant to this Plan shall be made without regard to any restriction other than a restriction which, by its terms, will never lapse, and shall be conclusive and binding on all persons with respect to Awards granted under this Plan.
Incentive Stock Option means an Option that is designated and intended as an incentive stock option within the meaning of Section 422 of the Code, the award of which contains such provisions (including but not limited to the receipt of shareholder approval of this Plan, if the award is made prior to such approval) and is made under such circumstances and to such persons as may be necessary to comply with that section.
Nonqualified Option means an Option that is not an incentive stock option within the meaning of Section 422 of the Code and includes any Option designated or intended as a Nonqualified Option and any Option designated or intended as an Incentive Stock Option that fails to meet the applicable legal requirements thereof.
Option means an option to purchase Ordinary Shares granted under Section 5 of this Plan. The Administrator will designate any Option granted to an employee of the Company or an Affiliate as a Nonqualified Option or an Incentive Stock Option and may also designate any Option as an Early Exercise Option.
Ordinary Shares means the Companys Ordinary Shares, par value US$0.0001 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 7.3.1 of this Plan.
Participant means an Eligible Person who has been granted and holds an Award under this Plan.
Personal Representative means the person or persons who, upon the disability or incompetence of a Participant, has acquired on behalf of the Participant, by legal proceeding or otherwise, the power to exercise the rights or receive benefits under this Plan by virtue of having become the legal representative of the Participant.
Plan means this Adagene Inc. Share Incentive Plan, as it may hereafter be amended from time to time.
Public Offering Date means the date the Ordinary Shares are first registered under the Exchange Act and listed or quoted on a recognized national securities exchange.
Restricted Shares means Ordinary Shares awarded to a Participant under this Plan, subject to payment of such consideration and such conditions on vesting (which may include, among others, the passage of time, specified performance objectives or other factors) and such transfer and other restrictions as are established in or pursuant to this Plan and the related Award Agreement, to the extent such remain unvested and restricted under the terms of the applicable Award Agreement.
Restricted Share Award means an award of Restricted Shares.
SAR means a share appreciation right, representing the right, subject to the terms and conditions of the Plan and the applicable Award Agreement, to receive a payment, in cash and/or Ordinary Shares (as specified in the applicable Award Agreement), equal to the excess of the Fair Market Value of an Ordinary Share on the date the SAR is exercised over the base price of the SAR, which base price shall be set forth in the applicable Award Agreement.
Securities Act means the U.S. Securities Act of 1933, as amended from time to time.
Severance Date with respect to a particular Participant means, unless otherwise provided in the applicable Award Agreement:
(a) if the Participant is an Eligible Person under clause (a) of Section 3 and the Participants employment by the Company or any of its Affiliates terminates (regardless of the reason), the last day that the Participant is actually employed by the Company or such Affiliate (unless, immediately following such termination of employment, the Participant is a member of the Board or, by express written agreement with the Company or any of its Affiliates, continues to provide other services to the Company or any Affiliate as an Eligible Person under clause (c) of Section 3, in which case the Participants Severance Date shall not be the date of such termination of employment but shall be determined in accordance with clause (b) or (c) below, as applicable, in connection with the termination of the Participants other services);
(b) if the Participant is not an Eligible Person under clause (a) of Section 3 but is an Eligible Person under clause (b) thereof, and the Participant ceases to be a member of the Board (regardless of the reason), the last day that the Participant is actually a member of the Board (unless, immediately following such termination, the Participant is an employee of the Company or any of its Affiliates or, by express written agreement with the Company or any of its Affiliates, continues to provide other services to the Company or any Affiliate as an Eligible Person under clause (c) of Section 3, in which case the Participants Severance Date shall not be the date of such termination but shall be determined in accordance with clause (a) above or (c) below, as applicable, in connection with the termination of the Participants employment or other services);
(c) if the Participant is not an Eligible Person under clause (a) or clause (b) of Section 3 but is an Eligible Person under clause (c) thereof, and the Participant ceases to provide services to the Company or any of its Affiliates as determined in accordance with Section 7.4.4 (regardless of the reason), the last day that the Participant actually provides services to the Company or such Affiliate as an Eligible Person under clause (c) of Section 3 (unless, immediately following such termination, the Participant is an employee of the Company or any of its Affiliates or is a member of the Board, in which case the Participants Severance Date shall not be the date of such termination of services but shall be determined in accordance with clause (a) or (b) above, as applicable, in connection with the termination of the Participants employment or membership on the Board).
Share Award means an award of Ordinary Shares under Section 6 of this Plan. A Share Award may be a Restricted Share Award or an award of unrestricted Ordinary Shares.
Total Disability means a total and permanent disability within the meaning of Section 22(e)(3) of the Code and, with respect to Awards other than Incentive Stock Options, such other disabilities, infirmities, afflictions, or conditions as the Administrator may include.
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the Agreement) is made and entered into as of , 20 between (i) Adagene Inc., an exempted company organized under the laws of the Cayman Islands (the Company) and (ii) , an individual holding a numbered serving as [ of the Company (the Officer)]/[a director of the Company (the Director)]. The [Officer/Director] shall be referred to herein as the Indemnitee.
WHEREAS, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself;
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board) has determined that, in order to attract and retain qualified persons, the Company will maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among companies and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty in attracting and retaining such qualified persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys shareholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, the Indemnitee does not regard the protection available under the Amended and Restated Articles of Association of the Company (the Articles) and insurance as adequate in the present circumstances. The Indemnitee may not be willing to serve or continue to serve as an officer or director without adequate protection, and the Company desires the Indemnitee to serve in such capacity. The Indemnitee is willing to serve, continue to serve and to take an additional service for or on behalf of the Company on the condition that the Indemnitee be so indemnified;
WHEREAS, although the Articles require indemnification of the officers and directors of the Company, and the Indemnitee may also be entitled to additional contractual indemnification whereby contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification; [and]
WHEREAS, this Agreement is a supplement to and in furtherance of the Articles and any resolutions adopted pursuant thereto, and shall not be deemed as a substitute therefor, nor to diminish or abrogate any rights of the Indemnitee thereunder [; and]
[for directors designated by certain shareholders] [WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by ______________ or affiliates of ______________ which Indemnitee and ______________ intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgment of and agreement to the foregoing being a material condition to Indemnitees willingness to serve on the Board].
NOW, THEREFORE, in consideration of the Indemnitees agreement to serve as [an officer/a director] from and after the date hereof, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement:
(a) Change in Control shall be deemed to have occurred if (i) any person (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Companys then outstanding Voting Securities, (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Companys shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least a majority of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Companys assets; provided that in no event shall a Change in Control be deemed to include (A) a merger, consolidation or reorganization of the Company for the purpose of changing the Companys state of incorporation and in which there is no substantial change in the shareholders of the Company or its successor (as the case may be), or (B) the Companys first firm commitment underwritten public offering of any of its securities to the general public pursuant to (x) a registration statement filed under the Securities Act of 1933, as amended, or (y) the securities laws applicable to an offering of securities in another jurisdiction pursuant to which such securities will be listed on an internationally recognized securities exchange.
(b) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request or with the consent of the Company.
(c) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee.
(d) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that the Indemnitee is or was serving at the written request or consent of the Company as a director, officer, employee, agent or fiduciary.
(e) Expenses shall include all attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other reasonable disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding. Expenses also shall include the foregoing incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by the Indemnitee or the amount of judgments or fines against the Indemnitee.
(f) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or the Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitees rights under this Agreement.
(g) Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which the Indemnitee was, is or will be involved as a party or otherwise, by reason of the Indemnitees Corporate Status include with or without limitation: the fact that the Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise, or as a direct or indirect result of any Proceeding made by any shareholder of the Company against the Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Proceedings regarding non-participation, or non-pro rata participation, in such round by such shareholder); in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under this Agreement.
(h) Voting Securities shall mean any securities of the Company that vote generally in the election of directors.
2. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify the Indemnitee to the fullest extent permitted by applicable law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the Company. The Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(a) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding other than a Proceeding by or in the right of the Company. Pursuant to this Section 2(a), the Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by the Indemnitee, or on the Indemnitees behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company. The Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(b) if, by reason of the Indemnitees Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 2(b), the Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred or paid by the Indemnitee, or on the Indemnitees behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which it shall be finally determined (under the procedures, and subject to the presumptions, set forth in Section 7 and Section 8 hereof), that the Indemnitee is liable to the Company unless and to the extent that a tribunal of competent jurisdiction shall determine that such indemnification may be made.
(c) [for directors designated by certain shareholders] Primacy of Indemnification. The Company hereby acknowledges that, to the extent the Director is serving on the Board of the Company at the direction of (the Investor), the Director may have certain rights to indemnification, advancement of expenses and/or insurance provided by the Investor and/or certain of their affiliates (collectively, the Investor Indemnitors). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to the Indemnitee are primary and any obligation of the Investor Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by the Director are secondary); (ii) that it shall be required to advance the full amount of Expenses incurred by the Director and shall be liable for the full amount of all Expenses to the extent legally permitted and as required by the term of this Agreement and any provision of the Articles (or any agreement between the Company and the Director), without regard to any rights the Director may have against the Investor Indemnitors; and, (iii) that it irrevocably waives, relinquishes and releases the Investor Indemnitors from any and all claims against the Investor Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof to the extent permitted by the applicable law. The Company further agrees that no advancement or payment by the Investor Indemnitors on behalf of the Director, to the extent reasonable and necessary, with respect to any claim for which the Director has sought indemnification from the Company shall affect the foregoing and the Investor 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 the Director against the Company. The Company and the Indemnitee agree that the Investor Indemnitors are express third party beneficiaries of the terms hereof.
(d) Overriding Right to Indemnification if Successful on the Merits. Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee is, by reason of the Indemnitees Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, the Indemnitee shall be indemnified to the maximum extent permitted by applicable law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If the Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by the Indemnitee or on the Indemnitees behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
3. Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 2 of this Agreement, and subject to the other provisions of this Agreement, the Company shall, and hereby does indemnify and hold harmless the Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of the Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to the Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Section 7 and Section 8 hereof) to be unlawful.
4. Contribution.
(a) Whether or not the indemnification provided in Section 2 and Section 3 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with an Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring the Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have against the Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against the Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, the Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses (including attorneys fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred and paid or payable by the Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than the Indemnitee, who are jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand, from the transaction or events from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than the Indemnitee who are jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand, in connection with the transactions or events that resulted in such Expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than the Indemnitee, who are jointly liable with the Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) To the fullest extent permitted by applicable law, the Company hereby agrees to fully indemnify and hold the Indemnitee harmless from any claim of contribution brought by officers, directors or employees of the Company, other than the Indemnitee, based upon a claim of liability which, if made against the Indemnitee directly, would be indemnifiable under this Agreement.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to the Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying the Indemnitee, shall contribute to the amount incurred by the Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company (together with its directors, officers, employees and agents) and the Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and the Indemnitee in connection with such event(s) and/or transaction(s).
5. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked) to respond to discovery request, in any Proceeding to which the Indemnitee is not a party, he shall be indemnified against all Expenses reasonably and actually incurred by him or on his behalf in connection therewith.
6. Advancement of Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses reasonably incurred by or on behalf of an Indemnitee in connection with any Proceeding by reason of the Indemnitees Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by the Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of the Indemnitee to repay any Expenses advanced if it shall finally be determined (under the procedures, and subject to the presumptions, set forth in Section 7 and Section 8 hereof, or as set forth in Section 10(a)) that the Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 6 shall be unsecured and interest-free. This Section 6 shall not apply to any claim made by the Indemnitee for which indemnity is excluded pursuant to Sections 10(b), (c), and (d).
7. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for the Indemnitees rights of indemnification that are as favorable as may be permitted by applicable law. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether an Indemnitee is entitled to indemnification under this Agreement:
(a) The Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against the Indemnitee for which indemnification will or could be sought under this Agreement. Such notice shall include the Indemnitees request for indemnification and such documentation and information as is reasonably available to the Indemnitee and as is reasonably necessary for the Company to determine whether and to what extent the Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that the Indemnitee has requested indemnification. Failure to provide the notice required hereby shall not impair the Indemnitees rights of indemnification and contribution under this Agreement except to the extent that such failure to provide notice actually prejudices the rights of the Company to defend any action or proceeding which is the basis of the claimed indemnification.
(b) Upon written request by the Indemnitee for indemnification pursuant to the first sentence of Section 7(a) hereof, a determination, if required by applicable law, with respect to the Indemnitees entitlement thereto shall be made in the specific case by one of the following four (4) methods, which shall be at the election of the Board: (i) by a majority vote of the Disinterested Directors, even though less than a quorum, (ii) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (iii) if there are no Disinterested Directors or if the Disinterested Directors so direct, by Independent Counsel, in a written opinion of such counsel to the Board and the Indemnitee, or (iv) if so directed by the Board, by the shareholders of the Company; provided that, in the event of a Change in Control (other than a Change in Control which has been approved by a majority of the Companys Board (other than the Indemnitee, if the Indemnitee is also a member of the Board) who were directors immediately prior to such Change in Control), the determination shall be made by the Independent Counsel, in a written opinion of such counsel to the Board and the Indemnitee.
(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7(b) hereof, the Independent Counsel shall be selected as provided in this Section 7(c). The Independent Counsel shall be selected by the Board. The Indemnitee may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the counsel so selected does not satisfy the definition of Independent Counsel set forth at Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. In the event that a proper and timely written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a tribunal of competent jurisdiction has determined that such objection is without merit. If, within thirty (30) days after submission by the Indemnitee of a written request for indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or the Indemnitee may petition any tribunal of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by a tribunal of competent jurisdiction or by such other person as the tribunal of competent jurisdiction shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7(c), regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that the Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct.
(e) In making a determination with respect to whether Indemnitee acted in good faith and in a manner that Indemnitee not unreasonably believed to be in or not opposed to the best interests of the Company, the person or persons or entity making such determination shall presume that Indemnitee acted in good faith and in a manner that Indemnitee not unreasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Any action, or failure to act, by Indemnitee based on Indemnitees good faith reliance on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise shall not, in and of itself, constitute grounds for an adverse determination with respect to whether Indemnitee acted in good faith and in a manner that Indemnitee not unreasonably believed to be in or not opposed to the best interests of the Company. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
(f) If the person, persons or entity empowered or selected under Section 7 to determine whether the Indemnitee is entitled to indemnification shall not have made a determination within ninety (90) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be entitled to such indemnification absent (i) a misstatement by the Indemnitee of a material fact, or an omission of a material fact necessary to make the Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such ninety-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto.
(g) The Indemnitee shall cooperate with the person, persons or entity making such determination with respect to the Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or shareholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitees entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys fees and disbursements) reasonably incurred by the Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to the Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold the Indemnitee harmless therefrom.
(h) In the event the Company shall be obligated under this Agreement to pay the expenses of any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (such approval not to be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that (i) the Indemnitee shall have the right to employ his counsel in any such proceeding at the Indemnitees expense; and (ii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitees counsel shall be at the expense of the Company.
(i) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which the Indemnitee is a party is resolved in any manner other than by adverse judgment against the Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that the Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(j) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of the Indemnitee to indemnification under this Agreement or create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful.
8. Remedies of the Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 7 of this Agreement that the Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 7(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within thirty (30) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within thirty (30) days after a determination has been made that the Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 7 of this Agreement, the Indemnitee shall be entitled to an adjudication in a tribunal of competent jurisdiction, of the Indemnitees entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within one hundred and eighty (180) days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 8(a). The Company shall not oppose the Indemnitees right to seek any such adjudication.
(b) In the event that a determination shall have been made pursuant to Section 7(b) of this Agreement that the Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial on the merits, and the Indemnitee shall not be prejudiced by reason of the adverse determination under Section 7(b).
(c) If a determination shall have been made pursuant to Section 7(b) of this Agreement
that the Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 8, absent (i) a misstatement by the Indemnitee of a material fact, or an omission of a material fact necessary to make the Indemnitees misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that the Indemnitee, pursuant to this Section 8, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 1 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether the Indemnitee is ultimately determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any proceeding commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such tribunal of competent jurisdiction that the Company is bound by all the provisions of this Agreement. The Company shall indemnify the Indemnitee against any and all Expenses and, if requested by the Indemnitee, shall (within fifteen (15) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to the Indemnitee, which are incurred by the Indemnitee in connection with any action brought by the Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether the Indemnitee is ultimately determined to be entitled to such indemnification, advancement of expenses or insurance recovery, as the case may be.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
9. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which an Indemnitee may at any time be entitled under applicable law, the Articles, any agreement, a vote of shareholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of the Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such amendment, alteration or repeal. To the extent that a change in any applicable law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Articles and this Agreement, it is the intent of the parties hereto that the Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. Notwithstanding anything in this Agreement to the contrary, the indemnification and contribution provided for in this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnitee or any of the Indemnitees agents.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, the Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers reasonably required and take all action reasonably necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights; provided, however, that the Company hereby unconditionally and irrevocably waives, relinquishes and releases, and covenants and agrees not to exercise (and to cause each subsidiary or other controlled affiliate of the Company not to exercise), any rights that such entity may now have or hereafter acquire against the Indemnitee that arise from or relate to the existence, payment, performance or enforcement of the Companys obligations under this Agreement or under any other indemnification agreement (whether pursuant to contract, by-laws or charter) with any person or entity, including, without limitation, any right of subrogation (whether pursuant to contract or common law), reimbursement, exoneration, contribution or indemnification, or to be held harmless, and any right to participate in any claim or remedy of Indemnitee against the Indemnitee, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Indemnitee, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, Company contract, Company agreement or otherwise (except to the extent that Indemnitee is required (by court order or otherwise) to return such payment or to surrender it to the Company), provided, however, that (i) the Company hereby agrees that it is the indemnitor of first resort under this Agreement, (ii) the Company shall be required to advance the full amount of expenses incurred by any such Indemnitee and shall be liable for the full amount of all liability and loss suffered by such Indemnitee (including, but not limited to, Expenses (including, but not limited to, attorneys fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Indemnitee in connection with such Proceeding), without regard to any rights any such Indemnitee may have against any insurance carrier providing insurance coverage to Indemnitee.
(e) The Companys obligation to indemnify or advance Expenses hereunder to the Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount the Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (except to the extent that the Indemnitee is required (by court order or otherwise) to return such payment or to surrender it to the Company, or such indemnification payments and advance payment of Expenses when taken together with any such amount actually received from the Company or under director and officer insurance policies are inadequate to fully pay all costs, Expenses or other items to the full extent that Indemnitee is otherwise entitled to indemnification or other payment hereunder).
10. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against an Indemnitee:
(a) in connection with any Proceeding (or any part of any Proceeding) initiated by the Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by the Indemnitee against the Company or its directors, officers, employees or other indemnitees, if a tribunal of competent jurisdiction finally determines that each of the material assertions made by the Indemnitee in such Proceeding (or any part of any Proceeding) was not made in good faith or was frivolous; or
(b) for which payment has actually been made to or on behalf of the Indemnitee under any Company insurance policy or other Company indemnity provision, except with respect to any excess beyond the amount paid under any Company insurance policy or other Company indemnity provision; or
(c) for an accounting of profits made from the purchase and sale (or sale and purchase) by the Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or
(d) in connection with any Proceeding (or any part of any Proceeding) initiated by the Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by the Indemnitee against the Company or its directors, officers, employees or other indemnitees (other than any Proceeding initiated by the Indemnitee pursuant to Section 8(d), which shall be governed by the terms of such section), unless (i) the Board of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or
(e) for any reasonable Expenses, judgments, fines, interests or penalties, or excise taxes assessed with respect to any Proceeding initiated by or against the Indemnitee, if it is determined that the Indemnitee is not entitled to the indemnification pursuant to Section 7, and such determination is not overruled or vacated by a court of competent jurisdiction.
11. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue until six (6) years after the end of any period the Indemnitee is an officer or director 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) but shall continue thereafter so long as the Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 8 hereof) by reason of the Indemnitees Corporate Status as permitted by the applicable law, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement, notwithstanding such six (6) year period. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
12. Security. To the extent requested by an Indemnitee and approved by the Board of the Company, the Company may at any time and from time to time provide security to the Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
13. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce the Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that the Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
(c) The Company represents that this Agreement has been approved by the Companys Board and shareholders.
(d) The Company shall not seek from a court, or agree to, a bar order which would have the effect of prohibiting or limiting the Indemnitees rights to receive advancement of expenses under this Agreement.
14. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon the Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.
15. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice by the Indemnitee. Each Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be sent by facsimile or mailed by electronic, registered or certified mail or by overnight courier or otherwise delivered by hand or by messenger, addressed:
(a) To an Indemnitee at the address set forth below the Indemnitee signature hereto, or
to such other address as may have been furnished to by the Company to the Indemnitee; and
(b) To the Company at the address set forth below Company signature hereto, or to
such other address as may have been furnished to the Indemnitee by the Company.
Where a notice is sent by overnight courier, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through an internationally recognized express courier service, delivery fees pre-paid, and to have been effected five (5) business days following the day the same is sent as aforesaid.
Where a notice is delivered by facsimile, electronic mail, by hand or by messenger, service of the notice shall be deemed to be effected upon delivery or successful transmission record being generated by the senders machine.
18. Counterparts. This Agreement may be executed in one or more counterparts and may be delivered by electronic PDF or facsimile transmission, all of which shall be considered one and the same agreement and each of which shall be deemed an original.
19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
20. Governing Law and Venue.
(a) This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the Hong Kong Special Administrative Region of the PRC (Hong Kong), without regard to principles of conflict of laws thereunder.
(b) Each of the parties hereto irrevocably (i) agrees that any dispute or controversy arising out of, relating to, or concerning any interpretation, construction, performance or breach of this Agreement, shall be referred to and finally settled by arbitration at the Hong Kong International Arbitration Centre in accordance with the Rules of Hong Kong International Arbitration Centre (Rules) in effect, (ii) waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such arbitration, and (iii) submits to the exclusive jurisdiction of Hong Kong in any such arbitration. There shall be three (3) arbitrators, selected in accordance with the Rules, and the arbitration shall be conducted in English. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrators decision in any court having jurisdiction. The parties to the arbitration shall each pay an equal share of the costs and expenses of such arbitration, and each party shall separately pay for its respective counsel fees and expenses; provided, however, that the prevailing party in any such arbitration shall be entitled to recover from the non-prevailing party its reasonable costs and attorney fees.
21. Construction. The parties acknowledge that all parties have contributed to the drafting of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
22. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto whose rights or obligations hereunder are affected by such amendments. The Company may not assign its rights or delegate its obligations under this Agreement without the written consent of the Indemnitee.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
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Signature Page to Indemnification Agreement
(Adagene Inc.)
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
COMPANY:
Adagene Inc.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this Agreement) is made and entered into, by and between Adagene Inc., a company incorporated and existing under the laws of the Cayman Islands (the Company and, together with all of its direct or indirect parent companies, subsidiaries, affiliates, or subsidiaries or affiliates of its parent companies, collectively referred to as the Company Group), and , an individual (the Executive). This Agreement is effective as of the Hire Date (as defined below) (the Effective Date).
RECITALS
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts, understandings and intentions:
A. The Company desires that the Executive be employed by the Company to carry out the duties and responsibilities described below, all on the terms and conditions hereinafter set forth.
B. The Executive desires to accept such employment on such terms and conditions.
WHEREAS, the Executive has entered into an employment agreement with Adagene Incorporated, a company incorporated and existing under the laws of the Delaware (the Delaware Subsidiary) on , 20 , (the Subsidiary Employment Agreement).
NOW, THEREFORE, in consideration of the above recitals incorporated herein and the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties agree as follows:
1. Retention and Duties.
1.1 Retention. The Company does hereby hire, engage and employ the Executive for the Period of Employment (as defined in Section 2) on the terms and conditions expressly set forth in this Agreement. The Executive does hereby accept and agree to such hiring, engagement and employment, on the terms and conditions expressly set forth in this Agreement. The Executive agrees to commence active employment with the Company on (the Hire Date).
1.2 Duties. During the Period of Employment, the Executive shall serve the Company as its and shall have such powers, duties and obligations consistent with such position as the Companys Board of Directors (the Board) shall determine from time to time. The Executive shall be subject to such directives of the Board and the corporate policies of the Company as they are in effect from time to time throughout the Period of Employment (including, without limitation, the Companys business conduct and ethics policies, as they may change from time to time). During the Period of Employment, the Executive shall report solely to ___________.
1.3 No Other Employment; Minimum Time Commitment. During the Period of Employment, the Executive shall both (i) devote substantially all of the Executives business time, energy and skill to the performance of the Executives duties for the Company, and (ii) hold no employment, except for (in the case of (i)) or by (in the case of (ii)) one or more other companies in the Company Group or, in each case of (i) and (ii), as instructed or otherwise permitted by the Company in writing. The Executives service on the boards of directors (or similar body) of other business entities is subject to the approval of the Board. The Company shall have the right to require the Executive to resign from any board or similar body which he or she may then serve if the Board reasonably determines in writing that the Executives service on such board or body interferes with the effective discharge of the Executives duties and responsibilities to the Company or that any business related to such service is then in competition with any business of the Company or any of its affiliates, successors or assigns.
1.4 No Breach of Contract. The Executive hereby represents to the Company that: (i) the execution and delivery of this Agreement by the Executive and the Company and the performance by the Executive of the Executives duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or otherwise bound; (ii) that the Executive has no information (including, without limitation, confidential information and trade secrets) relating to any other person or entity which would prevent, or be violated by, the Executive entering into this Agreement or carrying out his or her duties hereunder; (iii) that the Executive is not bound by any confidentiality, trade secret or similar agreement (other than this Agreement) with any other person or entity.
1.5 Location. The Executive acknowledges that the Companys principal executive offices are currently located in Suzhou, the Peoples Republic of China. The Executives principal place of employment shall be in US. The Executive agrees that he will be regularly present at the Companys principal executive offices. The Executive acknowledges that he may be required to travel from time to time in the course of performing his or her duties for the Company in Suzhou, month in Suzhou per year.
2. Period of Employment. The Period of Employment shall be a period of twelve (12) months commencing on the Hire Date and ending at the close of business on the day which is twelve (12) months after the Hire Date (the Termination Date); provided, however, that this Agreement shall be automatically renewed, and the Period of Employment shall be automatically extended for one (1) additional year on the Termination Date and each anniversary of the Termination Date thereafter, unless either party gives notice, in writing, at least sixty (60) days prior to the expiration of this Agreement and the Period of Employment (including any renewal thereof) of such partys desire to terminate the Agreement or modify its terms. The term Period of Employment shall include any extension thereof pursuant to the preceding sentence. Provision of notice that the Period of Employment shall not be extended or further extended, as the case may be, shall not constitute a breach of this Agreement and shall not constitute Constructive Termination for purposes of this Agreement. Notwithstanding the foregoing, the Period of Employment is subject to the earlier of (i) earlier termination as provided below in this Agreement and (ii) the termination of the Executives employment with the Delaware Subsidiary.
3. Compensation.
3.1 Base Salary. The Executives base salary shall be determined by the Company and shall be specified in the Subsidiary Employment Agreement.
3.2 Incentive Bonus. During the Period of Employment, the Executive shall be eligible to receive an annual incentive bonus as determined in the Subsidiary Employment Agreement.
3.3 Stock Option.
Subject to approval by the Board of Directors, and in consideration of your agreement below to adhere to the Confidentiality, Inventions, Non-Competition and Non-Solicitation provisions set forth in Clause 6, during the term of this Agreement, the Executive will be eligible to participate Adagene Inc. Second Amended and Restated Share Incentive Plan (the Plan) as determined in the Subsidiary Employment Agreement.
4. Benefits.
4.1 Retirement, Welfare and Fringe Benefits. During the Period of Employment, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs, and fringe benefit plans and programs, made available by the Company to the Companys employees generally, in accordance with the eligibility and participation provisions of such plans and as such plans or programs may be in effect from time to time.
4.2 Reimbursement of Business Expenses. The Executive is authorized to incur reasonable expenses in carrying out the Executives duties for the Company under this Agreement and reimbursement for all reasonable business expenses the Executive incurs during the Period of Employment in connection with carrying out the Executives duties for the Company, subject to the Companys expense reimbursement policies in effect from time to time.
4.3 Vacation and Other Leave. During the Period of Employment, the Executive shall accrue and be entitled to take paid vacation in accordance with the Companys vacation policies in effect from time to time, including the Companys policies regarding vacation accruals; provided that the Executives rate of vacation accrual during the Period of Employment shall be no less than the number of days per year as determined in the Subsidiary Employment Agreement. The Executive shall also be entitled to all other holiday and leave pay generally available to other executives of the Company.
4.4 Allowance. The Employee will be entitled to reimbursement of relocation-related expenses as determined in the Subsidiary Employment Agreement.
The Employee will be eligible to participate in the employee health and other benefit plans, policies and practices now or hereafter maintained by or on behalf of the Company on such terms as determined in the Subsidiary Employment Agreement.
5. Termination.
5.1 Termination by the Company. The Executives employment by the Company, and the Period of Employment, may be terminated at any time by the Company: (i) with Cause (as defined in Section 5.5), or (ii) with no less than sixty (60) days advance notice to the Executive, without Cause, or (iii) in the event of the Executives death, or (iv) in the event that the Board determines in good faith that the Executive has a Disability (as defined in Section 5.5).
5.2 Termination by the Executive. The Executives employment by the Company, and the Period of Employment, may be terminated by the Executive with no less than sixty (60) days advance notice to the Company; provided, however, that in the case of a Constructive Termination (as defined herein), the Executive may provide immediate written notice if the Company fails to, or cannot, reasonably cure the event that gives rise to the Constructive Termination within the time period prescribed for such cure in the definition of Constructive Termination below.
5.3 Benefits Upon Termination. If the Executives employment by the Company is terminated during the Period of Employment for any reason by the Company or by the Executive, or upon or following the expiration of the Period of Employment (in any case, the date that the Executives employment by the Company terminates is referred to as the Severance Date), the Company shall have no further obligation to make or provide to the Executive, and the Executive shall have no further right to receive or obtain from the Company, any payments or benefits except as follows:
(a) The Company shall pay the Executive (or, in the event of his or her death, the Executives estate) any Accrued Obligations (as defined in Section 5.5);
(b) If, during the Period of Employment, the Executives employment with the Company terminates as a result of an Involuntary Termination (as defined in Section 5.5) and if the Severance Date occurs after the last day of the eighteenth (18th) month anniversary of the Hire Date (the Cutoff Date), the Company shall pay the Executive (in addition to the Accrued Obligations), subject to tax withholding and other authorized deductions, an amount equal to the Executives Base Salary (at the rate in effect immediately prior to the termination of the Executives employment) for a period equal to the applicable Severance Period (as defined below). Such amount is referred to hereinafter as the Severance Benefit. Any Severance Benefit due to Executive pursuant to this Section 5.3(b)(i) shall be paid in equal monthly installments during the applicable Severance Period, with the first such installment to be paid in the month following the month in which Executives Separation from Service occurs (and in all events no portion of the Severance Benefit will be paid more than twelve (12) months after the end of the Companys fiscal year in which the Severance Date occurs). As used herein, Severance Period means one (1) month plus one (1) additional month for each full year of employment of the Executive by the Company between the Cutoff Date and the Severance Date, if any, but in no event exceeding six (6) months; a Separation from Service occurs when Executive dies, retires, or otherwise has a termination of employment with the Company that constitutes a separation from service within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.
Notwithstanding the foregoing provisions of this Section 5.3, if the Executive breaches his or her obligations under Section 6 of this Agreement at any time, from and after the date of such breach, the Executive will no longer be entitled to, and the Company will no longer be obligated to pay, any remaining unpaid portion of the Severance Benefit. The foregoing provisions of this Section 5.3 shall not affect: (i) the Executives receipt of benefits otherwise due terminated employees consistent with the terms of the applicable Company welfare benefit plan or applicable law.
5.4 Release; Exclusive Remedy.
(a) This Section 5.4 shall apply notwithstanding anything else contained in this Agreement or any stock option or other equity-based award agreement to the contrary. As a condition precedent to any Company obligation to the Executive pursuant to Section 5.3(b) or any other obligation to accelerate vesting of any equity-based award in connection with the termination of the Executives employment, the Executive shall, upon or promptly following his or her last day of employment with the Company (and in all events within twenty-one (21) days after his or her last day of employment with the Company), provide the Company with an irrevocable general release of claims acceptable to the Board, and such release agreement shall have not been revoked by the Executive pursuant to any revocation rights afforded by applicable law.
(b) The Executive agrees that the payments contemplated by Section 5.3 (and any applicable acceleration of vesting of an equity-based award in accordance with the terms of such award in connection with the termination of the Executives employment) shall constitute the exclusive and sole remedy for any termination of his or her employment and the Executive covenants not to assert or pursue any other remedies, at law or in equity, with respect to any termination of employment. The Company and Executive acknowledge and agree that there is no duty of the Executive to mitigate damages under this Agreement. All amounts paid to the Executive pursuant to Section 5.3 shall be paid without regard to whether the Executive has taken or takes actions to mitigate damages.
5.5 Certain Defined Terms.
(a) As used herein, Accrued Obligations means:
(i) any Base Salary that had accrued but had not been paid (including accrued and unpaid vacation time) on or before the Severance Date; and
(ii) any Incentive Bonus payable pursuant to Section 3.2 with respect to any fiscal year in the Period of Employment preceding the year in which the Severance Date occurs to the extent earned by but not previously paid to the Executive; and
(iii) any reimbursement due to the Executive pursuant to Section 4.2 for expenses incurred by the Executive on or before the Severance Date.
(b) As used herein, Cause shall mean, as reasonably determined by the Board (excluding the Executive, if he is then a member of the Board): (i) personal dishonesty, fraud, embezzlement, misappropriation by the Executive; (ii) indictment or conviction of a felony or other crime involving moral turpitude or dishonesty; (iii) Executives willful refusal to comply with the lawful requests made of Executive by the Board; (iv) gross negligence of Executive in the performance of his or her duties, after written notice to Executive and Executives failure to fully cure such gross negligence within thirty (30) days after receipt of such written notice by Executive unless the gross negligence is not reasonably susceptible of cure; (v) material violation of the Companys policies, procedures and approval practices, as generally in effect from time to time, after written notice to Executive and Executives failure to fully cure such violations within thirty (30) days after receipt of such written notice by Executive unless the violation is not reasonably susceptible of cure; (vi) a material breach by Executive of any material provision of this Agreement or any other agreement with the Company after written notice to Executive and Executives failure to fully cure such breach within thirty (30) days receipt of the written notice by Executive unless the breach is not reasonably susceptible of cure; and (viii) insolvency, bankruptcy or dissolution of the Company.
(c) As used herein, Constructive Termination shall mean a resignation by the Executive after the occurrence of any of the following (without the Executives express written consent): (i) a material reduction of the Executives duties, position or responsibilities relative to the Executives duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Executive from such duties, position and responsibilities, unless the Executive is provided with substantially comparable duties, position and responsibilities; (ii) a material reduction of the facilities and perquisites (including without limitation office space, location and administrative support) available to the Executive immediately prior to such reduction; (iii) a material reduction by the Company of the Executives Base Salary or Incentive Bonus opportunity as in effect immediately prior to such reduction; or (iv) a material reduction by the Company in the kind or level of employee benefits to which the Executive is entitled immediately prior to such reduction with the result that the Executives overall benefits package is materially reduced; provided, however, that any such condition or conditions, as applicable, shall not constitute grounds for Constructive Termination unless both (x) the Executive provides written notice to the Company of the condition claimed to constitute grounds for Constructive Termination within thirty (30) days of the initial existence of such condition(s) (such notice to be delivered in accordance with Section 17), and (y) the Company fails to remedy such condition(s) within thirty (30) days of receiving such written notice thereof; and provided, further, that in all events the termination of the Executives employment with the Company shall not constitute a Constructive Termination unless such termination occurs not more than ninety (90) days following the initial existence of the condition claimed to constitute grounds for Constructive Termination.
(d) As used herein, Disability shall mean a physical or mental impairment which, as reasonably determined by the Board, renders the Executive unable to perform the essential functions of his or her employment with the Company, even with reasonable accommodation that does not impose an undue hardship on the Company, for more than one hundred twenty (120) days in any 12-month period, unless a longer period is required by applicable law, in which case that longer period would apply.
(e) As used herein, Involuntary Termination shall mean a Constructive Termination, or a termination of the Executive by the Company without Cause. For purposes of clarity, the term Involuntary Termination does not include a termination of the Executives employment due to the Executives death or Disability.
5.6. Notice of Termination. Any termination of the Executives employment under this Agreement shall be communicated by written notice of termination from the terminating party to the other party. The notice of termination shall indicate the specific provision(s) of this Agreement relied upon in effecting the termination.
6. Confidentiality; Inventions; Non-Competition; Non-Solicitation.
6.1 Confidential Information.
(a) Company Information. The Executive hereby agrees at all times during the term of his or her employment and after termination, to hold in the strictest confidence, and not to use, except for the benefit of the Company Group, or to disclose to any person, corporation or other entity without written consent of the Company, any Confidential Information. The Executive understands that Confidential Information means any proprietary or confidential information of the Company Group, its affiliates, their clients, customers or partners, and the Company Groups licensors, including, without limitation, technical data, trade secrets, research and development information, product plans, services, customer lists and customers (including, but not limited to, customers of the Company Group on whom the Executive called or with whom the Executive became acquainted during the term of his or her employment), supplier lists and suppliers, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, personnel information, marketing, finances, information about the suppliers, joint ventures, licensors, licensees, distributors and other persons with whom the Company Group does business, information regarding the skills and compensation of other employees of the Company Group or other business information disclosed to the Executive by or obtained by the Executive from the Company Group, its affiliates, or their clients, customers or partners either directly or indirectly in writing, orally or by drawings or observation of parts or equipment.
(b) Company Property. The Executive understands that all documents (including computer records, facsimile and e-mail) and materials created, received or transmitted in connection with his or her work or using the facilities of the Company Group are property of the Company Group and subject to inspection by the Company Group, at any time. Upon termination of the Executives employment with the Company (or at any other time when requested by the Company), the Executive will promptly deliver to the Company all documents and materials of any nature pertaining to his or her work with the Company and will provide written certification of his or her compliance with this Agreement. Under no circumstances will the Executive have, following his or her termination, in his or her possession any property of the Company Group, or any documents or materials or copies thereof containing any Confidential Information. In the event of the termination of the Executives employment, the Executive hereby agrees to sign and deliver the Termination Certification attached hereto as Exhibit A.
(c) Former Employer Information. The Executive hereby agrees that he or she will not, during his or her employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity and that he or she will not bring onto the premises of the Company Group any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity. The Executive hereby agrees to indemnify the Company Group and hold it harmless from all claims, liabilities, damages and expenses, including reasonable attorneys fees and costs for resolving disputes, arising out of or in connection with any violation or claimed violation of a third partys rights resulting from any use by the Company Group of such proprietary information or trade secrets improperly used or disclosed by the Executive.
(d) Third Party Information. The Executive recognizes that the Company Group has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company Groups part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive hereby agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out his or her work for the Company consistent with the Company Groups agreement with such third party.
6.2 Inventions.
(a) Inventions Retained and Licensed. The Executive has attached hereto, as Exhibit B, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets, which were made by the Executive prior to his or her employment with the Company which belong to the Executive, which relate to the Company Groups proposed or current business, products or research and development, and which are not assigned to any member of the Company Group hereunder (collectively referred to as Prior Inventions); or, if no such list is attached, The Executive hereby represents that there are no such Prior Inventions. The Executive hereby agrees that he or she will not incorporate any Prior Inventions into any products, processes or machines of the Company Group; provided, however, that if in the course of the Executives employment with the Company, he or she incorporates into a product, process or machine of the Company Group a Prior Invention owned by the Executive or in which he or she has an interest, the Executive hereby represents that he or she has all necessary rights, powers and authorization to use such Prior Invention in the manner it is used and such use will not infringe any right of any company, entity or person and, in such a circumstance, each member of the Company Group is hereby granted and shall have a nonexclusive, royalty-free, sublicensable, transferable, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine. The Executive hereby agrees to indemnify the Company Group and hold it harmless from all claims, liabilities, damages and expenses, including reasonable attorneys fees and costs for resolving disputes, arising out of or in connection with any violation or claimed violation of a third partys rights resulting from any use, sublicensing, modification, transfer, or sale by the Company Group of such Prior Invention.
(b) Assignment of Inventions. The Executive hereby agrees that he or she will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and agrees to assign and hereby assigns to the Company all of his or her right, title, and interest in and to any and all inventions, ideas, information, designs, original works of authorship, processes, formulas, computer software programs, databases, mask works, developments, concepts, improvements, know-how or trade secrets, whether or not patentable or registrable under patent, copyright, or similar laws in China or anywhere else in the world, which he or she may solely or jointly conceive or develop or reduce to practice or cause to be conceived or developed or reduced to practice, during the period of time he or she is in the employ of the Company Group (whether or not during business hours) that are either related to the scope of his or her employment with the Company Group or make use, in any manner, of the resources of the Company Group (collectively referred to as the Inventions). The Executive hereby acknowledges that the Company shall be the sole owner of all rights, title and interest in the Inventions. In the event the foregoing assignment of the Inventions to the Company is ineffective for any reason, the Executive agrees to grant and hereby grants the Company a royalty-free, sublicensable, transferable, irrevocable, perpetual, worldwide exclusive license to reproduce, distribute, display and perform (whether publicly or otherwise), prepare derivative works of and otherwise modify, make, have made, use, and sell, offer to sell, import, and otherwise exploit such Inventions. Such exclusive license shall continue in effect for the maximum term as may now or hereafter be permissible under applicable law. Upon expiration, such license, without further consent or action on the Executives part, shall automatically be renewed for the maximum term as is then permissible under applicable law, unless, within the six-month period prior to such expiration, the Company and the Executive have agreed that such license will not be renewed. The Executive also hereby forever waives and agrees never to assert any and all rights he or she may have in or with respect to any Inventions even after termination of his or her employment with the Company Group, such rights including, without limitation, any right of first refusal, right of first offer, right of priority or other preemptive rights provided for by applicable law.
(c) Rewards and Remuneration. The Executive hereby agrees that the remuneration received by the Executive pursuant to this Agreement with the Company includes any bonuses, rewards or remuneration which the Executive may be entitled to under applicable law for assigning the Inventions assigned to the Company pursuant to this Agreement.
(d) Maintenance of Records. The Executive hereby agrees to keep and maintain adequate and current written records of all the Inventions. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. As between the Executive and the Company, the records will be available to and remain the sole property of the Company at all times.
(e) Patent and Copyright Registrations. The Executive hereby agrees to assist the Company, or its designees, at the expense of the Company, in every proper way to secure the Companys rights in the Inventions in any and all countries, to further evidence, record and perfect any grant or assignment by the Executive of the Inventions hereunder and to perfect, obtain, maintain, enforce and defend any rights so granted or assigned, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company may deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to the Inventions. The Executive hereby further agrees that his or her obligations to execute or cause to be executed, when it is in his or her power to do so, any such instrument or papers shall continue after the termination of this Agreement. The Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executives agent and attorney in fact, to act for and in the Executives behalf and stead to execute and file any such documents and to do all other lawfully permitted acts to further the foregoing with the same legal force and effect as if executed by the Executive.
6.3 Conflicting Employment. The Executive hereby agrees that, (i) during the term of his or her employment with the Company, he or she will not engage in any other employment, occupation, consulting or other business activity related to the business in which the Company Group is now involved or becomes involved during the term of the Executives employment, (ii) nor will the Executive engage in any other activities that conflict with his or her obligations to the Company except, in each case of (i) and (ii), by, for or on behalf of one or more other companies within the Company Group, or as instructed or otherwise permitted by the Company in writing.
6.4 Non-Competition.
(a) The Executive hereby agrees that during the course of his or her employment and for a period of two (2) years immediately following the termination of his or her relationship with the Company for any reason, whether with or without good cause or for any or no cause, at the option either of the Company or himself, with or without notice, the Executive will not, without the prior written consent of the Company, (i) serve as a partner, employee, consultant, officer, director, manager, agent, associate, investor, or otherwise for, or lend his or her name (or any part, variant or formative thereof), (ii) directly or indirectly, own, purchase, organize or take preparatory steps for the organization of, (iii) build, design, finance, acquire, lease, operate, manage, invest in, work or consult for or otherwise affiliate himself with, any business, in competition with or otherwise similar to the business of the Company Group, (iv) deal, directly or indirectly, in a competitive manner with any customers doing business with the Company Group, or (v) transfer, sell, assign, pledge, hypothecate, give, create a security interest in or lien on, place in trust (voting or otherwise), or in any other way dispose of any equity interest in the Company Group beneficially owned by the Executive, as the case may be, to any person which is competitive with any significant aspect of the business of the Company Group. The foregoing covenant shall cover the Executives activities in every part of the Territory in which he or she may conduct business during the term of such covenant as set forth above. Territory shall mean (i) the Peoples Republic of China (for the avoidance of doubt, including Hong Kong, Macau and the islands of Taiwan), (ii) the United States of America, and (iii) all other countries of the world; provided that, with respect to clauses (ii) and (iii) of this Section 6.4(a), the Company derives at least five percent (5%) of its gross revenues from such geographic area prior to the date of the termination of the Executives relationship with the Company.
(b) The Executive hereby acknowledges that he or she will derive significant value from the Companys agreement to provide him with that Confidential Information of the Company Group to enable him to optimize the performance of his or her duties for the Company. The Executive hereby further acknowledges that his or her fulfillment of the obligations contained in this Agreement, including, but not limited to, his or her obligation neither to disclose nor to use the Confidential Information of the Company Group other than for the Company Groups exclusive benefit and his or her obligation not to compete contained in subsection (a) above, is necessary to protect the Confidential Information of the Company Group and, consequently, to preserve the value and goodwill of the Company Group. The Executive hereby further acknowledges the time, geographic and scope limitations of his or her obligations under subsection (a) above are reasonable, especially in light of the Company Groups desire to protect their Confidential Information, and that the Executive will not be precluded from gainful employment if he or she is obligated not to compete with the Company Group during the period and within the Territory as described above.
(c) The covenants contained in subsection (a) above shall be construed as a series of separate covenants, one for each city, county and state of any geographic area in the Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in subsection (a) above. If, in any arbitration proceeding, the arbitration panel refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event the provisions of subsection (a) above are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, then permitted by such law.
(d) The Executive hereby further agrees that he or she will be compensated by the Company in the total amount equal to the greater of (i) one months salary or (ii) the minimum amount of compensation required by applicable law (hereinafter referred to as the Compensation) upon the termination of his or her employment with the Company for the covenants that the Executive makes in this Section 6.4. The Compensation will be paid by four installments, of which the first installment equal to 1/4 of the total amount of the Compensation will be paid within three months after the employment is terminated and each of the other three installments equal to 1/4 of the total amount of the Compensation will be paid per three months thereafter.
6.5 Notification of New Employer. In the event that the Executive leaves the employ of the Company, The Executive hereby grants consent to notification by the Company to his or her new employer about his or her rights and obligations under this Agreement.
6.6 Non-Solicitation. The Executive hereby agrees that for a period of two (2) years immediately following the termination of his or her relationship with the Company for any reason, whether with or without cause, he or she shall not either directly or indirectly solicit, induce, recruit or encourage any employees of the Company Group to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company Group and/or any suppliers, customers or consultants of the Company Group, either for his or herself or for any other person or entity.
6.7 Non-Disparagement. The Executive hereby agrees that for a period of two (2) years immediately following the termination of his or her relationship with the Company for any reason, whether with or without cause, he shall not make any derogatory public statement concerning the financial performance, products, services, the Board or management personnel of the Company or any member of the Company Group, or Executives employment. Nothing in this Section 6.7 shall prohibit Executive from providing truthful testimony in any legal, administrative or regulatory proceeding and Executive may at all times respond truthfully to a lawfully-issued subpoena, court order or governmental inquiry or as otherwise may be required by law, provided, however, upon receiving such lawfully-issued subpoena or court order, Executive shall promptly provide reasonable written notice to the Company and cooperate with the Company to the extent reasonably necessary to protect the confidentiality of any proprietary or trade secret information of the Company or any of its affiliates or subsidiaries, and the privacy rights of any employee or director of the Company or any member of the Company Group. subsidiaries
6.8 Representations. The Executive hereby agrees to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. The Executive hereby represents that the Executives performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by the Executive in confidence or in trust prior to his employment by the Company. The Executive has not entered into, and hereby agrees that he or she will not enter into, any oral or written agreement in conflict with this Section 6.
7. Withholding Taxes. Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to this Agreement such national, provincial, local or any other income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.
8. Assignment. This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that in the event of a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company with or to any other individual(s) or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.
9. Number and Gender. Where the context requires, the singular shall include the plural, the plural shall include the singular, and any gender shall include all other genders.
10. Section Headings. The section headings of, and titles of paragraphs and subparagraphs contained in, this Agreement are for the purpose of convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation thereof.
11. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of New York.
12. Severability. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable.
13. Entire Agreement. This Agreement, including the documents referred to herein, embodies the entire agreement of the parties hereto respecting the matters within its scope. This Agreement supersedes all prior and contemporaneous agreements of the parties hereto that directly or indirectly bears upon the subject matter hereof (including, without limitation, any offer letter or previous employment agreement). Any prior negotiations, correspondence, agreements, proposals or understandings relating to the subject matter hereof shall be deemed to have been merged into this Agreement, and to the extent inconsistent herewith, such negotiations, correspondence, agreements, proposals, or understandings shall be deemed to be of no force or effect. There are no representations, warranties, or agreements, whether express or implied, or oral or written, with respect to the subject matter hereof, except as expressly set forth herein.
14. Modifications. This Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by both of the parties hereto.
15. Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
16. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
17. Notices.
(a) All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand, (ii) otherwise delivered against receipt therefor, or (iii) sent by internationally recognized courier with next-day or second-day delivery. Any notice shall be duly addressed to the parties as follows:
(i) if to the Company:
Address: Peter Luo
Xinghu Street 218, Building C14, 4th floor
Suzhou, Jiangsu, China 215123
(ii) if to the Executive:
(b) Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 17 for the giving of notice. Any communication shall be effective when delivered by hand, when otherwise delivered against receipt therefor, or three (3) business days after being sent in accordance with the foregoing.
18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.
19. Legal Counsel; Mutual Drafting. Each party recognizes that this is a legally binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice. Each party has cooperated in the drafting, negotiation and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such language. The Executive agrees and acknowledges that he has read and understands this Agreement, is entering into it freely and voluntarily, and has been advised to seek counsel prior to entering into this Agreement and has had ample opportunity to do so.
20. CODE SECTIONS 409A AND 457A.
(a) It is intended that any amounts payable under this Agreement shall either be exempt from or comply with Section 409A of the U.S. Internal Revenue Code (including the Treasury regulations and other published guidance relating thereto) (Code Section 409A) and with Section 457A of the U.S. Internal Revenue Code (including the Treasury regulations and other published guidance relating thereto) (Code Section 457A) so as not to subject Executive to payment of any additional tax, penalty or interest imposed under Code Section 409A or Code Section 457A. The provisions of this Agreement shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Code Section 409A or Code Section 457A yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Executive.
(b) Notwithstanding any provision of this Agreement to the contrary, if Executive is a specified employee within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of Executives Separation from Service, the Executive shall not be entitled to any severance payments pursuant to Section 5.3(b) until the earlier of (i) the date which is six (6) months after Executives Separation from Service for any reason other than death, or (ii) the date of Executives death. Any amounts otherwise payable to Executive upon or in the six (6) month period following the Executives Separation from Service that are not so paid by reason of this Section 20(b) shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after Executives Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of Executives death). The provisions of this Section 20(b) shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Code Section 409A.
(c) To the extent that any benefits or reimbursements pursuant to Section 4.2 or 4.4 are taxable to Executive, any reimbursement payment due to Executive pursuant to any such provision shall be paid to Executive on or before the last day of Executives taxable year following the taxable year in which the related expense was incurred. The benefits and reimbursements pursuant to such provisions are not subject to liquidation or exchange for another benefit and the amount of such benefits and reimbursements that Executive receives in one taxable year shall not affect the amount of such benefits or reimbursements that Executive receives in any other taxable year.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the Effective Date.
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ADAGENE INC. |
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A Cayman Islands Company |
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[Signature Page to Employment Agreement]
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the Effective Date.
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Name: |
[Signature Page to Employment Agreement]
EXHIBIT A
TERMINATION CERTIFICATE
This is to certify that I do not have in my possession, nor have I failed to return, any Confidential Information belonging to Adagene Inc. (the Company), its subsidiaries, parent companies, affiliates, successors or assigns (together, the Company Group). For purposes of this Termination Certificate, the term Confidential Information shall have the meaning assigned thereto in my Employment Agreement with the Company, dated on or about _________, 20__ (the Agreement).
I further certify that I have complied with all the terms of the Agreement signed by me, including all of the provisions of Section 6 of the Agreement.
I further agree that, in compliance with the Agreement, I will preserve as confidential all Confidential Information.
I further agree that for one (1) year from this date, I will not either directly or indirectly solicit, induce, recruit or encourage any employees of the Company or the Company Group to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company or the Company Group and/or any suppliers, customers or consultants of the Company or the Company Group, either for myself or for any other person or entity.
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Execution Version
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this Agreement) is made and entered into on October 15, 2019 by and among:
1. Adagene Inc., an exempted company organized under the laws of the Cayman Islands (the Company);
2. Adagene (Hong Kong) Limited (天演藥業(香港)有限公司), a company organized under the laws of Hong Kong (the Holdco Subsidiary);
3. Adagene (Suzhou) Limited (天演药业(苏州)有限公司), a company organized under the laws of the PRC (the WFOE);
4. Adagene Incorporated, a company organized under the laws of the State of Delaware (the US Subsidiary);
5. ADAGENE AUSTRALIA PTY LTD, a company incorporated and organized under the laws of Australia (the Australian Subsidiary); and;
6. The Person listed in Schedule I attached hereto (the Investor).
The foregoing parties shall be hereinafter referred collectively as the Parties and each individually as a Party.
RECITALS
A. The Company holds 100% issued and outstanding share capital of the Holdco Subsidiary, which holds 100% registered capital of the WFOE. The Company also holds 100% issued and outstanding shares of the US Subsidiary, which holds 100% issued and outstanding shares of the Australian Subsidiary.
B. The Investor wishes to invest in the Company by subscribing for Series C-3 Preferred Shares (as defined below) to be issued by the Company pursuant to the terms and subject to the conditions of this Agreement, and the Company wishes to issue and sell Series C-3 Preferred Shares to the Investor pursuant to the terms and subject to the conditions of this Agreement.
C. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:
Share Purchase Agreement
1. Definitions.
Capitalized terms shall have the meanings ascribed to them in Annex 1 attached hereto.
2. Purchase and Sale of Shares.
2.1 Sale and Issuance of the Series C-3 Preferred Shares.
(i) Subject to the terms and conditions of this Agreement (including but not limited to Sections 5 and 6), at the Closing (as defined below), the Investor agrees to subscribe for and purchase, and the Company agrees to issue and sell to the Investor, a total number of 4,452,441 series C-3 preferred shares of the Company, par value US$0.0001 per share (the Series C-3 Preferred Shares), with the Investor paying as consideration of US$50,000,000 (the Purchase Price) representing a per share price of US$11.2298.
(ii) Immediately after the consummation of the Closing, the capitalization structure of the Company is set forth in Schedule II-B hereto.
2.2 Closing.
(i) Closing. The closing of the sale, purchase and issuance of the Series C-3 Preferred Shares pursuant to Section 2.1 (the Closing) shall take place within twelve (12) Business Days after all closing conditions specified in Section 5 and Section 6 hereof have been satisfied or waived (other than those conditions to be satisfied at the Closing, but subject to the satisfaction or waiver thereof at the Closing) or on such other date agreed by the Company and the Investor by the exchange of signatures and documents electronically.
(ii) Deliveries by the Company at Closing. At the Closing, in addition to any items the delivery of which is made an express condition to the Investors obligations at the Closing pursuant to Section 5, the Company shall deliver to the Investor (a) a certified true copy of the updated register of members of the Company, reflecting the issuance of the Series C-3 Preferred Shares at the Closing, (b) a certified true copy of the updated register of directors of the Company, reflecting the appointment of the director at the Closing pursuant to Section 10.1(i)(g) of the Restated Shareholders Agreement, (c) a copy of the duly executed share certificates representing the Series C-3 Preferred Shares being purchased by the Investor at the Closing and (d) a copy of the Indemnification Agreement duly executed by the Company. Within five (5) Business Days after the Closing, the Company shall deliver to the Investor the original share certificates representing the Series C-3 Preferred Shares being purchased by the Investor at the Closing, and shall duly file the Restated Memorandum and Articles (as defined below) with the appropriate authority(ies) of the Cayman Islands.
(iii) Deliveries by the Investor at Closing. Within five (5) Business Days upon the Closing, subject to the satisfaction or waiver of all the conditions set forth in Section 5, the Investor shall pay the Purchase Price in accordance with Section 2.1(i) hereto by wire transfer of immediately available funds in U.S. dollars to an account of the Company as set out in Schedule III hereto, or as otherwise designated by the Company in writing.
2.3 Use of Proceeds.
The Company shall use the Purchase Price as set forth in Section 2.1 as working capital for (a) the development and improvement of antibody drug discovery platform and (b) research and development of innovative pipeline products targeting severe diseases. The Company shall not use the Purchase Price as set forth in Section 2.1 for financing the acquisition or subscription of any shares or other debt or equity securities listed on any stock exchange, or any interest therein. The Investor shall have the right but not the obligation to monitor the use of proceeds.
2.4 Walk-Away.
In the event that the Closing has not occurred within ninety (90) days from the date hereof (or by such later time and date as the parties hereto may mutually agree upon in writing), this Agreement may be terminated by the Company or the Investor at its own election and discretion by issuing a written notice to the other Parties after which this Agreement shall be of no further force and effect with respect to the Parties to this Agreement (with the exception of this Section 2.4, Section 7.2 and Section 8 (other than Section 8.16) which shall remain in full force and effect) and provided that the termination will not relieve any Party from any liability for any breach of this Agreement prior to such termination.
3. Representations and Warranties of the Company.
Subject to such exceptions as may be set forth in the disclosure schedule delivered by the Company to the Investor as of the date hereof and attached hereto as Exhibit D (the Disclosure Schedule) which forms part of the representation and warranties herein, the Warrantors jointly and severally represent and warrant to the Investor that the following statements are true and correct as of the date hereof and as of the Closing. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Section 3, and the disclosures set forth in any section of the Disclosure Schedule shall qualify other section in this Section 3 to the extent it is reasonably apparent from a reading of the disclosure that such disclosure is applicable to such other sections.
3.1 Organization, Good Standing and Qualification.
Each Group Company is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the Laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its Business as now conducted and as proposed to be conducted, and to perform each of its obligations under the Transaction Documents to which it is a party. Each Group Company is qualified to do business and is in good standing (or equivalent status in the relevant jurisdiction) in each jurisdiction where failure to be so qualified would be a Material Adverse Effect. Each Group Company that is a PRC entity has a valid business license issued by the SAIC or its local branch or other relevant Government Authorities, and has, since its establishment, carried on its Business materially in compliance with the business scope set forth in its business license.
3.2 Capitalization and Voting Rights.
(i) Company. The authorized share capital of the Company immediately prior to the Closing shall be US$50,000 divided into (a) a total of 472,750,176 authorized ordinary shares of US$0.0001 each, 15,159,136 of which are issued and outstanding; and (b) a total of 7,844,371 authorized Series A Preferred Shares with par value of US$0.0001 each, 5,473,957 of which are classified as series A-1 preferred shares with par value of US$0.0001 each, all of which are issued and outstanding, and 2,370,414 of which are classified as series A-2 preferred shares with par value of US$0.0001 each, all of which are issued and outstanding; (c) a total of 7,494,537 authorized Series B Preferred Shares with par value of US$0.0001 each, all of which are issued and outstanding; and (d) a total of 11,910,916 authorized Series C Preferred Shares with par value of US$0.0001 each, comprised of 5,597,354 Series C-1 Preferred Shares with par value of US$0.0001 each, 1,861,121 Series C-2 Preferred Shares with par value of US$0.0001 each and 4,452,441 Series C-3 Preferred Shares, all of the Series C-1 Preferred Shares with par value of US$0.0001 each and 1,567,260 of the Series C-2 Preferred Shares with par value of US$0.0001 each are issued and outstanding and none of the Series C-3 Preferred Shares is issued and outstanding. Schedule II-A hereto and Schedule II-B hereto sets forth the capitalization structure of the Company immediately prior to the Closing and immediately after the Closing.
(ii) Holdco Subsidiary. The authorized share capital of the Holdco Subsidiary is and immediately prior to and following the Closing shall be HK$10,000.00 divided into 10,000 shares of HK$1.00 par value, 100% of which are issued and outstanding and all held by the Company.
(iii) WFOE. The registered capital of the WFOE is and immediately prior to and following the Closing shall be RMB 8,000,000, 100% of which has contributed by the Holdco Subsidiary.
(iv) US Subsidiary. The authorized share capital of the US Subsidiary is and immediately prior to and following the Closing shall be 5,000 shares of common stock, 100% of which are issued and outstanding and all held by the Company.
(v) Australian Subsidiary. The authorized share capital of the Australian Subsidiary is and immediately prior to and following the Closing shall be 100 ordinary shares, 100% of which are issued and outstanding and all held by the US Subsidiary.
(vi) No Other Securities. Except for (a) this Agreement and (b) as disclosed in Section 3.2(vi) in the Disclosure Schedule, (1) there are no and at the Closing there shall be no other authorized or outstanding Equity Securities of any Group Company; (2) no promise, commitment or offer has been made, in writing or otherwise, by any Group Company or any officer of any Group Company on behalf of the Group Company, to issue any Equity Securities of any Group Company; (3) no Equity Securities of any Group Company are subject to any preemptive rights, rights of first refusal or other rights to purchase such Equity Securities or any other rights with respect to such Equity Securities, and (4) no Group Company is a party or subject to any Contract that affects or relates to the voting or giving of written consents with respect to, or the right to cause the redemption, or repurchase of, any Equity Security of such Group Company. Except as set forth in the Restated Shareholders Agreement, the Company has not granted any registration or information rights to any other Person, nor is the Company obliged to list, any of the Equity Securities of any Group Companies on any securities exchange.
(vii) Issuance and Status. All presently outstanding Equity Securities of each Group Company have been duly and validly issued, are fully paid (or subscribed for) and non-assessable, and are and as of the Closing shall be free of any and all Liens (except for any restrictions on transfer under the Ancillary Agreements and applicable Laws). Except as contemplated under the Transaction Documents, there are no (a) resolutions pending to increase the share capital or registered capital of any Group Company or cause the liquidation, winding up, or dissolution of any Group Company, nor has any distress, execution or other process been levied against any Group Company, (b) dividends which have accrued or been declared but are unpaid by any Group Company, (c) obligations, contingent or otherwise, of any Group Company to repurchase, redeem, or otherwise acquire any Equity Securities, or (d) as disclosed in Section 3.2(vii) in the Disclosure Schedule, outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company. All dividends (if any) or distributions (if any) declared, made or paid by each Group Company, and all repurchases and redemptions of Equity Securities of each Group Company (if any), have been declared, made, paid, repurchased or redeemed, as applicable, in accordance with its Charter Documents and all applicable Laws in all material respects.
(viii) Title. The Company is the sole record and beneficial holder of all of outstanding share capital of the Holdco Subsidiary and the US Subsidiary, the Holdco Subsidiary is the sole holder and beneficial owner of all equity interests of the WFOE and the US Subsidiary is the sole holder and beneficial owner of all share capital of the Australian Subsidiary, all of which are free and clear of all Liens of any kind other than those arising under applicable Law or as set forth in the Transaction Documents.
3.3 Corporate Structure; Subsidiaries.
Section 3.3 of the Disclosure Schedule sets forth a complete structure chart showing Group Companies, and indicating the ownership and Control relationships among all Group Companies, the nature of the legal entity which each Group Company constitutes, the jurisdiction in which each Group Company was organized, and each jurisdiction in which each Group Company is required to be qualified or licensed to do business as a foreign Person. No Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any Equity Security, interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person, other than the commitment of the Holdco Subsidiary to contribute registered capital to the WFOE in accordance with the Charter Documents of the WFOE. The Group does not engage in any business other than the Business. The Holdco Subsidiary was formed solely to acquire and hold the equity interests in the WFOE. Neither the Holdco Subsidiary nor the Australian Subsidiary has engaged in any business and has not incurred any material Liability since its formation. Each of the other Group Companies is engaged in the Business and has no other business.
3.4 Authorization.
Each of the Group Companies has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. The authorization, issuance, sale and delivery of Series C-3 Preferred Shares, and reservation for issuance of the Conversion Shares, has been taken or will be taken prior to the Closing. This Agreement has been, and each other Transaction Document, when executed and delivered, constitutes valid and legally binding obligations of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors rights generally and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
3.5 Valid Issuance of Securities.
The Series C-3 Preferred Shares, when issued, delivered and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable Laws and under the Ancillary Agreements). All Conversion Shares have been reserved for issuance and, upon issuance in accordance with the terms of the memorandum and articles of the Company then in effect, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable securities Laws and under the Ancillary Agreements). The issuance of the Series C-3 Preferred Shares is not, and the issuance of the Conversion Shares will not be, subject to any preemptive rights, rights of first refusal or similar rights other than those that have been or will be duly waived prior to or at the Closing, as applicable.
3.6 Consents; No Conflicts.
All Consents from or with any Governmental Authority or any other Person required in connection with the execution, delivery and performance of the Transaction Documents by the parties thereto (other than the Investor), and the consummation of the transactions contemplated by the Transaction Documents by the parties thereto (other than the Investor), have been duly obtained or completed (as applicable) and are in full force and effect. The execution, delivery and performance of each Transaction Document by the Warrantors do not, and the consummation by the Warrantors of the transactions contemplated thereby will not, with or without notice or lapse of time or both, (i) result in any violation of, be in conflict with, or constitute a default under any provision of the constitutional documents of the Warrantors or any Contracts to which the Warrantors are parties, (ii) result in any violation of, be in conflict with, or constitute a default under, in any respect, any Governmental Order or any applicable Law, (iii) results in the creation of any Lien upon any asset of any Group Company or (iv) result in any termination, modification, cancellation, or suspension of any material right of, or any augmentation or acceleration of any material obligation of, any Group Company (including without limitation, any indebtedness of such Group Company). Except for those disclosed in Section 3.6 of the Disclosure Schedule, all SAFE Rules and Regulations have been fully complied with and all requisite approvals or registration certificates required under the SAFE Rules and Regulations in relation thereto have been duly and lawfully obtained and are in full force and effect, and there exist no grounds on which any such approval or registration certificate may be cancelled or revoked or the WFOE or its legal representative may be subject to liability or penalties for misrepresentations or failures to disclose information to the issuing SAFE. None of the Warrantors has received any oral or written inquiries, notifications, orders or any other forms of official correspondence from SAFE with respect to any actual or alleged non-compliance with the SAFE Rules and Regulations.
3.7 Offering.
Subject in part to the accuracy of the Investors representations set forth in Section 4 of this Agreement, the offer, sale and issuance of the Series C-3 Preferred Shares are, exempt from the qualification, registration and prospectus delivery requirements of the Securities Act and any other applicable securities Laws.
3.8 Compliance with Laws; Consents.
(i) Each Group Company is, and has been, in compliance in all material respects with all applicable Laws, including without limitation, all applicable Health Care Laws and any other applicable Laws relating to its clinical trials as well as development and discovery activities in relation to the Products, and all applicable transfer pricing Laws including the execution and maintenance of contemporaneous documentation substantiating the transfer pricing practices and methodology of the Group Companies. To the Warrantors knowledge, no event has occurred and no circumstance exists that (with or without notice or lapse of time) (a) may constitute or result in a violation by any Group Company of, or a failure on the part of such entity to comply with, any applicable Laws in any material respect, or (b) may give rise to any obligation on the part of any Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. None of the Group Companies has received any notice from any Governmental Authority regarding any of the foregoing or otherwise alleging violation in any material respect of any applicable Law. No Group Company is under investigation or action with respect to a material violation of any Law.
(ii) All material Consents from or with the relevant Governmental Authority required in respect of the due and proper establishment and operations of each Group Company as now conducted, including but not limited to the Consents from or with MOFCOM, SAIC, NMPA, SAFE, any Tax bureau and the local counterpart thereof, as applicable (or any predecessors thereof, as applicable), have been duly obtained or completed in accordance with all applicable Laws. None of the Group Companies is in default in any material respect under any required Governmental Consent. No Group Company has received any letter or other written communication from any Governmental Authority threatening or providing notice or revocation of any required Governmental Consent issued to any Group Company or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by any Group Company.
3.9 Tax Matters.
(i) Each Group Company (a) has timely filed all income and other Tax Returns that are required to have been filed by it with any Governmental Authority, and (b) has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return) in accordance with applicable Laws in all material respect.
(ii) Each Tax Return referred to in paragraph (i) above was (and will be) true, correct and complete in all material respects in compliance with applicable Law. There is no pending dispute with, or notice from, any Tax authority relating to any of the Tax Returns filed by any Group Company, and there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company. No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate tax authority or in such Tax Return in accordance with applicable Laws in all material respect.
(iii) No Group Company has been the subject of any examination or investigation by any Tax authority relating to the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the payment or withholding of Taxes. None of the Group Companies has received notice of any proposed or determined Tax deficiency or assessment from any Governmental Authority. As of the date hereof there are no audits, examinations, requests for information or other administrative proceedings pending or threatened with respect to any of the Group Companies. There is no pending dispute with, or notice from, any taxing authority relating to any of the Tax Returns filed by any Group Company which, if determined adversely to such Group Company, would result in the assertion by any taxing authority of any valid deficiency in a material amount for Taxes, and to the knowledge of the Warrantors, there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company.
(iv) No Group Company is or has ever been a U.S. real property holding corporation.
(v) The Company is treated as a corporation for U.S. federal income tax purposes.
(vi) To the knowledge of the Warrantors, the Group Companies are not obligated to refund or repay any tax deductions, tax rebates, tax incentives or any other subsidies in connection with the Group Companies, its assets or business that has or will be granted, offered or paid by any Governmental Authority.
3.10 Charter Documents; Books and Records.
The Charter Documents of each Group Company are in the form provided to the Investor. Each Group Company has been in compliance with its Charter Documents, and none of the Group Companies has violated or breached any of their respective Charter Documents. Such copy is true, correct and complete, and contains all amendments and all minutes of meetings and actions taken by its shareholders and directors since the time of formation through the date hereof and reflects all transactions referred to in such minutes in all material respects. Each Group Company maintains its books of accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior practice, and which permits its Financial Statements (as defined below) to be prepared in accordance with the Accounting Standards. The register of members and directors (with respect to the jurisdiction where recognizes this concept) of each Group Company is correct, there has been no notice of any proceedings to rectify any such register, and there are no circumstances which might lead to any application for its rectification. All documents requiring to be filed by each Group Company with the applicable Governmental Authority in respect of the relevant jurisdiction in which the relevant Group Companies is being incorporated have been properly made up and filed.
3.11 Financial Statements.
The Company has delivered to the Investor (i) the audited balance sheets, income statements and statements of cash flows for the Holdco Subsidiary and the WFOE as of and for the twelve-months ending December 31, 2016, (ii) the audited balance sheets, income statements and statements of cash flows for the Holdco Subsidiary and the WFOE as of and for the twelve-months ending December 31, 2017, (iii) the audited balance sheets, income statements and statements of cash flows for the Holdco Subsidiary and the WFOE as of and for the twelve-months ending December 31, 2018 and (iv) the unaudited consolidated balance sheet, income statement and statement of cash flows for the Holdco Subsidiary and the WFOE as of and as of for the six-month period ending June 30, 2019 (the Statement Date) (collectively, the financial statements referred to above, the Financial Statements). The Financial Statements (a) have been prepared in accordance with the books and records of the Group, (b) fairly present in all material respects the financial condition and position of the Group as of the dates indicated therein and the results of operations and cash flows of the Group for the periods indicated therein, except in the case of unaudited financial statements for the omission of notes thereto and normal year-end audit adjustments that are not expected to be material, and (c) were prepared generally in accordance with the Accounting Standards applied on a consistent basis throughout the periods involved.
3.12 Changes.
Since the Statement Date, each Group Company (a) has operated its business in the ordinary course consistent with its past practice, (b) used its reasonable best efforts to preserve its business, (c) collected receivables and paid payables and similar obligations in the ordinary course of business consistent with past practice, and (d) not engaged in any new line of business or entered into any agreement, transaction or activity or made any commitment except those in the ordinary course of business consistent with past practice. Since the Statement Date, except disclosed in Section 3.12 in the Disclosure Schedule, there has not been any Material Adverse Effect or any material change in the way the Group conducts its business, and there has not been by or with respect to any Group Company:
(i) any purchase, acquisition, sale, lease, disposal of or other transfer of any assets that are individually or in the aggregate material to its business, whether tangible or intangible, other than the purchase or sale of inventory in the ordinary course of business consistent with its past practice;
(ii) any acquisition (by merger, consolidation or other combination, or acquisition of stock or assets, or otherwise) of any business or other Person or division thereof, or any sale or disposition of any business or division thereof;
(iii) any sale, assignment, exclusive license, or transfer of any Intellectual Property of any Group Company (other than a transfer to the Company or a wholly-owned Group Company);
(iv) any waiver, termination, cancellation, settlement or compromise of a valuable right, debt or claim with a value more than US$500,000;
(v) any incurrence, creation, assumption, repayment, satisfaction, or discharge of (1) any material Lien (other than Permitted Liens) or (2) any Indebtedness or guarantee, or the making of any loan or advance (other than reasonable and normal advances to employees for bona fide expenses that are incurred in the ordinary course of business consistent with its past practice), or the making of any investment or capital contribution;
(vi) any material amendment to or termination of any Material Contract, any entering of any new Contract that would have been a Material Contract if in effect on the date hereof, or any amendment to or waiver under any Charter Document;
(vii) any declaration, setting aside or payment or other distribution in respect of any Equity Securities of any Group Company, or any issuance, transfer, redemption, purchase or acquisition of any Equity Securities by any Group Company;
(viii) any damage, destruction or loss, whether or not covered by insurance, adversely affecting any of the material assets, properties of any Group Company other than the normal wear and tear occurring in the ordinary course of business;
(ix) any material change in accounting methods or practices;
(x) except in the ordinary course of business consistent with its past practice, entry into any closing agreement in respect of material Taxes, settlement of any claim or assessment in respect of any material Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any material Taxes, entry or change of any material Tax election, change of any method of accounting resulting in a material amount of additional Tax or filing of any material amended Tax Return;
(xi) any commencement or settlement of any material Action;
(xii) any authorization, sale, issuance, transfer, pledge or other disposition of any Equity Securities of any Group Company other than ESOP;
(xiii) any transaction with any Related Party other than any employment agreement entered into with the employee and certain officers; or
(xiv) any agreement to do any of the foregoing.
3.13 Actions.
There is no Action pending or to the Warrantors knowledge threatened against or affecting any Group Company with respect to its Business, or any officers, directors or employees of any Group Company in connection with such persons respective relationship with such Group Company, nor is there any basis for any of the foregoing. There is no Action pending by any Group Company against any third party nor does any Group Company intend to commence any such Action. No Governmental Authority has at any time challenged or questioned in writing the legal right of any Group Company to conduct in any material respect its business as presently being conducted.
3.14 Liabilities.
Except disclosed in Section 3.14 in the Disclosure Schedule, no Group Company has any Liabilities except for (i) liabilities set forth in the Financial Statements, and (ii) current liabilities incurred since the Statement Date in the ordinary course of the Groups business consistent with its past practices. None of the Group Companies has any outstanding Indebtedness. None of the Group Companies is a guarantor or indemnitor of any Liabilities of any other Person (other than a Group Company).
3.15 Commitments.
(i) Section 3.15(i) of the Disclosure Schedule contains a complete and accurate list of all Material Contracts. Material Contracts means, collectively, each Contract to which a Group Company or any of its properties or assets is bound or subject to that (a) involves obligations (contingent or otherwise) or payments in excess of US$250,000 per annum or has an unexpired term in excess of one year, (b) involves Intellectual Property that is material to a Group Company (other than generally-available off-the-shelf shrink-wrap software licenses obtained by the Group on non-exclusive and non-negotiated terms), including without limitation, the Licenses, (c) restricts the ability of a Group Company to compete or to conduct or engage in any business or activity or in any territory, (d) relates to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Equity Securities, (e) involves any provisions providing for exclusivity, change in control, most favored nations, rights of first refusal or first negotiation or similar rights, or grants a power of attorney, agency or similar authority, (f) is with a Related Party, (g) involves material Indebtedness, (h) involves the lease, license, sale, use, disposition or acquisition of a material amount of assets or business, (i) involves the waiver, compromise, or settlement of any material dispute, claim, litigation or arbitration, (j) involves the ownership or lease of, title to, use of, or any leasehold or other interest in, any real property, including without limitation, the Leases, (k) involves the establishment, contribution to, or operation of a partnership, joint venture, alliance or similar entity, or involving a sharing of profits or losses (including joint development and joint marketing Contracts), or any investment in, loan to or acquisition or sale of the securities, equity interests or assets of any Person, (l) is with a Governmental Authority, state-owned enterprise, or sole-source supplier of any material product or service (other than utilities), (m) is a brokerage or finders agreement, or material sales agency, marketing or distributorship Contract, or (n) is otherwise material to a Group Company or is one on which a Group Company is substantially dependent.
(ii) A true, fully-executed copy of each Material Contract including all amendments and supplements thereto (and a written summary of all terms and conditions of each non-written Material Contract, if any) are available for the Investor to review within ten (10) Business Days from the date hereof in the primary office of the Group Companies. Each Material Contract is a valid and binding agreement of the Group Company that is a party thereto, the performance of which does not and will not violate any applicable Law or Governmental Order, and is in full force and effect and enforceable against the parties thereto, except (x) as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (y) as may be limited by laws relating to the availability of specific performance, injunctive relief or other remedies in the nature of equitable remedies. Each Group Company has duly performed in all material respects all of its obligations under each Material Contract to the extent that such obligations to perform have accrued, no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by such Group Company, or to the Warrantors knowledge any other party or obligor with respect thereto, has occurred, or as a result of the execution, delivery, and performance of the Transaction Documents will occur. No Group Company has given notice (written or oral) that it intends to terminate a Material Contract or that any other party thereto has breached, violated or defaulted under any Material Contract. No Group Company has received any written notice that it has breached, violated or defaulted under any Material Contract or that any other party thereto intends to terminate such Material Contract. No Contracts to which the Company is a party materially restricts the right of the Company to carry on or continue its Business in the normal course or as contemplated by the Transaction Documents. No Group Company has delegated any power or issued any powers of attorney in favor of any Person, other than power of attorney issued to directors or officers of the Company for purposes of executing contracts or agreements for and on behalf of a Group Company in the ordinary course of business.
3.16 Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions; Absence of Government Interests.
(i) Each Group Company and, to the knowledge of the Warrantors, their respective directors, officers, employees, agents or other Persons authorized to act on their behalf (collectively, Representatives) are and have been in compliance with all applicable Laws relating to anti-bribery, anti-corruption, anti-money laundering, Sanctions, record keeping and internal controls (collectively, the Compliance Laws) including the FCPA as if it were a U.S. Person. Furthermore, no Public Official (x) holds an ownership or other economic interest, direct or indirect, in any of the Group Companies, or (y) serves as an officer, director or employee of any Group Company. To the knowledge of the Warrantors, neither any Group Company nor any Representative has, directly or indirectly, offered, authorized, promised, condoned, participated in, consummated, or received notice of any allegation of:
(a) the making of any gift, offer, promise, authorization or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official, or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person;
(b) the taking of any action by any Person which (1) would violate the FCPA, if taken by an entity subject to the FCPA, or (2) could reasonably be expected to constitute a violation of any applicable Compliance Law;
(c) the making of any false or fictitious entries in the books or records of any Group Company by any Person; or
(d) the using of any assets of any Group Company for the establishment of any unlawful or unrecorded fund of monies or other assets, or the making of any unlawful or undisclosed payment.
(ii) No Group Company or any of its Representatives has ever been found by a Governmental Authority to have violated any criminal or securities Law or is subject to any indictment or any government investigation for bribery, corruption, money laundering, or Sanctions violations. None of the beneficial owners of any Equity Securities or other interest in any Group Company or the current or former Representatives of any Group Company are or were Public Officials.
(iii) No Group Company or any of its Representatives is a Prohibited Person, and no Prohibited Person will be given an offer to become an employee, officer, consultant or director of any Group Company. No Group Company has conducted or agreed to conduct any business, or entered into or agreed to enter into any transaction with a Prohibited Person.
(iv) If the Group Companies have beneficial owners or Representatives who are Public Officials, to the Warrantors knowledge, no such Public Official has been involved on behalf of a Governmental Authority in decisions as to whether any Group Company or the Investor would be awarded business or that otherwise could benefit any Group Company or the Investor, or in the appointment, promotion, or compensation of persons who will make such decisions.
3.17 Title; Properties.
(i) Title; Personal Property. Each Group Company has good and valid title to all of its respective assets, whether tangible or intangible, in each case free and clear of all Liens, other than Permitted Liens. The assets of each Group Company (including all rights and properties) are sufficient for the conduct of the Business of such Group Company as presently conducted. Except for leased or licensed assets, no Person other than a Group Company owns any interest in any such assets. All leases of real or personal property to which a Group Company is a party are effective and afford the Group Company valid leasehold possession of the real or personal property that is the subject of the lease. All machinery, vehicles, equipment and other tangible personal property owned or leased by a Group Company are (a) in good condition and repair in all material respects (reasonable wear and tear excepted) and (b) not obsolete or in need in any material respect of renewal or replacement, except for renewal or replacement in the ordinary course of business. There are no facilities, services, assets or properties which are used in connection with the Business of the Group and which are shared with any other Person that is not a Group Company.
(ii) Real Property. No Group Company owns or has legal or equitable title, leasehold interest or other right or interest in any real property other than as held pursuant to Leases. Section 3.17(ii) of the Disclosure Schedule sets forth each leasehold interest pursuant to which any Group Company holds any real property (a Lease), indicating the parties to such Lease, the address of the property demised under the Lease, the rent payable under the Lease and the term of the Lease. The particulars of the Leases as set forth in Section 3.17(ii) of the Disclosure Schedule are true and correct. Each Lease constitutes the entire agreement with respect to the property demised thereunder. Each Group Company which is party to a Lease has accepted possession of the property demised pursuant to the Lease and is in actual possession thereof and has not sublet, assigned or hypothecated its leasehold interest. No Group Company uses any real property in the conduct of its Business except insofar as it has secured a Lease with respect thereto. As of the date hereof, each Group Company has duly performed in all material respects all of its obligations under each Lease to the extent that such obligations to perform have accrued, and no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by any Group Company (or to the knowledge of the Warrantors, on the part of any other party to the Lease).
3.18 Related Party Transactions.
Other than as set forth in Section 3.18 of the Disclosure Schedule and employment contract entered into by any Group Company and certain employees and officers which in each case is on an arms-length basis, no Related Party has any Contract, understanding or proposed transaction with, or is indebted to, any Group Company or has any direct or indirect interest in any Group Company (other than as set forth in Section 3.2(i) of the Disclosure Schedule), nor is any Group Company indebted (or committed to make loans or extend or guarantee credit) to any Related Party (other than for accrued salaries for the current pay period, or other standard employee benefits). No Related Party has any direct or indirect interest in any Person with which a Group Company is affiliated or with which a Group Company has a material business relationship (including any Person which purchases from or sells, licenses or furnishes to a Group Company any goods, intellectual or other property rights or services) or in any Contract to which a Group Company is a party or by which it may be bound or affected, and no Related Party directly or indirectly competes with or has any interest in any Person that directly or indirectly competes with any Group Company (other than ownership of less than one percent (1%) of the stock of publicly traded companies).
3.19 Intellectual Property Rights.
(i) Company IP. Each Group Company owns or otherwise has sufficient rights (including, but not limited to the rights of development, maintenance, licensing and sale) to all Intellectual Property necessary and sufficient to conduct its Business as now conducted and as proposed to be conducted by such Group Company without any known conflict with or known infringement of the rights of any other Person. Section 3.19(i) of the Disclosure Schedule sets forth a complete and accurate list of all Company Registered IP for each Group Company, including for each the relevant name or description, registration/certification or application number, and filing, registration or issue date. There exists no pending or to the knowledge of the Warrantors, threatened condemnation, confiscation, dispute, claim, demand or similar proceeding with respect to the continued use and enjoyment of any Company Owned IP by any Group Company.
(ii) IP Ownership. All Company Registered IP is owned solely by and registered or applied for solely in the name of a Group Company, and is valid and subsisting and has not been abandoned, and all necessary registration, maintenance and renewal fees with respect thereto and currently due have been satisfied. To the Warrantors knowledge, no Group Company or any of its employees, officers or directors has taken any actions or failed to take any actions that would cause any Company Owned IP to be invalid, unenforceable or not subsisting. No funding or facilities of a Governmental Authority or a university, college, other educational institution or research center was used in the development of any Company Owned IP. No Company Owned IP is the subject of any Lien, license or other Contract granting rights therein to any other Person. No Group Company is or has been a member or promoter of, or contributor to, any industry standards bodies, patent pooling organizations or similar organizations that could require or obligate a Group Company to grant or offer to any Person any license or right to any Company Owned IP. Except disclosed in Section 3.19(ii) in the Disclosure Schedule, no software included in the Company Owned IP contains or requires use of any open source code, shareware or other software that is made generally available to the public without requiring payment of fees or royalties or that does or may require disclosure or licensing of any such software or any other Company Owned IP. No Company Owned IP is subject to any proceeding or outstanding Governmental Order or settlement agreement or stipulation that (a) restricts in any manner the use, transfer or licensing thereof, or the making, using, sale, or offering for sale of any Group Companys products or services, by any Group Company or (b) may affect the ownership, validity, use or enforceability of such Company Owned IP. No Group Company has (x) transferred or assigned any Company Owned IP to any other Person; (y) authorized the joint ownership of any other Person in any Company Owned IP; or (z) permitted the rights of any Group Company in any Company Owned IP to lapse or enter into the public domain. The transactions contemplated by this Agreement or any other Transaction Documents shall have no adverse effect on each Group Companys right, title and interest in and to Intellectual Property owned or used by such Group Company.
(iii) Infringement, Misappropriation and Claims. To the Warrantors knowledge, no Group Company has misappropriated, or violated, or infringed in any respect any Intellectual Property of any other Person, nor has any Group Company received any written notice alleging any of the foregoing, nor has any Group Company become aware of any fact that would form a reasonable basis for a claim, suit, or allegation of the foregoing. To the knowledge of the Warrantors, no Person has violated, infringed or misappropriated any material Company Owned IP of any Group Company, and no Group Company has given any verbal or written notice to any other Person alleging any of the foregoing; nor has any Group Company become aware of any fact that would form a reasonable basis for a claim, suit, or allegation of the foregoing. To the Warrantors knowledge, no Person has challenged the ownership, validity, enforceability, or use of any Company Owned IP by a Group Company. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property by such Person.
(iv) Assignments and Prior IP. All inventions and know-how conceived by employees of a Group Company related to the Business of such Group Company are currently owned exclusively by a Group Company. All employees, contractors, agents and consultants of a Group Company who are or were involved in the creation of any Intellectual Property for such Group Company have executed an assignment of inventions agreement that vests in a Group Company ownership of all right, title and interest in and to such Intellectual Property. All employee inventors of Company Owned IP have received reasonable reward and remunerations from a Group Company for his/her service inventions or service technology achievements in accordance with the applicable laws. It will not be necessary to utilize any Intellectual Property of any such Persons made prior to their employment by a Group Company, except for those that are exclusively owned by a Group Company. To the Warrantors knowledge, none of the employees, consultants or independent contractors, currently or previously employed or otherwise engaged by any Group Company, (a) is in violation of any current or prior confidentiality, non-competition or non-solicitation obligations to such Group Company or to any other Persons, including former employers, or (b) is obligated under any Contract, or subject to any Governmental Order, that would interfere with the use of his or her best efforts to promote the interests of the Group Companies or that would conflict with the Business of such Group Company as presently and as proposed to be conducted.
(v) Licenses. Section 3.19(v) of the Disclosure Schedule contains a complete and accurate list of the following (collectively, the Licenses): (a) all licenses, sublicenses, and other Contracts to which any Group Company is a party and pursuant to which any third party is authorized to use, exercise or receive any benefit from any Company Owned IP, and (b) all licenses, sublicenses and other Contracts to which any Group Company is a party and pursuant to which such Group Company is authorized to use, exercise, or receive any benefit from any Intellectual Property of another Person, in each case except for (1) agreements involving off-the-shelf commercially available software, and (2) non-exclusive licenses to customers of the Business in the ordinary course of business consistent with past practice. The Group Companies have paid all license and royalty fees required to be paid under the Licenses.
(vi) Protection of IP. Each Group Company has taken all necessary measures to protect, maintain and safeguard Company Owned IP and made all applicable filings, registrations and payments of fees in connection with the foregoing. To the knowledge of the Warrantors, all prior art material to the patentability of the claims in any issued or applied for patents included in the Company Owned IP is cited in the respective issued patents, applications or associated file histories thereof, and there is no other material prior art with respect thereto. Without limiting the foregoing, to the Warrantors knowledge, all current and former officers, employees, consultants and independent contractors of any Group Company and all suppliers, customers, distributors and other third parties having access to material Company Owned IP have executed and delivered to such Group Company an agreement requiring the protection of such Company Owned IP. To the extent that any Company Owned IP has been developed or created independently or jointly by an independent contractor or other third party for any Group Company and is incorporated into any products or services of any Group Company, such Group Company has a written agreement with such independent contractor or third party and has thereby obtained exclusive ownership of or exclusive license to such independent contractors or third partys Intellectual Property in such work, material or invention by operation of law or valid assignment or license. To the Warrantors knowledge, none of the Group Companies trade secrets or confidential information have been disclosed to another Person, except pursuant to written confidentiality obligations.
3.20 Labor and Employment Matters.
(i) Each Group Company has complied in all material respects with all applicable Laws related to labor or employment, including provisions thereof relating to wages, hours, working conditions, benefits, retirement, social welfare, equal opportunity and collective bargaining. There is no pending or to the Warrantors knowledge, threatened, and there has not been since, with respect to a Group Company, the incorporation of such Group Company, any Action relating to the violation or alleged violation of any applicable Laws by any Group Company related to labor or employment, including any charge or complaint filed by an employee with any Governmental Authority or any Group Company. Section 3.20(i) of the Disclosure Schedule hereto sets forth the names and titles of all of the key employees of the Company as of the date hereof (the Key Employees). Each Key Employee is currently devoting all of his or her business time to the conduct of the business of the applicable Group Company. No Key Employee is subject to any covenant restricting him/her from working for any Group Company. No Key Employee is prohibited by any Contract or any Governmental Order from being employed by, or contracting with, such Group Company, whether or not such individual is or will be compensated by such Person. No Key Employee or any group of employees of any Group Company has given any notice of an intent to terminate their employment with any Group Company, nor does any Group Company have a present intention to terminate the employment of any Key Employee or any group of employees. Each Key Employee has entered into a standard employment agreement in substantially the form of the employment agreement template or sample disclosed to the Investor prior to the date hereof.
(ii) Except for the ESOP reserved by the Company and granted by the Board of Directors, no Group Company has made any written representations regarding equity incentives to any officer, employee, director or consultant of such Group Company that are inconsistent with the amounts and terms set forth in the minutes of meetings of the Board of Directors.
(iii) A true copy of the Restated Share Incentive Plan has been provided to the Investor. The Restated Share Incentive Plan has been established, operated and administered in accordance with its terms and with all applicable Laws (including the SAFE Rules and Regulations).
3.21 Insurance.
Section 3.21 of the Disclosure Schedule lists all insurance policies which cover the Group Companies. The Group Companies have in full force and effect fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow them to replace any of their properties that might be damaged or destroyed.
3.22 State-Owned Assets.
None of the assets of any Group Company constitute state-owned assets and, inasmuch, are not required to undergo any form of valuation under applicable Law in the PRC governing the transfer of state-owned assets prior to the consummation of the transactions contemplated herein or in any other Transaction Documents.
3.23 Brokers.
Except as set forth in Section 3.23 in the Disclosure Schedule, no finder, broker, financial advisor or other intermediary has acted on behalf of any Group Company or any of its Affiliates in connection with the offering of the Series C-3 Preferred Shares or the negotiation or consummation of this Agreement or the Transaction Documents or any of the transactions contemplated hereby or thereby.
3.24 Previous Financing Documents.
All the documents and agreements regarding the previous financing of the Company are available for the Investor to review within ten (10) Business Days from the date hereof in the primary office of the Group Companies. No documents and agreements hereof have been forged or tampered with any manner whatsoever, and no other documents and agreements have been omitted or withheld from the Investor. All the documents and agreements were, when provided, and continue to be, true, accurate, complete and not misleading in any aspect.
3.25 Health Care Regulatory Compliance.
(i) None of the Group Companies nor, to the knowledge of the Warrantors, any officer, employee, or agent of the Group Companies has been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment or exclusion under Applicable Laws, including 21 U.S.C. §335a, 42 U.S.C. §1320a-7 and the DAL. No Actions that would reasonably be expected to result in such a debarment or exclusion of a Group Company nor, to the knowledge of the Warrantors, any officer, employee, or agent of the Group Companies are pending or, to the knowledge of Warrantors, threatened, against the Group Companies or any officer, employee, or agent of the Group Companies.
(ii) No clinical trial conducted by or on behalf of a Group Company or relating to the Products has been terminated or suspended prior to completion, and there has not been nor, to the knowledge of the Warrantors, do any facts exist that are reasonably likely to cause the Company to provide any warning, dear doctor letter, safety alert or other notice or action relating to an alleged lack of safety, efficacy or regulatory compliance of the Products. Except as set forth in Section 3.25 of the Disclosure Schedule, no Group Company has received any notice that any Regulatory Authority, investigator, or any relevant institutional review board, independent ethics committee or other similar body has (i) refused to approve any clinical trial, or any substantial amendment to a protocol for any clinical trial conducted or proposed to be conducted by or on behalf of a Group Company or relating to the Products, or (ii) initiated, or threatened to initiate, any action to prevent, suspend or materially restrict any clinical trial conducted by or on behalf of a Group Company or relating to the Products, including by imposing a clinical hold on such studies.
3.26 Internal Controls.
Each Group Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions by it are executed in accordance with managements general or specific authorization, (ii) transactions by it are recorded as necessary to permit preparation of financial statements in conformity with the Accounting Standards and to maintain asset accountability, (iii) access to assets of it is permitted only in accordance with managements general or specific authorization, (iv) the recorded inventory of assets is compared with the existing tangible assets at reasonable intervals and appropriate action is taken with respect to any material differences, (v) segregating duties for cash deposits, cash reconciliation, cash payment, proper approval is established, and (vi) no personal assets or bank accounts of the employees, directors, officers are mingled with the corporate assets or corporate bank account, and no Group Company uses any personal bank accounts of any employees, directors, officers thereof during the operation of the business.
3.27 Environmental Compliance.
None of the Group Companies is in material violation of any applicable statute, law or regulation relating to the environment or occupational health and safety and no material expenditures are or will be required to comply with any such existing statute, law or regulation.
3.28 Disclosure.
The Company has fully provided the Investor with all the information reasonably available to the Company that the Investor has requested for deciding whether to invest in the Company. No representation or warranty by the Warrantors in this Agreement (as qualified by the Disclosure Schedule) or any agreement contemplated hereby contains any untrue statement of any fact, or omits to state any fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading.
4. Representations and Warranties of the Investor.
The Investor hereby represents and warrants to the Company that:
4.1 Authorization.
The Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All action on the part of the Investor (and, as applicable, its officers, directors and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, and the performance of all obligations of the Investor thereunder, has been taken or will be taken prior to or at the Closing. Each Transaction Document that has been duly executed and delivered by the Investor (to the extent the Investor is a party), constitutes valid and legally binding obligations of the Investor, enforceable against the Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4.2 Purchase for Own Account.
Other than in accordance with the Investor groups employee incentive policy, the applicable Series C-3 Preferred Shares will be acquired for the Investors own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof.
4.3 Status of Investor.
The Investor is either (i) an accredited investor within the meaning of the U.S. Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a U.S. person as defined in Rule 902 of Regulation S of the Securities Act. The Investor has the knowledge, sophistication and experience necessary to make an investment decision like that involved in the purchase of the Series C-3 Preferred Shares and can bear the economic risk of its investment in the Series C-3 Preferred Shares.
4.4 Restricted Securities.
The Investor understands that the Series C-3 Preferred Shares are restricted securities within the meaning of Rule 144 under the Securities Act; and that the Series C-3 Preferred Shares are not registered or listed publicly.
4.5 No Brokers.
Neither the Investor nor any of its Affiliates has any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement or by any of the Transaction Documents, and none of them has incurred any Liability for any brokerage fees, agents fees, commissions or finders fees in connection with any of the Transaction Documents or the consummation of the transactions contemplated therein.
5. Conditions of the Investors Obligations at the Closing.
The obligations of the Investor to consummate the Closing under Section 2.2 of this Agreement are subject to the fulfillment, to the satisfaction of the Investor on or prior to the Closing, or waiver by the Investor, of the following conditions:
5.1 Representations and Warranties.
Each of the representations and warranties of the Warrantors contained in Section 3 (i) that are not qualified by materiality, material adverse effect or similar phrases shall have been true and correct when made and shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, and (ii) that are qualified by materiality, material adverse effect or similar phrases shall have been true and correct when made and shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and correct as of such particular date.
5.2 Performance.
The Company shall have performed and complied with all obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them on or before the Closing.
5.3 Authorizations.
All Consents of any competent Governmental Authority or of any other Person that are required to be obtained by the Company in connection with the consummation of the transactions contemplated by the Transaction Documents (including but not limited to those related to the lawful issuance and sale of the Securities, and any waivers of notice requirements, rights of first refusal, preemptive rights, put or call rights), including necessary approvals from Board of Directors and shareholders of the Company, shall have been duly obtained and effective as of the Closing, and evidence thereof shall have been delivered to the Investor.
5.4 Compliance Certificate.
The Company shall have delivered to the Investor a certificate, executed by the Chief Executive Officer of the Company, dated the date of the Closing, (a) stating that the conditions specified in Sections 5.1, 5.2 and 5.3 have been satisfied, and (b) certifying and attaching thereto (i) a certified true copy of the memorandum and articles of the Company as then in effect, and (ii) copies of all resolutions approved by the Companys shareholders and the Board of Directors approving the transactions contemplated hereby.
5.5 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions to be completed at the Closing and all documents incident thereto with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been completed in form and substance reasonably satisfactory to the Investor, and the Investor shall have received all such counterpart original or other copies of such documents as it may reasonably request.
5.6 Memorandum and Articles.
The Sixth Amended and Restated Memorandum and Articles, in the forms attached hereto as Exhibit A (the Restated Memorandum and Articles), shall have been duly adopted by all necessary action of the Board of Directors and/or the members of the Company, and such adoption shall have become effective prior to the Closing with no alternation or amendment as of the Closing.
5.7 Transaction Documents.
Each of the parties to the Transaction Documents, other than the Investor, shall have executed and delivered a scanned copy of such Transaction Documents to the Investor.
5.8 No Material Adverse.
No Material Adverse Effect shall have occurred from the Statement Date on or prior to the Closing.
5.9 ESOP Increase.
The ESOP Increase shall have been duly authorized and approved by the Board of Directors.
5.10 Progress of Clinical Trial.
The Company shall have provided to the Investor FDAs written confirmation issued after the date of this Agreement evidencing that the Company can proceed with the clinical trial in connection with product ADG-116 (IgG1 antagonist antibody targeting Cytotoxic T-Lymphocyte Protein 4).
6. Conditions of the Companys Obligations at the Closing.
The obligations of the Company owed to the Investor to consummate the Closing under Section 2.2 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties.
The representations and warranties of the Investor respectively contained in Section 4 shall have been true and correct when made and shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and correct as of such particular date.
6.2 Performance.
The Investor shall have performed and complied with all covenants, obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by it/him on or before the Closing.
6.3 Execution of Transaction Documents.
The Investor shall have executed and delivered to the Company the Transaction Documents, to which it is a party.
7. Other Agreements.
7.1 Indemnity.
The Warrantors hereby agree to, jointly and severally, indemnify and hold harmless the Investor, and its Affiliates, directors, officers, agents and assigns (each an Indemnified Party), from and against any and all Indemnifiable Losses suffered by such Indemnified Party, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or non-performance of any of the representations, warranties, covenants or agreements made by the Warrantors under the Transaction Documents; provided however, that in no case shall the aggregate amount of the indemnification paid or payable by the Warrantors to the Investor exceed the amount of the Investors investment hereunder. For the avoidance of doubt and for purpose of this Section 7.1, the representations and warranties of the Warrantors contained in Section 3 are made without regard and without giving effect to the term in all material respects set forth in Section 5.1(i).
7.2 Confidentiality.
The terms and conditions of the Transaction Documents (collectively, the Financing Terms), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except that (i) each Party, as appropriate, may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) the Investor may disclose any of the Financing Terms to its limited partners, fund managers and Affiliates, the directors, employees, its consultant thereof so long as such Persons are under appropriate non-disclosure obligations; (iii) if any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws) to disclose the existence or content of any of the Financing Terms in contravention of the provisions of this Section 7.2, such Party shall promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy and in any event shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information, (iv) the Investor and its Affiliates may disclose the Investors investment in the Company (without referencing or disclosing any Financing Terms) on General Atlantics website in substantially the same form and substance as the other disclosures made by General Atlantic with respect to its other portfolio company investments, and (v) the Company and its Affiliates may disclose the Investors investment in the Company (without referencing or disclosing any Financing Terms) on the Group Companies website in substantially the same form and substance as the other disclosures made by the Company with respect to its other financings.
7.3 Interim Business of the Group Companies.
Except as expressly contemplated by this Agreement or as required by applicable Law, between the date of this Agreement and the date of the Closing, (i) the Group Companies shall conduct their business in the usual, regular, and ordinary course of business in substantially the same manner as heretofore conducted, including without limitation, to protect, maintain and safeguard the Company Owned IP and made all applicable filings, registrations and payments of fees in connection therewith, (ii) none of the Group Company, without the prior written consent of the Investor, shall take any action which (a) would render any of the representations or warranties made by the Warrantors in this Agreement untrue if given with reference to the facts and circumstances then existing, (b) would result in any of the covenants contained in this Agreement becoming incapable of performance, (c) waive, release or assign any material right or claim, (d) would reasonably be expected to materially impair the value of the Group Companies, (e) issue, sell, grant any Equity Security of the Company, or change in any respect the share capital of the Company, (f) declare, issue, make, or pay any dividend or other distribution with respect to any Equity Security of the Company, or redeem or repurchase any Equity Security of the Company, (g) incur any Indebtedness for borrowed money or capital lease commitments, except for trade credits in the ordinary course of business, or assume or guarantee any Indebtedness of any Person, (h) enter into any material Contract or other transaction with any Related Party, or (i) authorize, approve or agree to any of the foregoing.
7.4 Access and Information.
From the date hereof until the date of the Closing, the Warrantors shall permit the Investor or any officer, employee, advisor, or other representative thereof to (a) visit and inspect the properties of the Group Companies, (b) inspect the contracts, books of account, records, ledgers, financial and operating data, and other documents and data of the Group Companies, (c) discuss the business, affairs, finances and accounts of the Group Companies with officers, employees, consultants, accountants, advisors and other representatives of the Group Companies, and (d) review such other information as the Investor reasonably requests, in each case during normal business hours with reasonable advance notices and in such a manner so as not to unreasonably interfere with the normal operations of the Group Companies. The Parties agree that no information or knowledge obtained pursuant to this Section 7.4 by the Investor in connection with its due diligence will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions.
7.5 SAFE Registration and ODI Filing
(i) If required by the SAFE Rules and Regulations, the Company shall procure (a) each of its shareholders which is a Domestic Resident under Circular 37 to, as soon as practicable after the date hereof, submit the application to the SAFE for registration so as to comply with all the SAFE Rules and Regulations, and use his or her reasonable best efforts to obtain an updated SAFE registration certificate with respect to his or her interest in the Company or (b) such shareholders transfer all shares they hold in the Company to (x) the Company at a mutually agreed price or (y) Persons designated by the applicable shareholder that is not a Domestic Resident under Circular 37.
(ii) The Company shall request and use commercially reasonable efforts to cooperate with Suzhou Industrial Park Biotech Development Co., Ltd. (Suzhou Biotech) to complete the overseas direct investment filing and obtain the relevant approval from the National Development and Reform Commission, the MOFCOM, the SAFE and the related foreign exchange bank with respect to its holding of Ordinary Shares of the Company (the ODI Filing) as soon as practicable after the date hereof. The Company shall use commercially reasonable efforts to enforce and cause Suzhou Biotech to comply with Articles 118 to 121 of the Restated Memorandum and Articles.
(iii) As soon as practicable after the completion of any ODI Filing by any shareholder of the Company, the WFOE shall complete its registration as a round-trip investment enterprise pursuant to SAFE Rules and Regulations.
7.6 FDA Compliance and Clinical Studies and Trials.
The Company shall, and shall cause its Affiliates to, comply in all material respects with all applicable Health Care Laws, including, with respect to clinical trials and non-clinical studies relating to the Products, applicable requirements of the FD&C Act (including GCP and GLP), the Public Health Services Act, and analogous requirements of state, local, provincial, and foreign Governmental Authorities.
7.7 Chief Medical Officer.
Within twelve (12) months after the Closing, the Company shall use its commercially reasonable efforts to hire a chief medical officer or set up a scientific advisory board with members that are experienced in clinical development as approved by the Board of Directors.
7.8 ESOP Increase.
In the event the ESOP Increase has not been authorized and approved by the Board of Directors prior to or at the Closing, the Investor shall procure its director (who shall be appointed to the Board of Directors at the Closing pursuant to Section 10.1(i)(g) of the Restated Shareholders Agreement) to vote in favor of the ESOP Increase and the Investor shall vote in favor of the ESOP Increase.
7.9 Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions Compliance
(i) Within three (3) months after the Closing, the Company shall adopt anti-bribery and anti-corruption policies and operational guidelines applicable to all Group Companies to the satisfaction of the Investor and provide anti-bribery and anti-corruption training to employees of all Group Companies to the satisfaction of the Investor.
(ii) At the reasonable request by the Investor following the Closing, the Company shall adopt anti-money laundering and Sanctions policies and operational guidelines applicable to all Group Companies to the satisfaction of the Investor.
7.10 Employment Contracts
At the reasonable request of the Investor and to the extent needed, the Company shall, and shall cause the Group Companies to, use commercially reasonable efforts to amend the employment contracts between the applicable Group Company and Key Employees to ensure that the non-compete provisions contained therein are fully enforceable.
8. Miscellaneous.
8.1 Successors and Assigns.
Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties hereto whose rights or obligations hereunder are affected by such terms and conditions. This Agreement and the rights and obligations therein may not be assigned by the Group Companies without the prior written consent of the Investor. This Agreement and the rights and obligations therein may not be assigned by the Investor without the prior written consent of the Company, except that the Investor may assign this Agreement and the rights and obligations therein to any of its Affiliate which holds shares in the Company with prior notice to the Company. Nothing in this Agreement, express or implied, is intended to confer upon any Party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.2 Governing Law.
This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the Laws of Hong Kong, without regard to the conflicts of law provisions of Hong Kong.
8.3 Dispute Resolution.
(i) Any dispute, controversy, difference or claim (each, a Dispute) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the Arbitration Notice) to the other.
(ii) The Dispute shall be settled by arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre (the HKIAC) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the HKIAC Rules) in force when the Arbitration Notice is submitted. There shall be three (3) arbitrators. The HKIAC council shall select the arbitrators, who shall be qualified to practice law in Hong Kong.
(iii) The arbitral proceedings shall be conducted in English.
(iv) The costs of arbitration shall be borne by the losing party, unless otherwise determined by the arbitral tribunal.
(v) The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
(vi) The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.
(vii) Any Party to the Dispute shall be entitled to seek interim measures of protection and emergency relief, if possible, from any court of competent jurisdiction in accordance with the applicable Laws of that jurisdiction.
(viii) When any Dispute occurs and when any Dispute is under arbitration, except for the matters in Dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.
8.4 Notices.
Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule IV (or at such other address as such Party may designate by fifteen (15) days advance written notice to the other Parties to this Agreement given in accordance with this Section 8.4). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a with a copy to address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.
8.5 Rights Cumulative; Specific Performance.
Subject to Section 7.1, each and all of the various rights, powers and remedies of a party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.
8.6 Fees and Expenses.
The Parties shall each pay all of its own costs and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby. If any action at Law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
8.7 Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.
8.8 Amendments and Waivers.
Any term of this Agreement may be amended, only with the written consent of the Company and the Investor. Any amendment effected in accordance with this paragraph shall be binding upon each of the Parties hereto. Notwithstanding the foregoing, the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Party against whom such waiver is sought.
8.9 No Waiver.
Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy power hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.
8.10 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
8.11 No Presumption.
The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.
8.12 Headings and Subtitles; Interpretation.
The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term or is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms herein, hereof, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the masculine, feminine, and neuter genders will each be deemed to include the others; (v) the term day means calendar day, and month means calendar month; (vi) all references in this Agreement to designated Sections and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (vii) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement; (viii) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning; (ix) references to laws include any such law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made; (x) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards; (xi) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (xii) references to this Agreement, any other Transaction Documents and any other document shall be construed as references to such document as the same may be amended, supplemented, restated or novated from time to time; (xiii) all references to dollars or to US$ are to currency of the United States of America (and each shall be deemed to include reference to the equivalent amount in other currencies).
8.13 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.
8.14 Entire Agreement.
This Agreement and the Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among any of the Parties with respect to the subject matters hereof and thereof.
8.15 Use of English Language.
This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language shall have no interpretive effect.
8.16 Further Assurances.
Each Party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents and assurances without further consideration, which may reasonably be required to procure the satisfaction of closing conditions and to effect the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
COMPANY: |
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Adagene Inc. |
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Name: Peter Peizhi Luo |
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Title: Director |
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HOLDCO SUBSIDIARY: |
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Adagene (Hong Kong) Limited
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/s/ Peter Peizhi Luo |
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Name: Peter Peizhi Luo |
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Title: Director |
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WFOE: |
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Adagene (Suzhou) Limited |
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(天演药业(苏州)有限公司) |
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(Seal) |
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/s/ Peter Peizhi Luo |
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Name: Peter Peizhi Luo |
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Title: Legal Representative |
[Adagene Inc. Series C-3 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
US SUBSIDIARY: |
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Adagene Incorporated |
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AUSTRALIAN SUBSIDIARY: |
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ADAGENE AUSTRALIA PTY LTD |
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[Adagene Inc. Series C-3 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
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GENERAL ATLANTIC SINGAPORE AI PTE. LTD. |
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[Adagene Inc. Series C-3 Share Purchase Agreement Signature Page]
SCHEDULE I
SERIES C-3 INVESTOR AT THE CLOSING
SCHEDULE II-A
CAPITALIZATION STRUCTURE ON FULLY DILUTED BASIS IMMEDIATELY PRIOR TO THE CLOSING
SCHEDULE II-B
CAPITALIZATION STRUCTURE ON FULLY DILUTED BASIS IMMEDIATELY AFTER THE CLOSING (WITHOUT ESOP INCREASE)
SCHEDULE II-C
CAPITALIZATION STRUCTURE ON FULLY DILUTED BASIS IMMEDIATELY AFTER THE CLOSING (INCLUDING ESOP INCREASE)
SCHEDULE III
DESIGNATED BANK ACCOUNT
SCHEDULE IV
ADDRESS FOR NOTICES
ANNEX 1
DEFINITIONS
1. Defined Terms. The following terms shall have the meanings ascribed to them as below:
Accounting Standards means the Hong Kong Financial Reporting Standards with respect to the Holdco Subsidiary, and the Chinese Accounting Standards with respect to the WFOE, applied on a consistent basis or other accounting principles approved by the Investor.
Action means any charge, claim, action, complaint, petition, investigation, appeal, suit, litigation, grievance, inquiry or other proceeding, whether administrative, civil, regulatory or criminal, whether at law or in equity, or otherwise under any applicable Law, and whether or not before any mediator, arbitrator or Governmental Authority.
Affiliate means, (i) with respect to a Person that is a natural person, such Persons Relatives and any Person Controlled, directly or indirectly, by such Person or his/her Relatives, and (ii) with respect to a Person that is not a natural person, a Person that directly, or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, such Person. In the case of the Investor, subject to the last clause of this definition, the term Affiliate also includes (i) any direct or indirect shareholder of the Investor, (ii) any of such shareholders general partners or limited partners, (iii) the fund manager managing such shareholder (and general partners, limited partners and officers thereof) and (iv) trusts controlled by or for the benefit of any natural person referred to in (ii) or (iii) above; provided that in no event shall any portfolio company owned, directly or indirectly, by investment funds managed by General Atlantic Service Company, L.P., be deemed an Affiliate of the Investor.
Ancillary Agreements means, collectively, the Restated Shareholders Agreement and the Restated Right of First Refusal & Co-Sale Agreement.
Board of Directors means the board of directors of the Company.
Business means the research, development, service, consulting, commercialization, transfer and license of technology relating to biologics including antibodies for therapeutic and/or diagnostic applications.
Business Day means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Hong Kong, Singapore, the Cayman Islands or the United States.
Charter Documents means, with respect to a particular legal entity, certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.
Circular 13 means the Circular on Further Simplifying and Improving the Foreign Exchange Administration Policies for Direct Investment [Huifa (2015) No. 13] (关于进一步简化和改进直接投资外汇管理政策的通知[汇发(2015)13号]) issued by SAFE with effect from June 1, 2015.
Circular 37 means the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Investment and Financing and Round Trip Investment via Special Purpose Companies [Huifa (2014) No. 37] (关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知[汇发(2014)37号]) issued by SAFE with effect from July 14, 2014.
Code means the United States Internal Revenue Code of 1986, as amended.
Company Owned IP means all Intellectual Property owned by, purported by any Group Company to be owned by, or exclusively licensed to, any of the Group Companies.
Company Registered IP means all Intellectual Property for which registrations are owned by or held in the name of, or for which applications have been made in the name of, any Group Company.
Consent means any consent, approval, authorization, release, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.
Contract means a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.
Control of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms Controlled and Controlling have meanings correlative to the foregoing.
Conversion Shares means, the Ordinary Shares issuable upon the conversion of Series C-3 Preferred Shares issued hereunder.
Equity Securities means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing.
ESOP means the Ordinary Shares (as adjusted in connection with share splits or share consolidation, reclassification or other similar event) and/or options or warrants therefor issued in the aggregate not exceeding 6,336,126 Ordinary Shares (on an as-exercised basis) to employees, officers, directors, contractors, advisors or consultants of the Group Companies pursuant to the Restated Share Incentive Plan.
ESOP Increase means an increase to the size of ESOP, such increase representing 10% of the total share capital of the Company on a fully diluted basis as of immediately after the Closing (as adjusted in connection with share splits or share consolidation, reclassification or other similar event) and/or options or warrants therefor issued and after such increase, the aggregate size of ESOP shall not exceed 11,391,131 Ordinary Shares on an as converted, fully diluted and as-exercised basis (as adjusted in connection with share splits or share consolidation, reclassification or other similar event).
FCPA means Foreign Corrupt Practices Act of the United States of America, as amended from time to time.
FDA means the U.S. Food and Drug Administration, or any successor federal agency in the U.S. performing similar functions.
GCP means the then-current Good Clinical Practice standards for the design, conduct, performance, monitoring, auditing, recording, analysis and reporting of Clinical Trials, including, as applicable (a) the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use Harmonized Tripartite Guideline for Good Clinical Practice (CPMP/ICH/135/95) and any other guidelines for good clinical practice for trials on medicinal products in the Territory, (b) the Declaration of Helsinki (2004) as last amended at the 52nd World Medical Association in October 2000 and any further amendments or clarifications thereto, (c) U.S. Code of Federal Regulations Title 21, Parts 50 (Protection of Human Subjects), 56 (Institutional Review Boards) and 312 (Investigational New Drug Application), and (d) the PRC Good Clinical Practice for Pharmaceutical Products, each as maybe amended from time to time.
GLP means the then-current Good Laboratory Practice standards, including (a) the Good Laboratory Practice standards promulgated or endorsed by the FDA as defined in 21 C.F.R. Part 58, and (b) the Good Laboratory Practice for Pharmaceutical Products promulgated or endorsed by the NMPA, or the successor thereto, as may be amended from time to time.
Governmental Authority means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
Governmental Order means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
Group Company means each of the Company, the Holdco Subsidiary, the WFOE, the US Subsidiary, and the Australian Subsidiary, together with each Subsidiary of any of the foregoing, and Group refers to all of Group Companies collectively.
Health Care Laws means the Federal Food, Drug, and Cosmetic Act (FD&C Act); the Public Health Services Act; the PRC Drug Administration Law (DAL); analogous laws promulgated by foreign, federal, state, provincial or local Governmental Authorities; and any regulations adopted by Regulatory Authorities thereunder (including, as applicable, those requirements relating to cGMP, GLP, GCP, investigational use, and pre-market approval).
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
Indebtedness of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized (including capitalized lease obligations), (vii) all obligations under bankers acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, and (x) all guarantees issued in respect of the Indebtedness referred to in clauses (i) through (ix) above of any other Person, but only to the extent of the Indebtedness guaranteed.
Indemnifiable Loss means, with respect to any Person, any action, claim, cost, damage, deficiency, disbursement, expense, liability, loss, obligation, penalty or settlement of any kind or nature imposed on or otherwise incurred or suffered by such Person, including without limitation, (x) reasonable legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims, and (y) amounts paid in settlement, other than consequential damages resulting from a breach for which the Parties do not, and did not, have reason to foresee as a probable result of such breach.
Indemnification Agreement means the director indemnification agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit E.
Intellectual Property means any and all (i) patents, all patent rights, and all patent applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights (including any rights in software or source code), copyright registrations and applications, mask works and registrations and applications therefor, authors rights and works of authorship (iv) domain names, URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols and tools, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms and (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and the goodwill symbolized or represented by the foregoing and other proprietary information and common-law rights.
knowledge of any Party shall mean such Partys actual knowledge after due and diligent inquiries of officers and directors of such Party reasonably believed to have knowledge of the matter in question.
Law or Laws means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any formally issued written interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.
Liabilities means, with respect to any Person, all liabilities, obligations and commitments of such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.
Lien means any claim, charge, easement, encumbrance, lease, covenant, security interest, equity, lien, option, pledge, mortgage, hypothecation, retention of title, title defect, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, law, equity or otherwise.
Material Adverse Effect means any (i) event, occurrence, fact, condition, change or development that has had, has, or would reasonably be expected to have, individually or together with other events, occurrences, facts, conditions, changes or developments, a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of the Group taken as a whole, (ii) material impairment of the ability of any Party (other than the Investor) to perform the material obligations of such Party under any Transaction Documents, or (iii) material impairment of the validity or enforceability of this Agreement or any other Transaction Document against any Party hereto or thereto (other than the Investor). The Material Adverse Effect shall not include (a) any outbreak or escalation of war or major hostilities or any act of terrorism or any natural disaster or other force majeure event which occurs after the date of this Agreement; (b) changes in Laws, generally accepted accounting principles or enforcement or interpretation thereof after the date of this Agreement; (c) changes that generally affect the industries and markets in which the Group Companies operate to the extent such changes do not have a materially disproportionate adverse effect relative to other similarly situated industry participants; (d) changes in financial markets, general economic conditions (including prevailing interest rates, exchange rates, commodity prices and fuel costs) or political or social conditions to the extent such changes do not have a materially disproportionate adverse effect relative to other similarly situated industry participants.
MOFCOM means the Ministry of Commerce of the PRC or, with respect to any matter to be submitted for examination and approval by the Ministry of Commerce, any Governmental Authority which is delegated or authorized by the Ministry of Commerce to examine and approve such matter under the laws of the PRC.
NMPA means the National Medical Products Administration under the PRC State Administration for Market Regulation, or any successor thereto. For the avoidance of doubt, the NMPA shall refer to the agency formerly known as the PRCs Food and Drug Administration (CFDA).
Ordinary Shares means the Companys ordinary shares, par value US$0.0001 per share.
Permitted Liens means (i) Liens for Taxes not yet delinquent or the validity of which are being contested in good faith and for which there are adequate reserves on the applicable financial statements, and (ii) Liens incurred in the ordinary course of business, which (x) do not individually or in the aggregate materially detract from the value, use, or transferability of the assets that are subject to such Liens, and (y) were not incurred in connection with the borrowing of money.
Person means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.
PRC means the Peoples Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.
Products means any product (a) that is or was researched, developed, tested, labeled, manufactured, stored, imported, exported, marketed or distributed by or on behalf of the Company or any of its Affiliates on or before the date of this Agreement or at any time thereafter prior to the Closing Date.
Prohibited Person means any Person that is (1) a national or resident of any U.S. embargoed or restricted country, (2) included on, or Affiliated with any Person on, the United States Commerce Departments Denied Parties List, Entities and Unverified Lists; the U.S. Department of Treasurys Specially Designated Nationals, Specially Designated Narcotics Traffickers or Specially Designated Terrorists, or the Annex to Executive Order No. 13224; the Department of States Debarred List; UN Sanctions, (3) a member of any PRC military organization, or (4) a Person with whom business transactions, including exports and re-exports, are restricted by a U.S. Governmental Authority, including, in each clause above, any updates or revisions to the foregoing and any newly published rules.
Public Official means any executive, official, or employee of a Governmental Authority, political party or member of a political party, political candidate; executive, employee or officer of a public international organization; or director, officer or employee or agent of a wholly owned or partially state-owned or controlled enterprise, including a PRC state-owned or controlled enterprise.
Regulatory Authority means, in respect of a jurisdiction, any agency, department, bureau or other governmental entity with authority over the Development, manufacture, use or sale with respect to products in the jurisdiction, including the FDA and the NMPA.
Related Party means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, and any Affiliate of any of the foregoing.
Relative of a natural person means the spouse of such person and any parent, grandparent, child, grandchild, sibling, cousin, in-law, uncle, aunt, nephew or niece of such person or spouse.
Restated Share Incentive Plan means the Companys Amended and Restated Share Incentive Plan (as amended) duly approved by the Board of Directors, a true copy of which was provided to the Investor prior to the date hereof.
Restated Shareholders Agreement means the Fifth Amended and Restated Shareholders Agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit B.
Restated Right of First Refusal & Co-Sale Agreement means the Fourth Amended and Restated Right of First Refusal & Co-Sale Agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit C.
Right of First Refusal & Co-Sale Agreement means the Third Amended and Restated Right of First Refusal & Co-Sale Agreement entered into on June 12, 2019 by and among the Company and the parties named therein.
SAFE means the State Administration of Foreign Exchange of the PRC.
SAFE Rules and Regulations means collectively, the Circular 13, Circular 37 and any other applicable SAFE rules and regulations.
SAIC means the State Administration of Industry and Commerce of the PRC or, with respect to the issuance of any business license or filing or registration to be effected by or with the State Administration of Industry and Commerce, any Governmental Authority which is similarly competent to issue such business license or accept such filing or registration under the laws of the PRC.
Sanctions means any economic sanctions laws, regulations or embargoes enacted or enforced by Sanctions Authorities;
Sanctions Authorities means:
(a) the United States;
(b) the United Nations;
(c) the European Union;
(d) the United Kingdom;
the respective Government Authorities of any of the foregoing, including the Office of Foreign Assets Control of the US Department of Treasury, the United States Department of State, and Her Majestys Treasury;
Securities Act means the U.S. Securities Act of 1933, as amended and interpreted from time to time.
Series C-3 Preferred Share means a series C-3 preferred share of the Company, par value US$0.0001 per share.
Shareholders Agreement means the Fourth Amended and Restated Shareholders Agreement entered into on June 12, 2019 by and among the Company and parties named therein.
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.
Tax means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i)(a) and (i)(b) above.
Tax Return means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.
Transaction Documents means this Agreement, the Restated Memorandum and Articles, the Ancillary Agreements and each of the other agreements and documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.
U.S. real property holding corporation has the meaning as defined in the Code.
Warrantors means the Group Companies.
2. Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:
Agreement |
|
Preamble |
Arbitration Notice |
|
Section 8.3(i) |
Australian Subsidiary |
|
Preamble |
Closing |
|
Section 2.2(i) |
Company |
|
Preamble |
Compliance Laws |
|
Section 3.16(i) |
DAL |
|
Definition of Health Care Laws |
Disclosure Schedule |
|
Section 3 |
Dispute |
|
Section 8.3(i) |
FD&C Act |
|
Definition of Health Care Laws |
Financial Statements |
|
Section 3.11 |
Financing Terms |
|
Section 7.2 |
HKIAC |
|
Section 8.3(ii) |
HKIAC Rules |
|
Section 8.3(ii) |
Holdco Subsidiary |
|
Preamble |
Indemnified Party |
|
Section 7.1 |
Investor |
|
Preamble |
Key Employees |
|
Section 3.20(i) |
Lease |
|
Section 3.17(ii) |
Licenses |
|
Section 3.19(v) |
Material Contracts |
|
Section 3.15(i) |
ODI Filing |
|
Section 7.5(ii) |
Party(ies) |
|
Preamble |
Purchase Price |
|
Section 2.1(i) |
Representatives |
|
Section 3.16(i) |
Restated Memorandum and Articles |
|
Section 5.6 |
Series C-3 Preferred Shares |
|
Section 2.1(i) |
Statement Date |
|
Section 3.11 |
Suzhou Biotech |
|
Section 7.5(ii) |
US Subsidiary |
|
Preamble |
WFOE |
|
Preamble |
EXHIBIT A
FORM OF SIXTH AMENDED AND RESTATED
MEMORANDUM AND ARTICLES OF ASSOCIATION
EXHIBIT B
FORM OF AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
EXHIBIT C
FORM OF FOURTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL & CO-SALE AGREEMENT
EXHIBIT D
DISCLOSURE SCHEDULE
EXHIBIT E
INDEMNIFICATION AGREEMENT
Execution Version
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this Agreement) is made and entered into on June 9, 2019 by and among:
1. Adagene Inc., an exempted company organized under the laws of the Cayman Islands (the Company);
2. Adagene (Hong Kong) Limited (天演藥業(香港)有限公司), a company organized under the laws of Hong Kong (the Holdco Subsidiary);
3. Adagene (Suzhou) Limited (天演药业(苏州)有限公司), a company organized under the laws of the PRC (the WFOE);
4. Adagene Incorporated, a company organized under the laws of the State of Delaware (the US Subsidiary);
5. ADAGENE AUSTRALIA PTY LTD, a company incorporated and organized under the laws of Australia (the Australian Subsidiary); and;
6. Each of the Persons listed in Schedule I attached hereto (individually, an Investor, and collectively, the Investors).
The foregoing parties shall be hereinafter referred collectively as the Parties and each individually as a Party.
RECITALS
A. The Company holds 100% issued and outstanding share capital of the Holdco Subsidiary, which holds 100% registered capital of the WFOE. The Company also holds 100% issued and outstanding shares of the US Subsidiary, which holds 100% issued and outstanding shares of the Australian Subsidiary.
B. The Investors wish to invest in the Company by subscribing for Series C-2 Preferred Shares (as defined below) to be issued by the Company pursuant to the terms and subject to the conditions of this Agreement, and the Company wishes to issue and sell Series C-2 Preferred Shares to the Investors pursuant to the terms and subject to the conditions of this Agreement.
C. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:
Share Purchase Agreement
1. Definitions.
Capitalized terms shall have the meanings ascribed to them in Annex 1 attached hereto.
2. Purchase and Sale of Shares.
2.1 Sale and Issuance of the Series C-2 Preferred Shares.
(i) Subject to the terms and conditions of this Agreement (including but not limited to Sections 5 and 6), at the Closing (as defined below), the Investors agree to subscribe for and purchase, and the Company agrees to issue and sell to the Investors, a total number of 1,861,121 series C-2 preferred shares of the Company, par value US$0.0001 per share (the Series C-2 Preferred Shares), with each Investor subscribing for such number of Series C-2 Preferred Shares as set forth opposite to such Investors name on Schedule I attached hereto and paying as consideration of US$18,999,999 (the Purchase Price) representing a per share price of US$10.2089.
(ii) Immediately after the consummation of the Closing, the capitalization structure of the Company is set forth in Schedule II hereto.
2.2 Closing.
(i) Closing. The closing of the sale, purchase and issuance of the Series C-2 Preferred Shares pursuant to Section 2.1 (the Closing) shall take place within ten (10) Business Days after all closing conditions specified in Section 5 and Section 6 hereof have been satisfied or waived (other than those conditions to be satisfied at the Closing, but subject to the satisfaction or waiver thereof at the Closing) or on such other date agreed by the Company and the Investors by the exchange of signatures and documents electronically.
(ii) Deliveries by the Company at Closing. At the Closing, in addition to any items the delivery of which is made an express condition to the Investors obligations at the Closing pursuant to Section 5, the Company shall deliver to the Investors (a) a certified true copy of the updated register of members of the Company, reflecting the issuance of the Series C-2 Preferred Shares at the Closing, and (b) a copy of the duly executed share certificates representing the Series C-2 Preferred Shares being purchased by the Investors at the Closing. Within five (5) Business Days after the Closing, the Company shall deliver to the Investors the original share certificates representing the Series C-2 Preferred Shares being purchased by such Investor at the Closing, and shall duly file the Restated Memorandum and Articles (as defined below) with the appropriate authority(ies) of the Cayman Islands.
(iii) Deliveries by the Investors at Closing. Within five (5) Business Days upon the Closing, subject to the satisfaction or waiver of all the conditions set forth in Section 5, each Investor shall pay the Purchase Price in accordance with Section 2.1(i) hereto by wire transfer of immediately available funds in U.S. dollars to an account of the Company as set out in Schedule III hereto, or as otherwise designated by the Company in writing.
(iv) If, after or at the Closing (as first scheduled or as deferred), any Investor shall fail to perform its obligations to fund its Purchase Price pursuant to Section 2.2(iii) or any closing conditions specified in Section 6 hereof for such Investor has not been satisfied, the Closing shall take place with respect to the other Investors. The closing with respect to such Investor shall not take place until such time it has fulfilled its obligations hereunder. The Company shall also have the option to terminate this Agreement with respect to such Investor that failed to perform its obligation to fund its Purchase Price or with respect to such Investor that failed to satisfy any closing conditions specified in Section 6 hereof for such Investor. For the avoidance of doubt, in the event of such termination, the Company can take all measures to unwind the transactions contemplated hereunder with respect to such Investor to the status immediately prior to the Closing, including but not limited to removing such Investor from the register of members of the Company or decline the number of the Series C-2 Preferred Shares being purchased by such Investor at the cost of such Investor (as the case may be).
2.3 Use of Proceeds.
The Company shall use the Purchase Price as set forth in Section 2.1 as working capital for (a) the development and improvement of antibody drug discovery platform and (b) research and development of innovative pipeline products targeting severe diseases. The Company shall not use the Purchase Price as set forth in Section 2.1 for financing the acquisition or subscription of any shares or other debt or equity securities listed on any stock exchange, or any interest therein. The Investors shall have the right but not the obligation to monitor the use of proceeds.
2.4 Walk-Away.
In the event that the Closing has not occurred within four (4) months from the date hereof (or by such later time and date as the parties hereto may mutually agree upon in writing), this Agreement may be terminated by the Company or the Investors at their own election and discretion by issuing a written notice to the other Parties after which this Agreement shall be of no further force and effect with respect to the Parties to this Agreement (with the exception of this Section 2.4, Section 7.2 and Section 8) which shall remain in full force and effect).
3. Representations and Warranties of the Company.
Subject to such exceptions as may be set forth in the disclosure schedule delivered by the Company to the Investors as of the date hereof and attached hereto as Exhibit D (the Disclosure Schedule) which forms part of the representation and warranties herein, the Warrantors jointly and severally represent and warrant to the Investors that the following statements are true and correct as of the date hereof and as of the Closing. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Section 3, and the disclosures in any section of the Disclosure Schedule shall qualify other section in this Section 3 to the extent it is reasonably apparent from a reading of the disclosure that such disclosure is applicable to such other sections.
3.1 Organization, Good Standing and Qualification.
Each Group Company is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the Laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its Business as now conducted, and to perform each of its obligations under the Transaction Documents to which it is a party. Each Group Company is qualified to do business and is in good standing (or equivalent status in the relevant jurisdiction) in each jurisdiction where failure to be so qualified would be a Material Adverse Effect. Each Group Company that is a PRC entity has a valid business license issued by the SAIC or its local branch or other relevant Government Authorities, and has, since its establishment, carried on its Business materially in compliance with the business scope set forth in its business license.
3.2 Capitalization and Voting Rights.
(i) Company. The authorized share capital of the Company immediately prior to the Closing shall be US$50,000 divided into (a) a total of 477,202,617 authorized ordinary shares of US$0.0001 each, 15,159,136 of which are issued and outstanding; and (b) a total of 7,844,371 authorized Series A Preferred Shares with par value of US$0.0001 each, 5,473,957 of which are classified as series A-1 preferred shares with par value of US$0.0001 each, all of which are issued and outstanding, and 2,370,414 of which are classified as series A-2 preferred shares with par value of US$0.0001 each, all of which are issued and outstanding; (c) a total of 7,494,537 authorized Series B Preferred Shares with par value of US$0.0001 each, all of which are issued and outstanding; and (d) a total of 7,458,475 authorized Series C Preferred Shares with par value of US$0.0001 each, comprised of 5,597,354 Series C-1 Preferred Shares with par value of US$0.0001 each and 1,861,121 Series C-2 Preferred Shares with par value of US$0.0001 each, all of the Series C-1 Preferred Shares are issued and outstanding and none of the Series C-2 Preferred Shares is issued and outstanding.
(ii) Holdco Subsidiary. The authorized share capital of the Holdco Subsidiary is and immediately prior to and following the Closing shall be HK$10,000.00 divided into 10,000 shares of HK$1.00 par value, 100% of which are issued and outstanding and all held by the Company.
(iii) WFOE. The registered capital of the WFOE is and immediately prior to and following the Closing shall be RMB 8,000,000, 100% of which has contributed by the Holdco Subsidiary.
(iv) US Subsidiary. The authorized share capital of the US Subsidiary is and immediately prior to and following the Closing shall be 5,000 shares of common stock, 100% of which are issued and outstanding and all held by the Company.
(v) Australian Subsidiary. The authorized share capital of the Australian Subsidiary is and immediately prior to and following the Closing shall be 100 ordinary shares, 100% of which are issued and outstanding and all held by the US Subsidiary.
(vi) No Other Securities. Except for (a) this Agreement, (b) certain agreements disclosed in Section 3.2(vi) in the Disclosure Schedule and (c) the ESOP reserved by the Company and granted by the Board of Directors, (1) there are no and at the Closing there shall be no other authorized or outstanding Equity Securities of any Group Company; (2) no promise, commitment or offer has been made, in writing or otherwise, by any Group Company or any officer of any Group Company on behalf of the Group Company, to issue any Equity Securities of any Group Company; (3) no Equity Securities of any Group Company are subject to any preemptive rights, rights of first refusal or other rights to purchase such Equity Securities or any other rights with respect to such Equity Securities, and (4) no Group Company is a party or subject to any Contract that affects or relates to the voting or giving of written consents with respect to, or the right to cause the redemption, or repurchase of, any Equity Security of such Group Company. Except as set forth in the Restated Shareholders Agreement, the Company has not granted any registration or information rights to any other Person, nor is the Company obliged to list, any of the Equity Securities of any Group Companies on any securities exchange.
(vii) Issuance and Status. All share capital or registered capital, as the case may be, of each Group Company have been duly and validly issued, are fully paid (or subscribed for) and non-assessable, and are and as of the Closing shall be free of any and all Liens (except for any restrictions on transfer under the Ancillary Agreements and applicable Laws). Except as contemplated under the Transaction Documents, there are no (a) resolutions pending to increase the share capital or registered capital of any Group Company or cause the liquidation, winding up, or dissolution of any Group Company, nor has any distress, execution or other process been levied against any Group Company, (b) dividends which have accrued or been declared but are unpaid by any Group Company, (c) obligations, contingent or otherwise, of any Group Company to repurchase, redeem, or otherwise acquire any Equity Securities, or (d) except for the ESOP granted to certain Persons by the Board of Directors, outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company. All dividends (if any) or distributions (if any) declared, made or paid by each Group Company, and all repurchases and redemptions of Equity Securities of each Group Company (if any), have been declared, made, paid, repurchased or redeemed, as applicable, in accordance with its Charter Documents and all applicable Laws in all material respects.
(viii) Title. The Company is the sole record and beneficial holder of all of outstanding share capital of Holdco Subsidiary and US Subsidiary, and Holdco Subsidiary is the sole holder of all equity interests of the WFOE, all of which are free and clear of all Liens of any kind other than those arising under applicable Law or as set forth in the Transaction Documents.
3.3 Corporate Structure; Subsidiaries.
Section 3.3 of the Disclosure Schedule sets forth a complete structure chart showing Group Companies, and indicating the ownership and Control relationships among all Group Companies, the nature of the legal entity which each Group Company constitutes, the jurisdiction in which each Group Company was organized, and each jurisdiction in which each Group Company is required to be qualified or licensed to do business as a foreign Person. No Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any Equity Security, interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person, other than the commitment of the Holdco Subsidiary to contribute registered capital to the WFOE in accordance with the Charter Documents of the WFOE. The Group does not engage in any business other than the Business.
3.4 Authorization.
Each of the Group Companies has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. The authorization, issuance, sale and delivery of Series C-2 Preferred Shares, and reservation for issuance of the Conversion Shares, has been taken or will be taken prior to the Closing. This Agreement has been, and each other Transaction Document, when executed and delivered, constitutes valid and legally binding obligations of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors rights generally, (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (iii) as limited by the Shareholders Agreement, Right of First Refusal & Co-Sale Agreement and existing Fourth Amended and Restated Memorandum and Articles of Association.
3.5 Valid Issuance of Securities.
The Series C-2 Preferred Shares, when issued, delivered and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable Laws and under the Ancillary Agreements). All Conversion Shares, upon issuance in accordance with the terms of the memorandum and articles of the Company then in effect, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable securities Laws and under the Ancillary Agreements). The issuance of the Series C-2 Preferred Shares is not, and the issuance of the Conversion Shares will not be, subject to any preemptive rights, rights of first refusal or similar rights other than those that have been or will be duly waived prior to or at the Closing, as applicable.
3.6 Consents; No Conflicts.
All Consents from or with any Governmental Authority or any other Person required in connection with the execution, delivery and performance of the Transaction Documents by the parties thereto (other than the Investors), and the consummation of the transactions contemplated by the Transaction Documents by the parties thereto (other than the Investors), have been duly obtained or completed (as applicable) and are in full force and effect. The execution, delivery and performance of each Transaction Document by the Warrantors do not, and the consummation by the Warrantors of the transactions contemplated thereby will not, with or without notice or lapse of time or both, (i) result in any violation of, be in conflict with, or constitute a default under any provision of the constitutional documents of the Warrantors or any Contracts to which the Warrantors are parties, (ii) result in any violation of, be in conflict with, or constitute a default under, in any material respect, any Governmental Order or any applicable Law, or (iii) results in the creation of any Lien upon any asset of any Group Company.
3.7 Offering.
Subject in part to the accuracy of the Investors representations set forth in Sections 4 of this Agreement, the offer, sale and issuance of the Series C-2 Preferred Shares are, exempt from the qualification, registration and prospectus delivery requirements of the Securities Act and any other applicable securities Laws.
3.8 Compliance with Laws; Consents.
(i) Each Group Company is, and has been, in compliance in all material respects with all applicable Laws. To the Warrantors knowledge, no event has occurred and no circumstance exists that (with or without notice or lapse of time) (a) may constitute or result in a violation by any Group Company of, or a failure on the part of such entity to comply with, any applicable Laws in any material respect, or (b) may give rise to any obligation on the part of any Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. None of the Group Companies has received any notice from any Governmental Authority regarding any of the foregoing. No Group Company is under investigation with respect to a material violation of any Law.
(ii) All material Consents from or with the relevant Governmental Authority required in respect of the due and proper establishment and operations of each Group Company as now conducted, including but not limited to the Consents from or with MOFCOM, SAIC, SAFE, any Tax bureau and the local counterpart thereof, as applicable (or any predecessors thereof, as applicable), have been duly obtained or completed in accordance with all applicable Laws. None of the Group Companies is in default in any material respect under any required Governmental Consent. No Group Company has received any letter or other written communication from any Governmental Authority threatening or providing notice or revocation of any required Governmental Consent issued to any Group Company or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by any Group Company.
3.9 Tax Matters.
(i) Each Group Company (a) has timely filed all income and other material Tax Returns that are required to have been filed by it with any Governmental Authority, and (b) has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return), except to the extent any failure to timely pay such Taxes would not have a Material Adverse Effect.
(ii) Each Tax Return referred to in paragraph (i) above was (and will be) true, correct and complete in all material respects in compliance with applicable Law. There is no pending dispute with, or notice from, any Tax authority relating to any of the Tax Returns filed by any Group Company, and there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company. No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate tax authority or in such Tax Return, as may be required by applicable Law, except to the extent any failure to disclose such reporting position would not have a Material Adverse Effect on any Group Company.
(iii) No Group Company has been the subject of any examination or investigation by any Tax authority relating to the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the payment or withholding of Taxes. None of the Group Companies has received notice of any proposed or determined Tax deficiency or assessment from any Governmental Authority. As of the date hereof there are no audits, examinations, requests for information or other administrative proceedings pending or threatened with respect to any of the Group Companies. There is no pending dispute with, or notice from, any taxing authority relating to any of the Tax Returns filed by any Group Company which, if determined adversely to such Group Company, would result in the assertion by any taxing authority of any valid deficiency in a material amount for Taxes, and to the knowledge of the Warrantors, there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company.
(iv) No Group Company is or has ever been a U.S. real property holding corporation.
(v) The Company is treated as a corporation for U.S. federal income tax purposes.
3.10 Charter Documents; Books and Records.
The Charter Documents of each Group Company are in the form provided to the Investors. Each Group Company has been in compliance with its Charter Documents, and none of the Group Companies has violated or breached any of their respective Charter Documents. Such copy is true, correct and complete, and contains all amendments and all minutes of meetings and actions taken by its shareholders and directors since the time of formation through the date hereof and reflects all transactions referred to in such minutes in all material respects. Each Group Company maintains its books of accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior practice, and which permits its Financial Statements (as defined below) to be prepared in accordance with the Accounting Standards. The register of members and directors (with respect to the jurisdiction where recognizes this concept) of each Group Company is correct, there has been no notice of any proceedings to rectify any such register, and there are no circumstances which might lead to any application for its rectification. All documents requiring to be filed by each Group Company with the applicable Governmental Authority in respect of the relevant jurisdiction in which the relevant Group Companies is being incorporated have been properly made up and filed.
3.11 Financial Statements.
The Company has delivered to the Investors (i) the audited balance sheets, income statements and statements of cash flows for the Holdco Subsidiary and the WFOE as of and for the twelve-months ending December 31, 2016, (ii) the audited balance sheets, income statements and statements of cash flows for the Holdco Subsidiary and the WFOE as of and for the twelve-months ending December 31, 2017 and (iii) the unaudited consolidated balance sheet, income statement and statement of cash flows for the Holdco Subsidiary and the WFOE as of and as of for the twelve-month period ending December 31, 2018 (the Statement Date) (collectively, the financial statements referred to above, the Financial Statements). The Financial Statements (a) have been prepared in accordance with the books and records of the Group, (b) fairly present in all material respects the financial condition and position of the Group as of the dates indicated therein and the results of operations and cash flows of the Group for the periods indicated therein, except in the case of unaudited financial statements for the omission of notes thereto and normal year-end audit adjustments that are not expected to be material, and (c) were prepared generally in accordance with the Accounting Standards applied on a consistent basis throughout the periods involved.
3.12 Changes.
Since the Statement Date, each Group Company (a) has operated its business in the ordinary course consistent with its past practice, (b) used its reasonable best efforts to preserve its business, (c) collected receivables and paid payables and similar obligations in the ordinary course of business consistent with past practice, and (d) not engaged in any new line of business or entered into any agreement, transaction or activity or made any commitment except those in the ordinary course of business consistent with past practice. Since the Statement Date, except disclosed in Section 3.12 in the Disclosure Schedule, there has not been any Material Adverse Effect or any material change in the way the Group conducts its business, and there has not been by or with respect to any Group Company:
(i) any purchase, acquisition, sale, lease, disposal of or other transfer of any assets that are individually or in the aggregate material to its business, whether tangible or intangible, other than the purchase or sale of inventory in the ordinary course of business consistent with its past practice;
(ii) any acquisition (by merger, consolidation or other combination, or acquisition of stock or assets, or otherwise) of any business or other Person or division thereof, or any sale or disposition of any business or division thereof;
(iii) any waiver, termination, cancellation, settlement or compromise of a valuable right, debt or claim with a value more than US$500,000;
(iv) any incurrence, creation, assumption, repayment, satisfaction, or discharge of (1) any material Lien (other than Permitted Liens) or (2) any Indebtedness or guarantee, or the making of any loan or advance (other than reasonable and normal advances to employees for bona fide expenses that are incurred in the ordinary course of business consistent with its past practice), or the making of any investment or capital contribution;
(v) any material amendment to or termination of any Material Contract, any entering of any new Contract that would have been a Material Contract if in effect on the date hereof, or any amendment to or waiver under any Charter Document;
(vi) any declaration, setting aside or payment or other distribution in respect of any Equity Securities of any Group Company, or any issuance, transfer, redemption, purchase or acquisition of any Equity Securities by any Group Company;
(vii) any damage, destruction or loss, whether or not covered by insurance, adversely affecting any of the material assets, properties of any Group Company other than the normal wear and tear occurring in the ordinary course of business;
(viii) any material change in accounting methods or practices;
(ix) except in the ordinary course of business consistent with its past practice, entry into any closing agreement in respect of material Taxes, settlement of any claim or assessment in respect of any material Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any material Taxes, entry or change of any material Tax election, change of any method of accounting resulting in a material amount of additional Tax or filing of any material amended Tax Return;
(x) any commencement or settlement of any material Action;
(xi) any authorization, sale, issuance, transfer, pledge or other disposition of any Equity Securities of any Group Company other than ESOP; or
(xii) any transaction with any Related Party other than any employment agreement entered into with the employee and certain officers.
3.13 Actions.
There is no Action pending or to the Warrantors knowledge threatened against or affecting any Group Company with respect to its Business, or any officers, directors or employees of any Group Company in connection with such persons respective relationship with such Group Company, nor is there any basis for any of the foregoing. There is no Action pending by any Group Company against any third party nor does any Group Company intend to commence any such Action. No Governmental Authority has at any time challenged or questioned in writing the legal right of any Group Company to conduct in any material respect its business as presently being conducted.
3.14 Liabilities.
No Group Company has any Liabilities except for (i) liabilities set forth in the Financial Statements, and (ii) current liabilities incurred since the Statement Date in the ordinary course of the Groups business consistent with its past practices. None of the Group Companies has any outstanding Indebtedness. None of the Group Companies is a guarantor or indemnitor of any Liabilities of any other Person (other than a Group Company).
3.15 Commitments.
(i) Section 3.15(i) of the Disclosure Schedule contains a complete and accurate list of all Material Contracts. Material Contracts means, collectively, each Contract to which a Group Company or any of its properties or assets is bound or subject to that (a) involves obligations (contingent or otherwise) or payments in excess of US$250,000 per annum or has an unexpired term in excess of one year, (b) involves Intellectual Property that is material to a Group Company (other than generally-available off-the-shelf shrink-wrap software licenses obtained by the Group on non-exclusive and non-negotiated terms), including without limitation, the Licenses, (c) restricts the ability of a Group Company to compete or to conduct or engage in any business or activity or in any territory, (d) relates to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Equity Securities, (e) involves any provisions providing for exclusivity, change in control, most favored nations, rights of first refusal or first negotiation or similar rights, or grants a power of attorney, agency or similar authority, (f) is with a Related Party, (g) involves material Indebtedness, (h) involves the lease, license, sale, use, disposition or acquisition of a material amount of assets or business, (i) involves the waiver, compromise, or settlement of any material dispute, claim, litigation or arbitration, (j) involves the ownership or lease of, title to, use of, or any leasehold or other interest in, any real property, including without limitation, the Leases, (k) involves the establishment, contribution to, or operation of a partnership, joint venture, alliance or similar entity, or involving a sharing of profits or losses (including joint development and joint marketing Contracts), or any investment in, loan to or acquisition or sale of the securities, equity interests or assets of any Person, (l) is with a Governmental Authority, state-owned enterprise, or sole-source supplier of any material product or service (other than utilities), (m) is a brokerage or finders agreement, or material sales agency, marketing or distributorship Contract, or (n) is otherwise material to a Group Company or is one on which a Group Company is substantially dependent.
(ii) A true, fully-executed copy of each Material Contract including all amendments and supplements thereto (and a written summary of all terms and conditions of each non-written Material Contract, if any) are available for the Investors to review within ten (10) Business Days from the date hereof in the primary office of the Group Companies. Each Material Contract is a valid and binding agreement of the Group Company that is a party thereto, the performance of which does not and will not violate any applicable Law or Governmental Order, and is in full force and effect and enforceable against the parties thereto, except (x) as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (y) as may be limited by laws relating to the availability of specific performance, injunctive relief or other remedies in the nature of equitable remedies. Each Group Company has duly performed in all material respects all of its obligations under each Material Contract to the extent that such obligations to perform have accrued, no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by such Group Company, or to the Warrantors knowledge any other party or obligor with respect thereto, has occurred, or as a result of the execution, delivery, and performance of the Transaction Documents will occur. No Group Company has given notice (written or oral) that it intends to terminate a Material Contract or that any other party thereto has breached, violated or defaulted under any Material Contract. No Group Company has received any written notice that it has breached, violated or defaulted under any Material Contract or that any other party thereto intends to terminate such Material Contract. No Contracts to which the Company is a party materially restricts the right of the Company to carry on or continue its Business in the normal course or as contemplated by the Transaction Documents. No Group Company has delegated any power or issued any powers of attorney in favor of any Person, other than power of attorney issued to directors or officers of the Company for purposes of executing contracts or agreements for and on behalf of a Group Company in the ordinary course of business.
3.16 Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions; Absence of Government Interests.
(i) Each Group Company and, to the knowledge of the Warrantors, their respective directors, officers, employees, agents or other Persons authorized in writing to act on their behalf (collectively, Representatives) are and have been in compliance with all applicable Laws relating to anti-bribery, anti-corruption, anti-money laundering, record keeping and internal control laws (collectively, the Compliance Laws) including the FCPA as if it were a U.S. Person. Furthermore, no Public Official (x) holds an ownership or other economic interest, direct or indirect, in any of the Group Companies, or (y) serves as an officer, director or employee of any Group Company. To the knowledge of the Warrantors, neither any Group Company nor any Representative has, directly or indirectly, offered, authorized, promised, condoned, participated in, consummated, or received notice of any allegation of:
(a) the making of any gift or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official, or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person;
(b) the taking of any action by any Person which (1) would violate the FCPA, if taken by an entity subject to the FCPA, or (2) could reasonably be expected to constitute a violation of any applicable Compliance Law;
(c) the making of any false or fictitious entries in the books or records of any Group Company by any Person; or
(d) the using of any assets of any Group Company for the establishment of any unlawful or unrecorded fund of monies or other assets, or the making of any unlawful or undisclosed payment.
(ii) No Group Company or any of its Representatives has ever been found by a Governmental Authority to have violated any criminal or securities Law or is subject to any indictment or any government investigation for bribery. None of the beneficial owners of any Equity Securities or other interest in any Group Company or the current or former Representatives of any Group Company are or were Public Officials.
(iii) No Group Company or any of its Representatives is a Prohibited Person, and no Prohibited Person will be given an offer to become an employee, officer, consultant or director of any Group Company. No Group Company has conducted or agreed to conduct any business, or entered into or agreed to enter into any transaction with a Prohibited Person.
(iv) If the Group Companies have beneficial owners or Representatives who are Public Officials, to the Warrantors knowledge, no such Public Official has been involved on behalf of a Governmental Authority in decisions as to whether any Group Company or the Investors would be awarded business or that otherwise could benefit any Group Company or the Investors, or in the appointment, promotion, or compensation of persons who will make such decisions.
3.17 Title; Properties.
(i) Title; Personal Property. Each Group Company has good and valid title to all of its respective assets, whether tangible or intangible, in each case free and clear of all Liens, other than Permitted Liens. The assets of each Group Company (including all rights and properties) are sufficient for the conduct of the Business of such Group Company as presently conducted. Except for leased or licensed assets, no Person other than a Group Company owns any interest in any such assets. All leases of real or personal property to which a Group Company is a party are effective and afford the Group Company valid leasehold possession of the real or personal property that is the subject of the lease. All machinery, vehicles, equipment and other tangible personal property owned or leased by a Group Company are (a) in good condition and repair in all material respects (reasonable wear and tear excepted) and (b) not obsolete or in need in any material respect of renewal or replacement, except for renewal or replacement in the ordinary course of business. There are no facilities, services, assets or properties which are used in connection with the Business of the Group and which are shared with any other Person that is not a Group Company.
(ii) Real Property. No Group Company owns or has legal or equitable title, leasehold interest or other right or interest in any real property other than as held pursuant to Leases. Section 3.17(ii) of the Disclosure Schedule sets forth each leasehold interest pursuant to which any Group Company holds any real property (a Lease), indicating the parties to such Lease, the address of the property demised under the Lease, the rent payable under the Lease and the term of the Lease. The particulars of the Leases as set forth in Section 3.17(ii) of the Disclosure Schedule are true and complete. Each Lease constitutes the entire agreement with respect to the property demised thereunder. Each Group Company which is party to a Lease has accepted possession of the property demised pursuant to the Lease and is in actual possession thereof and has not sublet, assigned or hypothecated its leasehold interest. No Group Company uses any real property in the conduct of its Business except insofar as it has secured a Lease with respect thereto. As of the date hereof, each Group Company has duly performed in all material respects all of its obligations under each Lease to the extent that such obligations to perform have accrued, and no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by any Group Company (or to the knowledge of the Warrantors, on the part of any other party to the Lease).
3.18 Related Party Transactions.
Other than as set forth in Section 3.18 of the Disclosure Schedule and employment contract entered into by any Group Company and certain employees and officers, no Related Party has any Contract with, or is indebted to, any Group Company or has any direct or indirect interest in any Group Company (other than as set forth in Section 3.2(i) of the Disclosure Schedule), nor is any Group Company indebted (or committed to make loans or extend or guarantee credit) to any Related Party (other than for accrued salaries for the current pay period, or other standard employee benefits). No Related Party has any direct or indirect interest in any Person with which a Group Company is affiliated or with which a Group Company has a material business relationship (including any Person which purchases from or sells, licenses or furnishes to a Group Company any goods, intellectual or other property rights or services) or in any Contract to which a Group Company is a party or by which it may be bound or affected, and no Related Party directly or indirectly competes with or has any interest in any Person that directly or indirectly competes with any Group Company (other than ownership of less than one percent (1%) of the stock of publicly traded companies).
3.19 Intellectual Property Rights.
(i) Company IP. Each Group Company owns or otherwise has sufficient rights (including, but not limited to the rights of development, maintenance, licensing and sale) to all Intellectual Property necessary and sufficient to conduct its Business as now conducted and as proposed to be conducted by such Group Company without any known conflict with or known infringement of the rights of any other Person. Section 3.19(i) of the Disclosure Schedule sets forth a complete and accurate list of all Company Registered IP for each Group Company, including for each the relevant name or description, registration/certification or application number, and filing, registration or issue date. There exists no pending or to the knowledge of the Warrantors, threatened condemnation, confiscation, dispute, claim, demand or similar proceeding with respect to the continued use and enjoyment of any Company Owned IP by any Group Company.
(ii) IP Ownership. All Company Registered IP is owned solely by and registered or applied for solely in the name of a Group Company, and is valid and subsisting and has not been abandoned, and all necessary registration, maintenance and renewal fees with respect thereto and currently due have been satisfied. To the Warrantors knowledge, no Group Company or any of its employees, officers or directors has taken any actions or failed to take any actions that would cause any Company Owned IP to be invalid, unenforceable or not subsisting. No funding or facilities of a Governmental Authority or a university, college, other educational institution or research center was used in the development of any Company Owned IP. No Company Owned IP is the subject of any Lien, license or other Contract granting rights therein to any other Person. No Group Company is or has been a member or promoter of, or contributor to, any industry standards bodies, patent pooling organizations or similar organizations that could require or obligate a Group Company to grant or offer to any Person any license or right to any Company Owned IP. No Company Owned IP is subject to any proceeding or outstanding Governmental Order or settlement agreement or stipulation that (a) restricts in any manner the use, transfer or licensing thereof, or the making, using, sale, or offering for sale of any Group Companys products or services, by any Group Company or (b) may affect the ownership, validity, use or enforceability of such Company Owned IP. No Group Company has (x) transferred or assigned any Company Owned IP to any other Person; (y) authorized the joint ownership of any other Person in any Company Owned IP; or (z) permitted the rights of any Group Company in any Company Owned IP to lapse or enter into the public domain. The transactions contemplated by this Agreement or any other Transaction Documents shall have no adverse effect on each Group Companys right, title and interest in and to Intellectual Property owned or used by such Group Company.
(iii) Infringement, Misappropriation and Claims. To the Warrantors knowledge, no Group Company has misappropriated, or violated, or infringed in any respect any Intellectual Property of any other Person, nor has any Group Company received any written notice alleging any of the foregoing, nor has any Group Company become aware of any fact that would form a reasonable basis for a claim, suit, or allegation of the foregoing. To the knowledge of the Warrantors, no Person has violated, infringed or misappropriated any material Company Owned IP of any Group Company, and no Group Company has given any verbal or written notice to any other Person alleging any of the foregoing; nor has any Group Company become aware of any fact that would form a reasonable basis for a claim, suit, or allegation of the foregoing. To the Warrantors knowledge, no Person has challenged the ownership, validity, enforceability, or use of any Company Owned IP by a Group Company. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property by such Person.
(iv) Assignments and Prior IP. All inventions and know-how conceived by employees of a Group Company related to the Business of such Group Company are currently owned exclusively by a Group Company. All employees, contractors, agents and consultants of a Group Company who are or were involved in the creation of any Intellectual Property for such Group Company have executed an assignment of inventions agreement that vests in a Group Company ownership of all right, title and interest in and to such Intellectual Property. All employee inventors of Company Owned IP have received reasonable reward and remunerations from a Group Company for his/her service inventions or service technology achievements in accordance with the applicable laws. It will not be necessary to utilize any Intellectual Property of any such Persons made prior to their employment by a Group Company, except for those that are exclusively owned by a Group Company. To the Warrantors knowledge, none of the employees, consultants or independent contractors, currently or previously employed or otherwise engaged by any Group Company, (a) is in violation of any current or prior confidentiality, non-competition or non-solicitation obligations to such Group Company or to any other Persons, including former employers, or (b) is obligated under any Contract, or subject to any Governmental Order, that would interfere with the use of his or her best efforts to promote the interests of the Group Companies or that would conflict with the Business of such Group Company as presently and as proposed to be conducted.
(v) Licenses. Section 3.19(v) of the Disclosure Schedule contains a complete and accurate list of the following (collectively, the Licenses): (a) all licenses, sublicenses, and other Contracts to which any Group Company is a party and pursuant to which any third party is authorized to use, exercise or receive any benefit from any Company Owned IP, and (b) all licenses, sublicenses and other Contracts to which any Group Company is a party and pursuant to which such Group Company is authorized to use, exercise, or receive any benefit from any Intellectual Property of another Person, in each case except for (1) agreements involving off-the-shelf commercially available software, and (2) non-exclusive licenses to customers of the Business in the ordinary course of business consistent with past practice. The Group Companies have paid all license and royalty fees required to be paid under the Licenses.
(vi) Protection of IP. Each Group Company has taken all necessary measures to protect, maintain and safeguard Company Owned IP and made all applicable filings, registrations and payments of fees in connection with the foregoing. Without limiting the foregoing, to the Warrantors knowledge, all current and former officers, employees, consultants and independent contractors of any Group Company and all suppliers, customers, distributors and other third parties having access to material Company Owned IP have executed and delivered to such Group Company an agreement requiring the protection of such Company Owned IP. To the extent that any Company Owned IP has been developed or created independently or jointly by an independent contractor or other third party for any Group Company and is incorporated into any products or services of any Group Company, such Group Company has a written agreement with such independent contractor or third party and has thereby obtained exclusive ownership of or exclusive license to such independent contractors or third partys Intellectual Property in such work, material or invention by operation of law or valid assignment or license. To the Warrantors knowledge, none of the Group Companies trade secrets or confidential information have been disclosed to another Person, except pursuant to written confidentiality obligations.
3.20 Labor and Employment Matters.
(i) Each Group Company has complied in all material respects with all applicable Laws related to labor or employment, including provisions thereof relating to wages, hours, working conditions, benefits, retirement, social welfare, equal opportunity and collective bargaining. There is no pending or to the Warrantors knowledge, threatened, and there has not been since, with respect to a Group Company, the incorporation of such Group Company, any Action relating to the violation or alleged violation of any applicable Laws by any Group Company related to labor or employment, including any charge or complaint filed by an employee with any Governmental Authority or any Group Company.
(ii) Except for the ESOP reserved by the Company and granted by the Board of Directors, no Group Company has made any written representations regarding equity incentives to any officer, employee, director or consultant of such Group Company that are inconsistent with the amounts and terms set forth in the minutes of meetings of the Board of Directors.
3.21 Insurance.
Section 3.21 of the Disclosure Schedule lists all insurance policies which cover the Group Companies. The Group Companies have in full force and effect fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow them to replace any of their properties that might be damaged or destroyed.
3.22 State-Owned Assets.
None of the assets of any Group Company constitute state-owned assets and, inasmuch, are not required to undergo any form of valuation under applicable Law in the PRC governing the transfer of state-owned assets prior to the consummation of the transactions contemplated herein or in any other Transaction Documents.
3.23 Brokers.
Except as set forth in Section 3.23 in the Disclosure Schedule, no finder, broker, financial advisor or other intermediary has acted on behalf of any Group Company or any of its Affiliates in connection with the offering of the Series C-2 Preferred Shares or the negotiation or consummation of this Agreement or the Transaction Documents or any of the transactions contemplated hereby or thereby.
3.24 Previous Financing Documents.
All the documents and agreements regarding the previous financing of the Company are available for the Investors to review within ten (10) Business Days from the date hereof in the primary office of the Group Companies. No documents and agreements hereof have been forged or tampered with any manner whatsoever, and no other documents and agreements have been omitted or withheld from the Investors. All the documents and agreements were, when provided, and continue to be, true, accurate, complete and not misleading in any aspect.
3.25 Environmental Compliance.
None of the Group Companies is in material violation of any applicable statute, law or regulation relating to the environment or occupational health and safety and no material expenditures are or will be required to comply with any such existing statute, law or regulation.
4. Representations and Warranties of the Investors.
Each Investor hereby represents and warrants to the Company that:
4.1 Authorization.
Such Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All action on the part of the Investor (and, as applicable, its officers, directors and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, and the performance of all obligations of such Investor thereunder, has been taken or will be taken prior to or at the Closing. Each Transaction Document that has been duly executed and delivered by such Investor (to the extent such Investor is a party), constitutes valid and legally binding obligations of such Investor, enforceable against such Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4.2 Purchase for Own Account.
Other than in accordance with such Investor groups employee incentive policy, the applicable Series C-2 Preferred Shares will be acquired for such Investors own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof.
4.3 Status of Investor.
Such Investor is either (i) an accredited investor within the meaning of the U.S. Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a U.S. person as defined in Rule 902 of Regulation S of the Securities Act. Such Investor has the knowledge, sophistication and experience necessary to make an investment decision like that involved in the purchase of the Series C-2 Preferred Shares and can bear the economic risk of its investment in the Series C-2 Preferred Shares.
4.4 Restricted Securities.
Such Investor understands that the Series C-2 Preferred Shares are restricted securities within the meaning of Rule 144 under the Securities Act; and that the Series C-2 Preferred Shares are not registered or listed publicly.
4.5 No Brokers.
Neither the Investor nor any of its Affiliates has any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement or by any of the Transaction Documents, and none of them has incurred any Liability for any brokerage fees, agents fees, commissions or finders fees in connection with any of the Transaction Documents or the consummation of the transactions contemplated therein.
5. Conditions of the Investors Obligations at the Closing.
The obligations of the Investors to consummate the Closing under Section 2.2 of this Agreement are subject to the fulfillment, to the satisfaction of the Investors on or prior to the Closing, or waiver by the Investors, of the following conditions:
5.1 Representations and Warranties.
Each of the representations and warranties of the Warrantors contained in Section 3 shall have been true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.
5.2 Performance.
The Company shall have performed and complied with all obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them on or before the Closing.
5.3 Authorizations.
All Consents of any competent Governmental Authority or of any other Person that are required to be obtained by the Company in connection with the consummation of the transactions contemplated by the Transaction Documents (including but not limited to those related to the lawful issuance and sale of the Securities, and any waivers of notice requirements, rights of first refusal, preemptive rights, put or call rights), including necessary approvals from Board of Directors and shareholders of the Company, shall have been duly obtained and effective as of the Closing, and evidence thereof shall have been delivered to the Investors.
5.4 Compliance Certificate.
The Company shall have delivered to the Investors a certificate, executed by the Chief Executive Officer of the Company, dated the date of the Closing, (a) stating that the conditions specified in Sections 5.1, 5.2 and 5.3 have been satisfied, and (b) certifying and attaching thereto (i) a certified true copy of the memorandum and articles of the Company as then in effect, and (ii) copies of all resolutions approved by the Companys shareholders and the Board of Directors approving the transactions contemplated hereby.
5.5 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions to be completed at the Closing and all documents incident thereto with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been completed in form and substance reasonably satisfactory to the Investors, and the Investors shall have received all such counterpart original or other copies of such documents as they may reasonably request.
5.6 Memorandum and Articles.
The Fifth Amended and Restated Memorandum and Articles, in the forms attached hereto as Exhibit A (the Restated Memorandum and Articles), shall have been duly adopted by all necessary action of the Board of Directors and/or the members of the Company, and such adoption shall have become effective prior to the Closing with no alternation or amendment as of the Closing.
5.7 Transaction Documents.
Each of the parties to the Transaction Documents, other than the Investors, shall have executed and delivered a scanned copy of such Transaction Documents to the Investors.
5.8 Completion of Due Diligence.
The Investors shall have completed the financial, business and legal due diligence on the Group to the reasonable satisfaction of the Investors.
5.9 Legal Opinion.
The Investors shall have received opinions from Cayman Islands legal counsel and PRC legal counsel of the Company, in form and substance satisfactory to the Investors and its counsel. With respect to solely the obligations of Modest Champion Limited owed to the Company to consummate the Closing with respect to Modest Champion Limiteds investment hereunder, Modest Champion Limited shall have received an opinion from Hong Kong legal counsel of the Company, in form and substance reasonably satisfactory to Modest Champion Limited.
5.10 Internal Approval of Modest Champion Limited.
With respect to solely the obligations of Modest Champion Limited owed to the Company to consummate the Closing with respect to Modest Champion Limiteds investment hereunder, Modest Champion Limited shall have received an irrevocable internal approval in connection with the transaction as of the Closing.
5.11 Approval for Outbound Investment
With respect to solely the obligations of Modest Champion Limited owed to the Company to consummate the Closing with respect to Modest Champion Limiteds investment hereunder, within forty-five (45) days from the date hereof, Modest Champion Limited shall have obtained all requisite approvals for outbound investment in accordance with applicable PRC Law, including without limitation having obtained the Outbound Investment Certificate; provided that if any requisite approval has not been obtained within forty-five (45) days from the date hereof, there will be a grace period of additional fifteen (15) days for Modest Champion Limited to obtain any such approval.
5.12 No Material Adverse.
No Material Adverse Effect shall have occurred from the Statement Date on or prior to the Closing.
6. Conditions of the Companys Obligations at the Closing.
The obligations of the Company owed to the Investors to consummate the Closing under Section 2.2 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties.
The representations and warranties of the Investors respectively contained in Sections 4 shall have been true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.
6.2 Performance.
The Investors shall have performed and complied with all covenants, obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by it/him on or before the Closing.
6.3 Approval for Outbound Investment
With respect to solely the obligations of the Company owed to Modest Champion Limited to consummate the Closing with respect to Modest Champion Limiteds investment hereunder, within forty-five (45) days from the date hereof, Modest Champion Limited shall have obtained all requisite approvals for outbound investment in accordance with applicable PRC Law, including without limitation having obtained the Outbound Investment Certificate; provided that if any requisite approval has not been obtained within forty-five (45) days from the date hereof, there will be a grace period of additional fifteen (15) days for Modest Champion Limited to obtain any such approval.
6.4 Execution of Transaction Documents.
Each Investor shall have executed and delivered to the Company the Transaction Documents, to which it is a party.
7. Other Agreements.
7.1 Indemnity.
The Warrantors hereby agree to, jointly and severally, indemnify and hold harmless the Investors, and their respective Affiliates, directors, officers, agents and assigns (each an Indemnified Party), from and against any and all Indemnifiable Losses suffered by such Indemnified Party, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or non-performance of any of the representations, warranties, covenants or agreements made by the Warrantors under the Transaction Documents; provided however, that in no case shall the aggregate amount of the indemnification paid or payable by the Warrantors to each Investor exceed the amount of such Investors investment hereunder.
7.2 Confidentiality.
The terms and conditions of the Transaction Documents (collectively, the Financing Terms), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except that (i) each Party, as appropriate, may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) the Investors may disclose any of the Financing Terms to its fund manager, the employees, its consultant thereof so long as such Persons are under appropriate non-disclosure obligations; and (iii) if any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws) to disclose the existence or content of any of the Financing Terms in contravention of the provisions of this Section 7.2, such Party shall promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy and in any event shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information.
7.3 Interim Business of the Group Companies.
Except as expressly contemplated by this Agreement or as required by applicable Law, between the date of this Agreement and the date of the Closing, the Group Companies shall conduct their business in the usual, regular, and ordinary course of business in substantially the same manner as heretofore conducted, including without limitation, to protect, maintain and safeguard the Company Owned IP and made all applicable filings, registrations and payments of fees in connection therewith.
7.4 Access and Information.
From the date hereof until the date of the Closing, the Warrantors shall permit the Investors or any officer, employee, advisor, or other representative thereof to (a) visit and inspect the properties of the Group Companies, (b) inspect the contracts, books of account, records, ledgers, financial and operating data, and other documents and data of the Group Companies, (c) discuss the business, affairs, finances and accounts of the Group Companies with officers, employees, consultants, accountants, advisors and other representatives of the Group Companies, and (d) review such other information as any Investor reasonably requests, in each case during normal business hours with reasonable advance notices and in such a manner so as not to unreasonably interfere with the normal operations of the Group Companies. The Parties agree that no information or knowledge obtained pursuant to this Section 7.4 by the Investors in connection with its due diligence will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions.
8. Miscellaneous.
8.1 Successors and Assigns.
Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties hereto whose rights or obligations hereunder are affected by such terms and conditions. This Agreement and the rights and obligations therein may not be assigned by the Group Companies without the prior written consent of the Investors. Nothing in this Agreement, express or implied, is intended to confer upon any Party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.2 Governing Law.
This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the Laws of Hong Kong, without regard to the conflicts of law provisions of Hong Kong.
8.3 Dispute Resolution.
(i) Any dispute, controversy, difference or claim (each, a Dispute) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the Arbitration Notice) to the other.
(ii) The Dispute shall be settled by arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre (the HKIAC) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the HKIAC Rules) in force when the Arbitration Notice is submitted. There shall be three (3) arbitrators. The HKIAC council shall select the arbitrators, who shall be qualified to practice law in Hong Kong.
(iii) The arbitral proceedings shall be conducted in English.
(iv) The costs of arbitration shall be borne by the losing party, unless otherwise determined by the arbitral tribunal.
(v) The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
(vi) The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.
(vii) Any Party to the Dispute shall be entitled to seek interim measures of protection and emergency relief, if possible, from any court of competent jurisdiction in accordance with the applicable Laws of that jurisdiction.
(viii) When any Dispute occurs and when any Dispute is under arbitration, except for the matters in Dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.
8.4 Notices.
Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule IV (or at such other address as such Party may designate by fifteen (15) days advance written notice to the other Parties to this Agreement given in accordance with this Section 8.4). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a with a copy to address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.
8.5 Rights Cumulative; Specific Performance.
Subject to Section 7.1, each and all of the various rights, powers and remedies of a party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.
8.6 Fees and Expenses.
The Parties shall each pay all of its own costs and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby, provided however that (i) if any Investor exercises its right to walk away under Section 2.5, at which time closing conditions under Section 6 are satisfied and Company has notified the Investors that it is willing and able to consummate the Closing, then such Investor shall reimburse all out-of-pocket fees and expenses (including fees and expenses for lawyers, accountants, auditors, financial advisor and other professionals) to the Company and their lawyers, accountants, auditors, financial advisor and other professionals, and (ii) if the Company exercises its right to walk away under Section 2.5, at which time closing conditions under Section 6 are satisfied and Investors have notified the Company that it is willing and able to consummate the Closing, then the Company shall reimburse all out-of-pocket fees and expenses (including fees and expenses for lawyers, accountants, auditors, financial advisor and other professionals) to the Investors and their lawyers, accountants, auditors, financial advisor and other professionals up to US$2,000 (if any). If any action at Law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
8.7 Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.
8.8 Amendments and Waivers.
Any term of this Agreement may be amended, only with the written consent of the Company and the Investors. Any amendment effected in accordance with this paragraph shall be binding upon each of the Parties hereto. Notwithstanding the foregoing, the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Party against whom such waiver is sought.
8.9 No Waiver.
Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy power hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.
8.10 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
8.11 No Presumption.
The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.
8.12 Headings and Subtitles; Interpretation.
The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term or is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms herein, hereof, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the masculine, feminine, and neuter genders will each be deemed to include the others; (v) the term day means calendar day, and month means calendar month; (vi) all references in this Agreement to designated Sections and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (vii) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement; (viii) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning; (ix) references to laws include any such law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made; (x) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards; (xi) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (xii) references to this Agreement, any other Transaction Documents and any other document shall be construed as references to such document as the same may be amended, supplemented or novated from time to time; (xiii) all references to dollars or to US$ are to currency of the United States of America (and each shall be deemed to include reference to the equivalent amount in other currencies), (xiv) all references to material regarding any events, rights, obligations, breach of contract or fails to perform, shall means the Group Companies may cause losses or gain profits which exceeds US$400,000.
8.13 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.
8.14 Entire Agreement.
This Agreement and the Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among any of the Parties with respect to the subject matters hereof and thereof.
8.15 Use of English Language.
This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language shall have no interpretive effect.
8.16 Further Assurances.
Each Party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents and assurances without further consideration, which may reasonably be required to procure the satisfaction of closing conditions and to effect the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
COMPANY: |
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Adagene Inc. |
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/s/ Peter Peizhi Luo |
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Name: |
Peter Peizhi Luo |
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Director |
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HOLDCO SUBSIDIARY: |
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Adagene (Hong Kong) Limited (天演藥業(香港)有限公司) |
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By: |
/s/ Peter Peizhi Luo |
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Name: |
Peter Peizhi Luo |
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Title: |
Director |
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WFOE: |
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Adagene (Suzhou) Limited |
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(Company Seal) |
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(天演葯业(苏州)有限公司) |
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(Seal) |
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By: |
/s/ Peter Peizhi Luo |
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Name: |
Peter Peizhi Luo |
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Title: |
Director/Legal Representative |
[Adagene Inc. Series C-2 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
US SUBSIDIARY: |
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Adagene Incorporated |
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By: |
/s/ Peter Peizhi Luo |
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Name: |
Peter Peizhi Luo |
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Title: |
Director |
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AUSTRALIAN SUBSIDIARY: |
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ADAGENE AUSTRALIA PTY LTD |
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By: |
/s/ Peter Peizhi Luo |
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Name: |
Peter Peizhi Luo |
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Title: |
Director |
[Adagene Inc. Series C-2 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTOR: |
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Mega Prime Development Limited |
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By: |
/s/ Wang Jianping |
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Name: |
Wang Jianping |
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Title: |
Director |
[Adagene Inc. Series C-2 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTOR: |
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Chief Strategic International Limited |
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By: |
/s/ Fu Chi Kong |
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Name: |
Fu Chi Kong |
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Title: |
Director |
[Adagene Inc. Series C-2 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTOR: |
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Modest Champion Limited |
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By: |
/s/ Lin Lei /s/ Xie Jia |
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Lin Lei; Xie Jia |
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Title: |
Director; Director |
[Adagene Inc. Series C-2 Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTOR: |
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Poly Platinum Enterprises Limited |
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By: |
/s/ Ning An |
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Name: |
Ning An |
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Title: |
Director |
[Adagene Inc. Series C-2 Share Purchase Agreement Signature Page]
SCHEDULE I
LIST OF SERIES C-2 INVESTORS AT THE CLOSING
SCHEDULE II
CAPITALIZATION STRUCTURE ON FULLY DILUTED BASIS
SCHEDULE III
DESIGNATED BANK ACCOUNT
SCHEDULE IV
ADDRESS FOR NOTICES
ANNEX 1
DEFINITIONS
1. Defined Terms. The following terms shall have the meanings ascribed to them as below:
Accounting Standards means the Hong Kong Financial Reporting Standards with respect to the Holdco Subsidiary, and the Chinese Accounting Standards with respect to the WFOE, applied on a consistent basis or other accounting principles approved by the Investors.
Action means any charge, claim, action, complaint, petition, investigation, appeal, suit, litigation, grievance, inquiry or other proceeding, whether administrative, civil, regulatory or criminal, whether at law or in equity, or otherwise under any applicable Law, and whether or not before any mediator, arbitrator or Governmental Authority.
Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, limited partner, member, managing member, officer, employee or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
Ancillary Agreements means, collectively, the Restated Shareholders Agreement and the Restated Right of First Refusal & Co-Sale Agreement.
Board of Directors means the board of directors of the Company.
Business means the research, development, service, consulting, commercialization, transfer and license of technology relating to biologics including antibodies for therapeutic and/or diagnostic applications.
Business Day means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Hong Kong, the Cayman Islands or the United States.
Charter Documents means, with respect to a particular legal entity, certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.
Code means the United States Internal Revenue Code of 1986, as amended.
Company Owned IP means all Intellectual Property owned by, purported by any Group Company to be owned by, or exclusively licensed to, any of the Group Companies.
Company Registered IP means all Intellectual Property for which registrations are owned by or held in the name of, or for which applications have been made in the name of, any Group Company.
Consent means any consent, approval, authorization, release, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.
Contract means a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.
Control of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms Controlled and Controlling have meanings correlative to the foregoing.
Conversion Shares means, the Ordinary Shares issuable upon the conversion of Series C-2 Preferred Shares issued hereunder.
Equity Securities means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing.
ESOP means the Ordinary Shares (as adjusted in connection with share splits or share consolidation, reclassification or other similar event) and/or options or warrants therefor issued to employees, officers, directors, contractors, advisors or consultants of the Group Companies pursuant to the Companys Amended and Restated Share Incentive Plan (as amended) duly approved by the Board of Directors.
FCPA means Foreign Corrupt Practices Act of the United States of America, as amended from time to time.
Governmental Authority means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
Governmental Order means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
Group Company means each of the Company, the Holdco Subsidiary, the WFOE, the US Subsidiary, and the Australian Subsidiary, together with each Subsidiary of any of the foregoing, and Group refers to all of Group Companies collectively.
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
Indebtedness of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized (including capitalized lease obligations), (vii) all obligations under bankers acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, and (x) all guarantees issued in respect of the Indebtedness referred to in clauses (i) through (ix) above of any other Person, but only to the extent of the Indebtedness guaranteed.
Indemnifiable Loss means, with respect to any Person, any action, claim, cost, damage, deficiency, disbursement, expense, liability, loss, obligation, penalty or settlement of any kind or nature imposed on or otherwise incurred or suffered by such Person, including without limitation, (x) reasonable legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims, and (y) amounts paid in settlement, other than consequential damages resulting from a breach for which the Parties do not, and did not, have reason to foresee as a probable result of such breach.
Intellectual Property means any and all (i) patents, all patent rights, and all patent applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, mask works and registrations and applications therefor, authors rights and works of authorship (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols and tools, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms and (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and the goodwill symbolized or represented by the foregoing and other proprietary information and common-law rights.
knowledge of any Party shall mean such Partys actual knowledge after due and diligent inquiries of officers and directors of such Party reasonably believed to have knowledge of the matter in question.
Law or Laws means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any formally issued written interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.
Liabilities means, with respect to any Person, all liabilities, obligations and commitments of such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.
Lien means any claim, charge, easement, encumbrance, lease, covenant, security interest, equity, lien, option, pledge, mortgage, hypothecation, retention of title, title defect, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, law, equity or otherwise.
Material Adverse Effect means any (i) event, occurrence, fact, condition, change or development that has had, has, or would reasonably be expected to have, individually or together with other events, occurrences, facts, conditions, changes or developments, a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of the Group taken as a whole, (ii) material impairment of the ability of any Party (other than the Investors) to perform the material obligations of such Party under any Transaction Documents, or (iii) material impairment of the validity or enforceability of this Agreement or any other Transaction Document against any Party hereto or thereto (other than the Investors). The Material Adverse Effect shall not include (a) any outbreak or escalation of war or major hostilities or any act of terrorism or any natural disaster or other force majeure event which occurs after the date of this Agreement; (b) changes in Laws, generally accepted accounting principles or enforcement or interpretation thereof after the date of this Agreement; (c) changes that generally affect the industries and markets in which the Group Companies operate to the extent such changes do not have a materially disproportionate adverse effect relative to other similarly situated industry participants; (d) changes in financial markets, general economic conditions (including prevailing interest rates, exchange rates, commodity prices and fuel costs) or political or social conditions to the extent such changes do not have a materially disproportionate adverse effect relative to other similarly situated industry participants.
MOFCOM means the Ministry of Commerce of the PRC or, with respect to any matter to be submitted for examination and approval by the Ministry of Commerce, any Governmental Authority which is delegated or authorized by the Ministry of Commerce to examine and approve such matter under the laws of the PRC.
Ordinary Shares means the Companys ordinary shares, par value US$0.0001 per share.
Permitted Liens means (i) Liens for Taxes not yet delinquent or the validity of which are being contested in good faith and for which there are adequate reserves on the applicable financial statements, and (ii) Liens incurred in the ordinary course of business, which (x) do not individually or in the aggregate materially detract from the value, use, or transferability of the assets that are subject to such Liens, and (y) were not incurred in connection with the borrowing of money.
Person means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.
PRC means the Peoples Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.
Prohibited Person means any Person that is (1) a national or resident of any U.S. embargoed or restricted country, (2) included on, or Affiliated with any Person on, the United States Commerce Departments Denied Parties List, Entities and Unverified Lists; the U.S. Department of Treasurys Specially Designated Nationals, Specially Designated Narcotics Traffickers or Specially Designated Terrorists, or the Annex to Executive Order No. 13224; the Department of States Debarred List; UN Sanctions, (3) a member of any PRC military organization, or (4) a Person with whom business transactions, including exports and re-exports, are restricted by a U.S. Governmental Authority, including, in each clause above, any updates or revisions to the foregoing and any newly published rules.
Public Official means any executive, official, or employee of a Governmental Authority, political party or member of a political party, political candidate; executive, employee or officer of a public international organization; or director, officer or employee or agent of a wholly owned or partially state-owned or controlled enterprise, including a PRC state-owned or controlled enterprise.
Related Party means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, and any Affiliate of any of the foregoing.
Restated Shareholders Agreement means the Fourth Amended and Restated Shareholders Agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit B.
Restated Right of First Refusal & Co-Sale Agreement means the Third Amended and Restated Right of First Refusal & Co-Sale Agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit C.
Right of First Refusal & Co-Sale Agreement means the Second Amended and Restated Right of First Refusal & Co-Sale Agreement entered into on February 2, 2018 by and among the Company and the parties named therein.
SAIC means the State Administration of Industry and Commerce of the PRC or, with respect to the issuance of any business license or filing or registration to be effected by or with the State Administration of Industry and Commerce, any Governmental Authority which is similarly competent to issue such business license or accept such filing or registration under the laws of the PRC.
Securities Act means the U.S. Securities Act of 1933, as amended and interpreted from time to time.
Series C-2 Preferred Share means a series C-2 preferred share of the Company, par value US$0.0001 per share.
Shareholders Agreement means the Third Amended and Restated Shareholders Agreement entered into on February 2, 2018 by and among the Company and parties named therein.
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.
Tax means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i)(a) and (i)(b) above.
Tax Return means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.
Transaction Documents means this Agreement, the Restated Memorandum and Articles, the Ancillary Agreements and each of the other agreements and documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.
U.S. real property holding corporation has the meaning as defined in the Code.
Warrantors means the Group Companies.
2. Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:
Agreement |
Preamble |
Arbitration Notice |
Section 8.3(i) |
Australian Subsidiary |
Preamble |
Closing |
Section 2.2(i) |
Company |
Preamble |
Compliance Laws |
Section 3.16(i) |
Disclosure Schedule |
Section 3 |
Dispute |
Section 8.3(i) |
Financial Statements |
Section 3.11 |
Financing Terms |
Section 7.2 |
HKIAC |
Section 8.3(ii) |
HKIAC Rules |
Section 8.3(ii) |
Holdco Subsidiary |
Preamble |
Indemnified Party |
Section 7.1 |
Investors |
Preamble |
Lease |
Section 3.17(ii) |
Licenses |
Section 3.19(v) |
Material Contracts |
Section 3.15(i) |
Party(ies) |
Preamble |
Purchase Price |
Section 2.1(i) |
Representatives |
Section 3.16(i) |
Restated Memorandum and Articles |
Section 5.6 |
Series C-2 Preferred Shares |
Section 2.1(i) |
Statement Date |
Section 3.11 |
US Subsidiary |
Preamble |
WFOE |
Preamble |
EXHIBIT A
FORM OF FIFTH AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION
EXHIBIT B
FORM OF FOURTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
EXHIBIT C
FORM OF THIRD AMENDED AND RESTATED RIGHT OF FIRST REFUSAL & CO-SALE AGREEMENT
EXHIBIT D
DISCLOSURE SCHEDULE
Execution Version
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this Agreement) is made and entered into on February 2, 2018 by and among:
1. Adagene Inc., an exempted company organized under the laws of the Cayman Islands (the Company);
2. Adagene (Hong Kong) Limited (天演藥業(香港)有限公司), a company organized under the laws of Hong Kong (the Holdco Subsidiary);
3. Adagene (Suzhou) Limited (天演药业(苏州)有限公司), a company organized under the laws of the PRC (the WFOE);
4. Adagene Incorporated, a company organized under the laws of the State of Delaware (the US Subsidiary); and
5. each of the Persons listed in Schedule I attached hereto (individually, an Investor, and collectively, the Investors).
The foregoing parties shall be hereinafter referred collectively as the Parties and each individually as a Party.
RECITALS
A. The Company holds 100% issued and outstanding share capital of the Holdco Subsidiary, which holds 100% registered capital of the WFOE. The Company also holds 100% issued and outstanding shares of the US Subsidiary.
B. The Investors wish to invest in the Company by subscribing for Series C-1 Preferred Shares and Warrants (as defined below) to be issued by the Company pursuant to the terms and subject to the conditions of this Agreement, and the Company wishes to issue and sell Series C-1 Preferred Shares to the Investors pursuant to the terms and subject to the conditions of this Agreement.
C. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:
1. Definitions.
Capitalized terms shall have the meanings ascribed to them in Annex 1 attached hereto.
2. Purchase and Sale of Shares.
2.1 Sale and Issuance of the Series C Preferred Shares and Warrant.
(i) Subject to the terms and conditions of this Agreement (including but not limited to Sections 5 and 6), at the Initial Closing (as defined below), the Investors agree to subscribe for and purchase, severally and not jointly, and the Company agrees to issue and sell to the Investors, a total number of 3,358,412 series C-1 preferred shares of the Company, par value US$0.0001 per share (the Series C-1 Preferred Shares), with each Investor subscribing for such number of Series C-1 Preferred Shares as set forth opposite to such Investors name in Schedule I attached hereto and paying as consideration therefor as set forth opposite to such Investors name in Schedule I attached hereto (the Purchase Price) representing a per share price of US$8.9328.
(ii) As part of the consideration for the Purchase Price, subject to the terms and conditions of this Agreement, each of Sequoia and Gopher agrees to purchase, severally and not jointly, at the Initial Closing, and the Company agrees to sell and issue to each of Sequoia and Gopher at the Initial Closing, a warrant (each a Warrant, and collectively, the Warrants) in substantially the form attached hereto as Exhibit A, to subscribe for up to that value of Series C-2 Preferred Shares set forth opposite each such Investors name on Schedule I attached.
(iii) Immediately after the consummation of all Closings, the capitalization structure of the Company is set forth in Schedule II hereto.
2.2 Initial Closing.
(i) Initial Closing. The initial closing of the sale, purchase and issuance of the Series C-1 Preferred Shares and Warrants pursuant to Section 2.1 (the Initial Closing) shall take place within ten (10) Business Days after all closing conditions specified in Section 5 and Section 6 hereof have been satisfied or waived (other than those conditions to be satisfied at the Initial Closing, but subject to the satisfaction or waiver thereof at the Initial Closing) or on such other date agreed by the Company and the Investors by the exchange of signatures and documents electronically.
(ii) Deliveries by the Company at Initial Closing. At the Initial Closing, in addition to any items the delivery of which is made an express condition to the Investors obligations at the Initial Closing pursuant to Section 5, the Company shall deliver to the Investors (a) a certified true copy of the updated register of members of the Company, reflecting the issuance of the Series C-1 Preferred Shares at the Initial Closing, (b) a certified true copy of the updated register of directors of the Company, reflecting the appointment of a designee of Sequoia (the Sequoia Designee) as a director of the Company, (c) a copy of the duly executed share certificates representing the Series C-1 Preferred Shares being purchased by such Investors at the Initial Closing, and (d) a copy of the Warrants purchased by the Investors at the Initial Closing. Within five (5) Business Days after the Initial Closing, the Company shall deliver to the Investors the original share certificates representing the Series C-1 Preferred Shares and the original Warrants being purchased by such Investors at the Initial Closing, and shall duly file the Restated Memorandum and Articles (as defined below) with the appropriate authority(ies) of the Cayman Islands.
(iii) Deliveries by the Investors at Initial Closing. Within five (5) Business Days upon the Initial Closing, subject to the satisfaction or waiver of all the conditions set forth in Section 5, each Investor shall pay the Purchase Price in accordance with Section 2.1(i) hereto by wire transfer of immediately available funds in U.S. dollars to an account of the Company as set out in Schedule III hereto, or as otherwise designated by the Company in writing.
2.3 Additional Closing. Concurrently or after the Initial Closing, the Company may sell, at a per share price of US$8.9328 and on the same terms and conditions as those contained in this Agreement, up to 2,238,942 additional Series C-1 Preferred Shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or similar recapitalization affecting such shares) (collectively, the Additional Purchased Securities), in one or more closings, to one or more purchasers approved by the Board of Directors, provided that (i) such subsequent sale is consummated prior to forty-five (45) days following the Initial Closing, (ii) each such purchaser shall become a party to this Agreement, the Restated Shareholders Agreement (as defined below) and the Restated Right of First Refusal & Co-Sale Agreement by executing and delivering a joinder agreement to each of such Agreements, (iii) the Company will consult with Sequoia regarding its selection of additional Investors for such additional closings, and Sequoia shall have the right to consent to any Investor (together with its Affiliates) investing more than US$10,000,000 in acquisition of the Series C-1 Preferred Shares, and such consent shall not be unreasonably withheld; provided that no consent is required in connection with any investment by an existing investor of the Company. Schedule I to this Agreement shall be updated to reflect the number of Additional Purchased Securities purchased at each such Closing and the parties purchasing such Additional Purchased Securities. The closing of purchase and sale of Series C-1 Preferred Shares pursuant to this Section 2.3 and the Initial Closing shall be collectively referred to as the Closings and each a Closing.
2.4 Use of Proceeds.
The Company shall use the Purchase Price as set forth in Section 2.1 as working capital for (a) the development and improvement of antibody drug discovery platform and (b) research and development of innovative pipeline products targeting severe diseases.
2.5 Walk-Away.
In the event that the Closing has not occurred within six (6) months from the date hereof (or by such later time and date as the parties hereto may mutually agree upon in writing), this Agreement may be terminated by the Company or any Investor (in the case of termination by an Investor, with respect to the Series C-1 Preferred Shares and/or Warrants purchased by such Investor only) at its own election and discretion by issuing a written notice to the other Parties after which this Agreement shall be of no further force and effect with respect to the Parties to this Agreement (with the exception of this Section 2.5, Section 7.2 and Section 8) which shall remain in full force and effect).
3. Representations and Warranties of the Company.
Subject to such exceptions as may be set forth in the disclosure schedule delivered by the Company to the Investors as of the date hereof and attached hereto as Exhibit F (the Disclosure Schedule) which forms part of the representation and warranties herein, the Warrantors jointly and severally represent and warrant to the Investors that the following statements are true and correct as of the date hereof and as of the Initial Closing. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Section 3, and the disclosures in any section of the Disclosure Schedule shall qualify other section in this Section 3 to the extent it is reasonably apparent from a reading of the disclosure that such disclosure is applicable to such other sections.
3.1 Organization, Good Standing and Qualification.
Each Group Company is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the Laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its Business as now conducted, and to perform each of its obligations under the Transaction Documents to which it is a party. Each Group Company is qualified to do business and is in good standing (or equivalent status in the relevant jurisdiction) in each jurisdiction where failure to be so qualified would be a Material Adverse Effect. Each Group Company that is a PRC entity has a valid business license issued by the SAIC or its local branch or other relevant Government Authorities, and has, since its establishment, carried on its Business materially in compliance with the business scope set forth in its business license.
3.2 Capitalization and Voting Rights.
(i) Company. The authorized share capital of the Company immediately prior to the Initial Closing shall be US$50,000 divided into (a) a total of 478,329,085 authorized ordinary shares of US$0.0001 each, 15,461,600 of which are issued and outstanding; and (b) a total of 7,844,371 authorized Series A Preferred Shares with par value of US$0.0001 each, 5,473,957 of which are classified as series A-1 preferred shares with par value of US$0.0001 each, all of which are issued and outstanding, and 2,370,414 of which are classified as series A-2 preferred shares with par value of US$0.0001 each, all of which are issued and outstanding; (c) a total of 7,494,537 authorized Series B Preferred Shares with par value of US$0.0001 each, all of which are issued and outstanding; and (d) a total of 6,332,007 authorized Series C Preferred Shares with par value of US$0.0001 each, comprised of 5,597,354 Series C-1 Preferred Shares with par value of US$0.0001 each and 734,653 Series C-2 Preferred Shares with par value of US$0.0001 each, none of which is issued and outstanding.
(ii) Holdco Subsidiary. The authorized share capital of the Holdco Subsidiary is and immediately prior to and following the Initial Closing shall be HK$10,000.00 divided into 10,000 shares of HK$1.00 par value, 100% of which are issued and outstanding and all held by the Company.
(iii) WFOE. The registered capital of the WFOE is and immediately prior to and following the Initial Closing shall be RMB 8,000,000, 100% of which has contributed by the Holdco Subsidiary.
(iv) US Subsidiary. The authorized share capital of the US Subsidiary is and immediately prior to and following the Initial Closing shall be 5,000 shares of common stock, 100% of which are issued and outstanding and all held by the Company.
(v) No Other Securities. Except for (a) this Agreement, (b) the Warrants, (c) certain agreements disclosed in Section 3.2(v) in the Disclosure Schedule and (d) the ESOP reserved by the Company and granted by the Board of Directors, (1) there are no and at the Initial Closing there shall be no other authorized or outstanding Equity Securities of any Group Company; (2) no promise, commitment or offer has been made, in writing or otherwise, by any Group Company or any officer of any Group Company on behalf of the Group Company, to issue any Equity Securities of any Group Company; (3) no Equity Securities of any Group Company are subject to any preemptive rights, rights of first refusal or other rights to purchase such Equity Securities or any other rights with respect to such Equity Securities, and (4) no Group Company is a party or subject to any Contract that affects or relates to the voting or giving of written consents with respect to, or the right to cause the redemption, or repurchase of, any Equity Security of such Group Company. Except as set forth in the Restated Shareholders Agreement, the Company has not granted any registration or information rights to any other Person, nor is the Company obliged to list, any of the Equity Securities of any Group Companies on any securities exchange.
(vi) Issuance and Status. All share capital or registered capital, as the case may be, of each Group Company have been duly and validly issued, are fully paid (or subscribed for) and non-assessable, and are and as of the Initial Closing shall be free of any and all Liens (except for any restrictions on transfer under the Ancillary Agreements and applicable Laws). Except as contemplated under the Transaction Documents, there are no (a) resolutions pending to increase the share capital or registered capital of any Group Company or cause the liquidation, winding up, or dissolution of any Group Company, nor has any distress, execution or other process been levied against any Group Company, (b) dividends which have accrued or been declared but are unpaid by any Group Company, (c) obligations, contingent or otherwise, of any Group Company to repurchase, redeem, or otherwise acquire any Equity Securities, or (d) except for the ESOP granted to certain Persons by the Board of Directors, outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company. All dividends (if any) or distributions (if any) declared, made or paid by each Group Company, and all repurchases and redemptions of Equity Securities of each Group Company (if any), have been declared, made, paid, repurchased or redeemed, as applicable, in accordance with its Charter Documents and all applicable Laws in all material respects.
(vii) Title. The Company is the sole record and beneficial holder of all of outstanding share capital of Holdco Subsidiary and US Subsidiary, and Holdco Subsidiary is the sole holder of all equity interests of the WFOE, all of which are free and clear of all Liens of any kind other than those arising under applicable Law or as set forth in the Transaction Documents.
3.3 Corporate Structure; Subsidiaries.
Section 3.3 of the Disclosure Schedule sets forth a complete structure chart showing Group Companies, and indicating the ownership and Control relationships among all Group Companies, the nature of the legal entity which each Group Company constitutes, the jurisdiction in which each Group Company was organized, and each jurisdiction in which each Group Company is required to be qualified or licensed to do business as a foreign Person. No Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any Equity Security, interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person, other than the commitment of the Holdco Subsidiary to contribute registered capital to the WFOE in accordance with the Charter Documents of the WFOE. The Group does not engage in any business other than the Business.
3.4 Authorization.
Each of the Group Companies has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. The authorization, issuance, sale and delivery of Series C-1 Preferred Shares, the Warrants, the Warrant Shares and reservation for issuance of the Conversion Shares, has been taken or will be taken prior to the Initial Closing. This Agreement has been, and each other Transaction Document, when executed and delivered, constitutes valid and legally binding obligations of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors rights generally, (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (iii) as limited by the Shareholders Agreement, Right of First Refusal & Co-Sale Agreement and existing Third Amended and Restated Memorandum and Articles of Association.
3.5 Valid Issuance of Securities.
The Series C-1 Preferred Shares and the Warrants, when issued, delivered and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable Laws and under the Ancillary Agreements). The Warrant Shares, when issued, delivered and paid for in accordance with the terms of the Warrants for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable Laws and under the Ancillary Agreements). All Conversion Shares, upon issuance in accordance with the terms of the Restated Memorandum and Articles, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable securities Laws and under the Ancillary Agreements). The issuance of the Series C-1 Preferred Shares and the Warrants is not, and the issuance of the Warrant Shares and the Conversion Shares will not be, subject to any preemptive rights, rights of first refusal or similar rights other than those that have been or will be duly waived prior to or at the Initial Closing, as applicable.
3.6 Consents; No Conflicts.
All Consents from or with any Governmental Authority or any other Person required in connection with the execution, delivery and performance of the Transaction Documents by the parties thereto (other than the Investors), and the consummation of the transactions contemplated by the Transaction Documents by the parties thereto (other than the Investors), have been duly obtained or completed (as applicable) and are in full force and effect. The execution, delivery and performance of each Transaction Document by the Warrantors do not, and the consummation by the Warrantors of the transactions contemplated thereby will not, with or without notice or lapse of time or both, (i) result in any violation of, be in conflict with, or constitute a default under any provision of the constitutional documents of the Warrantors or any Contracts to which the Warrantors are parties, (ii) result in any violation of, be in conflict with, or constitute a default under, in any material respect, any Governmental Order or any applicable Law, or (iii) results in the creation of any Lien upon any asset of any Group Company.
3.7 Offering.
Subject in part to the accuracy of the Investors representations set forth in Sections 4 of this Agreement, the offer, sale and issuance of the Series C-1 Preferred Shares, Warrants and the Warrant Shares are, exempt from the qualification, registration and prospectus delivery requirements of the Securities Act and any other applicable securities Laws.
3.8 Compliance with Laws; Consents.
(i) Each Group Company is, and has been, in compliance in all material respects with all applicable Laws. To the Warrantors knowledge, no event has occurred and no circumstance exists that (with or without notice or lapse of time) (a) may constitute or result in a violation by any Group Company of, or a failure on the part of such entity to comply with, any applicable Laws in any material respect, or (b) may give rise to any obligation on the part of any Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. None of the Group Companies has received any notice from any Governmental Authority regarding any of the foregoing. No Group Company is under investigation with respect to a material violation of any Law.
(ii) All material Consents from or with the relevant Governmental Authority required in respect of the due and proper establishment and operations of each Group Company as now conducted, including but not limited to the Consents from or with MOFCOM, SAIC, SAFE, any Tax bureau and the local counterpart thereof, as applicable (or any predecessors thereof, as applicable), have been duly obtained or completed in accordance with all applicable Laws. None of the Group Companies is in default in any material respect under any required Governmental Consent. No Group Company has received any letter or other written communication from any Governmental Authority threatening or providing notice or revocation of any required Governmental Consent issued to any Group Company or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by any Group Company.
3.9 Tax Matters.
(i) Each Group Company (a) has timely filed all income and other material Tax Returns that are required to have been filed by it with any Governmental Authority, and (b) has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return), except to the extent any failure to timely pay such Taxes would not have a Material Adverse Effect.
(ii) Each Tax Return referred to in paragraph (i) above was (and will be) true, correct and complete in all material respects in compliance with applicable Law. There is no pending dispute with, or notice from, any Tax authority relating to any of the Tax Returns filed by any Group Company, and there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company. No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate tax authority or in such Tax Return, as may be required by Applicable Law, except to the extent any failure to disclose such reporting position would not have a Material Adverse Effect on any Group Company.
(iii) No Group Company has been the subject of any examination or investigation by any Tax authority relating to the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the payment or withholding of Taxes. None of the Group Companies has received notice of any proposed or determined Tax deficiency or assessment from any Governmental Authority. As of the date hereof there are no audits, examinations, requests for information or other administrative proceedings pending or threatened with respect to any of the Group Companies. There is no pending dispute with, or notice from, any taxing authority relating to any of the Tax Returns filed by any Group Company which, if determined adversely to such Group Company, would result in the assertion by any taxing authority of any valid deficiency in a material amount for Taxes, and to the knowledge of the Warrantors, there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company.
(iv) No Group Company is or has ever been a U.S. real property holding corporation.
(v) The Company is treated as a corporation for U.S. federal income tax purposes.
3.10 Charter Documents; Books and Records.
The Charter Documents of each Group Company are in the form provided to the Investors. Each Group Company has been in compliance with its Charter Documents, and none of the Group Companies has violated or breached any of their respective Charter Documents. Each Group Company has made available to the Investors or their counsel a copy of its minute books. Such copy is true, correct and complete, and contains all amendments and all minutes of meetings and actions taken by its shareholders and directors since the time of formation through the date hereof and reflects all transactions referred to in such minutes in all material respects. Each Group Company maintains its books of accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior practice, and which permits its Financial Statements (as defined below) to be prepared in accordance with the Accounting Standards. The register of members and directors (with respect to the jurisdiction where recognizes this concept) of each Group Company is correct, there has been no notice of any proceedings to rectify any such register, and there are no circumstances which might lead to any application for its rectification. All documents requiring to be filed by each Group Company with the applicable Governmental Authority in respect of the relevant jurisdiction in which the relevant Group Companies is being incorporated have been properly made up and filed.
3.11 Financial Statements.
The Company has delivered to the Investors (i) the balance sheet and statements of operations and cash flows for the Holdco Subsidiary and the WFOE as of and for the twelve-months ending December 31, 2016 and (ii) the unaudited consolidated balance sheet and statements of operations and cash flows for the Holdco Subsidiary and the WFOE as of and for the nine-month period ending September 30, 2017 (the Statement Date) (collectively, the financial statements referred to above, the Financial Statements). The Financial Statements (a) have been prepared in accordance with the books and records of the Group, (b) fairly present in all material respects the financial condition and position of the Group as of the dates indicated therein and the results of operations and cash flows of the Group for the periods indicated therein, except in the case of unaudited financial statements for the omission of notes thereto and normal year-end audit adjustments that are not expected to be material, and (c) were prepared generally in accordance with the Accounting Standards applied on a consistent basis throughout the periods involved.
3.12 Changes.
Since the Statement Date, each Group Company (a) has operated its business in the ordinary course consistent with its past practice, (b) used its reasonable best efforts to preserve its business, (c) collected receivables and paid payables and similar obligations in the ordinary course of business consistent with past practice, and (d) not engaged in any new line of business or entered into any agreement, transaction or activity or made any commitment except those in the ordinary course of business consistent with past practice. Since the Statement Date, except disclosed in Section 3.12 in the Disclosure Schedule, there has not been any Material Adverse Effect or any material change in the way the Group conducts its business, and there has not been by or with respect to any Group Company:
(i) any purchase, acquisition, sale, lease, disposal of or other transfer of any assets that are individually or in the aggregate material to its business, whether tangible or intangible, other than the purchase or sale of inventory in the ordinary course of business consistent with its past practice;
(ii) any acquisition (by merger, consolidation or other combination, or acquisition of stock or assets, or otherwise) of any business or other Person or division thereof, or any sale or disposition of any business or division thereof;
(iii) any waiver, termination, cancellation, settlement or compromise of a valuable right, debt or claim with a value more than US$500,000;
(iv) any incurrence, creation, assumption, repayment, satisfaction, or discharge of (1) any material Lien (other than Permitted Liens) or (2) any Indebtedness or guarantee, or the making of any loan or advance (other than reasonable and normal advances to employees for bona fide expenses that are incurred in the ordinary course of business consistent with its past practice), or the making of any investment or capital contribution;
(v) any material amendment to or termination of any Material Contract, any entering of any new Contract that would have been a Material Contract if in effect on the date hereof, or any amendment to or waiver under any Charter Document;
(vi) any declaration, setting aside or payment or other distribution in respect of any Equity Securities of any Group Company, or any issuance, transfer, redemption, purchase or acquisition of any Equity Securities by any Group Company;
(vii) any damage, destruction or loss, whether or not covered by insurance, adversely affecting any of the material assets, properties of any Group Company other than the normal wear and tear occurring in the ordinary course of business;
(viii) any material change in accounting methods or practices;
(ix) except in the ordinary course of business consistent with its past practice, entry into any closing agreement in respect of material Taxes, settlement of any claim or assessment in respect of any material Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any material Taxes, entry or change of any material Tax election, change of any method of accounting resulting in a material amount of additional Tax or filing of any material amended Tax Return;
(x) any commencement or settlement of any material Action;
(xi) any authorization, sale, issuance, transfer, pledge or other disposition of any Equity Securities of any Group Company other than ESOP; or
(xii) any transaction with any Related Party other than any employment agreement entered into with the employee and certain officers.
3.13 Actions.
There is no Action pending or to the Warrantors knowledge threatened against or affecting any Group Company with respect to its Business, or any officers, directors or employees of any Group Company in connection with such persons respective relationship with such Group Company, nor is there any basis for any of the foregoing. There is no Action pending by any Group Company against any third party nor does any Group Company intend to commence any such Action. No Governmental Authority has at any time challenged or questioned in writing the legal right of any Group Company to conduct in any material respect its business as presently being conducted.
3.14 Liabilities.
No Group Company has any Liabilities except for (i) liabilities set forth in the Financial Statements, and (ii) current liabilities incurred since the Statement Date in the ordinary course of the Groups business consistent with its past practices. None of the Group Companies has any outstanding Indebtedness. None of the Group Companies is a guarantor or indemnitor of any Liabilities of any other Person (other than a Group Company).
3.15 Commitments.
(i) Section 3.15(i) of the Disclosure Schedule contains a complete and accurate list of all Material Contracts. Material Contracts means, collectively, each Contract to which a Group Company or any of its properties or assets is bound or subject to that (a) involves obligations (contingent or otherwise) or payments in excess of US$250,000 per annum or has an unexpired term in excess of one year, (b) involves Intellectual Property that is material to a Group Company (other than generally-available off-the-shelf shrink-wrap software licenses obtained by the Group on non-exclusive and non-negotiated terms), including without limitation, the Licenses, (c) restricts the ability of a Group Company to compete or to conduct or engage in any business or activity or in any territory, (d) relates to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Equity Securities, (e) involves any provisions providing for exclusivity, change in control, most favored nations, rights of first refusal or first negotiation or similar rights, or grants a power of attorney, agency or similar authority, (f) is with a Related Party, (g) involves material Indebtedness, (h) involves the lease, license, sale, use, disposition or acquisition of a material amount of assets or business, (i) involves the waiver, compromise, or settlement of any material dispute, claim, litigation or arbitration, (j) involves the ownership or lease of, title to, use of, or any leasehold or other interest in, any real property, including without limitation, the Leases, (k) involves the establishment, contribution to, or operation of a partnership, joint venture, alliance or similar entity, or involving a sharing of profits or losses (including joint development and joint marketing Contracts), or any investment in, loan to or acquisition or sale of the securities, equity interests or assets of any Person, (l) is with a Governmental Authority, state-owned enterprise, or sole-source supplier of any material product or service (other than utilities), (m) is a brokerage or finders agreement, or material sales agency, marketing or distributorship Contract, or (n) is otherwise material to a Group Company or is one on which a Group Company is substantially dependent.
(ii) A true, fully-executed copy of each Material Contract including all amendments and supplements thereto (and a written summary of all terms and conditions of each non-written Material Contract, if any) has been delivered or made available to the Investors. Each Material Contract is a valid and binding agreement of the Group Company that is a party thereto, the performance of which does not and will not violate any applicable Law or Governmental Order, and is in full force and effect and enforceable against the parties thereto, except (x) as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (y) as may be limited by laws relating to the availability of specific performance, injunctive relief or other remedies in the nature of equitable remedies. Each Group Company has duly performed in all material respects all of its obligations under each Material Contract to the extent that such obligations to perform have accrued, no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by such Group Company, or to the Warrantors knowledge any other party or obligor with respect thereto, has occurred, or as a result of the execution, delivery, and performance of the Transaction Documents will occur. No Group Company has given notice (written or oral) that it intends to terminate a Material Contract or that any other party thereto has breached, violated or defaulted under any Material Contract. No Group Company has received any written notice that it has breached, violated or defaulted under any Material Contract or that any other party thereto intends to terminate such Material Contract. No Contracts to which the Company is a party materially restricts the right of the Company to carry on or continue its Business in the normal course or as contemplated by the Transaction Documents. No Group Company has delegated any power or issued any powers of attorney in favor of any Person, other than power of attorney issued to directors or officers of the Company for purposes of executing contracts or agreements for and on behalf of a Group Company in the ordinary course of business.
3.16 Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions; Absence of Government Interests.
(i) Each Group Company and, to the knowledge of the Warrantors, their respective directors, officers, employees, agents or other Persons authorized in writing to act on their behalf (collectively, Representatives) are and have been in compliance with all applicable Laws relating to anti-bribery, anti-corruption, anti-money laundering, record keeping and internal control laws (collectively, the Compliance Laws) including the FCPA as if it were a U.S. Person. Furthermore, no Public Official (x) holds an ownership or other economic interest, direct or indirect, in any of the Group Companies, or (y) serves as an officer, director or employee of any Group Company. To the knowledge of the Warrantors, neither any Group Company nor any Representative has, directly or indirectly, offered, authorized, promised, condoned, participated in, consummated, or received notice of any allegation of:
(a) the making of any gift or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official, or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person;
(b) the taking of any action by any Person which (1) would violate the FCPA, if taken by an entity subject to the FCPA, or (2) could reasonably be expected to constitute a violation of any applicable Compliance Law;
(c) the making of any false or fictitious entries in the books or records of any Group Company by any Person; or
(d) the using of any assets of any Group Company for the establishment of any unlawful or unrecorded fund of monies or other assets, or the making of any unlawful or undisclosed payment.
(ii) No Group Company or any of its Representatives has ever been found by a Governmental Authority to have violated any criminal or securities Law or is subject to any indictment or any government investigation for bribery. None of the beneficial owners of any Equity Securities or other interest in any Group Company or the current or former Representatives of any Group Company are or were Public Officials.
(iii) No Group Company or any of its Representatives is a Prohibited Person, and no Prohibited Person will be given an offer to become an employee, officer, consultant or director of any Group Company. No Group Company has conducted or agreed to conduct any business, or entered into or agreed to enter into any transaction with a Prohibited Person.
(iv) If the Group Companies have beneficial owners or Representatives who are Public Officials, to the Warrantors knowledge, no such Public Official has been involved on behalf of a Governmental Authority in decisions as to whether any Group Company or the Investors would be awarded business or that otherwise could benefit any Group Company or the Investors, or in the appointment, promotion, or compensation of persons who will make such decisions.
3.17 Title; Properties.
(i) Title; Personal Property. Each Group Company has good and valid title to all of its respective assets, whether tangible or intangible, in each case free and clear of all Liens, other than Permitted Liens. The assets of each Group Company (including all rights and properties) are sufficient for the conduct of the Business of such Group Company as presently conducted. Except for leased or licensed assets, no Person other than a Group Company owns any interest in any such assets. All leases of real or personal property to which a Group Company is a party are effective and afford the Group Company valid leasehold possession of the real or personal property that is the subject of the lease. All machinery, vehicles, equipment and other tangible personal property owned or leased by a Group Company are (a) in good condition and repair in all material respects (reasonable wear and tear excepted) and (b) not obsolete or in need in any material respect of renewal or replacement, except for renewal or replacement in the ordinary course of business. There are no facilities, services, assets or properties which are used in connection with the Business of the Group and which are shared with any other Person that is not a Group Company.
(ii) Real Property. No Group Company owns or has legal or equitable title, leasehold interest or other right or interest in any real property other than as held pursuant to Leases. Section 3.17(ii) of the Disclosure Schedule sets forth each leasehold interest pursuant to which any Group Company holds any real property (a Lease), indicating the parties to such Lease, the address of the property demised under the Lease, the rent payable under the Lease and the term of the Lease. The particulars of the Leases as set forth in Section 3.17(ii) of the Disclosure Schedule are true and complete. Each Lease constitutes the entire agreement with respect to the property demised thereunder. Each Group Company which is party to a Lease has accepted possession of the property demised pursuant to the Lease and is in actual possession thereof and has not sublet, assigned or hypothecated its leasehold interest. No Group Company uses any real property in the conduct of its Business except insofar as it has secured a Lease with respect thereto. As of the date hereof, each Group Company has duly performed in all material respects all of its obligations under each Lease to the extent that such obligations to perform have accrued, and no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by any Group Company (or to the knowledge of the Warrantors, on the part of any other party to the Lease).
3.18 Related Party Transactions.
Other than as set forth in Section 3.18 of the Disclosure Schedule and employment contract entered into by any Group Company and certain employees and officers, no Related Party has any Contract with, or is indebted to, any Group Company or has any direct or indirect interest in any Group Company (other than as set forth in Section 3.2(i) of the Disclosure Schedule), nor is any Group Company indebted (or committed to make loans or extend or guarantee credit) to any Related Party (other than for accrued salaries for the current pay period, or other standard employee benefits). No Related Party has any direct or indirect interest in any Person with which a Group Company is affiliated or with which a Group Company has a material business relationship (including any Person which purchases from or sells, licenses or furnishes to a Group Company any goods, intellectual or other property rights or services) or in any Contract to which a Group Company is a party or by which it may be bound or affected, and no Related Party directly or indirectly competes with or has any interest in any Person that directly or indirectly competes with any Group Company (other than ownership of less than one percent (1%) of the stock of publicly traded companies).
3.19 Intellectual Property Rights.
(i) Company IP. Each Group Company owns or otherwise has sufficient rights (including, but not limited to the rights of development, maintenance, licensing and sale) to all Intellectual Property necessary and sufficient to conduct its Business as now conducted and as proposed to be conducted by such Group Company without any known conflict with or known infringement of the rights of any other Person. Section 3.19(i) of the Disclosure Schedule sets forth a complete and accurate list of all Company Registered IP for each Group Company, including for each the relevant name or description, registration/certification or application number, and filing, registration or issue date. There exists no pending or to the knowledge of the Warrantors, threatened condemnation, confiscation, dispute, claim, demand or similar proceeding with respect to the continued use and enjoyment of any Company Owned IP by any Group Company.
(ii) IP Ownership. All Company Registered IP is owned solely by and registered or applied for solely in the name of a Group Company, and is valid and subsisting and has not been abandoned, and all necessary registration, maintenance and renewal fees with respect thereto and currently due have been satisfied. To the Warrantors knowledge, no Group Company or any of its employees, officers or directors has taken any actions or failed to take any actions that would cause any Company Owned IP to be invalid, unenforceable or not subsisting. No funding or facilities of a Governmental Authority or a university, college, other educational institution or research center was used in the development of any Company Owned IP. No Company Owned IP is the subject of any Lien, license or other Contract granting rights therein to any other Person. No Group Company is or has been a member or promoter of, or contributor to, any industry standards bodies, patent pooling organizations or similar organizations that could require or obligate a Group Company to grant or offer to any Person any license or right to any Company Owned IP. No Company Owned IP is subject to any proceeding or outstanding Governmental Order or settlement agreement or stipulation that (a) restricts in any manner the use, transfer or licensing thereof, or the making, using, sale, or offering for sale of any Group Companys products or services, by any Group Company or (b) may affect the ownership, validity, use or enforceability of such Company Owned IP. No Group Company has (x) transferred or assigned any Company Owned IP to any other Person; (y) authorized the joint ownership of any other Person in any Company Owned IP; or (z) permitted the rights of any Group Company in any Company Owned IP to lapse or enter into the public domain. The transactions contemplated by this Agreement or any other Transaction Documents shall have no adverse effect on each Group Companys right, title and interest in and to Intellectual Property owned or used by such Group Company.
(iii) Infringement, Misappropriation and Claims. To the Warrantors knowledge, no Group Company has misappropriated, or violated, or infringed in any respect any Intellectual Property of any other Person, nor has any Group Company received any written notice alleging any of the foregoing, nor has any Group Company become aware of any fact that would form a reasonable basis for a claim, suit, or allegation of the foregoing. To the knowledge of the Warrantors, no Person has violated, infringed or misappropriated any material Company Owned IP of any Group Company, and no Group Company has given any verbal or written notice to any other Person alleging any of the foregoing; nor has any Group Company become aware of any fact that would form a reasonable basis for a claim, suit, or allegation of the foregoing. To the Warrantors knowledge, no Person has challenged the ownership, validity, enforceability, or use of any Company Owned IP by a Group Company. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property by such Person.
(iv) Assignments and Prior IP. All inventions and know-how conceived by employees of a Group Company related to the Business of such Group Company are currently owned exclusively by a Group Company. All employees, contractors, agents and consultants of a Group Company who are or were involved in the creation of any Intellectual Property for such Group Company have executed an assignment of inventions agreement that vests in a Group Company ownership of all right, title and interest in and to such Intellectual Property. All employee inventors of Company Owned IP have received reasonable reward and remunerations from a Group Company for his/her service inventions or service technology achievements in accordance with the applicable laws. It will not be necessary to utilize any Intellectual Property of any such Persons made prior to their employment by a Group Company, except for those that are exclusively owned by a Group Company. To the Warrantors knowledge, none of the employees, consultants or independent contractors, currently or previously employed or otherwise engaged by any Group Company, (a) is in violation of any current or prior confidentiality, non-competition or non-solicitation obligations to such Group Company or to any other Persons, including former employers, or (b) is obligated under any Contract, or subject to any Governmental Order, that would interfere with the use of his or her best efforts to promote the interests of the Group Companies or that would conflict with the Business of such Group Company as presently and as proposed to be conducted.
(v) Licenses. Section 3.19(v) of the Disclosure Schedule contains a complete and accurate list of the following (collectively, the Licenses): (a) all licenses, sublicenses, and other Contracts to which any Group Company is a party and pursuant to which any third party is authorized to use, exercise or receive any benefit from any Company Owned IP, and (b) all licenses, sublicenses and other Contracts to which any Group Company is a party and pursuant to which such Group Company is authorized to use, exercise, or receive any benefit from any Intellectual Property of another Person, in each case except for (1) agreements involving off-the-shelf commercially available software, and (2) non-exclusive licenses to customers of the Business in the ordinary course of business consistent with past practice. The Group Companies have paid all license and royalty fees required to be paid under the Licenses.
(vi) Protection of IP. Each Group Company has taken all necessary measures to protect, maintain and safeguard Company Owned IP and made all applicable filings, registrations and payments of fees in connection with the foregoing. Without limiting the foregoing, to the Warrantors knowledge, all current and former officers, employees, consultants and independent contractors of any Group Company and all suppliers, customers, distributors and other third parties having access to material Company Owned IP have executed and delivered to such Group Company an agreement requiring the protection of such Company Owned IP. To the extent that any Company Owned IP has been developed or created independently or jointly by an independent contractor or other third party for any Group Company and is incorporated into any products or services of any Group Company, such Group Company has a written agreement with such independent contractor or third party and has thereby obtained exclusive ownership of or exclusive license to such independent contractors or third partys Intellectual Property in such work, material or invention by operation of law or valid assignment or license. To the Warrantors knowledge, none of the Group Companies trade secrets or confidential information have been disclosed to another Person, except pursuant to written confidentiality obligations.
3.20 Labor and Employment Matters.
(i) Each Group Company has complied in all material respects with all applicable Laws related to labor or employment, including provisions thereof relating to wages, hours, working conditions, benefits, retirement, social welfare, equal opportunity and collective bargaining. There is no pending or to the Warrantors knowledge, threatened, and there has not been since, with respect to a Group Company, the incorporation of such Group Company, any Action relating to the violation or alleged violation of any applicable Laws by any Group Company related to labor or employment, including any charge or complaint filed by an employee with any Governmental Authority or any Group Company.
(ii) Except for the ESOP reserved by the Company and granted by the Board of Directors, no Group Company has made any written representations regarding equity incentives to any officer, employee, director or consultant of such Group Company that are inconsistent with the amounts and terms set forth in the minutes of meetings of the Board of Directors.
3.21 Insurance.
Section 3.21 of the Disclosure Schedule lists all insurance policies which cover the Group Companies. The Group Companies have in full force and effect fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow them to replace any of their properties that might be damaged or destroyed.
3.22 State-Owned Assets.
None of the assets of any Group Company constitute state-owned assets and, inasmuch, are not required to undergo any form of valuation under Applicable Law in the PRC governing the transfer of state-owned assets prior to the consummation of the transactions contemplated herein or in any other Transaction Documents.
3.23 Brokers.
Except as set forth in Section 3.23 in the Disclosure Schedule, no finder, broker, financial advisor or other intermediary has acted on behalf of any Group Company or any of its Affiliates in connection with the offering of the Series C Preferred Shares and Warrants or the negotiation or consummation of this Agreement or the Transaction Documents or any of the transactions contemplated hereby or thereby.
3.24 Previous Financing Documents.
The Company has delivered to the Investors all the documents and agreements regarding the previous financing of the Company. No documents and agreements hereof have been forged or tampered with any manner whatsoever, and no other documents and agreements have been omitted or withheld from the Investors. All the documents and agreements were, when provided, and continue to be, true, accurate, complete and not misleading in any aspect.
3.25 Environmental Compliance.
None of the Group Companies is in material violation of any applicable statute, law or regulation relating to the environment or occupational health and safety and no material expenditures are or will be required to comply with any such existing statute, law or regulation.
4. Representations and Warranties of the Investors.
Each Investor hereby represents and warrants to the Company that:
4.1 Authorization.
Such Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All action on the part of such Investor (and, as applicable, its officers, directors and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, and the performance of all obligations of the Investor thereunder, has been taken or will be taken prior to or at the Closing, as applicable. Each Transaction Document that has been duly executed and delivered by such Investor (to the extent such Investor is a party), constitutes valid and legally binding obligations of such Investor, enforceable against such Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4.2 Purchase for Own Account.
The applicable Series C Preferred Shares and Warrants will be acquired for such Investors own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof.
4.3 Status of Investor.
Such Investor is either (i) an accredited investor within the meaning of the U.S. Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a U.S. person as defined in Rule 902 of Regulation S of the Securities Act. Such Investor has the knowledge, sophistication and experience necessary to make an investment decision like that involved in the purchase of the applicable Series C Preferred Shares and the Warrants and can bear the economic risk of its investment in the Series C Preferred Shares and the Warrants.
4.4 Restricted Securities.
Such Investor understands that the Series C Preferred Shares and the Warrants are restricted securities within the meaning of Rule 144 under the Securities Act; and that the Series C Preferred Shares and the Warrants are not registered or listed publicly.
4.5 No Brokers.
Neither such Investor nor any of its Affiliates has any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement or by any of the Transaction Documents, and none of them has incurred any Liability for any brokerage fees, agents fees, commissions or finders fees in connection with any of the Transaction Documents or the consummation of the transactions contemplated therein.
5. Conditions of the Investors Obligations at the Closing.
The obligations of the Investors to consummate each Closing under Sections 2.2 and 2.3 of this Agreement are subject to the fulfillment, to the satisfaction of the applicable Investors on or prior to the applicable Closing, or waiver by such Investors, of the following conditions:
5.1 Representations and Warranties.
Each of the representations and warranties of the Company contained in Section 3 shall have been true and complete when made and shall be true and complete on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.
5.2 Performance.
The Company shall have performed and complied with all obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them on or before the Closing.
5.3 Authorizations.
All Consents of any competent Governmental Authority or of any other Person that are required to be obtained by the Company in connection with the consummation of the transactions contemplated by the Transaction Documents (including but not limited to those related to the lawful issuance and sale of the Securities, and any waivers of notice requirements, rights of first refusal, preemptive rights, put or call rights), including necessary approvals from Board of Directors and shareholders of the Company, shall have been duly obtained and effective as of the Closing, and evidence thereof shall have been delivered to the Investors.
5.4 Compliance Certificate.
The Company shall have delivered to each Investor a certificate, executed by the Chief Executive Officer of the Company, dated the date of the Closing, (a) stating that the conditions specified in Sections 5.1, 5.2 and 5.3 have been satisfied, and (b) certifying and attaching thereto (i) a certified true copy of Restated Memorandum and Articles as then in effect, and (ii) copies of all resolutions approved by the Companys shareholders and the Board of Directors approving the transactions contemplated hereby.
5.5 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions to be completed at the Closing and all documents incident thereto with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been completed in form and substance reasonably satisfactory to the Investors, and the Investors shall have received all such counterpart original or other copies of such documents as they may reasonably request.
5.6 Memorandum and Articles.
The Fourth Amended and Restated Memorandum and Articles, in the forms attached hereto as Exhibit B (the Restated Memorandum and Articles), shall have been duly adopted by all necessary action of the Board of Directors and/or the members of the Company, and such adoption shall have become effective prior to the Closing with no alternation or amendment as of the Closing.
5.7 Transaction Documents.
Each of the parties to the Transaction Documents, other than the Investors, shall have executed and delivered a scanned copy of such Transaction Documents to the Investors.
5.8 Employment Agreement, Proprietary Information & Invention Assignment Agreement and Non-competition and Non-solicitation Agreement.
Each of the Key Employees shall have entered into an employment agreement, a confidentiality and proprietary information and invention assignment agreement and a non-competition and non-solicitation agreement with the respective Group member, in form and substance satisfactory to Sequoia.
5.9 Legal Opinions.
The Investors shall have received opinions from Cayman Islands legal counsel and PRC legal counsel of the Company, in form and substance satisfactory to the Investors and its counsel.
5.10 Appointment of Director
The Sequoia Designee shall have been duly appointed as a director on the Board of Directors.
5.11 Completion of Due diligence.
The Investors shall have completed the financial, business and legal due diligence on the Group to the reasonable satisfaction of the Investors.
5.12 No Material Adverse.
No Material Adverse Effect shall have occurred from the Statement Date on or prior to the Closing.
5.13 Undertaking Letter
The Company shall have duly executed and delivered to Sequoia an undertaking letter in the form attached hereto as Exhibit G.
6. Conditions of the Companys Obligations at the Closing.
The obligations of the Company owed to the Investors to consummate the Closing under Section 2.2 and Section 2.3 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties.
The representations and warranties of the Investors respectively contained in Sections 4 shall have been true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.
6.2 Performance.
Each Investor shall have performed and complied with all covenants, obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by it/him on or before the Closing.
6.3 Execution of Transaction Documents.
The Investors shall have executed and delivered to the Company the Transaction Documents, to which it is a party.
7. Other Agreements.
7.1 Indemnity.
The Warrantors hereby agree to, jointly and severally, indemnify and hold harmless the Investors, and their respective Affiliates, directors, officers, agents and assigns (each an Indemnified Party), from and against any and all Indemnifiable Losses suffered by such Indemnified Party, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or non-performance of any of the representations, warranties, covenants or agreements made by the Warrantors under the Transaction Documents; provided however, that in no case shall the aggregate amount of the indemnification paid or payable by the Warrantors to each Investor exceed the amount of such Investors investment hereunder.
7.2 Confidentiality.
The terms and conditions of the Transaction Documents (collectively, the Financing Terms), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except that (i) each Party, as appropriate, may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) the Investors may disclose any of the Financing Terms to its fund manager, the employees, its consultant thereof so long as such Persons are under appropriate non-disclosure obligations; and (iii) if any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws) to disclose the existence or content of any of the Financing Terms in contravention of the provisions of this Section 7.2, such Party shall promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy and in any event shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information.
7.3 Interim Business of the Group Companies.
Except as expressly contemplated by this Agreement or as required by applicable Law, between the date of this Agreement and each Closing Date, the Group Companies shall conduct their business in the usual, regular, and ordinary course of business in substantially the same manner as heretofore conducted, including without limitation, to protect, maintain and safeguard the Company Owned IP and made all applicable filings, registrations and payments of fees in connection therewith.
7.4 Access and Information.
From the date hereof until each Closing Date, the Warrantors shall permit the Investors or any officer, employee, advisor, or other representative thereof to (a) visit and inspect the properties of the Group Companies, (b) inspect the contracts, books of account, records, ledgers, financial and operating data, and other documents and data of the Group Companies, (c) discuss the business, affairs, finances and accounts of the Group Companies with officers, employees, consultants, accountants, advisors and other representatives of the Group Companies, and (d) review such other information as any Investor reasonably requests, in each case during normal business hours with reasonable advance notices and in such a manner so as not to unreasonably interfere with the normal operations of the Group Companies. The Parties agree that no information or knowledge obtained pursuant to this Section 7.4 by the Investors in connection with its due diligence will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions.
8. Miscellaneous.
8.1 Successors and Assigns.
Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties hereto whose rights or obligations hereunder are affected by such terms and conditions. This Agreement and the rights and obligations therein may not be assigned by the Group Companies without the prior written consent of the Investors. Nothing in this Agreement, express or implied, is intended to confer upon any Party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.2 Governing Law.
This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the Laws of Hong Kong, without regard to the conflicts of law provisions of Hong Kong.
8.3 Dispute Resolution.
(i) Any dispute, controversy, difference or claim (each, a Dispute) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the Arbitration Notice) to the other.
(ii) The Dispute shall be settled by arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre (the HKIAC) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the HKIAC Rules) in force when the Arbitration Notice is submitted. There shall be three (3) arbitrators. The HKIAC council shall select the arbitrators, who shall be qualified to practice law in Hong Kong.
(iii) The arbitral proceedings shall be conducted in English.
(iv) The costs of arbitration shall be borne by the losing party, unless otherwise determined by the arbitral tribunal.
(v) The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
(vi) The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.
(vii) Any Party to the Dispute shall be entitled to seek interim measures of protection and emergency relief, if possible, from any court of competent jurisdiction in accordance with the applicable Laws of that jurisdiction.
(viii) When any Dispute occurs and when any Dispute is under arbitration, except for the matters in Dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.
8.4 Notices.
Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule IV (or at such other address as such Party may designate by fifteen (15) days advance written notice to the other Parties to this Agreement given in accordance with this Section 8.4). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a with a copy to address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.
8.5 Rights Cumulative; Specific Performance.
Subject to Section 7.1, each and all of the various rights, powers and remedies of a party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.
8.6 Fees and Expenses.
The Parties shall each pay all of its own costs and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby, provided however that (i) if the Initial Closing shall occur, the Company shall reimburse all out-of-pocket fees and expenses (including fees and expenses for lawyers, accountants, auditors, financial advisor and other professionals) to Sequoia and its lawyers, accountants, auditors, financial advisor and other professionals up to US$80,000, and (ii) if the Company exercises its right to walk away under Section 2.5, at which time closing conditions under Section 6 are satisfied and Sequoia has notified the Company that it is willing and able to consummate the Initial Closing, then the Company shall reimburse all out-of-pocket fees and expenses (including fees and expenses for lawyers, accountants, auditors, financial advisor and other professionals) to Sequoia and its lawyers, accountants, auditors, financial advisor and other professionals up to US$40,000. If any action at Law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
8.7 Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.
8.8 Amendments and Waivers.
Any term of this Agreement may be amended, only with the written consent of the Company and the Investors. Any amendment effected in accordance with this paragraph shall be binding upon each of the Parties hereto. Notwithstanding the foregoing, the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Party against whom such waiver is sought.
8.9 No Waiver.
Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy power hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.
8.10 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
8.11 No Presumption.
The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.
8.12 Headings and Subtitles; Interpretation.
The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term or is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms herein, hereof, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the masculine, feminine, and neuter genders will each be deemed to include the others; (v) the term day means calendar day, and month means calendar month; (vi) all references in this Agreement to designated Sections and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement; (vii) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement; (viii) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning; (ix) references to laws include any such law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made; (x) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards; (xi) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (xii) references to this Agreement, any other Transaction Documents and any other document shall be construed as references to such document as the same may be amended, supplemented or novated from time to time; (xiii) all references to dollars or to US$ are to currency of the United States of America (and each shall be deemed to include reference to the equivalent amount in other currencies), (xiv) all references to material regarding any events, rights, obligations, breach of contract or fails to perform, shall means the Group Companies may cause losses or gain profits which exceeds US$400,000.
8.13 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.
8.14 Entire Agreement.
This Agreement and the Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among any of the Parties with respect to the subject matters hereof and thereof.
8.15 Use of English Language.
This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language shall have no interpretive effect.
8.16 Further Assurances.
Each Party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents and assurances without further consideration, which may reasonably be required to procure the satisfaction of closing conditions and to effect the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
COMPANY: |
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Adagene Inc. |
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/s/ Peter Peizhi Luo |
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Name: Peter Peizhi Luo |
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Title: Director |
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HOLDCO SUBSIDIARY: |
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Adagene (Hong Kong) Limited (天演藥業(香港)有限公司) |
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/s/ Peter Peizhi Luo |
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WFOE: |
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Adagene (Suzhou) Limited |
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(天演葯业(苏州)有限公司) |
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(Seal) |
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/s/ Peter Peizhi Luo |
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US SUBSIDIARY: |
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Adagene Incorporated |
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/s/ Peter Peizhi Luo |
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[Adagene Inc. Series C Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS |
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SCC Venture VI Holdco, Ltd. |
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/s/ Ip Siu Wai Eva |
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Ip Siu Wai Eva |
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Authorized Signatory |
[Adagene Inc. Series C Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS |
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Gopher Harvest Co-Investment Fund LP |
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/s/ Yin Zhe |
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Yin Zhe |
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[Adagene Inc. Series C Share Purchase Agreement Signature Page]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS |
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AVICT GLOBAL HOLDINGS LIMITED |
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For and behalf of Avict Global Holdings Limited |
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/s/ Xiong Jing |
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Xiong Jing |
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Authorized Signatory |
[Adagene Inc. Series C Share Purchase Agreement Signature Page]
SCHEDULE I
LIST OF SERIES C INVESTORS AT INITIAL CLOSING
SCHEDULE II
CAPITALIZATION STRUCTURE ON FULLY DILUTED BASIS
CAPITALIZATION STRUCTURE ASSUMING NO ISSUANCE OF WARRANTS
CAPITALIZATION STRUCTURE ASSUMING FULL EXERCISE OF WARRANTS1
1 Assuming the exercise of warrant are by SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP respectively.
SCHEDULE III
DESIGNATED BANK ACCOUNT
SCHEDULE IV
ADDRESS FOR NOTICES
ANNEX 1
DEFINITIONS
1. Defined Terms. The following terms shall have the meanings ascribed to them as below:
Accounting Standards means the Hong Kong Financial Reporting Standards with respect to the Holdco Subsidiary, and the Chinese Accounting Standards with respect to the WFOE, applied on a consistent basis or other accounting principles approved by the Investor.
Action means any charge, claim, action, complaint, petition, investigation, appeal, suit, litigation, grievance, inquiry or other proceeding, whether administrative, civil, regulatory or criminal, whether at law or in equity, or otherwise under any applicable Law, and whether or not before any mediator, arbitrator or Governmental Authority.
Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, limited partner, member, managing member, officer, employee or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. Notwithstanding the foregoing, the Parties acknowledge and agree that (a) the name Sequoia Capital is commonly used to describe a variety of entities (collectively, the Sequoia Entities) that are affiliated by ownership or operational relationship and engaged in a broad range of activities related to investing and securities trading and (b) notwithstanding any other provision of this Agreement to the contrary, this Agreement shall not be binding on, or restrict the activities of, any (i) Sequoia Entity outside of the Sequoia China Sector Group , (ii) entity primarily engaged in investment and trading in the secondary securities market; (iii) the ultimate beneficial owner of an Sequoia Entity (or its general partner or ultimate general partner) who is a natural Person, and such Persons relatives (including but without limitation, such Persons spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law), (iv) any officer, director or employee of a Sequoia Entity (or its general partner or ultimate general partner) and such Persons relatives, and (v) for the avoidance of doubt, any portfolio companies of any Sequoia Entity and portfolio companies of any affiliated investment fund or investment vehicle of any Sequoia Entity. For purposes of the foregoing, the Sequoia China Sector Group means all Sequoia Entities (whether currently existing or formed in the future) that are principally focused on companies located in, or with connections to, the Peoples Republic of China that are exclusively managed by Sequoia Capital. For the avoidance of doubt, each of SCC Venture VI Holdco, Ltd. and Gopher Harvest Co-Investment Fund LP shall be deemed as an Affiliate of each other.
Ancillary Agreements means, collectively, the Restated Shareholders Agreement, the Restated Right of First Refusal & Co-Sale Agreement and the Indemnification Agreement.
Board of Directors means the board of directors of the Company.
Business means the research, development, service, consulting, commercialization, transfer and license of technology relating to biologics including antibodies for therapeutic and/or diagnostic applications.
Business Day means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Hong Kong, the Cayman Islands or the United States.
Charter Documents means, with respect to a particular legal entity, certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.
Code means the United States Internal Revenue Code of 1986, as amended.
Company Owned IP means all Intellectual Property owned by, purported by any Group Company to be owned by, or exclusively licensed to, any of the Group Companies.
Company Registered IP means all Intellectual Property for which registrations are owned by or held in the name of, or for which applications have been made in the name of, any Group Company.
Consent means any consent, approval, authorization, release, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.
Contract means a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.
Control of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms Controlled and Controlling have meanings correlative to the foregoing.
Conversion Shares means, the Ordinary Shares issuable upon the conversion of Series C Preferred Shares issued hereunder.
Equity Securities means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing.
ESOP means up to 6,336,126 Ordinary Shares (as adjusted in connection with share splits or share consolidation, reclassification or other similar event) and/or options or warrants therefor issued to employees, officers, directors, contractors, advisors or consultants of the Group Companies pursuant to the Companys Amended and Restated Share Incentive Plan (as amended) duly approved by the Board of Directors.
FCPA means Foreign Corrupt Practices Act of the United States of America, as amended from time to time.
Gopher means Gopher Harvest Co-Investment Fund LP, an exempt limited partnership established under the laws of the Cayman Islands.
Governmental Authority means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
Governmental Order means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
Group Company means each of the Company, the Holdco Subsidiary, the WFOE, the US Subsidiary, together with each Subsidiary of any of the foregoing, and Group refers to all of Group Companies collectively.
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
Indebtedness of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized (including capitalized lease obligations), (vii) all obligations under bankers acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, and (x) all guarantees issued in respect of the Indebtedness referred to in clauses (i) through (ix) above of any other Person, but only to the extent of the Indebtedness guaranteed.
Indemnifiable Loss means, with respect to any Person, any action, claim, cost, damage, deficiency, disbursement, expense, liability, loss, obligation, penalty or settlement of any kind or nature imposed on or otherwise incurred or suffered by such Person, including without limitation, (x) reasonable legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims, and (y) amounts paid in settlement, other than consequential damages resulting from a breach for which the Parties do not, and did not, have reason to foresee as a probable result of such breach.
Indemnification Agreement means the indemnification agreement in the form attached hereto as Exhibit E to be entered into by the Company, Sequoia and the Sequoia Designee.
Intellectual Property means any and all (i) patents, all patent rights, and all patent applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, mask works and registrations and applications therefor, authors rights and works of authorship (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols and tools, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms and (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and the goodwill symbolized or represented by the foregoing and other proprietary information and common-law rights.
Key Employees means Peter Luo, Felix Du, Kristine She, Yan Li, Alex Goergen, Peter Cheung, Guizhong Liu, Peng Wu, Xin Fang and Zhongzong Pan.
knowledge of any Party shall mean such Partys actual knowledge after due and diligent inquiries of officers and directors of such Party reasonably believed to have knowledge of the matter in question.
Law or Laws means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any formally issued written interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.
Liabilities means, with respect to any Person, all liabilities, obligations and commitments of such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.
Lien means any claim, charge, easement, encumbrance, lease, covenant, security interest, equity, lien, option, pledge, mortgage, hypothecation, retention of title, title defect, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, law, equity or otherwise.
Material Adverse Effect means any (i) event, occurrence, fact, condition, change or development that has had, has, or would reasonably be expected to have, individually or together with other events, occurrences, facts, conditions, changes or developments, a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of the Group taken as a whole, (ii) material impairment of the ability of any Party (other than the Investors) to perform the material obligations of such Party under any Transaction Documents, or (iii) material impairment of the validity or enforceability of this Agreement or any other Transaction Document against any Party hereto or thereto (other than the Investors). The Material Adverse Effect shall not include (a) any outbreak or escalation of war or major hostilities or any act of terrorism or any natural disaster or other force majeure event which occurs after the date of this Agreement; (b) changes in Laws, generally accepted accounting principles or enforcement or interpretation thereof after the date of this Agreement; (c) changes that generally affect the industries and markets in which the Group Companies operate to the extent such changes do not have a materially disproportionate adverse effect relative to other similarly situated industry participants; (d) changes in financial markets, general economic conditions (including prevailing interest rates, exchange rates, commodity prices and fuel costs) or political or social conditions to the extent such changes do not have a materially disproportionate adverse effect relative to other similarly situated industry participants.
MOFCOM means the Ministry of Commerce of the PRC or, with respect to any matter to be submitted for examination and approval by the Ministry of Commerce, any Governmental Authority which is delegated or authorized by the Ministry of Commerce to examine and approve such matter under the laws of the PRC.
Ordinary Shares means the Companys ordinary shares, par value US$0.0001 per share.
Permitted Liens means (i) Liens for Taxes not yet delinquent or the validity of which are being contested in good faith and for which there are adequate reserves on the applicable financial statements, and (ii) Liens incurred in the ordinary course of business, which (x) do not individually or in the aggregate materially detract from the value, use, or transferability of the assets that are subject to such Liens, and (y) were not incurred in connection with the borrowing of money.
Person means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.
PRC means the Peoples Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.
Prohibited Person means any Person that is (1) a national or resident of any U.S. embargoed or restricted country, (2) included on, or Affiliated with any Person on, the United States Commerce Departments Denied Parties List, Entities and Unverified Lists; the U.S. Department of Treasurys Specially Designated Nationals, Specially Designated Narcotics Traffickers or Specially Designated Terrorists, or the Annex to Executive Order No. 13224; the Department of States Debarred List; UN Sanctions, (3) a member of any PRC military organization, or (4) a Person with whom business transactions, including exports and re-exports, are restricted by a U.S. Governmental Authority, including, in each clause above, any updates or revisions to the foregoing and any newly published rules.
Public Official means any executive, official, or employee of a Governmental Authority, political party or member of a political party, political candidate; executive, employee or officer of a public international organization; or director, officer or employee or agent of a wholly owned or partially state-owned or controlled enterprise, including a PRC state-owned or controlled enterprise.
Related Party means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, and any Affiliate of any of the foregoing.
Restated Shareholders Agreement means the Third Amended and Restated Shareholders Agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit C.
Restated Right of First Refusal & Co-Sale Agreement means the Second Amended and Restated Right of First Refusal & Co-Sale Agreement to be entered into by and among the parties named therein upon the Closing, which shall be in the form attached hereto as Exhibit D.
Right of First Refusal & Co-Sale Agreement means the Amended and Restated Right of First Refusal & Co-Sale Agreement entered into on January 19, 2016 by and among the Company and the parties named therein.
SAIC means the State Administration of Industry and Commerce of the PRC or, with respect to the issuance of any business license or filing or registration to be effected by or with the State Administration of Industry and Commerce, any Governmental Authority which is similarly competent to issue such business license or accept such filing or registration under the laws of the PRC.
Securities Act means the U.S. Securities Act of 1933, as amended and interpreted from time to time.
Sequoia means SCC Venture VI Holdco, Ltd., a company incorporated under the laws of the Cayman Islands.
Series C Preferred Shares means, collectively, the Series C-1 Preferred Shares and the Series C-2 Preferred Shares, and each a Series C Preferred Share.
Series C-2 Preferred Share means a series C-2 preferred share of the Company, par value US$0.0001 per share.
Shareholders Agreement means the Amended and Restated Shareholders Agreement entered into on January 19, 2016 by and among the Company and parties named therein.
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.
Tax means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i)(a) and (i)(b) above.
Tax Return means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.
Transaction Documents means this Agreement, the Ancillary Agreements, the Restated Memorandum and Articles, and each of the other agreements and documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.
U.S. real property holding corporation has the meaning as defined in the Code.
Warrant Shares means the Series C-2 Preferred Shares issuable upon exercise of the Warrants.
Warrantors means the Group Companies.
2. Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:
Additional Purchased Securities |
Section 2.3 |
Agreement |
Preamble |
Arbitration Notice |
Section 8.3(i) |
Closing(s) |
Section 2.3 |
Company |
Preamble |
Compliance Laws |
Section 3.16(i) |
Disclosure Schedule |
Section 3 |
Dispute |
Section 8.3(i) |
Financial Statements |
Section 3.11 |
Financing Terms |
Section 7.2 |
HKIAC |
Section 8.3(ii) |
HKIAC Rules |
Section 8.3(ii) |
Holdco Subsidiary |
Preamble |
Indemnified Party |
Section 7.1 |
Initial Closing |
Section 2.2(i) |
Investor(s) |
Preamble |
Lease |
Section 3.17(ii) |
Licenses |
Section 3.19(v) |
Material Contracts |
Section 3.15(i) |
Party(ies) |
Preamble |
Purchase Price |
Section 2.1(i) |
Representatives |
Section 3.16(i) |
Restated Memorandum and Articles |
Section 5.6 |
Series C-1 Preferred Shares |
Section 2.1(i) |
Sequoia Designee |
Section 2.2(ii) |
Statement Date |
Section 3.11 |
US Subsidiary |
Preamble |
Warrant(s) |
Section 2.1(ii) |
WFOE |
Preamble |
EXHIBIT A
FORM OF WARRANT
EXHIBIT B
FORM OF FOURTH AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION
EXHIBIT C
FORM OF THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
EXHIBIT D
FORM OF SECOND AMENDED AND RESTATED RIGHT OF FIRST REFUSAL & CO-SALE AGREEMENT
EXHIBIT E
FORM OF INDEMNIFICATION AGREEMENT
EXHIBIT F
DISCLOSURE SCHEDULE
EXHIBIT G
UNDERTAKING LETTER
*** CERTAIN MATERIAL (INDICATED BY THREE ASTERISKS IN BRACKETS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
Guilin Sanjin Pharmaceutical Co., Ltd.
AND
Adagene (Suzhou) Limited
|
Cooperation Agreement on the PD-L1
Project
|
December 2018
CONTENTS
ARTICLE 1 PURPOSE AND CONTENT OF THE COOPERATION |
4 |
ARTICLE 2 COOPERATIVE EXPENSES |
6 |
ARTICLE 3 SHARING OF PROJECT INTERESTS AND OWNERSHIP OF INTELLECTUAL PROPERTY |
7 |
ARTICLE 4 RESPONSIBILITIES OF THE PARTIES |
8 |
ARTICLE 5 REPRESENTATIONS AND WARRANTIES |
9 |
ARTICLE 6 COVENANTS |
10 |
ARTICLE 7 COST BEARING |
10 |
ARTICLE 8 LIABILITIES FOR BREACH |
10 |
ARTICLE 9 FORCE MAJEURE |
11 |
ARTICLE 10 AMENDMENT, RESCISSION OR TERMINATION |
11 |
ARTICLE 11 GOVERNING LAWS AND DISPUTE RESOLUTION |
12 |
ARTICLE 12 CONFIDENTIALITY |
13 |
ARTICLE 13 LIMITATION OF LIABILITY |
14 |
ARTICLE 14 LIABILITY FOR COMPENSATION |
14 |
ARTICLE 15 MISCELLANEOUS |
14 |
Cooperation Agreement on the PD-L1 Project
This Cooperation Agreement on the PD-L1 Project (this Agreement) is made and entered into by and among the following parties on December 27, 2018 in Shanghai, the Peoples Republic of China (China or the PRC):
Party A: Guilin Sanjin Pharmaceutical Co., Ltd.
Domicile: No. 1 Jinxing Road, Guilin, Guangxi, China
Legal Representative: Zou Jieming
Party B: Adagene (Suzhou) Limited
Domicile: Room 301, Floor C14, Bionano Science Park, No. 218 Xinghu Street, Suzhou Industrial Park
Legal Representative: Peter Luo
Party C: Dragon Boat Biopharmaceutical (Shanghai) Limited.
Domicile: Building 5, No. 34, Lane 122, Chunxiao Road, Zhangjiang, Shanghai
Legal Representative: Zou Zhun
Party D: Dragon Sail Biotechnology (Shanghai) Co., Ltd.
Domicile: Building 7, No. 860, Xinyang Road, Fengxian District, Shanghai
Legal Representative: Zou Zhun
(Party A, Party B, Party C and Party D are referred to individually as a Party and collectively as the Parties; Party A, Party C and Party D are referred to collectively as a Party A, Party C and Party D; Party A and Party B, Party C and Party B, Party D and Party B, or Party A, Party C, Party D and Party B are referred to collectively as the Both Parties.)
WHEREAS:
1 Party A Guilin Sanjin Pharmaceutical Co., Ltd. (Guilin Sanjin or Party A) is a company limited by shares incorporated and existing under the laws of the PRC with its unified social credit code of 91450300198888809P.
2 Party B Adagene (Suzhou) Limited (Adagene Suzhou or Party B) is a limited liability company incorporated and existing under the laws of the PRC, which is international in nature and focuses on the development of monospecific and bispecific antibodies and focuses on the building of new antibody product pipelines. Founded on February 28, 2012, a subsidiary wholly-owned by Adagene Inc. (a company incorporated and existing under the laws of the Cayman Islands) with the unified social credit code of 91320594590011964Y.
3 Party C Dragon Boat Biopharmaceutical (Shanghai) Limited. (Dragon Boat or Party C) is a limited liability company incorporated and existing under the laws of the PRC with its unified social credit code of 91310115781107395X established on September 30, 2005.
4 Party D Dragon Sail Biotechnology (Shanghai) Co., Ltd. (Dragon Sail or Party D) is a limited liability company incorporated and existing under the Laws of the PRC with its unified social credit code of 91310120MA1HLL444P established on October 25, 2016.
5 Party A, Party B, Party C and Party D intend to conduct in-depth cooperation in the research and development of new monospecific antibody drugs in respect of PD-L1 antibody binding site (PD-L1 Project, as defined in Article 1.1.1 for details) in PRC. In order to clarify the overall objectives and principles of such cooperation and clarify the rights and obligations of the Both Parties, Party A and Party B decide to enter into a cooperation agreement.
NOW, THEREFORE, based on the principles of equality and mutual benefit, Party A, Party B, Party C and Party D, through friendly consultation, agree as follows with respect to the cooperation hereunder.
Article 1 Purpose and Content of the Cooperation
1.1 Purpose of Cooperation: Party A, Party C and Party D introduce the PD-L1 Project from Party B and develop the PD-L1 Project Products based on the preliminary research conducted by Party B.
1.1.1 The PD-L1 Project refers to data and patents of the monospecific antibody sequence generated against the PD-L1 target, including but not limited to stable cell lines, amino acid and cDNA sequences, biological activity, developability, expression vector design, cell line construction process, etc.
1.1.2 cDNA refers to the DNA sequence corresponding to the anti-PD-L1 antibody sequence.
1.1.3 PRC or China refers to the Peoples Republic of China, for the purpose of this Agreement, excluding Hong Kong, Macau and Taiwan region.
1.1.4 IND refers to the investigational new drug application, and IND under this Agreement shall specifically refer to the investigational new drug application within the territory of Mainland China (excluding Hong Kong, Macao and Taiwan region).
1.1.5 PD-L1 Project Products refer to the monospecific antibody drugs targeting PD-L1 to be developed under the PD-L1 Project.
1.2 The cooperation of PD-L1 Project under this Agreement includes the research and development of new monospecific antibody drugs targeting PD-L1.
Specifically: on the existing research and development basis of Adagene Suzhou, Guilin Sanjin shall pay Adagene Suzhou a certain amount of project introduction fee to obtain the exclusive cooperation right of PD-L1 Project; on this basis, Party A, Party C and Party D shall carry out the subsequent research and development of PD-L1 Project; and Adagene Suzhou shall fully cooperate. The Parties shall share the Greater China Interests (as defined in Article 3.1.2, the same below) of the PD-L1 Project at different stages of the project in accordance with this Agreement.
1.2.1 The PD-L1 antibody binding site refers to the amino acid residues and its positions where the antibody interacts with the PD-L1 antigen.
1.2.2 The existing research and development basis of Adagene Suzhou refers to all materials, technology, inventions, discoveries, improvements, patents and know-how as well as all reports, data, technical information, original works of authorship and other information relating to monoclonal antibodies targeting PD-L1 (including but not limited to the screening and optimization of anti-PD-L1 antibody sequences, the developability and the in vitro biological activity research, the construction of production cell lines, etc) researched and developed by Adagene Suzhou based on the Background Intellectual Property such as the research and development technology of antibodies owned by and licensed from Adagene Inc. (the Existing Research and Development Basis)
1.2.3 The exclusive cooperation right refers to, subject to the terms and conditions of this Agreement, Adagene Suzhou and its affiliates shall not cooperate with any other third party on the development of the PD-L1 monospecific project; after the payment of project introduction fee by Guilin Sanjin, the intellectual property directly relating to the PD-L1 Project shall be owned by Guilin Sanjin, and the Parties shall share the Greater China Interest of their cooperation in accordance with Article 3.1 of this Agreement; if the subsequent development of the PD-L1 Project involves the intellectual property of Adagene Suzhou and/or its affiliates, Adagene Suzhou shall grant to Party A, Party C and Party D a license to use such intellectual property under this Agreement without consideration (also defined in Article 4.1).
1.3 The Parties agree that Party A, Party C and Party D shall be responsible for carrying out the Project and Party B, as the counterparty, shall fully cooperate in accordance with the terms and conditions of this Agreement. If a relevant agreement need to be executed, the content of such entrustment agreement shall not violate the principles set forth in this Agreement.
Article 2 Cooperative Expenses
2.1 After this Agreement is executed and takes effect, Guilin Sanjin shall pay [***] RMB as the project introduction fee to Adagene Suzhou on a lump-sum basis.
2.2 After the PD-L1 related products comes on the market, within the validity period of the patent of PD-L1 molecule, Party A, Party C and Party D shall, prior to May 10 of each year, disclose to Party B the sales of all products relevant to such molecule of the previous year, and shall, prior to June 1 of each year, pay Party B [***]% (exclusive of tax) of the net sales revenue of the products relevant to such molecule.
2.3 If Party A, Party C and Party D transfer their PRC interests of this project to any third party during the process of research and development, Party B shall be entitled to the transfer proceeds deducting the research and development costs (excluding the project introduction fees paid to Party B), and the research and development costs shall be verified and determined by an independent auditor agreed upon by Both Parties.
2.3.1 If the transfer occurs before the clinical approval documents, Party A, Party C and Party D shall pay Adagene Suzhou [***]% of the transfer proceeds deducting the research and development costs;
2.3.2 If the transfer occurs during the clinical phase I II of the products, Party A, Party C and Party D shall pay Adagene Suzhou [***]% of the transfer proceeds deducting the research and development costs.
2.3.3 If the transfer occurs during the clinical phase II III, Party A, Party C and Party D shall pay Adagene Suzhou [***]% of the transfer proceeds deducting the research and development costs.
2.3.4 If the transfer occurs after the clinical phase III, Party A, Party C and Party D shall pay Adagene Suzhou [***]% of the transfer proceeds deducting the research and development costs.
2.4 If the international or global interests of this project are transferred to any third party, the Parties shall share the interests in accordance with Article 2.4 of the Cooperation Agreement on International Interests of PD-L1 Project, dated December 27, 2018, between Guilin Sanjin Pharmaceutical Co., Ltd. and Adagene Inc..
Article 3 Sharing of Project Interests and Ownership of Intellectual Property
3.1 The Parties agree that Party A, Party C and Party D shall be entitled to 100a% of the Greater China Interests of the PD-L1 Project.
3.1.1 The Greater China refers to, for the purpose of this Agreement, the Mainland China, Hong Kong, Macau and Taiwan region.
3.1.2 The Greater China Interests refer to all economic benefits (including, but not limited to, patent assignment fees, licensing fees, sales revenue, and sales commissions) derived from the PD-L1 Project in the Greater China.
3.2 Interest and its Transfer
3.2.1 The transferred interests under the PD-L1 Project include all rights and interests directly related to the molecule, including but not limited to rights and interests on subsequent domestic and oversea research and development, the IND (investigational new drug application), clinical trials, marketing, equity transfer and combined medication.
3.2.2 The transfer of the rights and interests related to the molecule described in Article 3.2.1 above shall be effected through the transfer of patents and related technology, specifically, the Party B shall transfer to Party A, Party C and Party D the core sequence (of amino acids and their encoding nucleic acids sequence) of such molecule as well as the relevant reasonable rights and interests that Party B owns based on such core sequence and that have been fixed in the form of patent application (only apply to the patent right in PRC), such transfer shall include but not be limited to the transfer of patent application right by Party B to Party A, Party C and Party D at the stage of patent application or the transfer of patent right by Party B to Party A, Party C and Party D within six months after Party B obtains the patent right.
3.3 Ownership of Intellectual Property
3.3.1 The Parties agree that, after the effectiveness of this Agreement, all the results obtained by Party A, Party C and Party D relating to the research and development of the new antibodies under the PD-L1 Project, including, without limitation, cell lines, relevant technologies for the development process, pre-clinical application materials, clinical research materials and experimental data obtained in the process of research and development, shall be a part of the PD-L1 Project and owned by Party A, Party C and Party D.
3.3.2 Party B represents that as of the effective date of this Agreement, there is no dispute between Party B and any third party which would impact the license of the Existing Research and Development Basis of Adagene Suzhou to Party A, Party C and Party D, and has not found that the implementation of this Agreement would violate the intellectual property rights of any third party. Party B shall ensure that the sequences of anti-PD-L1 antibodies provided by it do not violate the interest of any third party, and shall undertake any intellectual property dispute arising from the sequences of anti-PD-L1 antibodies provided by it and the losses incurred thereby.
3.3.3 Background Intellectual Property: Either Party shall retain all rights, title and interest in and to any Intellectual Property used in this Project which the Party or its Affiliates owned or have the right to use prior to the execution of this Agreement, or which is acquired independently of this Agreement (Background Intellectual Property). Party Bs Background Intellectual Property shall include, without limitation, any patent or know-how owned, controlled or otherwise used by Party B or its affiliates relating to the discovery technology of monoclonal antibodies against other antigens which are not developed under the PD-L1 Project.
3.3.4 Improvements of Background Intellectual Property: In case where either Party or its affiliate makes any improvement of the Background Intellectual Property during the research and development of PD-L1 Project, such Party shall retain all right, title and interest to such improved Background Intellectual Property.
3.3.5 Within the effective term of this Agreement, Party B hereby grants Party A, Party C and Party D a license to use Party Bs Background Intellectual Property and improved Background Intellectual Property in relation to the PD-L1 Project without compensation for the purpose of performing this Agreement. However, Party B shall not be responsible for obtaining the license of any intellectual property rights of any third party that need to be purchased for the purpose of performing this Agreement.
Article 4 Responsibilities of the Parties
4.1 Exclusivity of the Project
4.1.1 Within three years after the effectiveness of this Agreement, Party B shall not develop monospecific antibodies against the PD-L1 target, nor shall it authorize any third party to the use of any sequences, cell lines, nanobodies, data, patented technology or other items; Any new projects in conflict with the interests of this Project shall be determined by the Parties through consultation and the Parties shall have the prior cooperation right. However, the exclusivity obligation provided for in this Article does not include bispecific antibodies (simultaneously bind two different epitopes), antibody conjugates (ADC), diagnostic antibodies, antibody-targeted nanoparticles (Nano-particles) and antibody prodrugs (Probody).
4.1.2 In the meantime, the Parties agree that the provision of screening service for third parties that Party B has commenced and continued prior to the execution of this Agreement is not subject to the exclusivity obligation of this Article.
4.2 Risk of Project Failure
If the project fails due to the reasons solely attributable to the Existing Research and Development Basis of Adagene Suzhou (as defined in Article 1.2.2 of this Agreement), the project shall terminate and Guilin Sanjin shall have the right to claim liquidated damages against Adagene Suzhou in the amount of [***] RMB; if the project fails due to the fault of Party A, Party C and Party D, Guilin Sanjin shall not claim against Adagene Suzhou for the above liquidated damages.
Article 5 Representations and Warranties
5.1 Party A, Party B, Party C and Party D represent and warrant that each Party has the requisite power to enter into, execute, deliver and perform this Agreement and any other documents required for the performance of this Agreement. This Agreement and any such other documents after taking effect constitute a legitimate, valid, binding and enforceable agreement between the Parties hereto.
5.2 Party A, Party B, Party C and Party D represent and warrant that the execution, delivery and performance of this Agreement will not conflict with or result in a breach of the provisions of, or constitute a default (or result in the exercise of any right of termination in accordance with the provisions thereof) under, or violate, any of the following: (1) any material contract to which such Party is a party, unless the consent of the other party of such contract has been obtained; (2) any PRC Law, or any judgment, decree or order of any court, tribunal, government or governmental agency having jurisdiction over such Party or any of its assets; or (3) the articles of association or business license of such Party.
5.3 Unless otherwise confirmed and agreed in writing by the other Parties, either Party shall keep confidential any Confidential Information relating to the other Parties which may come to its knowledge. Either Party shall cause its relevant personnel, counsels and auditing institutions to bear the same confidentiality obligation.
Article 6 Covenants
In addition to the obligations of the Parties under other provisions of this Agreement, the Parties covenant as follows:
6.1 The Parties hereto agree to cooperate with each other in completing any outstanding work relating to the cooperation under this Agreement as soon as possible. For this purpose, the Parties shall take or cause to be taken all necessary actions, including without limitation obtaining written consents of competent authorities or shareholders of such Party with respect to cooperation matters (if required), to ensure the full implementation of the terms of this Agreement. Any matters, which must be resolved during the implementation of this Agreement but is not stipulated in this Agreement, shall be settled by the Parties hereto through consultation and in a fair, equal and proper manner.
6.2 Each Party shall, with the utmost good faith, take economically reasonable approach to promote all aspects of the work of the PD-L1 Project without reducing the actual effect.
Article 7 Cost Bearing
Party A, Party B, Party C and Party B shall be responsible for their own taxes and fees arising from their respective implementation of this Agreement.
Article 8 Liabilities for Breach
8.1 The occurrence of any of the following circumstances to any Party hereto shall constitute a breach of this Agreement:
8.1.1 Breach of any obligation or covenant set forth in this Agreement;
8.1.2 Any representation or warranty made by such Party in this Agreement is inconsistent with the facts or is misleading (whether made in good faith or in bad faith).
8.2 In case of any aforesaid breach of this Agreement, the non-breaching Party shall be entitled to request the breaching Party to rectify it within 30 days; if the breaching Party fails to rectify it within the specified period, Both Parties may initiate arbitration in accordance with Article 11.2 of this Agreement. If such arbitration fails, the non-breaching Party shall be entitled to rescind this Agreement. Furthermore, the breaching Party shall indemnify the non-breaching Party against all claims, losses, liabilities, damages, costs and expenses directly caused to the non-breaching Party due to its breach.
ARTICLE 9 Force Majeure
9.1 Force Majeure under this Agreement means any objective event that is unforeseeable at the time of execution of this Agreement, is unavoidable by the Parties and the consequences of which cannot be overcome. Such objective events shall include, without limitation, earthquakes, typhoons, flood, fire, war, strikes, riots, acts of governments, changes in law or the application thereof or any other instances which are unforeseeable, unavoidable or out of control, including objective instances which are accepted as Force Majeure in general international commercial practice.
9.2 If an event of Force Majeure occurs, a Partys contractual obligations affected by such event under this Agreement shall be suspended during the period of delay caused by the Force Majeure and the period for performance of such contractual obligations shall be automatically extended, with the extended period of performance equals to the period of delay, and the affected Party shall not be responsible for the breach of this Agreement due to such delay.
9.3 In case of any Force Majeure, the Party affected thereby shall, within 30 days upon occurrence of Force Majeure, provide the other Party with relevant documents notarized by a notary office to prove the occurrence of the Force Majeure event.
9.4 In the event of Force Majeure, the Parties shall immediately consult with each other in order to find an equitable solution and shall use all reasonable endeavours to minimize the consequences of such Force Majeure.
Article 10 Amendment, Rescission or Termination
10.1 Unless otherwise provided for herein, this Agreement shall be rescinded upon occurrence of any of the following circumstances and from the rescission date, the rights and obligations of the Parties as set forth in the Agreement shall terminate (except for the confidentiality clauses and other clauses which shall survive the rescission or termination of this Agreement):
10.1.1 The Parties rescind this Agreement by mutual consensus through consultation;
10.1.2 The Parties are unable to achieve the purpose of the Agreement due to Force Majeure;
10.1.3 If a Party breaches this Agreement, the non-breaching Party may rescind this Agreement in accordance with Article 8.2;
10.1.4 This Agreement is held invalid by courts or other competent authority;
10.1.5 If the other Party encounters any accident detrimental to the continuous normal performance of this Agreement, such as inability to continue its operation and changes of key project members, and fails to take effective measures to eliminate such adverse effects, the non-breaching Party shall be entitled to terminate this Agreement.
10.1.6 This Agreement and Cooperation Agreement on International Interests of PD-L1 Project, dated December 27, 2018, between Guilin Sanjin Pharmaceutical Co., Ltd. and Adagene Inc. are complementary to each other. If the latter is rescinded, this Agreement shall be rescinded as well.
10.2 Upon the rescission of this Agreement in accordance with Article 10.1.1 aforesaid, the performance of this Agreement shall be terminated.
10.3 If this Agreement is rescinded due to the breach by a Party, the non-breaching Partys right to request for damages shall not be affected thereby.
10.4 This Agreement may be changed and supplemented by unanimous agreement of the Parties. Any amendment and supplement to this Agreement shall be made in writing and come into effect after being duly executed by the Parties.
10.5 After the termination of this Agreement, all tangible technical materials including but not limited to intellectual property, materials and data provided by Party B for the PD-L1 Project shall be returned by Party A, Party C and Party D to Party B. All results obtained from the research and development surrounding the PD-L1 Project, including but not limited to cell lines, processes of relevant technology, pre-clinical application materials, and experimental data obtained in the process of research and development, shall also be handed over by the Parties to the relevant parties.
Article 11 Governing Laws and Dispute Resolution
11.1 The Parties agree that the execution, performance, interpretation and dispute settlement of this Agreement shall be governed by the laws of the Peoples Republic of China.
11.2 Any dispute arising from the execution and performance of this Agreement or in connection herewith shall be settled by the Parties through friendly consultation; if such dispute fails to be settled through consultation within 30 days from the occurrence of such dispute, any Party may submit such dispute to China International Economic and Trade Arbitration Commission for arbitration in accordance with its then effective arbitration rules. The place of arbitration shall be Shanghai. The arbitral award shall be final and binding to the Parties.
During the arbitration period, the Parties shall continue to perform other obligations under this Agreement, except for the issues in dispute submitted for arbitration.
Article 12 Confidentiality
12.1 Any Party hereto (the Receiving Party) shall keep strictly confidential the information including but not limited to technical materials, research reports and product information (the Confidential Information) obtained from or learnt from the Disclosing Party (the Disclosing Party) that may be reasonably deemed as confidential. The existence and terms of this Agreement (especially the information such as Agreement amount and technical indicators) are also considered Confidential Information. Confidential Information shall not include information that: (a) the Receiving Party has evidence to prove was obtained or known prior to its disclosure by the Disclosing Party; (b) becomes available to the public other than as a result of the Receiving Partys misconduct or error; (c) becomes available to the Receiving Party in a justifiable and reasonable manner from a third party not under an obligation of confidentiality; and (d) is independently developed by the Receiving Party.
12.2 The Parties agree that, unless with the written consent of the Disclosing Party, the Receiving Party: (1) shall not use the Confidential Information for any purpose other than for the purpose of the performance of this Agreement; and (2) shall not disclose any Confidential Information to any third party, except for (1) disclosure to its employees, licensors, subcontractors, agents, representatives, counsels, consultants and other advisors under confidentiality obligation on a need-to-know basis for the purpose of performing this Agreement; and (2) inspection, disclosure or other activities required by governmental authorities, judicial proceedings, stock exchanges or relevant laws; provided that such disclosure shall be controlled to the extent necessary. The Receiving Party agrees to take any feasible measures to protect the Confidential Information with the confidential level no less stringent than the Receiving Partys confidential level for its own Confidential Information or the information of similar nature, so as to prevent the disclosure and unauthorized use of the Confidential Information.
12.3 This Article of confidentiality supersedes any confidentiality agreement signed by Both Parties before the effectiveness of this Agreement. The confidentiality term shall be valid during the validity term of this Agreement and 10 years after the termination of this Agreement.
Article 13 Limitation of Liability
Except for the indemnification liability assumed by a Party due to third party claims or damages resulting from willful misconduct or fraud of a Party, a Party hereto shall not be liable for any special, incidental, accidental, indirect or punitive losses or losses of similar nature, including but not limited to loss of anticipated revenue, loss of profits, unmarketable products or loss of opportunity in connection with this Agreement, regardless of whether such losses have been advised in advance or not.
To the extent permitted by law, in any cases, the maximum amount of liability of a Party under this Agreement, shall be limited to the amount of all fees and charges that have been collected by such Party under this Agreement, except for the damages caused by willful misconduct or fraud.
Article 14 Liability for Compensation
Each Party shall protect, indemnify, and hold harmless the other Party and its affiliates, and their officers, directors, employees, and agents against any liability or losses arising from any claim, action, proceeding, or demand (collectively, Claims) made by a third party due to: (1) such Partys representations are untrue, inaccurate, or incomplete, or materially breach any warranty of this Agreement; or (2) such Party materially breaches any provision of this Agreement.
Article 15 Miscellaneous
15.1 This Agreement shall come into force as of the execution date of this Agreement.
15.2 Any matters not mentioned herein shall be supplemented through consultation by the Parties. Any amendments or supplements to this Agreement shall be in writing and shall require the execution of the Parties, and such amendments and supplements shall constitute a part of this Agreement.
15.3 Neither Party may assign, or otherwise transfer, or purport to assign, all or any of its rights, interest, duties or obligations under this Agreement without the prior written consent of the other Party.
15.4 If any provision of this Agreement is held invalid by a court or other competent authority, the validity of the remaining provisions shall not be affected.
15.5 Notices from one Party to the other Party pursuant to the provisions of this Agreement shall be in writing, shall be written in Chinese and shall be deemed to have been effectively sent, made and delivered at (1) a notice delivered by hand; (2) a notice sent by confirmed or registered mail, postage prepaid; (3) a reputable courier service; or (4) a notice sent by telephone facsimile to the following addresses of each Party, unless a different address is designated by such Party:
To Party A:
Address: No.1, Jinxing Road, Guilin, Guangxi, China
Attention: TAN Kai
Tel: 008607735843205
Fax: 008607732812547
To Party B:
Address: Room 301, Floor C14, Bionano Science Park, No.218, Xinghu Street, Suzhou Industrial Park Suzhou
Attention: LUO Peizhi
Telephone: 008651287773616
Fax: 008651287773584
To Party C:
Address: Building 5, No. 34, Lane 122, Chunxiao Road, Zhangjiang, Shanghai
Attention: HUANG Yingfeng
Telephone: 021-50276016 -608
Facsimile: 021-50276016 -608
To Party D:
Address: Room 02, Building 3, No. 116, Lane 572, Bibo Road, Pudong New Area, Shanghai
Attention: XU Jian
Telephone: 021-50276016 -606
Facsimile: 021-50276016 -606
15.6 The headings of this Agreement are inserted for the convenience of reference only and shall not be used for the interpretation of this Agreement.
15.7 This Agreement is made in four counterparts with Party A, Party B, Party C and Party D holding one counterpart respectively and each counterpart shall have the same legal effect.
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Party B: Adagene (Suzhou) Limited (Seal) |
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Party C: Dragon Boat Biopharmaceutical (Shanghai) Limited. (Seal) |
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Party D: Dragon Sail Biotechnology (Shanghai) Co., Ltd. (Seal) |
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*** CERTAIN MATERIAL (INDICATED BY THREE ASTERISKS IN BRACKETS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
Guilin Sanjin Pharmaceutical Co., Ltd.
AND
Adagene Inc.
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Cooperation Agreement on International
Interests of PD-L1 Project
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December 2018
CONTENTS
ARTICLE 1 PURPOSE AND CONTENT OF COOPERATION ON INTERNATIONAL INTERESTS |
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ARTICLE 2 INTERNATIONAL SHARE OF INTEREST AND INTELLECTUAL PROPERTY OWNERSHIP |
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ARTICLE 3 RESPONSIBILITIES OF THE PARTIES |
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES |
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ARTICLE 5 COVENANTS |
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ARTICLE 6 COST BEARING |
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ARTICLE 7 LIABILITIES FOR BREACH |
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ARTICLE 8 FORCE MAJEURE |
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ARTICLE 9 AMENDMENT, RESCISSION OR TERMINATION |
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ARTICLE 10 GOVERNING LAWS AND DISPUTE RESOLUTION |
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ARTICLE 11 CONFIDENTIALITY |
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ARTICLE 12 SUBCONTRACTING |
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ARTICLE 13 LIMITATION OF LIABILITY |
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ARTICLE 14 LIABILITY FOR COMPENSATION |
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ARTICLE 15 MISCELLANEOUS |
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Cooperation Agreement on International Interests of PD-L1 Project
This Cooperation Agreement on International Interests of PD-L1 Project (this Agreement) is made and entered into by and among the following Parties on December 27, 2018 in Shanghai, the Peoples Republic of China (China or the PRC):
Party A: Guilin Sanjin Pharmaceutical Co., Ltd.
Domicile: No. 1 Jinxing Road, Guilin, Guangxi, China
Legal Representative: Zou Jieming
Party B: Adagene Inc.
Domicile: Floor 4, Willow House, Cricket Square, P.O. Box 2582, Grand Cayman KY1-1103, Cayman Islands
Legal Representative: Peter Luo
(Party A and Party B are referred to individually as a Party and collectively as the Parties.)
WHEREAS:
1 Party A Guilin Sanjin Pharmaceutical Co., Ltd. (Guilin Sanjin or Party A) is a company limited by shares incorporated and existing under the laws of the PRC with its unified social credit code of 91450300198888809P.
2 Party B Adagene Inc. (Adagene or Party B) is a limited liability company incorporated and existing under the laws of the Cayman Islands, which is international in nature and specializing in the development technology and global intellectual property of monospecific and bispecific antibodies, and focusing on the building of new antibody product pipelines. The mailing address is 4/F, Building C14, Bionano Park, No. 218 Xinghu Street, Suzhou Industrial Park, postcode 215123. Party Bs wholly owned subsidiary is Adagene (Suzhou) Limited (Party Bs Affiliate or Adagene Suzhou). Adagene and Adagene Suzhou shall be referred to collectively as Party B and its Affiliate.
3 Party A and Party B intend to develop new monospecific antibody drugs in respect of PD-L1 antibody binding site in PRC (PD-L1 Project, as defined in Article 1.1.1 for details), share the International Interests (as defined in Article 2.1.4 for details, the same below) and agree upon subsequent possible investment. In order to clarify the principles and the rights and obligations of the Parties, Party A and Party B decide to enter into the cooperation agreement first.
NOW, THEREFORE, based on the principles of equality and mutual benefit, Party A and Party B, through friendly consultation, agree as follows with respect to the cooperation under this Agreement.
Article 1 Purpose and Content of Cooperation on International Interests
1.1 Purpose of Cooperation on International Interest: Party A introduces the PD-L1 Project from Party B and develops the PD-L1 Project based on the preliminary research conducted by Party B. This Agreement shall set forth the proportion of International Interests of the Parties in such project.
1.1.1 The PD-L1 Project refers to the data and patents of the monospecific antibody sequence generated against the PD-L1 target, including but not limited to stable cell lines, amino acid and cDNA sequences, biological activity, developability, expression vector design, cell line construction process, etc.
1.1.2 cDNA refers to the DNA sequence corresponding to the anti-PD-L1 antibody sequence.
1.1.3 PRC or China refers to the Peoples Republic of China, excluding Hong Kong, Macao, and Taiwan region.
1.1.4 IND refers to the investigational new drug application, and IND under this Agreement shall specifically refer to the investigational new drug application within the territory of Mainland China (excluding Hong Kong, Macao and Taiwan region).
1.1.5 PD-L1 Project Products refer to the monospecific antibody drugs targeting PD-L1 to be developed under the PD-L1 Project.
1.2 Details of the cooperation on the PD-L1 Project are set forth in the cooperation agreement with respect to the Greater China entered by the Parties together this Agreement.
Article 2 International Share of Interest and Intellectual Property Ownership
2.1 Party A and Party B agree to differentially share the International Interests of the PD-L1 Project, which shall be owned by and distributed to the Parties, specifically:
2.1.1 Sharing Principles of International Interests:
(1) Upon the completion of IND, Party B shall be entitled to [***]% of the International Interests and Party A shall be entitled to [***]% of the International Interests respectively;
(2) If Party B is responsible for carrying out the international clinical phase I-III study, then the Parties shall share the relevant costs and interests in accordance with the aforesaid International Interests sharing ratio;
(3) In case of other circumstances, such as planned financing, introduction of other investors, adjustment of costs sharing ratio, etc., the interests sharing ratio shall be re-negotiated separately by the Parties and specified in a supplementary agreement.
2.1.2 International refers to all countries and regions other than the Greater China.
2.1.3 The Greater China Interests refer to all economic benefits (including, but not limited to, patent assignment fees, licensing fees, sales revenue, and sales commissions) derived from the PD-L1 Project in the Greater China.
2.1.4 International Interests refer to: All economic benefits (including but not limited to, patent assignment fees, licensing fees, sales revenue, and sales commissions) derived from the PD-L1 Project in countries and regions outside of the Greater China.
2.2 Ownership of Intellectual Property
2.2.1 The Parties agree that, after the effectiveness of this Agreement, all the results obtained by Party A relating to the research and development of such new PD-L1 antibody molecules under the PD-L1 Project, including, without limitation, production cell lines, relevant technologies for the development process, pre-clinical application materials, clinical research materials and experimental data obtained in the process of research and development, shall be a part of the PD-L1 Project and owned by Party A. International patents deriving from the core and key technologies of Party B and its Affiliate pertaining to the PD-L1 molecule shall be applied for by Party B and the Parties shall share future benefits, and the Parties shall share the relevant costs and benefits of such international patents in accordance with the sharing ratio set forth in Article 2.1.
2.2.2 Background Intellectual Property: Either Party shall retain all rights, title and interest in and to any Intellectual Property used in this Project which the Party or its Affiliate owned or have the right to use prior to the execution of this Agreement, or which is acquired independently of this Agreement (Background Intellectual Property). Party Bs Background Intellectual Property shall include, without limitation, any patent or know-how owned, controlled or otherwise used by Party B or Party Bs Affiliate relating to the discovery technology of monoclonal antibodies against other antigens which are not developed under the PD-L1 Project.
2.2.3 Improvements of Background Intellectual Property: In case where either Party or its Affiliate makes any improvement of the Background Intellectual Property during the research and development of PD-L1 Project, such Party shall retain all right, title and interest to such improved Background Intellectual Property.
2.2.4 Party B hereby grants to Party A a license to use Background Intellectual Property of Party B and its Affiliate and improved Background Intellectual Property in relation to the PD-L1 Project without compensation for the purpose of performing this Agreement. However, Party B shall not be responsible for obtaining the license of any intellectual property rights of any third party that need to be purchased for the purpose of performing this Agreement.
2.2.5 Party A and Party B agree that, in principle, the intellectual property generated from the independent work of the Parties under this Agreement shall be respectively and independently owned by such Parties; the intellectual property generated from the cooperation between Party Bs Affiliate and Party A in connection with the development of the PD-L1 Project Products shall be collectively owned by Party B, Party Bs Affiliate, and Party A, who shall also have the right to use such intellectual property free of charge.
2.3 Each Party agrees that, after the effectiveness of this Agreement, Party B shall have the dominance over (including authorizing any third party of) the International Interests of the PD-L1 Project. In case where Party B intends to authorize the International Interests to any third party, Party B shall notify Party A 30 days in advance in writing of the offering price (Term Sheet), transferee and other relevant information; and Party A shall have the right of first refusal after paying a Non-refundable Earnest Money equaling [***]% of the total amount of the Term Sheet. If Party A waives the right of first refusal, Party A shall provide written consent to Party B regarding its authorization of the International Interests to such third party, and Party B shall ensure that the final transaction price shall not be lower than the amount of the offering price which has been notified to Party A. If Party B fails to receive the written consent from Party A within 30 days after the date of notification, it shall be deemed that Party A has automatically waived the right of first refusal.
2.3.1 That Party B shall have the dominance over (including authorizing any third party of) the International Interests of the PD-L1 Project means that, after the effectiveness of this Agreement, Party B shall retain the following rights, provided that the Party As right of first refusal set forth in this Article is guaranteed:
(1) right to determine the global authorization or regional authorization of the International Interests of the PD-L1 Project to any third party;
(2) right to select and determine to whom the International Interest of the PD-L1 Project shall be authorized or sold;
(3) right to determine the price of the International Interests of the PD-L1 Project to be authorized or sold.
2.3.2 Non-refundable Earnest Money means that, Party A shall pay such Earnest Money as the consideration for the right of first refusal for the authorization of the International Interests. Thereafter, if Party A decides to waive such right of first refusal, Party B shall not return such Earnest Money; if Party A decides to exercise the right of first refusal, such Earnest Money can be used as the payment for the authorization of International Interests, including but not limited to the first installment of license fee, the milestone payment and sales commission.
2.3.3 The right of first refusal means that, in case where Party B authorizes the International Interest of the PD-L1 Project, under the same conditions, Party A shall have the priority over any third party to purchase the authorization of International Interests.
2.3.4 Party B agrees that its dominance aforesaid shall not apply to the following circumstances:
(1) where Party B maliciously exercises its dominance and causes material losses to the PD-L1 Project;
(2) where the assignment of International Interests is out of the purpose of injuring the Greater China Interests;
(3) where the transferee is an Affiliate of Party B or its shareholders.
2.4 Authorization to Third Party
2.4.1 Sale or Authorization of International Interests and the Greater China Interests
In case where the PD-L1 Project is sold or authorized to any third party as a whole (including International Interests and the Greater China Interests) and the International Interests shall represent [* * *]% of the overall interests, to ensure the validity of such authorization, Party A and its Affiliate shall transfer all intellectual property rights, materials and data in relation to the PD-L1 Project to Adagene after the completion of such authorization.
2.4.2 Sale or Authorization of International Interest
If the International Interests of the PD-L1 Project are sold or authorized separately, in order to ensure the validity of such authorization, the Parties shall transfer all relevant intellectual property rights, materials and data in relation to the PD-L1 Project to each other to ensure the validity of International Interests.
2.4.3 The Parties shall share the transfer proceeds after deduction of the Parties research and development costs (excluding the project introduction costs paid to Party B), and the research and development costs shall be verified and determined by an independent auditor agreed upon by the Parties.
Article 3 Responsibilities of the Parties
3.1 Exclusivity of the Project
Within three years after the effectiveness of this Agreement, Party B shall not develop on its own any monospecific antibody against the PD-L1 target, nor shall it authorize any third party to the use of any sequences, cell lines, nanobodies, data, patented technology or other items. Any new projects in conflict with the interests of this project shall be determined by Party A and Party Bs Affiliate through consultation and Party A and Party Bs Affiliate shall have the prior cooperation right. However, the exclusivity obligation provided for in this Article does not include bispecific antibodies, antibody conjugates (ADC), diagnostic antibodies, antibody-targeted nanoparticles (Nano-particles) and antibody prodrugs (Probody).
3.2 Combined Therapy
The Parties have the right to independently carry out drug combination worldwide.
Article 4 Representations and Warranties
4.1 Party A and Party B represent and warrant that each Party has the requisite power to enter into, execute, deliver and perform this Agreement and any other documents required for the performance of this Agreement. This Agreement and any such other documents after taking effect constitute a legitimate, valid, binding and enforceable agreement between the Parties hereto.
4.2 Party A and Party B represent and warrant that the execution, delivery and performance of this Agreement will not conflict with or result in a breach of the provisions of, or constitute a default (or result in the exercise of any right of termination in accordance with the provisions thereof) under, or violate any of the following: (1) any material contract to which such Party is a party, unless the consent of the other party of such contract has been obtained; (2) any PRC Law, or any judgment, decree or order of any court, tribunal, government or governmental agency having jurisdiction over such Party or any of its assets; or (3) the articles of association or business license of such Party.
4.3 Unless otherwise confirmed and agreed in writing by the other Parties, either Party shall keep confidential any Confidential Information relating to the other Parties which may come to its knowledge. Either Party shall cause its relevant personnel, counsels and auditing institutions to bear the same confidentiality obligation.
Article 5 Covenants
In addition to the obligations of the Parties under other provisions of this Agreement, the Parties covenant as follows:
5.1 The Parties hereto agree to cooperate with each other in completing any outstanding work relating to the cooperation under this Agreement as soon as possible. For this purpose, the Parties shall take or cause to be taken all necessary actions, including without limitation obtaining written consents of competent authorities or shareholders of such Party with respect to cooperation matters (if required), to ensure the full implementation of the terms of this Agreement. Any matters, which must be resolved during the implementation of this Agreement but is not stipulated in this Agreement, shall be settled by the Parties hereto through consultation and in a fair, equal and proper manner.
5.2 Each Party shall, with the utmost good faith, take economically reasonable approach to promote all aspects of the work of the PD-L1 Project without reducing the actual effect.
Article 6 Cost Bearing
Party A and Party B shall be responsible for their own taxes and fees arising from their respective implementation of this Agreement.
Article 7 Liabilities for Breach
7.1 The occurrence of any of the following circumstances to any Party hereto shall constitute a breach of this Agreement:
7.1.1 Breach of any obligation or covenant set forth herein;
7.1.2 Any representation or warranty made by such Party in this Agreement is inconsistent with the facts or is misleading, whether made in good faith or in bad faith.
7.2 In case of any aforesaid breach of this Agreement, the non-breaching Party shall be entitled to request the breaching Party to rectify it within 30 days; if the breaching Party fails to rectify it within the specified period, the Parties may initiate arbitration in accordance with Article 10.2 of this Agreement. If such arbitration fails, the non-breaching Party shall be entitled to rescind this Agreement. Furthermore, the breaching Party shall indemnify the non-breaching Party against all claims, losses, liabilities, damages, costs and expenses directly caused to the non-breaching Party due to its breach.
Article 8 Force Majeure
8.1 Force Majeure under this Agreement means any objective event that is unforeseeable at the time of execution of this Agreement, is unavoidable among the Parties and the consequences of which cannot be overcome. Such objective events shall include, without limitation, earthquakes, typhoons, flood, fire, war, strikes, riots, acts of governments, changes in law or the application thereof or any other instances which are unforeseeable, unavoidable or out of control, including objective instances which are accepted as Force Majeure in general international commercial practice.
8.2 If an event of Force Majeure occurs, a Partys contractual obligations affected by such an event under this Agreement shall be suspended during the period of delay caused by the Force Majeure and the period for performance of such contractual obligations shall be automatically extended, with the extended period of performance equals to the period of delay and the affected Party shall not be responsible for the breach of this Agreement due to such delay.
8.3 In case of any Force Majeure, the party affected thereby shall, within 30 days upon occurrence of Force Majeure, provide the other Party with relevant documents notarized by a notary office to prove the occurrence of the Force Majeure event.
8.4 In the event of Force Majeure, the Parties shall immediately consult with each other in order to find an equitable solution and shall use all reasonable endeavours to minimize the consequences of such Force Majeure.
Article 9 Amendment, Rescission or Termination
9.1 Unless otherwise provided for herein, this Agreement shall be rescinded upon occurrence of any of the following circumstances and from the rescission date, the rights and obligations of the Parties as set forth in the Agreement shall terminate (except for the confidentiality clauses and other clauses which shall survive the rescission or termination of this Agreement):
9.1.1 The Parties rescind this Agreement by mutual consensus through consultation;
9.1.2 The Parties are unable to achieve the purpose of the Agreement due to Force Majeure;
9.1.3 If a Party breaches this Agreement, the non-breaching Party may rescind this Agreement in accordance with Article 7.2 ;
9.1.4 This Agreement is held invalid by courts or other competent authority;
9.1.5 If the other Party encounters any accident detrimental to the continuous normal performance of this Agreement, such as inability to continue its operation and changes of key project members and fails to take effective measures to eliminate such adverse effects, the non-breaching Party shall be entitled to terminate this Agreement.
9.1.6 This Agreement and Cooperation Agreement on PD-L1 Project, dated December 27, 2018, between Guilin Sanjin Pharmaceutical Co., Ltd. and Adagene (Suzhou) Limited are complementary to each other. If the latter is rescinded, this Agreement shall be rescinded as well.
9.2 Upon the rescission of this Agreement in accordance with Article 9.1 aforesaid, the performance of this Agreement shall be terminated.
9.3 If this Agreement is rescinded due to the breach by a Party, the non-breaching Partys right to request for damages shall not be affected thereby.
9.4 This Agreement may be changed and supplemented by unanimous agreement of the Parties. Any amendment and supplement to this Agreement shall be made in writing and come into effect after being duly executed by the Parties.
9.5 After the termination of this Agreement, all tangible technical materials including but not limited to intellectual property, materials and data provided by Party Bs Affiliate for the PD-L1 Project shall be returned by Party A and its Affiliate to Party B and its Affiliate.
Article 10 Governing Laws and Dispute Resolution
10.1 The Parties agree that the execution, performance, interpretation and dispute settlement of this Agreement shall be governed by the laws of the Peoples Republic of China.
10.2 Any dispute arising from the execution and performance of this Agreement or in connection herewith shall be settled by the Parties through friendly consultation; if such dispute fails to be settled through consultation within 30 days from the occurrence of such dispute, either Party may submit such dispute to China International Economic and Trade Arbitration Commission for arbitration in accordance with its then effective arbitration rules. The seat of arbitration shall be Shanghai. The arbitration award shall be final and binding to the parties.
During the arbitration period, the Parties shall continue to perform other obligations under this Agreement, except for the issues in dispute submitted for arbitration.
10.3 If there is any discrepancy between the interpretation of terms hereof and the interpretation corresponding to the Cooperation Agreement on PD-L1 Project, dated December 27, 2018, between Guilin Sanjin Pharmaceutical Co., Ltd. and Adagene (Suzhou) Limited, the latter interpretation shall prevail and supersede the interpretation of this Agreement.
Article 11 Confidentiality
11.1 Any Party hereto (the Receiving Party) shall keep strictly confidential the information including but not limited to technical materials, research reports and product information (the Confidential Information) obtained from or learnt from the Disclosing Party (the Disclosing Party) that may be reasonably deemed as confidential. The existence and terms of this Agreement (especially the information such as Agreement amount and technical indicators) are also considered Confidential Information. Confidential Information shall not include information that: (a) the Receiving Party has evidence to prove was obtained or known prior to its disclosure by the Disclosing Party; (b) becomes available to the public other than as a result of the Receiving Partys misconduct or error; (c) becomes available to the Receiving Party in a justifiable and reasonable manner from a third party not under an obligation of confidentiality; and (d) is independently developed by the Receiving Party.
11.2 The Parties agree that, unless with the written consent of the Disclosing Party, the Receiving Party: (1) shall not use the Confidential Information for any purpose other than for the purpose of the performance of this Agreement; and (2) shall not disclose any Confidential Information to any third party, except for (1) disclosure to its employees, licensors, subcontractors, agents, representatives, counsels, consultants and other advisors under confidentiality obligation on a need-to-know basis for the purpose of performing this Agreement; and (2) inspection, disclosure or other activities required by governmental authorities, judicial proceedings, stock exchanges or relevant laws; provided that such disclosure shall be controlled to the extent necessary. The Receiving Party agrees to take any feasible measures to protect the Confidential Information with the confidential level no less stringent than the Receiving Partys confidential level for its own Confidential Information or the information of similar nature, so as to prevent the disclosure and unauthorized use of the Confidential Information.
11.3 This Article of confidentiality supersedes any confidentiality agreement signed by the Parties before the effectiveness of this Agreement. The confidentiality term shall be valid during the validity term of this Agreement and 10 years after the termination of this Agreement.
Article 12 Subcontracting
Without Party Bs written approval, Party A shall not subcontract the research and development service under this Agreement to any third party. However, animal experiments, verification of cell plants and other work that must be or may be outsourced in accordance with the trade practice, and the use of services provided by its Affiliate are not subject to such restriction. For the purpose of this Article, Affiliate of a Party means any entity which, directly or indirectly, controls, is controlled by or is under common control with such Party. Control means (1) the ownership, directly or indirectly, of 50% or more of the equity interest in an entity, or (2) the right to directly or indirectly control the management decisions of an entity, by contract or otherwise.
Article 13 Limitation of Liability
Except for the indemnification liability assumed by a Party due to third party claims or damages resulting from willful misconduct or fraud of a Party, a Party hereto shall not be liable for any special, incidental, accidental, indirect or punitive losses or losses of similar nature, including but not limited to loss of anticipated revenue, loss of profits, unmarketable products or loss of opportunity in connection with this Agreement, regardless of whether such losses have been advised in advance or not.
To the extent permitted by law, in any cases, the maximum amount of liability of Party B under this Agreement, shall be limited to the amount of all fees and charges that have been collected by Party B and its Affiliate under this Agreement, except for the damages caused by willful misconduct or fraud.
Article 14 Liability for Compensation
Each Party shall protect, indemnify, and hold harmless the other Party and its Affiliate, and their officers, directors, employees, and agents against any liability or losses arising from any claim, action, proceeding, or demand (collectively, Claims) made by a third party due to: (1) such Partys representations are untrue, inaccurate, or incomplete, or materially breach any warranty of this Agreement; or (2) such Party materially breaches any provision of this Agreement.
Article 15 Miscellaneous
15.1 This Agreement shall come into force as of the execution date of this Agreement.
15.2 Any matters not mentioned herein shall be supplemented through consultation by the Parties. Any amendments or supplements to this Agreement shall be in writing and shall require the execution of the Parties, and such amendments and the supplements shall constitute a part of this Agreement.
15.3 Neither Party may assign, or otherwise transfer, or purport to assign, all or any of its rights, interest, duties or obligations under this Agreement without the prior written consent of the other Party.
15.4 If any provision of this Agreement is held invalid by a court or other competent authority, the validity of the remaining provisions shall not be affected.
15.5 Notices from one Party to the other Party pursuant to the provisions of this Agreement shall be in writing, shall be written in Chinese and shall be deemed to have been effectively sent, made and delivered at (1) a notice delivered by hand; (2) a notice sent by confirmed or registered mail, postage prepaid; (3) a reputable courier service; or (4) a notice sent by telephone facsimile to the following addresses of each Party, unless a different address is designated by such Party:
To Party A:
Address: No. 1, Jinxing Road, Guilin, Guangxi, China
Attention: TAN Kai
Tel: 008607735843205
Fax: 008607732812547
To Party B:
Address: Room 301, Floor C14, Bionano Science Park, No. 218, Xinghu Street, Suzhou Industrial Park
Attention: LUO Peizhi
Tel: 008651287773616
Fax: 008651287773584
15.6 The headings of this Agreement are inserted for the convenience of reference only and shall not be used for the interpretation of this Agreement.
15.7 This Agreement is made in two counterparts with Party A and Party B holding one counterpart respectively and each counterpart shall have the same legal effect.
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Party A: Guilin Sanjin Pharmaceutical Co., Ltd. (Seal) |
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Party B: Adagene Inc. (Seal) |
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*** CERTAIN MATERIAL (INDICATED BY THREE ASTERISKS IN BRACKETS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
Dragon Boat Biopharmaceutical (Shanghai) Limited.
AND
Adagene (Suzhou) Limited
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Cooperation Agreement on the [***]
Project
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May 2019
CONTENTS
ARTICLE 1 PURPOSE AND CONTENT OF THE COOPERATION |
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ARTICLE 2 COOPERATIVE EXPENSES |
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ARTICLE 3 SHARING OF PROJECT INTERESTS AND OWNERSHIP OF INTELLECTUAL PROPERTY |
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ARTICLE 4 RESPONSIBILITIES OF THE PARTIES |
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES |
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ARTICLE 6 COVENANTS |
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ARTICLE 7 COST BEARING |
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ARTICLE 8 LIABILITIES FOR BREACH |
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ARTICLE 9 FORCE MAJEURE |
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ARTICLE 10 AMENDMENT, RESCISSION OR TERMINATION |
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ARTICLE 11 GOVERNING LAWS AND DISPUTE RESOLUTION |
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ARTICLE 12 CONFIDENTIALITY |
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ARTICLE 13 LIMITATION OF LIABILITY |
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ARTICLE 14 LIABILITY FOR COMPENSATION |
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ARTICLE 15 MISCELLANEOUS |
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Cooperation Agreement on the [***] Project
This Cooperation Agreement on the [***] Project (this Agreement) is made and entered into by and among the following parties on May 22, 2019 in Shanghai, the Peoples Republic of China (China or the PRC):
Party A: Dragon Boat Biopharmaceutical (Shanghai) Limited.
Domicile: Building 5, No. 34, Lane 122, Chunxiao Road, Zhangjiang, Shanghai
Legal Representative: Zou Xun
Party B: Adagene (Suzhou) Limited
Domicile: Room 301, Floor C14, Bionano Science Park, No. 218 Xinghu Street, Suzhou Industrial Park
Legal Representative: Peter Luo
(Party A and Party B are referred to individually as a Party and collectively as the Parties.)
WHEREAS:
1 Party A Dragon Boat Biopharmaceutical (Shanghai) Limited. (Dragon Boat or Party A) is a limited liability company incorporated and existing under the laws of the PRC with its unified social credit code of 91310115781107395X.
2 Party B Adagene (Suzhou) Limited (Adagene Suzhou or Party B) is a limited liability company incorporated and existing under the laws of the PRC, which is international in nature and focuses on the development of monospecific and bispecific antibodies and focuses on the building of new antibody product pipelines. Founded on February 28, 2012, a subsidiary wholly-owned by Adagene Inc. (a company incorporated and existing under the laws of the Cayman Islands) with the unified social credit code of 91320594590011964Y.
3 Party A and Party B intend to cooperate in the research and development of new monospecific antibody drugs in respect of [***] antibody binding site ([***] Project, as defined in Article 1.1.1 for details) in PRC. In order to clarify the overall objectives and principles of such cooperation and clarify the rights and obligations of the Both Parties, Party A and Party B decide to enter into a cooperation agreement.
NOW, THEREFORE, based on the principles of equality and mutual benefit, Party A and Party B, through friendly consultation, agree as follows with respect to the cooperation hereunder.
Article 1 Purpose and Content of the Cooperation
1.1 Purpose of Cooperation: Party A introduces the [***] Project from Party B and develop the [***] Project Products based on the preliminary research conducted by Party B.
1.1.1 The [***] Project refers to data and patents of the monospecific antibody sequence generated against the [***] target, including but not limited to stable cell lines, amino acid and cDNA sequences, biological activity, developability, etc.
1.1.2 cDNA refers to the DNA sequence corresponding to the anti-[***] antibody sequence.
1.1.3 PRC or China refers to the Peoples Republic of China, for the purpose of this Agreement, excluding Hong Kong, Macau and Taiwan region.
1.1.4 IND refers to the investigational new drug application, and IND under this Agreement shall specifically refer to the investigational new drug application within the territory of Mainland China (excluding Hong Kong, Macao and Taiwan region).
1.1.5 [***] Project Products refer to the monospecific antibody drugs targeting [***] to be developed under the [***] Project.
1.2 The cooperation of [***] Project under this Agreement includes the research and development of new monospecific antibody drugs targeting [***].
Specifically: on the existing research and development basis of Adagene Suzhou, Dragon Boat shall pay Adagene Suzhou a certain amount of project introduction fee to obtain the domestic development right of such new monospecific anti-[***] project; after the introduction of the project, Party A shall independently carry out the subsequent research and development of [***] Project; and Adagene Suzhou shall fully cooperate. Dragon Boat shall pay fees to Adagene Suzhou and share the commercialized Greater China Interests (as defined in Article 3.1.2, the same below) of such project at different stages of the project in accordance with this Agreement.
1.2.1 The existing research and development basis of Adagene Suzhou refers to all materials, technology, inventions, discoveries, improvements, patents and know-how as well as all reports, data, technical information, original works of authorship and other information relating to monoclonal antibodies targeting [***] (including but not limited to the screening and optimization of anti-[***] antibody sequences, the developability and the in vitro biological activity research, the construction of original cell lines, etc) researched and developed by Adagene Suzhou based on the Background Intellectual Property such as the research and development technology of antibodies owned by and licensed from Adagene Inc. (the Existing Research and Development Basis)
1.2.2 The exclusive cooperation right refers to, subject to the terms and conditions of this Agreement, Adagene Suzhou and its affiliates shall not cooperate with any other third party on the development of the [***] monospecific project; after the payment of all project introduction fee by Dragon Boat, the PRC patents directly relating to the [***] molecule which Adagene Suzhou has applied shall be transferred to and owned by Dragon Boat, and the Parties shall share the Greater China Interest of their cooperation in accordance with Article 3.1 of this Agreement; if the subsequent development of the [***] Project involves the intellectual property of Adagene Suzhou and/or its affiliates, Adagene Suzhou shall grant to Dragon Boat a license to use such intellectual property under this Agreement without consideration. Unless the cooperation under this Agreement cannot be proceeded due to the intentional misconduct or gross negligence of Dragon Boat in performing this Agreement, Adagene Suzhou shall not revoke such license regarding the Existing Research and Development (also defined in Article 3.1).
1.3 The Parties agree that Party A shall be responsible for carrying out the Project and Party B, as the counterparty, shall fully cooperate in accordance with the terms and conditions of this Agreement. If a relevant agreement need to be executed, the content of such entrustment agreement shall not violate the principles set forth in this Agreement.
Article 2 Cooperative Expenses
2.1 After this Agreement is executed and takes effect, Dragon Boat shall pay [***] RMB in total as the project introduction fee in accordance with the following schedule:
2.1.1 [***]RMB, within 10 business days after the execution of this Agreement, in consideration for the obtaining Existing Research and Development Basis under Article 1.2.2;
2.1.2 [***]RMB, within 10 business days after Party A carries out any preclinical safety studies animal testing of the Project Products;
2.1.3 [***]RMB, within 10 business days after obtaining the IND approval documents within PRC;
2.1.4 [***]RMB, within 10 business days after the completion of the phase I clinical trial in PRC.
2.2 After the [***] related products comes on the market, within the validity period of the patent of [***] molecule, Party A shall, prior to May 10 of each year, disclose to Party B the sales of all products relevant to such molecule of the previous year, and shall, prior to June 1 of each year, pay Party B [***]% (exclusive of tax) of the net sales revenue of the products relevant to such molecule.
Article 3 Sharing of Project Interests and Ownership of Intellectual Property
3.1 The Parties agree that Party A shall be entitled to 100% of the Greater China Interests of the [***] Project.
3.1.1 The Greater China refers to, for the purpose of this Agreement, the Mainland China, Hong Kong, Macau and Taiwan region.
3.1.2 The Greater China Interests refer to all economic benefits (including, but not limited to, patent assignment fees, licensing fees, sales revenue, and sales commissions) derived from the [***] Project in the Greater China.
3.2 Interest and its Transfer
3.2.1 The transferred interests under the [***] Project include all rights and interests directly related to the molecule, including but not limited to rights and interests on subsequent domestic and oversea research and development, the IND (investigational new drug application), clinical trials, marketing, equity transfer and combined medication.
3.2.2 The transfer of the rights and interests related to the molecule described in Article 3.2.1 above shall be effected through the transfer of patents and related technology, specifically, the Party B shall transfer to Party A the core sequence (of amino acids and their encoding nucleic acids sequence) of such molecule as well as the relevant reasonable rights and interests that Party B owns based on such core sequence and that have been fixed in the form of patent application.
3.3 Ownership of Intellectual Property
3.3.1 The Parties agree that, after the effectiveness of this Agreement, all the results obtained by Party A relating to the research and development of such [***] new antibodies molecule, including, without limitation, cell lines, relevant technologies for the development process, pre-clinical application materials, clinical research materials and experimental data obtained in the process of research and development, shall be a part of the [***] Project and owned by Party A.
3.3.2 Party B represents that as of the effective date of this Agreement, there is no dispute between Party B and any third party which would impact the license of the Existing Research and Development Basis of Adagene Suzhou to Party A, and has not found that the implementation of this Agreement would violate the intellectual property rights of any third party. Party B shall ensure that the sequences of anti-[***] antibodies provided by it do not violate the interest of any third party, and shall undertake any intellectual property dispute arising from the sequences of anti-[***] antibodies provided by it and the losses incurred thereby.
3.3.3 Background Intellectual Property: Either Party shall retain all rights, title and interest in and to any Intellectual Property used in this Project which the Party or its Affiliates owned or have the right to use prior to the execution of this Agreement, or which is acquired independently of this Agreement (Background Intellectual Property). Party Bs Background Intellectual Property shall include, without limitation, any patent or know-how owned, controlled or otherwise used by Party B or its affiliates relating to the discovery technology of monoclonal antibodies against other antigens which are not developed under the [***] Project.
3.3.4 Improvements of Background Intellectual Property: In case where either Party or its affiliate makes any improvement of the Background Intellectual Property during the research and development of [***] Project, such Party shall retain all right, title and interest to such improved Background Intellectual Property.
3.3.5 Within the effective term of this Agreement, Party B hereby grants Party A a license to use Party Bs Background Intellectual Property and improved Background Intellectual Property in relation to the [***] Project without compensation for the purpose of performing this Agreement. However, Party B shall not be responsible for obtaining the license of any intellectual property rights of any third party that need to be purchased forthe purpose of performing this Agreement.
Article 4 Responsibilities of the Parties
4.1 Exclusivity of the Project
4.1.1 Within three years after the effectiveness of this Agreement, Party B shall not develop monospecific antibodies against the [***] target, nor shall it authorize any third party to the use of any sequences, cell lines, nanobodies, data, patented technology or other items; Any new projects in conflict with the interests of this Project shall be determined by the Parties through consultation and Party A shall have the prior cooperation right under the same conditions. However, the exclusivity obligation provided for in this Article does not include bispecific antibodies (simultaneously bind two different epitopes), antibody conjugates (ADC), diagnostic antibodies, antibody-targeted nanoparticles (Nano-particles) and antibody prodrugs (Probody).
4.1.2 In the meantime, the Parties agree that the provision of screening service for third parties that Party B has commenced and continued prior to the execution of this Agreement is not subject to the exclusivity obligation of this Article.
4.2 Risk of Project Failure
If the project fails due to the reasons solely attributable to the Existing Research and Development Basis of Adagene Suzhou (as defined in Article 1.2.2 of this Agreement), the project shall terminate and Dragon Boat shall have the right to claim against Adagene Suzhou to return the project introduction fees already paid, which shall not exceed [***] RMB; if the project fails due to the fault of Party A, Dragon Boat shall not claim against Adagene Suzhou for returning the above payments, and Adagene Suzhou shall claim against Dragon Boat for any unpaid amounts under Article 2.1.
Article 5 Representations and Warranties
5.1 Party A and Party B represent and warrant that each Party has the requisite power to enter into, execute, deliver and perform this Agreement and any other documents required for the performance of this Agreement. This Agreement and any such other documents after taking effect constitute a legitimate, valid, binding and enforceable agreement between the Parties hereto.
5.2 Party A and Party B represent and warrant that the execution, delivery and performance of this Agreement will not conflict with or result in a breach of the provisions of, or constitute a default (or result in the exercise of any right of termination in accordance with the provisions thereof) under, or violate, any of the following: (1) any material contract to which such Party is a party, unless the consent of the other party of such contract has been obtained; (2) any PRC Law, or any judgment, decree or order of any court, tribunal, government or governmental agency having jurisdiction over such Party or any of its assets; or (3) the articles of association or business license of such Party.
5.3 Unless otherwise confirmed and agreed in writing by the other Parties, either Party shall keep confidential any Confidential Information relating to the other Parties which may come to its knowledge. Either Party shall cause its relevant personnel, counsels and auditing institutions to bear the same confidentiality obligation.
Article 6 Covenants
In addition to the obligations of the Parties under other provisions of this Agreement, the Parties covenant as follows:
6.1 The Parties hereto agree to cooperate with each other in completing any outstanding work relating to the cooperation under this Agreement as soon as possible. For this purpose , the Parties shall take or cause to be taken all necessary actions, including without limitation obtaining written consents of competent authorities or shareholders of such Party with respect to cooperation matters (if required), to ensure the full implementation of the terms of this Agreement. Any matters, which must be resolved during the implementation of this Agreement but is not stipulated in this Agreement, shall be settled by the Parties hereto through consultation and in a fair, equal and proper manner.
6.2 Each Party shall, with the utmost good faith, take economically reasonable approach to promote all aspects of the work of the [***] Project without reducing the actual effect.
Article 7 Cost Bearing
Party A and Party B shall be responsible for their own taxes and fees arising from their respective implementation of this Agreement.
Article 8 Liabilities for Breach
8.1 The occurrence of any of the following circumstances to any Party hereto shall constitute a breach of this Agreement:
8.1.1 Breach of any obligation or covenant set forth in this Agreement;
8.1.2 Any representation or warranty made by such Party in this Agreement is inconsistent with the facts or is misleading (whether made in good faith or in bad faith).
8.2 In case of any aforesaid breach of this Agreement, the non-breaching Party shall be entitled to request the breaching Party to rectify it within 30 days; if the breaching Party fails to rectify it within the specified period, Both Parties may initiate arbitration in accordance with Article 11.2 of this Agreement. If such arbitration fails, the non-breaching Party shall be entitled to rescind this Agreement. Furthermore, the breaching Party shall indemnify the non-breaching Party against all claims, losses, liabilities, damages, costs and expenses directly caused to the non-breaching Party due to its breach (including the fees of attorney).
ARTICLE 9 Force Majeure
9.1 Force Majeure under this Agreement means any objective event that is unforeseeable at the time of execution of this Agreement, is unavoidable by the Parties and the consequences of which cannot be overcome. Such objective events shall include, without limitation, earthquakes, typhoons, flood, fire, war, strikes, riots, acts of governments, changes in law or the application thereof or any other instances which are unforeseeable, unavoidable or out of control, including objective instances which are accepted as Force Majeure in general international commercial practice.
9.2 If an event of Force Majeure occurs, a Partys contractual obligations affected by such event under this Agreement shall be suspended during the period of delay caused by the Force Majeure and the period for performance of such contractual obligations shall be automatically extended, with the extended period of performance equals to the period of delay, and the affected Party shall not be responsible for the breach of this Agreement due to such delay. .
9.3 In case of any Force Majeure, the Party affected thereby shall, within 30 days upon occurrence of Force Majeure, provide the other Party with relevant documents notarized by a notary office to prove the occurrence of the Force Majeure event.
9.4 In the event of Force Majeure, the Parties shall immediately consult with each other in order to find an equitable solution and shall use all reasonable endeavours to minimize the consequences of such Force Majeure.
Article 10 Amendment, Rescission or Termination
10.1 Unless otherwise provided for herein, this Agreement shall be rescinded upon occurrence of any of the following circumstances:
10.1.1 The Parties rescind this Agreement by mutual consensus through consultation;
10.1.2 The Parties are unable to achieve the purpose of the Agreement due to Force Majeure;
10.1.3 If a Party breaches this Agreement, the non-breaching Party may rescind this Agreement in accordance with Article 8.2;
10.1.4 This Agreement is held invalid by courts or other competent authority;
10.1.5 If the other Party encounters any adverse event, such as inability to continue its operation and changes of key project members, and fails to take effective measures to eliminate such adverse effects, the non-breaching Party shall be entitled to terminate this Agreement.
10.1.6 This Agreement and Cooperation Agreement on International Interests of [***] Project, dated May 22, 2019, between Dragon Boat Biopharmaceutical (Shanghai) Limited. and Adagene Inc. are complementary to each other. If the latter is rescinded, this Agreement shall be rescinded as well.
10.2 In case where this Agreement is rescinded in accordance with Article 10.1.4, the effective date of rescission of this Agreement shall be the effective date of the court judgment or other formal document of other competent governmental authority; in case where this Agreement is rescinded in accordance with other provisions of Article 11.1, the effective date of rescission of this Agreement shall be either the date of rescission agreed in the agreement of rescission, if an agreement of rescission is entered by the Parties, or termination date specified in the written notice of termination delivered by the non-breaching Party.
10.3 If this Agreement is rescinded due to the breach by a Party, the non-breaching Partys right to request for damages shall not be affected thereby.
10.4 This Agreement may be changed and supplemented by unanimous agreement of the Parties. Any amendment and supplement to this Agreement shall be made in writing and come into effect after being duly executed by the Parties.
10.5 After the termination of this Agreement, all tangible technical materials including but not limited to intellectual property, materials and data provided by Party B for the [***] Project shall be returned by Party A to Party B.
Article 11 Governing Laws and Dispute Resolution
11.1 The Parties agree that the execution, performance, interpretation and dispute settlement of this Agreement shall be governed by the laws of the Peoples Republic of China.
11.2 Any dispute arising from the execution and performance of this Agreement or in connection herewith shall be settled by the Parties through friendly consultation; if such dispute fails to be settled through consultation within 30 days from the occurrence of such dispute, any Party may submit such dispute to China International Economic and Trade Arbitration Commission for arbitration in accordance with its then effective arbitration rules. The place of arbitration shall be Shanghai. The arbitral award shall be final and binding to the Parties.
During the arbitration period, the Parties shall continue to perform other obligations under this Agreement, except for the issues in dispute submitted for arbitration.
Article 12 Confidentiality
12.1 Any Party hereto (the Receiving Party) shall keep strictly confidential the information including but not limited to technical materials, research reports and product information (the Confidential Information) obtained from or learnt from the Disclosing Party (the Disclosing Party) that may be reasonably deemed as confidential. The existence and terms of this Agreement (especially the information such as Agreement amount and technical indicators) are also considered Confidential Information. Confidential Information shall not include information that: (a) the Receiving Party has evidence to prove was obtained or known prior to its disclosure by the Disclosing Party; (b) becomes available to the public other than as a result of the Receiving Partys misconduct or error; (c) becomes available to the Receiving Party in a justifiable and reasonable manner from a third party not under an obligation of confidentiality; and (d) is independently developed by the Receiving Party.
12.2 The Parties agree that, unless with the written consent of the Disclosing Party, the Receiving Party: (1) shall not use the Confidential Information for any purpose other than for the purpose of the performance of this Agreement; and (2) shall not disclose any Confidential Information to any third party, except for (1) disclosure to its employees, licensors, subcontractors, agents, representatives, counsels, consultants and other advisors under confidentiality obligation on a need-to-know basis for the purpose of performing this Agreement; and (2) inspection, disclosure or other activities required by governmental authorities, judicial proceedings, stock exchanges or relevant laws; provided that such disclosure shall be controlled to the extent necessary. The Receiving Party agrees to take any feasible measures to protect the Confidential Information with the confidential level no less stringent than the Receiving Partys confidential level for its own Confidential Information or the information of similar nature, so as to prevent the disclosure and unauthorized use of the Confidential Information.
12.3 This Article of confidentiality supersedes any confidentiality agreement signed by Both Parties before the effectiveness of this Agreement. The confidentiality term shall be valid during the validity term of this Agreement and 10 years after the termination of this Agreement.
Article 13 Limitation of Liability
Except for the indemnification liability assumed by a Party due to third party claims or damages resulting from willful misconduct or fraud of a Party, a Party hereto shall not be liable for any special, incidental, accidental, indirect or punitive losses or losses of similar nature, including but not limited to loss of anticipated revenue, loss of profits, unmarketable products or loss of opportunity in connection with this Agreement, regardless of whether such losses have been advised in advance or not.
Notwithstanding any provisions to the contrary, to the extent permitted by law, in any cases, the maximum amount of liability of Party B under this Agreement, shall be limited to the amount of all fees and charges that have been collected by Party B under this Agreement, except for the damages caused by willful misconduct or fraud.
Article 14 Liability for Compensation
Each Party shall protect, indemnify, and hold harmless the other Party and its affiliates, and their officers, directors, employees, and agents against any liability or losses arising from any claim, action, proceeding, or demand (collectively, Claims) made by a third party due to: (1) such Partys representations are untrue, inaccurate, or incomplete, or materially breach any warranty of this Agreement; or (2) such Party materially breaches any provision of this Agreement.
Article 15 Miscellaneous
15.1 This Agreement shall come into force as of the execution date of this Agreement.
15.2 Any matters not mentioned herein shall be supplemented through consultation by the Parties. Any amendments or supplements to this Agreement shall be in writing and shall require the execution of the Parties, and such amendments and supplements shall constitute a part of this Agreement.
15.3 Neither Party may assign, or otherwise transfer, or purport to assign, all or any of its rights, interest, duties or obligations under this Agreement without the prior written consent of the other Party.
15.4 If any provision of this Agreement is held invalid by a court or other competent authority, the validity of the remaining provisions shall not be affected.
15.5 Notices from one Party to the other Party pursuant to the provisions of this Agreement shall be in writing, shall be written in Chinese and shall be deemed to have been effectively sent, made and delivered at (1) a notice delivered by hand; (2) a notice sent by confirmed or registered mail, postage prepaid; (3) a reputable courier service; or (4) a notice sent by telephone facsimile to the following addresses of each Party, unless a different address is designated by such Party:
To Party A:
Address: Building 5, No. 34, Lane 122, Chunxiao Road, Zhangjiang, Shanghai
Attention: HUANG Yingfeng
Telephone: 021-50276016 -608
Facsimile: 021-50276016 -608
To Party B:
Address: Room 301, Floor C14, Bionano Science Park, No.218, Xinghu Street, Suzhou Industrial Park Suzhou
Attention: LUO Peizhi
Telephone: 008651287773616
Fax: 008651287773584
15.6 The headings of this Agreement are inserted for the convenience of reference only and shall not be used for the interpretation of this Agreement.
15.7 This Agreement is made in two counterparts with Party A and Party B holding one counterpart respectively and each counterpart shall have the same legal effect.
[Below is intentionally left blank]
[The remainder of this page is intentionally left blank; signature page to the Cooperation Agreement on [***] Project]
Party A: Dragon Boat Biopharmaceutical (Shanghai) Limited. (Seal)
Legal Representative/Authorized Representative:
Party B: Adagene (Suzhou) Limited (Seal)
Legal Representative/Authorized Representative:
*** CERTAIN MATERIAL (INDICATED BY THREE ASTERISKS IN BRACKETS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
Dragon Boat Biopharmaceutical (Shanghai) Limited.
AND
Adagene Inc.
|
Cooperation Agreement on International
Interests of [***] Project
|
May 2019
CONTENTS
ARTICLE 1 PURPOSE AND CONTENT OF COOPERATION ON INTERNATIONAL INTERESTS |
4 |
ARTICLE 2 INTERNATIONAL SHARE OF INTEREST AND INTELLECTUAL PROPERTY OWNERSHIP |
4 |
ARTICLE 3 RESPONSIBILITIES OF THE PARTIES |
8 |
ARTICLE 4 REPRESENTATIONS AND WARRANTIES |
8 |
ARTICLE 5 COVENANTS |
9 |
ARTICLE 6 COST BEARING |
9 |
ARTICLE 7 LIABILITIES FOR BREACH |
9 |
ARTICLE 8 FORCE MAJEURE |
10 |
ARTICLE 9 AMENDMENT, RESCISSION OR TERMINATION |
10 |
ARTICLE 10 GOVERNING LAWS AND DISPUTE RESOLUTION |
11 |
ARTICLE 11 CONFIDENTIALITY |
13 |
ARTICLE 12 SUBCONTRACTING |
13 |
ARTICLE 13 LIMITATION OF LIABILITY |
13 |
ARTICLE 14 LIABILITY FOR COMPENSATION |
13 |
ARTICLE 15 MISCELLANEOUS |
14 |
Cooperation Agreement on International Interests of [***] Project
This Cooperation Agreement on International Interests of [***] Project (this Agreement) is made and entered into by and among the following Parties on May 22, 2019 in Shanghai, the Peoples Republic of China (China or the PRC):
Party A: Dragon Boat Biopharmaceutical (Shanghai) Limited.
Domicile: Building 5, No. 34, Lane 122, Chunxiao Road, Zhangjiang, Shanghai
Legal Representative: Zou Xun
Party B: Adagene Inc.
Domicile: Floor 4, Willow House, Cricket Square, P.O. Box 2582, Grand Cayman KY1-1103, Cayman Islands
Legal Representative: Peter Luo
(Party A and Party B are referred to individually as a Party and collectively as the Parties.)
WHEREAS:
1 Party A Dragon Boat Biopharmaceutical (Shanghai) Limited. (Dragon Boat or Party A) is a limited liability company incorporated and existing under the laws of the PRC with its unified social credit code of 91310115781107395X.
2 Party B Adagene Inc. (Adagene or Party B) is a limited liability company incorporated and existing under the laws of the Cayman Islands, which is international in nature and specializing in the development technology and global intellectual property of monospecific and bispecific antibodies, and focusing on building of new antibody product pipelines. The mailing address is 4/F, Building C14, Bionano Park, No. 218 Xinghu Street, Suzhou Industrial Park, postcode 215123. Party Bs wholly owned subsidiary is Agadene (Suzhou) Limited (Party Bs Affiliate or Agadene Suzhou). Adagene and Agadene Suzhou shall be referred to collectively as Party B and its Affiliate.
3 Party A and Party B intend to develop new monospecific antibody drugs in respect of [***] antibody binding site in PRC (the [***] Project, as defined in Article 1.1.1 for details), share the International Interests (as defined in Article 2.1.4 for details, the same below) and agree upon subsequent possible investment. In order to clarify the principles and the rights and obligations of the Parties, Party A and Party B decide to enter into the cooperation agreement first.
NOW, THEREFORE, based on the principles of equality and mutual benefit, Party A and Party B, through friendly consultation, agree as follows with respect to the cooperation under this Agreement.
Article 1 Purpose and Content of Cooperation on International Interests
1.1 Purpose of Cooperation on International Interests: Party A introduces the [***] Project from Party B and develops the [***] Project based on the preliminary research conducted by Party B. This Agreement shall set forth the proportion of International Interests of the Parties in such project.
1.1.1 [***] Project refers to the data and patents of the monospecific antibody sequence generated against the [***] target, including stable cell lines, amino acid and cDNA sequences, biological activity, developability, etc., but excluding bispecific antibodies and/or antibody drug conjugates (ADC) against the [***] targets, as well as diagnostic antibodies, antibody prodrugs (Probody),and antibody-targeted nanoparticles (Nano-particles).
1.1.2 cDNA refers to the DNA sequence corresponding to the anti-[***] antibody sequence.
1.1.3 PRC or China refers to the Peoples Republic of China, excluding Hong Kong, Macao, and Taiwan region.
1.1.4 IND refers to the investigational new drug application, and IND under this Agreement shall specifically refer to the investigational new drug application within the territory of Mainland China (excluding Hong Kong, Macao and Taiwan region).
1.1.5 [***] Project Products refer to the monospecific antibody drugs targeting [***] to be developed under the [***] Project.
1.2 Details of the cooperation on the [***] Project are set forth in the cooperation agreement with respect to the Greater China entered by the Parties together this Agreement.
Article 2 International Share of Interest and Intellectual Property Ownership
2.1 Party A and Party B agree to differentially share the International Interests of [***] Project, which shall be owned by and distributed to the Parties specifically:
2.1.1 Sharing Principles of International Interests:
(1) Upon the completion of IND, Party B shall be entitled to [***]% of the International Interests and Party A shall be entitled to [***]% of the International Interests respectively;
(2) If Party B is responsible for carrying out the international clinical phase I-III study, then the Parties shall share the relevant costs and interests in accordance with the aforesaid International Interests sharing ratio;
(3) In case of other circumstances, such as planned financing, introduction of other investors, adjustment of costs sharing ratio, etc., the interests sharing ratio shall be re-negotiated separately by the Parties and specified in a supplementary agreement.
2.1.2 International refers to all countries and regions other than the Greater China.
2.1.3 The Greater China Interests refer to all economic benefits (including, but not limited to, patent assignment fees, licensing fees, sales revenue, and sales commissions) derived from the [***] Project in the Greater China.
2.1.4 International Interests refer to: All economic benefits (including but not limited to, patent assignment fees, licensing fees, sales revenue, and sales commissions) derived from the [***] Project in countries and regions outside of the Greater China.
2.2 Ownership of Intellectual Property
2.2.1 The Parties agree that, after the effectiveness of this Agreement, all the results obtained by Party A relating to the research and development of such new [***] antibody molecules, including, without limitation, production cell lines, relevant technologies for the development process, pre-clinical application materials, clinical research materials and experimental data obtained in the process of research and development, shall be a part of the [***] Project and owned by Party A. Patents deriving from the core and key technologies of Party B and its Affiliate pertaining to the [***] molecule shall be applied for by Party B and the Parties shall share future benefits, and the Parties shall share the relevant costs and benefits of such international patents in accordance with the sharing ratio set forth in Article 2.1.
2.2.2 Background Intellectual Property: Either Party shall retain all rights, title and interest in and to any Intellectual Property used in this Project which the Party or its Affiliate owned or have the right to use prior to the execution of this Agreement, or which is acquired independently of this Agreement (Background Intellectual Property). Party Bs Background Intellectual Property shall include, without limitation, any patent or know-how owned, controlled or otherwise used by Party B or Party Bs Affiliate relating to the discovery technology of monoclonal antibodies against other antigens which are not developed under the [***] Project.
2.2.3 Improvements of Background Intellectual Property: In case where either Party or its Affiliate makes any improvement of the Background Intellectual Property during the research and development of the [***] Project, such Party shall retain all right, title and interest to such improved Background Intellectual Property.
2.2.4 Party B hereby grants to Party A a license to use Background Intellectual Property of Party B and its Affiliate and improved Background Intellectual Property in relation to the [***] Project without compensation for the purpose of performing this Agreement. However, Party B shall not be responsible for obtaining the license of any intellectual property rights of any third party that need to be purchased for the purpose of performing this Agreement.
2.2.5 Party A and Party B agree that, in principle, the intellectual property generated from the independent work of the Parties under this Agreement shall be respectively and independently owned by such Parties; the intellectual property generated from the cooperation between Party Bs Affiliate and Party A in connection with the development of the [***] Project Products shall be collectively owned by Party B, Party Bs Affiliate, and Party A, who shall also have the right to use such intellectual property free of charge.
2.3 Each Party agrees that, after the effectiveness of this Agreement, Party B shall have the dominance over (including authorizing any third party of) the International Interests of the [***] Project. In case where Party B intends to authorize the International Interests to any third party, Party B shall notify Party A 30 days in advance in writing of the offering price (Term Sheet), transferee and other relevant information; and Party A shall have the right of first refusal after paying a Non-refundable Earnest Money equaling [***]% of the total amount of the Term Sheet. If Party A waives the right of first refusal, Party A shall provide written consent to Party B regarding its authorization of the International Interests to such third party, and Party B shall ensure that the final transaction price shall not be lower than the amount of the offering price which has been notified to Party A. If Party B fails to receive the written consent from Party A within 30 days after the date of notification, it shall be deemed that Party A has automatically waived the right of first refusal.
2.3.1 That Party B shall have the dominance over (including authorizing any third party of) the International Interests of the [***] Project means that, after the effectiveness of this Agreement, Party B shall retain the following rights, provided that the Party As right of first refusal set forth in this Article is guaranteed:
(1) right to determine the global authorization or regional authorization of the International Interests of the [***] Project to any third party;
(2) right to select and determine to whom the International Interest of the [***] Project shall be authorized or sold;
(3) right to determine the price of the International Interests of the [***] Project to be authorized or sold.
2.3.2 Non-refundable Earnest Money means that, Party A shall pay such Earnest Money as the consideration for the right of first refusal for the authorization of the International Interests. Thereafter, if Party A decides to waive such right of first refusal, Party B shall not return such Earnest Money; if Party A decides to exercise the right of first refusal, such Earnest Money can be used as the payment for the authorization of International Interests, including but not limited to the first installment of license fee, the milestone payment and sales commission.
2.3.3 The right of first refusal means that, in case where Party B authorizes the International Interest of the [***] Project, under the same conditions, Party A shall have the priority over any third party to purchase the authorization of International Interests.
2.3.4 Party B agrees that its dominance aforesaid shall not apply to the following circumstances:
(1) where Party B maliciously exercises its dominance and causes material losses to the [***] Project;
(2) where the assignment of International Interests is out of the purpose of injuring the Greater China Interests;
(4) where the transferee is an Affiliate of Party B or its shareholders.
2.4 If the International Interests of the [***] Project are sold or authorized, in order to ensure the validity of such authorization, the Parties shall transfer all the relevant intellectual property rights, materials and data in relation to the [***] Project to each other to ensure the validity of International Interests.
Article 3 Responsibilities of the Parties
3.1 Exclusivity of the Project
Within three years after the effectiveness of this Agreement, Party B shall not develop on its own any monospecific antibody against the [***] target, nor shall it authorize any third party to the use of any sequences, cell lines, nanobodies, data, patented technology or other items. Any new projects in conflict with the interests of this project shall be determined by Party A and Party Bs Affiliate through consultation and Party A and Party Bs Affiliate shall have the prior cooperation right. However, the exclusivity obligation provided for in this Article shall exclude bispecific antibodies, antibody conjugates (ADC), diagnostic antibodies, antibody-targeted nanoparticles (Nano-particles) and antibody prodrugs (Probody).
3.2 Combined Therapy
The Parties have the right to independently carry out drug combination worldwide.
Article 4 Representations and Warranties
4.1 Party A and Party B represent and warrant that each Party has the requisite power to enter into, execute, deliver and perform this Agreement and any other documents required for the performance of this Agreement. This Agreement and any such other documents after taking effect constitute a legitimate, valid, binding and enforceable agreement between the Parties hereto.
4.2 Party A and Party B represent and warrant that the execution, delivery and performance of this Agreement will not conflict with or result in a breach of the provisions of, or constitute a default (or result in the exercise of any right of termination in accordance with the provisions thereof) under, or violate any of the following: (1) any material contract to which such Party is a party, unless the consent of the other party of such material contract has been obtained; (2) any PRC Law, or any judgment, decree or order of any court, tribunal, government or governmental agency having jurisdiction over such Party or any of its assets; or (3) the articles of association or business license of such Party.
4.3 Unless otherwise confirmed and agreed in writing by the other Parties, either Party shall keep confidential any Confidential Information relating to the other Parties which may come to its knowledge. Either Party shall cause its relevant personnel, counsels and auditing institutions to bear the same confidentiality obligation.
Article 5 Covenants
In addition to the obligations of the Parties under other provisions of this Agreement, the Parties covenant as follows:
5.1 The Parties hereto agree to cooperate with each other in completing any outstanding work relating to the cooperation under this Agreement as soon as possible. For this purpose, the Parties shall take or cause to be taken all necessary actions, including without limitation obtaining written consents of competent authorities or shareholders of such Party with respect to cooperation matters (if required), to ensure the full implementation of the terms of this Agreement. Any matters, which must be resolved during the implementation of this Agreement but is not stipulated in this Agreement, shall be settled by the Parties hereto through consultation and in a fair, equal and proper manner.
5.2 Each Party shall, with the utmost good faith, take economically reasonable approach to promote all aspects of the work of the [***] Project without reducing the actual effect.
Article 6 Cost Bearing
Party A and Party B shall be responsible for their own taxes and fees arising from their respective implementation of this Agreement.
Article 7 Liabilities for Breach
7.1 The occurrence of any of the following circumstances to any Party hereto shall constitute a breach of this Agreement:
7.1.1 Breach of any obligation or covenant set forth herein;
7.1.2 Any representation or warranty made by such Party in this Agreement is inconsistent with the facts or is misleading, whether made in good faith or in bad faith.
7.2 In case of any aforesaid breach of this Agreement, the non-breaching Party shall be entitled to request the breaching Party to rectify it within 30 days; if the breaching Party fails to rectify it within the specified period, the Parties may initiate arbitration in accordance with Article 10.2 of this Agreement. If such arbitration fails, the non-breaching Party shall be entitled to rescind this Agreement. Furthermore, the breaching Party shall indemnify the non-breaching Party against all claims, losses, liabilities, damages, costs and expenses directly caused to the non-breaching Party due to its breach.
Article 8 Force Majeure
8.1 Force Majeure under this Agreement means any objective event that is unforeseeable at the time of execution of this Agreement, is unavoidable among the Parties and the consequences of which cannot be overcome. Such objective events shall include without limitation, earthquakes, typhoons, flood, fire, war, strikes, riots, acts of governments, changes in law or the application thereof or any other instances which are unforeseeable, unavoidable or out of control, including objective instances which are accepted as Force Majeure in general international commercial practice.
8.2 If an event of Force Majeure occurs, a Partys contractual obligations affected by such an event under this Agreement shall be suspended during the period of delay caused by the Force Majeure and the period for performance of such contractual obligations shall be automatically extended, with the extended period of performance equals to the period of delay and the affected Party shall not be responsible for the breach of this Agreement due to such delay.
8.3 In case of any Force Majeure, the party affected thereby shall, within 30 days upon occurrence of Force Majeure, provide the other Party with relevant documents notarized by a notary office to prove the occurrence of the Force Majeure event.
8.4 In the event of Force Majeure, the Parties shall immediately consult with each other in order to find an equitable solution and shall use all reasonable endeavours to minimize the consequences of such Force Majeure.
Article 9 Amendment, Rescission or Termination
9.1 Unless otherwise provided for herein, this Agreement shall be rescinded upon occurrence of any of the following circumstances:
9.1.1 The Parties rescind this Agreement by mutual consensus through consultation;
9.1.2 The Parties are unable to achieve the purpose of the Agreement due to Force Majeure;
9.1.3 If a Party breaches the Agreement, the non-breaching Party may rescind this Agreement in accordance with Article 7.2;
9.1.4 This Agreement is held invalid by courts or other competent authority;
9.1.5 If the other Party encounters any accident detrimental to the continuous normal performance of this Agreement, such as inability to continue its operation and changes of key project members and fails to take effective measures to eliminate such adverse effects, the non-breaching Party shall be entitled to terminate this Agreement.
9.1.6 This Agreement and Cooperation Agreement on [***] Project, dated May 22, 2019, between Dragon Boat Biopharmaceutical (Shanghai) Limited. and Adagene (Suzhou) Limited are complementary to each other. If the latter is rescinded, this Agreement shall be rescinded as well.
9.2 Upon the rescission of this Agreement in accordance with Article 9.1 aforesaid, the performance of this Agreement shall be terminated.
9.3 If this Agreement is rescinded due to the breach by a Party, the non-breaching Partys right to request for damages shall not be affected thereby.
9.4 This Agreement may be changed and supplemented by unanimous agreement of the Parties. Any amendment and supplement to this Agreement shall be made in writing and come into effect after being duly executed by the Parties.
9.5 After the termination of this Agreement, all the tangible technical materials including but not limited to intellectual property, materials and data provided by Party Bs Affiliate for the [***] Project shall be returned by Party A and its Affiliate to Party B and its Affiliate.
Article 10 Governing Laws and Dispute Resolution
10.1 The Parties agree that the execution, performance, interpretation and dispute settlement of this Agreement shall be governed by the laws of the Peoples Republic of China.
10.2 Any dispute arising from the execution and performance of this Agreement or in connection herewith shall be settled by the Parties through friendly consultation; if such dispute fails to be settled through consultation within 30 days from the occurrence of such dispute, either Party may submit such dispute to China International Economic and Trade Arbitration Commission for arbitration in accordance with its then effective arbitration rules. The place of arbitration shall be Shanghai. The arbitration award shall be final and binding to the parties.
During the arbitration period, the Parties shall continue to perform their obligations under this Agreement, except for the issues in dispute submitted for arbitration.
10.3 If there is any discrepancy between the interpretation of the terms hereof and the interpretation corresponding to the Cooperation Agreement on [***] Project, dated May 22, 2019 between Dragon Boat Biopharmaceutical (Shanghai) Limited. and Adagene (Suzhou) Limited, the interpretation of the latter shall prevail and supersede the interpretation of this Agreement.
Article 11 Confidentiality
11.1 Any Party hereto (the Receiving Party) shall keep strictly confidential the information including but not limited to technical materials, research reports and product information (the Confidential Information) obtained from or learnt from the Disclosing Party (the Disclosing Party) that may be reasonably deemed as confidential. The existence and terms of this Agreement (especially the information such as Agreement amount and technical indicators) are also considered Confidential Information. Confidential Information shall not include information that: (a) the Receiving Party has evidence to prove was obtained or known prior to its disclosure by the Disclosing Party; (b) becomes available to the public other than as a result of the Receiving Partys misconduct or error; (c) becomes available to the Receiving Party in a justifiable and reasonable manner from a third party not under an obligation of confidentiality; and (d) is independently developed by the Receiving Party.
11.2 The Parties agree that, unless with the written consent of the Disclosing Party, the Receiving Party: (1) shall not use the Confidential Information for any purpose other than for the purpose of the performance of this Agreement; and (2) shall not disclose any Confidential Information to any third party, except for (1) disclosure to its employees, licensors, subcontractors, agents, representatives, counsels, consultants and other advisors under confidentiality obligation on a need-to-know basis for the purpose of performing this Agreement; and (2) inspection, disclosure or other activities required by governmental authorities, judicial proceedings, stock exchanges or relevant laws; provided that such disclosure shall be controlled to the extent necessary. The Receiving Party agrees to take any feasible measures to protect the Confidential Information with the confidential level no less stringent than the Receiving Partys confidential level for its own Confidential Information or the information of similar nature, so as to prevent the disclosure and unauthorized use of the Confidential Information.
11.3 This Article of confidentiality supersedes any confidentiality agreement signed by the Parties before the effectiveness of this Agreement. The confidentiality term shall be valid during the validity term of this Agreement and 10 years after the termination of this Agreement.
Article 12 Subcontracting
Without Party Bs written approval, Party A shall not subcontract the research and development service under this Agreement to any third party. However, animal experiments, verification of cell plants and other work that must be or may be outsourced in accordance with the trade practice, and the use of services provided by its Affiliate are not subject to such restriction. For the purpose of this Article, Affiliate of a Party means any entity which, directly or indirectly, controls, is controlled by or is under common control with such Party. Control means (1) the ownership, directly or indirectly, of 50% or more of the equity interest in an entity, or (2) the right to directly or indirectly control the management decisions of an entity, by contract or otherwise.
Article 13 Limitation of Liability
Except for the indemnification liability assumed by a Party due to third party claims or damages resulting from willful misconduct or fraud of a Party, a Party hereto shall not be liable for any special, incidental, accidental, indirect or punitive losses or losses of similar nature, including but not limited to loss of anticipated revenue, loss of profits, unmarketable products or loss of opportunity in connection with this Agreement, regardless of whether such losses have been advised in advance or not.
To the extent permitted by law, in any cases, the maximum amount of liability of Party B under this Agreement shall be limited to the amount of all fees and charges that have been collected by Party B and its Affiliate under this Agreement, except for the damages caused by willful misconduct or fraud.
Article 14 Liability for Compensation
Each Party shall protect, indemnify, and hold harmless the other Party and its Affiliate, and their officers, directors, employees, and agents against any liability or losses arising from any claim, action, proceeding, or demand (collectively, Claims) made by a third party due to: (1) such Partys representations are untrue, inaccurate, or incomplete, or materially breach any warranty of this Agreement; or (2) such Party materially breaches any provision of this Agreement.
Article 15 Miscellaneous
15.1 This Agreement shall come into force as of the execution date of this Agreement.
15.2 Any matters not mentioned herein shall be supplemented through consultation by the Parties. Any amendments or supplements to this Agreement shall be in writing and shall require the execution of the Parties and such amendments and the supplements shall constitute a part of this Agreement.
15.3 Neither Party may assign, or otherwise transfer, or purport to assign, all or any of its rights, interest, duties or obligations under this Agreement without the prior written consent of the other Party.
15.4 If any provision of this Agreement is held invalid by a court or other competent authority, the validity of the remaining provisions shall not be affected.
15.5 Notices from one Party to the other Party pursuant to the provisions of this Agreement shall be in writing, shall be written in Chinese and shall be deemed to have been effectively sent, made and delivered at (1) a notice delivered by hand; (2) a notice sent by confirmed or registered mail, postage prepaid; (3) a reputable courier service; or (4) a notice sent by telephone facsimile to the following addresses of each Party, unless a different address is designated by such Party:
To Party A:
Address: Building 5, No. 34, Lane 122, Chunxiao Road, Zhangjiang, Shanghai
Attention: HUANG Yingfeng
Tel: 021-50276016 -608
Fax: 021-50276016 -608
To Party B:
Address: Room 301, Floor C14, Bionano Science Park, No.218, Xinghu Street, Suzhou Industrial Park, Suzhou
Attention: LUO Peizhi
Tel: 008651287773616
Fax: 008651287773584
15.6 The headings of this Agreement are inserted for the convenience of reference only and shall not be used for the interpretation of this Agreement.
15.7 This Agreement is made in two counterparts with Party A and Party B holding one counterpart respectively and each counterpart shall have the same legal effect.
[Below is intentionally left blank]
[The remainder of this page is intentionally left blank; signature page to the Cooperation Agreement on International Interests of [***] Project]
Party A: Dragon Boat Biopharmaceutical (Shanghai) Limited. (Seal)
Legal Representative/Authorized Representative:
Party B: Adagene Inc. (Seal)
Legal Representative/Authorized Representative:
*** CERTAIN MATERIAL (INDICATED BY THREE ASTERISKS IN BRACKETS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
CONFIDENTIAL
MATERIAL TRANSFER AND COLLABORATION AGREEMENT
This Material Transfer and Option Agreement (Agreement), is made on April 11, 2019 (Effective Date) and is entered into by and between ADC THERAPEUTICS SA, a company having an address at Route de la Corniche 3B, 1066 Epalinges, Switzerland (ADCT), ADAGENE Inc., a Cayman company having an address at Grand Pavilion, Hibiscus Way, 802 West Bay Road, P.O. Box 31119, KY1-1205, Cayman Islands, (ADAGENE), ADAGENE also acting on behalf and for the account of its affiliated companies, including in the USA and in PRC, as listed in Annex 7 (individually ADAGENE Affiliate and collectively as ADAGENE Affiliates). ADCT and ADAGENE are sometimes referred to herein individually as a Party and collectively as the Parties.
RECITALS
WHEREAS, ADCT has expertise and proprietary Intellectual Property (as defined below) in the field of antibody drug conjugates (ADC) and cancer cell destroying warheads known as [***] and
WHEREAS, ADAGENE has expertise and proprietary Intellectual Property in the field of antibody engineering known as SAFEbody (SAFEbody Technology).
WHEREAS, ADCT wishes ADAGENE, who agrees, to engineer certain antibodies selected by ADCT using the SAFEbody Technology to be used by ADCT for the research, development, manufacturing and potential commercialization of certain ADCs, in accordance with the terms and conditions of this Agreement and of the License Agreement (as defined below).
WHEREAS, should ADCT exercise its option for the License Agreement for the [***] SAFEbody ADC (as defined below), ADCT is willing to grant to ADAGENE a license to the [***] SAFEbody ADC in the territory of China as specified in the License Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows:
1. DEFINITIONS
Capitalized terms used in this Agreement, whether used in the singular or plural, shall have the meanings specified in this Section.
1.1 ADAGENE Background IP means Background IP owned or controlled, in whole or in part, by ADAGENE or any of its Affiliates, on the Effective Date of this Agreement, including the SAFEbody Technology and the [***] SAFEbody and the ADAGENE library of blocking peptides.
1.2 ADAGENE Final Report shall have the meaning given in Section 2.5.
1.3 ADAGENE Know-How means any and all Know-How owned or controlled by ADAGENE or any of its Affiliates at any time relating to the SAFEbody Technology and any improvements thereof.
1.4 ADAGENE Materials means the [***] SAFEbody, including genetic sequences, and related Confidential Information, as supplied by ADAGENE to ADCT for the purpose of and for use in the Development Plan.
1.5 ADAGENE New IP means any improvements to the SAFEbody Technology and ADAGENE Background IP developed by ADAGENE or any of its Affiliates under this Agreement, the ADAGENE Platform Improvements and the ADAGENE library of peptides, including Results that are specific to such improvements and that are not specific to the [***] SAFEbody, the [***] SAFEbody (if any), any Conjugated Materials, the [***] SAFEbody Panel, or the [***] SAFEbody Panel, with the express exclusion of the [***] SAFEbody Panel, the [***] SAFEbody Panel, the ADCT New IP, the ADCT Platform Improvements, the Conjugated Materials and any ADC including the [***] SAFEbody, a [***] SAFEbody or the [***] SAFEbody.
1.6 ADAGENE Patents means any Patents and Patents Applications owned or controlled by ADAGENE or any of its Affiliates, necessary or useful to practice the SAFEbody Technology.
1.7 ADAGENE Platform Improvements means IP that is developed under this Agreement that specifically relates to ADAGENEs proprietary SAFEbody Technology, and that is not specific to [***] SAFEbodies, [***] SAFEbodies, ADCs or ADCTs proprietary [***] toxic molecules, or linkers, the ADCT Platform Improvements or the ADCT New IP.
1.8 ADC means an antibody drug conjugate in any form, as selected by ADCT in its sole discretion, containing any cytotoxic payload, such as a [***] or any other toxic molecule, linkers and/or other tangible material, as well as an antibody in any form (including the [***] SAFEbody, a [***] SAFEbody or the [***] SAFEbody, in each case as may be modified by ADCT as needed to facilitate its conjugation).
1.9 ADCT Background IP means Background IP owned or controlled, in whole or in part, by ADCT, including PBDs, or any other toxic molecules, linkers and/or other tangible materials, ADCs, the [***] and any IP related thereto.
1.10 ADCT Platform Improvements means IP that is developed under this Agreement that specifically relates to ADCTs proprietary [***] toxic molecules, or linkers, used alone or in conjugation with the SAFEbody Technology.
1.11 ADCT Final Report shall have the meaning given in Section 2.5.
1.12 ADCT Material means any cytotoxic compounds, linkers and or other tangible material, including [***] the [***] SAFEbody and the [***] SAFEbody.
1.13 ADCT New IP means IP Rights covering the composition, the manufacturing, selling or use of the [***] SAFEbody, the [***] SAFEbody (if any), any Conjugated Materials, the [***] SAFEbody Panel, the [***] SAFEbody Panel, the Results (other than Results that are specific to improvements to the SAFEbody Technology and ADAGENE Background IP developed by ADAGENE or any of its Affiliates under this Agreement, the ADAGENE Platform Improvements and the ADAGENE library of peptides, in each case that are not specific to the [***] SAFEbody, the [***] SAFEbody (if any), any Conjugated Materials, the [***] SAFEbody Panel, or the [***] SAFEbody Panel), and any improvements to the ADCT Background IP developed under this Agreement. ADCT New IP expressly excludes the ADAGENE New IP.
1.14 Affiliate means any person, company or other entity that, directly or indirectly (through one or more intermediaries) controls, is controlled by, or is under common control with a Party. For purposes of this Article 1.2, control means (i) the direct or indirect ownership of greater than fifty percent (50%) of the voting stock or other voting interests or interest in the profits of the Party, or (ii) the ability to otherwise control or direct the decisions of board of directors or equivalent governing body thereof.
1.15 Background IP means any IP that is owned or controlled (including through a license, sublicense or other right to exploit) by a Party or its Affiliates and that (a) exists as of and/or was conceived prior to the Effective Date of this Agreement or (b) is generated, conceived, obtained or otherwise acquired by a Party after the Effective Date independently of this Agreement without the use of the other Partys Confidential Information or IP.
1.16 BLA means a biologies license application (BLA) filed with the U.S. Food and Drug Administration or any successor application thereto for approval to sell a biological product and any foreign equivalent of any such BLA application filed with a regulatory authority in any other country.
1.17 Chinese Territory License shall have the meaning given in Section 6.
1.18 Commercially Reasonable Efforts means, with respect to the performance of the Development Plan by a Party, the carrying out of such activities using efforts and resources that a biopharmaceutical company of similar size would typically devote to compounds or products of similar market potential at a similar stage in development or product life, taking into account all scientific, commercial and other factors that the Party would take into account, including issues of safety and efficacy, expected and actual cost and time to develop, expected and actual profitability (including payments required hereunder), expected and actual competitiveness of alternative Third Party products (including generic products) in the marketplace, the nature and extent of expected and actual market exclusivity (including Patent coverage and regulatory exclusivity), the expected likelihood of regulatory approval, the expected and actual labeling, the expected and actual reimbursability and pricing and the expected and actual amounts of marketing and promotional expenditures required.
1.19 Confidential Information means any non-public information proprietary to or controlled by a Party (Disclosing Party) and (i) disclosed in connection with this Agreement to the other Party (Receiving Party) in writing, orally or visually and which is identified as confidential or which should be considered confidential given the nature and circumstances of disclosure by a reasonable person working in the industry, or (ii) created by, or on behalf of, either Party and provided to the other Party, or created jointly by the Parties, in the course of this Agreement. Confidential Information may include but is not limited to technology, Know-How, methods, test results, data, protocols, product information, and other information relating to research, development, clinical, manufacturing, marketing, commercialization or regulatory related activities, business plans or financial information, and the Materials, Conjugated Materials or any other tangible materials and deliverables provided by one Party to the other Party. For clarity, proprietary information corresponding to IP owned by a Part} shall be deemed such Partys Confidential Information, such Party shall be deemed the Disclosing Party and the other Party shall be deemed the Receiving Party, regardless of which Party actually disclosed or generated such information.
1.20 Conjugated Materials means the ADCs generated by ADCT by conjugating certain ADCT Materials to the [***] SAFEbody, the [***] SAFEbody or the [***] SAFEbody.
1.21 Criteria means a [***] SAFEbody and a [***] SAFEbody that exhibits a masking efficiency equal to or greater than [***] fold as compared to the corresponding native antibody, while the masking efficiency should approximately be one (1) or less than one (1) after proteolytical removal of the masking peptide. Masking efficiency is calculated as: EC50 (SAFEbody)/EC50 (corresponding native antibody).
1.22 Development Plan means the research program consisting of up to three proof of concepts research programs, namely the [***], [***] and [***] as detailed and defined in Annex 1.
1.23 Exclusivity Fee shall have the meaning given in Section 3.3.
1.24 Field means the use of ADCs for human therapeutics and related diagnostics.
1.25 IND Application means investigational new drug application filed with the U.S. Food and Drug Administration or any successor application thereto and any foreign equivalent of any such application filed with the applicable regulatory authority.
1.26 Intellectual Property or IP means all proprietary algorithms, apparatus, assay components, biological materials, cell lines, chemical compositions or structures, clinical trial designs, plans for obtaining regulatory approval, concepts, Confidential Information, Results, designs, diagrams, documentation, drawings, flow charts, formulae, ideas and inventions (whether or not patentable or reduced in practice), Patents, Know-How, trade secrets, marks (including brand names, trademarks, product names, logos, and slogans), methods, models, procedures, processes, protocols, specifications, techniques, tools, user interfaces, works of authorship, copyright, or other forms of IP.
1.27 Intellectual Property Rights or IP Rights means all past, present and future rights, which may exist or be created under the laws of any jurisdiction in the world, in Intellectual Property of every kind and nature.
1.28 JSC shall have the meaning set forth in Section 2.4.
1.29 Know-How means technical and other information which is not in the public domain including, ideas, concepts, inventions (whether or not patentable), discoveries, data, formulae, cell-line libraries, antibody libraries, algorithms, improvements, practices, trade secrets, techniques, methods, specifications, knowledge, clinical data, procedures for experiments and tests, results of experimentation and testing, results of research and development (including laboratory records and data analysis, pharmacological, toxicological, pharmacokinetic, pre-clinical and clinical study results, related reports, structure-activity relationship data and statistical analysis) regarding, without limitation, discovery, research, development, manufacturing, marketing, pricing, distribution, costs and sales relating to the SAFEbody Technology. Information in a compilation or a compilation of information may be Know-How notwithstanding that some or all of its individual elements are in the public domain. Know-How excludes any Patents and constitutes Confidential Information.
1.30 License Agreement means the license agreement executed between ADCT and ADAGENE and herein attached as Annex 2, by which ADAGENE will grant to ADCT after exercise of the [***] Option and/or [***] License Option, an exclusive, irrevocable (except as expressly set forth in the termination provisions of the License Agreement), worldwide, sub-licensable license under the Licensed IP to research, develop, manufacture, make, use, sell, offer for sale, market, commercialize, distribute and import, and have researched, developed, manufactured, made, used, sold, offered for sale, marketed, commercialized, distributed, or imported, ADCs in the Field. The License Agreement shall only become effective with respect to the [***] program if and when ADCT exercises its [***] Option in accordance with the procedure set forth in Section 5 below. The License Agreement shall only become effective with respect to the [***] program if and when ADCT exercises its [***] License Option in accordance with the procedure set forth in Section 5 below.
1.31 Licensed IP or Licensed Intellectual Property means any and all IP Rights owned or controlled by ADAGENE or any of its Affiliates at any time relating to the SAFEbody Technology, including the ADAGENE Background IP, the ADAGENE Patents if any, the ADAGENE Know-How and any other ADAGENE IP Rights relating thereto, and any improvements thereof.
1.32 Materials means the ADCT Materials, the Conjugated Materials, the ADAGENE Materials and any Confidential Information relating thereto.
1.33 [***] Antibody means a chimeric or humanized antibody which binds to the [***] Target, as selected and supplied by ADCT to ADAGENE for the purpose of ADAGEN engineering such antibody using the SAFEbody Technology and thus generating a [***] SAFEbody.
1.34 [***] Option shall have the meaning given in Section 5.1.
1.35 [***] Option Period means a period from the Effective Date of this Agreement until the earlier of: (i) twenty four (24) months from the date ADCT receives the [***] SAFEbody Panel from ADAGENE; or (ii) IND filing of the [***] SAFEbody ADC.
1.36 [***] PoCmeans the PoC for the [***] SAFEbody, the [***] SAFEbody Panel and the [***] SAFEbody ADCs, as further defined in the Development Plan.
1.37 [***] PoC Initiation Notice shall have the meaning given in Section 2.1.2.
1.38 [***] SAFEbody means the [***] Antibody supplied by ADCT and comprising a masking peptide identified using the SAFEbody Technology.
1.39 [***] SAFEbody ADC means an ADC containing a [***] SAFEbody.
1.40 [***] SAFEbody Panel means a panel of at least [***] SAFEbody versions of the [***] Antibody, as selected by the JSC. In the event there are more than [***] SAFEbody versions arising from ADAGENEs activities under this Agreement that meet the Criteria, then the Parties shall discuss in good faith as to determine if the [***] SAFEbody Panel shall include more than [***] SAFEbody versions.
1.41 [***] Target means a Target that binds to [***], as exclusively reserved by ADAGENE to ADCT.
1.42 Patents means any patent applications, patents, author certificates, inventor certificates, utility models, and all foreign counterparts of them and includes all divisionals, renewals, continuations, continuations-in-part, extensions, reissues, substitutions, confirmations, registrations, revalidations and additions of or to them, as well as any supplementary protection certificate, or any like form of protection.
1.43 [***] means a compound containing the following atomic framework:
[***]
For the avoidance of doubt, such compounds may include additional unsaturation, be substituted on any position, or be fused to another structure.
1.44 PoC means Proof of Concept as further defined in the Development Plan.
1.45 [***] means the PoC for the development of [***] SAFEbody, [***] SAFEbody Panel and [***] SAFEbody ADCs, as further defined in the Development Plan.
1.46 [***] Alternative Target shall have the meaning given in Section 2.1.4 (b).
1.47 [***] Antibody means a chimeric or humanized antibody which binds to the [***] Target, as selected and supplied by ADCT to ADAGENE for the purpose of ADAGENE engineering such antibody using the SAFEbody Technology and thus generating a [***] SAFEbody.
1.48 [***] Initiation Notice shall have the meaning given in Section 2.1.4.
1.49 [***] License shall have the meaning given in Section 5.3.
1.50 [***] License Option shall have the meaning given in Section 5.4.
1.51 [***] Option Period means a period from the Effective Date of this Agreement until the earlier of: (i) twenty (24) months from the date ADCT receives the [***] SAFEbody Panel from ADAGENE; and (ii) IND filing the [***] SAFEbody ADC.
1.52 [***] Reserved Targets means the Targets identified in Annex 4, which are exclusively reserved by ADAGENE to ADCT in accordance with the terms and conditions of this Agreement.
1.53 [***] SAFEbody means the antibody sequence against the [***] Target selected and provided by ADCT for the purpose of the [***] and comprising a masking peptide identified using the SAFEbody Technology under [***].
1.54 [***] SAFEbody ADCs means an ADC containing a [***] SAFEbody.
1.55 [***] SAFEbody Panel means a panel of at least [***] SAFEbodies versions of the [***] Target based on an antibody sequence provioed by ADCT for the purpose of the [***] as selected by the JSC. In the event there are more than [***] SAFEbody versions arising from ADAGENEs activities under this Agreement that meet the Criteria, then the Parties shall discuss in good faith as to determine if the [***] SAFEbody Panel shall include more than [***] SAFEbody versions.
1.56 [***] Target means the Target selected by ADCT in accordance with Section 2.1.4 for the purpose of [***] and against which ADAGENE shall generate the [***] SAFEbody Panel using the SAFEbody Technology based on the antibody sequence of [***] Antibody.
1.57 Representatives means the directors, officers, employees, agents, advisors, contractors of a Party or of its Affiliates.
1.58 Reservation Fee shall have the meaning given in Section 3.4.
1.59 Results means any and all data, information, Know-How, analysis, results, inventions, cell bank library, antibody library, [***] SAFEbody Panel, [***] SAFEbody Panel, whether patentable or not, which are generated, developed, or otherwise discovered pursuant to this Agreement by either Party (alone or with others) or by the Parties jointly, and which specifically relate to the [***] SAFEbody or [***] SAFEbody or ADC. For clarity, Results does not include ADAGENEs existing masking peptide library.
1.60 SAFEbody Technology means ADAGENEs proprietary antibody engineering technology performed by ADAGENE which enables an antibody to bind its target specifically only after conditional activation of the antibody, including but not limited to cleavage of a protecting group in the vicinity of a cancer cell, including as covered by the ADAGENE Patents and other ADAGENE Know-How described in Annex 5. Such protecting group is referred to herein as a masking peptide (such masking peptide may also include a portion which is cleaved).
1.61 Successful Completion of GLP Toxicology Studies means with respect to the [***] SAFEbody ADC and the [***] SAFEbody ADC a final report stating, in ADCTs sole discretion, that the available results from GLP toxicology studies confirm the adequate safety profile of the [***] SAFEbody ADC or [***] SAFEbody ADC, as applicable, to support an IND filing.
1.62 Target means an antigen or protein described by a unique UniprotKB/Swiss Prot accession number (and all fragments, mutations, splice variants and isoforms thereof having the biological activity of such protein) against which ADCT intends to develop a [***] SAFEbody and/or the [***] SAFEbody.
1.63 Term shall have the meaning set forth in Section 9.1 to this Agreement.
1.64 Territory means Peoples Republic of China, Macao, Hong-Kong and Taiwan.
1.65 Third Party means any person other than ADCT, ADAGENE and their respective Affiliates.
1.66 [***] PoC means the PoC for the [***] SAFEbody as further defined in the Development Plan.
1.67 [***] SAFEbody means the ADAGENE proprietary [***] antibody that binds to [***] as engineered by ADAGENE using the SAFEbody Technology.
2. DEVELOPMENT PLAN
2.1 ADCT and ADAGENE agree to conduct the Development Plan as set forth in Annex 1 and in accordance with the terms and conditions of this Agreement. The Parties acknowledge and agree that the Development Plan shall divided in up to three proof of concept development programs, namely the [***] PoC, the [***] PoC and [***], as detailed in Annex 1. Prom time to time during the Term, ADCT shall have the right to modify the Development Plan by written notice to ADAGENE, provided that any such modification that would result in a material increase of ADAGENEs obligations (including unreimbursed expenses from ADCT) under the Development Plan shall require ADAGENEs prior written consent.
2.1.1 The Parties agree to initiate the [***] PoC upon the Effective Date of this Agreement. ADAGENE shall supply 150 mg of [***] SAFEbody at no cost to ADCT at such date as specified in Annex 1.
2.1.2 ADCT may notify ADAGENE in writing of its desire to initiate the [***] PoC at any time during the [***] Option Period but at the latest within sixty (60) days of completion of [***] PoC ([***] PoC Initiation Notice). [***] Antibody is hereby exclusively reserved for ADCT in accordance with Section 2.2.1. For the avoidance of doubt, ADCT is under no obligation to initiate the [***] PoC under this Agreement.
2.1.3 Within [***] from the date of the [***] PoC Initiation Notice, ADAGENE shall generate and select [***] SAFEbodies meeting the Criteria, and supply to ADCT the amino acid sequences of the corresponding masking peptides, and such information shall be deemed Confidential Information of ADCT. For this purpose, ADAGENE shall select those [***] SAFEbodies within a library of antibodies, that, in its reasonable experience, Know-How, and considering ADCTs input as well, will present the best engineered structure to successfully enable conjugation with the ADCT Materials. During this process, ADAGENE shall fully collaborate with ADCT and work in full transparency with ADCT in order to elect the best [***] SAFEbodies to be the [***] SAFEbody Panel. Final decision relating to the selection of the [***] SAFEbody Panel shall be made by the JSC. ADCT acknowledges that the generation and selection of biomolecules is unpredictable and that the timeline for generation and selection of the masking peptides may be delayed, and the [***] period will be extended by any reasonable delay outside of ADAGENEs control.
2.1.4 [***] initiation.
a) In addition, at any time during the [***] Option Period, ADCT may elect to initiate [***] by sending written notice to ADAGENE identifying the [***] Target elected by ADCT, such elected [***] Target being either from the list of the [***] Reserved Targets or a [***] Alternative Target (as sot forth in Section 2.1.4 (b) below) ([***] Initiation Notice), it being however understood and agreed that ADCT is under no obligation to initiate the [***] under this Agreement.
b) For the purpose of [***] Target election, no later than [***] days before the expiry date of the [***] Option Period, ADCT may ask ADAGENE in writing (including by email) to confirm if a certain Target named by ADCT, other than the [***] Reserved Targets, (the [***] Alternative Target), is available and can be elected by ADCT as a [***] Target under this Agreement. Within [***] business days from the date of ADCTs request. ADAGENE shall confirm if the [***] Alternative Target is available or not as an Target to the sole and exclusive benefit of ADCT. The [***] Alternative Target shall be deemed available if ADAGENE has not, prior to ADCTs notice hereunder and as supported by written evidence as set forth below, either (i) already granted exclusive development and commercial rights to the [***] Alternative Target to a Third Party; or (ii) has agreed to a bona fide term sheet and is in preparation or negotiations for a definitive agreement to grant exclusive development and commercial rights to the [***] Alternative Target to a Third Party, provided that in such event, if ADAGENE does not enter into such definitive agreement with such Third Party prior to the expiration of the [***] Option Period, then ADCT shall have the right to elect such Target as the [***] Target under Section 2.1.4(a); or (iii) elected to retain the exclusive rights itself to such [***] Alternative Target and is actively developing its SAFEbody Technology agains such [***] Alternative Target. If ADAGENE claims that the [***] Alternative Target is not available, ADAGENE shall provide ADCTs outside counsel in confidence with a copy of the exclusive reservation agreement with such Third Party (provided that the financial terms of said agreement might be redacted) or provide ADCT with written evidence that the [***] Alternative Target is being actively developed by ADAGENE as supported by dated pre-clinical or clinical data. If the requested [***] Alternative Target is available, ADAGENE shall immediately notify ADCTand ADCT shall have the right, but not the obligation, to elect such [***] Alternative Target as the [***] Target in lieu of either Reserved Target in accordance with Section 2.1.4 (a) above prior to the expiration of the [***] Option Period.
c) Upon election of the [***] Target as stated in the [***] Initiation Notice, ADAGENE shall be free to release the exclusive reservation to the other Target(s) not-elected for the purpose of the [***] (i.e. either one or both [***] Reserved Target(s) or the [***] Alternative Target as the case may be), and ADAGENE shall be free to develop those other Targets which have not been elected for the [***] as it deems appropriate.
2.1.5 Within [***] months from the date of the [***] Initiation Notice, ADAGENE shall generate and select [***] SAFEbodies meeting the Criteria, and supply to ADCT the amino acid sequences of the corresponding masking peptides, and such information shall be deemed Confidential Information of ADCT. For this purpose, ADAGENE shall select those [***] SAFEbodies within a library of antibodies, that, in its reasonable experience, Know-How, and considering ADCTs input as well, will present the best engineered structure to successfully enable conjugation with the ADCT Materials. During this process, ADAGENE shall fully collaborate with ADCT and work in full transparency with ADCT in order to elect the best [***] SAFEbodies to be the [***] SAFEbody Panel. Final decision relating to the selection of the [***] SAFEbody Panel shall be made by the JSC. ADCT acknowledges that the generation and selection of biomolecules is unpredictable and that the timeline for generation and selection of the masking peptides may be delayed, and the [***] period will be extended by any reasonable delay outside of ADAGENEs control.
2.2 Exclusivity and non-compete obligations.
2.2.1 (A) Effective from the Effective Date, ADAGENE agrees to exclusively reserve the [***] Target and to exclusively develop a [***] SAFEbody for the sole benefit of ADCT. (B) Further, ADAGENE shall refrain from (i) developing for itself or for or with any Third Party a [***] SAFEbody or any other antibody or antibody drug conjugate that binds to the [***] Target, regardless of whether (a) it uses the SAFEbody Technology or not; or (b) it is selected from the ADAGENE proprietary antibody library or not; and (ii) granting to a Third Party any rights to ADAGENEs Intellectual Property Rights necessary or useful for the Development Plan or which would preclude ADAGENE from granting the License Agreement under Section 5; and (iii) taking any actions which would result in infringing any of ADCTs IP Rights in the ADCT New IP. The obligations under this section 2.21 (A) and 2.2.1 (B)(i) and (ii) shall terminate immediately if the [***] PoC is never initiated by ADCT, or [***] PoC is initiated but the [***] Option is not exercised by ADCT in the [***] Option Period, in which case the obligations under this Section 2.2.1 (i) and (ii) shall terminate at the end of the [***] Option Period or, if earlier, on the effective date of termination of this Agreement. Unless terminated as provided in this Section 2.2.1, the obligations under this Section 2.2.1 shall survive the expiration of this Agreement.
2.2.2 (A) Effective from the Effective Date of this Agreement, ADAGENE agrees to exclusively reserve the [***] Reserved Targets and to exclusively develop SAFEbody versions of the [***] Reserved Targets for the exclusive benefit of ADCT. ADAGENE shall also exclusively reserve [***] Alternative Target as soon as its availability is confirmed in accordance with Section 2.1.4 (b) and exclusively develop SAFEbody versions of the [***] Alternative Target for the exclusive benefit of ADCT. (B) Further, ADAGENE shall refrain from (i) developing for itself or for or with any Third Party a [***] SAFEbody or any other antibody or antibody drug conjugate that binds to the [***] Reserved Targets or [***] Alternative Target, regardless of whether (a) it uses the SAFEbody Technology or not; or (b) it is selected from the ADAGENE proprietary antibody library or not; and (ii) granting to a Third Party any rights to ADAGENEs Intellectual Property Rights necessary or useful for the Development Plan or which would preclude ADAGENE from granting the [***] License under Section 5; and (iii) from taking any actions which would result in infringing any of ADCTs IP Rights in the ADCT New IP. ADAGENE shall be released from its obligations under this section 2.2.2 (A) and 2.2.2 (B) (i) and (ii) as follows:
· if [***] is never initiated by ADCT, or if ADCT elects the [***] Alternative Target for [***] in accordance with Section 2.1.4, then both [***] Reserved targets shall be released from the [***] Initiation Notice date, or
· if ADCT elects one of the two [***] Reserved Targets for the purpose of the [***] in accordance with Section 2.1.4, then the [***] Reserved Target and the [***] Alternative Target if any which has not been elected for [***] shall be released from the [***] Initiation Notice date; or
· if [***] is initiated with any [***] Targets but the [***] Option is not exercised by ADCT within the [***] Option Period, then the [***] Target elected for [***] shall be released at expiry of the [***] Option Period, or, if earlier, on the effective date of termination of this Agreement.
Unless terminated as provided in this Section 2.2.2, the obligations under this Section 2.2.2 shall survive the expiration of this Agreement.
2.3 Each Party shall use its Commercially Reasonable Efforts to achieve the objectives of the Development Plan. Both Parties shall fully collaborate and assist the other as necessary and shall allocate sufficient time, effort, equipment, facilities and personnel with sufficient skills, training and experience to conduct the activities under the Development Plan and accomplish the objectives of the Development Plan.
2.4 JSC. Promptly, but in no event later than ten (10) days from the Effective Date, the Parties shall establish a joint steering committee (JSC) which shall consist of two (2) Representatives from each of the Parties, with each Representative (including replacements) having the requisite experience and seniority to enable such person to make decision on behalf of the Parties with respect to the issues falling within the jurisdiction of the JSC. The Parties may substitute at any time, any of its Representatives on written notice to the other Party. ADCT shall select from its Representatives the chairperson for the JSC. The JSC shall:
2.4.1 Meet at least once a quarter in person or by telephone or as otherwise agreed to by the Parties;
2.4.2 Be responsible for the oversight of the progress of the activities of each Party under the Development Plan;
2.4.3 Select the [***] SAFEbody Panel and the [***] SAFEbody Panel;
2.4.4 Review the Periodic Development Reports and Final Reports for each PoC (as defined in Section 2.5);
2.4.5 Discuss and seek resolution of issues around the execution and completion of the Development Plan.
2.5 JSC Decisions. Decisions of the JSC shall be by consensus. If no consensus can be reached by the JSC members within ten (10) days of a matter being raised at the JSC level, the matter of disagreement shall be escalated to the CEOs (or its designee as advised by the CEO) of both Parties for a final good faith resolution of the issue, to be made within (7) days of its escalation to the CEOs. If no agreement can be found, ADCT shall have a casting vote. No decisions of the JSC will (i) require either Party to violate any applicable laws or any agreement it may have with any Third Party or (ii) amend the terms and conditions of this Agreement.
2.6 Each Party shall ensure that the other Party is kept fully informed in writing on a monthly basis of the progress of its activities under the Development Plan and of the Results (Periodic Development Reports). Within thirty (30) days of completion of its respective activities under each PoC under the Development Plan, ADAGENE shall provide ADCT with a final written report describing the work conducted by it under the Development Plan and all Results related to the [***] SAFEbody, the [***] SAFEbody Panel or the [***] SAFEbody Panel (ADAGENE Final Report). In addition, at the latest (i) within twelve (12) months of receipt by ADCT of the [***] SAFEbody and (ii) eighteen (18) months from receipt by ADCT of the respective [***] SAFEbody Panel and of the [***] SAFEbody Panel, ADCT shall provide ADAGENE with a final written report describing the work conducted by it under the relevant PoC and all Results relating thereto (ADCT Final Report).
2.7 Unless otherwise agreed to in writing by the Parties or unless authorized under the License Agreement, the [***] License or the Chinese Territory License, each Party agrees to use the Confidential Information and the materials supplied by the other Party solely for the purpose of performing the Development Plan.
2.8 Neither Party shall use the other Partys Materials for the purposes of the diagnosis, treatment or any other activity in humans.
2.9 Neither Parry shall transfer the Materials of the other Party or their compositions, sequences or structural characteristics to any third party, except that ADCT is entitled to subcontract any of its activities assigned to it under the Development Plan to third parties, provided that such third parties shall be subject to obligations relating to IP Rights, confidentiality and non-use no less restrictive than the obligations of ADCT pursuant to this Agreement.
2.10 Each Party shall comply with all applicable laws, regulations and codes of practice in the performance of the Development Plan, including, but not limited to, good laboratory practices, animal welfare laws and regulations and will obtain all necessary certifications, licenses and approvals necessary to allow it to carry out its activities under the Development Plan.
3. COSTS
3.1 For the purpose of [***] PoC of the Development Plan, ADAGENE shall supply [***] SAFEbody to ADCT at no charge. For the avoidance of doubt, no payment shall be due by ADCT to ADAGENE under the [***] POC.
3.2 ADCT shall bear its own costs and expenses associated with its activities under the Development Plan. In addition, (i) for the purpose of the [***] PoC, ADCT shall supply the [***] Antibody to ADAGENE at no cost to ADAGENE; and (ii) for the purpose of [***] of the Development Plan, ADCT shall also supply the Antibody to ADAGENE at no cost to ADAGENE.
3.3 In consideration of the exclusivity rights granted to ADCT under this Agreement, ADCT will pay to ADAGENE a one-time milestone payment of [***] US Dollars ($[***] payable within [***] days after successful outcome of the first in vivo study with the [***] SAFEbody ADC (Exclusivity Fee).
3.4 In consideration of the exclusive reservation of the [***] Reserved Targets under this Agreement in accordance with Section 2.2.2, ADCT shall pay to ADAGENE a reservation fee of: (a) [***] US Dollars ($ [***] ), within thirty (30) days after the Effective Date of this Agreement after receiving an invoice thereof from ADAGENE; and (b) in the event ADCT wishes to maintain the Reserved Target for a second year, [***] US Dollars ($ [***] ), within [***] days the first (1st) anniversary of this Agreement after receiving an invoice thereof from ADAGENE.
3.5 In the event ADCT elects to proceed with the [***] PoC under the Development Plan, ADAGENE shall be entitled to the following payments as a compensation for the development and manufacturing and supply of the [***] SAFEbody Panel:
3.5.1 [***] US Dollars ($[***])to be by ADAGENE upon receipt of the [***] Antibody from ADCT; and
3.5.2 [***] US Dollars ($[***]) to be by ADAGENE once ADAGENE has delivered to ADCT the amino acid sequence of the corresponding masking peptides and [***] of necessary quality of each [***] SAFEbody among the [***] SAFEbody Panel that meet the Criteria and which have been elected by the JSC to allow ADCT to conduct the [***] PoC. In the event the quantity or quality of the supplied [***] SAFEbody Panel is insufficient to ADCTs sole discretion, ADCT shall inform ADAGENE with no delay and ADAGENE shall supply additional quantities of the relevant [***] SAFEbody to ADCT at no additional cost.
3.6 In the event ADCT elects to proceed with [***] under the Development Plan, ADAGENE shall be entitled to the following payments as a compensation for the development and manufacturing of the [***] SAFEbody Panel:
3.6.1 $[***] US Dollars) to be invoiced by ADAGENE upon receipt of the Antibody from ADCT; and
3.6.2 $[***] US Dollars) to be invoiced by ADAGENE once ADAGENE has delivered to ADCT the amino acid sequence of the corresponding masking peptides and [***] of necessary quality of each [***] SAFEbody among the [***] SAFEbody Panel that meet the Criteria and which have been elected by JSC to allow ADCT to conduct the [***] PoC. In the event the quantity or quality of the supplied [***] SAFEbody Panel is insufficient to ADCT.s sole discretion, ADCT shall inform ADAGENE with no delay and ADAGENE shall supply additional quantities of the relevant [***] SAFEbody to ADCT at no additional cost.
3.7 Undisputed invoices shall be payable by ADCT within thirty (30) day of receipt of the invoice, to the bank account of ADAGENE:
Account Name: |
[***] |
Bank Name: |
[***] |
Bank Address: |
[***] |
Central, Hong Kong. |
|
Account Number: |
[***] |
SWIFT Number: |
[***] |
or if specified on the invoice, the bank account indicated on the invoice. Invoices shall be issued in ADCTs name and address and shall contain ADCTs PO number (as provided by ADCT), product name, ADCTs contact name, description of the invoiced services, bank account number, routing/swift code number. Invoices shall be sent by email to: Accounts.Payable@adctherapeutics.com
4. INTELLECTUAL PROPERTY AND RESULTS
4.1 Background IP. Except as explicitly set forth in this Agreement, each Party will retain all its right, title, and interest in and to its Confidential Information, Materials and Background IP. For the avoidance of doubt, ADCT and/or its Affiliates or designees have and retain all right, title and/or interest in the PBDs and all ADCT Background IP specifically related to PBDs and ADCT Materials.
4.2 No implied licenses. Neither Party transfers or grants any rights or licenses to the other Party under its respective Materials, Confidential Information and IP or other IP Rights owned or controlled by that Party except for the right to use the same solely for the purpose of the Development Plan.
4.3 ADCT New IP. ADCT and/or its designee shall own (alone or jointly with its Third Party licensor(s)) all ADCT New IP. ADAGENE acknowledges and agrees that the ADCT New IP may as the case may be, be owned solely by ADCT or jointly by ADCT and ADCTs Third Party licensor(s) or solely by ADCTs Third Party licensor(s), including in particular with regards to any IP relating to PBDs and ADCs, including the Conjugated Materials. With respect to the Results included in the ADCT New IP, ADAGENE retains the right to use the Results for the improvement of its SAFEbody Technology platform, including for use of the SAFEbody Technology with its bona fide collaborators; provided that (i) ADAGENE shall not use the Results included in the ADCT New IP with Third Parties until ADCT has filed Patents on the ADCT New IP, and (ii) ADAGENE shall not use the Results in breach of its obligations under Section 2.2 herein and (iii) the Results that are not ADAGENE New IP will remain the Confidential Information of ADCT.
4.4 ADAGENE New IP. ADAGENE or its designee shall solely own all ADAGENE New IP.
4.5 IP assignments.
4.5.1 ADAGENE agrees to assign and hereby assigns all IP in the ADCT New IP and the ADCT Platform Improvements (in each case together with all IP Rights therein) to ADCT or its designee and will provide all necessary assistance and execute any IP assignment document, or other document, reasonably requested by ADCT, at ADCTs cost, in each case that is reasonably necessary to give effect to Sections 4.3. ADAGENE acknowledges and agrees that ADCT may be bound by certain IP assignment obligations towards ADCTs Third Party licensor(s), including in particular with regards to any IP relating to PBDs and ADCs, including the Conjugated Materials, and ADAGENE agrees to not take any action which would prevent ADCT from complying with its assignment obligations thereto.
4.5.2 ADCT agrees to assign and hereby assigns all IP in the ADAGENE Platform Improvements to ADAGENE or its designee and will provide all necessary assistance and execute any IP assignment document, or other document, reasonably requested by ADAGENE, at ADAGENEs cost, in each case that is reasonably necessary to give effect to Sections 43. ADAGENE acknowledges and agrees that ADCT may be bound by certain IP assignment obligations towards ADCTs Third Party licensor(s), including in particular with regards to any IP relating to PBDs and ADCs, including the Conjugated Materials, and ADAGENE agrees to not take any action which would prevent ADCT from complying with its assignment obligations thereto.
4.6 ADAGENE Patents prosecution and maintenance. Subject to Section 4.8, ADAGENE shall, at its sole cost, have the sole right to prosecute and maintain worldwide Patents and Patent applications relating to ADAGENE Background IP and ADAGENE New IP. ADAGENE shall not abandon any of the ADAGENE Key IP (as defined below). ADAGENE shall timely, and at least thirty (30) days in advance, inform and consult ADCT on Patent applications and prosecution relating to ADAGENE Key IP, and provide ADCT with a copy of such Patent applications for that purpose. ADCT shall review and comment thereon within thirty (30) days. ADAGENE shall reasonably consider and incorporate in good faith ADCTs comments and requests. ADAGENE Key IP means all ADAGENE Patents that (a) claim composition(s) and/or method(s) used by ADAGENE to generate the [***] SAFEbody(ies) and/or [***] SAFEbody(ies) under this Agreement, (b) would reasonably expected to protect the exclusivity of ADCTs exploitation of [***] SAFEbody(ies) and/or [***] SAFEbody(ies); and/or (c) would reasonably expected to affect the ADCT New IP.
4.7 ADCT Patents prosecution and maintenance. Subject to Section 4.8, ADCT shall be free at all times to prosecute and maintain (or have prosecuted and maintained) worldwide Patents and Patent applications relating to ADCT Background IP.
4.8 IP Standstill and New IP filing.
4.8.1 From the Effective Date of this Agreement and until the earlier of (A) ADCT exercising the [***] Option or the [***] License Option respectively, or (B) the Parties agreeing in writing after consultation with the IP counsels of both Parties, and except as provided in the final two sentence of this Section 4.8.1, (i) neither Party shall file any patent application on any Intellectual Property claiming or covering the ADCT New IP; and (ii) ADAGENE shall not file any patent application on any Intellectual Property claiming or covering the ADAGENE New IP made in the performance of this Agreement; and (iii) neither Party shall file any IP which would create a material prior art issue for future filings of the ADCT New IP or ADAGENE New IP. When patent filing of the ADCT New IP and/or the ADAGENE New IP is authorized in accordance with the terms and conditions of this Section, the Parties agree to first consult with each other in good faith and to file any patent applications relating to their respective new IP under this Agreement on the same day and take all necessary actions to avoid any double patenting issues. For avoidance of doubt, ADCT New IP will be filed separately from ADAGENE New IP. The foregoing shall not be construed as preventing ADAGENE from filing any patent application claiming SAFEbodies against any other Target, provided that ADAGENE provide ADCT sixty (60)-day notice of its intent to make such a filing prior to such filing. Upon receiving such notice, ADCT shall have the right to file patent applications claiming or covering any and all ADCT New IP on the same day ADAGENE files such patent application, or thereafter, in which case the IP standstill provision on ADCT on ADCT New IP under this Section 4.8.1 shall be of no further effect. ADAGENE shall coordinate with ADCT to ensure that ADCT can file its patent applications (if ADCT so chooses and informs ADAGENE within 30 days of such notice) on that same day.
4.8.2 In addition, ADCT shall not file any patent application relating to the [***] SAFEbody and neither Party shall file any patent application relating to the [***] SAFEbody ADC, in each case made in the performance of this Agreement, and the Parties agree to keep the [***] SAFEbody ADC trade secret and confidential at all times; provided, however, that ADAGENE may disclose data, information and results that are related to the [***] SAFEbody ADC with its actual and potential investors, acquirers and collaborators under written obligations of confidentiality, provided that such data, information or results does not include the identity of ADCT or any of ADCTs conjugation technology, including the structure or identity of the PBD or linker used. This Section shall expressly survive termination of this Agreement.
4.9 During the Term, ADAGENE shall refrain from (i) using, for the purpose of the Development Plan, any IP Rights pertaining to or otherwise licensed from a Third Party or exclusively licensed to a Third Party which would preclude ADAGENE from granting the License Agreement under Section 5 or ADCT to own the ADCT New IP; and/or (a) granting any rights to any Third Party for any Intellectual Property Rights necessary or useful for the Development Plan and the License Agreement in a manner that would preclude a license grant under Section 5 herein.
5. OPTION RIGHT TO THE LICENSE AGREEMENT
5.1 The Parties have mutually agreed that, at ADCTs sole discretion and option, and subject to the terms contained herein in Section 5.1, ADAGENE grants ADCT an exclusive option (the [***] Option) to a worldwide, irrevocable (except as expressly set forth in the termination provisions of the License Agreement), sub-licensable, license under the Licensed IP to research, develop, manufacture, make, use, sell, offer for sale, market, commercialize, distribute and import, and have researched, developed, manufactured, made, used, sold, offered for sale, marketed, commercialized, distributed, or imported, ADCs containing the [***] SAFEbody in the Field, in accordance with the terms and conditions of the License Agreement.
5.2 For the purpose of Section 5.1, at any time during the [***] Option Period, ADCT shall have the right, but not the obligation, to activate, upon written notice to ADAGENE, the License Agreement for the [***] SAFEbody and the License Agreement shall then become effective on the date of the option notice to ADAGENE. If ADCT does not exercise the [***] Option within the [***] Option Period, (i) ADCT shall have no further rights with respect to the [***] SAFEbody (ii) the IP standstill provision under Section 4.8 shall survive, and (iii) ADAGENE shall be free to research, develop or commercialize a [***] SAFEbody targeting the [***] Target, including as an antibody drug conjugate, provided however that it is understood and agreed that ADCT does not grant any rights to ADAGENE under this Agreement to the [***] SAFEbody ADC or to PBDs or ADCs under the ADCT Background IP or the ADCT New IP in connection with ADAGENEs development and commercialization of such [***] SAFEbodies.
5.3 In addition, ADAGENE hereby grants ADCT a right to elect, at any time during the [***] Option Period, a Target for the conduct of [***] in accordance with Section 2.1.4 and to opt during the [***] Option Period for an exclusive, worldwide, irrevocable (except as expressly set forth in the termination provisions of the License Agreement), sub-licensable, license under the Licensed IP to research, develop, manufacture, make, use, sell, offer for sale, market, commercialize, distribute and import, and have researched, developed, manufactured, made, used, sold, offered for sale, marketed, commercialized, distributed, or imported, ADCs containing the [***] SAFEbody in the Field on the terms and conditions contained in the License Agreement ([***] License).
5.4 For the purpose of Section 5.3, at any time during the [***] Option Period. ADCT shall have the right, but not the obligation, to exercise its option right to obtain the [***] License by notifying ADAGENE ([***] License Option). If ADCT does not exercise the [***] License Option, (i) ADCT shall have no further rights with respect to the [***] SAFEbody; and (ii) the IP standstill provision under Section 4.8 shall survive; and (iii) ADAGENE shall be free to research, develop or commercialize a [***] SAFEbody targeting the [***] Reserved Targets and, if applicable, the [***] Alternative Target, including as an antibody drug conjugate, provided however that it is understood and agreed that ADCT does not grant any rights to ADAGENE under this Agreement to the [***] SAFEbody ADC or to PBDs or ADCs under the ADCT Background IP or the ADCT New IP in connection with ADAGENEs development and commercialization of such [***] SAFEbodies.
5.5 For clarity, no option is granted by ADAGENE to ADCT with respect to the [***] SAFEbody. ADCT acknowledges that ADCT has no right to develop or commercialize the [***] SAFEbody or any [***] SAFEbody ADC, and ADAGENE will have the sole right in its sole discretion to develop and commercialize the [***] SAFEbody.
6. COMMERCIAL OPTION
6.1 The Parties mutually agree that should ADCT activate the License Agreement in accordance with Section 5.2 and achieve Successful Completion of the GLP Toxicology Studies for the [***] SAFFbody ADC and/or the [***] SAFEbody ADC. except if such [***] SAFEbody ADC binds to the [***] (Uniprot Code [***]) Target, ADCT would grant ADAGENE for a period of [***] starting from such Successful Completion of the GLP Toxicology Studies for the [***] SAFEbody ADC or the [***] SAFEbody ADC which does not bind to the [***] Target, as applicable, the right to obtain a license to develop, manufacture, make, use, sell, offer for sale, market, commercialize, distribute and import, and have developed, used, sold, offered for sale, marketed, commercialized, distributed, or imported, ADCs containing the [***] SAFEbody and/or the [***] SAFEbody ADC which does not bind to the [***] Target in the Field for sale in the Territory, in accordance with the terms and conditions contained in Annex 3 (Chinese Territory License Terms). For the sake of clarity, ADAGENE has no option to negotiate a license, in the Territory, for a [***] SAFEbody ADC that binds to the [***] Target.
7. CONFIDENTIALITY
7.1 Non-use and non-disclosure of Confidential Information. During the Term, and for a period often (10) years thereafter, a Party shall (i) except to the extent permitted by this Agreement or otherwise agreed to in writing, keep confidential and not disclose to any Third Party any Confidential Information of the other Party; (ii) except in connection with activities permitted by this Agreement or otherwise agreed to in writing, not use for any purpose any Confidential Information of the other Party; and (iii) take all reasonable precautions to protect the Confidential Information of the other Party, including all precautions a Party employs with respect to its own confidential information of a similar nature and taking reasonable precautions to assure that no unauthorized use or disclosure is made by others to whom access to the Confidential Information of the Party is granted. ADAGENE shall further take all necessary measures to maintain confidential and to not disclose, and it shall cause its Representatives to maintain confidential and not disclose, to any Third Party not bound by any confidentiality obligation or otherwise in breach of ADCFs rights under this Agreement, any Confidential Information relating to the SAFEbody Technology and the ADAGENE Know-How and any IP Rights relating thereto.
7.2 Exclusions regarding Confidential Information. Notwithstanding anything set forth to the contrary in this Article 7, the obligations of Article 7.1 above shall not apply to the extent that the Party seeking the benefit of the exclusion can demonstrate that the Confidential Information of the other Party:
a) except for ADCT Confidential Information developed by ADAGENE for ADCT, was already known to the receiving Party, other than under an obligation of confidentiality, at the time of receipt by the receiving Party;
b) was generally available to the public or otherwise part of the public domain at the time of its receipt by the receiving Party;
c) became generally available to the public or otherwise part of the public domain after its receipt by the receiving Party other than through any act or omission of the receiving Party in breach of this Agreement;
d) was received by the receiving Party without an obligation of confidentiality from a Third Party having the right to disclose such information without restriction;
e) except for ADCT Confidential Information developed by ADAGENE for ADCT, was independently developed by or for the receiving Party without use of or reference to the Confidential Information of the other Party; or
f) was released from the restrictions set forth in this Agreement by express prior written consent of the Party.
7.3 Authorized disclosures of Confidential Information. Notwithstanding the foregoing, a Party may use and disclose the Confidential Information of the other Party as follows:
a) if required by law or governmental regulation, provided that the Party seeking to disclose the Confidential Information of the other Party shall (i) use all reasonable efforts to inform the other Party prior to making any such disclosures and cooperate with the other Party in seeking a protective order or other appropriate remedy (including redaction) and (ii) whenever possible, request confidential treatment of such information;
b) as reasonably necessary to obtain or maintain any regulatory approval, including to conduct preclinical studies and clinical trials and for pricing approvals, for any Licensed Product, provided, that, the disclosing Party shall take all reasonable steps to limit disclosure of the Confidential Information outside such regulatory agency and to otherwise maintain the confidentiality of the Confidential Information to the same extent to which it maintains its own confidential information; or
c) to the extent necessary, to permitted sublicensees, licensees, collaborators, vendors, consultants, agents, attorneys, contractors and clinicians under written agreements of confidentiality at least as restrictive on those set forth in this Agreement, who have a need to know such information in connection with such Party performing its obligations or exercising its rights under this Agreement.
7.4 Terms of this Agreement. The Parties agree that this Agreement and the terms hereof will be considered Confidential Information of both Parties but can be shared with potential sublicensees, banks, investors or acquirers to the extent necessary to complete the subject transaction.
7.5 No License. As between the Parties, Confidential Information disclosed hereunder shall remain the property of the disclosing Party. Disclosure of Confidential Information to the other Party shall not constitute any grant, option or license to the other Party, beyond those licenses expressly granted hereunder, under any Patent, Know-How or other rights now or hereinafter held by the disclosing Party.
7.6 Confidentiality Breach Remedies. The Receiving Party acknowledges that money damages may not be a sufficient remedy for any breach of this Section 7, and the Disclosing Party will be entitled to seek specific performance and injunctive relief as remedies for any such breach. Such remedies will not be deemed to be the exclusive remedies for breach of this Section 7 but will be in addition to all other remedies available at law or equity to the Disclosing Party. In addition, in the event of a Severe Confidentiality Breach (as defined below) by either Party, the other Party shall in good faith notify the first Party of the alleged and evidenced Severe Confidentiality Breach and (i) if ADCT alleges that ADAGENE has committed such Severe Confidentiality Breach, ADCT shall be entitled to suspend payment of [***] of any outstanding or future payments due to ADAGENE under this Agreement and/or the License Agreement; and (ii) if ADAGENE alleges that ADCT has committed such Severe Confidentiality Breach, ADAGENE shall be entitled to collect [***] of the future payments it would otherwise receive from ADCT under this Agreement, in each case subject to the following (each, an Automatic Remedy). Should the alleged breaching Party dispute the existence of a Severe Confidentiality Breach, it shall show all necessary evidence to support its position. If the evidence shown is deemed insufficient by the Party alleging such breach, the issue may be escalated by the Party alleging such breach to the CEOs of both Parties, who shall strive to find an amicable resolution of the matter within ten (10) business days from the day the issue was escalated to them. If no amicable resolution can be found, the alleged breaching Party may use the arbitration process under Section 12.2 for settlement. If the arbitration decision confirms a Severe Confidentiality Breach by a Party under this Agreement, the Automatic Remedy shall continue for the term of this Agreement and/or the License Agreement and the Party alleging breach may seek additional damages from the alleged breaching Party in accordance with this Agreement. If the arbitration decision confirms that the alleged breaching Party has not committed a Severe Confidentiality Breach, then: (a) if ADCT is the Party alleging such breach, ADCT shall be responsible for all past and future payments due under this Agreement and shall be liable for paying to ADAGENE within seven (7) days of the arbitration decision, all payments unduly suspended since the confidentiality breach notice to ADAGENE with an annual interest rate of at the Prime Rate (as quoted in the Wall Street Journal) plus two percent (2%), to be calculated from the day those payments became due until effective payment date; or (b) if ADAGENE is the Party alleging such breach, ADAGENE shall refund to ADCT within seven (7) days of the arbitration decision, all over-payments unduly collected from ADCT since the confidentiality breach notice to ADCT with an annual interest rate of at the Prime Rate (as quoted in the Wall Street Journal) plus two percent (2%), to be calculated from the day those payments became due until effective payment date. Severe Confidentiality Breach shall mean: (1) a breach of Section 4.8; and (2) with respect to both Parties, any disclosure of the portion of SAFEbody Technology that is strictly confidential such that such disclosure has enabled a Third Party to perform the SAFEbody Technology in a manner substantially similar to ADAGENE and resulted in ADAGENEs competitive advantage in SAFEbody Technology, in each case without regard to the existence, validity or enforceability of any ADAGENE Patents; provided, however, that ADAGENE shall be free to disclose its SAFEbody Technology as necessary, in the ordinary course of business to seek patent protection, if permitted under Section 4.8, on the SAFEbody Technology and to disclose the SAFEbody Technology to its actual and potential bona fide acquirers and licensees under an obligation of confidentiality at least as restrictive as those confidentiality obligations contained in this License Agreement, and provided always that ADAGENE shall be and remain solely and exclusively liable towards ADCT for any Severe Confidentiality Breach by any such acquirers and licensees; and (3) in addition, with respect to ADAGENE, any disclosure regarding [***] SAFEbody ADC (including the PBD) that would implicate ADCT as in any manner having any interest or involvement with [***] SAFEbody or [***] SAFEbody ADC. In the event of a dispute of such alleged Severe Confidentiality Breach, the Party for which the dispute is finally decided against will reimburse the other Party for all internal and out-of-pocket costs and fees incurred by such other Party in connection with such dispute. Neither Party shall disclose any of its Confidential Information to the other Party that, in the event of an unintended disclosure by the receiving Party, would cause the receiving Party to commit a Severe Confidentiality Breach, unless and until first obtaining the receiving Partys express prior written consent, and any such Confidential Information disclosed by a Party to the receiving Party without such express prior written consent shall excuse the receiving Party from its compliance obligation of this Section; provided, however, that disclosure by ADAGENE to ADCT of SAFEbodies or masking peptides that meet the Criteria in accordance with Section 2.1.3 or 2.1.5 shall not require any prior written consent.
8. REPRESENTATIONS AND WARRANTIES
8.1 Representations and warranties.
8.1.1 Each Party represents and warrants to the other Party that:
a) it is validly organized and in good standing under the laws of its jurisdiction of incorporation;
b) it is permitted to enter into this Agreement; and
c) the terms of this Agreement are not inconsistent with other contractual obligations (express or implied) it has or may have; and
d) all research conducted by it under the Development Plan will comply with all applicable government laws, regulations and guidelines, including, but not limited to, those relating to good laboratory practices, good manufacturing practices if applicable, animal testing, biotechnological research and to the handling and containment of hazardous and biohazardous materials, and any other laws, regulations, practices, guidelines and the like which compliance is required in the US and EU for the purpose of (A) IND Applications or (B) a BLA application (BLA) filed with the U.S. Food and Drug Administration or any successor application thereto for approval to sell a biological product and any foreign equivalent of any such BLA application filed with the applicable regulatory authority; and
e) it will comply at all times with all applicable laws and regulations; and
f) it will comply at all times with the Bribery Act 2010 of the United Kingdom (Bribery Act), the Foreign Corrupt Practices Act 1977 of the United States of America (FCPA), and any other applicable anti-bribery and anti-corruption laws and regulations.
8.1.2 ADAGENE warrants that:
a) neither ADAGENE nor any of its Affiliates has entered, or shall enter, into any agreement with any Third Party that conflicts with the rights conveyed in this Agreement and in the License Agreement to ADCT; and
b) (i) to the knowledge of ADAGENE as of the Effective Date, neither practice of the SAFEbody Technology and other ADAGENE IP Rights contemplated under this Agreement nor the use or composition of the [***] SAFEbody, infringes or misappropriates any Third Party IP Rights and that (ii) to the knowledge of ADAGENE as of the date ADAGENE develops or supplies a [***] SAFEbody or a [***] SAFEbody to ADCT, ADAGENE will not develop a [***] SAFEbody and [***] SAFEbody in a manner that would infringe or misappropriate any Third Party IP Rights, or deliver to ADCT any [***] SAFEbody and [***] SAFEbody that would infringe or misappropriate any Third Party IP Rights, other than in each case such infringement or misappropriation was caused by the antibody provided by ADCT to ADAGENE;
c) as of the Effective Date, ADAGENE has not filed any patent application which will create a material prior art issue under Section 4.8 except as expressly disclosed in Annex 5.
8.1.3 ADCT warrants that: (a) as of the Effective Date, ADCT has no knowledge of any infringement of ADCT Intellectual Property by any Third Party; and (b) to the knowledge of ADCT as of the supplies a [***] Antibody or a [***] Antibody to ADAGENE, ADCT will not deliver any [***] Antibody or [***] Antibody that is proprietary to a Third Party to ADAGENE for ADAGENEs use to generate SAFEbodies under this Agreement, without first obtaining ADAGENEs prior written consent.
8.2 No Use of Debarred Person. During the Term, each Party agrees that it will not use (and will cause its Affiliates not to use) any employee or consultant that is debarred by any regulatory authority or, to the best of such Partys knowledge, is the subject of debarment proceedings by any regulatory authority. If either Party learns that any employee or consultant performing on its behalf (including by an Affiliate) under this Agreement has been debarred by any regulatory authority, or has become the subject of debarment proceedings by any regulatory authority, such Party will promptly notify the other Party and will prohibit such employee or consultant from performing on its behalf (including by an Affiliate) under this Agreement.
8.3 Warranty Disclaimer. EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED AND DOES NOT ASSUME ANY RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE USE, OR OTHER DISPOSITION OF IP AND MATERIALS BY A PARTY TO THE OTHER UNDER THIS AGREEMENT. WITHOUT LIMITING THE FOREGOING, NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9. PUBLICITY, PUBLICATION, USE OF NAMES
9.1 Publicity.
9.1.1 The Parties have agreed to an initial press release attached as Annex 6, which will be released by the Parties within ten (10) days after the Effective Date (the Initial Press Release). Neither Party will make any subsequent press release or other public disclosure regarding this Agreement or the transactions contemplated hereby without the other Partys express prior written consent, which shall not be unreasonably withheld or delayed; provided, that no consent will be required for any release of information that was already included in the Initial Press Release or any other approved release. For the purpose of this Section 9.1, if a party elects to make a public announcement, and at least ten (10) business days in advance of such planned press release or public announcement it shall provide a draft to the other Party for review. The reviewing Party shall have the right to require changes, in particular to request deletion of its Confidential Information and financial terms under this Agreement or the transactions contemplated hereunder, from the planned press release or announcement, and the other Party shall delete any Confidential Information and reasonably and in good faith consider and implement any other changes requested by the reviewing Party.
9.1.2 It is further agreed between the Parties that in the event ADCT elects to activate the License Agreement in accordance with Section 5.2, the Parties shall issue a joint press-release, which timing and content shall be agreed upon in advance and in writing between the Parties in accordance with this Section 9.1.
9.1.3 The Parties agree that they may issue future joint announcements concerning ADCTs achievement of any significant milestones under this Agreement or the License Agreement, provided that the content of any such announcement has been mutually agreed upon in advance and in writing by the Parties.
9.2 Publication. Neither Party shall publish or present the Materials or the Results without the prior written consent of the other Party. Prior to making any oral or written public presentation and/or submitting or presenting a manuscript, poster, abstract, publication, or other materials relating to the Materials or Results under this Agreement to a publisher, reviewer, or other outside person (Publication), the publishing Party shall provide to the other Party a copy of all such Publication in English language, and the other Party shall have thirty (30) days from receipt to review and comment. Upon the other Partys request, the publishing Party shall (i) remove any Confidential Information; and/or (ii) discuss with the other Party and consider in good faith any of the other Partys suggestions and amendments proposed with respect to the Publication, and the timing of the disclosure; and/or (iii) delay the Publication for a period of up to sixty (60) days from the date the other Party receives the proposed Publication, in order to allow the other Party to protect its interests in any IP Rights described in any such Publication.
9.3 No Right to use names. Except as expressly provided herein, no right, express or implied, is granted by this Agreement to use in any manner the others Party symbol, logo or trademark of the other Party in connection with this Agreement unless authorized in writing by the other Party.
10. TERM AND TERMINATION
10.1 Term. This Agreement shall commence on the Effective Date and shall continue until (i) expiry of the [***] Option Period in case [***] is not initiated by ADCT in accordance with Section 2.1.4; or (ii) expiry of the [***] Option Period in case [***] is initiated by ADCT in accordance with Section 2.1.4, unless terminated earlier in accordance with the terms and conditions of this Agreement (Term).
10.2 Termination by ADCT. ADCT may terminate this Agreement in its entirety or on a Target-by-Target basis at any time and for any reason upon thirty (30) days prior written notice to ADAGENE.
10.3 Termination by either Party. Either Party may terminate this Agreement in its entirety or on a Target-by-Target basis:
10.3.1 upon any other material breach (other than any confidentiality breach) by the other Party of the material terms or conditions of this Agreement, which breach cannot be, or is not cured within thirty (30) days after the breaching Party receives written notice by the non-breaching Party regarding such breach, provided that, if the other Party disputes such alleged breach, such termination shall not become effective unless and until such dispute is resolved in favor of the Party alleging such breach; or
10.3.2 upon immediate written notice upon the other Party becoming insolvent or bankrupt or making an assignment for the benefit of its creditors, upon appointment of a trustee or receiver for the other Party or all or substantially all of its property, or upon the filing of a voluntary or involuntary petition by or against the other Party under any bankruptcy or insolvency law, or any similar law.
10.4 Consequences of termination.
10.4.1 Subject to Section 12.11 and except to the extent required for the execution of the License Agreement and the [***] License, upon the expiration or termination of this Agreement,
a) any licenses granted hereunder pursuant to this Agreement shall immediately terminate; and
b) ADCT shall (i) discontinue use of (A) the ADAGENE Materials (B) ADAGENE Background IP and other IP Rights; (C) ADAGENEs Confidential Information, and (D) the Conjugated Materials and (ii) destroy or return to ADAGENE, as instructed by ADAGENE, ADAGENE Confidential Information and ADAGENE Materials, and (iii) destroy any remaining quantity of Conjugated Materials; and
c) ADAGENE shall discontinue the use of ADCTs Confidential Information, and destroy or return to ADCT, as instructed by ADCT, such Confidential Information; and
d) If not activated yet in accordance with Section 5.2, the License Agreement shall be null and void and not enter into force; and
e) If not executed yet in accordance with Section 5.4, the [***] License shall be null and void and not enter into force; and
f) In case ADCT has not activated the License Agreement in accordance with Section 5.2, Section 6 shall be null and void.
10.4.2 In the event that: (i) ADCT does not exercise the [***] Option or the [***] License Option and (ii) the JSC had authorized ADCT to file a patent application (or any resulting patent) on the [***] SAFEbody and/or the [***] SAFEbody as the case- may be, ADCT shall (a) assign to ADAGENE or its designee any such patent application or patent specifically relating to the [***] SAFEbody Panel and/or the [***] SAFEbody Panel, (b) abandon any such patent application or patent that is not described in subsection (a) and is solely owned by ADCT; and (c) attempt in good faith to seek abandonment of any such patent application or patent that is not described in subsection (a) and is jointly owned by ADCT and its Third Party licensor(s). Prior to the its exercise of the [***] Option or the [***] License Option, ADCT will not assign any patent applications or patents on the [***] SAFEbody or [***] SAFEbody to any Third Party, except to its Third Party licensor, as required by ADCTs written agreement with such Third Party licensor.
10.4.3 For clarity, any termination of this Agreement shall not termination the License Agreement with respect to the License Agreement that is already effective as of the date of the termination of this Agreement.
11. INDEMNIFICATION; LIMITATION OF LIABILITY
11.1 ADAGENE indemnity. ADAGENE will indemnify, hold harmless and defend ADCT, its Affiliates, and their respective directors, officers, employees and agents (each an ADCT Indemnitee) against any and all losses, damages, liabilities, judgments, fines, amounts paid in settlement, expenses and costs of defense (including, without limitation, reasonable attorneys fees and witness fees) (Losses) resulting from any claim, action or proceeding brought or initiated by a Third Party (Third Party Claim) against them to the extent that such Third Party Claim arises out of (a) the breach or alleged breach of any representation or warranty by ADAGENE under this Agreement; or (b) the gross negligence or willful misconduct of ADAGENE, its Affiliates or their respective Representatives; or (c) the use, handling, or storage of ADAGENE Materials by ADAGENE or by ADCT as a result of following any specific instruction received from ADAGENE; or (d) from ADAGENEs conduct and activities pursuant to the Development Plan; provided, that such indemnity shall not apply to the extent ADCT has an indemnification obligation pursuant to Section 10.2 hereof.
11.2 ADCT indemnity. ADCT will indemnify, hold harmless and defend ADAGENE, its Affiliates, and their respective directors, officers, employees and agents (each, a ADAGENE Indemnitee) against any and all Losses resulting from any Third Party Claim against them to the extent that such Third Party Claim arises out of (a) the breach of any representation or warranty by ADCT under this Agreement; or (b) the gross negligence or willful misconduct of ADCT, its Affiliates or their respective Representatives; or (c) the use, handling, or storage of ADAGENE Material or Conjugated Material by ADCT or from ADCTs conduct and activities pursuant to the Development Plan; provided, that such indemnity shall not apply to the extent ADAGENE has an indemnification obligation pursuant to Section 10.1 hereof.
11.3 Conditions to indemnification. A Party seeking indemnification under this Section 10 (the Indemnified Party) in respect of a Third Party Claim shall give prompt notice of such Third Party Claim to the Party from which recovery is sought (the Indemnifying Party) and shall permit the Indemnifying Party to assume direction and control of the defense of the Third Party Claim, provided that the Indemnifying Party shall (a) act reasonably and in good faith with respect to all matters relating to the defense or settlement of such Third Party Claim as the defense or settlement relates to the Indemnified Party, and (b) shall not settle or otherwise resolve such Third Party Claim without the Indemnified Partys prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed); provided that the Indemnifying Party may, without the Indemnified Partys prior written consent, agree or consent to any settlement or other resolution of such Third Party Claim which requires solely money damages paid by the Indemnifying Party.
11.4 Limitation of liability. EXCEPT FOR EITHER PARTYS BREACH OF SECTIONS 4 AND 7 HEREOF, NEITHER PARTY WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY DAMAGES RESULTING FROM LOSS OF PROFITS OR LOSS OF BUSINESS). A Partys monetary liability under a Third Party Claim for such Third Partys special, incidental, indirect or consequential damages, or for any exemplary or punitive damages payable to such Third Party in connection with such Third Party Claim, shall be deemed to be the direct damages of such Party for purposes of this Section 11.4.
12. MISCELLANEOUS
12.1 Governing law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to any choice of law principle that would dictate the application of the law of another jurisdiction and excluding of the United Nations Convention on Contracts for the International Sale of Goods. This Agreement has been prepared in the English language and the English language shall control its interpretation.
12.2 Arbitration. The Parties agree to use their reasonable efforts to resolve any dispute arising out of this Agreement by amicable negotiation. The Parties shall be obligated to provide each other written notice of a dispute arising out of this Agreement. If any dispute arising out of this Agreement, including validity, breach, or termination thereof, cannot be resolved within thirty (30) days after notice of such dispute, then such dispute shall be settled through binding arbitration conducted by the International Chamber of Commerce in accordance with the then prevailing Rules of Arbitration of the International Chamber of Commerce in force on the date when the notice of arbitration is submitted (for purposes of this Section, the Rules), except as modified in this Agreement, applying the substantive law specified in this Section. The number of arbitrators shall be three (3), wherein each of the Parties select one of the arbitrators and the selected arbitrators shall select the third arbitrator. All arbitrators shall have expertise in the pharmaceutical industry. The arbitration shall take place in New York city and shall be conducted in English.
12.3 Notices. Except as otherwise expressly provided in the Agreement, any notice required under this Agreement shall be in writing and shall specifically refer to this Agreement. Notices shall be sent via one of the following means and will be effective (a) on the date of delivery, if delivered in person; (b) on the date of receipt, if sent by email (with delivery confirmed); or (c) on the date of receipt, if sent by private express courier or by first class certified mail, return receipt requested. Any notice sent via email shall be followed by a copy of such notice by private express courier or by first class mail. Notices shall be sent to the other Party at the addresses set forth below. Either Party may change its addresses for purposes of this Article 12.3 by sending written notice to the other Party.
If to ADCT:
ADC Therapeutics SA
Route de la Corniche 3b
1066 Epalinges
Switzerland
Attn: General Counsel, Dominique Graz
Email: [***]
If to ADAGENE:
ADAGENE Inc.
Attn.:Kristine She
VP of Operations
Adagene (Suzhou) Limited
3F, Building C14,218 Xinghu St.,
Suzhou Industrial Park, China 215123
Email: [***]
12.4 Independent contractors. The Parties hereto are independent contractors and nothing contained in this Agreement shall be deemed or construed to create a partnership, joint venture, employment, franchise, agency or fiduciary relationship between the Parties.
12.5 Entire agreement. This Agreement and its Annexes constitute the entire agreement between the Parties relating to the subject matter of this Agreement and supersedes all prior oral and written communications, negotiations, representations, agreements, between the Parties with respect to the subject matter of this Agreement.
12.6 Amendment. No amendment, change or modification to this Agreement shall be effective unless in writing and executed by an authorized Representative of each Party.
12.7 Waiver. No course of dealing or failure of either Party to strictly enforce any term, right or condition of this Agreement shall be construed as a general waiver or relinquishment of such term, right or condition. Any waiver of any provision of this Agreement must be consented to by the non-waiving Party and shall not constitute a waiver of any other provision of this Agreement by implication or estoppel.
12.8 Assignment. Neither Party may assign this Agreement without the prior written consent of the non-assigning Party. Notwithstanding the foregoing, either Party may assign this Agreement to (i) an Affiliate or (ii) any purchaser of all or substantially all of the assets of such Party or to which this Agreement relates, or of all of its capital stock, or to any successor corporation or entity resulting from any merger or consolidation of such Party with or into such corporation or entity. Subject to the foregoing, this Agreement will benefit and bind the Parties successors and assigns.
12.9 No agency. The Parties hereto understand and agree that this Agreement is limited to the activities, rights and obligations as expressly set forth herein. Nothing in this Agreement shall be construed to establish any agency, employment, partnership, joint venture, franchise or similar or special relationship between the Parties. Neither Party shall have the right or authority to assume or create any obligations or to make any representations, warranties or commitments on behalf of the other Party, whether express or implied, or to bind the other Party in any respect whatsoever.
12.10 Headings. The captions and headings to this Agreement are for convenience only and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement.
12.11 Severability. The Parties do not intend to violate any public policy or statutory or common law. However, if any sentence, paragraph, clause or combination of this Agreement is in violation of any law or is found to be otherwise unenforceable, such sentence, paragraph, clause or combination of the same shall be deleted and the remainder of this Agreement shall remain binding, provided that such deletion does not alter the basic purpose and structure of this Agreement.
12.12 Survival. In addition to any provisions that specify survival or non-survival in the event of expiration or termination of this Agreement, the provisions of Sections 2.2, 4, 6, 7, 8, 9, 10, 11 and this Section 12 shall survive any termination of this Agreement.
12.13 Affiliates. Each Party shall have the right to exercise its rights or perform its obligations through one (1) or more of its Affiliates, provided that such Party shall remain primarily responsible for the action or omission of such Affiliates, subject to Section 12.14.
12.14 Guarantee. ADAGENE hereby agrees to be primarily responsible for the actions and/or omissions of ADAGENE and ADAGENE Affiliates under this Agreement and shall guarantee ADAGENEs and ADAGENE Affiliates performance under this Agreement. In the event ADAGENE or any of the ADAGENE Affiliates assigns directly or indirectly any ADAGENE Patents and/or the SAFEbody Technology to another person or entity, such assignment shall only be valid towards ADCT if such person or entity has validly agreed in writing to assume all obligations of its assignor under this Agreement, including, in particular, such primary responsibility and guarantee hereunder. Any assignment not in compliance with this Section 12.14 shall be null, void and of no effect.
12.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. If any signature is delivered by e-mail delivery of a pdf format, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such pdf signature page were an original thereof.
[Signature page follows the rest of this page intentionally left blank.]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers hereunto duly authorized, on the date set forth above.
ADC Therapeutics SA
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/s/ C J Martin |
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Name: |
C J Martin |
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Title: |
CEO |
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ADAGENE Inc. |
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By: |
/s/ Peter Luo |
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Name: |
Peter Luo |
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Title: |
4/12/2019 |
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*** CERTAIN MATERIAL (INDICATED BY THREE ASTERISKS IN BRACKETS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH (1) NOT MATERIAL AND (2) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
CONFIDENTIAL
LICENSE AGREEMENT
AMONG
ADC THERAPEUTICS SA
AND
ADAGENE Inc.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (License Agreement) is made and entered into as of April 11, 2019 (Execution Date), by and between ADC THERAPEUTICS SA, a company having an address at Route de la Corniche 3B, 1066 Epalinges, Switzerland (ADCT), ADAGENE Inc. a Cayman company having an address at Grand Pavilion, Hibiscus Way, 802 West Bay Road, P.O. Box 31119, KY1-1205, Cayman Islands (the Adagene), ADAGENE also acting on behalf and for the account of its affiliated companies, including in the USA and in PRC, as listed in Annex 6 (individually ADAGENE Affiliate and collectively ADAGENE Affiliates). ADCT and ADAGENE are sometimes referred to herein individually as a Party and collectively as the Parties.
RECITALS
WHEREAS, ADCT and ADAGENE have executed a certain Material Transfer and Collaboration Agreement on this even date under which the Parties agreed to execute this License Agreement in order to allow ADCT to develop and commercialize certain ADCs (as defined below) in accordance with the terms and conditions of this License Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this License Agreement, whether used in the singular or plural, shall have the meanings set forth below, unless otherwise specifically indicated herein.
1.1 ADAGENE Background IP means Background IP owned or controlled, in whole or in part, by ADAGENE or any of its Affiliates on the Effective Date of this License Agreement, including in particular the SAFEbody Technology, the ADAGENE library of antibodies and the ADAGENE Platform Improvements (as defined in the MTCA) arising from the MTCA.
1.2 ADAGENE Key IP shall have the meaning given in Section 4.2.1.
1.3 ADAGENE Know-How means any and all Know-How owned or controlled by ADAGENE or any of its Affiliates at any time relating to the SAFEbody Technology and any improvements thereof.
1.4 ADAGENE Patents means any Patents and Patents Applications owned or controlled by ADAGENE or any of its Affiliates, necessary or useful to practice the SAFEbody Technology under this License Agreement, including but not limited to the Patents and Patent applications listed in Annex 1, which Annex shall be updated by ADAGENE on the Effective Date of this License Agreement.
1.5 ADAGENE New IP means any improvements to the ADAGENE Background IP that are developed, conceived or generated under this License Agreement and that specifically relate to ADAGENEs proprietary SAFEbody Technology.
1.6 ADC means an antibody drug conjugate in any form, as selected by ADCT in its sole discretion, containing (i) any cytotoxic pay load, such as a [***] or any other toxic molecule, linkers and/or other tangible material, and respectively (ii) either the [***] SAFEbody, in case ADCT exercised the [***] under the MTCA or the [***] SAFEbody in case ADCT exercised the [***] License Option under the MTCA, in each case as such SAFEbody may be modified by ADCT as needed to facilitate its conjugation to the material(s) identified in subsection (i).
1.7 ADCT Background IP means Background IP owned or controlled, in whole or in part, by ADCT on or after the Effective Date of this License Agreement, including (a) [***] or any other toxic molecules, linkers and/or other tangible materials, ADCs, (b) the [***] the [***] the [***] and the [***] if and when this License Agreement becomes effective with respect to [***] (c) the [***] Antiboby, the [***] SAFEbody, the [***] SAFEbody Panel and the [***] SAFEbody ADC if and when this License Agreement becomes effective with respect to [***] Target, (d) the ADCT Platform Improvements, including those IP Rights arising from the MTCA and owned by ADCT, and any IP related thereto and any other IP Rights conceived, reduced to practice, created or developed under the MTCA and owned by ADCT as per the terms of such MTCA.
1.8 ADCT Intellectual Property means (i) any ADCT Background IP and (ii) any ADCT New IP arising from this License Agreement; and (iii) any other IP Rights owned or controlled by ADCT at any time.
1.9 ADCT New IP means IP that is developed, conceived, or generated in exercise of ADCTs rights under this License Agreement, including, without limitation, any improvements to the ADCT Background IP, but excluding the ADAGENE New IP.
1.10 Affiliate means any person that, directly or indirectly (through one or more intermediaries) controls, is controlled by, or is under common control with a Party. For purposes of this Article 1.2, control means (i) the direct or indirect ownership of greater than fifty percent (50%) of the voting stock or other voting interests or interest in the profits of the Party, or (ii) the ability to otherwise control or direct the decisions of board of directors or equivalent governing body thereof.
1.11 Background IP means any IP that is owned or controlled (including through a license, sublicense or other right to exploit) by a Party or its Affiliates and that (a) exists as of and/or was conceived prior to the Effective Date of this License Agreement, including IP Rights developed, generated or conceived under the MTCA and which relates to the subject matter of this License Agreement related to the Target for which this License Agreement has become effective; or (b) is generated, conceived, obtained or otherwise acquired by a Party after the Execution Date independently of this License Agreement without the use of the other Partys Confidential Information or IP.
1.12 BLA means biologics license application with the United States Food and Drug Administration as set forth in 21 CFR 600, et seq. or any successor application thereto or its foreign equivalent with a regulatory authority in any other country.
1.13 BLA Approval means the approval, registration, license, permit, or authorization issued by the appropriate competent authorities necessary or desirable to market and commercialize a pharmaceutical or biological product in a country or jurisdiction.
1.14 Chinese Territory means Peoples Republic of China, Macao, Hong-Kong and Taiwan.
1.15 Chinese Territory License shall have the meaning given in Section 2.3.
1.16 Commercially Reasonable Efforts means, with respect to the performance of the Development Plan by a Party, the carrying out of such activities using efforts and resources that a biopharmaceutical company of similar size would typically devote to compounds or products of similar market potential at a similar stage in development or product life, taking into account all scientific, commercial and other factors that the Party would take into account, including issues of safety and efficacy, expected and actual cost and time to develop, expected and actual profitability (including payments required hereunder), expected and actual competitiveness of alternative Third Party products (including generic products) in the marketplace, the nature and extent of expected and actual market exclusivity (including Patent coverage and regulatory exclusivity), the expected likelihood of regulatory approval, the expected and actual labeling, the expected and actual reimbursability and pricing and the expected and actual amounts of marketing and promotional expenditures required.
1.17 Confidential Information means proprietary Know-How (of whatever kind and in whatever form or medium, including copies thereof), tangible materials or other deliverables (a) disclosed by or on behalf of a Party in connection with this License Agreement, whether prior to or during the Term and whether disclosed orally, electronically, by observation or in writing, or (b) created by, or on behalf of, either Party and provided to the other Party, or created jointly by the Parties, in the course of this License Agreement. For the avoidance of doubt, Confidential Information includes (i) Know-How regarding such Partys research, development plans, clinical trial designs, preclinical and clinical data, technology, products, business information or objectives and other information of the type that is customarily considered to be confidential information by entities engaged in activities that are substantially similar to the activities being engaged in by the Parties pursuant to this License Agreement and (ii) any tangible materials or other deliverables provided by one Party to the other Party. For clarity, proprietary information corresponding to IP owned by a Party shall be deemed such Partys Confidential Information, such Party shall be deemed the Disclosing Party and the other Party shall be deemed the Receiving Party, regardless of which Party actually disclosed or generated such information.
1.18 Control or Controlled By means the rightful possession by a Party (whether through ownership or license, other than a license grant under this License Agreement), as of the Execution Date or during the Term, and the ability to grant a license, sublicense or other right to exploit, as provided herein, without violating the terms of any License Agreement with any Third Party.
1.19 Commercial Sale means the sale of a Licensed Product in an arms-length transaction with a Third Party.
1.20 Effective Date means the date on which ADCT notifies ADAGENE under Section 5.2 of the Material Transfer and Collaboration Agreement of its decision to exercise either the [***] Option or the [***] Option, whichever is earlier, provided that, the terms and conditions of this License Agreement with respect to and/or as applicable to the Target (and products, rights and obligations relating thereto) for which ADCT has not yet exercised its option under Section 5.2 of the Material Transfer and Collaboration Agreement as of the Effective Date shall only become effective if and when ADCT also exercises its option under Section 5.2 with respect to such Target
1.21 Egregious Breach shall have the meaning given in Section 3.7.
1.22 Field means ADCs for human therapeutics, prophylactics and related diagnostics.
1.23 First Indication means a first Indication of a Licensed Product.
1.24 First Licensed Product means an ADC which comprises a [***] SAFEbody.
1.25 Indication means each separate and distinct disease, disorder, illness, health condition, or interruption, cessation or disruption of a bodily function, system, tissue type or organ, for which a BLA Approval or BLA Approval variation is required.
1.26 Intellectual Property or IP means all proprietary algorithms, apparatus, assay components, biological materials, cell lines, chemical compositions or structures, clinical trial designs, plans for obtaining regulatory approval, concepts, Confidential Information, results, designs, diagrams, documentation, drawings, flow charts, formulae, ideas and inventions (whether or not patentable or reduced in practice), Patents, Know-How, trade secrets, marks (including brand names, trademarks, product names, logos, and slogans), methods, models, procedures, processes, protocols, specifications, techniques, tools, user interfaces, works of authorship, copyright, or other forms of IP.
1.27 Intellectual Property Rights or IP Rights means all past, present and future rights, which may exist or be created under the laws of any jurisdiction in the world, in Intellectual Property of every kind and nature.
1.28 IND Application means investigational new drug application filed with the U.S. Food and Drug Administration or any successor application thereto and any foreign equivalent of any such application filed with the applicable regulatory authority.
1.29 Know-How means technical and other information which is not in the public domain including, ideas, concepts, inventions (whether or not patentable), discoveries, data, formulae, cell-line libraries, antibody libraries, algorithms, improvements, practices, trade secrets, techniques, methods, specifications, knowledge, clinical data, procedures for experiments and tests, results of experimentation and testing, results of research and development (including laboratory records and data analysis, pharmacological, toxicological, pharmacokinetic, pre-clinical and clinical study results, related reports, structure-activity relationship data and statistical analysis) regarding, without limitation, discovery, research, development, manufacturing, marketing, pricing, distribution, costs and sales relating to the SAFEbody Technology. Information in a compilation or a compilation of information may be Know-How notwithstanding that some or all of its individual elements are in the public domain. Know-How excludes any Patents and constitutes Confidential Information.
1.30 Licensed Intellectual Property means any and all IP Rights owned or controlled by ADAGENE or any of its Affiliates at any time before, on or after the Execution Date, relating to the SAFEbody Technology, including the ADAGENE Background IP, the ADAGENE Patents if any, the ADAGENE Know-How, the ADAGENE New IP, and any other ADAGENE IP Rights relating thereto, and any improvements thereof.
1.31 Licensed Patent Rights shall mean (a) the Patents and Patent applications in any country of the world listed in the Schedule of Licensed Patents (Annex 1) as updated; and (b) all divisions, continuations, continuations-in-part, that claim priority to, or common priority with, the Patent applications described in clause (a) above or the Patent applications that resulted in the Patents described in clause (a) above, and (c) all Patents that have issued or in the future issue from any of the foregoing Patent applications and that claim priority to, or common priority with, the Patent applications, including utility, model and design Patents and certificates of invention, together with any reissues, renewals, extensions or additions thereto.
1.32 Licensed Product(s) means any ADCTs proprietary ADC that utilizes the SAFEbody Technology.
1.33 Material Transfer and Collaboration Agreement or MTCA means the Material Transfer and Collaboration Agreement executed between the Parties on this even Execution Date.
1.34 [***] Antiboby means [***]
1.35 [***] SAFEBOBY means [***]
1.36 [***] SAFEbody Panel [***]
1.37 [***] Target means [***]
1.38 [***] [***]
1.39 Net Sales means the gross aggregate amounts actually received by ADCT (or its sublicensees hereunder) in a Commercial Sale, less [***] in each case as determined by generally accepted accounting principles.
1.40 Patent(s) means any patents and/or patent applications (including any patents issuing therefrom or claiming priority thereto) anywhere in the world, together with any extensions (including patent term extensions and supplementary protection certificates) and renewals thereof, reissues, reexaminations, substitutions, confirmation patents, registration patents, invention certificates, patents of addition, renewals, divisional, continuations, and continuations-in-part of any of the foregoing.
1.41 Phase I Clinical Trial means a clinical trial that provides for the first introduction of a Licensed Product into humans to determine safety, metabolism and pharmacokinetic properties and clinical pharmacology of the Licensed Product as further defined in 21 C.F.R. 312.21(a)(1) and (a)(2), as amended from time to time, or any equivalent regulations of a country other than the United-States of America.
1.41.1 Phase la Clinical Trial means the initial introduction of the Licensed Product into patients to determine metabolism and pharmacologic action as further defined in 21 C.F.R. 312.2 (a) (1) and (a)(2) and which denotes commencement of a dose escalation stage of a Phase I clinical trial.
1.41.2 Phase lb Clinical Trial means the initial introduction of the Licensed Product into diseased human subjects to determine metabolism and pharmacologic action as further defined in 21 C.F.R. 312.21(a)(1) and (a) (2) and which denotes commencement of a dose expansion stage of a Phase I clinical trial based upon a dose that has been identified by the principal investigator by reference to data previously generated during the course of the dose escalation stage of a Phase la Clinical Trial.
1.42 Phase II Clinical Trial means a clinical trial of a Licensed Product on subjects (which may include pharmacokinetic studies) the principal purposes of which are to make a preliminary determination that such product is safe for its intended use and to obtain sufficient information about such products efficacy to permit the design of further clinical trials as defined in the United States in 21 C.F.R. §312.21(b), as amended from time to time, or in any equivalent regulations of a country other than the United States.
1.43 Phase III Clinical Trial means a human clinical trial, the principal purpose of which is designed to demonstrate clinically and statistically the efficacy and safety of a Licensed Product for one or more indications in order to support the BLA Approval of such Licensed Product for such indication as further described in 21 C.F.R. 312.21(c), as amended from time to time, or a similar clinical study in a country other than the United States.
1.44 [***] License Option has the meaning given in the Material Transfer and Collaboration Agreement.
1.45 [***] SAFEbody means the antibody sequence against the [***] Target provided by ADCT for the purpose of the [***], and comprising a masking peptide identified using the SAFEbody Technology under [***] under the Material Transfer and Collaboration Agreement.
1.46 [***] SAFEbody Panel has the meaning given in the Material Transfer and Collaboration Agreement.
1.47 [***] Target has the meaning given in the Material Transfer and Collaboration Agreement.
1.48 Representatives means the directors, officers, employees, agents, advisors, contractors of a Party or of its Affiliates.
1.49 Royalty Term means, with respect to each Licensed Product on a Licensed Product-by-Licensed Product and country by country basis, the shorter of either (i) the tenth (10th) anniversary date of the first Commercial Sales of such Licensed Product; or (ii) the expiration date of the last to expire Valid Claim in the Licensed Patent Rights in a country which would be infringed but for the license granted by this License Agreement by the use, offer for sale, sale or import of such Licensed Product in such country.
1.50 SAFEbody Technology means ADAGENEs proprietary antibody engineering technology performed by ADAGENE which enables an antibody to bind its target specifically only after conditional activation of the antibody, including but not limited to cleavage of a protecting group in the vicinity of a cancer cell, including those covered by the ADAGENE Patents and other ADAGENE Know-How described in Annex 1. Such protecting group is referred to herein as a masking peptide (such masking peptide may also include a portion which is cleaved).
1.51 Second Indication means a second Indication of a Licensed Product that is distinct from a First Indication.
1.52 Second Licensed Product means an ADC which comprises a [***] SAFEbody.
1.53 Successful Completion of GLP Toxicology Studies means a final report stating, in ADCTs sole discretion, that the available results from GLP toxicology studies confirm the adequate safety profile of the Licensed Product to support an IND filing.
1.54 Target means an antigen or protein described by a unique UniprotKB/Swiss Prot accession number (and all fragments, mutations, splice variants and isoforms thereof having the biological activity of such protein) against which ADCT will develop a [***] and a [***] SAFEbody.
1.55 Territory means the world.
1.56 Third Indication means a third clinical treatment indication of a Licensed Product that is distinct from a First Indication and from the Second Indication.
1.57 Third Party shall mean with respect to the Parties, an entity or person (including any tax authority or governmental agency) that is not an Affiliate of such Party.
1.58 Valid Claim means (a) a claim of an issued and unexpired Patent: (i) owned or licensed by ADAGENE or (ii) or owned or licensed by ADCT claiming any ADCT New IP, in each case that has not been disclaimed, permanently revoked, held unenforceable, unpatentable or invalid by decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and that has not been admitted to be invalid or unenforceable through re-examination, reissue, disclaimer or otherwise, or lost in an interference proceeding brought by a third party (without involvement by ADCT or its Affiliates); and (b) a novel claim of any pending application included in Patent rights included in the ADAGENEs or ADCTs Intellectual Property that would be included in subsection (a) above, properly claiming priority from a document which is less than five (5) years prior, to the extent the subject matter described in such claim has not been held invalid or abandoned without being re-filed in another application or finally rejected by an administrative agency action from which no appeal can be taken, which are included in or necessary for the ADC. For the avoidance of doubt, Valid Claim shall exclude any claim (a) of an issued and unexpired Patent right included in the ADC owned at least in part by ADCT prior to the Effective Date; or (b) of any pending application owned by ADCT at least in part prior to the Effective Date; or (c) any other Intellectual Property owned at least in part by ADCT that claims Intellectual Property other than ADCT New IP.
ARTICLE 2
LICENSE; DEVELOPMENT
2.1 License Grants.
2.1.1 Subject to the terms and conditions of this License Agreement, ADAGENE hereby grants to ADCT from the exercise of the [***] under the Licensed Intellectual Property, an exclusive, worldwide, perpetual, irrevocable (subject only to Section 10.2) license, in the Field, with the right to sublicense, to research, develop, manufacture, make, use, sell, offer for sale, market, commercialize, distribute and import, and have researched, developed, manufactured, made, used, sold, offered for sale, marketed, commercialized, distributed, or imported the First Licensed Product.
2.1.2 Subject to the terms and conditions of this License Agreement, ADAGENE hereby grants to ADCT from the exercise of the [***] License Option, under the Licensed Intellectual Property, an exclusive, worldwide, perpetual, irrevocable (subject only to Section 10.2) license, in the Field, with the right to sublicense, to research, develop, manufacture, make, use, sell, offer for sale, market, commercialize, distribute and import, and have researched, developed, manufactured, made, used, sold, offered for sale, marketed, commercialized, distributed, or imported the Second Licensed Product.
2.2 Sublicenses. ADCT may sublicense the rights granted in Section 2.1 at its sole discretion pursuant to a written agreement that is substantially consistent with the terms and conditions of this License Agreement, and which terminates (except for confidentiality and other provisions that are intended to survive) automatically upon termination of the corresponding license hereunder. No later than thirty (30) days following execution of a sublicense to a Third Party in accordance with this Section, ADCT shall so notify ADAGENE and shall disclose the name of the sublicensee and provide ADAGENE with a summary of such sublicense (without the obligation to disclose any financial terms). In addition, ADCT shall be responsible for the performance of any of its sublicensees (including in respect of any breaches of this License Agreement caused by any such Sublicensee) that are exercising rights under a sublicense of the rights granted by ADAGENE to ADCT under this License Agreement, and the grant of any such sublicense shall not relieve ADCT of its obligations under this License Agreement, except to the extent they are satisfactorily performed by any such Sublicensee(s).
2.3 Chinese Territory License for the First Licensed Product and the Second License Product. The Parties mutually agree that should ADCT achieve Successful Completion of the GLP Toxicology Studies for the First Licensed Product and/or the Second Licensed product, except if the Second Licensed Product binds to the [***] Target, ADCT hereby grants ADAGENE for a period of [***] days starting from the applicable Successful Completion of the [***] Studies, the right to obtain an exclusive option to negotiate a license to develop, use, sell, offer for sale, market, commercialize, distribute and import, and have developed, used, sold, offered for sale, marketed, commercialized, distributed, or imported, the First Licensed Product or Second Licensed Product (except if the Second License Product binds to the [***] Target), as applicable, in the Field for sale in the Chinese Territory, in accordance with the terms and conditions contained in Annex 5 (Chinese Territory License Terms). For the sake of clarity, ADAGENE has no option to negotiate a license for the Second License Product in the Chinese Territory if such Second License Product binds to the [***] Target.
2.4 Commercially Reasonable Efforts. ADCT shall use Commercially Reasonable Efforts to develop and commercialize a First Licensed Product in the United States of America, Japan, Germany, France, Italy, UK and Spain and, if ADCT exercised the [***] License Option, to develop and commercialize a Second Licensed Product in United States of America, Japan, Germany, France, Italy, UK and Spain. ADCTs development plans for each Licensed Product will include both Phase la and Phase lb Clinical Trials.
2.5 Development Reports. From the Effective Date of this License Agreement, on January 31 of each calendar year, ADCT shall provide to ADAGENE a summary report regarding the status of development efforts for Licensed Products, activities performed with any Licensed Product(s) during the previous calendar year, and planned activities for the ongoing calendar year. Such report shall contain sufficient detail to enable ADAGENE to assess ADCTs compliance with its development obligations in Section 2.4. Such reports shall be Confidential Information of ADCT pursuant to Article 12.
2.6 Exclusivity and non-compete obligations.
2.6.1 Effective from the Effective Date and until expiry of five (5) years from first Commercial Sale of the First Licensed Product, ADAGENE shall not (i) develop for itself or for or with any Third Party a (A) [***] SAFEbody, (B) any other SAFEbody antibody, or (C) antibody drug conjugate, in each case of (A) through (C) that binds to the [***] Target, regardless of whether (a) it uses the SAFEbody Technology or not; or (b) it is selected from the ADAGENE proprietary antibody library or not; and (ii) take any actions which would result in infringing any of ADCTs IP Rights in the First Licensed Product, provided that, in the event ADCT is developing an antibody drug conjugate that binds to the [***] Target that is not the First Licensed Product (the Competing [***] Product), and makes the corporate decision to name such Competing [***] Product as the lead product in the [***] program and to prioritize the development of such Competing [***] Product over the development of the First Licensed Product, then ADAGENEs exclusivity obligation with respect to (C) shall expire, and ADCT will provide written notice to ADAGENE if ADCT make such corporate decision.
2.6.2 Effective from the Effective Date and until expiry of a five (5) years from first Commercial Sale of the Second Licensed Product, ADAGENE shall not (i) develop for itself or for or with any Third Party a (A) [***] SAFEbody (B) any other SAFEbody antibody or (C) antibody drug conjugate, in each case of (A) through (C) that binds to the [***] Target, regardless of whether (a) it uses the SAFEbody Technology or not; or (b) it is selected from the ADAGENE proprietary antibody library or not; and (ii) take any actions which would result in infringing any of ADCTs IP Rights in the Second Licensed Product, provided that, in the event ADCT is developing an antibody drug conjugate that binds to the [***]Target that is not the Second Licensed Product (the Competing [***] Product), and makes the formal corporate decision to name such Competing [***] Product as the lead product in the [***] program and to prioritize the development of such Competing [***] Product over the development of the Second Licensed Product, then ADAGENEs exclusivity obligation with respect to (C) shall expire.]
2.6.3 ADAGENE obligations under the above Sections 2.6.1 and 2.6.2 shall survive any change of control of ADAGENE, provided that the exclusivity obligations as described in Section 2.6.1(C) and Section 2.6.2(C) shall not apply to any program of the acquirer of ADAGENE. For the sake of clarity, neither ADAGENE nor such acquirer shall have the right incorporate the SAFEbody Technology in such program at any time before or after the closing of such change of control transaction.
ARTICLE 3
FINANCIAL TERMS
3.1 Milestones and Royalties. In consideration of the rights granted under Article 2 for the First Licensed Product, ADCT shall make the milestones and royalties payments detailed in Annex 2. In consideration of the rights granted under Article 2 for the Second Licensed Product, ADCT shall make the milestones and royalties Payments detailed in Annex 3, or in Annex 4 if the Second Licensed Product binds to the [***] Target.
3.2 Milestones payments. For the purpose of milestone payments, ADCT shall notify ADAGENE of the occurrence of any relevant milestone and shall pay ADAGENE within thirty (30) days of the milestone occurrence.
3.3 Royalty Reports and Payments. For the purpose of royalties payments, commencing with the first Commercial Sale of a Licensed Product by ADCT or its authorized sublicensee under this License Agreement, ADCT shall make written reports to ADAGENE within sixty (60) days after the end of each calendar quarter, stating in each such report the Net Sales in US Dollars of each Licensed Product sold, on a country by country basis, during the preceding calendar quarter by ADCT or its sublicensees and the calculation of royalty payments due to ADAGENE on such Net Sales for such year applying the relevant royalty rate as set forth in Annexes 2 and 3. Within ten (10) business days of delivery of the report required in this Section, ADCT shall pay to ADAGENE the royalties, if any, due for the period of such report. If no royalties are due, ADCT shall so report.
3.4 Payments. Any undisputed payments due pursuant to this License Agreement are exclusive of any withholding or other taxes and shall be made to ADAGENE in US dollars, within thirty (30) days of receipt of an invoice (unless otherwise stated herein), by wire transfer to ADAGENEs following bank account:
Account Name: |
[***] |
Bank Name: |
[***] |
Bank Address: |
[***] |
[***] |
|
Account Number: |
[***] |
SWIFT Number: |
[***] |
or as stated on the invoice, as may be changed from time to time by written notice to ADCT.
3.5 Royalty Reduction for Third Party Licenses.
3.5.1 ADCT shall be entitled to offset against any milestones and royalties owed on a country by country basis and product by product basis by ADCT to ADAGENE pursuant to this Section 3, an amount equal to [***] percent [***]%) of any and all payments actually paid by ADCT or any of its Affiliates to any Third Party as a consideration for a license under the Third Party Patents and other IP Rights and which license is necessary in order to research, develop make, use, or sell a Licensed Product, in the Field to the extent such license is required to obtain or maintain freedom to operate in order to exploit (i) the Licensed IP in accordance with this License Agreement or (ii) the [***] SAFEbody or the [***] SAFEbody developed by ADAGENE for ADCT under the MTCA, provided however that in no case shall the royalties due to ADAGENE be reduced under this Section below [***] percent ([***]%). For the avoidance of doubt, any license desired or needed by ADCT that relates to antibodies, other than the [***] SAFEbody and [***] SAFEbody, or payloads or site conjugation technology, manufacturing or formulation technology or any other components of the Licensed Products that is not specifically required for the exploitation of the Licensed IP as such, is not subject to royalty reduction under this Section 3.5.
3.6 Withholding Taxes. All milestone payments and royalties hereunder are excluding value added taxes. If ADCT is required by applicable laws to pay, withhold or deduct any taxes, levies or other duties on account of monies payable to ADAGENE under this License Agreement, then ADCT shall deduct or withhold such taxes, levies or other duties from amounts otherwise payable to ADAGENE and shall promptly pay such taxes, levies or other duties to the relevant tax authority. Any such taxes, levies or other duties so paid or required to be deducted or withheld shall be an expense of and born by ADAGENE. ADCT shall secure and send to ADAGENE within [***] days proof of any such taxes, levies or other duties paid or required to be deducted or withheld by ADCT for the benefit of ADAGENE. ADAGENE shall provide ADCT with any information necessary to determine such taxes, levies or other duties, and the Parties shall reasonably cooperate with each other to ensure that the amounts required to be paid, deducted or withheld by ADCT are reduced in an amount to the fullest extent permitted by applicable law. For the avoidance of doubt, there will be no gross-up in the event ADCT is required to deduct or withhold taxes of any type required by law upon making a payment to ADAGENE.
3.7 Payment Adjustment for Egregious Breach. In the event of a good faith and documented belief there has been an Egregious Breach (as defined below) by either Party, the other Party shall notify the first Party of the alleged or evidenced Egregious Breach and (i) if ADCT alleges that ADAGENE has committed such Egregious Breach, ADCT shall be entitled to reduce its obligation to make any outstanding future payments due to ADAGENE under this License Agreement by [***] percent ([***]%); and (ii) if ADAGENE alleges that ADCT has committed such Egregious Breach, ADAGENE shall be entitled to collect [***] percent ([***]%) of the payments it would otherwise receive from ADCT under this License Agreement, in each case subject to the following (each, an Automatic Breach Remedy). Should the alleged breaching Party dispute the existence of an Egregious Breach, it shall show all necessary evidence to support its position. If the evidence shown is deemed insufficient by the Party alleging such breach, the issue may be escalated by the Party alleging such breach to the CEOs of both Parties, who shall strive to find an amicable resolution of the matter within ten (10) business days from the day the issue was escalated to them. If no amicable resolution can be found, the alleged breaching Party may use the arbitration process under Section 12.2 for determination of whether such Egregious Breach occurred. If the arbitration decision confirms an Egregious Breach by a Party under this License Agreement, the Automatic Breach Remedy shall continue for the term of this License Agreement and may seek additional damages from the alleged breaching Party in accordance with this License Agreement. If the arbitration decision confirms that the alleged breaching Party has not committed an Egregious Breach, then: (a) if ADCT is the Party alleging such breach, ADCT shall be responsible for all past and future payments due under this License Agreement and shall be liable for paying to ADAGENE within seven (7) days of the arbitration decision, all under-payments since the breach notice to ADAGENE with an annual interest rate of the Prime Rate (as quoted in the Wall Street Journal) plus [***] percent ([***]%), to be calculated from the day those payments became due until effective payment date; or (b) if ADAGENE is the Party alleging such breach, ADAGENE shall refund to ADCT within seven (7) days of the arbitration decision, all over-payments unduly collected from ADCT since the confidentiality breach notice to ADCT with an annual interest rate of the Prime Rate (as quoted in the Wall Street Journal) plus [***] percent [***]%), to be calculated from the day those payments became due until effective payment date. Egregious Breach shall mean any open, notorious, malicious material breach of a material obligation under this License Agreement (other than a Severe Confidentiality Breach, which is addressed in Section 5.7.2) that (a) has been repeated, persistent and ongoing; (b) materially adversely affect the other Partys rights under this License Agreement; and (c) for which, despite written notification from the breach alleging Party, the alleged breach Party has not cured such breach or, with respect to breaches that are not capable of being cured, implemented a procedure that is aimed to cure such breach or minimize the likelihood of the occurrence of such type of breach in the future. In the event of a dispute of such alleged Egregious Breach, the Party for which the dispute is finally decided against will reimburse the other Party for all out-of-pocket costs and fees incurred by such other Party in connection with such dispute.
ARTICLE 4
INTELLECTUAL PROPERTY
4.1 Background IP. ADCT shall be and remain the sole owner or controller of the ADCT Background IP and ADAGENE shall be and remain the sole owner or controller of the ADAGENE Background IP. From the Effective Date of this License Agreement for a particular Target, ADCT shall be free to file any Patents on the ADCT New IP as defined in the [***] including in particular any Patents relating to the (a) [***] SAFEbody Panel, and/or [***] SAFEbody ADC after the applicable Effective Date, and (b) [***] SAFEbody Panel and/or [***] SAFEbody ADC after the applicable Effective Date.
4.2 ADAGENE Patent prosecution and Maintenance of Licensed Patent Rights.
4.2.1 Subject to this Section 4.2, ADAGENE shall, at its sole cost, have the sole right to prosecute and maintain worldwide the ADAGENE Patents and Patent applications, ADAGENE shall not abandon any of the Adagene Key IP without notifying ADCT at least ninety (90) days in advance and ADCT may use its rights under Section 4.2.2 below. ADAGENE Key IP means all ADAGENE Patents that (a) claim composition(s) and/or method(s) used by ADAGENE to generate the [***] SAFEbody(ies) and/or [***] SAFEbody(ies) under the Material Transfer and Collaboration Agreement, (b) would reasonably be expected to provide exclusivity for ADCTs exploitation of [***] SAFEbody(ies) and/or [***] SAFEbody(ies); and/or (c) would reasonably be expected to affect the ADCT New IP.
4.2.2 ADAGENE shall keep ADCT informed of the status of any prosecution of the ADAGENE Patents. In the event ADAGENE fails to take any action reasonably necessary for the filing, prosecution, and maintenance of the Adagene Key IP in any Key IP Country (as defined below), or if it informs ADCT that it does not wish to apply for or continue to prosecute patent protection for any of the Adagene Key IP in accordance with Section 4.2.1, ADAGENE shall consult with ADCT (and any other licensees under such Adagene Key IP), and appoint an independent reputable patent attorney firm to assume, at the cost and expense of all licensees of ADAGENE that wish to further prosecute such Adagene Key IP (but only as to official filing and renewal fees and not. for the avoidance of doubt, the costs of any actions or proceedings), to take over, in the name of the licensees that wish to continue such further prosecution and are willing to proportionally bear the costs thereof, the filing, prosecution, and maintenance of such Adagene Key IP. In the event that only ADCT (and not any other licensee of ADAGENE under the Licensed Patent Rights) wishes to continue the prosecution of such Adagene Key IP, ADTC shall have the right (but not the obligation) at its sole costs and its own name to assume the further prosecution of such Adagene Key IP, in which case ADCT shall be relieved from its milestones and royalty payment obligations under this License Agreement for that relevant country with respect to such abandoned Patent, which shall thus be excluded from the royalty calculation basis. Key IP Country means [***]
4.2.3 Upon the request of the Party seeking patent or other similar statutory protection for Licensed Patent Rights under this Section (the Filing Party), and at such Filing Partys cost and expense, the other Party shall and shall procure that its personnel shall provide reasonable assistance to the Filing Party, in filing, prosecuting and maintaining such patent applications and shall execute and deliver any and all instruments or other documents necessary to make, file, prosecute and maintain all such Licensed Patent Rights.
4.2.4 Each Party shall be responsible for all costs and expenses it incurs associated with its activities under this Section 4.2, to the extent not reimbursed through recoveries from a Third Party in connection with any litigation or other proceedings.
4.3 ADCT Intellectual Property; New IP - Improvements.
4.3.1 All ADCT Intellectual Property is and shall remain the sole and exclusive property of ADCT and no license to ADAGENE, except as stated in Section 2.3, to any such ADCT Intellectual Property is granted or implied in this License Agreement.
4.3.2 Any and all ADCT New IP shall be exclusively owned by ADCT or its designee, either alone or jointly with a Third Party. ADAGENE agrees to assign and does hereby assign to ADCT all right, title and interest in and to the ADCT New IP.
4.3.3 ADCT shall be free at all times to make any use, as it deems appropriate, of the ADCT Intellectual Property and to prosecute and maintain (or have prosecuted and maintained) worldwide Patents and Patent applications relating the ADCT Intellectual Property at its sole cost as it deems appropriate. ADCT shall be under no obligation to file Patents under its ADCT Intellectual Property and ADCT may chose at its sole discretion to maintain the ADCT Intellectual Property or not.
4.3.4 ADCT shall file, maintain and prosecute the ADCT Intellectual Property relating to the First Licensed Product and the [***] SAFEbody in the Chinese Territory and shall keep ADAGENE duly informed of the status of any prosecution thereof.
4.3.5 ADAGENE New IP shall be exclusively owned by ADAGENE or its designee, either alone or jointly with a Third Party. ADCT agrees to assign and does hereby assign to ADAGENE all right, title and interest in and to the ADAGENE New IP.
4.4 Infringement by Third Parties.
4.4.1 Notice. Each Party shall promptly notify, in writing, the other Party upon learning of any actual or suspected infringement of the Licensed Intellectual Property (an Infringement) or of any claim of invalidity, unenforceability, or non-infringement of an ADAGENE Patent.
4.4.2 Enforcement Actions. ADAGENE shall have the first right, but not the obligation, to enforce the Licensed Intellectual Property worldwide and defend against any charge that the Licensed Intellectual Property is invalid or unenforceable, provided that ADAGENE shall not have the right to enforce the Licensed Intellectual Property against any alleged infringer with respect to a SAFEbody product directed to [***] Target for which this License Agreement has become effective (a Product Infringement) without first obtaining ADCTs prior written approval. ADCT agrees to join as a party, if necessary, at the expense of ADAGENE to any Product Infringement approved by ADCT. If ADCT approves such enforcement by ADAGENE and ADAGENE does not diligently and timely enforce the Licensed Intellectual Property against a Third Party infringer with respect to a Product Infringement, ADCT shall have the right to do so at ADCTs sole expense and ADAGENE shall, if necessary, submit to being joined as a party in any lawsuit and to do all other things reasonably required or necessary to enable ADCT to enforce the Licensed Intellectual Property, at ADCTs sole expense.
4.4.3 Settlement.
a) If ADAGENE brings suit pursuant to subsection 4.4.2, ADAGENE shall have the right and authority to settle any dispute involving the Licensed Intellectual Property; provided that if any such settlement would materially alter ADCTs rights under this License Agreement, then ADCTs written consent to the settlement shall be required, such consent not to be unreasonably withheld.
b) If ADCT brings suit pursuant to subsection 4.4.2, ADCT shall have the right and authority to settle any dispute involving the Licensed Intellectual Property, provided that if any such settlement requires any payment by or admits or imparts any other liability to ADAGENE or admits the invalidity or unenforceability or limits the scope of any such Licensed Intellectual Property in such country, then ADAGENEs written consent to the settlement shall be required, such consent not to be unreasonably withheld.
4.5 Damages.
4.5.1 If ADAGENE brings suit pursuant to subsection 4.4.2, all damages, amounts received in settlement, judgment or other monetary awards recovered in an action to enforce the Licensed Intellectual Property with respect to any Third Party shall be shared as follows:
a) first, to reimburse ADAGENE for costs and expenses incurred under 4.4.2;
b) second, to reimburse ADCT for any costs and expenses incurred by it under 4.4.2;
c) third, if and to the extent lost profits or sales are specifically determined by the adjudicating authority, to ADCT in reimbursement for its lost profits or lost sales; and
d) any remainder to ADAGENE.
4.5.2 If ADCT brings suit pursuant to subsection 4.4.2, all damages, amounts received in settlement, judgment or other monetary awards recovered in an action to enforce the Licensed Intellectual Property with respect to any Third Party shall be to ADCT in reimbursement for its lost profits or lost sales.
ARTICLE 5
CONFIDENTIALITY
5.1 Confidential Know-How. ADAGENE and ADCT shall each take all necessary measures to maintain confidential and to not disclose, and it shall cause its Representatives to maintain confidential and not disclose, any Confidential Information relating to the SAFEbody Technology and the ADAGENE Know-How and any IP Rights relating thereto to any Third Party not bound by any confidentiality obligation or otherwise in breach of ADCTs rights under this License Agreement; provided, however, that ADAGENE shall be free to disclose its Confidential Information relating to the SAFEbody Technology and the ADAGENE Know-How and any IP Rights relating thereto as necessary, in the ordinary course of business to seek patent or other intellectual property protection on the SAFEbody Technology.
5.2 Non-use and Non-disclosure of Confidential Information. During the Term, and for a period often (10) years thereafter, a Party shall (i) except to the extent permitted by this License Agreement or otherwise agreed to in writing, keep confidential and not disclose to any Third Party any Confidential Information of the other Party; (ii) except in connection with activities permitted by this License Agreement or otherwise agreed to in writing, not use for any purpose any Confidential Information of the other Party; and (iii) take all reasonable precautions to protect the Confidential Information of the other Party, including all precautions a Party employs with respect to its own confidential information of a similar nature and taking reasonable precautions to assure that no unauthorized use or disclosure is made by others to whom access to the Confidential Information of the Party is granted.
5.3 Exclusions Regarding Confidential Information. Notwithstanding anything set forth to the contrary in this Article 6, the obligations of Section 5.2 above shall not apply to the extent that the Party seeking the benefit of the exclusion can demonstrate that the Confidential Information of the other Party:
a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of receipt by the receiving Party;
b) was generally available to the public or otherwise part of the public domain at the time of its receipt by the receiving Party;
c) became generally available to the public or otherwise part of the public domain after its receipt by the receiving Party other than through any act or omission of the receiving Party in breach of this License Agreement;
d) was received by the receiving Party without an obligation of confidentiality from a Third Party having the right to disclose such information without restriction;
e) was independently developed by or for the receiving Party without use of or reference to the Confidential Information of the other Party; or
f) was released from the restrictions set forth in this License Agreement by express prior written consent of the Party.
5.4 Authorized Disclosures of Confidential Information. Notwithstanding the foregoing, a Party may use and disclose the Confidential Information of the other Party as follows:
a) if required by law or governmental regulation, provided that the Party seeking to disclose the Confidential Information of the other Party shall (i) use all reasonable efforts to inform the other Party prior to making any such disclosures and cooperate with the other Party in seeking a protective order or other appropriate remedy (including redaction) and (ii) whenever possible, request confidential treatment of such information;
b) as reasonably necessary to obtain or maintain any regulatory approval, including to conduct preclinical studies and clinical trials and for pricing approvals, for any Licensed Product, provided, that, the disclosing Party shall take all reasonable steps to limit disclosure of the Confidential Information outside such regulatory agency and to otherwise maintain the confidentiality of the Confidential Information to the same extent to which it maintains its own confidential information; or
c) to the extent necessary, to permitted sublicensees, licensees, collaborators, vendors, consultants, agents, attorneys, contractors and clinicians under written License Agreements of confidentiality at least as restrictive on those set forth in this License Agreement, who have a need to know such information in connection with such Party performing its obligations or exercising its rights under this License Agreement.
5.5 Terms of this License Agreement. The Parties agree that this License Agreement and the terms hereof will be considered Confidential Information of both Parties but can be shared with potential sublicensees, banks, investors or acquirers to the extent necessary to complete the subject transaction.
5.6 No License. As between the Parties, Confidential Information disclosed hereunder shall remain the property of the disclosing Party. Disclosure of Confidential Information to the other Party shall not constitute any grant, option or license to the other Party, beyond those licenses expressly granted hereunder, under any Patent, Know-How or other rights now or hereinafter held by the disclosing Party.
5.7 Confidentiality Breach Remedies.
5.7.1 The Receiving Party acknowledges that money damages may not be a sufficient remedy for any breach of this Section 5, and the Disclosing Party will be entitled to seek specific performance and injunctive relief as remedies for any such breach. Such remedies will not be deemed to be the exclusive remedies for breach of this Section 5 but will be in addition to all other remedies available at law or equity to the Disclosing Party.
5.7.2 In addition, in the event of a Severe Confidentiality Breach (as defined below) by either Party, the other Party shall in good faith notify the first Party of the alleged and evidenced Severe Confidentiality Breach and (i) if ADCT alleges that ADAGENE has committed such Severe Confidentiality Breach, ADCT shall be entitled to suspend payment of [***] of any outstanding or future payments due to ADAGENE under this License Agreement; and (ii) if ADAGENE alleges that ADCT has committed such Severe Confidentiality Breach, ADAGENE shall be entitled to collect [***] of the future payments it would otherwise receive from ADCT under this License Agreement, in each case subject to the following (each, an Automatic Remedy). Should the alleged breaching Party dispute the existence of a Severe Confidentiality Breach, it shall show all necessary evidence to support its position. If the evidence shown is deemed insufficient by the Party alleging such breach, the issue may be escalated by the Party alleging such breach to the CEOs of both Parties, who shall strive to find an amicable resolution of the matter within ten (10) business days from the day the issue was escalated to them. If no amicable resolution can be found, the alleged breaching Party may use the arbitration process under Section 12.2 for settlement. If the arbitration decision confirms a Severe Confidentiality Breach by a Party under this License Agreement, the Automatic Remedy shall continue for the term of this License Agreement and the Party alleging breach may seek additional damages from the alleged breaching Party in accordance with this License Agreement. If the arbitration decision confirms that the alleged breaching Party has not committed a Severe Confidentiality Breach, then : (a) if ADCT is the Party alleging such breach, ADCT shall be responsible for all past and future payments due under this License Agreement and shall be liable for paying to ADAGENE within seven (7) days of the arbitration decision, all payments unduly suspended since the confidentiality breach notice to ADAGENE with an annual interest rate of the Prime Rate (as quoted in the Wall Street Journal) plus two percent (2%), to be calculated from the day those payments became due until effective payment date; or (b) if ADAGENE is the Party alleging such breach, ADAGENE shall refund to ADCT within seven (7) days of the arbitration decision, all over-payments unduly collected from ADCT since the confidentiality breach notice to ADCT with an annual interest rate of the Prime Rate (as quoted in the Wall Street Journal) plus two percent (2%), to be calculated from the day those payments became due until effective payment date. Severe Confidentiality Breach shall mean with respect to both Parties, any disclosure of the portion of SAFEbody Technology that is strictly confidential such that such disclosure has enabled a Third Party to perform the SAFEbody Technology in a manner substantially similar to ADAGENE and resulted in Adagenes competitive advantage in SAFEbody Technology, in each case without regard to the existence, validity or enforceability of any Adagene Patents, committed either under this License Agreement or the MTCA, provided that if such Severe Confidentiality Breach was committed under the MTCA and was undisputed or finally decided by dispute resolution, then the Party alleging breach shall not be required to provide notice or be subject to dispute resolution under this License Agreement, and the Automatic Remedy shall be effective and shall apply without any need for such notice or dispute resolution; provided, however, that ADAGENE shall be free to disclose its SAFEbody Technology as necessary, in the ordinary course of business to seek patent protection on the SAFEbody Technology and to disclose the SAFEbody Technology to its actual and potential bona fide acquirers and licensees under an obligation of confidentiality at least as restrictive as those confidentiality obligations contained in this License Agreement, and provided always that ADAGENE shall be and remain solely and exclusively liable towards ADCT for any Severe Confidentiality Breach by any such acquirers or licensees. In the event of a dispute of such alleged Severe Confidentiality Breach, the Party for which the dispute is finally decided against will reimburse the other Party for all internal and out-of-pocket costs and fees incurred by such other Party in connection with such dispute. Neither Party shall disclose any of its Confidential Information to the other Party that, in the event of an unintended disclosure by the receiving Party, would cause the receiving Party to commit a Severe Confidentiality Breach, unless and until first obtaining the receiving Partys express prior written consent, and any such Confidential Information disclosed by a Party to the receiving Party without such express prior written consent shall excuse the receiving Party from its compliance obligation of this Section.
ARTICLE 6
PUBLICITY; PUBLICATIONS; USE OF NAMES
6.1 Publicity.
Neither Party will make any press release or other public disclosure regarding this License Agreement or the transactions contemplated hereby without the other Partys express prior written consent, which shall not be unreasonably withheld or delayed. For the purpose of this Section 6.1, if a party elects to make a public announcement, and at least ten (10) business days in advance of such planed press release or public announcement it shall provide a draft to the other Party for review. The reviewing Party shall have the right to require changes, in particular to request deletion of its Confidential Information and financial terms under this License Agreement or the transactions contemplated hereunder, from the planned press release or announcement, and the other Party shall delete any Confidential Information and reasonably and in good faith consider and implement any other changes requested by the reviewing Party.
It is further agreed between the Parties that on the Effective Date of this License Agreement, the Parties shall issue a joint press-release, which timing and content shall be agreed upon in advance and in writing between the Parties in accordance with Section 6.1.
6.2 Publications. Neither Party shall make any publications about the Licensed Product without the other Partys prior written consent. Prior to making any oral or written public presentation and/or submitting or presenting a manuscript, poster, abstract, publication, or other materials relating to the Materials or Results under this License Agreement to a publisher, reviewer, or other outside person (Publication), the publishing Party shall provide the other Party with a copy of all such Publication in English language, and the other Party shall have thirty (30) days from receipt to review and comment. Upon the receiving Partys request, the publishing Party shall (i) remove any Confidential Information of the reviewing Party; and/or (ii) discuss with the reviewing Party and consider in good faith the reviewing Partys suggestions and amendments proposed with respect to the Publication, and the timing of the disclosure; and/or (iii) delay the Publication for a period of up to sixty (60) days from the date the reviewing Party receives the proposed Publication, in order to allow the reviewing Party to protect its interests in any IP Rights described in any such Publication. Notwithstanding the foregoing, ADCT shall be free to publish the results of clinical studies of Licensed Products without being required to seek ADAGENEs review and consent.
6.3 No Right to Use Names. Except as expressly provided herein, no right, express or implied, is granted by this License Agreement to use in any manner the others Party symbol, logo or trademark of the other Party in connection with this License Agreement unless authorized in writing by the other Party.
ARTICLE 7
REPRESENTATIONS
7.1 Mutual Representations and Warranties. Each Party represents and warrants to the other Party that as of the Execution Date:
a) it is validly organized and in good standing under the laws of its jurisdiction of incorporation; and
b) it has obtained all necessary consents, approvals and authorizations of all governmental authorities and other persons or entities required to be obtained by it in connection with this License Agreement; and
c) it has the legal right and power to enter into this License Agreement and to fully perform its obligations hereunder; and
d) it will comply at all times with the Bribery Act 2010 of the United Kingdom (Bribery Act), the Foreign Corrupt Practices Act 1977 of the United States of America (FCPA), and any other applicable anti-bribery and anti-corruption laws and regulations.
7.2 Representations and Warranties of ADAGENE. ADAGENE hereby represents and warrants that:
(a) Neither ADAGENE nor any of its Affiliates has entered, and shall not enter, into any license agreement with any Third Party that conflicts with the rights conveyed in this License Agreement to ADCT;
(b) ADAGENE owns or Controls the ADAGENE Background IP, the Licensed Intellectual Property and all intellectual property rights conceived, reduced to practice or created at any time by its employees, agents and subcontractors;
(c) Neither ADAGENE nor any of its Affiliates owns or Controls any Patents, beyond those set forth as Licensed Intellectual Property, that contain claims that ADAGENE believes would be infringed by the exercise of ADCTs rights under this License Agreement;
(d) ADAGENE Patents existing as of the Execution Date are (i) subsisting and are not invalid or unenforceable, in whole or in part, (ii) with regards to the pending applications included in such ADAGENE Patents being diligently prosecuted in the respective patent offices in accordance with applicable law and (iii) filed and maintained properly and correctly and all applicable fees have been, and will be, paid on or before the due date for payment;
(e) As of the Effective Date, to the knowledge of ADAGENE, the practice of the ADAGENE IP Rights, including the SAFEbody Technology, does not infringe or misappropriate any Third Party IP Rights, including those owned or controlled by the entity identified on the side letter between the Parties executed on the Execution Date;
(f) As of the Execution Date, ADAGENE has no knowledge of any pending or threatened litigation concerning any subject matter of this License Agreement, including but not limited to, any allegation of infringement concerning the ADAGENE IP Rights and the Licensed Intellectual Property or the invalidity or unenforceability of the Licensed Intellectual Property. ADAGENE warrants that in the event that the Licensed Intellectual Property is alleged to infringe Third Party IP Rights, ADAGENE shall obtain at its sole cost a sublicensable license to such Third Party IP Rights and shall include such Third Party IP Rights in the Licensed Intellectual Property. In the event ADAGENE cannot obtain such a license within one hundred twenty (120) days but ADCT does manage to obtain a license to such Third Party IP Rights, ADCT shall be entitled to offset any amounts due under such Third Party license against any milestones and royalties owed under this License Agreement on a country by country basis and product by product basis, in accordance with the terms and conditions of Section 3.5.1.
(g) ADAGENE represents and warrants that the ADAGENE Patents and Know-How listed on Annex 1 represent all Patents and Know-How owned or Controlled by ADAGENE that are necessary or useful for the development, manufacture or commercialization of the [***] SAFEbody, the [***] SAFEbody and of Licensed Products comprising the [***] SAFEbody and the [***] SAFEbody.
7.3 Representations and Warranties of ADCT. ADCT hereby represents and warrants that:
ADCT has entered on the Execution Date, and shall not enter, into any license agreement with any Third Party that conflicts with the rights conveyed in this License Agreement to ADAGENE.
7.4 Disclaimers. EXCEPT AS OTHERWISE EXPRESSLY STATED IN THIS LICENSE AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO PATENTS, KNOW-HOW, MATERIALS OR CONFIDENTIAL INFORMATION SUPPLIED BY IT TO THE OTHER PARTY HEREUNDER, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification.
8.1.1 ADAGENE indemnity. ADAGENE will indemnify, hold harmless and defend ADCT, its Affiliates, and their respective directors, officers, employees and agents (each an ADCT Indemnitee) against any and all losses, damages, liabilities, judgments, fines, amounts paid in settlement, expenses and costs of defense (including, without limitation, reasonable attorneys fees and witness fees) (Losses) resulting from any claim, action or proceeding brought or initiated by a Third Party (Third Party Claim) against them to the extent that such Third Party Claim arises out of (a) the breach or alleged breach of any representation or warranty by ADAGENE under this License Agreement; or (b) the gross negligence or willful misconduct of ADAGENE, its Affiliates or their respective Representatives; or (c) the use, handling, or storage of ADAGENE Materials; or (d) from ADAGENEs conduct and activities pursuant to the Development Plan; or (e) the practice of SAFEbody Technology or the exploitation of any product resulting from the practice of SAFEbody Technology that infringes any Third Party IP Rights or misappropriates any Third Party proprietary technology, solely with respect to any such product to the extent any such infringement or misappropriation would have arisen from the [***] SAFEbody or the [***] SAFEbody or the SAFEbody Technology alone or in combination with any other technologies or components, but not with resnect to any infringement that would have arisen from any antibody sequence in the [***] SAFEbody or [***] SAFEbody if not combined with the SAFEbody Technology; provided, that such indemnity shall not apply to the extent ADCT has an indemnification obligation pursuant to Section 8.1.2 hereof. For the sake of clarity, ADAGENE shall not provide any indemnity to ADCT for ADCTs use of a [***] any linker to a [***] in a SAFEbody ADC or any conjugation methods or materials used in conjugating a [***]
8.1.2 ADCT indemnity. ADCT will indemnify, hold harmless and defend ADAGENE, its Affiliates, and their respective directors, officers, employees and agents (each, a ADAGENE Indemnitee) against any and all Losses resulting from any Third Party Claim against them to the extent that such Third Party Claim arises out of (a) the breach of any representation or warranty by ADCT under this License Agreement; or (b) the gross negligence or willful misconduct of ADCT, its Affiliates or their respective Representatives; or (c) the use, handling, or storage of ADAGENE Material or Conjugated Material by ADCT or from ADCTs conduct and activities pursuant to the Development Plan; or (d) ADCTs, its Affiliates, or their respective Representatives, and any licensee or sublicensee (other than ADAGENE as a licensee in the Chinese Territory or its sublicensees) gross negligence or willful misconduct in the development or commercialization of any Licensed Product, including, without limitation, any product liability claims; provided, that such indemnity shall not apply to the extent ADAGENE has an indemnification obligation pursuant to Section 8.1.1 hereof.
8.1.3 Subject to Article 9.2, each Party shall indemnify, defend and hold each of the other Party, its Affiliates and their respective directors, officers, and employees and the successors and assigns of any of the foregoing harmless from and against any and all liabilities, damages, settlements, penalties, fines, costs or expenses (including, without limitation, reasonable attorneys or accountants fees and other expenses of litigation) (collectively, Loss or Losses) arising, directly or indirectly out of or in connection with any Third Party claims, suits, actions, demands or judgments (Third Party Claims) resulting from (a) the negligence or willful misconduct of such Party under this License Agreement, or (b) breach by such Party of the representations and warranties made in this License Agreement or (c) violation by such Party of any applicable laws.
8.2 Procedure. If a Party intends to claim indemnification under this License Agreement (the Indemnitee), it shall promptly notify the other Party (the Indemnitor) in writing of such alleged Loss. The Indemnitor shall have the right to control the defense thereof with counsel of its choice as long as such counsel is reasonably acceptable to Indemnitee. Any Indemnitee shall have the right to retain its own counsel at its own expense for any reason, provided, however, that if the Indemnitee shall have reasonably concluded, based upon a written opinion from outside legal counsel, that there is a conflict of interest between the Indemnitor and the Indemnitee in the defense of such action, in each of which cases the Indemnitor shall pay the fees and expenses of one law firm serving as counsel for the Indemnitee. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any Third Party Claims covered by this License Agreement. The obligations of this Article 8 shall not apply to any settlement of any Third Party Claims if such settlement is effected without the consent of both Parties, which shall not be unreasonably withheld or delayed. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve the Indemnitor of any obligation to the Indemnitee under this Article 8.2. It is understood that only ADCT and ADAGENE may claim indemnity under this License Agreement (on its own behalf or on behalf of its Indemnitees), and other Indemnitees may not claim indemnity hereunder.
8.3 Limitation of Damages. NEITHER PARTY HERETO WILL BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES, INCLUDING LOST PROFITS, ARISING FROM OR RELATING TO THIS LICENSE AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES, EXCEPT IN RESPECT OF ANY BREACH OF A PARTYS OBLIGATIONS UNDER ARTICLES 4 AND 5 OR INDEMNIFICATION OBLIGATIONS UNDER THIS ARTICLE 8 FOR CLAIMS OF THIRD PARTIES.
ARTICLE 9
INSURANCE
9.1 Subject to Article 8.3, ADCT shall, at its sole expense, obtain and maintain the following insurance on its own behalf, with insurance companies having an A. M. Best Rating of A-, VII or better:
(a) From the initiation of the first human clinical trial for a Licensed Product until the date One (1) year after the last dosing of a human subject under the last such clinical trial, coverage for each such clinical trial in accordance with the national regulation of each country in which it runs a clinical trial and in a manner adequate to cover its obligations hereunder and consistent with normal business practices of prudent companies similarly situated;
(b) During the Term, comprehensive or commercial general liability insurance in a manner adequate to cover its obligations hereunder and consistent with normal business practices of prudent companies similarly size and stage of development or commercialization.
9.2 Subject to Article 8.3, during the Term, ADAGENE shall, at its sole expense, obtain and maintain the following insurance on its own behalf, with insurance companies having an A. M. Best Rating of A-, VII or better:
(a) comprehensive or commercial general liability insurance in a manner adequate to cover its obligations hereunder and consistent with normal business practices of prudent companies similarly size and stage of development or commercialization.
ARTICLE 10
TERM AND TERMINATION
10.1 Term. This License Agreement (the Term) is executed on the Execution Date but shall only come into force on the Effective Date. This License Agreement shall continue for the Royalty Term on a Licensed Product by Licensed Product basis and on a country by country basis, and thereafter this License Agreement shall become fully-paid up, perpetual and irrevocable, unless terminated earlier during the Royalty Term in accordance with this License Agreement.
10.2 Termination.
10.2.1 ADCT shall have the right for any or no reason to terminate this License Agreement on a Licensed Product by Licensed Product basis or in its entirety upon thirty (30) days prior written notice to ADAGENE. In addition, ADCT shall have the right to terminate this License Agreement on a Licensed Product by Licensed Product basis or in its entirety by written notice to ADAGENE if ADCT decides for any reason to discontinue the development or sale of the applicable Licensed Product worldwide.
10.2.2 Either Party may terminate this License Agreement sixty (60) days written notice to the other Party upon the other Party becoming bankrupt or making an assignment for the benefit of its creditors, upon appointment of a trustee or receiver for the other Party or all or substantially all of its property, or upon the filing of a voluntary or involuntary petition by or against the other Party under any bankruptcy or insolvency law, or any similar law, unless such other Party remedies such situation within such sixty (60) day period.
10.3 Effects of termination.
10.3.1 Upon the termination of this License Agreement for any reason (unless otherwise stated hereafter), the following provisions shall apply. For clarity, these provisions shall not apply in any country or with respect to any particular Licensed Product if the license to ADCT in such country with respect to such Licensed Product has become fully paid up and perpetual as provided in Section 10.1:
(a) payment of royalties and all other sums due to ADAGENE (on behalf of the Licensors) as of the effective date of termination shall be payable to ADAGENE (on behalf of the Licensors) immediately upon termination of this License Agreement;
(b) ADCT shall cease to exploit the Licensed Intellectual Property rights in any way; provided however that ADCT and its Sub-Licensees shall have the right (at ADCTs option) to, during a period not exceeding three (3) months following termination, fulfil any orders accepted prior to termination from any Licensed Product remaining in inventory, subject to all terms of this License Agreement (including applicable payment and reporting obligations with respect to such sales); and
(c) In case ADCT terminates this License Agreement in whole or in part pursuant to Section 10.2.1 or due to its decision to discontinue the development of the Licensed Products, ADCT shall (i) assign to ADAGENE or its designee all IP, including patent applications, relating specifically to the [***] SAFEbody Panel and/or the [***] SAFEbody Panel as the case may be (depending on which of the Licensed Products is terminated under this License Agreement), with the express exclusion of any other ADCT IP, including in particular any ADCT IP in the Licensed Products and the ADCs, which shall remain at all times ADCTs sole and joint IP with a Third Party; (ii) abandon any such IP that is not described in subsection (i) and is solely owned by ADCT; and (iii) attempt in good faith to seek abandonment of any such IP that is not described in subsection (a) and is jointly owned by ADCT and its Third Party Iicensor(s). ADCT will not assign any IP on the [***] SAFEbody or [***] SAFEbody to any Third Party, except to its Third Party licensor, as required by ADCTs written agreement with such Third Party licensor, unless such Third Party (other than ADCTs licensor) is under a written obligation to abandon any such IP upon termination of this License Agreement. Any assignment not in compliance with this Section 10.3.1 shall be null, void and of no effect.
10.3.2 For clarity, any termination of the Material Transfer and Collaboration Agreement shall not termination this License Agreement with respect to this License Agreement that is already effective as of the date of the termination of the Material Transfer and Collaboration Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Applicable Law. This License Agreement shall be governed by and construed in accordance with the laws of the State New-York without regard to any choice of law principle that would dictate the application of the law of another jurisdiction and excluding of the United Nations Convention on Contracts for the International Sale of Goods. This License Agreement has been prepared in the English language and the English language shall control its interpretation.
11.2 Arbitration. The Parties agree to use their reasonable efforts to resolve any dispute arising out of this License Agreement by amicable negotiation. The Parties shall be obligated to provide each other written notice of a dispute arising out of this License Agreement. If any dispute arising out of this License Agreement, including validity, breach, or termination thereof, cannot be resolved within thirty (30) days after notice of such dispute, then such dispute shall be settled through binding arbitration conducted by the International Chamber of Commerce in accordance with the then prevailing Rules of Arbitration of the International Chamber of Commerce in force on the date when the notice of arbitration is submitted (for purposes of this Section, the Rules), except as modified in this License Agreement, applying the substantive law specified in this Section. The number of arbitrators shall be three (3), wherein each of the Parties select one of the arbitrators and the selected arbitrators shall select the third arbitrator. All arbitrators shall have expertise in the pharmaceutical industry. The arbitration shall take place in New-York, New-York and shall be conducted in English.
11.3 Notices. Except as otherwise expressly provided in the License Agreement, any notice required under this License Agreement shall be in writing and shall specifically refer to this License Agreement. Notices shall be sent via one of the following means and will be effective (a) on the date of delivery, if delivered in person; (b) on the date of receipt, if sent by email (with delivery confirmed); or (c) on the date of receipt, if sent by private express courier or by first class certified mail, return receipt requested. Any notice sent via email shall be followed by a copy of such notice by private express courier or by first class mail. Notices shall be sent to the other Party at the addresses set forth below. Either Party may change its addresses for purposes of this Article 11.3 by sending written notice to the other Party.
If to ADCT:
ADC Therapeutics SA
Route de la Corniche 3b
1066 Epalinges
Switzerland
Attn: General Counsel, Dominique Graz
Email: legal@,adctherapeutics.com
If to ADAGENE:
ADAGENE Inc.
Art.: Kristine She
VP of Operations
Adagene (Suzhou) Limited
3F, Building C14.218 Xinghu St.,
Suzhou Industrial Park,
China 215123
Email: Kristine_she@adagene.com
11.4 Assignment. Neither Party may assign this License Agreement without the prior written consent of the non-assigning Party. Notwithstanding the foregoing, either Party may assign this License Agreement to (i) an Affiliate or (ii) any purchaser of all or substantially all of the assets of such Party or to which this License Agreement relates, or of all of its capital stock, or to any successor corporation or entity resulting from any merger or consolidation of such Party with or into such corporation or entity. Subject to the foregoing, this License Agreement will benefit and bind the Parties successors and assigns.
11.5 Independent Contractors. The Parties hereto are independent contractors and nothing contained in this License Agreement shall be deemed or construed to create a partnership, joint venture, employment, franchise, agency or fiduciary relationship between the Parties.
11.6 Entire License Agreement. This License Agreement and its Annexes constitute the entire License Agreement between the Parties relating to the subject matter of this License Agreement and supersedes all prior oral and written communications, negotiations, representations, License Agreements, between the Parties with respect to the subject matter of this License Agreement.
11.7 Amendment. Except as otherwise expressly provided herein, no amendment, change or modification to this License Agreement shall be effective unless made in writing and executed by an authorized representative of each Party.
11.8 Waiver. No course of dealing or failure of either Party to strictly enforce any term, right or condition of this License Agreement shall be construed as a general waiver or relinquishment of such term, right or condition. Any waiver of any provision of this License Agreement must be consented to by the non-waiving Party and shall not constitute a waiver of any other provision of this License Agreement by implication or estoppel.
11.9 Severability. The Parties do not intend to violate any public policy or statutory or common law. However, if any sentence, paragraph, clause or combination of this License Agreement is in violation of any law or is found to be otherwise unenforceable, such sentence, paragraph, clause or combination of the same shall be deleted and the remainder of this License Agreement shall remain binding, provided that such deletion does not alter the basic purpose and structure of this License Agreement.
11.10 No agency. The Parties hereto understand and agree that this License Agreement is limited to the activities, rights and obligations as expressly set forth herein. Nothing in this License Agreement shall be construed to establish any agency, employment, partnership, joint venture, franchise or similar or special relationship between the Parties. Neither Party shall have the right or authority to assume or create any obligations or to make any representations, warranties or commitments on behalf of the other Party, whether express or implied, or to bind the other Party in any respect whatsoever
11.11 Headings. The captions and headings to this License Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this License Agreement.
11.12 Survival. In addition to any provisions that specify survival or non-survival in the event of expiration or termination of this License Agreement, the provisions of Articles 4, 5, 6, 7, 8,9, 10, and this Article 11 shall survive any termination of this License Agreement.
11.13 Affiliates. Each Party shall have the right to exercise its rights or perform its obligations through one (1) or more of its Affiliates, provided that such Party shall remain primarily responsible for the action or omission of such Affiliates, subject to Section 11.14.
11.14 Guarantee. ADAGENE hereby agrees to be primarily responsible for the actions and/or omissions of ADAGENE and ADAGENE Affiliates under this Agreement and shall guarantee ADAGENEs and ADAGENE Affiliates performance under this Agreement. In the event ADAGENE or any of the ADAGENE Affiliates assigns directly or indirectly any ADAGENE Patents and/or the SAFEbody Technology to another person or entity, such assignment shall only be valid towards ADCT if such person or entity has validly agreed in writing to assume all obligations of its assignor under this Agreement, including, in particular, such primary responsibility and guarantee hereunder. Any assignment not in compliance with this Section 11.14 shall be null, void and of no effect.
11.15 Counterparts. This License Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. If any signature is delivered by e-mail delivery of a pdf format, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such pdf signature page were an original thereof.
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IN WITNESS WHEREOF, ADCT and ADAGENE have executed this License Agreement by their respective officers hereunto duly authorized, on the day and year hereinafter written.
ADC Therapeutics SA |
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/s/ C J Martin |
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Name: |
C J Martin |
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C.E.O. |
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ADAGENE Inc. |
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By: |
/s/ Peter Luo |
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Peter Luo |
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Title: |
4/12/2019 |
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Exhibit 10.13
ADAGENE INC.
2021 PERFORMANCE INCENTIVE PLAN
1. PURPOSE OF PLAN
The purpose of this Adagene Inc. 2021 Performance Incentive Plan (this Plan) of Adagene Inc., an exempted company organized under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the Company), is to promote the success of the Company by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons and to enhance the alignment of the interests of the selected participants with the interests of the Companys shareholders.
2. ELIGIBILITY
The Administrator (as such term is defined in Section 3.1) may grant awards under this Plan only to those persons that the Administrator determines to be Eligible Persons. An Eligible Person is any person who is either: (a) an officer (whether or not a director) or employee of the Company or one of its Subsidiaries; (b) a director of the Company or one of its Subsidiaries; or (c) an individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of the Company or one of its Subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Company or one of its Subsidiaries) to the Company or one of its Subsidiaries and who is selected to participate in this Plan by the Administrator; provided, however, that a person who is otherwise an Eligible Person under clause (c) above may participate in this Plan only if such participation would not adversely affect either the Companys eligibility to use Form S-8 to register under the U.S. Securities Act of 1933, as amended (the Securities Act), the offering and sale of shares issuable under this Plan by the Company or the Companys compliance with any other applicable laws. An Eligible Person who has been granted an award (a participant) may, if otherwise eligible, be granted additional awards if the Administrator shall so determine. As used herein, Subsidiary means any company or other entity a majority of whose outstanding voting shares or voting power is beneficially owned directly or indirectly by the Company; and Board means the Board of Directors of the Company.
3. PLAN ADMINISTRATION
3.1 The Administrator. This Plan shall be administered by and all awards under this Plan shall be authorized by the Administrator. The Administrator means the Board or one or more committees (or subcommittees, as the case may be) appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of this Plan. Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law. A committee may delegate some or all of its authority to another committee so constituted. The Board or a committee comprised solely of directors may also delegate, to the extent permitted by the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and any other applicable law, to one or more officers of the Company, its authority under this Plan. The Board or another committee (within its delegated authority) may delegate different levels of authority to different committees or persons with administrative and grant authority under this Plan. Unless otherwise provided in the Memorandum and Articles of Association of the Company or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute action by the acting Administrator.
3.2 Powers of the Administrator. Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of awards and the administration of this Plan (in the case of a committee or delegation to one or more officers, within any express limits on the authority delegated to that committee or person(s)), including, without limitation, the authority to:
(a) determine eligibility and, from among those persons determined to be eligible, determine the particular Eligible Persons who will receive an award under this Plan;
(b) grant awards to Eligible Persons, determine the price (if any) at which securities will be offered or awarded and the number of securities to be offered or awarded to any of such persons (in the case of securities-based awards), determine the other specific terms and conditions of awards consistent with the express limits of this Plan, establish the installment(s) (if any) in which such awards shall become exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable performance-based exercisability or vesting requirements, determine the circumstances in which any performance-based goals (or the applicable measure of performance) will be adjusted and the nature and impact of any such adjustment, determine the extent (if any) to which any applicable exercise and vesting requirements have been satisfied, establish the events (if any) on which exercisability or vesting may accelerate (which may include, without limitation, retirement and other specified terminations of employment or services, or other circumstances), and establish the events (if any) of termination, expiration or reversion of such awards;
(c) approve the forms of any award agreements (which need not be identical either as to type of award or among participants);
(d) construe and interpret this Plan and any agreements defining the rights and obligations of the Company, its Subsidiaries, and participants under this Plan, make any and all determinations under this Plan and any such agreements, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the awards granted under this Plan;
(e) cancel, modify, or waive the Companys rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, subject to any required consent under Section 8.6.5;
(f) accelerate, waive or extend the vesting or exercisability, or modify or extend the term of, any or all such outstanding awards (in the case of options or share appreciation rights, within the maximum term of such awards) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a retirement or other termination of employment or services, or other circumstances) subject to any required consent under Section 8.6.5;
(g) adjust the number of Ordinary Shares subject to any award, adjust the price of any or all outstanding awards (including the exercise or base price of any outstanding option or share appreciation right as contemplated by Section 3.6), or otherwise waive or change previously imposed terms and conditions, in such circumstances as the Administrator may deem appropriate, in each case subject to Sections 4 and 8.6;
(h) determine the date of grant of an award, which may be a designated date after but not before the date of the Administrators action to approve the award (unless otherwise designated by the Administrator, the date of grant of an award shall be the date upon which the Administrator took the action approving the award);
(i) determine whether, and the extent to which, adjustments are required pursuant to Section 7.1 hereof and take any other actions contemplated by Section 7 in connection with the occurrence of an event of the type described in Section 7;
(j) acquire or settle (subject to Sections 7 and 8.6) rights under awards in cash, shares of equivalent value, or other consideration; and
(k) determine the fair market value of the Ordinary Shares or awards under this Plan from time to time and/or the manner in which such value will be determined.
3.3 Binding Determinations. Any determination or other action taken by, or inaction of, the Company, any Subsidiary, or the Administrator relating or pursuant to this Plan (or any award made under this Plan) and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. Neither the Board nor any other Administrator, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time. Neither the Board nor any other Administrator, nor any member thereof or person acting at the direction thereof, nor the Company or any of its Subsidiaries, shall be liable for any damages of a participant should an option intended as an ISO (as defined below) fail to meet the requirements of the U.S. Internal Revenue Code of 1986, as amended (the Code), applicable to ISOs, should any other award(s) fail to qualify for any intended tax treatment, should any award grant or other action with respect thereto not satisfy Rule 16b-3 promulgated under the U.S. Securities Exchange Act of 1934, as amended, or otherwise for any tax or other liability imposed on a participant with respect to an award.
3.4 Reliance on Experts. In making any determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including employees and professional advisors to the Company. No director, officer or agent of the Company or any of its Subsidiaries shall be liable for any such action or determination taken or made or omitted in good faith.
3.5 Delegation. The Administrator may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Company or any of its Subsidiaries or to third parties.
3.6 Option and SAR Repricing. Subject to Section 4 and Section 8.6.5, the Administrator, from time to time and in its sole discretion, may provide for (1) the amendment of any outstanding option or SAR to reduce the exercise price or base price of the award, (2) the cancellation, exchange, or surrender of an outstanding option or SAR in exchange for cash or other awards (for the purpose of repricing the award or otherwise), or (3) the cancellation, exchange, or surrender of an outstanding option or SAR in exchange for an option or SAR with an exercise or base price that is less than the exercise or base price of the original award. For avoidance of doubt, the Administrator may take any or all of the foregoing actions under this Section 3.6 without shareholder approval.
4. ORDINARY SHARES SUBJECT TO THE PLAN; SHARE LIMITS
4.1 Shares Available. Subject to the provisions of Section 7.1, the shares that may be delivered under this Plan shall be the Companys authorized but unissued Ordinary Shares and any of its Ordinary Shares held as treasury shares. For purposes of this Plan, Ordinary Shares shall mean the ordinary shares of the Company and such other securities or property as may become the subject of awards under this Plan, or may become subject to such awards, pursuant to an adjustment made under Section 7.1.
4.2 Aggregate Share Limit. The maximum number of Ordinary Shares that may be delivered pursuant to awards granted to Eligible Persons under this Plan (the Share Limit) is equal to the sum of the following:
(1) 2,994,000 Ordinary Shares, plus
(2) the number of any shares subject to options granted under the Adagene Inc. Second Amended and Restated Share Incentive Plan (the Share Incentive Plan) and outstanding on the date of shareholder approval of this Plan (the Shareholder Approval Date) which expire, or for any reason are cancelled or terminated, after the Shareholder Approval Date without being exercised, plus
(3) the number of any shares subject to restricted share awards granted under the Share Incentive Plan that are outstanding and unvested on the Shareholder Approval Date (including, for the avoidance of doubt, any such shares acquired pursuant to the exercise of a stock option granted under such plan prior to the applicable vesting date) that are forfeited, terminated, cancelled or otherwise reacquired by the Company without having become vested.
In addition, the Share Limit shall automatically increase on the first trading day in January of each calendar year during the term of this Plan, commencing with January 2022, by an amount equal to (i) five percent (5%) of the total number of Ordinary Shares issued and outstanding on December 31 of the immediately preceding calendar year or (ii) such lesser number of Ordinary Shares as may be established by the Board.
4.3 ISO Share Limit. The maximum number of Ordinary Shares that may be delivered pursuant to options qualified as incentive stock options granted under this Plan is 2,994,000 shares. This sub-limit is in addition to, not in lieu of, the aggregate Share Limit in Section 4.2.
4.4 Share-Limit Counting Rules. The Share Limit shall be subject to the following provisions of this Section 4.4:
(a) Shares that are subject to or underlie awards granted under this Plan which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan shall not be counted against the Share Limit and shall be available for subsequent awards under this Plan.
(b) Except as provided below, to the extent that Ordinary Shares are delivered pursuant to the exercise of a share appreciation right granted under this Plan, the number of underlying shares which are actually issued in payment of the award shall be counted against the Share Limit. (For purposes of clarity, if a share appreciation right relates to 100,000 shares and is exercised in full at a time when the payment due to the participant is 15,000 shares, 15,000 shares shall be counted against the Share Limit with respect to such exercise and the 85,000 shares not issued shall not be counted against the Share Limit and shall be available for subsequent awards under this Plan.)
(c) Shares that are exchanged by a participant or withheld by the Company as full or partial payment in connection with any award granted under this Plan, as well as any shares exchanged by a participant or withheld by the Company or one of its Subsidiaries to satisfy the tax withholding obligations related to any award granted under this Plan, shall not be counted against the Share Limit and shall be available for subsequent awards under this Plan. In addition, shares that are exchanged by a participant or withheld by the Company after the Shareholder Approval Date as full or partial payment in connection with any award granted under the Share Incentive Plan, as well as any shares exchanged by a participant or withheld by the Company or one of its Subsidiaries after the Shareholder Approval Date to satisfy the tax withholding obligations related to any award granted under the Share Incentive Plan, shall be available for new awards under this Plan.
(d) To the extent that an award granted under this Plan is settled in cash or a form other than Ordinary Shares, the shares that would have been delivered had there been no such cash or other settlement shall not be counted against the Share Limit and shall be available for subsequent awards under this Plan.
(e) In the event that Ordinary Shares are delivered in respect of a dividend equivalent right granted under this Plan, the number of shares delivered with respect to the award shall be counted against the Share Limit. (For purposes of clarity, if 1,000 dividend equivalent rights are granted and outstanding when the Company pays a dividend, and 50 shares are delivered in payment of those rights with respect to that dividend, 50 shares shall be counted against the Share Limit).
(f) The Company may not increase the Share Limit by repurchasing Ordinary Shares on the market (by using cash received through the exercise of options or otherwise).
Refer to Section 8.10 for application of the share limits of this Plan, including the limits in Sections 4.2 and 4.3, with respect to assumed awards. Each of the numerical limits and references in Sections 4.2 and 4.3, and in this Section 4.4, is subject to adjustment as contemplated by Sections 7 and 8.10.
4.5 No Fractional Shares; Minimum Issue. Unless otherwise expressly provided by the Administrator, no fractional shares shall be delivered under this Plan. The Administrator may pay cash in lieu of any fractional shares in settlements of awards under this Plan. The Administrator may from time to time impose a limit (of not greater than 100 shares) on the minimum number of shares that may be purchased or exercised as to awards (or any particular award) granted under this Plan unless (as to any particular award) the total number purchased or exercised is the total number at the time available for purchase or exercise under the award.
5. AWARDS
5.1 Type and Form of Awards. The Administrator shall determine the type or types of award(s) to be made to each selected Eligible Person. Awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Company or one of its Subsidiaries. The types of awards that may be granted under this Plan are:
5.1.1 Options. An option is the grant of a right to purchase a specified number of Ordinary Shares during a specified period as determined by the Administrator. An option may be intended as an incentive stock option within the meaning of Section 422 of the Code (an ISO) or a nonqualified stock option (an option not intended to be an ISO). The agreement evidencing the grant of an option to a U.S. resident will indicate if the option is intended as an ISO; otherwise it will be deemed to be a nonqualified stock option. The Administrator may designate any option granted under this Plan to a non-U.S. resident in accordance with the rules and regulations applicable to the options in the jurisdiction in which such person is a resident. The maximum term of each option (ISO or nonqualified) shall be ten (10) years. The per share exercise price for each option shall be not less than 100% of the fair market value of an Ordinary Share on the date of grant of the option; provided, however, that the Administrator may in its discretion establish a per share exercise price for any option granted to an Eligible Person who is not subject to U.S. taxes that is less than 100% of the fair market value of an Ordinary Share on the grant date. When an option is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.4.
5.1.2 Additional Rules Applicable to ISOs. To the extent that the aggregate fair market value (determined at the time of grant of the applicable option) of shares with respect to which ISOs first become exercisable by a participant in any calendar year exceeds US$100,000, taking into account both Ordinary Shares subject to ISOs under this Plan and shares subject to ISOs under all other plans of the Company or one of its Subsidiaries (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified stock options. In reducing the number of options treated as ISOs to meet the US$100,000 limit, the most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the US$100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which Ordinary Shares are to be treated as shares acquired pursuant to the exercise of an ISO. ISOs may only be granted to employees of the Company or one of its subsidiaries (for this purpose, the term subsidiary is used as defined in Section 424(f) of the Code, which generally requires an unbroken chain of ownership of at least 50% of the total combined voting power of all classes of shares of each subsidiary in the chain beginning with the Company and ending with the subsidiary in question). No ISO may be granted to any person who, at the time the option is granted, owns (or is deemed to own under Section 424(d) of the Code) outstanding Ordinary Shares possessing more than 10% of the total combined voting power of all classes of shares of the Company, unless the exercise price of such option is at least 110% of the fair market value of the shares subject to the option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted. If an otherwise-intended ISO fails to meet the applicable requirements of Section 422 of the Code, the option shall be a nonqualified stock option.
5.1.3 Share Appreciation Rights. A share appreciation right or SAR is a right to receive a payment, in cash and/or Ordinary Shares, equal to the excess of the fair market value of a specified number of Ordinary Shares on the date the SAR is exercised over the base price of the award, which base price shall be set forth in the applicable award agreement and shall be not less than 100% of the fair market value of an Ordinary Share on the date of grant of the SAR; provided, however, that the Administrator may in its discretion establish a per share base price for any SAR granted to an Eligible Person who is not subject to U.S. taxes that is less than 100% of the fair market value of an Ordinary Share on the grant date. The maximum term of a SAR shall be ten (10) years.
5.1.4 Other Awards; Dividend Equivalent Rights. The other types of awards that may be granted under this Plan include: (a) share bonuses, restricted shares, performance shares, share units, restricted share units, deferred shares, phantom shares or similar rights to purchase or acquire shares, whether at a fixed or variable price (or no price) or fixed or variable ratio related to the Ordinary Shares, and any of which may (but need not) be fully vested at grant or vest upon the passage of time, the occurrence of one or more events, the satisfaction of performance criteria or other conditions, or any combination thereof; or (b) cash awards. The types of cash awards that may be granted under this Plan include the opportunity to receive a payment for the achievement of one or more goals established by the Administrator, on such terms as the Administrator may provide, as well as discretionary cash awards. Dividend equivalent rights may be granted as a separate award or in connection with another award under this Plan; provided, however, that dividend equivalent rights may not be granted as to an option or SAR granted under this Plan. In addition, any dividends and/or dividend equivalents as to the portion of an award that is subject to unsatisfied vesting requirements will be subject to termination and forfeiture to the same extent as the corresponding portion of the award to which they relate in the event the applicable vesting requirements are not satisfied.
5.2 Award Agreements. Each award shall be evidenced by a written or electronic award agreement or notice in a form approved by the Administrator (an award agreement), and, in each case and if required by the Administrator, executed or otherwise electronically accepted by the recipient of the award in such form and manner as the Administrator may require.
5.3 Deferrals and Settlements. Payment of awards may be in the form of cash, Ordinary Shares, other awards or combinations thereof as the Administrator shall determine, and with such restrictions (if any) as it may impose. The Administrator may also require or permit participants to elect to defer the issuance of shares or the settlement of awards in cash under such rules and procedures as it may establish under this Plan. The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares.
5.4 Consideration for Ordinary Shares or Awards. The purchase price (if any) for any award granted under this Plan or the Ordinary Shares to be delivered pursuant to an award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator, including, without limitation, one or a combination of the following methods:
(a) services rendered by the recipient of such award;
(b) cash, check payable to the order of the Company, or electronic funds transfer;
(c) notice and third party payment in such manner as may be authorized by the Administrator;
(d) the delivery of previously owned Ordinary Shares;
(e) by a reduction in the number of shares otherwise deliverable pursuant to the award; or
(f) subject to such procedures as the Administrator may adopt, pursuant to a cashless exercise with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of awards.
In no event shall any shares newly-issued by the Company be issued for less than the minimum lawful consideration for such shares or for consideration other than consideration permitted by applicable law. Ordinary Shares used to satisfy the exercise price of an option shall be valued at their fair market value. The Company will not be obligated to record in the Companys register of members or deliver any shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 8.5 and any other conditions to exercise or purchase have been satisfied, at which point the relevant shares shall be issued and noted in the Companys register of members. Unless otherwise expressly provided in the applicable award agreement, the Administrator may at any time eliminate or limit a participants ability to pay any purchase or exercise price of any award or shares by any method other than cash payment to the Company. The Administrator may take all actions necessary to alter the method of option exercise and the exchange and transmittal of proceeds with respect to participants resident outside the U.S. in order to comply with applicable foreign exchange and tax regulations and any other applicable laws and regulations.
5.5 Definition of Fair Market Value. For purposes of this Plan, fair market value shall mean, unless otherwise determined or provided by the Administrator in the circumstances, the closing price (in regular trading) for an Ordinary Share on the Nasdaq Stock Market (the Market) for the date in question or, if no sales of Ordinary Shares were reported on the Market on that date, the closing price (in regular trading) for an Ordinary Share on the Market on the last day preceding the date in question on which sales of Ordinary Shares were reported on the Market. The Administrator may, however, provide with respect to one or more awards that the fair market value shall equal the closing price (in regular trading) for an Ordinary Share on the Market on the last trading day preceding the date in question or the average of the high and low trading prices of an Ordinary Share on the Market for the date in question or the most recent trading day. If the Ordinary Shares are no longer listed or are no longer actively traded on the Market as of the applicable date, the fair market value of the Ordinary Shares shall be the value as reasonably determined by the Administrator for purposes of the award in the circumstances. The Administrator also may adopt a different methodology for determining fair market value with respect to one or more awards if a different methodology is necessary or advisable to secure any intended favorable tax, legal or other treatment for the particular award(s) (for example, and without limitation, the Administrator may provide that fair market value for purposes of one or more awards will be based on an average of closing prices (or the average of high and low daily trading prices) for a specified period preceding the relevant date).
5.6 Transfer Restrictions.
5.6.1 Limitations on Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 5.6 or required by applicable law: (a) all awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) awards shall be exercised only by the participant; and (c) amounts payable or shares issuable pursuant to any award shall be delivered only to (or for the account of), and, in the case of Ordinary Shares, registered in the name of, the participant.
5.6.2 Exceptions. The Administrator may permit awards to be exercised by and paid to, or otherwise transferred to, other persons or entities pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may, in its sole discretion, establish in writing. Any permitted transfer shall be subject to compliance with applicable securities laws and shall not be for value (other than nominal consideration, settlement of marital property rights, or for interests in an entity in which more than 50% of the voting interests are held by the Eligible Person or by the Eligible Persons family members).
5.6.3 Further Exceptions to Limits on Transfer. The exercise and transfer restrictions in Section 5.6.1 shall not apply to:
(a) transfers to the Company (for example, in connection with the expiration or termination of the award);
(b) the designation of a beneficiary to receive benefits in the event of the participants death or, if the participant has died, transfers to or exercise by the participants beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution;
(c) subject to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if received by the Administrator;
(d) if the participant has suffered a disability, permitted transfers or exercises on behalf of the participant by his or her legal representative; or
(e) the authorization by the Administrator of cashless exercise procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of awards consistent with applicable laws and any limitations imposed by the Administrator.
5.7 International Awards. One or more awards may be granted to Eligible Persons who provide services to the Company or one of its Subsidiaries outside of the United States. Any awards granted to such persons may be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator from time to time. The awards so granted need not comply with other specific terms of this Plan, provided that shareholder approval of any deviation from the specific terms of this Plan is not required by applicable law or any applicable listing agency.
6. EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICE ON AWARDS
6.1 General. The Administrator shall establish the effect (if any) of a termination of employment or service on the rights and benefits under each award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of termination and type of award. If the participant is not an employee of the Company or one of its Subsidiaries, is not a member of the Board, and provides other services to the Company or one of its Subsidiaries, the Administrator shall be the sole judge for purposes of this Plan (unless a contract or the award otherwise provides) of whether the participant continues to render services to the Company or one of its Subsidiaries and the date, if any, upon which such services shall be deemed to have terminated.
6.2 Events Not Deemed Terminations of Employment. Unless the express policy of the Company or one of its Subsidiaries, or the Administrator, otherwise provides, or except as otherwise required by applicable law, the employment relationship shall not be considered terminated in the case of: (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by the Company or one of its Subsidiaries, or the Administrator; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law or the Administrator otherwise provides, such leave is for a period of not more than three months. In the case of any employee of the Company or one of its Subsidiaries on an approved leave of absence, continued vesting of the award while on leave from the employ of the Company or one of its Subsidiaries may be suspended until the employee returns to service, unless the Administrator otherwise provides or applicable law otherwise requires. In no event shall an award be exercised after the expiration of any applicable maximum term of the award.
6.3 Effect of Change of Subsidiary Status. For purposes of this Plan and any award, if an entity ceases to be a Subsidiary of the Company a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of the Company or another Subsidiary that continues as such after giving effect to the transaction or other event giving rise to the change in status unless the Subsidiary that is sold, spun-off or otherwise divested (or its successor or a direct or indirect parent of such Subsidiary or successor) assumes the Eligible Persons award(s) in connection with such transaction.
7. ADJUSTMENTS; ACCELERATION
7.1 Adjustments.
(a) Subject to Section 7.2, upon (or, as may be necessary to effect the adjustment, immediately prior to): any reclassification, recapitalization, share split (including a share split in the form of a share dividend) or reverse share split; any merger, combination, consolidation, conversion or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Ordinary Shares; or any exchange of Ordinary Shares or other securities of the Company, or any similar, unusual or extraordinary corporate transaction in respect of the Ordinary Shares; then the Administrator shall equitably and proportionately adjust: (1) the number and type of Ordinary Shares (or other securities) that thereafter may be made the subject of awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan); (2) the number, amount and type of Ordinary Shares (or other securities or property) subject to any outstanding awards; (3) the grant, purchase, or exercise price (which term includes the base price of any SAR or similar right) of any outstanding awards; and/or (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding awards, in each case to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding awards.
(b) Without limiting the generality of Section 3.3, any good faith determination by the Administrator as to whether an adjustment is required in the circumstances pursuant to this Section 7.1, and the extent and nature of any such adjustment, shall be conclusive and binding on all persons.
7.2 Corporate Transactions - Assumption and Termination of Awards.
(a) Upon any event in which the Company does not survive, or does not survive as a public company in respect of its Ordinary Shares (including, without limitation, a dissolution, merger, combination, consolidation, conversion, amalgamation, exchange of securities, or other reorganization, or a sale of all or substantially all of the business, shares or assets of the Company, in any case in connection with which the Company does not survive or does not survive as a public company in respect of its Ordinary Shares), then the Administrator may make provision for a cash payment in settlement of, or for the termination, assumption, substitution or exchange of any or all outstanding awards or the cash, securities or property deliverable to the holder of any or all outstanding awards, based upon, to the extent relevant under the circumstances, the distribution or consideration payable to holders of the Ordinary Shares upon or in respect of such event. Upon the occurrence of any event described in the preceding sentence in connection with which the Administrator has made provision for the award to be terminated (and the Administrator has not made a provision for the substitution, assumption, exchange or other continuation or settlement of the award): (1) unless otherwise provided in the applicable award agreement, each then-outstanding option and SAR shall become fully vested, all restricted shares then outstanding shall fully vest free of restrictions, and each other award granted under this Plan that is then outstanding shall become payable to the holder of such award (with any performance goals applicable to the award in each case being deemed met, unless otherwise provided in the award agreement, at the target performance level); and (2) each award (including any award or portion thereof that, by its terms, does not accelerate and vest in the circumstances) shall terminate upon the related event; provided that the holder of an option or SAR shall be given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding vested options and SARs (after giving effect to any accelerated vesting required in the circumstances) in accordance with their terms before the termination of such awards (except that in no case shall more than ten days notice of the impending termination be required and any acceleration of vesting and any exercise of any portion of an award that is so accelerated may be made contingent upon the actual occurrence of the event).
(b) Without limiting the preceding paragraph, in connection with any event referred to in the preceding paragraph or any change in control event defined in any applicable award agreement, the Administrator may, in its discretion, provide for the accelerated vesting of any award or awards as and to the extent determined by the Administrator in the circumstances.
(c) For purposes of this Section 7.2, an award shall be deemed to have been assumed if (without limiting other circumstances in which an award is assumed) the award continues after an event referred to above in this Section 7.2, and/or is assumed and continued by the surviving entity following such event (including, without limitation, an entity that, as a result of such event, owns the Company or all or substantially all of the Companys assets directly or through one or more subsidiaries (a Parent)), and confers the right to purchase or receive, as applicable and subject to vesting and the other terms and conditions of the award, for each Ordinary Share subject to the award immediately prior to the event, the consideration (whether cash, shares, or other securities or property) received in the event by the shareholders of the Company for each Ordinary Share sold or exchanged in such event (or the consideration received by a majority of the shareholders participating in such event if the shareholders were offered a choice of consideration); provided, however, that if the consideration offered for an Ordinary Share in the event is not solely the ordinary shares of a successor corporation or a Parent, the Administrator may provide for the consideration to be received upon exercise or payment of the award, for each share subject to the award, to be solely ordinary shares of the successor corporation or a Parent equal in fair market value to the per share consideration received by the shareholders participating in the event.
(d) The Administrator may adopt such valuation methodologies for outstanding awards as it deems reasonable in the event of a cash or property settlement and, in the case of options, SARs or similar rights, but without limitation on other methodologies, may base such settlement solely upon the excess if any of the per share amount payable upon or in respect of such event over the exercise or base price of the award. In the case of an option, SAR or similar right as to which the per share amount payable upon or in respect of such event is less than or equal to the exercise or base price of the award, the Administrator may terminate such award in connection with an event referred to in this Section 7.2 without any payment in respect of such award.
(e) In any of the events referred to in this Section 7.2, the Administrator may take such action contemplated by this Section 7.2 prior to such event (as opposed to on the occurrence of such event) to the extent that the Administrator deems the action necessary to permit the participant to realize the benefits intended to be conveyed with respect to the underlying shares. Without limiting the generality of the foregoing, the Administrator may deem an acceleration and/or termination to occur immediately prior to the applicable event and, in such circumstances, will reinstate the original terms of the award if an event giving rise to an acceleration and/or termination does not occur.
(f) Without limiting the generality of Section 3.3, any good faith determination by the Administrator pursuant to its authority under this Section 7.2 shall be conclusive and binding on all persons.
(g) The Administrator may override the provisions of this Section 7.2 by express provision in the award agreement and may accord any Eligible Person a right to refuse any acceleration, whether pursuant to the award agreement or otherwise, in such circumstances as the Administrator may approve. The portion of any ISO accelerated in connection with an event referred to in this Section 7.2 (or such other circumstances as may trigger accelerated vesting of the award) shall remain exercisable as an ISO only to the extent the applicable US$100,000 limitation on ISOs is not exceeded. To the extent exceeded, the accelerated portion of the option shall be exercisable as a nonqualified stock option under the Code.
8. OTHER PROVISIONS
8.1 Compliance with Laws. This Plan, the granting and vesting of awards under this Plan, the offer, issuance and delivery of Ordinary Shares, and/or the payment of money under this Plan or under awards are subject to compliance with all applicable federal, state, local and foreign laws, rules and regulations (including, but not limited to, securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. The person acquiring any securities under this Plan will, if requested by the Company or one of its Subsidiaries, provide such assurances and representations to the Company or one of its Subsidiaries as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements.
8.2 No Rights to Award. No person shall have any claim or rights to be granted an award (or additional awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.
8.3 No Employment/Service Contract. Nothing contained in this Plan (or in any other documents under this Plan or in any award) shall confer upon any Eligible Person or other participant any right to continue in the employ or other service of the Company or one of its Subsidiaries, constitute any contract or agreement of employment or other service or affect an employees status as an employee at will, nor shall interfere in any way with the right of the Company or one of its Subsidiaries to change a persons compensation or other benefits, or to terminate his or her employment or other service, with or without cause. Nothing in this Section 8.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an award agreement.
8.4 Plan Not Funded. Awards payable under this Plan shall be payable in shares or from the general assets of the Company, and no special or separate reserve, fund or deposit shall be made to assure payment of such awards. No participant, beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including Ordinary Shares, except as expressly otherwise provided) of the Company or one of its Subsidiaries by reason of any award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company or one of its Subsidiaries and any participant, beneficiary or other person. To the extent that a participant, beneficiary or other person acquires a right to receive payment pursuant to any award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.
8.5 Tax Withholding. Upon any exercise, vesting, or payment of any award, or upon the disposition of Ordinary Shares acquired pursuant to the exercise of an ISO prior to satisfaction of the holding period requirements of Section 422 of the Code, or upon any other tax withholding event with respect to any award, arrangements satisfactory to the Company shall be made to provide for any taxes the Company or any of its Subsidiaries may be required or permitted to withhold with respect to such award event or payment. Such arrangements may include (but are not limited to) any one of (or a combination of) the following:
(a) The Company or one of its Subsidiaries shall have the right to require the participant (or the participants personal representative or beneficiary, as the case may be) to pay or provide for payment of the amount of any taxes which the Company or one of its Subsidiaries may be required or permitted to withhold with respect to such award event or payment.
(b) The Company or one of its Subsidiaries shall have the right to deduct from any amount otherwise payable in cash (whether related to the award or otherwise) to the participant (or the participants personal representative or beneficiary, as the case may be) the amount of any taxes which the Company or one of its Subsidiaries may be required or permitted to withhold with respect to such award event or payment.
(c) In any case where a tax is required to be withheld in connection with the delivery of Ordinary Shares under this Plan (including the sale of Ordinary Shares as may be required to comply with applicable foreign exchange rules), the Administrator may in its sole discretion (subject to Section 8.1) require or grant (either at the time of the award or thereafter) to the participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, that the Company reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their fair market value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy any applicable withholding obligation on exercise, vesting or payment.
8.6 Effective Date, Termination and Suspension, Amendments.
8.6.1 Effective Date. This Plan is effective as of the United States Securities and Exchange Commissions declaration of effectiveness of the Registration Statement on Form F-1 relating to the registration of the Companys Ordinary Shares in the form of American depositary shares (the Effective Date). This Plan shall be submitted for and subject to shareholder approval no later than twelve months after the Effective Date. Unless earlier terminated by the Board and subject to any extension that may be approved by shareholders, this Plan shall terminate at the close of business on the day before January 16, 2031. After the termination of this Plan either upon such stated termination date or its earlier termination by the Board, no additional awards may be granted under this Plan, but previously granted awards (and the authority of the Administrator with respect thereto, including the authority to amend such awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.
8.6.2 Board Authorization. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No awards may be granted during any period that the Board suspends this Plan.
8.6.3 Shareholder Approval. To the extent then required by applicable law or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to shareholder approval.
8.6.4 Amendments to Awards. Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on awards to participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a participant, and (subject to the requirements of Sections 3.2 and 8.6.5) may make other changes to the terms and conditions of awards.
8.6.5 Limitations on Amendments to Plan and Awards. No amendment, suspension or termination of this Plan or amendment of any outstanding award agreement shall, without written consent of the participant, affect in any manner materially adverse to the participant any rights or benefits of the participant or obligations of the Company under any award granted under this Plan prior to the effective date of such change. Changes, settlements and other actions contemplated by Section 7 shall not be deemed to constitute changes or amendments for purposes of this Section 8.6.
8.7 Privileges of Share Ownership. Except as otherwise expressly authorized by the Administrator, a participant shall not be entitled to any privilege of share ownership as to any Ordinary Shares not actually delivered to and held of record by the participant. Except as expressly required by Section 7.1 or otherwise expressly provided by the Administrator, no adjustment will be made for dividends or other rights as a shareholder for which a record date is prior to such date of delivery.
8.8 Governing Law; Severability.
8.8.1 Choice of Law. This Plan, the awards, all documents evidencing awards and all other related documents shall be governed by, and construed in accordance with the laws of the Cayman Islands, notwithstanding any conflict of law provision to the contrary.
8.8.2 Severability. If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.
8.9 Captions. Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.
8.10 Share-Based Awards in Substitution for Options or Awards Granted by Other Company. Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee options, SARs, restricted shares or other share-based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Company or one of its Subsidiaries, in connection with a distribution, merger, amalgamation or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company or one of its Subsidiaries, directly or indirectly, of all or a substantial part of the shares or assets of the employing entity. The awards so granted need not comply with other specific terms of this Plan, provided the awards reflect adjustments giving effect to the assumption or substitution consistent with any conversion applicable to the ordinary shares (or the securities otherwise subject to the award) in the transaction and any change in the issuer of the security. Any shares that are delivered and any awards that are granted by, or become obligations of, the Company, as a result of the assumption by the Company of, or in substitution for, outstanding awards previously granted or assumed by an acquired company (or previously granted or assumed by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Company or one of its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan.
8.11 Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Ordinary Shares, under any other plan or authority.
8.12 No Corporate Action Restriction. The existence of this Plan, the award agreements and the awards granted hereunder shall not limit, affect, or restrict in any way the right or power of the Company or any Subsidiary (or any of their respective shareholders, boards of directors or committees thereof (or any subcommittees), as the case may be) to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Company or any Subsidiary, (b) any merger, amalgamation, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference shares ahead of or affecting the authorized shares (or the rights thereof) of the Company or any Subsidiary, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Company or any Subsidiary, (f) any other award, grant, or payment of incentives or other compensation under any other plan or authority (or any other action with respect to any benefit, incentive or compensation), or (g) any other corporate act or proceeding by the Company or any Subsidiary. No participant, beneficiary or any other person shall have any claim under any award or award agreement against any member of the Board or the Administrator, or the Company or any employees, officers or agents of the Company or any Subsidiary, as a result of any such action. Awards need not be structured so as to be deductible for tax purposes.
8.13 Other Company Benefit and Compensation Programs. Payments and other benefits received by a participant under an award made pursuant to this Plan shall not be deemed a part of a participants compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing. Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, awards or commitments under any other plans, arrangements or authority of the Company or its Subsidiaries.
8.14 Clawback Policy. The awards granted under this Plan are subject to the terms of the Companys recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of awards or any Ordinary Shares or other cash or property received with respect to the awards (including any value received from a disposition of the shares acquired upon payment of the awards).
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form F-1 of Adagene Inc. of our report dated September 22, 2020 relating to the financial statements of Adagene Inc., which appears in this Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the Peoples Republic of China
January 19, 2021
Adagene Inc.
(the Company)
Code of Business Conduct and Ethics
Adopted January 16, 2021
Introduction
This Code of Business Conduct and Ethics (the Code) has been adopted by our Board of Directors (the Board) and summarizes the standards that must guide our actions. Although they cover a wide range of business practices and procedures, these standards cannot and do not cover every issue that may arise, or every situation in which ethical decisions must be made, but rather set forth key guiding principles that represent Company policies and establish conditions for employment at the Company.
We must strive to foster a culture of honesty and accountability. Our commitment to the highest level of ethical conduct should be reflected in all of the Companys business activities, including, but not limited to, relationships with employees, customers, suppliers, competitors, the government, the public and our shareholders. All of our employees, officers and directors must conduct themselves according to the language and spirit of this Code and seek to avoid even the appearance of improper behavior. Even well intentioned actions that violate the law or this Code may result in negative consequences for the Company and for the individuals involved.
One of our Companys most valuable assets is our reputation for integrity, professionalism and fairness. We should all recognize that our actions are the foundation of our reputation and adhering to this Code and applicable law is imperative.
Conflicts of Interest
Our employees, officers and directors have an obligation to conduct themselves in an honest and ethical manner and to act in the best interest of the Company. All employees, officers and directors should endeavor to avoid situations that present a potential or actual conflict between their interest and the interest of the Company.
A conflict of interest occurs when a persons private interest interferes in any way, or even appears to interfere, with the interests of the Company as a whole, including those of its subsidiaries and affiliates. A conflict of interest may arise when an employee, officer or director takes an action or has an interest that may make it difficult for him or her to perform his or her work objectively and effectively. A conflict of interest may also arise when an employee, officer or director (or a member of his or her family) receives improper personal benefits as a result of the employees, officers or directors position in the Company.
Although it would not be possible to describe every situation in which a conflict of interest may arise, the following are examples of situations that may constitute a conflict of interest:
· Working, in any capacity, for a competitor, customer or supplier while employed by the Company.
· Accepting gifts of more than modest value or receiving personal discounts (if such discounts are not generally offered to the public) or other benefits as a result of your position in the Company from a competitor, customer or supplier.
· Competing with the Company for the purchase or sale of property, products, services or other interests.
· Having an interest in a transaction involving the Company, a competitor, customer or supplier (other than as an employee, officer or director of the Company and not including routine investments in publicly traded companies).
· Receiving a loan or guarantee of an obligation as a result of your position with the Company.
· Directing business to a supplier owned or managed by, or which employs, a relative or friend.
Situations involving a conflict of interest may not always be obvious or easy to resolve. You should report actions that may involve a conflict of interest to the Audit Committee of the Board of Directors.
In order to avoid conflicts of interests, senior executive officers and directors must disclose to the Audit Committee of the Board any material transaction or relationship that reasonably could be expected to give rise to such a conflict. Conflicts of interests involving the Audit Committee of the Board shall be disclosed to the Board.
In the event that an actual or apparent conflict of interest arises between the personal and professional relationship or activities of an employee, officer or director, the employee, officer or director involved is required to handle such conflict of interest in an ethical manner in accordance with the provisions of this Code.
Quality of Public Disclosures
The Company has a responsibility to provide full and accurate information in our public disclosures, in all material respects, about the Companys financial condition and results of operations. Our reports and documents filed with or submitted to the United States Securities and Exchange Commission and our other public communications shall include full, fair, accurate, timely and understandable disclosure, and the Company has established a Disclosure Committee consisting of senior management to assist in monitoring such disclosures.
Compliance with Laws, Rules and Regulations
We are strongly committed to conducting our business affairs with honesty and integrity and in full compliance with all applicable laws, rules and regulations. No employee, officer or director of the Company shall commit an illegal or unethical act, or instruct others to do so, for any reason.
Compliance with this Code and Reporting of Any Illegal or Unethical Behavior
All employees, directors and officers are expected to comply with all of the provisions of this Code. The Code will be strictly enforced and violations will be dealt with immediately, including by subjecting persons who violate its provisions to corrective and/or disciplinary action such as dismissal or removal from office. Violations of the Code that involve illegal behavior will be reported to the appropriate authorities.
Situations which may involve a violation of ethics, laws, rules, regulations or this Code may not always be clear and may require the exercise of judgment or the making of difficult decisions.
Employees, officers and directors should promptly report any concerns about a violation of ethics, laws, rules, regulations or this Code to their supervisor or the Legal Department or, in the case of accounting, internal accounting controls or auditing matters, the Audit Committee of the Board. Interested parties may also communicate directly with the Companys non-management directors through contact information located in the Companys annual report on Form 20-F.
Any concerns about a violation of ethics, laws, rules, regulations or this Code by any senior executive officer or director should be reported promptly to the Audit Committee of the Board. Reporting of such violations may also be done anonymously through email to the Company at a designated email address for compliance reporting. An anonymous report should provide enough information about the incident or situation to allow the Company to investigate properly. If concerns or complaints require confidentiality, including keeping an identity anonymous, the Company will endeavor to protect this confidentiality, subject to applicable law, regulation or legal proceedings.
The Company encourages all employees, officers and directors to report any suspected violations promptly and intends to thoroughly investigate any good faith reports of violations. The Company will not tolerate any kind of retaliation for reports or complaints regarding misconduct that were made in good faith. Open communication of issues and concerns by all employees, officers and directors without fear of retribution or retaliation is vital to the successful implementation of this Code. All employees, officers and directors are required to cooperate in any internal investigations of misconduct and unethical behavior.
The Company recognizes the need for this Code to be applied equally to everyone it covers. The Legal Department of the Company will have primary authority and responsibility for the enforcement of this Code, subject to the supervision of the Audit Committee of the Board, and the Company will devote the necessary resources to enable the Legal Department to establish such procedures as may be reasonably necessary to create a culture of accountability and facilitate compliance with this Code. Questions concerning this Code should be directed to the Legal Department.
The provisions of this section are qualified in their entirety by reference to the following section.
Reporting Violations to a Governmental Agency
Employees have the right under applicable law to certain protections for cooperating with or reporting legal violations to governmental agencies or entities and self-regulatory organizations. As such, nothing in this Code is intended to prohibit any employee from disclosing or reporting violations to, or from cooperating with, a governmental agency or entity or self-regulatory organization, and employees may do so without notifying the Company. The Company may not retaliate against all employee for any of these activities, and nothing in this Code or otherwise requires any employee to waive any monetary award or other payment that he or she might become entitled to from a governmental agency or entity, or self-regulatory organization.
All employees of the Company have the right to:
· Report possible violations of applicable law or regulation that have occurred, are occurring, or are about to occur to any governmental agency or entity, or self-regulatory organization;
· Cooperate voluntarily with, or respond to any inquiry from, or provide testimony before any self-regulatory organization or any other national or local regulatory or law enforcement authority;
· Make reports or disclosures to law enforcement or a regulatory authority without prior notice to, or authorization from, the Company; and
· Respond truthfully to a valid subpoena.
All employees have the right to not be retaliated against for reporting, either internally to the Company or to any governmental agency or entity or self-regulatory organization, information which the employee reasonably believe relates to a possible violation of law. It is a violation of law to retaliate against anyone who has reported such potential misconduct either internally or to any governmental agency or entity or self-regulatory organization. Retaliatory conduct includes discharge, demotion, suspension, threats, harassment, and any other manner of discrimination in the terms and conditions of employment because of any lawful act the employee may have performed. It is unlawful for the company to retaliate against an employee for reporting possible misconduct either internally or to any governmental agency or entity or self-regulatory organization.
Notwithstanding anything contained in this Code or otherwise, employees may not disclose confidential Company information, including the existence and terms of any confidential agreements between the employee and the Company (including employment or severance agreements), to any governmental agency or entity or self-regulatory organization.
The Company cannot require an employee to withdraw reports or filings alleging possible violations of national or local law or regulation, and the Company may not offer employees any kind of inducement, including payment, to do so.
An employees rights and remedies as a whistleblower protected under applicable whistleblower laws, including a monetary award, if any, may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.
Even if an employee has participated in a possible violation of law, the employee may be eligible to participate in the confidentiality and retaliation protections afforded under applicable whistleblower laws, and the employee may also be eligible to receive an award under such laws.
Waivers and Amendments
Any waiver (including any implicit waiver) of the provisions in this Code for executive officers or directors may only be granted by the Board or a committee thereof and will be promptly disclosed to the Companys shareholders. Any such waiver will also be disclosed in the Companys annual report on Form 20-F. Amendments to this Code must be approved by the Board and will also be disclosed in the Companys annual report on Form 20-F.
Trading on Inside Information
Using non-public Company information to trade in securities, or providing a family member, friend or any other person with non-public Company information, is illegal. All non-public, Company information should be considered inside information and should never be used for personal gain. You are required to familiarize yourself and comply with the Companys Insider Trading Policy, copies of which are distributed to all employees, officers and directors and are available from the Legal Department. You should contact the Legal Department with any questions about your ability to buy or sell securities.
Protection of Confidential Proprietary Information
Confidential proprietary information generated by and gathered in our business is a valuable Company asset. Protecting this information plays a vital role in our continued growth and ability to compete, and all proprietary information should be maintained in strict confidence, except when disclosure is authorized by the Company or required by law.
Proprietary information includes all non-public information that might be useful to competitors or that could be harmful to the Company, its customers or its suppliers if disclosed. Intellectual property such as trade secrets, patents, trademarks and copyrights, as well as business, research and new product plans, objectives and strategies, records, databases, salary and benefits data, employee medical information, customer, employee and suppliers lists and any unpublished financial or pricing information must also be protected.
Unauthorized use or distribution of proprietary information violates Company policy and could be illegal. Such use or distribution could result in negative consequences for both the Company and the individuals involved, including potential legal and disciplinary actions. We respect the property rights of other companies and their proprietary information and require our employees, officers and directors to observe such rights.
Your obligation to protect the Companys proprietary and confidential information continues even after you leave the Company, and you must return all proprietary information in your possession upon leaving the Company.
The provisions of this section are qualified in their entirety by the section entitled Reporting Violations to Governmental Agencies above.
Protection and Proper Use of Company Assets
Protecting Company assets against loss, theft or other misuse is the responsibility of every employee, officer and director. Loss, theft and misuse of Company assets directly impact our profitability. Any suspected loss, misuse or theft should be reported to a supervisor or the Legal Department.
The sole purpose of the Companys equipment, vehicles, supplies and electronic resources (including hardware, software and the data thereon) is the conduct of our business. They may only be used for Company business consistent with Company guidelines.
Corporate Opportunities
Employees, officers and directors are prohibited from taking for themselves business opportunities that are discovered through the use of corporate property, information or position. No employee, officer or director may use corporate property, information or position for personal gain, and no employee, officer or director may compete with the Company. Competing with the Company may involve engaging in the same line of business as the Company or any situation in which the employee, officer or director takes away from the Company opportunities for sales or purchases of property, products, services or interests. Employees, officers and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.
Fair Dealing
Each employee, officer and director of the Company should endeavor to deal fairly with customers, suppliers, competitors, the public and one another at all times and in accordance with ethical business practices.
Each employee has an obligation to comply with the anti-corruption and anti-bribery laws of the Peoples Republic of China and any other regions and countries in which the Company operates. No one should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice. No bribes, kickbacks or other similar payments in any form shall be made directly or indirectly to or for anyone for the purpose of obtaining or retaining business or obtaining any other favorable action. In the event of a violation of these provisions, the Company and any employee, officer or director involved may be subject to disciplinary action as well as potential civil or criminal liability for violation of this policy.
Occasional business gifts to, or entertainment of, non-government employees in connection with business discussions or the development of business relationships are generally deemed appropriate in the conduct of Company business. However, these gifts should be given infrequently and their value should be modest. Gifts or entertainment in any form that would likely result in a feeling or expectation of personal obligation should not be extended or accepted.
Practices that are acceptable in a commercial business environment may be against the law or the policies governing national or local government employees. Therefore, no gifts or business entertainment of any kind may be given to any government employee without the prior approval of a supervisor or the Legal Department.
Except in certain limited circumstances, the United States Foreign Corrupt Practices Act (the FCPA) prohibits giving anything of value directly or indirectly to any non-U.S. official for the purpose of obtaining or retaining business. When in doubt as to whether a contemplated payment or gift may violate the FCPA, contact a supervisor or the Audit Committee of the Board before taking any action.
Compliance with Antitrust Laws
The antitrust laws prohibit agreements among competitors on such matters as prices, terms of sale to customers and the allocation of markets or customers. Antitrust laws can be complex, and violations may subject the Company and its employees to criminal sanctions, including fines, jail time and civil liability. If you have any questions about our antitrust compliance policies, consult the Legal Department.
Political Contributions and Activities
Any political contributions made by or on behalf of the Company and any solicitations for political contributions of any kind must be lawful and in compliance with Company policies. This policy applies solely to the use of Company assets and is not intended to discourage or prevent individual employees, officers or directors from making political contributions or engaging in political activities on their own behalf. No one may be reimbursed directly or indirectly by the Company for personal political contributions.
Doing Business with Others
We strive to promote the application of the standards of this Code by those with whom we do business. Our policies, therefore, prohibit the engaging of a third party to perform any act prohibited by law or by this Code, and we shall avoid doing business with others who intentionally and continually violate the law or the standards of this Code.
Accuracy of Company Financial Records
We maintain the highest standards in all matters relating to accounting, financial controls, internal reporting and taxation. All financial books, records and accounts must accurately reflect transactions and events and conform both to required accounting principles and to the Companys system of internal controls. Records shall not be distorted in any way to hide, disguise or alter the Companys true financial position.
Retention of Records
All Company business records and communications shall be clear, truthful and accurate. Employees, officers and directors of the Company shall avoid exaggeration, guesswork, legal conclusions and derogatory remarks or characterizations of people and companies. This applies to communications of all kinds, including email and informal notes or memos. Records should always be handled according to the Companys record retention policies. If an employee, officer or director is unsure whether a document should be retained, consult a supervisor or the Legal Department before proceeding.
Anti-Money Laundering
We are committed to preserving our reputation in the financial community by assisting in efforts to combat money laundering and terrorist financing. Money laundering is the practice of disguising the ownership or source of illegally obtained funds through a series of transactions to clean the funds so they appear to be proceeds from legal activities.
We have adopted measures to reduce the extent to which the Companys facilities, products and services can be used for a purpose connected with market abuse or financial crimes. Additionally, where necessary, we screen customers, potential customers and suppliers to ensure that our products and services cannot be used to facilitate money laundering or terrorist activity. If you have any questions about our internal anti-money laundering process and procedure, consult the Legal Department.
Social Media
Unless you are authorized by the Company, you are discouraged from discussing the Company as part of your personal use of social media. While business should only be conducted through approved channels, we understand that social media is used as a source of information and as a form of communicating with friends, family and workplace contacts.
When you are using social media and identify yourself as a Company employee, officer or director or mention the Company incidentally, for instance on a WeChat moments or professional networking site, please remember the following:
· Never disclose confidential information about the Company or its business, customers or suppliers.
· Make clear that any views expressed are your own and not those of the Company.
· Remember that our policy on Equal Opportunity, Non-Discrimination and Fair Employment applies to social media sites.
· Be respectful of your colleagues and all persons associated with the Company, including customers and suppliers.
· Promptly report to the Companys corporate communications department any social media content which inaccurately or inappropriately discusses the Company.
· Never respond to any information, including information that may be inaccurate about the Company.
· Never post documents, parts of documents, images or video or audio recordings that have been made with Company property or of Company products, services or people or at Company functions or events.
Professional Networking
Online networking on professional or industry sites, such as LinkedIn, has become an important and effective way for colleagues to stay in touch and exchange information. Employees, officers and directors should use good judgment when posting information about themselves or the Company on any of these services.
What you post about the Company or yourself will reflect on all of us. When using professional networking sites, you should observe the same standards of professionalism and integrity described in our code and follow the social media guidelines outlined above.
Government Inquiries
The Company cooperates with government agencies and authorities. Forward all requests for information, other than routine requests, to the Legal Department immediately to ensure that we respond appropriately.
All information provided must be truthful and accurate. Never mislead any investigator. Do not ever alter or destroy documents or records subject to an investigation.
Review
The Board shall review this Code annually and make changes as appropriate.
January 19, 2021
To: Adagene Inc.
4F, Building C14, No. 218, Xinghu Street, Suzhou Industrial Park, Suzhou, Jiangsu Province, Peoples Republic of China
Re: Legal Opinion Regarding Certain PRC Law Matters
We are qualified lawyers of the Peoples Republic of China (the PRC) and are qualified to issue an opinion on the laws and regulations of the PRC (for the purposes of this opinion, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan).
We have acted as PRC counsel to Adagene Inc., a company incorporated under the laws of the Cayman Islands (the Company). With respect to (i) the proposed public offering (the Offering) of the Companys American Depositary Shares (the ADSs), representing a certain number of ordinary shares (the Shares), par value $0.0001 per share, of the Company as set forth in the Companys registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission (the Registration Statement), including all amendments or supplements thereto, and (ii) the Companys proposed listing of the ADSs on the NASDAQ Global Market, you have requested us to furnish an opinion to you as to the matters hereinafter set forth.
A. Documents Examined, Definition and Information Provided
In connection with the furnishing of this opinion, we have examined copies, certified or otherwise identified to our satisfaction, of documents provided by the Company, and such other documents, the Registration Statement, corporate records, certificates, approvals and other instruments as we have deemed necessary for the purpose of rendering this opinion, including, without limitation, originals or copies of the certificates issued by PRC government authorities and officers of the Company. All of these documents are hereinafter collectively referred to as the Documents.
Unless the context of this opinion otherwise provides, the following terms in this opinion shall have the meanings set forth below:
Government Authorizations mean all approvals, consents, permits, authorizations, filings, registrations, exemptions, certificates, permissions, waiver, endorsement, annual inspection, qualifications or license required by the applicable PRC Laws.
PRC Company means Adagene (Suzhou) Limited, which is a company incorporated in accordance with the PRC Laws.
PRC Laws mean the published and publicly available PRC laws, regulations, rules and judicial interpretations announced by the PRC Supreme Peoples Court available on the date hereof.
Prospectus means the prospectus, including all amendments or supplements thereto, that forms part of the Registration Statement.
Capitalized terms used but not defined herein shall have the meanings set forth in the Registration Statement.
B. Assumptions
In our examination of the aforesaid Documents, we have assumed, without independent investigation and inquiry that:
1. all signatures, seals and chops are genuine and were made or affixed by representatives duly authorized by the respective parties, all natural persons have the necessary legal capacity, all Documents submitted to us as originals are authentic, and all Documents submitted to us as certified or photo static copies conform to the originals;
2. no amendments, revisions, modifications or other changes have been made with respect to any of the Documents after they were submitted to us for the purposes of this opinion and any Document submitted to us is effective and has not been varied, revoked, withheld, cancelled or superseded by some other documents or agreements or action of which we are not aware after due inquiry;
3. each of the parties to the Documents (except that we do not make such assumptions about the PRC Company) is duly organized and validly existing in good standing under the laws of its jurisdiction of organization and/or incorporation, and has been duly approved and authorized where applicable by the competent governmental authorities of the relevant jurisdiction to carry on its business and to perform its obligations under the Documents to which it is a party;
4. the truthfulness, accuracy and completeness of all factual statements in the Documents submitted and made available to us up to the date of this opinion. Where certain facts were not independently verified by us in order to render this opinion, we have relied upon the Documents issued by the PRC government agencies and representatives of the Company and the PRC Company with proper authority, and also upon representations, oral or written, made in, or pursuant to, the Documents, and we have qualified this opinion with regard to such facts as to the best of our knowledge after due inquiries without further independent investigation;
5. all facts and Documents which may affect this opinion herein have been disclosed to us, and there has not been or will not be any omission in respect of such disclosure; and
6. all Governmental Authorizations and other official documentations were obtained from the competent PRC government agencies by lawful means.
In expressing the opinions set forth herein, we have relied upon the factual matters contained in the representations and warranties set forth in the Documents.
C. Opinion
Based upon the foregoing, we are of the opinion that:
1. With Respect to the Corporate Structure
The description of the ownership structure described under the caption Corporate History and Structure in the Prospectus is true and accurate in all material respects and insofar as related to PRC Laws, nothing has been omitted from such description which would make the same misleading in any material respects. The ownership structures of the PRC Company as described in the Prospectus comply, and immediately after giving effect of this Offering will comply, with all applicable PRC Laws, and do not violate, breach, or otherwise conflict with any applicable PRC Laws, except as disclosed in the Prospectus.
2. With respect to the M&A Rules
On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the State Administration for Foreign Exchange, and the China Securities Regulatory Commission, or CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and amended on June 22, 2009. M&A Rules require, among other things, offshore special purpose vehicles, or SPVs, formed for the purpose of acquiring PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. The PRC Company was established as a foreign-invested enterprise by means of foreign direct investments rather than by merger with or acquisition of any PRC domestic companies as defined under the M&A Rules. Therefore, prior approval from CSRC is not required for the listing and trading of the Companys ADSs on an overseas stock exchange. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC Laws and there can be no assurance that the governmental agency will ultimately take a view that is consistent with our opinion stated in this paragraph.
3. Taxation
The statements set forth under the caption Taxation in the Prospectus, insofar as they constitute statements of PRC tax law, are accurate in all material respects and that such statements constitute our opinion, and insofar as related to PRC Laws nothing has been omitted from such statements which would make the same misleading in all material respects.
4. Enforceability of Civil Procedures
The recognition and enforcement of foreign judgments are subject to compliance with the PRC Civil Procedures Law and relevant civil procedure requirements in PRC. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against the Company or its directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands.
5. Statements in the Prospectus
The statements in the Prospectus under the captions Prospectus Summary, Risk Factors, Corporate History and Structure, Managements Discussion and Analysis of Financial Condition and Results of Operations Taxation PRC, Business, Enforceability of Civil Liabilities, Regulation, Taxation Material PRC Income Tax Considerations, and Dividend Policy, Legal Matters, insofar as such statements constitute summaries of the PRC legal matters, documents or proceedings referred to therein, in each case to the extent, and only to the extent, governed by the PRC Laws, fairly present the information and summarize in all material respects the matters referred to therein; and such statements are true, correct and accurate in all material aspects, and nothing has been omitted from such statements which would make the same misleading in any material respect.
D. Consent
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Prospectus, and to the use of our name under the captions Risk Factors, Enforceability of Civil Liabilities, Corporate History and Structure, Regulation, Taxation, Legal Matters, and elsewhere in the Prospectus.
This opinion relates only to PRC Laws and we express no opinion as to any laws other than PRC Laws. PRC Laws referred to herein are laws currently in force as of the date of this opinion and there is no guarantee that any of such PRC Laws, or the interpretation thereof or enforcement therefor, will not be changed, amended or revoked in the immediate future or in the longer term with or without retroactive effect.
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Prospectus. In giving such consent, we do not thereby admit that we fall within the category of the person whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.
Very truly yours, |
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/s/ Tian Yuan Law Firm |
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Tian Yuan Law Firm |
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Exhibit 99.3
January 19, 2021
Adagene Inc.
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
Re: Consent of Frost & Sullivan
Ladies and Gentlemen,
Reference is made to the registration statement on Form F-1 (the Registration Statement) filed by Adagene Inc. (the Company) with the United States Securities and Exchange Commission (the SEC) under the Securities Act of 1933, as amended, in connection with its proposed initial public offering (the Proposed IPO).
We hereby consent to the use of and references to our name and the inclusion of information, data and statements from our research reports and amendments thereto, including, but not limited to, the industry report titled Global Market Study of Innovative Biologics (collectively, the Reports), and any subsequent amendments to the Reports, as well as the citation of our research reports and amendments thereto, (i) in the Registration Statement and any amendments thereto, including, but not limited to, under the Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Industry Overview and Business sections, (ii) in any written correspondence with the SEC, (iii) in any other future filings with the SEC by the Company, including, without limitation, filings on Form 20-F, submissions on Form 6-K and other SEC filings or submissions (collectively, the SEC Filings), (iv) in institutional and retail roadshows and other activities in connection with the Proposed IPO, (v) on the websites or in the publicity materials of the Company and its subsidiaries and affiliates, and (vi) in other publicity and marketing materials in connection with the Proposed IPO.
We further hereby consent to the filing of this consent letter as an exhibit to the Registration Statement and any amendments thereto and as an exhibit to any other SEC Filings.
Yours faithfully,
For and on behalf of
Frost & Sullivan (Beijing) Inc., Shanghai Branch Co.
/s/ Charlotte Wang |
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Name: Charlotte Wang |
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Title: Executive Director |
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January 19, 2021
Adagene Inc. (the Company)
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the reference of my name as a director of the Company, effective immediately upon the effectiveness of the Companys registration statement on Form F-1 initially filed by the Company on January 19, 2021 with the U.S. Securities and Exchange Commission.
Sincerely yours,
/s/ Yiu Leung Andy Cheung |
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Name: Yiu Leung Andy Cheung |
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January 19, 2021
Adagene Inc. (the Company)
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the reference of my name as a director of the Company, effective immediately upon the effectiveness of the Companys registration statement on Form F-1 initially filed by the Company on January 19, 2021 with the U.S. Securities and Exchange Commission.
Sincerely yours,
/s/ Min Li |
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Name: Min Li |
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January 19, 2021
Adagene Inc. (the Company)
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the reference of my name as a director of the Company, effective immediately upon the effectiveness of the Companys registration statement on Form F-1 initially filed by the Company on January 19, 2021 with the U.S. Securities and Exchange Commission.
Sincerely yours,
/s/ Man Kin Tam |
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Name: Man Kin (Raymond) Tam |
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Adagene Inc.
4F, Building C14, No. 218,
Xinghu Street, Suzhou Industrial Park
Suzhou, Jiangsu Province, 25125
Peoples Republic of China
+86-512-8777-3632
January 19, 2021
VIA EDGAR
Division of Corporation Finance
Office of the Chief Accountant
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Adagene Inc.
Registration Statement on Form F-1
(CIK No. 0001818838)
Representation under Item 8.A.4 of Form 20-F
Ladies and Gentlemen:
Adagene Inc. is an exempted company incorporated under the laws of the Cayman Islands with limited liability (the Company). In connection with the proposed initial public offering of the Companys ordinary shares to be represented by American depositary shares (the Offering), the Company is submitting this letter via EDGAR to the Securities and Exchange Commission (the Commission) in connection with the Companys filing of the above-referenced registration statement on Form F-1 (the Registration Statement).
Item 8.A.4 of Form 20-F requires that in the case of a companys initial public offering, the registration statement on Form F-1 shall contain audited financial statements as of a date not older than 12 months from the date of the filing.
At the time of the Companys initial public filing on January 19, 2021, the Companys Registration Statement contained audited financial statements for the year ended December 31, 2019 prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP), and therefore satisfied Item 8.A.4 of Form 20-F. However, the Company was unable to complete the proposed offering in 2020 and the latest amendment to the Registration Statement contains the unaudited interim financials for the nine months ended September 30, 2019 and 2020. The Companys audited financial statements for the year ended December 31, 2020 will not be available until late April 2021.
In light of the above, the Company is submitting this letter pursuant to Instruction 2 to Item 8.A.4 of Form 20-F, which provides that [a] company may comply with only the 15-month requirement in this item if the company is able to represent that it is not required to comply with the 12-month requirement in any other jurisdiction outside the United States and that complying with the 12-month requirement is impracticable or involves undue hardship.
Davis Polk includes Davis Polk & Wardwell LLP and its associated entities.
The Company hereby represents to the Commission that:
1. The Company is not required by any jurisdiction outside the United States to comply with a requirement to issue financial statements 12 months after the Companys year end.
2. Compliance with Item 8.A.4 is impracticable and involves undue hardship for the Company.
3. The Company does not anticipate that its audited financial statements for the year ended December 31, 2020 will be available until late April 2021.
4. In no event will the Company seek effectiveness of the Registration Statement if its audited financial statements are older than 15 months at the time of the Offering.
The Company is submitting this letter as an exhibit to the Registration Statement pursuant to Instruction 2 to Item 8.A.4 of Form 20-F.
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Very truly yours, |
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Adagene Inc. |
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By: |
/s/ Raymond Tam |
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Name: Raymond Tam |
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Title: Chief Financial Officer |