As filed with the Securities and Exchange Commission on February 11, 2013.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
TETRAPHASE PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 2834 | 20-5276217 | ||
(State or Other Jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
Incorporation or Organization) | Classification Code No.) | Identification No.) |
480 Arsenal Street, Suite 110
Watertown, MA 02472
(617) 715-3600
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Guy Macdonald
President and Chief Executive Officer
480 Arsenal Street, Suite 110
Watertown, MA 02472
(617) 715-3600
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Stuart M. Falber, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, MA 02109 (617) 526-6663 |
Peter N. Handrinos, Esq. Gregory P. Rodgers, Esq. Latham & Watkins LLP John Hancock Tower, 20th Floor 200 Clarendon Street Boston, MA 02116 (617) 948-6060 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
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, as amended (the Securities Act) please check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
CALCULATION OF REGISTRATION FEE
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Class of Securities to be Registered |
Proposed
Maximum Aggregate Offering Price(1) |
Amount of
Registration Fee(2) |
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Common Stock, par value $0.001 per share |
$86,250,000 | $11,764.50 | ||
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(1) | Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
(2) | Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price. |
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 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated February 11, 2013 |
PROSPECTUS
Shares
Tetraphase Pharmaceuticals, Inc.
Common Stock
This is the initial public offering of shares of the common stock of Tetraphase Pharmaceuticals, Inc. We are offering shares of our common stock. No public market currently exists for our common stock.
We have applied to list our common stock listed on The NASDAQ Global Market under the symbol TTPH.
We anticipate that the initial public offering price will be between $ and $ per share.
As an emerging growth company, we are eligible for reduced public company reporting requirements. See Prospectus SummaryImplications of Being an Emerging Growth Company.
Investing in our common stock involves risks. See Risk Factors beginning on page 12 of this prospectus.
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Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds to us (before expenses) |
$ | $ |
We have granted the underwriters the option to purchase additional shares of common stock on the same terms and conditions set forth above if the underwriters sell more than shares of common stock in this offering.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or about , 2013.
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F-1 |
You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different. We are offering to sell shares of our common stock, and seeking offers to buy shares of our common stock, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.
Until , 25 days after the date of this prospectus, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.
For investors outside the United States: Neither we nor any of the underwriters have taken any action to permit a public offering of the shares of our common stock or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.
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This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including our consolidated financial statements and related notes, and the risk factors beginning on page 12 before deciding whether to purchase shares of our common stock. Unless the context otherwise requires, we use the terms Tetraphase, our company, we, us and our in this prospectus to refer to Tetraphase Pharmaceuticals, Inc. and its subsidiaries.
Company Overview
We are a clinical stage biopharmaceutical company using our proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections. Our lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that we are developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative infections. We recently completed a successful Phase 2 clinical trial of eravacycline with intravenous administration for the treatment of patients with complicated intra-abdominal infections, or cIAI, and are currently finalizing our pivotal Phase 3 program for eravacycline. Consistent with recent draft guidance issued by the Food and Drug Administration, or FDA, with respect to the development of antibiotics for cIAI and our discussions with the FDA at our end-of-Phase 2 meeting in January 2013, we expect to conduct two global Phase 3 clinical trials of eravacycline, one for the treatment of cIAI and one for the treatment of complicated urinary tract infections, or cUTI. We expect to have top-line data from both of these clinical trials in the first quarter of 2015.
In our Phase 2 clinical trial, intravenous eravacycline dosed once or twice per day as a monotherapy demonstrated a favorable safety and tolerability profile and a high cure rate, including against multi-drug resistant Gram-negative, Gram-positive and anaerobic bacteria. In in vitro experiments, eravacycline has demonstrated the ability to cover a wide variety of multi-drug resistant Gram-negative, Gram-positive, anaerobic and atypical bacteria, including multi-drug resistant Klebsiella pneumoniae , the species of Gram-negative bacteria that killed seven patients at the Clinical Center of the National Institutes of Health in 2012. Gram-negative bacteria that are resistant to all available antibiotics are increasingly common and a growing threat to public health. We believe that the ability of eravacycline to cover multi-drug resistant Gram-negative bacteria, as well as multi-drug resistant Gram-positive, anaerobic and atypical bacteria, and its potential for intravenous to oral step-down therapy, will enable eravacycline to become the drug of choice for first-line empiric treatment of a wide variety of serious and life-threatening infections.
The tetracycline class of antibiotics has been used successfully for more than 50 years. Unlike our tetracycline compounds, all tetracyclines on the market and under development of which we are aware are produced semi-synthetically, first in bacteria and then modified in a limited number of ways by available chemistry. These conventional methods have only been able to produce tetracycline antibiotics with limited chemical diversity, making it difficult for conventional technology to create tetracycline antibiotics that address a wide variety of multi-drug resistant bacteria. In part, because of the challenges in creating novel tetracycline molecules, only one tetracycline antibiotic has been developed and approved by the FDA for sale in the United States in the past 30 years.
We believe that our proprietary chemistry technology, licensed from Harvard University on an exclusive worldwide basis and enhanced by us, represents a significant innovation in the creation of tetracycline drugs that has the potential to reinvigorate the clinical and market potential of the class. Our proprietary chemistry technology makes it possible to create novel tetracycline antibiotics using a practical, fully synthetic process for what we believe is the first time. This fully synthetic process avoids the limitations of bacterially derived tetracyclines and allows us to chemically modify many positions in the tetracycline scaffold, including most of the positions that we believe could not practically be modified by any previous method. Using our proprietary chemistry technology, we can create a wider variety of tetracycline-based compounds than was previously
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possible, enabling us to pursue novel tetracycline derivatives for the treatment of multi-drug resistant bacteria that are resistant to existing tetracyclines and other classes of antibiotic products. To date, we have used our proprietary chemistry technology to create more than 2,800 new tetracycline derivatives that we believe could not be practically created with conventional methods. We own exclusive worldwide rights to these compounds and our technology.
We are currently finalizing our pivotal Phase 3 program for eravacycline. We are designing the program to enable us to position eravacycline as a first-line empiric monotherapy for the treatment of cIAI and cUTI due to eravacyclines broad-spectrum coverage of multi-drug resistant infections, including multi-drug resistant Gram-negative infections. We expect that our pivotal Phase 3 program will be consistent with the draft guidance recently issued by the FDA for drug development for cIAI and cUTI. The cIAI guidance indicates that, for companies developing a drug for cIAI and an additional indication caused by similar bacterial pathogens, such as cUTI, a single trial in cIAI and a single trial in that additional indication could be sufficient to provide evidence of effectiveness in both indications.
In January 2013, we discussed our pivotal Phase 3 program with the FDA at an end-of-Phase 2 meeting. Following these discussions, we are now moving ahead with our plans to conduct two global Phase 3 clinical trials of the intravenous formulation of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013. We expect to have top-line data from both of these clinical trials in the first quarter of 2015. If we complete the Phase 3 clinical trials of eravacycline when we anticipate and the trials are successful, we expect to submit a new drug application, or NDA, to the FDA in the second half of 2015 and a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, in the first half of 2016.
In addition to developing an intravenous formulation of eravacycline, we are also developing an oral formulation. A number of previous tetracyclines have been available in both intravenous and oral dosage forms. Infections that are resistant to existing oral drugs are increasingly common, and we believe that an intravenous-to-oral step-down therapy in which patients are started on the intravenous formulation of eravacycline and then stepped down to an oral formulation of eravacycline could reduce the length of a patients hospital stay or help avoid hospital admission altogether, lowering the overall cost of care for these patients. We have completed multiple Phase 1 clinical trials of oral formulations of eravacycline. Based on these trials, as well as data from our Phase 2 clinical trial of the intravenous formulation of eravacycline, we believe that eravacycline can be well enough absorbed as an oral medication to achieve the drug levels necessary to be effective in treating patients. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. We expect to complete this trial by mid-2013. If the data from this trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI.
In 2011 and 2012, the U.S. government awarded contracts for potential funding of over $100 million for the development of our antibiotic compounds. These awards include a contract for up to $67 million from the Biomedical Advanced Research and Development Authority, or BARDA, an agency of the U.S. Department of Health and Human Services, for the development of eravacycline for the treatment of disease caused by bacterial biothreat pathogens, which we refer to as the BARDA Contract. These awards also include a contract for up to $36 million from the National Institute of Allergy and Infectious Diseases, or NIAID, a division of the National Institutes of Health, for the development of TP-271, a preclinical compound that we are developing for respiratory diseases caused by bacterial biothreat pathogens, which we refer to as the NIAID Contract. These awards were made to CUBRC, Inc., or CUBRC, an independent, not-for-profit, research corporation that specializes in U.S. government-based contracts, with which we are collaborating. CUBRC serves as the prime contractor under these awards, primarily carrying out a program management and administrative role with
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additional responsibility for the management of preclinical studies. We serve as lead technical expert on all aspects of these awards and also serve as a subcontractor of CUBRC responsible for management of chemistry, manufacturing and control activities and clinical studies. Under our subcontracts with CUBRC, we may receive funding of up to approximately $39.8 million reflecting the portion of the BARDA Contract funding that may be paid to us for our activities, and up to approximately $13.3 million reflecting the portion of the NIAID Contract funding that may be paid to us for our activities. The BARDA Contract includes funding for some of the activities that we would otherwise be required to fund on our own in connection with any NDA filing for eravacycline.
In addition to eravacycline and TP-271, we are pursuing the discovery and development of additional antibiotics to target unmet medical needs, including compounds that might for the first time provide coverage with tetracycline-derived antibiotics of Pseudomonas bacteria, as well as other multi-drug resistant Gram-negative bacteria.
Drug Resistant Antibiotic Market
According to IMS Health, in 2011, approximately $41 billion was spent on antibiotic drugs worldwide, of which almost $9 billion was spent in the United States. The widespread use of antibiotics has resulted in a rapid increase in bacterial infections that are resistant to multiple antibacterial agents. As a result of the increasing prevalence of such multi-drug resistant bacteria, some antibiotics targeting these bacteria have been highly successful commercially. These include:
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linezolid, an intravenously and orally administered antibiotic marketed by Pfizer as Zyvox, which had worldwide sales in 2011 of $1.3 billion; |
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levofloxacin, an intravenously and orally administered antibiotic marketed by Ortho-McNeil and Johnson & Johnson as Levaquin, which had worldwide sales in 2011 of $623 million, down from worldwide sales of $1.4 billion in 2010 after losing U.S. market exclusivity in June 2011; |
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meropenem, an intravenously administered antibiotic marketed by AstraZeneca as Merrem, which had worldwide sales in 2011 of $583 million, down from worldwide sales of $817 million in 2010 after losing U.S. market exclusivity in June 2010; and |
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daptomycin, an intravenously administered antibiotic marketed by Cubist Pharmaceuticals, Inc. as Cubicin, which had worldwide sales in 2011 of $736 million. |
Antibiotics that treat bacterial infections can be classified as broad-spectrum or narrow-spectrum. Antibiotics that are active against a mixture of Gram-positive, Gram-negative and anaerobic bacteria are referred to as broad-spectrum. Antibiotics that are active only against a select subset of bacteria are referred to as narrow-spectrum. Because it usually takes from 24 to 72 hours from the time a specimen is received in the laboratory to definitively diagnose a particular bacterial infection, physicians may be required to prescribe antibiotics for serious infections without having identified the bacteria. As such, effective first-line treatment of serious infections requires the use of broad-spectrum antibiotics with activity against a broad range of bacteria at least until the bacterial infection can be diagnosed.
Many strains of bacteria have mutated over time and have developed resistance to existing drugs, resulting in infections that are increasingly serious or more difficult to treat. These drug-resistant pathogens have become a growing menace to all people, regardless of age, gender or socioeconomic background. They endanger people in affluent, industrial societies like the United States, as well as in less-developed nations.
Reducing methicillin-resistant Staph aureus , or MRSA, a Gram-positive bacterium, in both the healthcare and community settings continues to be a high priority for the Centers for Disease Control and Prevention, or CDC. However, encouraging results from a CDC study published in the Journal of the American Medical
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Association and other reports such as the March 2011 CDC Vital Signs article provide evidence that rates of invasive MRSA infections in the United States are being controlled by Gram-positive drugs and falling.
As such, at present, the more acute need is for new drugs to treat multi-drug resistant Gram-negative bacteria. Currently approved products, such as Merrem and Levaquin, are becoming increasingly ineffective against Gram-negative bacteria due to increasing resistance, limiting patients treatment options, particularly for patients with multi-drug resistant infections, and few new therapeutic agents are in clinical development. A survey of infectious disease specialists published in the June 2012 edition of Clinical Infectious Disease rated multi-drug resistant Gram-negative infections as the most important unmet clinical need in current practice, significantly outranking infections caused by MRSA and multi-drug resistant Mycobacterium tuberculosis . In the survey, 63% of physicians reported treating a patient in the past year whose Gram-negative infection was resistant to all available antibacterial agents.
As a further example of the seriousness of the threat of Gram-negative bacteria resistant to all available antibacterial agents, in 2012, the national media including The New York Times , The Wall Street Journal and The Washington Post reported that the Clinical Center of the National Institutes of Health had an outbreak of Gram-negative Klebsiella pneumoniae bacteria strains that were resistant to all available antibiotics that resulted in seven deaths. In addition, there have been numerous reports recently that physicians have resorted to prescribing colistin for Gram-negative bacteria resistant to all other drugs. Colistin was discovered in 1949 and has not been widely used for decades because of serious toxicities, including nephrotoxicity. In our Phase 2 intravenous clinical trial, eravacycline dosed once or twice per day as a monotherapy was effective against multi-drug resistant Klebsiella pneumoniae .
The growing issue of antibiotic-resistant bacterial infections has been widely recognized as an increasingly urgent public health threat, including by the World Health Organization, the CDC, and the Infectious Disease Society of America, or IDSA. In April 2011, IDSA issued a report warning that unless significant measures are taken to increase the pipeline of new antibiotics active against drug resistant bacteria, people will start to die from common, formerly treatable infections, and medical interventions such as surgery, chemotherapy, organ transplantation and care of premature infants will become increasingly risky. In the pre-antibiotic era before penicillin began to be available in 1942, patients frequently died from what subsequently became easily cured infections. The important need for new treatment options for serious bacterial infections was further highlighted by the passage in July 2012 of the Generating Antibiotic Incentives Now Act, which provides regulatory incentives for the development of new antibacterial or antifungal drugs intended to treat serious or life-threatening infections that are resistant to existing treatment. In September 2012, the FDA announced the formation of an internal task force to support the development of new antibacterial drugs, which they called a critical public healthcare goal and a priority for the agency.
Limitations of Available Treatment Options
When confronted with a new patient suffering from a serious infection caused by an unknown pathogen, a physician may be required to quickly initiate first-line empiric antibiotic treatment to stabilize the patient prior to definitively diagnosing the particular bacterial infection. However, current antibiotics for first-line empiric treatment of serious bacterial infections suffer from significant limitations, including one or more of the following:
Insufficient Coverage of Multi-Drug Resistant Bacteria. Frequently used products, such as Zyvox and Cubicin, are limited to Gram-positive bacteria and thus are rarely used as a first-line empiric monotherapy if broad bacterial coverage is required. In addition, other popular antibiotics that have been used as first-line empiric monotherapies, such as Levaquin, piperacillin/tazobactam, which is marketed by Pfizer as Zosyn, carbapenems, such as Merrem, and imipenem/cilastatin, which is marketed by Merck as Primaxin, have seen their utility as first-line empiric monotherapies diminished as the number of bacterial strains resistant to these therapies has increased.
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Complicated and Expensive Multi-Drug Cocktails and Multi-Dose Regimens. Due to gaps in the spectrum of coverage of antibiotics, physicians are often confronted with the need to design complicated multi-drug cocktails for the first-line empiric treatment of patients with serious infections. The clinical situation is further complicated when each drug in the multi-drug cocktail has a different dosing regimen, such as two, three or four times a day, resulting in an added burden on the pharmacy and nursing staff, higher costs due to multiple drug administrations and an increased potential for medical errors or drug-drug interactions. We believe that, with the exception of eravacycline, most of the antibiotics that are in clinical trials and are being developed to cover a broad spectrum of bacteria, including Gram-negative bacteria, or solely to address Gram-negative bacteria, are being developed to be used in combination with one or more other antibiotics, and require the addition of a third drug such as metronidazole to address the presence of anaerobes.
Safety and Tolerability Concerns. Concerns about antibiotic safety and tolerability are among the leading reasons why patients stop treatment and fail therapy. Antibiotics on the market have been associated with adverse effects such as myelosuppression, seizures, nephrotoxicity and gastrointestinal disorders.
Lack of Oral Dosage Forms to Permit Step-Down Therapy. When a patient comes to the emergency room or hospital for treatment of a serious infection, the patient initially receives intravenous treatment, which allows the drug to be delivered more rapidly and in a larger dose than oral treatment. Once the infection begins to respond to treatment and the patient is stabilized, depending on the infection, hospitals and physicians generally seek to manage in-hospital treatment and, if possible, discharge patients from the hospital in order to reduce costs, avoid hospital acquired infections, and improve the patients quality of life. Upon discharge, physicians typically prefer to prescribe step-down treatment with an oral formulation of the same antibiotic. A step-down to oral treatment allows for more convenient and cost-effective out-patient treatment, with the oral antibiotic providing enhanced patient comfort and mobility and avoiding the risk of infection from the intravenous catheter. In addition, the use of the same antibiotic allows the physician to avoid switching the patient from the antibiotic that has proven effective during intravenous administration to a different antibiotic that may be less effective and carries the risk of new or different side effects. Many of the antibiotics that are most commonly used as first-line empiric monotherapies are only available in an intravenous formulation. Very few of the antibiotics that cover or are focused on the treatment of Gram-negative bacteria have oral dosage forms.
Eravacycline
Our lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that we are developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug Gram-negative infections. We developed eravacycline using our proprietary chemistry technology. We believe our fully synthetic process will enable us to have a cost of manufacturing that is sufficiently low to enable us to sell eravacycline, when and if approved, for a cost that is similar to other hospital-based antibiotics. Our patent strategy to broadly protect eravacycline includes the filing of patent applications directed towards the composition of matter of eravacycline as well as our proprietary chemistry technology, which we used to create eravacycline. We own exclusive worldwide rights for the development and commercialization of eravacycline.
We recently completed a Phase 2 clinical trial to evaluate the efficacy, safety and pharmacokinetics of eravacycline with intravenous administration compared to ertapenem for the treatment of patients with cIAI. In our Phase 2 clinical trial:
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patients in the eravacycline arms experienced infection cure rates that were 93% and higher, similar to patients in the ertapenem arm; |
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eravacycline demonstrated efficacy against confirmed drug-resistant Gram-negative pathogens; and |
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eravacycline was well-tolerated with patients in the eravacycline arms experiencing no serious adverse events found to be related to eravacycline. |
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We expect to conduct two global Phase 3 clinical trials of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013. We expect to have top-line data from both of these clinical trials in the first quarter of 2015. If we complete the Phase 3 clinical trials of eravacycline when we anticipate and the trials are successful, we expect to submit an NDA to the FDA in the second half of 2015 and an MAA to the EMA in the first half of 2016.
We believe that the following key attributes of eravacycline, observed in clinical trials and preclinical studies of eravacycline, differentiate eravacycline from other antibiotics targeting multi-drug resistant infections, including multi-drug resistant Gram-negative infections, and address the limitations of these antibiotics that have created the unmet medical need:
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Potency and effectiveness against a broad spectrum of bacteria, including multi-drug resistant Gram-negative, Gram-positive, atypical and anaerobic bacteria. In our clinical and in vitro studies, eravacycline has demonstrated the ability to cover a wide variety of these bacteria. |
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Capability of being used as a monotherapy in the majority of patients in the hospital with cIAI, cUTI and other multi-drug resistant infections. We are developing eravacycline as a monotherapy because of the broad-spectrum coverage it has demonstrated in our clinical and in vitro studies. |
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A convenient dosing regimen, such as once or twice daily. In our recently completed Phase 2 clinical trial we dosed eravacycline once or twice a day as a monotherapy. We believe that eravacycline will be able to be administered as a first-line empiric monotherapy with once- or twice-daily dosing. |
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A favorable safety and tolerability profile. In our recent Phase 2 clinical, eravacycline demonstrated a favorable safety and tolerability profile. In the clinical trial, no patients suffered any serious adverse events that were found to be related to eravacycline, and safety and tolerability were comparable to ertapenem, the control therapy in the trial. |
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Potential availability in both intravenous dosage and oral dosage form. In addition to the intravenous formulation of eravacycline, we are also developing an oral formulation of eravacycline. We believe that eravacycline has the potential for use in intravenous-oral step-down therapy. |
Based on our belief that eravacycline has each of these characteristics, our goal is to develop eravacycline to be the drug of choice for first-line empiric treatment of a wide variety of serious and life-threatening infections. We believe eravacyclines attributes will make it a safe and effective treatment for cIAI, cUTI and other serious and life-threatening infections for which we may develop eravacycline, such as acute bacterial skin and skin structure infections, or ABSSSI, and acute bacterial pneumonias.
Strategy
Our goal is to become a fully integrated biopharmaceutical company that discovers, develops and commercializes novel antibiotics for use in areas of unmet medical need. In order to achieve this goal, we intend to:
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Complete clinical development of eravacycline for the treatment of cIAI and cUTI and seek regulatory approval. |
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Develop an oral formulation of eravacycline for use in intravenous-to-oral step-down therapy for cUTI. |
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Directly commercialize eravacycline in the United States with a targeted hospital sales force. |
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Establish a collaboration for the development and commercialization of eravacycline outside the United States. |
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Pursue development of eravacycline for other serious and life-threatening infections, such as ABSSSI and acute bacterial pneumonias. |
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Opportunistically advance development of other product candidates created using our proprietary chemistry technology. |
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Risks Associated with Our Business
Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the Risk Factors section of this prospectus immediately following this prospectus summary. These risks include the following:
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We are dependent on the success of our lead product candidate, eravacycline. Our ability to generate product revenues, which we do not expect will occur before 2016, is substantially dependent on our ability to obtain marketing approval for and commercialize eravacycline. |
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We may not be successful in our efforts to develop an oral formulation of eravacycline or may be delayed in doing so. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. The results of this trial will be critical to our determination as to whether and how to move forward with the development of the oral formulation. |
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Our clinical trials of eravacycline or of any other product candidate that we advance to clinical trials may fail to demonstrate safety and efficacy to the satisfaction of the FDA or comparable regulatory authorities outside the United States or may not otherwise produce positive results. In such event, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization or eravacycline or any other product candidate. |
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We expect that we will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts; |
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If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing eravacycline if and when eravacycline is approved. |
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We have incurred significant losses since inception, expect to incur losses for at least the next several years and will need substantial additional funding. |
Corporate Information
We were incorporated under the laws of the State of Delaware on July 7, 2006 under the name Tetraphase Pharmaceuticals, Inc. Our principal executive offices are located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472, and our telephone number is (617) 715-3600. Our website address is www.tphase.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
The trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.
Implications of Being an Emerging Growth Company
As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
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only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced Managements Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
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reduced disclosure about our executive compensation arrangements; |
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no non-binding advisory votes on executive compensation or golden parachute arrangements; and |
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exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting. |
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We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
8
The Offering
Common stock offered by Tetraphase |
shares |
Common stock to be outstanding after this offering |
shares ( shares in the event the underwriters elect to exercise their over-allotment option to purchase additional shares from us in full) |
Use of proceeds |
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and offering expenses, will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option to purchase additional shares from us in full, assuming an initial public offering price of $ per share which is the midpoint of the range set forth on the cover page of this prospectus. We plan to use the net proceeds from this offering to fund our planned pivotal Phase 3 program for eravacycline for the treatment of complicated intra-abdominal infections and complicated urinary tract infections and for working capital and other general corporate purposes. See Use of Proceeds. |
Risk Factors |
You should read the Risk Factors section and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
Proposed NASDAQ Global Market symbol |
TTPH |
The number of shares of our common stock to be outstanding after this offering is based on the 9,432,466 shares of our common stock outstanding as of December 31, 2012, and gives effect to the conversion of all outstanding shares of our preferred stock into 256,024,993 shares of common stock upon the closing of this offering.
The number of shares of common stock to be outstanding after this offering excludes:
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2,552,420 shares of common stock issuable upon the exercise of preferred stock warrants outstanding as of December 31, 2012, at a weighted average exercise price of $0.2664 per share; |
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41,843,074 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2012, at a weighted average exercise price of $0.06 per share; |
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7,469,813 shares of common stock available for future issuance under our equity compensation plans as of December 31, 2012; and |
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an additional shares of our common stock that will be made available for future issuance under our equity compensation plans upon the closing of this offering. |
Except as otherwise noted, all information in this prospectus:
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assumes no exercise of outstanding options or warrants; |
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assumes no exercise by the underwriters of their over-allotment option to purchase additional shares of common stock from us; and |
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gives effect to the automatic conversion of each outstanding share of our preferred stock into one share of our common stock upon the closing of this offering. |
9
Summary Consolidated Financial Data
The following table summarizes our consolidated financial data. We have derived the following summary of our statement of operations data for the years ended December 31, 2010 and 2011 from our audited consolidated financial statements appearing elsewhere in this prospectus. The statement of operations data for the nine months ended September 30, 2011 and 2012 and the balance sheet data as of September 30, 2012 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of September 30, 2012 and results of operations for the nine months ended September 30, 2011 and 2012. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year. The summary of our consolidated financial data set forth below should be read together with our consolidated financial statements and the related notes to those statements, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere in this prospectus.
Years Ended December 31, | Nine Months Ended September 30, |
The Period
from July 7, 2006 (inception) to September 30, |
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2010 | 2011 | 2011 | 2012 | 2012 | ||||||||||||||||
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(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||
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(in thousands except share and per share data) | ||||||||||||||||||||
Statement of Operations Data: |
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Contract and grant revenue |
$ | | $ | 185 | $ | | $ | 4,360 | $ | 4,545 | ||||||||||
Operating expenses: |
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Research and development |
14,732 | 17,737 | 13,875 | 12,545 | 70,181 | |||||||||||||||
General and administrative |
3,446 | 3,874 | 2,933 | 3,154 | 16,325 | |||||||||||||||
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Total operating expenses |
18,178 | 21,611 | 16,808 | 15,699 | 86,506 | |||||||||||||||
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Loss from operations |
(18,178 | ) | (21,426 | ) | (16,808 | ) | (11,339 | ) | (81,961 | ) | ||||||||||
Other income (expense): |
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Interest income |
3 | 1 | 1 | | 608 | |||||||||||||||
Interest expense |
(36 | ) | (161 | ) | (83 | ) | (614 | ) | (1,032 | ) | ||||||||||
Other income (expense) |
733 | 22 | | (82 | ) | (4,648 | ) | |||||||||||||
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Total other income (expense) |
700 | (138 | ) | (82 | ) | (696 | ) | (5,072 | ) | |||||||||||
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Net loss |
$ | (17,478 | ) | $ | (21,564 | ) | $ | (16,890 | ) | $ | (12,035 | ) | $ | (87,033 | ) | |||||
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Net loss per share applicable to common stockholders-basic and diluted(1) |
$ | (2.16 | ) | $ | (2.53 | ) | $ | (1.99 | ) | $ | (1.32 | ) | $ | (13.13 | ) | |||||
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Weighted-average number of common shares used in net loss per share applicable to common stockholders-basic and diluted |
8,075,647 | 8,527,925 | 8,467,407 | 9,143,946 | 6,629,259 | |||||||||||||||
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Pro forma net loss per share applicable to common stockholders-basic and diluted (unaudited)(1) |
$ | (0.08 | ) | $ | (0.05 | ) | ||||||||||||||
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|
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Weighted-average number of common shares used in pro forma net loss per share applicable to common stockholders-basic and diluted (unaudited) |
264,522,918 | 265,168,939 | ||||||||||||||||||
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10
As of September 30, 2012 | ||||||||||||
Actual | Pro Forma(2) |
Pro Forma
As Adjusted(3)(4) |
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(unaudited) | (unaudited) | (unaudited) | ||||||||||
(in thousands) | ||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
$ | 6,748 | $ | 6,748 | $ | |||||||
Working capital |
3,018 | 3,018 | ||||||||||
Total assets |
10,414 | 10,414 | ||||||||||
Current liabilities |
6,968 | 6,968 | ||||||||||
Long-term obligations |
3,864 | 3,476 | ||||||||||
Convertible preferred stock |
79,841 | | ||||||||||
Total stockholders (deficit) equity |
$ | (80,259 | ) | $ | (30 | ) | $ |
(1) | See Note 2 within the notes to our consolidated financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per common share and pro forma basic and diluted net loss per common share. |
(2) | Pro forma to reflect the conversion of all outstanding shares of our preferred stock into 256,024,993 shares of common stock, and the resulting adjustment in the shares issuable upon exercise of our outstanding warrants from preferred stock to common stock, upon the closing of this offering. |
(3) | Pro forma as adjusted to further reflect the sale of shares of our common stock offered in this offering, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
(4) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and total stockholders (deficit) equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A -share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase each of cash and cash equivalents and total stockholders (deficit) equity by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely, a -share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease each of cash and cash equivalents and total stockholders (deficit) equity by approximately $ million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us. |
11
Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should consider carefully the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus. We believe the risks described below are the risks that are material to us as of the date of this prospectus. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Financial Position and Need for Additional Capital
We have incurred significant losses since inception, expect to incur losses for at least the next several years and may never achieve or sustain profitability.
We have incurred annual net operating losses in every year since our inception. Our net loss was $12.0 million for the nine month period ended September 30, 2012, $17.5 million for the year ended December 31, 2010 and $21.6 million for the year ended December 31, 2011, and as of September 30, 2012, we had a deficit accumulated during the development stage of $87.0 million. We have not generated any revenues and have financed our operations primarily through private placements of our preferred stock, debt financings and funding from the United States government. We have not completed development of any product candidate and have devoted substantially all of our financial resources and efforts to research and development, including preclinical and clinical development. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders equity and working capital.
We expect that our expenses will increase substantially as we commence our Phase 3 clinical trials of our lead product candidate, eravacycline, for the treatment of patients with complicated intra-abdominal infections, or cIAI, and complicated urinary tract infections, or cUTI, pursue development of an oral formulation of eravacycline, seek marketing approval for eravacycline, pursue development of eravacycline for additional indications, including acute bacterial skin and skin structure infections, or ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections, advance our other product candidates and satisfy our obligations under our license agreement with Harvard University. If we obtain marketing approval of eravacycline, we also expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses. Our expenses also will increase if and as we:
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maintain, expand and protect our intellectual property portfolio; |
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in-license or acquire other products and technologies; |
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hire additional clinical, quality control and scientific personnel; and |
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts. |
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, eravacycline, which will require us to be successful in a range of challenging activities, including:
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commencing and successfully completing Phase 3 clinical trials of eravacycline; |
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applying for and obtaining marketing approval for eravacycline; |
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protecting and maintaining our rights to our intellectual property portfolio related to eravacycline; |
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contracting for the manufacture of commercial quantities of eravacycline; and |
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establishing sales, marketing and distribution capabilities to effectively market and sell eravacycline. |
12
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses could increase if we are required by the United States Food and Drug Administration, or FDA, or the European Medicines Agency, or EMA, to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates.
We may be unable to develop and commercialize eravacycline or any other product candidate and, even if we do, may never achieve profitability. 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 and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.
We expect that we will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete. We expect that our expenses will increase substantially as we commence our Phase 3 clinical trials of eravacycline, pursue development of an oral formulation of eravacycline, seek marketing approval for eravacycline, pursue development of eravacycline for additional indications, including ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections, advance our other product candidates and satisfy our obligations under our agreement with Harvard. We expect that the total external costs of our planned Phase 3 clinical trials of eravacycline will be approximately $ million, including approximately $ million in 2013. In addition, in connection with our license agreement with Harvard, we are obligated to pay Harvard a milestone payment of $2.0 million upon commencing our first Phase 3 clinical trial of eravacycline. If we obtain marketing approval for eravacycline or any other product candidate that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing.
We believe that our available funds following this offering will be sufficient to enable us to obtain top-line data from both of our planned Phase 3 clinical trials of eravacycline. We expect that these funds will not be sufficient to enable us to seek marketing approval for eravacycline or commercially launch eravacycline. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through . This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Our future funding requirements, both short-term and long-term, will depend on many factors, including:
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the timing and costs of our planned Phase 3 clinical trials of eravacycline; |
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the progress, timing and costs of developing an oral formulation of eravacycline for intravenous-to-oral step-down therapy, including planned clinical trials; |
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the timing and costs of developing eravacycline for additional indications, including ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections; |
13
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the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our other product candidates and potential product candidates; |
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the number and characteristics of product candidates that we pursue; |
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the outcome, timing and costs of seeking regulatory approvals; |
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the costs of commercialization activities for eravacycline and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; |
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subject to receipt of marketing approval, revenue received from commercial sales of eravacycline; |
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the terms and timing of any future collaborations, licensing or other arrangements that we may establish; |
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the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay to Harvard pursuant to our license agreement; |
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the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; |
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the costs of operating as a public company; and |
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the extent to which we in-license or acquire other products and technologies. |
Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Upon completion of this offering, our only external source of funds will be funding under subcontracts awarded to us by our collaborator CUBRC, Inc. pursuant to government contracts from the Biomedical Advanced Research and Development Authority, or BARDA, and from the National Institutes of Healths, or NIHs, National Institute of Allergy and Infectious Diseases, or NIAID. However, the contracts with BARDA and NIAID are subject to termination for convenience at any time by BARDA and NIAID. BARDA is not obligated to provide funding under its contract with CUBRC beyond current-year amounts from Congressionally approved annual appropriations, and NIAID is not obligated to provide funding under its contract with CUBRC beyond an initial 25-month base period. To the extent that BARDA or NIAID ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us under the applicable subcontract. For the 12-month base period from February 1, 2012 through January 31, 2013, committed funding from CUBRC under our BARDA subcontract is $6.3 million, of which we have received $1.3 million through September 30, 2012, and for the 25-month base period from October 1, 2011 through October 31, 2013, committed funding from CUBRC under our NIAID subcontract is $5.9 million, of which we have received $1.2 million through September 30, 2012. As a result, unless and until we can generate a substantial amount of revenue from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings or collaborations and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be materially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. For example, our debt facility with Silicon Valley Bank and
14
Oxford Finance contains restrictive covenants that, subject to certain exceptions, prohibit us from transferring all or any part of our business or property, changing our business, liquidating or dissolving, merging with or acquiring another entity, entering into a transaction that will result in a change of control, incurring additional indebtedness, creating any lien on our property, paying dividends, entering into material transactions with affiliates, changing key management or adding new offices or business locations. Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants. In addition, securing additional financing would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our managements ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.
We began operations in the third quarter of 2006. Our operations to date have been limited to financing and staffing our company, developing our technology and developing eravacycline and other product candidates. We have not yet demonstrated an ability to successfully complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.
Risks Related to Product Development and Commercialization
We are dependent on the success of our lead product candidate, eravacycline, and our ability to develop, obtain marketing approval for and successfully commercialize eravacycline. If we are unable to develop, obtain marketing approval for and successfully commercialize eravacycline or experience significant delays in doing so, our business could be materially harmed.
We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of eravacycline for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections. Our prospects are substantially dependent on our ability to develop, obtain marketing approval for and successfully commercialize eravacycline. The success of eravacycline will depend on several factors, including the following:
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successful completion of clinical trials; |
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development of an oral formulation of eravacycline to be used with the intravenous formulation of eravacycline in intravenous-to-oral step-down therapy; |
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receipt of marketing approvals from applicable regulatory authorities; |
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establishment of arrangements with third-party manufacturers to obtain manufacturing supply; |
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obtainment and maintenance of patent and trade secret protection and regulatory exclusivity; |
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protection of our rights in our intellectual property portfolio; |
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launch of commercial sales of eravacycline, if and when approved, whether alone or in collaboration with others; |
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acceptance of eravacycline, if and when approved, by patients, the medical community and third-party payors; |
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competition with other therapies; and |
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a continued acceptable safety profile of eravacycline following approval. |
15
Successful development of eravacycline for additional indications, including ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections, will be subject to these same risks.
If we are unable to develop, receive marketing approval for, or successfully commercialize eravacycline, or experience delays as a result of any of these matters or otherwise, our business could be materially harmed.
If we do not develop an oral formulation of eravacycline, or we are delayed in developing an oral formulation of eravacycline, our business may be harmed.
Optimal development of eravacycline includes the development of an oral formulation of eravacycline to be used with the intravenous formulation of eravacycline in intravenous-to-oral step-down therapy. Our ability to successfully develop an oral formulation of eravacycline is uncertain. While we have completed multiple Phase 1 clinical trials of oral formulations of eravacycline, we have not yet selected a formulation for advancement in clinical trials and have not demonstrated in clinical trials that the necessary doses of oral eravacycline to achieve the necessary drug exposure levels can be administered with the required safety and tolerability. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. If the data from our Phase 1 clinical trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI. However, if the data from the Phase 1 clinical trial is unfavorable or does not otherwise warrant proceeding with a Phase 3 clinical trial, we may need to conduct additional development, which could involve reformulating the compound and conducting additional clinical trials of the oral formulation, which could cause us to incur additional expenses in the development of the oral formulation of eravacycline. In addition, in such event we may be forced to delay our planned Phase 3 clinical trial in cUTI or, if we choose to proceed with the Phase 3 clinical trial in cUTI with only the intravenous formulation, we would need to conduct at least one additional Phase 3 clinical trial of the oral formulation, all of which would take time and be expensive. If we are unable to develop an oral formulation of eravacycline to be used in intravenous-to-oral step-down therapy, it could lower the market opportunity for eravacycline and the potential value we could receive from eravacycline, and our business may be harmed.
If clinical trials of eravacycline or of any other product candidate that we advance to clinical trials fail to demonstrate safety and efficacy to the satisfaction of the FDA or comparable foreign regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization or eravacycline or any other product candidate.
We are not permitted to commercialize, market, promote, or sell any product candidate in the United States without obtaining marketing approval from the FDA or in other countries without obtaining approvals from comparable foreign regulatory authorities, such as the EMA, and we may never receive such approvals. We must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted an NDA to the FDA or similar drug approval filings to comparable foreign regulatory authorities for any of our product candidates.
The clinical development of eravacycline and other product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to achieve efficacy in a trial or across a broad population of patients, the occurrence of severe adverse events, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any comparable foreign regulatory authority that a drug product is not approvable. The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. For example, although eravacycline achieved favorable results in our Phase 2 intravenous efficacy trial, we may nonetheless fail to achieve success in Phase 3 clinical trials of the intravenous formulation of eravacycline or in clinical trials of an oral formulation of eravacycline. Moreover, the primary endpoint that we anticipate using for
16
our planned Phase 3 clinical trial of the intravenous formulation of eravacycline for cIAI differs from the primary endpoint we successfully achieved in our Phase 2 intravenous efficacy trial. In the FDAs recent draft guidance for drug development for cIAI, the FDA suggested that the primary efficacy endpoint for a trial for cIAI should be complete resolution of baseline signs and symptoms attributable to cIAI in the microbiological intent-to-treat patient population 28 days after randomization and the absence of clinical failure including death and unplanned surgical procedures through the period ending 28 days following randomization. Our Phase 2 primary endpoint was clinical response at the test of cure visit that took place ten to 14 days after the last dose of the drug was administered (approximately 16 to 21 days after randomization) in microbiologically evaluable patients, a narrower patient population. Clinical response was defined as complete resolution or significant improvement of signs or symptoms of infection with no further systemic antibiotic treatment required.
In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of our clinical trials warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. In the case of our clinical trials, results may differ on the basis of the type of bacteria with which patients are infected. We cannot assure you that any Phase 2, Phase 3 or other clinical trials that we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent us from obtaining regulatory approval for eravacycline or any of our other product candidates, including:
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clinical trials of our product candidates may produce unfavorable or inconclusive results; |
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we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; |
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; |
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our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; |
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; |
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; |
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we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate; |
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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate; |
17
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies; |
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and |
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
If we are required to conduct additional clinical trials or other testing of eravacycline, either in an intravenous or oral dosage form, or any other product candidate that we develop beyond the trials and testing that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with eravacycline or our other product candidates, we may:
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be delayed in obtaining marketing approval for our product candidates; |
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not obtain marketing approval at all; |
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obtain approval for indications or patient populations that are not as broad as intended or desired; |
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings; |
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be subject to additional post-marketing testing or other requirements; or |
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remove the product from the market after obtaining marketing approval. |
Our product development costs will also increase if we experience delays in testing or marketing approvals and we may be required to obtain additional funds to complete clinical trials. We cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of regulatory approval of eravacycline or any other product candidate.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for eravacycline or any other product candidate that we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials for eravacycline or other product candidate as required by the FDA or comparable foreign regulatory authorities, such as the EMA. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
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the size and nature of the patient population; |
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the severity of the disease under investigation; |
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the proximity of patients to clinical sites; |
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the eligibility criteria for the trial; |
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the design of the clinical trial; and |
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competing clinical trials and clinicians and patients perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. |
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The inclusion and exclusion criteria for our contemplated Phase 3 clinical trials of eravacycline may adversely affect our enrollment rates for patients in these trials. In addition, many of our competitors also have ongoing clinical trials for product candidates that treat the same indications as eravacycline, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors product candidates.
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, slow down or halt our product development and approval process and jeopardize our ability to commence product sales and generate revenues, which would cause the value of our company to decline and limit our ability to obtain additional financing if needed.
Serious adverse events or undesirable side effects or other unexpected properties of eravacycline or any other product candidate may be identified during development or after approval, if obtained, that could delay, prevent or cause the withdrawal of the product candidates regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if obtained.
Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, an institutional review board, or regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If eravacycline or any of our other product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.
In our clinical trials of eravacycline, some treatment-related adverse events have been reported. The most common treatment-related adverse events observed in clinical trials of eravacycline have been nausea and vomiting. Additional adverse events, undesirable side effects or other unexpected properties of eravacycline or any of our other product candidates could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or deny approval of, eravacycline or our other product candidates. If such an event occurs after eravacycline or such other product candidates are approved, a number of potentially significant negative consequences may result, including:
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regulatory authorities may withdraw the approval of such product; |
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regulatory authorities may require additional warnings on the label; |
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; |
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we could be sued and held liable for harm caused to patients; and |
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our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate, if approved, or could substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenues from the sale of our products and harm our business and results of operations.
Even if eravacycline or any other product candidate that we develop receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for eravacycline or other product candidates may be smaller than we estimate.
We have never commercialized a product candidate for any indication. Even if eravacycline or any other product candidates that we develop are approved by the appropriate regulatory authorities for marketing and sale,
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they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If physicians, rightly or wrongly, associate our product candidates with the resistance issues of other products of the same class, physicians might not prescribe our product candidates for treating a broad range of infections. If eravacycline or any other product candidate that we develop does not achieve an adequate level of market acceptance, we may not generate significant product revenues and, therefore, we may not become profitable. The degree of market acceptance of eravacycline, if approved, or any other product candidate that is approved for commercial sale, will depend on a number of factors, including:
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the efficacy and safety of the product; |
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the potential advantages of the product compared to alternative treatments; |
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the prevalence and severity of any side effects; |
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the clinical indications for which the product is approved; |
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limitations or warnings, including distribution or use restrictions, contained in the products approved labeling; |
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our ability to offer the product for sale at competitive prices; |
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the products convenience and ease of administration compared to alternative treatments, including, in the case of eravacycline, the availability of an oral formulation for use in intravenous-to-oral step-down therapy; |
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the willingness of the target patient population to try, and of physicians to prescribe, the product; |
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whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections; |
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the strength of marketing and distribution support; |
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the approval of other new products for the same indications; |
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the timing of market introduction of our approved products as well as competitive products; |
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the cost of treatment in relation to alternative treatments; |
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availability of reimbursement from government payors, managed care plans and other third party payors; |
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the effectiveness of our sales and marketing efforts; |
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adverse publicity about the product or favorable publicity about competitive products; and |
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the development of resistance by bacterial strains to the product. |
In addition, the potential market opportunity for eravacycline is difficult to precisely estimate. Our estimates of the potential market opportunity are predicated on several key assumptions such as industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, then the actual market for eravacycline could be smaller than our estimates of the potential market opportunity. If the actual market for eravacycline is smaller than we expect, or if the product fails to achieve an adequate level of acceptance by physicians, health care payors and patients, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.
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If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing eravacycline or such other product candidates that we develop if and when eravacycline or any other product candidates are approved.
We do not have a sales, marketing or distribution infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. We intend to build a commercial organization in the United States and recruit experienced sales, marketing and distribution professionals. The development of sales, marketing and distribution capabilities will require substantial resources, will be time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire a sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that we intend to target. If we are unable to establish a sales force and marketing and distribution capabilities, our operating results may be adversely affected.
Factors that may inhibit our efforts to commercialize our products on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel; |
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products; |
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and |
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unforeseen costs and expenses associated with creating an independent sales and marketing organization. |
We plan to commercialize eravacycline outside the United States with the assistance of collaborators. As a result of entering into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.
The development and commercialization of new drug products is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to eravacycline and our other product candidates that we may seek to develop or commercialize in the future. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of multi-drug resistant infections. Potential competitors also include academic institutions, government agencies and other public and private research organizations. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than eravacycline or any other product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.
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There are a variety of available therapies marketed for the treatment of multi-drug resistant infections that we would expect would compete with eravacycline, including meropenem, which is marketed by AstraZeneca as Merrem, imipenem/cilastatin, which is marketed by Merck as Primaxin, tigecycline, which is marketed by Pfizer as Tygacil, levofloxacin, which is marketed by Ortho-McNeil and Johnson & Johnson as Levaquin, and piperacillin/tazobactam, which is marketed by Pfizer as Zosyn. Many of the available therapies are well-established and widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. If eravacycline is approved, it may be priced at a significant premium over other competitive products. This may make it difficult for eravacycline to compete with these products.
There are also a number of products in clinical development by third parties to treat multi-drug resistant infections, including ceftazidime/avibactam and ceftaroline/avibactam, which are being developed by AstraZeneca, and cefalozine/tazobactam, which is being developed by Cubist. If our competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their product candidates more rapidly than us, it could result in our competitors establishing a strong market position before we are able to enter the market.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
In July 2012, the Food and Drug Administration Safety and Innovation Act was passed, which included the Generating Antibiotics Incentives Now Act, or the GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease products. These incentives may result in more competition in the market for new antibiotics, and may cause pharmaceutical and biotechnology companies with more resources than we have to shift their efforts towards the development of products that could be competitive with eravacycline and our other product candidates.
Even if we are able to commercialize eravacycline or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm our business.
Marketing approvals, pricing and reimbursement for new drug 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 product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize eravacycline or any other product candidate will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide
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which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. 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. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for eravacycline or any other product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates despite obtaining appropriate informed consents from our clinical trial participants. We will face an even greater risk if we commercially sell eravacycline or any other product candidate that we develop. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
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reduced resources of our management to pursue our business strategy; |
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decreased demand for our product candidates or products that we may develop; |
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injury to our reputation and significant negative media attention; |
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withdrawal of clinical trial participants; |
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initiation of investigations by regulators; |
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product recalls, withdrawals or labeling, marketing or promotional restrictions; |
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significant costs to defend resulting litigation; |
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substantial monetary awards to trial participants or patients; |
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loss of revenue; and |
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the inability to commercialize any products that we may develop. |
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Although we maintain general liability insurance of $5 million in the aggregate and clinical trial liability insurance of $3 million in the aggregate for eravacycline, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if and when we begin selling eravacycline or any other product candidate that receives marketing approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, which could adversely affect our business, financial condition, results of operations and prospects.
If we fail to comply with environmental, 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 our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We maintain workers compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Risks Related to Our Dependence on Third Parties
We expect to depend on collaborations with third parties for the development and commercialization of some of our product candidates. Our prospects with respect to those product candidates will depend in part on the success of those collaborations.
Although we expect to commercialize eravacycline ourselves in the United States, we intend to seek to commercialize eravacycline outside the United States through collaboration arrangements. In addition, we may seek third-party collaborators for development and commercialization of other product candidates. Our likely collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangements.
We may derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative arrangement into which we enter. Our ability to generate revenues from these arrangements will depend on our collaborators abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the future success of a product candidate that we license to a third party.
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Collaborations involving our product candidates may pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; |
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collaborators may not perform their obligations as expected; |
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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; |
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
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product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; |
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a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products; |
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; |
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; |
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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and |
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates. |
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.
We may have to alter our development and commercialization plans if we are not able to establish collaborations.
We will require additional funds to complete the development and potential commercialization of eravacycline and our other product candidates. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For example, we intend to utilize a variety of types of collaboration arrangements for commercialization outside the United States.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborators resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborators evaluation of a number of factors. Those factors may include:
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the design or results of clinical trials; |
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the likelihood of approval by the FDA or comparable foreign regulatory authorities; |
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the potential market for the subject product candidate; |
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the costs and complexities of manufacturing and delivering such product candidate to patients; |
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the potential for competing products; |
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our patent position protecting the product candidate, including any uncertainty with respect to our ownership of our technology or our licensors ownership of technology we license from them, which can exist if there is a challenge to such ownership without regard to the merits of the challenge; |
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the need to seek licenses or sub-licenses to third-party intellectual property; and |
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industry and market conditions generally. |
The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. 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 collaborators.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or 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 collaborations 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 and our business may be materially and adversely affected.
We rely on third parties to conduct our clinical trials. If they do not perform satisfactorily, our business may be materially harmed.
We do not independently conduct clinical trials of eravacycline. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials for eravacycline and expect to rely on these third parties to conduct clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these third parties for clinical development activities limits our control over these activities but we remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards. For example, notwithstanding the obligations of a contract research organization for a trial of one of our product candidates, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as current Good Clinical Practices, or cGCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces these cGCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and institutional review boards. If we or our third party contractors fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our product candidates, which would delay the regulatory approval process. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
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Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercial prospects for eravacycline or any other product candidates that we seek to develop could be harmed, our costs could increase and our ability to generate revenues could be delayed, impaired or foreclosed.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of any resulting products, producing additional losses and depriving us of potential product revenue.
We contract with third parties for the manufacture of eravacycline for clinical trials and expect to continue to do so in connection with the commercialization of eravacycline and for clinical trials and commercialization of any other product candidates that we develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not currently have nor do we plan to build the internal infrastructure or capability to manufacture eravacycline or our other product candidates for use in the conduct of our clinical trials or for commercial supply. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture clinical supplies of eravacycline and our other product candidates, and we expect to rely on third party contract manufacturers to manufacture commercial quantities of any product candidate that we commercialize following approval for marketing by applicable regulatory authorities. Reliance on third-party manufacturers entails risks, including:
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manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between us |
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the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; |
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the possible breach of the manufacturing agreement by the third party; |
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the failure of the third-party manufacturer to comply with applicable regulatory requirements; and |
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the possible misappropriation of our proprietary information, including our trade secrets and know-how. |
We currently rely on a small number of third-party contract manufacturers for all of our required raw materials, drug substance and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our other product candidates. If any of our existing manufacturers should become unavailable to us for any reason, we may incur some delay in identifying or qualifying replacements.
If any of our product candidates are approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. This process is difficult
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and time consuming and we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our commercialization.
Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States. Facilities used by our third-party manufacturers must be approved by the FDA after we submit an NDA and before potential approval of the product candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of our product candidates. If our manufacturers cannot successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate. In addition, our manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and have a material adverse impact on our business, financial condition and results of operations.
Our current and anticipated future dependence upon others for the manufacture of eravacycline and any other product candidate that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
If we fail to comply with our obligations in the agreements under which we in-license or acquire development or commercialization rights to products or technology from third parties, we could lose commercial rights that are important to our business.
We are a party to a license agreement with Harvard that imposes, and we may enter into additional agreements, including license agreements, with other parties in the future that impose, diligence, development and commercialization timelines, milestone payment, royalty, insurance and other obligations on us. For instance, under our license agreement with Harvard, we are obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize licensed compounds and to implement a specified development plan, meeting specified development milestones and providing an update on progress on an annual basis. If we fail to comply with these obligations, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements, which could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.
Our reliance on government funding for certain of our programs adds uncertainty to our research and commercialization efforts with respect to those programs and may impose requirements that increase the costs of commercialization and production of product candidates developed under those government-funded programs.
Our development of eravacycline for the treatment of disease caused by bacterial biothreat pathogens is currently being funded through a subcontract with funding from BARDA. In addition, our development of TP-271 is being funded through a subcontract and grant subaward with funding from the NIHs NIAID division.
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Contracts and grants funded by the U.S. government and its agencies, including our agreements funded by BARDA and NIAID, include provisions that reflect the governments substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:
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terminate agreements, in whole or in part, for any reason or no reason; |
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reduce or modify the governments obligations under such agreements without the consent of the other party; |
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claim rights, including intellectual property rights, in products and data developed under such agreements; |
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audit contract-related costs and fees, including allocated indirect costs; |
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suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations; |
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impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements; |
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suspend or debar the contractor or grantee from doing future business with the government; |
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control and potentially prohibit the export of products; |
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pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and |
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limit the governments financial liability to amounts appropriated by the U.S. Congress on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period. |
We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts.
In addition, government contracts and grants, and subcontracts and subawards awarded in the performance of those contracts and grants, normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:
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specialized accounting systems unique to government contracts and grants; |
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mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent; |
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public disclosures of certain contract and grant information, which may enable competitors to gain insights into our research program; and |
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mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements. |
As an organization, we are relatively new to government contracting and new to the regulatory compliance obligations that such contracting entails. If we fail to maintain compliance with those obligations, we may be subject to potential liability and to termination of our contracts.
As a U.S. government contractor, we are subject to financial audits and other reviews by the U.S. government of our costs and performance on their contracts, as well as our accounting and general business practices related to these contracts. Based on the results of its audits, the government may adjust our contract-
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related costs and fees, including allocated indirect costs. Although adjustments arising from government audits and reviews have not had a material adverse effect on our financial condition or results of operations in the past, we cannot assure you that future audits and reviews will not have those effects.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain sufficient patent protection for our technology or our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary chemistry technology and product candidates. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel technologies and product candidates that are important to our business. The patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection.
Under our license agreement with Harvard, Harvard retains the right to prosecute and maintain specified Harvard patents and patent applications in the field of tetracycline chemistry, which are exclusively licensed to us under the agreement. Moreover, if we license technology or product candidates from third parties in the future, those licensors may retain the right to prosecute, maintain and enforce the patent rights that they license to us with or without our involvement. Because control of prosecution and maintenance rests with Harvard, and prosecution, maintenance and enforcement could rest with future licensors, we cannot be certain that these in-licensed patents and applications will be prosecuted, maintained and enforced in a manner consistent with the best interests of our business. If Harvard fails to prosecute or maintain, or future licensors fail to prosecute, maintain or enforce, those patents necessary for any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making and selling competing products.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds and technologies commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Furthermore, recent changes in patent laws in the United States, including the America Invents Act of 2011, may affect the scope, strength and enforceability of our patent rights or the nature of proceedings which may be brought by us related to our patent rights.
Our pending and future patent applications may not result in patents being issued which protect our technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
The laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, even assuming the other requirements for patentability are met, currently, in the United States, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we
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cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result of the America Invents Act of 2011, the United States will transition to a first-inventor-to-file system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent. However, as a result of the lag in the publication of patent applications following filing in the United States, we still will not be able to be certain upon filing that we are the first to file for patent protection for any invention. Moreover, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
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. Our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, 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.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property, or those of our licensors. 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 infringe their patents. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party 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 patents claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or 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
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assert trademark infringement claims, a court may determine that the marks we have asserted 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 such trademarks.
In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. 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. 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.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates and use our proprietary chemistry technology without infringing the intellectual property and other proprietary rights of third parties. Numerous third-party U.S. and non-U.S. issued patents and pending applications exist in the area of antibacterial treatment, including compounds, formulations, treatment methods and synthetic processes that may be applied towards the synthesis of antibiotics. If any of their patents or patent applications cover our product candidates or technologies, we may not be free to manufacture or market our product candidates as planned.
There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our technology or products candidates, including interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
If we are found to infringe a third partys intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
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We may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, or claiming ownership of what we regard as our own intellectual property.
Many of our employees 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 intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property or other proprietary information. Litigation may be necessary to defend against these claims.
In addition, while we typically require our employees, consultants 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. Moreover, because we have licensed intellectual property from Harvard, we must rely on Harvards practices with regard to the assignment of intellectual property to it. To the extent we or Harvard have failed to obtain such assignments or such assignments are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or 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 prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, in seeking to develop and maintain a competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our consultants, independent contractors, advisors, corporate collaborators, outside scientific collaborators, contract manufacturers, suppliers and other third parties. We, as well as our licensors, also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we or Harvard have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.
We have not yet registered our trademarks. Failure to secure those registrations could adversely affect our business.
We have not yet registered our trademarks in the United States or other countries. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would, which could adversely affect our business. We have also not yet registered trademarks for any of our product candidates in any jurisdiction. When we file trademark applications for our product candidates those applications may not be allowed for registration, and registered trademarks may not be obtained, maintained or enforced. During trademark registration proceedings in the United States and foreign jurisdictions, we may receive rejections. We are given an opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition, in the United States Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.
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In addition, any proprietary name we propose to use with eravacycline or any other product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
Risks Related to Regulatory Approval and Other Legal Compliance Matters
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize eravacycline or any other product candidate that we develop, and our ability to generate revenue will be materially impaired.
Our product candidates, including eravacycline, and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable foreign regulatory authorities, with regulations differing from country to country. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We currently do not have any products approved for sale in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party contract research organizations to assist us in this process.
We are not permitted to market our product candidates in the United States until we receive approval of an NDA from the FDA. We have not submitted an NDA for any of our product candidates. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidates safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product candidate. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The FDA review process typically takes years to complete. The FDA has substantial discretion in the approval process and may refuse to accept for filing any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. Foreign regulatory authorities have differing requirements for approval of drug candidates with which we must comply prior to marketing. Obtaining marketing approval for marketing of a product candidate in one country does not ensure that we will be able to obtain marketing approval in other countries, but the failure to obtain marketing approval in one jurisdiction could negatively impact our ability to obtain marketing approval in other jurisdictions. Delays in approvals or rejections of marketing applications in the United States or foreign countries may be based upon many factors, including regulatory requests for additional analyses, reports, data and studies, regulatory questions regarding, or different interpretations of, data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding product candidates. The FDA or other regulatory authorities may determine that eravacycline or any other product candidate that we develop is not effective, or is only moderately effective, or has undesirable or unintended side effects, toxicities, safety profile or other characteristics that preclude marketing approval or prevent or limit commercial use. In addition, any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. If we experience delays in obtaining approval or if we fail to obtain approval of eravacycline or any other product candidate that we develop, the commercial prospects for eravacycline or such other product candidate may be harmed and our ability to generate revenues will be materially impaired.
If we are unable to obtain marketing approval in international jurisdictions, we will not be able to market our product candidates abroad.
In order to market and sell eravacycline and any other product candidate that we develop in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous
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and varying regulatory requirements. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. The approval procedure varies among countries and can involve additional testing. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis or at all.
If we receive regulatory approval for any product candidates, including eravacycline, we will be subject to ongoing obligations and continuing regulatory review, which may result in significant additional expense. Our product candidates, including eravacycline, if approved, could be subject to restrictions or withdrawal from the market, and we may be subject to penalties, if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if approved.
Any product candidate, including eravacycline, for which we obtain marketing approval, will also be subject to ongoing regulatory requirements for labeling, packaging, storage, distribution, advertising, promotion, record-keeping and submission of safety and other post-market information. For example, approved products, manufacturers and manufacturers facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs. As such, we and our contract manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMPs. 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. We will also be required to report certain adverse reactions and production problems, if any, to the FDA and to comply with requirements concerning advertising and promotion for our products.
In addition, even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed, may be subject to significant conditions of approval or may impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory requirements. The FDA also imposes stringent restrictions on manufacturers communications regarding off-label use and if we do not restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label marketing.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us. In addition, if any product fails to comply with applicable regulatory requirements, a regulatory agency may:
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issue warning or untitled letters; |
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mandate modifications to promotional materials or require provision of corrective information to healthcare practitioners; |
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impose restrictions on the products or its manufacturers or manufacturing processes; |
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impose restrictions on the labeling or marketing of the product; |
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impose restrictions on product distribution or use; |
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require post-marketing clinical trials; |
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require withdrawal of the product from the market; |
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refuse to approve pending applications or supplements to approved applications that we submit; |
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require recall of the products; |
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require entry into a consent decree, which can include imposition of various fines (including restitution or disgorgement of profits or revenue), reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; |
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suspend or withdraw marketing approvals; |
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refuse to permit the import or export of the products; |
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seize or detain supplies of the product; or |
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issue injunctions or impose civil or criminal penalties. |
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates, including eravacycline, for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. These laws and regulations include, for example, the false claims and anti-kickback statutes and regulations. At such time as we market, sell and distribute any products for which we obtain marketing approval, it is possible that our business activities could be subject to challenge under one or more of these laws and regulations. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
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the federal healthcare anti-kickback statute, among other things, prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs such as Medicare and Medicaid; |
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the federal False Claims Act imposes criminal and civil penalties, which can be enforced by private citizens through civil whistleblower and qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; |
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the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, the ACA, is expected to require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and |
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to implement compliance programs and to track and report gifts, compensation and other remuneration provided to physicians. |
We will be required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Even then, governmental authorities may conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If governmental authorities find that our operations violate any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and we may be required to curtail or restructure our operations.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of any products that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.
In March 2010, the ACA became law in the United States with the goals of broadening access to health insurance, reducing or constraining the growth of healthcare spending, enhancing remedies against fraud and abuse, adding new transparency requirements for health care and health insurance industries, imposing new taxes and fees on the health industry and imposing additional health policy reforms. Further, the new law includes annual fees to be paid by manufacturers for certain branded prescription drugs, requires manufacturers to participate in a discount program for certain outpatient drugs under Medicare Part D, increases manufacturer rebate responsibilities under the Medicaid Drug Rebate Program for outpatient drugs dispensed for Medicaid recipients and expands oversight and support for the federal governments comparative effectiveness research of services and products. Despite initiatives to invalidate the ACA, the United States Supreme Court has upheld certain key aspects of the legislation, including the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the individual mandate. There are other legal challenges in lower courts and congressional efforts are underway to repeal the ACA altogether. Although it is too early to determine its full effect, if efforts to invalidate and/or repeal the legislation in its entirely are unsuccessful, the ACA appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare and Medicaid programs, and may also increase our regulatory burdens and operating costs. In addition, we cannot predict whether other legislative changes will be adopted, if any, or how such changes would affect our business.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the United States Congress of the FDAs approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
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Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Guy Macdonald, our President and Chief Executive Officer, Patrick Horn, our Chief Medical Officer, David Lubner, our Senior Vice President and Chief Financial Officer, and Joyce Sutcliffe, our Senior Vice President, Biology, as well as the other principal members of our management, scientific and clinical team. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time.
We do not have formal employment agreements with any of our other employees. If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to develop and commercialize drug candidates will be limited.
We expect to grow our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales, marketing and distribution. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities to devote time to managing these growth activities. To manage these growth activities, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. Our inability to effectively manage the expansion of our operations may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our business strategy.
If foreign approvals are obtained, we will be subject to additional risks in conducting business in international markets.
Even if we are able to obtain approval for commercialization of a product candidate in a foreign country, we will be subject to additional risks related to international business operations, including:
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potentially reduced protection for intellectual property rights; |
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the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally; |
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unexpected changes in tariffs, trade barriers and regulatory requirements; |
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economic weakness, including inflation, or political instability in particular foreign economies and markets; |
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workforce uncertainty in countries where labor unrest is more common than in the United States; |
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production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad; |
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business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and |
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failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act. |
These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.
Risks Related to Our Common Stock and This Offering
If you purchase shares of common stock in this offering, you will suffer immediate dilution in the book value of your investment.
The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $ per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the assumed initial public offering price. Purchasers of common stock in this offering will have contributed approximately % of the aggregate price paid by all purchasers of our stock but will own only approximately % of our common stock outstanding after this offering. Furthermore, if the underwriters exercise their over-allotment option or our previously issued options and warrants to acquire common stock at prices below the assumed initial public offering price are exercised, you will experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see Dilution.
An active trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. Although we have applied to list our common stock on The NASDAQ Global Market, an active trading market for our shares may never develop or, if developed, be maintained following this offering. If an active market for our common stock does not develop or is not maintained, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.
Our stock price may be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the
39
operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:
|
the success of existing or new competitive products or technologies; |
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the timing of clinical trials of eravacycline and any other product candidate; |
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results of clinical trials of eravacycline and any other product candidate; |
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failure or discontinuation of any of our development programs; |
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results of clinical trials of product candidates of our competitors; |
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regulatory or legal developments in the United States and other countries; |
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developments or disputes concerning patent applications, issued patents or other proprietary rights; |
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the recruitment or departure of key personnel; |
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the level of expenses related to any of our product candidates or clinical development programs; |
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the results of our efforts to develop, in-license or acquire additional product candidates or products; |
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; |
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announcement or expectation of additional financing efforts; |
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sales of our common stock by us, our insiders or other stockholders |
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variations in our financial results or those of companies that are perceived to be similar to us; |
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changes in estimates or recommendations by securities analysts, if any, that cover our stock; |
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changes in the structure of healthcare payment systems; |
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market conditions in the pharmaceutical and biotechnology sectors; |
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general economic, industry and market conditions; and |
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the other factors described in this Risk Factors section. |
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
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We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.
We are currently evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the Securities and Exchange Commission after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To
41
achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
A significant portion of our total outstanding shares is restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. After this offering, we will have shares of common stock outstanding based on the number of shares outstanding as of December 31, 2012 and giving effect to the conversion of all outstanding shares of our preferred stock into 256,024,993 shares of our common stock upon the closing of this offering. Of these shares, shares may be resold in the public market immediately, unless purchased by our affiliates. Of the remaining shares, shares are currently restricted under securities laws or as a result of lock-up agreements, but will be able to be sold after this offering as described in the Shares Eligible for Future Sale section of this prospectus. Moreover, after this offering, holders of an aggregate of shares of our common stock, will have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described in the Underwriting section of this prospectus.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future, accordingly, stockholders must rely on capital appreciation, if any, for any return on their investment.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the operation, development and growth of our business. The terms of our debt facility with Silicon Valley Bank and Oxford Finance preclude us from paying dividends, and any future debt agreements may also preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control all matters submitted to stockholders for approval.
Upon the closing, our executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately % of our capital stock. This ownership may increase if affiliates purchase shares in this offering. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:
|
delay, defer or prevent a change in control; |
42
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entrench our management and/or the board of directors; or |
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impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire. |
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our by-laws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that all members of the board are not elected at one time; |
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allow the authorized number of our directors to be changed only by resolution of our board of directors; |
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limit the manner in which stockholders can remove directors from the board; |
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establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at stockholder meetings; |
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; |
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limit who may call a special meeting of stockholder meetings; |
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a poison pill that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and |
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or by-laws. |
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words anticipate, believe, estimate, expect, intend, may, plan, predict, project, would and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:
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the anticipated timing, costs and conduct of our planned pivotal Phase 3 clinical trials for eravacycline for the treatment of complicated intra-abdominal infections, or cIAI, and complicated urinary tract infections, or cUTI; |
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our plans to develop an oral formulation of eravacycline for use in intravenous-to-oral step-down therapy for cUTI; |
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our anticipated timing for submitting applications for U.S. and foreign regulatory marketing approval for eravacycline; |
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our plans to develop and commercialize eravacycline for indications other than cIAI and cUTI; |
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our expectations regarding the clinical effectiveness of eravacycline; |
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our plans to develop and commercialize our other product candidates; |
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our commercialization, marketing and manufacturing capabilities and strategy; |
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our intellectual property position; |
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our competitive position; |
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our expectations related to the use of proceeds from this offering; and |
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our estimates regarding expenses, future revenue, capital requirements and needs for additional financing. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the Risk Factors section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.
You should read this prospectus, the documents that we reference in this prospectus and the documents that we have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $ million.
A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease the net proceeds from this offering by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.
We plan to use the net proceeds from this offering, together with our existing cash resources, as follows:
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approximately $ to fund our planned pivotal Phase 3 program for eravacycline for the treatment of complicated intra-abdominal infections and complicated urinary tract infections; and |
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the remainder for working capital and other general corporate purposes. |
This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the status of and results from clinical trials of eravacycline and whether regulatory authorities require us to perform additional clinical trials of eravacycline in order to obtain marketing approvals. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds.
We believe that our available funds following this offering will be sufficient to enable us to obtain top-line data from both of our planned Phase 3 clinical trials of eravacycline. We expect that these funds will not be sufficient to enable us to seek marketing approval for eravacycline or commercially launch eravacycline. It is also possible that we will not achieve the progress that we expect with respect to eravacycline because the actual costs and timing of clinical development activities are difficult to predict and are subject to substantial risks and delays. We have no external sources of funds other than our subcontracts with, and subaward from, CUBRC under awards from BARDA and NIAID. We expect that we will need to obtain additional funding in order to commercialize eravacycline.
To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of eravacycline or other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to eravacycline or other product candidates that we otherwise would seek to develop or commercialize ourselves.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
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We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments, provisions of applicable law and other factors the board deems relevant. Our ability to pay dividends on our common stock is limited by the covenants of our debt facility with Silicon Valley Bank and Oxford Finance and may be further restricted by the terms of any of our future indebtedness. See Risk FactorsRisks Relating to Our Financial Position and Need for Additional CapitalRaising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.
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The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2012 on:
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an actual basis; |
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a pro forma basis giving effect to the conversion of all outstanding shares of our preferred stock into 256,024,993 shares of our common stock, and the resulting adjustment in the shares issuable upon exercise of our outstanding warrants from preferred stock to common stock, upon the closing of this offering; and |
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a pro forma as adjusted basis giving additional effect to the sale of shares of our common stock offered in this offering, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the filing and effectiveness of a restated certificate of incorporation upon the closing of this offering. |
You should read the following table in conjunction with our consolidated financial statements and related notes, Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus.
As of September 30, 2012 | ||||||||||||
Actual | Pro Forma |
Pro Forma As
Adjusted |
||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
(In thousands, except share and per
share data) |
||||||||||||
Cash and cash equivalents |
$ | 6,748 | $ | 6,748 | $ | |||||||
|
|
|
|
|
|
|||||||
Preferred stock warrant liability |
388 | | ||||||||||
Term loan |
3,476 | 3,476 | ||||||||||
Series A-1 convertible preferred stock, $0.001 par value: |
||||||||||||
10,072,000 shares authorized; 10,040,000 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma adjusted |
9,925 | | ||||||||||
Series A-2 convertible preferred stock, $0.001 par value: 13,095,646 shares authorized; 13,095,646 shares issued and outstanding, actual; no shares authorized, issued or outstanding, proforma and proforma adjusted |
15,055 | | ||||||||||
Series B convertible preferred stock, $0.001 par value: 57,471,225 shares authorized; 57,471,225 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma adjusted |
9,946 | | ||||||||||
Series C convertible preferred stock, $0.001 par value: 176,973,937 shares authorized; 175,418,122 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma adjusted |
44,915 | | ||||||||||
Stockholders equity (deficit): |
||||||||||||
Common stock, $0.001 par value: 316,358,161 shares authorized, 9,322,696 shares issued and outstanding, actual; 316,358,161 shares authorized, 265,347,689 shares issued and outstanding, pro forma; and shares authorized, shares issued and outstanding, pro forma as adjusted |
9 | 265 | ||||||||||
Additional paid-in capital |
6,765 | 86,738 | ||||||||||
Deficit accumulated during the development stage |
(87,033 | ) | (87,033 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total stockholders (deficit) equity |
(80,259 | ) | (30 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 3,446 | $ | 3,446 | ||||||||
|
|
|
|
|
|
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A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and total stockholders (deficit) equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A -share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase each of cash and cash equivalents and total stockholders (deficit) equity by approximately $ million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a -share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease each of cash and cash equivalents and total stockholders (deficit) equity by approximately $ million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share you will pay in this offering and the pro forma as adjusted net tangible book value (deficit) per share of our common stock after this offering. Our pro forma historical net tangible book value (deficit) as of September 30, 2012 was $(0.4) million, or $(0.04) per share of common stock. Our pro forma net tangible book value (deficit) per share set forth below represents our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding on September 30, 2012, after giving effect to the automatic conversion of all of our outstanding shares of preferred stock into shares of our common stock upon the closing of this offering.
After giving effect to our issuance and sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range shown on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma as adjusted net tangible book value (deficit) as of September 30, 2012 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $ per share. The initial public offering price per share will significantly exceed the pro forma as adjusted net tangible book value per share. Accordingly, new investors who purchase shares of common stock in this offering will suffer an immediate dilution of their investment of $ per share. The following table illustrates this per share dilution to the new investors purchasing shares of common stock in this offering without giving effect to the over-allotment option granted to the underwriters:
Assumed initial public offering price per share |
$ | |||||||
Pro forma net tangible book value (deficit) per share as of September 30, 2012 |
$ | (0.04 | ) | |||||
Increase per share attributable to sale of shares of common stock in this offering |
||||||||
|
|
|||||||
Pro forma as adjusted net tangible book value (deficit) per share after this offering |
||||||||
|
|
|||||||
Dilution per share to new investors |
$ | |||||||
|
|
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease the pro forma net tangible book value (deficit) by $ million, the pro forma net tangible book value (deficit) per share after this offering by $ per share and the dilution in pro forma net tangible book value (deficit) per share to investors in this offering by $ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and offering expenses payable by us.
If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value (deficit) will increase to $ per share, representing an immediate increase to existing stockholders of $ per share and an immediate dilution of $ per share to new investors. If any shares are issued upon exercise of outstanding options or warrants, you will experience further dilution.
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The following table summarizes, on a pro forma basis as of September 30, 2012, after giving effect to the conversion of all of our outstanding preferred stock into common stock, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range shown on the cover of this prospectus, before the deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares Purchased | Total Consideration |
Average
Price Per Share |
||||||||||||||||||
Number | % | Amount | % | |||||||||||||||||
Existing stockholders |
265,457,459 | % | $ | 80,432,391.59 | % | $ | 0.30 | |||||||||||||
New investors |
$ | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Total |
100 | % | $ | 100 | % | $ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
The number of shares purchased from us by existing stockholders is based on 9,322,696 shares of our common stock outstanding as of September 30, 2012, after giving effect to the automatic conversion of all of our outstanding shares of preferred stock into 256,024,993 shares of common stock upon the closing of this offering:
|
1,587,815 shares of common stock issuable upon the exercise of preferred stock warrants outstanding and exercisable as of September 30, 2012, at a weighted average exercise price of $0.2721 per share; |
|
41,853,469 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2012, at a weighted average exercise price of $0.06 per share; |
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7,534,594 shares of common stock available for future issuance under our equity compensation plans as of September 30, 2012; and |
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an additional shares of our common stock that will be made available for future issuance under our equity compensation plans upon the closing of this offering. |
If the underwriters exercise their option to purchase additional shares from us in full, the number of shares held by new investors will increase to , or % of the total number of shares of common stock outstanding after this offering and the shares held by existing stockholders will decrease to , or % of the total shares outstanding.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace our financial statements and the related notes. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year.
The selected consolidated statement of operations data for the years ended December 31, 2010 and 2011 and the selected balance sheet data as of December 31, 2010 and 2011 are derived from our audited financial statements appearing elsewhere in this prospectus. The selected consolidated statement of operations data for the nine months ended September 30, 2011 and 2012 and the period from July 7, 2006, the date of our inception, to September 30, 2012 and the selected consolidated balance sheet data as of September 30, 2012 are derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements.
Years Ended December 31, |
Nine Months Ended
September 30, |
The Period
from July 7, 2006 (inception) to September 30, 2012 |
||||||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||||||
|
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||
(in thousands except share and per share data) | ||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Contract and grant revenue |
$ | | $ | 185 | $ | | $ | 4,360 | $ | 4,545 | ||||||||||
Operating expenses: |
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Research and development |
14,732 | 17,737 | 13,875 | 12,545 | 70,181 | |||||||||||||||
General and administrative |
3,446 | 3,874 | 2,933 | 3,154 | 16,325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
18,178 | 21,611 | 16,808 | 15,699 | 86,506 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
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Loss from operations |
(18,178 | ) | (21,426 | ) | (16,808 | ) | (11,339 | ) | (81,961 | ) | ||||||||||
Other income (expense): |
||||||||||||||||||||
Interest income |
3 | 1 | 1 | | 608 | |||||||||||||||
Interest expense |
(36 | ) | (161 | ) | (83 | ) | (614 | ) | (1,032 | ) | ||||||||||
Other income (expense) |
733 | 22 | | (82 | ) | (4,648 | ) | |||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Total other income (expense) |
700 | (138 | ) | (82 | ) | (696 | ) | (5,072 | ) | |||||||||||
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|
|
|
|
|
|
|
|
|
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Net loss |
$ | (17,478 | ) | $ | (21,564 | ) | $ | (16,890 | ) | $ | (12,035 | ) | $ | (87,033 | ) | |||||
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|
|
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|
|
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Net loss per share applicable to common stockholders-basic and diluted |
$ | (2.16 | ) | $ | (2.53 | ) | $ | (1.99 | ) | $ | (1.32 | ) | $ | (13.13 | ) | |||||
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|
|
|
|
|
|
|
|
|
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Weighted-average number of common shares used in net loss per share applicable to common stockholders-basic and diluted |
8,075,647 | 8,527,925 | 8,467,407 | 9,143,946 | 6,629,259 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Pro forma net loss per share applicable to common stockholders-basic and diluted (unaudited) |
$ | (0.08 | ) | $ | (0.05 | ) | ||||||||||||||
|
|
|
|
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Weighted-average number of common shares used in pro forma net loss per share applicable to common stockholders-basic and diluted (unaudited) |
264,552,918 | 265,168,939 | ||||||||||||||||||
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|
|
|
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As of December 31, | As of September 30, | |||||||||||
2010 | 2011 | 2012 | ||||||||||
|
(unaudited) | |||||||||||
(in thousands) |
||||||||||||
Balance Sheet Data: | ||||||||||||
Cash and cash equivalents |
$ | 34,585 | $ | 22,454 | $ | 6,748 | ||||||
Working capital |
31,331 | 16,400 | 3,018 | |||||||||
Total assets |
36,162 | 24,069 | 10,414 | |||||||||
Current liabilities |
3,679 | 6,974 | 6,968 | |||||||||
Long-term obligations |
26 | 5,857 | 3,864 | |||||||||
Convertible preferred stock |
79,841 | 79,841 | 79,841 | |||||||||
Deficit accumulated during the development stage |
(53,434 | ) | (74,998 | ) | (87,033 | ) | ||||||
Total stockholders deficit |
$ | (47,384 | ) | $ | (68,603 | ) | $ | (80,259 | ) |
52
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the Risk Factors section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical stage biopharmaceutical company using our proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections. Our lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that we are developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug Gram-negative infections. We recently completed a successful Phase 2 clinical trial of eravacycline with intravenous administration for the treatment of patients with complicated intra-abdominal infections, or cIAI, and are currently finalizing two global Phase 3 clinical trials of eravacycline, one for the treatment of cIAI and one for the treatment of complicated urinary tract infections, or cUTI. We also plan to commence in the first quarter of 2013 a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline. Subject to obtaining additional financing beyond this offering, we intend to pursue development of eravacycline for the treatment of additional indications, including acute bacterial skin and skin structure infections, or ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections. We are also pursuing the discovery and development of additional antibiotics to target unmet medical needs.
We commenced business operations in July 2006. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our proprietary chemistry technology, identifying potential product candidates and undertaking preclinical studies and clinical trials of our product candidates. To date, we have not generated any product revenue and have primarily financed our operations through the private placement of our equity securities, debt financings and revenue from government grants. As of September 30, 2012, we had received an aggregate of $89.4 million in net proceeds from the issuance of equity securities and borrowings under debt facilities. As of September 30, 2012, our principal source of liquidity was cash and cash equivalents, which totaled $6.7 million.
As of September 30, 2012, we had a deficit accumulated during the development stage of $87.0 million. Our net losses were $17.5 million and $21.6 million for the years ended December 31, 2010 and 2011, respectively, and $12.0 million for the nine-month period ending September 30, 2012. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect our research and development expenses will increase as we continue the development and clinical trials of, and seek regulatory approval for, our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, following the closing of this offering, we expect to incur additional costs associated with operating as a public company and expect that our general and administrative costs will increase as we grow and operate as a public company. We will need to generate significant revenue to achieve profitability, and we may never do so.
We believe that our available funds following this offering will be sufficient to enable us to obtain top-line data from both of our planned Phase 3 clinical trials of eravacycline. We expect that these funds will not be sufficient to enable us to seek marketing approval for eravacycline or commercially launch eravacycline. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt
53
financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
Financial overview
Revenue
We have derived all of our revenue to date from funding provided under three U.S. government awards for the development of our compounds as potential counter measures for the treatment of disease caused by bacterial biothreat pathogens through our collaborator CUBRC Inc., or CUBRC, an independent, not-for-profit, research corporation that specializes in U.S. government-based contracts:
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We have received funding for our lead product candidate, eravacycline, under an award from the Biomedical Advanced Research and Development Authority, or BARDA, an agency of the U.S. Department of Health and Human Services. In January 2012, BARDA awarded CUBRC a five-year contract that provides for up to a total of $67.0 million in funding for the development, manufacturing and clinical evaluation of eravacycline for the treatment of disease caused by bacterial biothreat pathogens. We refer to this contract as the BARDA Contract. |
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We have received funding for our preclinical compound TP-271 under two awards from the National Institute of Allergy and Infectious Diseases, or NIAID, a division of National Institutes of Health, for the development, manufacturing and clinical evaluation of TP-271 for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia: |
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a grant awarded to CUBRC in July 2011 that provides up to a total of approximately $2.8 million over five years, which we refer to as the NIAID Grant, and |
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a contract awarded to CUBRC in September 2011 that provides up to a total of approximately $35.8 million in funding over five years, which we refer to as the NIAID Contract. |
We are collaborating with CUBRC because when we initially determined to seek government funding we recognized that we did not have any expertise in bidding for, or the administration and management of, government-funded contracts. CUBRC serves as the prime contractor under the BARDA Contract, the NIAID Grant and the NIAID Contract, primarily carrying out a program management and administrative role with additional responsibility for the management of preclinical studies. We serve as lead technical expert on all aspects of these awards and also serve as a subcontractor responsible for management of chemistry, manufacturing and control activities and clinical studies. We derive all of our revenue under these collaborations through subcontracts with, and a subaward from, CUBRC, with the flow of funds following the respective activities being conducted by us and by CUBRC.
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In connection with the BARDA Contract, in February 2012, we entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which we may receive funding of up to approximately $39.8 million, reflecting the portion of the BARDA Contract funding that may be paid to us for our activities. |
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In connection with the NIAID Contract, in October 2011, we entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which we may receive funding of up to approximately $13.3 million, reflecting the portion of the NIAID Contract funding that may be paid to us for our activities. |
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In connection with the NIAID Grant, in November 2011, CUBRC awarded us a 55-month, no-fee subaward of approximately $980,000, reflecting the portion of the NIAID Grant funding that may be paid to us for our activities. |
Although the BARDA Contract, and our subcontract with CUBRC under the BARDA Contract, have five-year terms, BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide funding beyond current-year amounts from Congressionally approved annual appropriation. To the extent BARDA
54
ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us. For the 12-month base period from February 1, 2012 through January 31, 2013, committed funding from CUBRC under our BARDA subcontract is $6.3 million, of which we have received $1.3 million through September 30, 2012. Similarly, although the NIAID Contract, the NIAID Grant and our subcontract with CUBRC under the NIAID Contract have terms of five years, and our subaward under the NIAID Grant has a term of 55 months, NIAID is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond an initial 25-month base period. To the extent NIAID ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us. For the 25-month base period from October 1, 2011 through October 31, 2013, committed funding from our subcontract with CUBRC under the NIAID Contract is $5.9 million, of which we have received $1.2 million through September 30, 2012.
We have no products approved for sale. Other than the government funding described above, we do not expect to receive any revenue from any product candidates that we develop, including eravacycline, until we obtain regulatory approval and commercialize such products, which we do not expect will occur before 2016, or until we potentially enter into collaborative agreements with third parties for the development and commercialization of such product candidates. We continue to pursue government funding for other preclinical and clinical programs. If our development efforts for any of our product candidates result in clinical success and regulatory approval, or collaboration agreements with third parties, we may generate revenue from those product candidates.
We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Even if we are able to generate revenue from the sale of one or more products, we may not become profitable.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, which include:
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employee-related expenses, including salaries, benefits and stock-based compensation expense; |
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expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and consultants that conduct our clinical trials and preclinical activities; |
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payments made under our license agreement with Harvard University; |
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the cost of acquiring, developing and manufacturing clinical trial materials and lab supplies; and |
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facility, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies. |
We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.
55
The following table identifies research and development expenses on a program-specific basis for our product candidates for the years ended December 31, 2010 and 2011, the nine months ended September 30, 2011 and 2012 and the period from July 7, 2006 (inception) to September 30, 2012. Expenses related to facilities, consulting, travel, conferences, stock-based compensation and depreciation are not allocated to a program and are separately classified as other research and development expenses in the table below.
Years Ended
December 31, |
Nine Months Ended
September 30, |
The Period
from July 7, 2006 (inception) to September 30, 2012 |
||||||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Eravacycline |
$ | 5,607 | $ | 9,007 | $ | 7,453 | $ | 5,893 | $ | 29,686 | ||||||||||
BARDA Contract |
| | | 1,743 | 1,743 | |||||||||||||||
NIAID Contract and Grant |
| 174 | | 1,992 | 2,165 | |||||||||||||||
Other development programs |
4,929 | 5,016 | 3,606 | 920 | 20,297 | |||||||||||||||
Other research and development |
4,196 | 3,540 | 2,816 | 1,997 | 16,290 | |||||||||||||||
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Total research and development |
$ | 14,732 | $ | 17,737 | $ | 13,875 | $ | 12,545 | $ | 70,181 | ||||||||||
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Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
As of September 30, 2012, we had incurred an aggregate of $29.7 million in research and development expenses related to the development of eravacycline. We expect that our research and development expenses will increase as we plan for and commence our two planned Phase 3 clinical trials of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013. We expect that the total external costs of our planned Phase 3 clinical trials of eravacycline will be approximately $ million, including approximately $ million in 2013, exclusive of the $2.0 million milestone payment described below that would become due to Harvard University upon dosing of the first patient in the first of these Phase 3 clinical trials.
Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of these or other current or future clinical trials of eravacycline or our other product candidates. We may never succeed in achieving regulatory approval for eravacycline or any of our other product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability.
We have licensed our proprietary chemistry technology from Harvard University on an exclusive worldwide basis under a license agreement that we entered into in August 2006. Under the license agreement, we have paid Harvard an aggregate of $1.7 million in upfront license fees and development milestone payments, and issued 910,000 shares of our common stock to Harvard. In addition, we have agreed to make payments to Harvard upon the achievement of specified future development and regulatory milestones totaling up to $15.2 million per licensed product and to pay tiered royalties in the single digits based on annual worldwide net sales, if any, of licensed products by us, our affiliates and our sublicensees. We are also obligated to pay Harvard a specified share of non-royalty sublicensing revenues that we receive from sublicensees for the grant of sublicenses under the license and to reimburse Harvard for specified patent prosecution and maintenance costs. The next milestone payment that we expect to make under the license agreement is a $2.0 million payment that will become due to Harvard upon dosing of the first patient in our first Phase 3 clinical trial of eravacycline.
56
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, in executive and other administrative functions. Other general and administrative expenses include facility related costs, communication expenses and professional fees for legal, patent review, consulting and accounting services.
We anticipate that our general and administrative expenses will increase in the future to support the continued research and development and potential commercialization of our product candidates and as we operate as a public company. These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses. Additionally, if and when we believe a regulatory approval of our first product candidate appears likely, we anticipate that we will increase our payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.
Interest Income
Interest income consists of interest earned on our cash and cash equivalents.
Interest Expense
Interest expense consists primarily of interest accrued on our outstanding indebtedness and non-cash interest related to the amortization of debt discount costs associated with our term loan. We expect that our interest expense will increase in future periods in connection with additional indebtedness of $6.2 million that we borrowed in December 2012 under an amendment to our loan and security agreement with Silicon Valley Bank and Oxford Finance.
Other Income (Expense)
Other income (expense) consists of amounts received from the U.S. government related to the Therapeutic Discovery Tax Credit pursuant to the Patient Protection and Affordable Care Act of 2010 and fair value adjustments on derivative instruments related to the purchase of our preferred stock.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We have derived all of our revenue to date from our subcontracts with CUBRC under the BARDA Contract and the NIAID Contract and our subaward under the NIAID Grant. We recognize revenue under these best-
57
efforts, cost-reimbursable and cost-plus-fixed-fee subcontracts and subaward as we perform services under the subcontracts and subaward so long as a subcontract and subaward has been executed and the fees for these services are fixed or determinable, legally billable and reasonably assured of collection. Recognized amounts reflect our partial performance under the subcontracts and subaward and equal direct and indirect costs incurred plus fixed fees, where applicable. We do not recognize revenue under these arrangements for amounts related to contract periods where funding is not yet committed as amounts above committed funding thresholds would not be considered fixed or determinable or reasonably assured of collection. Revenues and expenses under these arrangements are presented gross on our statements of operations and comprehensive loss as we have determined we are the primary obligor under these arrangements relative to the research and development services we perform as lead technical expert.
Revenue under our subcontracts under both the NIAID Contract and the BARDA Contract are earned under a cost-plus-fixed-fee arrangement in which we are reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under these contracts are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, allowable overhead and general and administrative expenses and a fixed fee.
Revenue under our subaward under the NIAID Grant is earned under a cost-reimbursable arrangement in which we are reimbursed for direct costs incurred plus allowable indirect costs. Billings under the NIAID Grant are based on approved provisional indirect billing rates, which permit recovery of fringe benefits and allowable general and administrative expenses.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
|
CROs in connection with clinical trials; |
|
CMOs with respect to clinical materials and intermediaries; |
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vendors in connection with preclinical development activities; and |
|
vendors related to manufacturing, development and distribution of clinical supplies. |
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred.
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Stock-Based Compensation
Since our inception in July 2006, we have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation , which we refer to as ASC 718, to account for all stock-based compensation. We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant. Stock compensation related to non-employee awards is remeasured at each reporting period until the awards are vested. Described below is the methodology we have utilized in measuring stock-based compensation expense. Following the consummation of this offering, stock option fair values will be determined based on the quoted market price of our common stock.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their grant date. We recognize stock-based compensation expense ratably over the requisite service period, which in most cases is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the fair value of our common stock on the grant date, the expected term of our stock options, the risk free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Because we are a privately held company with a limited operating history, we utilize data from a representative group of publicly traded companies to estimate expected stock price volatility. We selected representative companies from the biopharmaceutical industry with similar characteristics as us, including stage of product development and therapeutic focus. We use the simplified method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. For non-employee grants, we use an expected term equal to the remaining contractual term of the award. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.
Under ASC 718, we are required to estimate the level of forfeitures expected to occur and record stock-based compensation expense only for those awards that we ultimately expect will vest. During the years ended December 31, 2010 and 2011 and the nine-month period ended September 30, 2012, our estimated annual forfeiture rate was 0%, 0% and 3%, respectively.
Stock-based compensation expense includes options granted to employees and non-employees and has been reported in our statements of operations and comprehensive loss as follows:
Year Ended
December 31, |
Nine Months
Ended September 30, |
|||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands) | ||||||||||||||||
Research and development |
$ | 210 | $ | 175 | $ | 128 | $ | 260 | ||||||||
General and administrative |
107 | 137 | 102 | 96 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 317 | $ | 312 | $ | 230 | $ | 356 | ||||||||
|
|
|
|
|
|
|
|
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We estimated the fair value of stock options at the grant date using the following assumptions:
Years Ended December 31, |
Nine
Months
2012 |
|||||
2010 |
2011 |
|||||
Weighted-average expected volatility |
63% | 67% | 67% | |||
Expected life (in years) |
5.9-6.1 | 6.0-6.1 | 6.0 | |||
Risk-free interest rate |
1.52%-2.37% | 1.21%-2.41% | 0.93%-1.20% | |||
Expected dividend yield |
0% | 0% | 0% |
The following table presents the grant dates and related exercise or purchase prices of stock options that we granted from January 1, 2011 through the date of this prospectus, along with the corresponding exercise price for each option grant and the fair value per share utilized to calculate stock-based compensation expense:
Date of Grant |
Number of shares
underlying options granted |
Exercise price
per share |
Common stock fair
value per share on grant date |
|||||||||
1/3/2011 |
2,833,000 | $ | 0.07 | $ | 0.07 | |||||||
4/27/2011 |
100,000 | $ | 0.07 | $ | 0.07 | |||||||
12/9/2011 |
1,581,791 | $ | 0.07 | $ | 0.07 | |||||||
1/20/2012 |
719,000 | $ | 0.07 | $ | 0.07 | |||||||
1/26/2012 |
325,000 | $ | 0.07 | $ | 0.07 | |||||||
6/6/2012 |
4,949,715 | $ | 0.07 | $ | 0.13 | |||||||
11/19/2012 |
150,000 | $ | 0.18 | $ | 0.18 |
At September 30, 2012, options to purchase 41,853,469 shares of our common stock were outstanding. The aggregate intrinsic value of these options was $ assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus.
The estimated fair value per share of common stock in the table above represents the determination by our board of directors of the fair value of our common stock as of the date of grant, taking into consideration various objective and subjective factors, including the conclusions of contemporaneous valuations of our common stock, as discussed below.
Due to the absence of an active market for our common stock, the fair value of our common stock was determined in good faith by our board of directors, with the assistance and upon the recommendations of management, based on objective and subjective factors consistent with the methodologies outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , referred to as the AICPA Practice Aid, including:
|
the shares of common stock were illiquid securities in a private company; |
|
the prices of shares of our preferred stock that we had sold to outside investors in arms length transactions, and the rights, preferences and privileges of that preferred stock relative to our common stock; |
|
our results of operations, financial position and the status of our research and development efforts, including the status of clinical trials for our product candidates under development; |
|
the material risks related to our business; |
|
our business strategy; |
|
our achievement of key milestones, including the results of clinical trials; |
|
the market performance of publicly traded companies in the life sciences and biotechnology sectors, and recently completed mergers and acquisitions of companies comparable to us; |
|
the likelihood of achieving a liquidity event for the holders of our common stock, such as, sale of the company or an initial public offering given prevailing market conditions; |
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|
external market conditions affecting the life sciences and biotechnology industry sectors; and |
|
contemporaneous and retrospective valuations of our common stock. |
Valuation of Common Stock as of June 18, 2010
Following our Series C preferred stock financing in May and June of 2010, we conducted a contemporaneous valuation of our common stock as of June 18, 2010. In conducting this valuation, we estimated the value of our common stock based on the price at which we sold shares of our Series C preferred stock in the financing. The lead investor in the financing was an unrelated investor and the price for the Series C preferred stock was determined through negotiations with the investors. We used the option-pricing back solve method, or OPM-BS, to estimate the equity value that corresponded to the pricing and terms of the Series C financing. We then allocated the equity value among our preferred and common stock using the OPM-BS. For our OPM-BS analysis, we estimated the time to liquidity as two years and assumed an annual volatility rate of 78%. Our estimate of volatility was based on historical share price trading data for a group of ten companies we considered comparable to ours. We applied a discount for lack of marketability of 15% to our common stock. Based on these factors, we concluded that our common stock had a fair value of $0.07 per share as of June 18, 2010.
Stock Option Grants Made January 3, 2011 and April 27, 2011
Our board of directors granted options to purchase common stock on January 3, 2011 and April 27, 2011, with each option having an exercise price of $0.07 per share. In establishing this exercise price, our board of directors considered input from management, including the valuation we conducted of our common stock as of June 18, 2010, as well as the objective and subjective factors outlined above.
In addition, on each of January 3, 2011 and April 27, 2011, our board of directors considered the decline in our financial position and significant cash burn since our Series C preferred stock financing, our projected financial results for the remainder of 2011 as well as the events and circumstances that occurred between June 18, 2010 and such date that our board of directors considered most likely to affect the value of our common stock, including the following:
|
the addition of a newly elected independent director to our board of directors; |
|
the addition of our chief medical officer; and |
|
the anticipated, or in the case of the April 27, 2011 meeting, actual, initiation of our Phase 1 multiple ascending dose clinical trial of an oral formulation of eravacycline. |
On each of January 3, 2011 and April 27, 2011, our board of directors determined that these events and circumstances were not indicative of a significant change in fair value of our common stock since June 18, 2010.
Based on these factors, our board of directors determined that the fair value of our common stock at both January 3, 2011 and April 27, 2011 was $0.07 per share.
Valuation of Common Stock as of October 14, 2011
In October 2011, we conducted a contemporaneous valuation of our common stock as of October 14, 2011. In conducting this valuation, we used the market approach as described in the AICPA Practice Aid. We switched to this method from the OPM-BS used for our June 18, 2010 valuation as our Series C preferred stock financing had occurred more than sixteen months earlier. We estimated the value of our common stock based on the estimated market capitalization of guideline public companies that were selected based on their disease focus, stage of clinical trials, number of compounds in clinical trials and number of years since incorporation. We estimated the market capitalization of these companies based on factors including the amounts of paid-in capital and cash held by each company. We allocated this equity value among the outstanding shares of our preferred and common stock using the option-pricing method, or OPM. For our OPM analysis, we assumed a time to liquidity of 1.27 years and an annual volatility rate of 49% based on historical trading for the guideline public
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companies considered. We applied a discount for lack of marketability of 15% to our common stock. Based on these factors, we concluded that our common stock had a fair value of $0.07 per share as of October 14, 2011.
Stock Option Grants Made December 9, 2011 to January 26, 2012
Our board of directors granted options on December 9, 2011, January 20, 2012 and January 26, 2012, with each option having an exercise price of $0.07 per share. In establishing this exercise price, our board of directors considered input from management, including the valuation we conducted of our common stock as of October 14, 2011, as well as the objective and subjective factors outlined above.
In addition, on each of December 9, 2011, January 20, 2012 and January 26, 2012, our board of directors considered the decline in our financial position and significant cash burn since our Series C preferred stock financing, our projected financial results for 2012 as well as the events and circumstances that occurred between October 14, 2011 and such date that our board of directors considered most likely to affect the value of our common stock, including the following:
|
the addition of a newly elected independent chairman of our board of directors; |
|
the initiation and progress of our Phase 2 clinical trial of the intravenous formulation of eravacylcine; |
|
our impending, or, in the case of the January 20, 2012 and January 26, 2012 meetings, completed, borrowing of $6.5 million under our debt facility with Silicon Valley Bank and Oxford Finance in December 2011; and |
|
the market performance of publicly traded companies in the life sciences and biotechnology companies comparable to us. |
On each of December 9, 2011, January 20, 2012 and January 26, 2012, our board of directors determined that these events and circumstances were not indicative of a significant change in fair value of our common stock since October 14, 2011.
Based on these factors, our board of directors determined that the fair value of our common stock at December 9, 2011, January 20, 2012 and January 26, 2012 was $0.07 per share.
Stock Option Grants Made June 6, 2012
Our board of directors granted options on June 6, 2012, with each option having an exercise price of $0.07 per share. In establishing this exercise price, our board of directors considered input from management, including the valuation we conducted of our common stock as of October 14, 2011, and the status of our ongoing Phase 2 clinical trial of the intravenous formulation of eravacycline. At June 6, 2012, all patient data remained blinded.
Retrospective Valuation of Common Stock as of June 6, 2012
In September 2012, we decided to pursue an initial public offering of our common stock, or IPO, in addition to exploring other strategic alternatives. As a result, in connection with the preparation of our consolidated financial statements for the nine-month period ended September 30, 2012 included in this prospectus and in preparing for our proposed IPO, we reexamined for financial reporting purposes only the fair value of our common stock during 2012. In connection with that reexamination, we prepared a retrospective valuation of the fair value of our common stock for financial reporting purposes as of June 6, 2012 to assist our board of directors in re-evaluating the fair value of our common stock as of that date. We determined that a retrospective valuation of the fair value of our common stock as of June 6, 2012 was necessary due to acceleration of the timeframe to a liquidity event, including our potential IPO, since October 14, 2011, the date of our last contemporaneous valuation.
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In reassessing the fair value of our common stock, our board of directors considered the events and circumstances that occurred since January 26, 2012 that were most likely to affect the value of our common stock, including the following:
|
our entry in February 2012 into a subcontract with CUBRC under the BARDA Contract; |
|
the progress of our Phase 2 clinical trial of the intravenous formulation of eravacycline; |
|
the Data Safety Monitoring Board concluding in April 2012 that the trial could continue; and |
|
the market performance of publicly traded companies in the life sciences and biotechnology companies comparable to us. |
For the retrospective valuation, we used the market approach to estimate the aggregate future equity value of our company under an IPO scenario, high and low case sale scenarios and a remain private scenario, as described below.
|
For the IPO scenario, we used the Guideline Public Company Method as described in the AICPA Practice Aid. Under this method, we identified recent IPOs for similar biotechnology companies from 2010, 2011 and 2012, which we refer to as guideline companies, that were either focused on the development of anti-infective compounds or were currently developing a Phase 3 clinical trial drug candidate. We used the average of (1) the median of the guideline companies IPO pre-money valuations and (2) the valuation for our company implied by applying to our Series C post-money valuation the median step-up in value for the guidelines companies from the post-money valuations for their last preferred financings to their IPO pre-money valuations. |
|
For the sale scenarios, we analyzed sale transactions of similar biotechnology companies that were focused on the development of anti-infective compounds and assumed for financial reporting purposes a sale in March 2013. We also analyzed published transaction values of companies with product candidates in similar stages of development as we estimated our lead product candidate, eravacycline, would be in March 2013. |
|
For the remain private scenario, we estimated equity value using the Guideline Public Company Method and took into consideration twelve publicly traded companies that we considered comparable to ours. |
In order to determine a valuation of our common stock based on the equity values determined under the IPO scenario, the two sale scenarios and the remain private scenario, we used the Probability Weighted Expected Return Method, or the PWERM, described in the AICPA Practice Aid. Under this method, we estimated the value of our common stock based on the probability-weighted present value of expected future investment returns considering each of these possible outcomes and the rights of each class and series of our equity. Three of the scenarios assumed a stockholder exit, either through an IPO or a sale of our company. The fourth scenario assumed we remained a private company. For the IPO and sale scenarios, we calculated the estimated values of our common stock using assumptions as to pre-money or sale valuations determined with respect to those scenarios as described above, and dates of those scenarios, and an appropriate risk-adjusted discount rate. Finally, we calculated a present value for our common stock based on our estimate of the relative likelihood of occurrence of each scenario. We assigned a 20% weighting to the IPO scenario, 50% weighting to the sale scenarios, split evenly between the high and low case scenarios, and 30% weighting to the remaining private scenario. We believed these weightings were appropriate because at the time of the retrospective valuation, we believed that there was the possibility of several liquidity events: the IPO scenario and sale scenarios. We believed it appropriate to include these potential scenarios when estimating the value of our common stock as this was a retrospective valuation that was performed at the time of our preparation for this proposed initial public offering.
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The following table summarizes the significant assumptions for each of the valuation scenarios used in the PWERM analysis to determine the retrospectively reassessed fair value of our common stock as of June 6, 2012.
June 6, 2012 Retrospective Valuation |
IPO |
SaleHigh
Case |
SaleLow
Case |
Remain
Private |
||||||||||||
Key Assumptions |
||||||||||||||||
Probability weighting |
20 | % | 25 | % | 25 | % | 30 | % | ||||||||
Liquidity date |
2/28/13 | 3/31/13 | 3/31/13 | | ||||||||||||
WACC |
13.7 | % | 13.7 | % | 13.7 | % | N/A | |||||||||
Volatility |
| | | 53 | % | |||||||||||
Discount for lack of marketability |
15 | % | 15 | % | 15 | % |
|
N/A
|
|
Based on the qualitative factors described above and the results of our retrospective valuation analysis, we determined that the retrospectively reassessed fair value of our common stock for financial reporting purposes at June 6, 2012 was $0.13 per share.
Valuation of Common Stock as of October 14, 2012
As a result of the favorable results from the Phase 2 study we decided to pursue an IPO and explore other strategic alternatives and performed a contemporaneous valuation of our common stock as of October 14, 2012.
For the valuation, we used the market approach to estimate the aggregate future equity value of our company under an IPO scenario, high and low case sale scenarios and a remain private scenario, as described below.
|
For the IPO scenario, we used the Guideline Public Company Method as described in the AICPA Practice Aid. Under this method, we identified recent IPOs for similar biotechnology companies from 2010, 2011 and 2012, which we refer to as guideline companies, that were either focused on the development of anti-infective compounds or were currently developing a Phase 3 clinical trial drug candidate. We used the average of (1) the median of the guideline companies IPO pre-money valuations and (2) the valuation for our company implied by applying to our Series C post-money valuation the median step-up in value for the guideline companies from the post-money valuations for their last preferred financings to their IPO pre-money valuations. |
|
For the sale scenarios, we analyzed sale transactions of similar biotechnology companies that were focused on the development of anti-infective compounds and assumed for financial reporting purposes a sale in March 2013. We also analyzed published transaction values of companies with product candidates in similar stages of development as we estimated our lead product candidate, eravacycline, would be in March 2013. |
|
For the remain private scenario, we estimated our equity value using the Guideline Public Company Method and took into consideration twelve publicly traded companies that we considered comparable to ours. |
In order to determine a valuation of our common stock based on the enterprise values determined under the IPO scenario, the two sale scenarios and the remain private scenario, we used the PWERM. Under this method, we estimated the value of our common stock based on the probability-weighted present value of expected future investment returns considering each of these possible outcomes and the rights of each class and series of our equity. Three of the scenarios assumed a stockholder exit, either through an IPO or a sale of our company. The fourth scenario assumed we remained a private company. For the IPO and sale scenarios, we calculated the estimated values of our common stock using assumptions as to pre-money or sale valuations determined with respect to those scenarios as described above, and dates of those scenarios, and an appropriate risk-adjusted discount rate. Finally, we calculated a present value for our common stock based on our estimate of the relative likelihood of occurrence of each scenario. We assigned a 40% weighting to the IPO scenario, 50% weighting to the sale scenarios, split evenly between the high and low case scenarios, and 10% weighting to the remain private scenario and calculated an estimated fair value of our common stock as of October 14, 2012 of $0.18 per share.
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The following table summarizes the significant assumptions for each of the valuation scenarios used in the PWERM analysis to determine the fair value of our common stock as of October 14, 2012.
October 14, 2012 Contemporaneous Valuation |
IPO |
SaleHigh
Case |
SaleLow
Case |
Remain
Private |
||||||||||||
Key Assumptions |
||||||||||||||||
Probability weighting |
40 | % | 25 | % | 25 | % | 10 | % | ||||||||
Liquidity date |
2/28/13 | 3/31/13 | 3/31/13 | | ||||||||||||
WACC |
13.8 | % | 13.8 | % | 13.8 | % |
|
N/
A |
|
|||||||
Volatility |
| | | 53 | % | |||||||||||
Discount for lack of marketability |
15 | % | 15 | % | 15 | % | 15 | % |
Stock Option Grants Made November 19, 2012
Our board of directors granted options on November 19, 2012, with each option having an exercise price of $0.18 per share. In establishing this exercise price, our board of directors considered input from management, including the valuation we conducted of our common stock as of October 14, 2012, and the status of our efforts to pursue an IPO and explore other strategic alternatives.
Based on these factors, our board of directors determined that the fair value of our common stock at November 19, 2012 was $0.18 per share.
Initial Public Offering Price
In consultation with the underwriters for this offering, we determined the estimated price range for this offering, as set forth on the cover page of this prospectus. The midpoint of the price range is $ per share. In comparison, our estimate of the fair value of our common stock was $0.18 per share as of November 19, 2012. We note that, as is typical in IPOs, the estimated price range for this offering was not derived using a formal determination of fair value, but was determined by negotiation between us and the underwriters. Among the factors that were considered in setting this range were the following:
|
an analysis of the typical valuation ranges seen in initial public offerings for companies in our industry for the last two years; |
|
the general condition of the securities markets and the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; |
|
an assumption that there would be a receptive public trading market for pre-commercial biotechnology companies such as us; and |
|
an assumption that there would be sufficient demand for our common stock to support an offering of the size contemplated by this prospectus. |
The midpoint of the estimated price range for this offering reflects an increase over the estimated valuation as of November 19, 2012 of $0.18 per share. Investors should be aware of this difference and recognize that the price range for this offering is in excess of our prior valuations. Further, investors are cautioned not to place undue reliance on the valuation methodologies discussed above as an indicator of future stock prices. We believe the difference may be due to the following factors:
|
The retrospective and contemporaneous valuations prepared as of June 6, 2012 and October 14, 2012 contain multiple liquidity scenarios, including an assumed initial public offering in February 2013, two scenarios that assumed the sale of our company in March 2013 and one scenario that assumed the company remained private. |
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|
In the public markets we believe there are investors who may apply more qualitative valuation criteria to certain of our clinical assets than the valuation methods applied in our valuations. We have been advised by the underwriters that different investors may place higher values on specific assets of ours than others. |
|
The price that investors are willing to pay in this offering, for which the price range is intended to serve as an estimate, may take into account other things that have not been expressly considered in our prior valuations, are not objectively determinable and that valuation models are not able to quantify. |
Investors should be cautioned that the mid-point of the price range set forth on the cover page of this prospectus does not necessarily represent the fair value of our common stock, but rather reflects an estimate of the offer price determined in consultation with the underwriters.
There are significant judgments and estimates inherent in the determination of these valuations. These judgments and estimates include assumptions regarding our future performance, including the successful completion of our clinical trials as well as the determination of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense could have been different. The foregoing valuation methodologies are not the only methodologies available and they will not be used to value our common stock once this offering is complete. We cannot make assurances as to any particular valuation for our common stock. Accordingly, investors are cautioned not to place undue reliance on the foregoing valuation methodologies as an indicator of future stock prices.
Stock-based compensation expense related to awards granted to employees was $188,000 for year ending December 31, 2010, $228,000 for the year ended December 31, 2011 and $196,000 for the nine-month period ending September 30, 2012. As of September 30, 2012, we had $544,000 of total unrecognized compensation expense, net of related forfeiture estimates, which we expect to recognize over a weighted-average remaining vesting period of approximately 2.5 years. While our stock-based compensation expense for stock options granted to employees to date has not been significant, we expect the impact to grow in future periods due to the potential increases in the value of our common stock and headcount.
During 2009, we granted options to non-employees to purchase 6,750,000 shares of common stock. These options vested with respect to one-third of the underlying shares on the date of grant, with the remaining shares vesting quarterly over four years from date of grant and have a life of ten years. During 2010, we granted options to non-employees to purchase 376,209 shares of common stock. These non-employee options vest quarterly through the fourth anniversary of the vesting date and have a contractual term of ten years. Stock options issued to non-employees are accounted for at fair value. We periodically revalue the options as they vest and recognize expense over the related service period. The total expense related to all non-employee options was $137,000 for the year ended December 31, 2010, $54,000 for the year ended December 31, 2011 and $160,000 for the nine-month period ended September 30, 2012.
Results of Operations
Comparison of the Nine Months Ended September 30, 2011 and 2012
Revenue
The following table summarizes our revenue for the nine months ended September 30, 2011 and 2012:
Nine Months Ended
September 30, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2011 | 2012 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Contracts and grant revenue |
$ | | $ | 4,360 | $ | 4,360 | 100 | % |
We had no revenue for the nine-month period ended September 30, 2011. The increase in revenue for the nine months ended September 30, 2012 was primarily due to the commencement of work under our subcontracts
66
under the BARDA Contract and the NIAID Contract and our subaward under the NIAID Grant, which provided $2.2 million, $2.0 million and $0.2 million of revenue, respectively, in the nine months ended September 30, 2012.
Research and Development Expenses
The following table summarizes our research and development expenses for the nine months ended September 30, 2011 and 2012:
Nine Months Ended
September 30, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2011 | 2012 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Research and development expenses |
$ | 13,875 | $ | 12,545 | $ | (1,330 | ) | (10 | )% |
Research and development expenses decreased by $1.3 million from the nine-month period ended September 30, 2011 to the nine-month period ended September 30, 2012. This decrease was primarily due to lower clinical costs of $1.1 million attributable to the completion in 2010 of a Phase 1 clinical trial of the oral formulation of eravacycline and a Phase 1 clinical trial of another pipeline compound, a decrease in development milestone payments of $1.1 million in connection with our license agreement with Harvard University reflecting various milestone payments made in 2011 primarily related to the initiation of the Phase 2 clinical trial for eravacycline and achievement of milestones for other preclinical compounds in development and a decrease of $0.9 million in preclinical expenses for an oral formulation of eravacycline and for other pipeline compounds. These decreases were partially offset by an increase in process chemistry costs of $0.9 million in connection with the NIAID Contract and the BARDA Contract, an increase in expenses of $0.7 million associated with our Phase 2 clinical trial of the intravenous formulation of eravacycline and an increase in stock-based compensation expense of $0.2 million.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2011 and 2012:
Nine Months Ended
September 30, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2011 | 2012 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
General and administrative expenses |
$ | 2,933 | $ | 3,154 | $ | 221 | 8 | % |
General and administrative expenses increased by $0.2 million from the nine-month period ended September 30, 2011 to the nine-month period ended September 30, 2012. This increase was primarily due to additional overhead and personnel costs to support our increased activities related to the NIAID Contract and the BARDA Contract.
Interest Income
The following table summarizes our interest income for the nine months ended September 30, 2011 and 2012:
Nine Months Ended
September 30, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2011 | 2012 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Interest income |
$ | 1 | $ | | $ | (1 | ) | (100 | )% |
Interest income is materially consistent in both periods presented.
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Interest Expense
The following table summarizes our interest expense for the nine months ended September 30, 2011 and 2012:
Nine Months Ended
September 30, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2011 | 2012 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Interest expense |
$ | 83 | $ | 614 | $ | 531 | 640 | % |
Interest expense increased $0.5 million for the nine-month period ended September 30, 2012 compared to the nine-month period ended September 30, 2011. The increase in interest expense was primarily attributable to an increase in debt related to $8.0 million in borrowings under our loan and security agreement with Silicon Valley Bank and Oxford Finance that we entered into in May 2011. We borrowed $1.5 million under this debt facility in May 2011 and an additional $6.5 million in December 2011.
Other Income (Expense)
The following table summarizes our other income (expense) for the nine months ended September 30, 2011 and 2012:
Nine Months Ended
September 30, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2011 | 2012 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Other income (expense) |
$ | | $ | (82 | ) | $ | (82 | ) | (100 | )% |
For nine months ended September 30, 2012, other income (expense) consisted of the fair value adjustment of our preferred stock warrants which increased in fair value by $82,000 due primarily to an increase in the fair value of the underlying preferred stock.
Comparison of the Years Ended December 31, 2010 and 2011
Revenue
The following table summarizes our revenue for the years ended December 31, 2010 and 2011:
Years Ended
December 31, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2010 | 2011 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Contract and grant revenue |
$ | | $ | 185 | $ | 185 | 100 | % |
We had no revenue for the year ended December 31, 2010. The increase in revenue for the year ended December 31, 2011 was primarily due to the commencement of services in October 2011 under the NIAID Contract.
Research and Development Expenses
The following table summarizes our research and development expenses for the years ended December 31, 2010 and 2011:
Years Ended
December 31, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2010 | 2011 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Research and development expenses |
$ | 14,732 | $ | 17,737 | $ | 3,005 | 20 | % |
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Research and development expenses increased $3.0 million from the year ended December 31, 2010 to the year ended December 31, 2011. This increase was primarily due to a $3.9 million increase in expenses associated with the 2011 commencement of our Phase 2 clinical trial of eravacycline, a $1.0 million increase in aggregate development milestone payments under our license agreement with Harvard as a result of a milestone payment triggered in 2011 upon the initiation of the Phase 2 clinical trial for eravacycline and achievement of milestones for other preclinical compounds in development and a $0.8 million increase in salaries and benefits due to increased headcount. These increases were partially offset by a $2.4 million decrease in pre-clinical costs associated with eravacycline and other pipeline compounds and a $0.3 million decrease in outside consulting services.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the years ended December 31, 2010 and 2011:
Years Ended
December 31, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2010 | 2011 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
General and administrative expenses |
$ | 3,446 | $ | 3,874 | $ | 428 | 12 | % |
General and administrative expenses increased $428,000 from the year ended December 31, 2010 to the year ended December 31, 2011. This increase was primarily due to an increase in patent expenses of $190,000 related to an increased volume of patent applications and additional re-imbursement of patent expenses under our license agreement with Harvard, an increase in salaries and benefits of $191,000 related to increased headcount and an increase in information technology expenses of $47,000 due to additional computer capacity.
Interest Income
The following table summarizes our interest income for the years ended December 31, 2010 and 2011:
Years Ended
December 31, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2010 | 2011 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Interest income |
$ | 3 | $ | 1 | $ | (2 | ) | (67 | )% |
The decrease in interest income was due to reduced cash and cash equivalents balances for the year ended December 31, 2011 compared to the year ended December 31, 2010.
Interest Expense
The following table summarizes our interest expense for the years ended December 31, 2010 and 2011:
Years Ended
December 31, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2010 | 2011 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Interest expense |
$ | 36 | $ | 161 | $ | 125 | 347 | % |
Interest expense increased $125,000 from the year ended December 31, 2010 to the year ended December 31, 2011. The increase in interest expense was primarily attributable to an increase in debt related to $8.0 million in borrowings under our loan and security agreement with Silicon Valley Bank and Oxford Finance that we entered into in May 2011. We borrowed $1.5 million under this debt facility in May 2011 and an additional $6.5 million in December 2011.
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Other Income
The following table summarizes our other income for the years ended December 31, 2010 and 2011:
Years Ended
December 31, |
Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||||
2010 | 2011 | |||||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Other Income (expense) |
$ | 733 | $ | 22 | $ | (711 | ) | (97 | )% |
The decrease in other income from the year ended December 31, 2010 to the year ended December 31, 2011 was due to our receipt in 2010 of $0.7 million from the U.S. government related to the Therapeutic Discovery Tax Credit pursuant to one-time grants under the Patient Protection and Affordable Care Act of 2010. The decrease was partially offset by a $22,000 fair value adjustment with respect to the preferred stock warrants we issued in May 2011.
Liquidity and Capital Resources
We have incurred losses since our inception and anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may obtain from additional financings, research funding, collaborations, contract revenue or other sources.
Since our inception, we have funded our operations principally through the receipt of funds from the placement of equity securities, debt financings and contract research funding and research grants from the United States federal government. As of September 30, 2012, we had cash and cash equivalents of approximately $6.7 million. We invest cash in excess of immediate requirements in accordance with our investment policy primarily with a view to liquidity and capital preservation. As of September 30, 2012, our funds were held in cash and money market funds.
On December 20, 2012, we amended our current term loan with Silicon Valley Bank and Oxford Finance to provide for up to an additional $9.2 million in funding, to be made available in two tranches. We borrowed the first $6.2 million of the $9.2 million term loan on December 20, 2012. The second tranche of up to $3.0 million will be available to be drawn on or prior to February 28, 2013, subject to certain conditions being met. The $6.2 million drawdown bears interest at 9% per annum. The $3.0 million, if drawn, will bear interest at the higher of 9% per annum or the Wall Street Journal Prime Rate three (3) business days prior to the funding date plus 5.75%.
We are only required to pay interest (and not principal) for the first six months of each tranche of the $9.2 million term loan. Each tranche is to be repaid in 33 equal monthly payments of principal, plus accrued interest, after the interest only period. An additional payment of 2.90% of the original prinicpal amount of each tranche will be due at the same time as the last loan payment for the tranche. The $6.2 million tranche matures on March 1, 2016. In connection with the funding of the $6.2 million tranche, we issued to the lenders 10-year warrants to purchase an aggregate of 964,605 shares of Series C preferred stock with an exercise price of $0.2571 per share. If the $3.0 million tranche is drawn, the warrant we issued to Silicon Valley Bank will automatically become exercisable for an additional 233,372 shares of Series C preferred stock. In addition, we will issue to Oxford Finance a 10-year warrant to purchase an additional 233,372 shares of Series C preferred stock with an exercise price of $0.2571 per share. The $9.2 million term loan is collateralized by a blanket lien on all corporate assets, and a negative pledge on our intellectual property.
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The following table summarizes our sources and uses of cash:
Years
Ended
December 31, |
Nine Months
Ended
September 30, |
|||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands) |
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Cash Flows from Continuing Operations: |
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Net cash used in operating activities |
$ | (15,409 | ) | $ | (19,877 | ) | $ | (16,188 | ) | $ | (14,192 | ) | ||||
Net cash used in investing activities |
(203 | ) | (65 | ) | (57 | ) | (20 | ) | ||||||||
Net cash provided by (used in) financing activities |
44,311 | 7,811 | 1,297 | (1,494 | ) | |||||||||||
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Net increase (decrease) in cash and cash equivalents |
$ | 28,699 | $ | (12,131 | ) | $ | (14,948 | ) | $ | (15,706 | ) | |||||
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During the years ended December 31, 2010 and 2011, and the nine months ended September 30, 2011 and September 30, 2012, our operating activities used cash of $15.4 million, $19.9 million, $16.2 million and $14.2 million, respectively. The use of cash in all periods primarily resulted from our net losses and changes in our working capital accounts. The increase in cash used in operations for the year ended December 31, 2011 as compared to the year ended December 31, 2010 was due primarily to an increase in research and development expenses related to the continued development of eravacycline and other pipeline compounds. The decrease in cash used in operations for the nine-month period ended September 30, 2012 as compared to the nine-month period ended September 30, 2011 was due primarily to an increase in revenue in connection with the BARDA Contract, the NIAID Contract and the NIAID Grant.
During the years ended December 31, 2010 and 2011, and the nine months ended September 30, 2011 and September 30, 2012, our investing activities used cash of $203,000, $65,000, $57,000 and $20,000, respectively. The use of cash in all periods primarily resulted from purchases of property, plant and equipment to facilitate our increased research and development activities and headcount. The decrease in cash used in investing activities for the year ended December 31, 2011 as compared to the year ended December 31, 2010 was due primarily to a decrease in laboratory equipment purchases in year ended December 31, 2011. The decrease in cash used in investments for the nine-month period ended September 30, 2012 as compared to the nine-month period ended September 30, 2011 was due primarily to a decrease in purchases of office and computer equipment for the nine month period ended September 30, 2012.
During the years ended December 31, 2010 and 2011, and the nine months ended September 30, 2011 our financing activities provided cash of $44.3 million, $7.8 million and $1.3 million, respectively. In the nine-month period ended September 30, 2012, our financing activities used cash of $1.5 million. The cash provided by financing activities during the year ended December 31, 2010 was primarily a result of the sale and issuance of 175,418,122 shares of Series C convertible preferred stock for net proceeds of $44.9 million. The net cash provided by financing activities during the year ended December 31, 2011 was due to $8.0 million in borrowings under our debt facility with Silicon Valley Bank and Oxford Finance. The net cash provided by financing activities during the nine months ended September 30, 2011 included the first tranche of $1.5 million of the $8.0 million term loan financing. The net cash used by financing activities during the nine-month period ended September 30, 2012 was primarily related $1.5 million in debt service related to our $8.0 million debt facility.
Operating Capital Requirements
We expect to incur increasing operating losses for at least the next several years as we commence our Phase 3 clinical trials of eravacycline for the treatment of patients with cIAI and cUTI, pursue development of an oral formulation of eravacycline, seek marketing approval for eravacycline, pursue development of eravacycline for additional indications, including ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections, advance our other product candidates and satisfy our obligations under our agreement with Harvard. We may not be able to complete the development and initiate commercialization of eravacycline or our other product candidates if, among other things, our preclinical research and clinical trials are not successful, the Food and Drug Administration or the European Medicines Agency does not approve eravacycline or our other product candidates when we expect, or at all, or funding under the NIAID Contract, the NIAID Grant or the BARDA Contract is discontinued.
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We believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations through . Based on our planned use of the net proceeds of this offering and our existing cash resources, we believe that our available funds following this offering will be sufficient to enable us to obtain top-line data from both of our planned Phase 3 clinical trials of eravacycline. We expect that these funds will not be sufficient to enable us to seek marketing approval for eravacycline or to commercially launch eravacycline.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the timing and costs of our planned Phase 3 clinical trials of eravacycline; |
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the progress, timing and costs of developing an oral formulation of eravacycline for intravenous-to-oral step-down therapy, including planned clinical trials; |
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the timing and costs of developing eravacycline for additional indications, including ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections; |
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the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our other product candidates and potential product candidates; |
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the number and characteristics of product candidates that we pursue; |
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the outcome, timing and costs of seeking regulatory approvals; |
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the costs of commercialization activities for eravacycline and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; |
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subject to receipt of marketing approval, revenue received from commercial sales of eravacycline; |
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the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish; |
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the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay to Harvard pursuant to our license agreement; |
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the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and |
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the extent to which we in-license or acquire other products and technologies. |
We expect that we will need to obtain substantial additional funding in order to commercialize eravacycline. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of eravacycline or other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to eravacycline or other product candidates that we otherwise would seek to develop or commercialize ourselves.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Net Operating Loss Carryforwards
As of December 31, 2011, we had federal net operating loss carryforwards of $67.0 million available to offset future federal income taxes. We also had federal research and development tax credit carryforwards of $1.6 million available to offset future federal income taxes. The federal net operating loss carryforwards and research and development tax credit carryforwards expire at various times through 2031. Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. On December 31, 2011, we recorded a 100% valuation allowance against our net operating loss and research and development tax credit carryforwards, as we believe it is more likely than not that the tax benefits will not be fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards will be realized, net income would increase in the period of determination.
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of payment due date by period at September 30, 2012:
Payment by Period | ||||||||||||||||||||
Total |
Less Than
1 Year |
1-3 Years | 3-5 Years |
More Than
5 Years |
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(in thousands) | ||||||||||||||||||||
Term loan (1) |
$ | 6,701 | $ | 2,818 | $ | 3,883 | $ | | $ | | ||||||||||
Operating leases (2) |
1,037 | 613 | 424 | | | |||||||||||||||
Harvard milestone payment (3) |
2,000 | | 2,000 | | | |||||||||||||||
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Total |
$ | 9,738 | $ | 3,431 | $ | 6,307 | $ | | $ | |
(1) | Consists of repayment obligations relating to indebtedness outstanding under our debt facility with Silicon Valley Bank and Oxford Finance as of September 30, 2012. This indebtedness bears interest at 10% per annum and the loan and security agreement provides for a final payment of 2.75% of the original principal due at the maturity date of November 1, 2014. Under the terms of the loan and security agreement, we were only required to pay interest through February 28, 2012. We are now repaying the indebtedness under the loan in monthly payments of equal principal, plus accrued interest, through November 1, 2014. The final payment of 2.75% will be due at the same time as the last loan payment. The loan is collateralized by a blanket lien on all of our corporate assets, excluding intellectual property. The loan and security agreement contains customary default provisions that include material adverse events, as defined therein, that would entitle the lenders to declare all principal, interest and other amounts owed by us under the loan and security agreement immediately due and payable. In December 2012 we amended the loan and security agreement to provide for an additional $9.2 million in funding, to be made available in two tranches. This does not reflect repayment obligations relating to indebtedness of $6.2 million that we borrowed in December 2012 under the amendment to our loan and security agreement with Silicon Valley Bank and Oxford Finance. |
(2) | On March 15, 2012 and September 18, 2012, we amended our existing operating lease which extended our lease term through May 31, 2014. We have the option to renew the lease for an additional five years following May 31, 2014. |
(3) | Consists of a milestone payment of $2.0 million that we are required to pay to Harvard upon dosing of the first patient in our first Phase 3 clinical trial of eravacycline, which we expect will occur before the end of 2013. |
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In addition to the amounts shown in the above table, we are contractually obligated under our license agreement with Harvard University to make payments to Harvard upon the achievement of specified future development and regulatory milestones totaling up to $15.2 million per licensed product ($1.1 million of which has already been paid with respect to eravacycline), and to pay tiered royalties in the single digits based on annual worldwide net sales, if any, of licensed products by us, our affiliates and sublicensees. We are also obligated to pay Harvard a specified share of non-royalty sublicensing revenue that we receive from sublicensees for the grant of sublicenses under the license and to reimburse Harvard for specified patent prosecution and maintenance costs. Each of these potential payments is contingent upon the occurrence of certain future events and, given the nature of those events, it is unclear when, if ever, we may be required to pay such amounts or what the total amount of such payments will be. For these reasons, we have not included these contingent payment obligations in the table above.
We have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.
In the course of normal business operations, we also have agreements with contract service providers to assist in the performance of our research and development and manufacturing activities. We can elect to discontinue the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require up front payments and even long-term commitments of cash.
Recent Accounting Pronouncements
Occasionally, new accounting standards are issued or proposed by the Financial Accounting Standards Board, or FASB, or other standard-setting bodies that we adopt by the effective date specified within the standard. Unless otherwise discussed, standards that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
Qualitative and Quantitative Disclosures About Market Risk
Our cash equivalents are classified as available-for-sale and consisted of money market funds at December 31, 2011 and September 30, 2012. The investments in these financial instruments are made in accordance with an investment policy approved by our board of directors which specifies the categories, allocations and ratings of securities we may consider for investment. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Some of the financial instruments that we invest in could be subject to market risk. This means that a change in prevailing interest rates may cause the value of the instruments to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of that security will probably decline. To minimize this risk, we intend to maintain a portfolio which may include cash, cash equivalents and investment securities available-for-sale in a variety of securities which may include money market funds, government and non-government debt securities and commercial paper, all with various maturity dates. Based on our current investment portfolio, we do not believe that our results of operations or our financial condition would be materially impacted by an immediate change of 10% in interest rates.
We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading purposes. Further, we do not believe our cash equivalents and investment securities have significant risk of default or illiquidity. We made this determination based on discussions with our investment advisors and a review of our holdings. While we believe our cash equivalents and investment securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. All of our investments are held at fair value.
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Overview
We are a clinical stage biopharmaceutical company using our proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections. Our lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that we are developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative infections. We recently completed a successful Phase 2 clinical trial of eravacycline with intravenous administration for the treatment of patients with complicated intra-abdominal infections, or cIAI, and are currently finalizing our pivotal Phase 3 program for eravacycline. We expect to conduct two global Phase 3 clinical trials of eravacycline, one for the treatment of cIAI and one for the treatment of complicated urinary tract infections, or cUTI.
In our Phase 2 clinical trial, intravenous eravacycline dosed once or twice per day as a monotherapy demonstrated a favorable safety and tolerability profile and a high cure rate, including against multi-drug resistant Gram-negative, Gram-positive and anaerobic bacteria. In in vitro experiments, eravacycline has demonstrated the ability to cover a wide variety of multi-drug resistant Gram-negative, Gram-positive, anaerobic and atypical bacteria, including multi-drug resistant Klebsiella pneumoniae , the species of Gram-negative bacteria that killed seven patients at the Clinical Center of the National Institutes of Health in 2012. Gram-negative bacteria that are resistant to all available antibiotics are increasingly common and a growing threat to public health. We believe that the ability of eravacycline to cover multi-drug resistant Gram-negative bacteria, as well as multi-drug resistant Gram-positive, anaerobic and atypical bacteria, and its potential for intravenous to oral step-down therapy, will enable eravacycline to become the drug of choice for first-line empiric treatment of a wide variety of serious and life-threatening infections.
The tetracycline class of antibiotics has been used successfully for more than 50 years. Unlike our tetracycline compounds, all tetracyclines on the market and under development of which we are aware are produced semi-synthetically, first in bacteria and then modified in a limited number of ways by available chemistry. These conventional methods have only been able to produce tetracycline antibiotics with limited chemical diversity, making it difficult for conventional technology to create tetracycline antibiotics that address a wide variety of multi-drug resistant bacteria. In part, because of the challenges in creating novel tetracycline molecules, only one tetracycline antibiotic has been developed and approved by the Food and Drug Administration, or FDA, for sale in the United States in the past 30 years.
We believe that our proprietary chemistry technology, licensed from Harvard on an exclusive worldwide basis and enhanced by us, represents a significant innovation in the creation of tetracycline drugs that has the potential to reinvigorate the clinical and market potential of the class. Our proprietary chemistry technology makes it possible to create novel tetracycline antibiotics using a practical, fully synthetic process for what we believe is the first time. This fully synthetic process avoids the limitations of bacterially derived tetracyclines and allows us to chemically modify many positions in the tetracycline scaffold, including most of the positions that we believe could not practically be modified by any previous method. Using our proprietary chemistry technology, we can create a wider variety of tetracycline-based compounds than was previously possible, enabling us to pursue novel tetracycline derivatives for the treatment of multi-drug resistant bacteria that are resistant to existing tetracyclines and other classes of antibiotic products. To date, we have used our proprietary chemistry technology to create more than 2,800 new tetracycline derivatives that we believe could not be practically created with conventional methods. We own exclusive worldwide rights to these compounds and our technology.
We are currently finalizing our pivotal Phase 3 program for eravacycline. We are designing the program to enable us to position eravacycline as a first-line empiric monotherapy for the treatment of cIAI and cUTI due to
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eravacyclines broad-spectrum coverage of multi-drug resistant infections, including multi-drug resistant Gram-negative infections. We expect that our pivotal Phase 3 program will be consistent with the draft guidance recently issued by the FDA for drug development for cIAI and cUTI. The cIAI guidance indicates that, for companies developing a drug for cIAI and an additional indication caused by similar bacterial pathogens, such as cUTI, a single trial in cIAI and a single trial in that additional indication could be sufficient to provide evidence of effectiveness in both indications. In January 2013, we discussed our pivotal Phase 3 program with the FDA at an end-of-Phase 2 meeting. Following these discussions, we are now moving ahead with our plans to conduct two global Phase 3 clinical trials of the intravenous formulation of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013.
In addition to developing an intravenous formulation of eravacycline, we are also developing an oral formulation. A number of previous tetracyclines have been available in both intravenous and oral dosage forms. Infections that are resistant to existing oral drugs are increasingly common, and we believe that an intravenous-to-oral step-down therapy in which patients are started on the intravenous formulation of eravacycline and then stepped down to an oral formulation of eravacycline could reduce the length of a patients hospital stay or help avoid hospital admission altogether, lowering the overall cost of care for these patients. We have completed multiple Phase 1 clinical trials of oral formulations of eravacycline. Based on these trials, as well as data from our Phase 2 clinical trial of the intravenous formulation of eravacycline, we believe that eravacycline can be well enough absorbed as an oral medication to achieve the drug levels necessary to be effective in treating patients. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. We expect to complete this trial by mid-2013. If the data from this trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI.
In 2011 and 2012, the U.S. government awarded contracts for potential funding of over $100 million for the development of our antibiotic compounds. These awards include a contract for up to $67 million from the Biomedical Advanced Research and Development Authority, or BARDA, an agency of the U.S. Department of Health and Human Services, for the development of eravacycline for the treatment of disease caused by bacterial biothreat pathogens, which we refer to as the BARDA Contract. These awards also include a contract for up to $36 million from the National Institute of Allergy and Infectious Diseases, or NIAID, a division of the National Institutes of Health, for the development of TP-271, a preclinical compound that we are developing for respiratory diseases caused by bacterial biothreat pathogens, which we refer to as the NIAID Contract. These awards were made to CUBRC, Inc., or CUBRC, an independent, not-for-profit, research corporation that specializes in U.S. government-based contracts, with which we are collaborating. CUBRC serves as the prime contractor under these awards, primarily carrying out a program management and administrative role with additional responsibility for the management of preclinical studies. We serve as lead technical expert on all aspects of these awards and also serve as a subcontractor of CUBRC responsible for management of chemistry, manufacturing and control activities and clinical studies. Under our subcontracts with CUBRC, we may receive funding of up to approximately $39.8 million reflecting the portion of the BARDA Contract funding that may be paid to us for our activities, and up to approximately $13.3 million reflecting the portion of the NIAID Contract funding that may be paid to us for our activities. The funding under the BARDA Contract includes funding for some of the activities that we would otherwise be required to fund on our own in connection with any new drug application, or NDA, filing for eravacycline.
In addition to eravacycline and TP-271, we are pursuing the discovery and development of additional antibiotics to target unmet medical needs. For example, antibiotics that treat Pseudomonas bacteria have become increasingly rare as resistance has increased. We are seeking to develop compounds that might for the first time provide coverage with tetracycline-derived antibiotics of Pseudomonas bacteria, as well as other multi-drug resistant Gram-negative bacteria. Any efforts by us with respect to these programs will be subject to the availability of resources not allocated to our development of eravacycline.
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Strategy
Our goal is to become a fully integrated biopharmaceutical company that discovers, develops and commercializes novel antibiotics for use in areas of unmet medical need. Key elements of our strategy include:
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Complete clinical development of eravacycline in its lead indications and seek regulatory approval. We have completed a Phase 2 clinical trial of the intravenous formulation of eravacycline in patients with cIAI. We plan to conduct two global Phase 3 clinical trials of the intravenous formulation of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013. We expect to have top-line data from both of these clinical trials in the first quarter of 2015. If we complete the Phase 3 clinical trials of eravacycline when we anticipate and the trials are successful, we expect to submit an NDA to the FDA in the second half of 2015 and a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, in the first half of 2016. |
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Develop an oral formulation of eravacycline for use in intravenous-to-oral step-down therapy for cUTI. We have completed multiple Phase 1 clinical trials of oral formulations of eravacycline. Based on these trials, as well as data from our Phase 2 clinical trial of the intravenous formulation of eravacycline, we believe that eravacycline can be well enough absorbed as an oral medication to achieve the drug levels necessary to be effective in treating patients. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. We expect to complete this trial by mid-2013. If the data from this trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI. |
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Establish a collaboration for the development and commercialization of eravacycline outside the United States. We intend to seek to enter into a collaboration for the development and commercialization of eravacycline outside the United States. |
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Maximize the commercial potential of eravacycline. If eravacycline is approved, we intend to directly commercialize eravacycline in the United States with a targeted hospital sales force and to commercialize eravacycline outside the United States through collaboration arrangements. We believe that eravacyclines broad-spectrum coverage of multi-drug resistant Gram-negative bacteria and other multi-drug resistant bacteria, with the potential for intravenous-to-oral step-down, will allow it to be used to treat patients successfully in hospitals, emergency rooms and out-patient clinic settings. |
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Pursue development of eravacycline in additional indications. We are initially developing eravacycline for the treatment of cIAI and cUTI, and, subject to obtaining additional financing beyond this offering, intend to pursue development of eravacycline for the treatment of additional indications, including acute bacterial skin and skin structure infections, or ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections following our development of eravacycline for the treatment of cIAI and cUTI. We may pursue these development activities either by ourselves or with collaborators. |
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Opportunistically advance development of other product candidates created using our proprietary chemistry technology. We have used our proprietary chemistry technology to create more than 2,800 new tetracycline derivatives that we believe could not be practically created with conventional methods. We intend to advance our antibiotic product pipeline with differentiated product candidates created using our proprietary chemistry technology and targeting hospital and acute care markets. We may pursue these activities either by ourselves or with collaborators. |
Drug Resistant Antibiotic Market
Physicians commonly prescribe antibiotics to treat patients with acute and chronic infectious diseases that are either known, or presumed, to be caused by bacteria. According to IMS Health, in 2011, approximately $41 billion was spent on antibiotic drugs worldwide, of which almost $9 billion was spent in the United States. The widespread use of antibiotics has resulted in a rapid increase in bacterial infections that are resistant to
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multiple antibacterial agents. For example, the bacterial pathogen Klebsiella pneumoniae is responsible for roughly 14% of Gram-negative infections in hospital intensive care units. Multi-drug resistant Klebsiella pneumoniae are typically treated with the carbapenem class of antibiotics. However, in recent years, strains resistant to carbapenem antibiotics have emerged and markedly increased the threat posed by Klebsiella pneumoniae , as infections caused by carbapenem-resistant strains have few treatment options.
As a result of the increasing prevalence of such multi-drug resistant bacteria, some antibiotics targeting these bacteria have been highly successful commercially. These include:
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linezolid, an intravenously and orally administered antibiotic marketed by Pfizer as Zyvox, which had worldwide sales in 2011 of $1.3 billion; |
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levofloxacin, an intravenously and orally administered antibiotic marketed by Ortho-McNeil and Johnson & Johnson as Levaquin, which had worldwide sales in 2011 of $623 million down from worldwide sales of $1.4 billion in 2010 after losing U.S. market exclusivity in June 2011; |
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meropenem, an intravenously administered antibiotic marketed by AstraZeneca as Merrem, which had worldwide sales in 2011 of $583 million down from worldwide sales of $817 million in 2010 after losing U.S. market exclusivity in June 2010; and |
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daptomycin, an intravenously administered antibiotic marketed by Cubist Pharmaceuticals, Inc. as Cubicin, which had worldwide sales in 2011 of $736 million. |
Bacterial infections are caused by a variety of different types of bacteria and the infections they cause can range from mild to serious, life threatening infections requiring immediate treatment. Bacteria are broadly categorized as Gram-positive, Gram-negative, atypical or anaerobic. Gram-positive bacteria possess a single membrane and a thick cell wall and turn dark-blue or violet when subjected to a laboratory staining method known as Grams method. Common causes of Gram-positive bacterial infections include species of Staphylococcus , such as methicillin-resistant Staph aureus , or MRSA, Streptococcus and Enterococcus . Gram-negative bacteria have two membranes with a thin cell wall and, when subjected to Grams method of staining, lose the stain or are decolorized. According to The New England Journal of Medicine, the most common cause of Gram-negative infection is Escherichia coli , or E. coli . Less prevalent Gram-negative bacteria strains include species of Acinetobacter , Klebsiella and Pseudomonas . Atypical bacteria, such as Mycoplasma species, have modified cell walls and are neither Gram-positive nor Gram-negative. Anaerobic bacteria, such as Bacteroides species, either cannot grow in the presence of oxygen or do not require oxygen to grow and are classified as either Gram-positive or Gram-negative.
Antibiotics that treat bacterial infections can be classified as broad-spectrum or narrow-spectrum. Antibiotics that are active against a mixture of Gram-positive, Gram-negative and anaerobic bacteria are referred to as broad-spectrum. Antibiotics that are active only against a select subset of bacteria are referred to as narrow-spectrum. Because it usually takes from 24 to 72 hours from the time a specimen is received in the laboratory to definitively diagnose a particular bacterial infection, physicians may be required to prescribe antibiotics for serious infections without having identified the bacteria. As such, effective first-line treatment of serious infections requires the use of broad-spectrum antibiotics with activity against a broad range of bacteria at least until the bacterial infection can be diagnosed.
Many strains of bacteria have mutated over time and have developed resistance to existing drugs, resulting in infections that are increasingly serious or more difficult to treat. These drug-resistant pathogens have become a growing menace to all people, regardless of age, gender or socioeconomic background. They endanger people in affluent, industrial societies like the United States, as well as in less-developed nations. Gram-positive bacteria that have developed resistance to existing drugs include:
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Streptococcus pneumoniae that cause pneumonia, ear infections, bloodstream infections and meningitis; |
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Staphylococcus aureus that cause skin, bone, lung and bloodstream infections; and |
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Enterococci that are responsible for infections transmitted in healthcare settings. |
Gram-negative bacteria that have developed resistance to existing drugs include:
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Escherichia coli that cause urinary tract, skin and bloodstream infections; |
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Salmonella and Escherichia coli that cause foodborne infections; and |
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Acinetobacter baumannii , Pseudomonas aeruginosa and Klebsiella spp. that are responsible for infections transmitted in healthcare settings. |
Reducing MRSA, a Gram-positive bacterium, in both the healthcare and community settings continues to be a high priority for the Centers for Disease Control and Prevention, or CDC. However, encouraging results from a CDC study published in the Journal of the American Medical Association and other reports such as the March 2011 CDC Vital Signs article provide evidence that rates of invasive MRSA infections in the United States are being controlled by Gram-positive drugs and falling.
As such, at present, the more acute need is for new drugs to treat multi-drug resistant Gram-negative bacteria. Currently approved products, such as Merrem and Levaquin are becoming increasingly ineffective against Gram-negative bacteria due to increasing resistance, limiting patients treatment options, particularly for patients with multi-drug resistant infections, and few new therapeutic agents are in clinical development. A survey of infectious disease specialists published in the June 2012 edition of Clinical Infectious Disease rated multi-drug resistant Gram-negative infections as the most important unmet clinical need in current practice, significantly outranking infections caused by MRSA and multi-drug resistant Mycobacterium tuberculosis . In the survey, 63% of physicians reported treating a patient in the past year whose bacterial infection was resistant to all available antibacterial agents. This resistance was confirmed by the SENTRY Antimicrobial Surveillance Program which evaluated Enterobacteriaceae and Acinetobacter spp., two Gram-negative species of bacteria, from 31 U.S. medical centers from 2005 to 2009. Specifically, the SENTRY Program found that, with respect to the Enterobacteriaceae family of bacteria, 6.8% of the Escherichia coli strains studied and 15.4% of the Klebsiella spp. strains studied exhibited an extended-spectrum beta lactamase, or ESBL, phenotype, and that 22.2% of Enterobacter spp. strains studies were ceftazidime-resistant. ESBLs are enzymes present in certain multi-drug resistant bacteria that destroy classes of beta lactam antibiotics, such as penicillins, cephalosporins and carbapenems. In addition, Klebsiella pneumoniae carbapenemase, or KPC, producing bacteria have emerged as a highly drug resistant Gram-negative bacteria associated with mortality rates ranging from 32% to 48%, as compared to 9% to 17% for strains of Klebsiella pneumoniae that are not carbapenem-resistant.
As a further example of the seriousness of the threat of Gram-negative bacteria resistant to all available antibacterial agents, in 2012, the national media including The New York Times , The Wall Street Journal and The Washington Post reported that the Clinical Center of the National Institutes of Health had an outbreak of Gram-negative Klebsiella pneumoniae bacteria strains that were resistant to all available antibiotics that resulted in seven deaths. In addition, there have been numerous reports recently that physicians have resorted to prescribing colistin for Gram-negative bacteria resistant to all other drugs. Colistin was discovered in 1949 and has not been widely used for decades because of serious toxicities, including nephrotoxicity. In our Phase 2 intravenous clinical trial, eravacycline dosed once or twice per day as a monotherapy was effective against multi-drug resistant Klebsiella pneumoniae.
The growing issue of antibiotic-resistant bacterial infections has been widely recognized as an increasingly urgent public health threat, including by the World Health Organization, the CDC, and the Infectious Disease Society of America, or IDSA. In April 2011, IDSA issued a report warning that unless significant measures are taken to increase the pipeline of new antibiotics active against drug-resistant bacteria, people will start to die from common, formerly treatable infections, and medical interventions such as surgery, chemotherapy, organ transplantation and care of premature infants will become increasingly risky. In the pre-antibiotic era before
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penicillin began to be available in 1942, patients frequently died from what subsequently became easily cured infections. The important need for new treatment options for serious bacterial infections was further highlighted by the passage in July 2012 of the Generating Antibiotic Incentives Now Act, which provides incentives for the development of new antibacterial or antifungal drugs intended to treat serious or life-threatening infections that are resistant to existing treatment. In September 2012, the FDA announced the formation of an internal task force to support the development of new antibacterial drugs, which they called a critical public healthcare goal and a priority for the agency.
Limitations of Available Treatment Options
When confronted with a new patient suffering from a serious infection caused by an unknown pathogen, a physician may be required to quickly initiate first-line empiric antibiotic treatment to stabilize the patient prior to definitively diagnosing the particular bacterial infection. However, current antibiotics for first-line empiric treatment of serious bacterial infections suffer from significant limitations, including one or more of the following:
Insufficient Coverage of Multi-Drug Resistant Bacteria. A physician cannot afford to be too limited in the spectrum of bacteria covered by antibiotics when initially treating a patient for a serious infection that has not yet been definitively identified. Frequently used products, such as Zyvox and Cubicin, are limited to Gram-positive bacteria and thus are rarely used as a first-line empiric monotherapy if broad bacterial coverage is required. In addition, other popular antibiotics that have been used as first-line empiric monotherapies, such as Levaquin, piperacillin/tazobactam, which is marketed by Pfizer as Zosyn, carbapenems, such as Merrem, and imipenem/cilastatin, which is marketed by Merck as Primaxin, have seen their utility as first-line empiric monotherapies diminished as the number of bacterial strains resistant to these therapies has increased.
Complicated and Expensive Multi-Drug Cocktails and Multi-Dose Regimens. Due to gaps in the spectrum of coverage of antibiotics, physicians are often confronted with the need to design complicated multi-drug cocktails for the first-line empiric treatment of patients with serious infections. The clinical situation is further complicated when each drug in the multi-drug cocktail has a different dosing regimen, such as two, three or four times a day, resulting in an added burden on the pharmacy and nursing staff, higher costs due to multiple drug administrations and an increased potential for medical errors or drug-drug interactions. We believe that, with the exception of eravacycline, most of the antibiotics that are in clinical trials and are being developed to cover a broad spectrum of bacteria, including Gram-negative bacteria, or solely to address Gram-negative bacteria, are being developed to be used in combination with one or more other antibiotics, and require the addition of a third drug such as metronidazole to address the presence of anaerobes.
Safety and Tolerability Concerns. Concerns about antibiotic safety and tolerability are among the leading reasons why patients stop treatment and fail therapy. Antibiotics on the market have been associated with adverse effects such as myelosuppression, seizures, nephrotoxicity and gastrointestinal disorders.
Lack of Oral Dosage Forms to Permit Step-Down Therapy. When a patient comes to the emergency room or hospital for treatment of a serious infection, the patient initially receives intravenous treatment, which allows the drug to be delivered more rapidly and in a larger dose than oral treatment. Once the infection begins to respond to treatment and the patient is stabilized, depending on the infection, hospitals and physicians generally seek to manage in-hospital treatment and, if possible, discharge patients from the hospital in order to reduce costs, avoid hospital acquired infections, and improve the patients quality of life. Upon discharge, physicians typically prefer to prescribe step-down treatment with an oral formulation of the same antibiotic. A step-down to oral treatment allows for more convenient and cost-effective out-patient treatment, with the oral antibiotic providing enhanced patient comfort and mobility and avoiding the risk of infection from the intravenous catheter. In addition, the use of the same antibiotic allows the physician to avoid switching the patient from the antibiotic that has proven effective during intravenous administration to a different antibiotic that may be less effective and carries the risk of new or different side effects. Many of the antibiotics that are most commonly used as first-line empiric monotherapies are only available in an intravenous formulation. Very few of the antibiotics that cover or are focused on the treatment of Gram-negative bacteria have oral dosage forms.
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Given these limitations, there is an unmet medical need for a first-line empiric antibiotic treatment that has the following characteristics:
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Potency and effectiveness against a broad spectrum of bacteria, including multi-drug resistant Gram-negative, Gram-positive, atypical and anaerobic bacteria; |
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Capability of being used as a monotherapy in the majority of patients in the hospital with cIAI, cUTI and other multi-drug resistant infections; |
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A convenient dosing regimen, such as once or twice daily; |
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A favorable safety and tolerability profile; and |
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Availability in both intravenous dosage and oral dosage form. |
Based on our belief that eravacycline has, or potentially has, each of these characteristics, our goal is to develop eravacycline to be the drug of choice for first-line empiric treatment of a wide variety of serious and life-threatening infections.
Eravacycline
Overview
We are developing our lead product candidate, eravacycline, as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative bacteria. We developed eravacycline using our proprietary chemistry technology. We believe our fully synthetic process will enable us to have a cost of manufacturing that is sufficiently low to enable us to sell eravacycline, when and if approved, for a cost that is similar to other hospital-based antibiotics. Our patent strategy to broadly protect eravacycline includes the filing of patent applications directed towards the composition of matter of eravacycline as well as our proprietary chemistry technology, which we used to create eravacycline. We own exclusive worldwide rights for the development and commercialization of eravacycline.
We recently completed a successful Phase 2 clinical trial of eravacycline with intravenous administration for the treatment of patients with cIAI. In January 2013, we discussed our pivotal Phase 3 program for eravacycline with the FDA at an end-of-Phase 2 meeting. Following these discussions, we are now moving ahead with our plans to conduct two global Phase 3 clinical trials of the intravenous formulation of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013. We expect to have top-line data from both of these clinical trials in the first quarter of 2015. If we complete the Phase 3 clinical trials of eravacycline when we anticipate and the trials are successful, we expect to submit an NDA to the FDA in the second half of 2015 and an MAA to the EMA in the first half of 2016. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. We expect to complete this trial by mid-2013. If the data from this trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI.
Tetracycline antibiotics have been in clinical use for over 50 years and have a demonstrated record of safety and effectiveness. However, as with most classes of antibiotics, a high incidence of resistance among many bacteria has limited their effectiveness and resulted in tetracyclines being relegated to second- or third-line therapy several decades after their introduction. Chemists have generally been unable to synthesize new tetracyclines that could overcome bacterial resistance mechanisms. We have used our proprietary chemistry technology to create more than 2,800 new tetracycline derivatives that we believe could not be practically created
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with conventional methods. Many of these new derivatives, including eravacycline, have been able to overcome bacterial resistance in in vitro studies.
Eravacycline is a novel, fully synthetic tetracycline antibiotic. We selected eravacycline for development from tetracycline derivatives that we generated using our proprietary chemistry technology on the basis of the following characteristics of the compound that we observed in in vitro studies of the compound:
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potent antibacterial activity against a broad spectrum of susceptible and multi-drug resistant bacteria, including Gram-negative, Gram-positive, atypical and anaerobic bacteria; |
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potential to treat the majority of patients as a first-line empiric monotherapy with convenient dosing; and |
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potential for intravenous-to-oral step-down therapy. |
In designing eravacycline, we inserted a fluorine atom into the tetracycline scaffold, which we call a fluorocycline, and modified the scaffold at another position. We believe that these modifications will enable eravacycline to not be subject to tetracycline-specific mechanisms of drug resistance. As a result, we believe that eravacycline can be active against multi-drug resistant bacteria against which tetracyclines currently on the market or in development are not.
In in vitro studies, eravacycline has been highly active against emerging multi-drug resistant pathogens like Acinetobacter baumannii as well as clinically important species of Enterobacteriaceae , including those isolates that produce ESBLs or are resistant to the carbapenem class of antibiotics, and anaerobes.
Based on in vitro studies we have completed, we believe that eravacycline shares a similar potency profile with carbapenems except that it more broadly covers Gram-positive pathogens like MRSA and enterococci, is active against carbapenem-resistant Gram-negative bacteria and unlike carbapenems like Primaxin and Merrem is not active against Pseudomanas aeruginosa . Eravacycline has demonstrated strong activity in vitro against Gram-positive pathogens, including both nosocomial and community-acquired methicillin susceptible or resistant Staphylococcus aureus strains, vancomycin susceptible or resistant Enterococcus faecium and Enterococcus faecalis , and penicillin susceptible or resistant strains of Streptococcus pneumoniae . In in vitro studies for cIAI, eravacycline consistently exhibited strong activity against enterococci and streptococci . One of the most frequently isolated anaerobic pathogens in cIAI, either as the sole pathogen or often in conjunction with another Gram-negative bacterium, is Bacteroides fragilis . In these studies eravacycline demonstrated activity against Bacteroides fragilis and a wide range of Gram-positive and Gram-negative anaerobes.
Key Differentiating Attributes of Eravacycline
We believe that the following key attributes of eravacycline, observed in clinical trials and preclinical studies of eravacycline, differentiate eravacycline from other antibiotics targeting multi-drug resistant infections, including multi-drug resistant Gram-negative infections. We believe these attributes will make eravacycline a safe and effective treatment for cIAI, cUTI and other serious and life-threatening infections for which we may develop eravacycline, such as ABSSSI and acute bacterial pneumonias.
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Broad-spectrum activity against a wide variety of multi-drug resistant Gram-negative, Gram-positive and anaerobic bacteria. In our recently completed Phase 2 clinical trial of the intravenous formulation of eravacycline, eravacycline demonstrated a high cure rate against a wide variety of multi-drug resistant Gram-negative, Gram-positive and anaerobic bacteria. In addition, in in vitro studies eravacycline demonstrated potent antibacterial activity against Gram-negative bacteria, including E. coli ; ESBL-producing Klebsiella pneumoniae ; Acinetobacter baumannii ; Gram-positive bacteria, including MSRA and vancomycin-resistant enterococcus , or VRE; and anaerobic pathogens. As a result of this broad-spectrum coverage, we believe that eravacycline has the potential to be used as a first-line empiric monotherapy for the treatment of cIAI, cUTI, ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections. |
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Lower probability of drug resistance. To date, in the clinical trials and preclinical studies of eravacycline that we have conducted we have seen little decrease in susceptibility that would suggest increased resistance to eravacycline. We believe that, as a fluorocycline, eravacycline will not be subject to tetracycline-specific mechanisms of drug resistance. |
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Favorable safety and tolerability profile. Eravacycline has been evaluated in more than 250 subjects in the Phase 1 and Phase 2 clinical trials that we have conducted. In these trials, eravacycline demonstrated a favorable safety and tolerability profile. In our recent Phase 2 clinical trial of eravacycline, no patients suffered any serious adverse events, and safety and tolerability were comparable to ertapenem, the control therapy in the trial. In addition, in the Phase 2 clinical trial, the rate at which gastrointestinal adverse events such as nausea and vomiting that occurred in the eravacycline arms was comparable to the rate of such events in the ertapenem arm of the trial. |
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Convenient dosing regimen. In our recently completed Phase 2 clinical trial we dosed eravacycline once or twice a day as a monotherapy. We believe that eravacycline will be able to be administered as a first-line empiric monotherapy with once- or twice-daily dosing, avoiding the need for complicated dosing regimens typical of multi-drug cocktails and the increased risk of negative drug-drug interactions inherent to multi-drug cocktails. |
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Potential for convenient intravenous-to-oral step-down. In addition to the intravenous formulation of eravacycline, we are also developing an oral formulation of eravacycline. If successful, this oral formulation would enable patients who begin intravenous treatment with eravacycline in the hospital setting to transition to oral dosing of eravacycline either in hospital or upon patient discharge for convenient home-based care. We believe that the availability of both intravenous and oral administration and the oral step-down may reduce the length of a patients hospital stay and the overall cost of care. |
Clinical Experience
We have studied intravenous and oral formulations of eravacycline in 244 subjects in five clinical trials from October 2009 to August 2012.
Phase 1 clinical trials of intravenous formulation
From 2009 to 2010, we studied the intravenous formulation of eravacycline in a Phase 1 single ascending dose, or SAD, clinical trial and a Phase 1 multiple ascending dose, or MAD, clinical trial. These trials were designed to evaluate the safety and tolerability of single escalating doses and multiple escalating doses of eravacycline. No serious adverse events were reported during the Phase 1 clinical trials and no clinically significant dose-related safety signals were reported. As expected in this class of antibiotics, transient gastrointestinal adverse events such as nausea and vomiting were observed at the higher dose levels in the Phase 1 clinical trials.
In 2009, we conducted the Phase 1 single ascending dose clinical trial of the intravenous formulation of eravacycline in 56 healthy subjects at a single clinical site in the United States. In the trial, subjects received a single 30-minute intravenous infusion of either placebo or eravacycline at doses of 0.10, 0.25, 0.50, 1.00, 1.50, 2.00 or 3.00 mg/kg. In each dose group of eight patients, six patients received eravacycline and two patients received placebo. The most common adverse events reported were nausea and vomiting. All adverse events were mild to moderate in intensity.
In 2010, we conducted the Phase 1 multiple ascending dose clinical trial of the intravenous formulation of eravacycline in 32 healthy subjects at a single clinical site in the United States. In the trial, subjects received 30-minute intravenous infusions of either placebo or eravacycline at doses of 0.50 or 1.50 mg/kg once daily for 10 days, 60-minute intravenous infusions of either placebo or eravacycline at a dose of 1.50 mg/kg once daily for
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10 days or 60-minute intravenous infusions of either placebo or eravacycline at a dose of 1.00 mg/kg twice daily for 10 days. In each cohort of eight patients, six patients received treatment and two patients received placebo. The most common adverse events were associated with the infusion site. All adverse events were mild to moderate in intensity.
In the Phase 1 MAD clinical trial, we also measured levels of eravacycline in urine in patients who had received eravacycline to assess the potential for treatment of cUTI. A summary of the results of those measurements, which were taken following the final dose on the last day of treatment, is shown in the table below. These data show that renal excretion is not the primary route of elimination for eravacycline. We believe that the levels of eravacycline in urine support the development of eravacycline as a potential first-line therapy in patients with cUTI.
Eravacycline Levels in Urine
MAD Dose Group (mg/kg) |
Day 10 Urine Concentration in ng/mL
(%CV) |
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0-8 Hours | 8-24 Hours | |||
0.5 every 24 hours infused in 30 minutes |
4,576.7 (57.9) | 2,250.0 (31.1) | ||
1.5 every 24 hours infused in 60 minutes |
13,316.7 (25.7) | 5,565.0 (39.2) | ||
1.0 every 12 hours infused in 60 minutes |
25,060.0 (21.1) | 9,230.0 (26.1) |
CV refers to the coefficient of variability, a statistical measure of the dispersion of a probability distribution.
The most recent tetracycline-based antibiotic to be approved for marketing by the FDA is tigecycline, which was approved in 2005 and is marketed by Pfizer under the name Tygacil. We have not conducted a head-to-head comparison of eravacycline and tigecycline in a clinical trial, but have compared the published data from Pfizers Phase 1 clinical trials of tigecycline to the data from our Phase 1 clinical trials of eravacycline. Based on this comparison, eravacycline demonstrated better gastrointestinal tolerability than tigecycline while also achieving higher blood levels with higher area under the curve, or AUC, than tigecycline. AUC is a measure of total exposure to a drug over a period of time. Specifically, with respect to tolerability, all subjects in Pfizers Phase 1 clinical trials of tigecycline that were treated with 75mg or 100mg of tigecycline every 12 hours experienced unacceptable rates and severity of nausea and emesis resulting in early termination of all subjects in both dosing groups. In the eravacycline Phase 1 MAD clinical trial, one of the six subjects in the 1.00 mg/kg every 12 hours dosing group discontinued the study drug because of nausea. The other subjects all tolerated the full 10 days of dosing. At the same time, the AUC 0-12 for the 1.00 mg/kg every 12 hours dose in the eravacycline Phase 1 MAD clinical trial was 6344 ng*h/mL (19.9% CV), while the AUC 0-12 for tigecycline administered at a higher dose (100 mg every 12 hours) was 4980 ng*h/mL (19% CV). While we believe this comparison to tigecyclines previously published Phase 1 data, and the other comparisons we make in this prospectus to tigecyclines previously published clinical trial data, are useful in evaluating eravacyclines clinical trial results, the fact that we have not conducted a head-to-head study and that the tigecycline trials were conducted under different protocols at different sites and at different times than our trials may limit the value or reliability of any such comparison.
Phase 2 clinical trial of intravenous formulation in cIAI
In June 2012, we completed a global, multi-center, randomized, double-blind Phase 2 clinical trial to evaluate the efficacy, safety and pharmacokinetics of the intravenous formulation of eravacycline compared to ertapenem in patients with cIAI. We selected cIAI as the indication for the trial because we wanted to ensure that there would be a significant population of patients in the study with multi-drug resistant Gram-negative bacteria and because Gram-negative bacteria are prevalent in cIAI. We selected ertapenem as the comparison therapy
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because ertapenem is one of the antibiotics recommended by IDSA guidelines for the treatment of cIAI. We also established clinical sites in countries such as India, where multi-drug resistant Gram-negative pathogens have higher prevalence.
Trial Design . We enrolled 143 hospitalized patients with cIAI in the trial. These patients were randomized into three arms on a 2:2:1 basis:
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an arm in which patients received 1.5 mg/kg of eravacycline administered intravenously once per day; |
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an arm in which patients received 1.0 mg/kg of eravacycline administered intravenously twice per day; and |
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a control arm in which patients received 1.0 g of ertapenem administered intravenously once per day, which is the standard dosing regimen for ertapenem. |
Investigators obtained baseline intra-abdominal cultures at the time of operation and treated patients for a minimum of four days and a maximum of 14 days. The length of treatment for each patient was determined by the physician based on pre-set parameters. A test of cure, or TOC, visit took place ten to 14 days after the last dose of drug was administered and a final or follow-up visit occurred within four to six weeks after the last dose of drug was administered.
Of the 143 patients in the trial, four did not receive drug. Two were excluded because of incorrect randomization, one withdrew consent for inclusion in the trial after randomization, and one was excluded for having received non-study antibiotics prior to the first dose. At least one pathogen or bacterium responsible for the cIAI was identified following enrollment in 119 of the 139 patients who received drug in the trial. We refer to this subset of patients as the microbiologically-modified intent-to-treat, or m-MITT, patients. Of the 119 m-MITT patients, 109 were deemed clinically evaluable based on key inclusion and exclusion criteria being validated and key visits and assessments having been performed. We refer to this subset of the m-MITT patients as the microbiologically evaluable, or ME, patients. The 10 m-MITT patients that were not considered clinically evaluable were not classified as ME patients as a result of their withdrawing consent, failing to complete the study, failing to attend a TOC visit or having indeterminate results at the TOC visit. The primary endpoint of the trial was clinical response at the TOC visit in the ME patients. Clinical response was defined as complete resolution or significant improvement of signs or symptoms of infection with no further systemic antibiotic treatment required. Included as one of the secondary endpoints in the trial was clinical response at the follow-up visit in the m-MITT population. In the FDAs recent draft cIAI guidance, the FDA suggested that the primary efficacy endpoint for a trial of cIAI should be complete resolution of baseline signs and symptoms attributable to cIAI in the microbiological intent-to-treat patient population 28 days after randomization and the absence of clinical failure including death and unplanned surgical procedures through the period ending 28 days following randomization. The draft guidance defined this population as all randomized patients who have baseline bacterial pathogens that cause cIAI and against which the investigational drug has antibacterial activity.
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A diagram summarizing the trial design follows:
Eravacycline Phase 2 Trial Design
The baseline demographics of the patients in each arm of the trial are summarized in the table below. As shown in the table, patient demographics were similar across all three trial arms except for APACHE scores as, at baseline, the patients in the 1.5 mg/kg dose group exhibited slightly higher APACHE scores than the other treatment groups. APACHE scores are a commonly used severity of disease scoring system, where a higher number means that the patient had more severe disease and higher risk of death.
Eravacycline Phase 2 Trial Patient Demographics
Parameter |
Eravacycline
(1.5 mg/kg every 24 hours) N=56 |
Eravacycline
(1.0 mg/kg every 12 hours) N=57 |
Ertapenem
(1.0 g every 24 hours) N=30 |
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Mean Age (y) [Standard Deviation] |
43.6 [18.4 | ] | 42.1 [17.2 | ] | 41.8 [17.6 | ] | ||||||
Mean Weight (kg) [Standard Deviation] |
68.1 [13.2 | ] | 70.0 [14.4 | ] | 68.8 [16.2 | ] | ||||||
Male (%) |
38 (67.9 | )% | 43 (75.4 | )% | 22 (73.3 | )% | ||||||
Caucasian (%) |
40 (71.4 | )% | 37 (64.9 | )% | 21(70.0 | )% | ||||||
APACHE Score |
||||||||||||
Mean [SD] |
8.2 [3.9 | ] | 6.0 [3.8 | ] | 6.1 [2.7 | ] | ||||||
<10 (%) |
41 (74.6 | )% | 48 (84.2 | )% | 28 (96.6 | )% | ||||||
10-15 (%) |
13 (23.6 | )% | 8 (14.0 | )% | 1 | |||||||
>15 |
1 | 1 | |
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The following table summarizes the diseases underlying the MITT patients infections, which were being treated with the antibiotics in the trial.
Eravacycline Phase 2 Trial MITT Population Diseases
Intra-Operative Diagnosis |
Eravacycline
(1.5mg/kg every 24 hours) N=54 |
Eravacycline
(1.0mg/kg every 12 hours) N=56 |
Ertapenem
(1.0g every 24 hours) N=29 |
|||||||||
Complicated Appendicitis |
29 | 31 | 15 | |||||||||
Other |
25 | 25 | 14 | |||||||||
Perforation of Intestine |
5 | 5 | 1 | |||||||||
Complicated Diverticulitis |
| 2 | | |||||||||
Gastric/Duodenal Perforation |
13 | 12 | 8 | |||||||||
Complicated Cholecystitis |
3 | 4 | 3 | |||||||||
Other (Abscess/Peritonitis) |
4 | 2 | 2 |
Efficacy . In the trial, ME patients in the eravacycline arms experienced similar infection cure rates to the ME patients in the ertapenem arm, as summarized in the table below. The table also shows the 95% confidence interval, a statistical determination that demonstrates the range of possible differences in the point estimates of success that will arise 95% of the time the endpoint is measured.
Eravacycline Phase 2 Trial Primary Endpoint Analysis
Population |
Eravacycline
(1.5 mg/kg every 24 hours) |
Eravacycline
(1.0 mg/kg every 12 hours) |
Ertapenem
(1.0 g Every 24 hours) |
|||||||||
Microbiologically Evaluable (ME) |
N=42 | N=41 | N=26 | |||||||||
% Cure in ME (95% Confidence Interval) |
92.9 (80.5-98.5) | 100 (91.4-100) | 92.3 (74.9-99.1) | |||||||||
|
|
|
|
|
|
Investigators in the trial had the discretion to determine the period that patients remained on the applicable treatment. The mean duration of treatment in the trial was 6.1 days for the patients receiving 1.5 mg/kg of eravacycline intravenously once per day; 5.6 days for the patients receiving 1.0 mg/kg of eravacycline intravenously twice per day; and 6.0 days for the patients receiving 1.0 g of ertapenem intravenously once per day.
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Of particular importance in the trial results was the performance of eravacycline against confirmed drug-resistant Gram-negative pathogens as well as other challenging Gram-negative pathogens. Due to the global, multi-center nature of the trial and our emphasis on sites in known geographic hot spots for multi-drug resistant Gram-negative bacteria, 25% of the Gram-negative pathogens identified in m-MITT patients were confirmed to be multi-drug resistant as a result of being ESBL-positive and/or carbapenem-resistant. The table below summarizes the pathogens isolated from the m-MITT patients enrolled in the Phase 2 clinical trial, of which 60.4% were members of the Enterobacteriaceae family. m-MITT patients in the trial were infected with an average of 1.8 pathogens:
Eravacycline Phase 2 Trial m-MITT Population Pathogens
Total
Pathogens |
Eravacycline
(1.5 mg/kg every 24 hours) |
Eravacycline
(1.0 mg/kg every 12 hours) |
Ertapenem
(1.0 g every 24 hours) |
|||||||||||||
Gram-negative aerobic pathogens |
||||||||||||||||
Escherichia coli |
94 | 40 | 37 | 17 | ||||||||||||
Klebsiella pneumoniae |
14 | 8 | 4 | 2 | ||||||||||||
Klebsiella oxytoca |
7 | 2 | 4 | 1 | ||||||||||||
Pseudomonas aeruginosa |
8 | 5 | 3 | | ||||||||||||
Acinetobacter baumannii complex |
4 | 1 | 1 | 2 | ||||||||||||
Acinetobacter spp. |
1 | | | 1 | ||||||||||||
Comamonas testosteroni |
2 | | 2 | | ||||||||||||
Proteus mirabilis |
2 | 1 | | 1 | ||||||||||||
Aeromonas spp. |
1 | | | 1 | ||||||||||||
Citrobacter braakii |
1 | 1 | | | ||||||||||||
Citrobacter freundii |
1 | | 1 | | ||||||||||||
Enterobacter cloacae |
2 | | 2 | | ||||||||||||
Morganella morganii |
4 | 1 | | 3 | ||||||||||||
Pantoea spp. |
1 | | | 1 | ||||||||||||
Providencia rustigianii |
1 | | 1 | | ||||||||||||
Stenotrophomonas maltophilia |
1 | | 1 | | ||||||||||||
Total |
144 | 59 | 56 | 29 | ||||||||||||
Gram-positive aerobic pathogens |
||||||||||||||||
Streptococcus spp. |
15 | 5 | 6 | 5 | ||||||||||||
Streptococcus anginosus |
4 | 2 | 1 | 1 | ||||||||||||
Enterococcus faecalis |
8 | 2 | 2 | 4 | ||||||||||||
Enterococcus faecium |
3 | 1 | 1 | 1 | ||||||||||||
Enterococcus avium |
4 | 2 | 1 | 1 | ||||||||||||
Enterococcus gallinarum |
1 | | | 1 | ||||||||||||
Staphylococcus spp. |
6 | 1 | 3 | 1 | ||||||||||||
Staphylococcus aureus |
7 | 1 | 4 | 2 | ||||||||||||
Bacillus spp. |
1 | | | 1 | ||||||||||||
Leuconostoc spp. |
1 | | 1 | | ||||||||||||
Total |
50 | 14 | 19 | 17 | ||||||||||||
Anaerobic pathogens |
||||||||||||||||
Bacteroides fragilis |
5 | 1 | 1 | 3 | ||||||||||||
Bacteroides vulgatus |
2 | 2 | | | ||||||||||||
Bacteroides ovatus |
1 | | | 1 | ||||||||||||
Bacteroides thetaiotaomicron |
1 | | 1 | | ||||||||||||
Bacteroides ureolyticus |
3 | | 3 | | ||||||||||||
Clostridium spp. |
4 | | 4 | | ||||||||||||
Bifidobacterium spp. |
1 | | 1 | | ||||||||||||
Gemella morbillorum |
1 | 1 | | | ||||||||||||
Total |
18 | 4 | 10 | 4 |
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Safety and Tolerability . In the Phase 2 clinical trial, eravacycline demonstrated a comparable safety and tolerability profile to ertapenem. No patients in the trial suffered any serious adverse events that were found to be related to eravacycline, and the percentage of patients in the trial arms that experienced treatment emergent adverse events, or TEAEs, were similar. In addition, gastrointestinal adverse events known to be associated with tetracyclines such as nausea and vomiting occurred at modest rates in the eravacycline arms that were similar to the rates for the ertapenem arm. Adverse events associated with infusion sites were limited and similar in all treatment groups. The table below shows the adverse events experienced by patients in the trial that were assessed by the investigator as possibly related to the study drugs.
Eravacycline Phase 2 Trial Study-Drug Adverse Events
Adverse Event ( > 1 occurrence) |
Eravacycline
(1.5 mg/kg every 24 hours) N=53 a |
Eravacycline
(1.0 mg/kg every 12 hours) N=56 |
Ertapenem
(1.0 g every 24 hours) N=30 a |
|||||||||
Any TEAE |
2 (3.8 | )% | 3 (5.4 | )% | 3 (10.0 | )% | ||||||
Nausea |
| 2 (3.6 | )% | 1 (3.3 | )% | |||||||
Vomiting |
1 (1.9 | )% | 1 (1.8 | )% | | |||||||
Elevated amylase |
| | 1 (3.3 | )% | ||||||||
Elevated lipase |
| | 1 (3.3 | )% | ||||||||
Thrombophlebitis (associated with infusion sites) |
| 1 (1.8 | )% | |
a |
For the analysis of safety and tolerability, one of the MITT patients in the arm of the trial receiving 1.5 mg/kg of eravacycline intravenously once per day was reclassified into the ertapenem arm of the trial as a result of having, in error, received the ertapenem dosing instead of eravacycline. |
Pharmacokinetics. Patients in the Phase 2 clinical trial were subjected to pharmacokinetic sampling during the period of treatment to enable us to assess plasma exposure levels of eravacycline in the trial and the feasibility of development of an effective oral formulation.
Eravacycline Phase 2 Trial Pharmacokinetic Results
Parameter |
Eravacycline
(1.5 mg/kg every 24 hours) N=48 |
Eravacycline
(1.0 mg/kg every 12 hours) N=51 |
||||||||
C max |
Mean (ng/mL) | 1,445.6 | 952.6 | |||||||
%CV | 80.8 | % | 79.8 | % | ||||||
AUC 0-12 |
Mean (ng*h/mL) | 4,349.9 | 3,240.7 | |||||||
%CV | 50.2 | % | 53.5 | % |
The table above summarizes selected pharmacokinetic parameters that we obtained from the pharmacokinetic sampling. C max refers to the maximum observed peak plasma concentration.
Efficacy for tetracycline-class molecules is driven by the ratio of AUC to MIC. MIC refers to minimum inhibitory concentration, which is the minimum concentration of an antibiotic needed to inhibit the growth of an organism. In the Phase 2 clinical trial, we measured AUC for the 12 hours following dosing. As a result, in order to understand the AUC of the dose groups we studied in the trial over the 24 hours following dosing, we relied on modeling to predict the AUC of eravacycline in differing dose sizes and schedules over the 24 hours following dosing. For the patients receiving 1.5 mg/kg of eravacycline intravenously once per day we estimated that the AUC over the 24 hours following dosing would be 5220 ng*h/mL. For the patients receiving 1.0 mg/kg of eravacycline intravenously twice per day, we estimated that the AUC over the 24 hours following dosing would
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be at least 6480 ng*h/mL. We calculated this latter figure by doubling the AUC over the 12 hours following dosing shown in the table above due to twice daily dosing in this arm of the trial. These estimated AUCs for eravacycline over the 24 hours following dosing are higher than the AUC over the 24 hours following dosing in the Phase 3 clinical trial data included in tigecyclines product label. We believe that these higher estimated AUCs for eravacycline as compared to tigecycline combined with the better tolerability indicated for eravacycline in our Phase 2 clinical trial, is supportive of eravacyclines potential to treat multi-drug resistant Gram-negative and other bacteria.
Oral Formulation of Eravacycline
As part of our eravacycline development program, we are developing an oral formulation of eravacycline for the treatment of cUTI in intravenous-to-oral step-down therapy. Based on our completed Phase 1 clinical trials, as well as data from our Phase 2 clinical trial of the intravenous formulation of eravacycline, we believe that eravacycline can be well enough absorbed as an oral medication to achieve the drug levels necessary to be effective in treating patients. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. We expect to complete this trial by mid-2013. If the data from this trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI.
Phase 1 clinical trials of oral formulation. In order to assess the potential for eravacycline to be developed as an orally administered drug, we conducted a Phase 1 single ascending dose clinical trial in 2010 and a Phase 1 multiple ascending dose clinical trial in 2011. In the completed trials, we evaluated the compound for safety, tolerability and pharmacokinetics. Results of the trials demonstrated that an oral formulation of eravacycline could achieve drug levels equivalent to those in the patients that received intravenous infusions of 1.5 mg/kg of eravacycline once per day in our Phase 2 cIAI clinical trial, levels that were effective in treating patients in our Phase 2 cIAI clinical trial. In the oral clinical trials, we utilized simple formulations. For the SAD oral trial, we formulated eravacycline in liquid solution of 5% dextrose in water, commonly referred to as D5W. For the MAD oral clinical trial, we formulated eravacycline in a simple capsule.
As part of the completed Phase 1 clinical trials referred to above, we evaluated the impact of food and fasting on the absorption of orally administered eravacycline and observed a significant food effect. As a result, we focused our development efforts on patients in a fasted state.
In 2010, we conducted a Phase 1 single ascending dose clinical trial of the oral formulation of eravacycline in 28 healthy subjects in a single-center, placebo-controlled, double-blind clinical trial. In the trial, subjects received eravacycline reconstituted in a solution of D5W at doses of 50mg, 100mg, 200mg and 300mg or placebo. In each dose group of eight patients, six patients received eravacycline and two patients received placebo. The most common adverse event reported was nausea. All adverse events were mild to moderate in intensity.
In 2011, we conducted a Phase 1 multiple ascending dose clinical trial of the oral formulation of eravacycline in 58 healthy subjects in a single-center, placebo-controlled, double-blind clinical trial. In the trial, subjects received eravacycline capsules at doses of 50mg, 100mg, 200mg and 300mg or placebo. In each dose group of eight patients, six patients received eravacycline and two patients received placebo. The most common adverse events reported were nausea and vomiting. All adverse events were mild to moderate in intensity. We measured pharmacokinetic parameters for eravacycline. Doses of 100mg provided twice daily and 300mg provided once daily were well-tolerated, with key pharmacokinetic parameters summarized in the table below.
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Eravacycline Oral MAD Pharmacokinetic Results
Parameter |
Eravacycline
(100 mg every 12 hours) |
Eravacycline
(300 mg every 24 hours) |
||||||||
C max |
Day 7 Mean (ng/mL) | 164 | 342 | |||||||
%CV | 23.7 | % | 23.7 | % | ||||||
AUC 0-24 |
Day 7 Mean (ng*h/mL) | 2,460 | a | 4,455 | ||||||
%CV | 23.4 | % | 22.4 | % |
a |
Reflects two doses administered in the 24 hour period. |
In the MAD clinical trial we also administered a 400mg dose, which was not tolerated as a single daily dose due to gastrointestinal-related adverse events.
We have carried out extensive modeling of the intravenous and oral pharmacokinetic data from our clinical trials of eravacycline in order to establish an oral step-down dose following intravenous administration. Based on our modeling results and our Phase 2 intravenous clinical trial data from twice daily administration of eravacycline, we believe that a twice daily dose of 200mg of oral eravacycline will achieve plasma exposure levels equivalent to those resulting from twice daily administration of the intravenous formulation of eravacycline at 1.0 mg/kg. Because multiple daily oral doses of up to 300mg were safe and well-tolerated in the Phase 1 MAD clinical trial, we believe that a twice per day oral dosage form of 200mg of eravacycline can be developed to permit oral step-down treatment of serious infections.
Future Clinical Plans
We are currently finalizing our pivotal Phase 3 program for eravacycline. We are designing the program to enable us to position eravacycline as a first-line empiric monotherapy for the treatment of cIAI and cUTI due to eravacyclines broad-spectrum coverage of multi-drug resistant bacteria. We expect that our pivotal Phase 3 program will be consistent with the draft guidance recently issued by the FDA for drug development for cIAI and cUTI. The cIAI guidance indicates that, for companies developing a drug for cIAI and an additional indication caused by similar bacterial pathogens, such as cUTI, a single trial in cIAI and a single trial in that additional indication could be sufficient to provide evidence of effectiveness in both indications. In January 2013, we discussed our pivotal Phase 3 program with the FDA at an end-of-Phase 2 meeting. Following these discussions, we are now moving ahead with our plans to conduct two global Phase 3 clinical trials of the intravenous formulation of eravacycline, one for the treatment of cIAI, which we expect to commence in the third quarter of 2013, and one for the treatment of cUTI, which we expect to commence in the fourth quarter of 2013. We expect to have top-line data from both of these clinical trials in the first quarter of 2015. We plan to commence a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline in the first quarter of 2013. We expect to complete this trial by mid-2013. If the data from this trial are favorable, then, subject to regulatory review, we would conduct our pivotal Phase 3 clinical trial of eravacycline for the treatment of cUTI as a Phase 3 clinical trial of the intravenous and oral formulations of eravacycline used in intravenous-to-oral step-down therapy for cUTI.
If we complete the Phase 3 clinical trials of eravacycline when we anticipate and the trials are successful, we expect to submit an NDA to the FDA in the second half of 2015 and an MAA to the EMA in the first half of 2016. Our goal is to develop eravacycline to be the drug of choice for first-line empiric treatment of a wide variety of serious and life-threatening infections. We plan to evaluate eravacycline for the treatment of ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections following our development of eravacycline for the treatment of cIAI and cUTI and subject to obtaining the necessary funding.
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Preclinical Studies
In preclinical studies, we have evaluated the in vitro activity of eravacycline against a broad range of bacterial pathogens including Gram-negative, Gram-positive, atypical and anaerobic pathogens. In these studies, we also compared the potency of eravacycline to the potency of other antibiotic compounds against the same pathogens. In many cases, the isolates measured were resistant to one or more of the antibiotic compounds against which eravacycline was compared. In each case, we measured potency by determining the concentration of drug required to inhibit the growth of 90% of a panel of bacterial strains isolated from patients. We refer to this measurement as a MIC 90 measurement. A lower MIC 90 indicates greater potency against a particular bacterium in vitro . Historically, with tetracyclines, MIC 90 values of up to 2 µg/mL have indicated that Gram-positive bacteria were susceptible to tetracyclines and for most Gram-negative bacteria up to 4 µg/mL. Traditionally, bacteria considered resistant to an antibiotic have MIC 90 values for Gram-positive bacteria of 8 µg/mL and for Gram-negative bacteria of 16 µg/mL and higher.
In Vitro Activity Against Gram-negative Bacteria
The table below summarizes the in vitro activity of eravacycline and various antibiotics commonly used in hospitals today for the treatment of Gram-negative bacteria in panels that included 1,059 Gram-negative isolates. In each panel, isolates of a single species of bacteria were separately treated with each of the antibiotics in the study. The number specified in the table below for each species of bacteria indicates the number of isolates of that species that were included in the studies. The bacteria selected for evaluation were chosen because they are commonly found in serious hospital infections.
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As shown in the table, eravacycline demonstrated potent, broad-spectrum Gram-negative antibacterial activity. In the majority of instances, the MIC 90 of eravacycline was equivalent to or lower than the MIC 90 values of the other antibiotics studied for each bacterium. Key observations from these in vitro studies include:
|
Eravacycline had MIC 90 values of under 2 µg/mL against clinical isolates of E. cloacae, A. baumannii, K. pneumoniae , including ESBL-producing and carbapenem-resistant isolates, C. freundii, S. maltophilia, M. morganii, P. vulgaris, P. stuartii, and K. oxytoca . |
|
Eravacycline was twice as potent as the next most active comparator, tigecycline, against A. baumannii in a panel that was 44% resistant to carbapenems, 53% resistant to tetracyclines and 64% resistant to fluoroquinolones. |
|
Eravacycline was four times more potent than tigecycline against ESBL-producing K. pneumoniae isolates. |
|
83%, 29%, and 43% of the isolates were fully resistant to fluoroquinolones, carbapenems and gentamicin, respectively. |
|
Isolates of Proteus mirabilis , one of the proteeae species included in the table above, were two times more susceptible to eravacycline (MIC 90 of 4 µg/mL) than to tigecycline. |
|
P. aeruginosa isolates were largely not susceptible to eravacycline (MIC 90 of 16 µg/mL) or tigecycline (MIC 90 in excess of 16 µg/mL). |
In Vitro Activity Against Gram-positive Bacteria
The table below summarizes the in vitro activity of eravacycline and various antibiotics commonly used in hospitals today for the treatment of Gram-positive bacteria in panels that included 762 Gram-positive isolates. The bacteria selected for evaluation were chosen because they are commonly found in serious hospital infections.
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Eravacycline demonstrated excellent in vitro potency against methicillin-susceptible and resistant Staphylococcus aureus and Staphylococcus epidermidis , vancomycin-susceptible and resistant Enterococcus faecium and Enterococcus faecalis , penicillin-susceptible and -resistant Streptococcus pneumoniae , Streptococcus anginosus, Streptococcus intermedius, Streptococcus mitis, Streptococcus sanguis, Streptococcus pyogenes, and Streptococcus agalactiae. The MIC 90 values for eravacycline against all of the streptococci and enterococci in the panels were less than 0.12 µg/mL. For staphylococci , including MRSA confirmed to contain Panton-Valentine leukocidin virulence factor, the MIC 90 values were less than 0.5 µg/mL in 180 MRSA isolates tested.
In Vitro Activity Against Anaerobic Bacteria
The table below summarizes the in vitro activity of eravacycline and various antibiotics commonly used in hospitals today for the treatment of anaerobic bacteria in panels that included 190 anaerobic isolates. The bacteria selected for evaluation were chosen because they are commonly found in serious hospital infections.
Key observations from these in vitro studies include that eravacycline:
|
had a MIC 90 against B. fragilis , the most prevalent anaerobe in human infections, of 1 µg/mL, which was four times lower than tigecycline; |
|
had excellent activity against a wide range of Gram-positive and Gram-negative anaerobes; and |
|
provided broader coverage than the other antibiotics tested in the panel. |
In addition, in the studies, many of the isolates from the Bacteroides , Prevotella and Clostridium perfringens species were vancomycin-resistant, and many of the isolates of the Peptostreptococcus spp. and C. perfringens species were metronidazole-resistant. Eravacycline showed strong activity against these isolates.
Other Indications
Eravacycline is also being developed as a potential empiric countermeasure for the treatment of disease caused by bacterial biothreat pathogens under funding from BARDA. In January 2012, BARDA awarded a five-year contract that provides a total of up to $67 million in funding for the development, manufacturing and
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clinical evaluation of eravacycline as a potential empiric countermeasure for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, including Francisella tularensis , which causes tularemia, Yersinia pestis , which causes plague, and Bacillus anthracis , which causes anthrax disease, as well as bacterial pathogens associated with moderate-to-severe community-acquired bacterial pneumonia and other serious hospital infections.
We are collaborating with CUBRC because when we initially determined to seek government funding we recognized that we did not have any expertise in bidding for, or the administration and management of, government-funded contracts. CUBRC serves as the prime contractor under the BARDA Contract, primarily carrying out a program management and administrative role with additional responsibility for the management of certain preclinical studies. We serve as lead technical experts on all aspects of the BARDA Contract and serve as a subcontractor responsible for management of chemistry, manufacturing and control activities and clinical studies.
In connection with the BARDA Contract, in February 2012, we entered into with CUBRC a five-year cost-plus-fixed-fee subcontract under which we may receive funding of up to approximately $39.8 million, reflecting the portion of the BARDA funding that may be paid to us for our activities.
Although the BARDA Contract, and our subcontract with CUBRC, have five-year terms, BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide funding beyond current-year amounts from Congressionally approved annual appropriations. To the extent BARDA ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us. For the 12-month base period from February 1, 2012 through January 31, 2013, committed funding from CUBRC under our BARDA subcontract is $6.3 million, of which we have received $1.3 million through September 30, 2012. CUBRC has a right to terminate its subcontract with us only to the extent that BARDA first cancels the corresponding portions of CUBRCs prime contract. If BARDA continues to support the program under the contract for the full five-year term, we believe BARDA funding for this program will be sufficient to provide the funds to advance eravacycline through enabling studies for an NDA, evaluation of efficacy in non-pivotal murine and non-human primate models challenged with biothreat pathogens and a Phase 2 clinical trial for the treatment of community-acquired bacterial pneumonia, commonly referred to as CABP.
Technology Platform
We believe that our proprietary chemistry technology, licensed from Harvard on an exclusive worldwide basis and enhanced at our company, represents a significant innovation in the creation of tetracycline drugs and has the potential to reinvigorate the clinical and market potential of the class.
The tetracycline class of antibiotics has been used successfully for more than 50 years. Unlike our tetracycline compounds, all tetracyclines on the market and under development of which we are aware are produced semi-synthetically, first in bacteria and then modified in a limited number of ways by available chemistry. These conventional methods have only been able to produce tetracycline antibiotics with limited chemical diversity, making it difficult for conventional technology to create tetracycline antibiotics that address a wide variety of multi-drug resistant bacteria. In part, because of the challenges in creating novel tetracycline molecules, only one tetracycline antibiotic has been developed and approved by the FDA for sale in the United States in the past 30 years.
By contrast, our proprietary technology makes it possible to create novel tetracycline antibiotics using a practical, fully synthetic process for what we believe is the first time. This fully synthetic process avoids the limitations of bacterially derived tetracyclines and allows us to chemically modify many positions in the tetracycline scaffold, including most of the positions that we believe could not practically be modified by any previous method. Using our proprietary chemistry technology, we can create a wider variety of tetracycline-based compounds than was previously possible, enabling us to pursue novel tetracycline derivatives for the treatment of multi-drug resistant bacteria that are resistant to existing tetracyclines and other classes of antibiotic products.
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The diagram below illustrates the tetracycline core scaffold. Scaffold positions marked with dots have been modified to date using conventional chemistry to create either tetracycline drugs that have been marketed or drug candidates of which we are aware that are currently in development. Our fully synthetic process also allows for modification of the positions marked with dots, but with greater opportunity for substitution than is possible using conventional chemistry. The scaffold positions marked with stars in the diagram below indicate useful positions that we have modified through our fully synthetic process that could not practically be modified by conventional chemistry.
While the four positions on the bottom of the scaffold in the diagram above that are not marked with dots or stars can also be modified using our proprietary chemistry technology, these positions are involved in the binding of tetracyclines to the bacterial ribosome and, consequently, changes to these positions greatly reduce antibacterial activity of compounds. As a result, we are not pursuing compounds based on modifications of these positions.
We believe that our approach to tetracycline drug development provides us with strong intellectual property protection. We hold or have licensed rights under patents and patent applications that protect both our synthetic processes for developing tetracyclines and the compositions of matter of the individual compounds themselves. These include patents and patent applications directed towards the composition of matter for key intermediates like the enone used in the synthesis of eravacycline and our other product candidates. Unless a new synthetic method is created, we believe that, for the life of our intellectual property, our proprietary chemistry technology will be the only practical way of modifying the positions on the tetracycline core scaffold that have not been previously modified using conventional chemistry.
Our proprietary chemistry technology has allowed us to develop compounds that have been highly active in in vitro studies against tetracycline-resistant bacterial strains, including multi-drug resistant Gram-negative bacteria, and that have novel pharmacokinetic properties. To date, we have used our proprietary chemistry technology to create more than 2,800 new tetracycline derivatives that we believe could not be practically created with conventional methods. Our discovery program is focused on identifying novel compounds that will be effective against the toughest multi-drug resistant Gram-negative bacteria.
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Other Drug Development Programs
The following table sets forth our clinical and earlier-stage antibiotic compounds that we are developing for the treatment of serious and life-threatening infections and their status.
TP-834
We synthesized TP-834 using our proprietary chemistry technology. In preclinical studies evaluating the in vitro potency of TP-834, the compound demonstrated broad coverage of the spectrum of pathogens associated with CABP and ABSSSI. In these studies, the pathogens covered included S. pneumoniae , H. influenzae , S. pyogenes , M. catarrhalis and MRSA, and TP-834s spectrum compared well with clarithromycin, Zyvox, Levaquin and most drugs currently under development for CABP and ABSSSI. In studies in non-human primates, TP-834 was well-absorbed orally. We have completed most IND-enabling studies on the compound. Any further efforts by us with respect to TP-834 will be subject to the availability of resources not allocated to our development of eravacycline.
TP-271
TP-271 is a fully synthetic broad-spectrum preclinical compound that we are developing for respiratory diseases caused by bacterial biothreat pathogens under funding provided by NIAID. We are collaborating with CUBRC on the TP-271 program funded by NIAID.
We created TP-271 using our proprietary chemistry technology. In doing so, we made modifications to the tetracycline scaffold that were designed to improve potency and effectiveness against a broader spectrum of bacteria as compared to tetracycline and doxycycline, which are currently used for the treatment of pneumonia and other respiratory ailments.
In our development program for TP-271, we are conducting a number of in vitro , toxicology and animal studies to evaluate the efficacy of TP-271 against biothreat pathogens. TP-271 has performed as well as, or better than, standard-of-care comparators in studies in murine respiratory infection models challenged with public health pathogens. In susceptibility studies, TP-271 also demonstrated broad-spectrum activity against NIAID
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Category A and B public health bacterial pathogens including Francisella tularensis , Yersinia pestis , Burkholderia mallei , Burkholderia pseudomallei , Bacillus anthracis , and NIAID Category C public health bacterial pathogens ( in vitro and in vivo ) that are associated with CABP, including Streptococcus pneumoniae , including multi-drug resistant pneumococci , Staphylococcus aureus (methicillin-susceptible and methicillin-resistant), Haemophilus influenzae , Moraxella catarrhalis and Legionella pneumophila , including strains that are tetracycline-resistant.
Funding for TP-271 is covered by two awards from NIAID. The first award is a grant awarded in July 2011 that provides up to approximately $2.8 million in funding over five years, which we refer to as the NIAID Grant. The second award is a contract awarded to CUBRC in September 2011 that provides up to approximately $35.8 million in funding over five years. The NIAID Grant and the NIAID Contract each support the development, manufacturing and clinical evaluation of TP-271 for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, including Francisella tularensis, Yersinia pestis and Bacillus anthracis , as well as bacterial pathogens associated with community-acquired bacterial pneumonia.
We are collaborating with CUBRC because when we initially determined to seek government funding we recognized that we did not have any expertise in bidding for, or the administration and management of, government-funded contracts. CUBRC serves as the prime contractor under the NIAID awards, primarily carrying out a program management and administrative role, though also with responsibility for the management of certain preclinical studies under the NIAID Contract. We serve as lead technical experts on all aspects of the NIAID Grant and NIAID Contract and serve as a subcontractor responsible for management of chemistry, manufacturing and control activities and clinical studies.
In connection with the NIAID Contract, in October 2011, we entered into with CUBRC a five-year cost-plus-fixed-fee subcontract under which we may receive funding of up to approximately $13.3 million, reflecting the portion of the NIAID Contract funding that may be paid to us for our activities. In connection with the NIAID Grant, in November 2011, CUBRC awarded us a 55-month, no-fee subaward of approximately $980,000 reflecting the portion of the NIAID Grant funding that may be paid to us for our activities.
Although the NIAID Contract, the NIAID Grant and our subcontract have terms of five years and our subaward has a term of 55 months, NIAID is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond an initial 25-month base period. To the extent NIAID ceases to provide funding of the project to CUBRC, CUBRC has the right to cease providing funding to us. For the 25 month base period from October 1, 2011 through October 31, 2013, committed funding under our NIAID subcontract with CUBRC is $5.9 million, of which we have received $1.2 million through September 30, 2012. If NIAID continues to support the program for the full term, we believe NIAID funding for our TP-271 program will provide funding sufficient to advance TP-271 through IND-enabling studies, determination of efficacy in non-pivotal murine and non-human primate models challenged with biothreat pathogens, filing intravenous and oral investigational new drug applications, or INDs, and performing Phase 1 single and multiple-ascending dose clinical trials.
Pseudomonas /Gram-negative Program
The only major class of pathogenic bacteria not covered by eravacycline and TP-271 is the Pseudomonas species. Pseudomonas bacteria have not been previously treatable by tetracycline-derived antibiotics, and resistance of Pseudomonas bacteria to other existing antibiotics has been increasing. We are using our proprietary chemistry technology to pursue the discovery and development of tetracycline-derived compounds effective against this class of bacteria. We have identified several series of tetracycline derivatives that have demonstrated activity in in vitro studies and animal models against Pseudomonas bacteria in comparison to Merrem and Tygacil, while also demonstrating coverage of a variety of Gram-negative bacteria, including Proteus mirabilis , Enterobacter cloacae , Klebsiella pneumoniae , Acinetobacter baumanni and Escherichia coli . We are trying to enhance the potency of these compounds against Pseudomonas bacteria while maintaining the broad coverage of multi-drug resistant Gram-negative bacteria that we have observed with eravacycline. Any efforts by us with respect to this program will be subject to the availability of resources not allocated to our development of eravacycline.
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Commercialization Strategy
Our commercialization strategy is to develop our product candidates into leading therapies that will be available worldwide for the treatment of serious multi-drug resistant infections. We have retained worldwide commercial rights to all of our product candidates. We intend to retain control over the commercial execution of each of our product candidates in the United States.
We are currently developing our lead product candidate, eravacycline, as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of serious and life-threatening infections, including a wide variety of multi-drug resistant infections. Assuming the successful completion of clinical trials and receipt of regulatory approvals, we intend to directly commercialize eravacycline in the United States. We currently have limited marketing capabilities and no sales or distribution capabilities. We intend to build a commercial organization in the United States and recruit experienced marketing, sales and medical education professionals and to develop a commercial strategy to target institutions with the greatest use of drugs for multi-drug resistant serious and life-threatening infections. We expect that our sales force will focus on educating hospital and institution-based physicians, nurses, pharmacy directors and payers about the benefits of eravacycline for the products approved indications.
If we complete our planned Phase 3 clinical trials of eravacycline when we anticipate and the trials are successful, we expect to submit an NDA to the FDA in the second half of 2015 and an MAA to the EMA in the first half of 2016. Our current plan is to develop and commercialize eravacycline outside the United States with collaborators.
Manufacturing and Supply
We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. All of our product candidates are organic compounds of low molecular weight, commonly referred to as small molecules. They are manufactured in a fully synthetic process from readily available starting materials. As a result, we believe that our use of synthetic process will enable us to have a cost of manufacturing for our product candidates that is sufficiently low to enable us to sell our product candidates, when and if approved, for a cost that is similar to other hospital-based antibiotics.
We currently rely on a limited number of third-party contract manufacturers for all of our required raw materials, drug substance and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates after they are approved. If any of our products are approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. We currently employ internal resources to manage our manufacturing.
Intellectual Property
We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to cover our product candidates and compositions, their methods of use and processes for their manufacture and any other inventions that are commercially important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will significantly depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology and inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how and continuing technological innovation to develop and maintain our proprietary position.
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As of December 31, 2012, we owned ten pending U.S. patent applications, one of which is a provisional application, and 50 pending foreign patent applications in Europe and 17 other jurisdictions, as well as two pending Patent Cooperation Treaty, or PCT, applications. No U.S. patents or foreign patents have been issued to us yet. In addition we have exclusively licensed from Harvard University rights under four U.S. patents, seven foreign patents, four pending U.S. patent applications and 25 pending foreign patent applications in Europe and 11 other jurisdictions and one PCT application.
Tetraphase-Owned Intellectual Property Relating to Eravacycline and Other Compounds Under Development
We have patent applications directed to the composition of matter and use of eravacycline and other fluorocyclines, such as TP-271, pending in the United States, Europe, Japan and other countries. Any patents that may issue from these pending applications will have an expiration date no earlier than 2029. In addition, we have filed a PCT application directed to an intravenous dosing regimen for eravacycline. Any patents that might issue from national applications originating from the PCT application will have an expiration date no earlier than 2031. We have also filed patent applications directed to the composition of matter and use of TP-834. Any patents that may issue from these pending applications will have an expiration date no earlier than 2031.
We have also filed patent applications directed to the composition of matter and use of various derivatives of tetracycline and pentacycline (a tetracycline scaffold extended to five rings) in the United States, Europe and other foreign countries. Any patents that might issue from these pending applications will have an expiration date no earlier than 2030, with some expiration dates as late as 2033.
Exclusively Licensed Intellectual Property Relating to Our Proprietary Chemistry Technology
The patents and patent applications which we exclusively license from Harvard provide patent protection for the proprietary chemistry technology used in our fully synthetic process to make eravacycline and other tetracycline derivatives. The key intermediates that enable our fully synthetic process are commonly referred to as enone intermediates. The licensed patents and patent applications are directed towards the composition of matter of enone intermediates and compounds used to make the enone intermediates, referred to as key precursors, as well as synthetic routes to those enone intermediates, precursors and our tetracycline derivatives under development.
Composition of matter for the enone intermediates and precursors used in preparing the enone intermediates, as well as methods of making the precursors and enone intermediates are covered by the U.S. patents we license from Harvard, which will expire no earlier than 2027, taking into consideration patent term adjustment. Corresponding patent applications have been filed in foreign jurisdictions and any patents that have issued and might issue from these applications expire or will expire no earlier than 2025.
Exclusively Licensed Intellectual Property Relating to Pentacycline and Tetracycline Derivatives
Our license from Harvard also includes patent applications directed to the composition of matter and use of other novel tetracycline or pentacycline derivatives. These applications are pending in the United States, Europe and other countries. Any patents that might issue from these pending applications will have an expiration date no earlier than 2027.
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patents term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval, or PMA, may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. The length of the patent term extension is related to the
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length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug are extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug.
We rely, in some circumstances, on trade secrets to protect our unpatented technology. However, trade secrets can be difficult to protect. We seek to protect our trade secrets and proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached. We may not have adequate remedies for any breach and could lose our trade secrets through such a breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting trade secrets, know-how and inventions.
License Agreement
On August 3, 2006, we entered into a license agreement with The President and Fellows of Harvard College, under which Harvard granted us an exclusive worldwide license under specified Harvard patent rights to develop and commercialize tetracycline-based products such as eravacycline. Under the license agreement, we also have the right to expand the patent rights subject to the license to include improvement patents that may be owned by Harvard in the future and that meet specified criteria by paying to Harvard an additional license issuance fee in an amount to be agreed between Harvard and us. We also have a right of negotiation to expand the license to include additional patents relating to tetracycline chemistry within a specified category that may be owned by Harvard in the future, including patents covering inventions made by Andrew Myers, Ph.D., our scientific founder, under his consulting agreement with us. Since entering into the license agreement, we have entered into amendments to the license agreement pursuant to which we expanded the patent rights subject to the license in accordance with these rights. Under the license agreement, we are obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize licensed compounds and to implement a specified development plan, meeting specified development milestones and providing an update on progress on an annual basis. Our license grant from Harvard is subject to academic rights retained by Harvard and United States government rights and obligations that are customary in patent license agreements with universities in the United States.
In consideration for the rights granted to us by Harvard under the license agreement, we have paid Harvard an aggregate of $1.7 million in upfront license fees and development milestone payments, and issued 910,000 shares of our common stock to Harvard. In addition, we have agreed to make payments to Harvard upon the achievement of specified future development and regulatory milestones totaling up to $15.2 million per licensed product ($1.1 million of which has already been paid with respect to eravacycline), and to pay tiered royalties in the single digits based on annual worldwide net sales, if any, of licensed products by us, our affiliates and sublicensees. We are also obligated to pay Harvard a specified share of non-royalty sublicensing revenues that we receive from sublicensees for the grant of sublicenses under the license and to reimburse Harvard for specified patent prosecution and maintenance costs.
The license agreement expires on a licensed product-by-licensed product and country-by-country basis upon the expiration of the last-to-expire patent covering the applicable product in the applicable country that is included in the license. Harvard may terminate the license agreement based on our uncured material breach or insolvency or bankruptcy. We have the right to terminate the license agreement for any or no reason at any time on sixty (60) days prior written notice to Harvard.
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Government Contracts
Eravacycline
Our program to develop eravacycline for the treatment of disease caused by bacterial biothreat pathogens is funded by BARDA through a five-year contract that provides a total of up to $67 million in funding that BARDA awarded to CUBRC in January 2012. The contract contemplates that CUBRC will collaborate with us on the development, manufacturing and clinical evaluation of a novel broad-spectrum tetracycline antibiotic with potential as an empiric countermeasure for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, including Francisella tularensis , which causes tularemia, Yersinia pestis , which causes plague, and Bacillus anthracis , which causes anthrax disease, as well as bacterial pathogens associated with moderate-to-severe CABP and other serious hospital infections. In connection with the BARDA Contract, in February 2012, we entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which we may receive funding of up to approximately $39.8 million, reflecting the portion of the BARDA funding that may be paid to us for our activities.
We collaborated with CUBRC in seeking government funding of this development program because we did not have any expertise in bidding for, or the administration and management of, government-funded contracts. Because CUBRC had the expertise to manage and administer awards issued by government funding agencies, we agreed with CUBRC that CUBRC would serve as the prime contractor under the BARDA Contract, primarily carrying out a program management and administrative role with additional responsibility for the management of certain preclinical studies. We serve as lead technical experts on all aspects of the BARDA Contract and serve as a subcontractor of CUBRC responsible for management of chemistry, manufacturing and control activities and clinical studies. The flow of funds under this arrangement follows the respective activities being conducted by us and by CUBRC, with funds being paid to us under our subcontract with CUBRC reflecting payment for our activities.
We have agreed upon a research plan with CUBRC detailing the activities to be conducted by CUBRC and by us. In addition to our obligations to conduct the activities provided for by the research plan, we are also obligated under the CUBRC subcontract to satisfy various federal reporting requirements, extending to technical reporting with respect to our activities, reporting with respect to intellectual property and financial reporting.
Payments under our subcontract with CUBRC are made in installments as activities are conducted in accordance with the research plan. Payments are based on direct and indirect costs incurred plus fixed fees, where applicable.
Under the subcontract, CUBRCs use of our eravacycline data is expressly limited to purposes of performing CUBRCs obligations under the BARDA Contract, and CUBRC and its other subcontractors must assign to us, subject to government rights, all intellectual property rights relating to our compounds and related data that arise from the project. Under standard government contracting terms, the government receives only limited rights for government use of certain of our pre-existing data and certain data produced with non-federal funding, to the extent such data are required for delivery to BARDA under the project. The government receives unlimited rights to use and disclose new data first produced under the project with BARDA funding, and the government is entitled to at least a nonexclusive, worldwide, royalty-free license to practice or have practiced any patent on an invention that is conceived or first reduced to practice under the project.
BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond current-year amounts from Congressionally approved annual appropriations, and CUBRC has a right to terminate its subcontract with us only to the extent that BARDA first cancels the corresponding portions of CUBRCs prime contract.
We retain a right to terminate CUBRCs rights to use eravacycline. Permissible grounds for such termination of CUBRCs rights include but are not limited to the sale of our assets relating to the project, an acquisition of us or our granting an exclusive or partially exclusive license to use eravacycline to a licensee that declines to continue CUBRCs license rights. In such an event, the subcontract may be terminated upon CUBRCs negotiation of a corresponding termination of CUBRCs obligations to BARDA.
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TP-271
Our program to develop TP-271 is funded by NIAID through the NIAID Grant, a grant awarded in July 2011 that provides up to approximately $2.8 million in funding over five years, and the NIAID Contract, a separate a five-year contract that provides up to $35.8 million in funding that NIAID awarded to CUBRC in October 2011. The NIAID Contract contemplates that CUBRC will collaborate with us on the development, manufacturing and clinical evaluation of a novel broad-spectrum tetracycline antibiotic for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, including Francisella tularensis , Yersinia pestis and Bacillus anthracis , as well as bacterial pathogens associated with CABP.
In connection with the NIAID Contract, in October 2011, we entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which we may receive funding of up to approximately $13.3 million, reflecting the portion of the NIAID Contract funding that may be paid to us for our activities. In connection with the NIAID Grant, in November 2011, CUBRC awarded us a 55-month, no-fee subaward of approximately $980,000 reflecting the portion of the NIAID Grant funding that may be paid to us for our activities.
We collaborated with CUBRC in seeking government funding of this development program because we did not have any expertise in bidding for, or the administration and management of, government-funded contracts. Because CUBRC had the expertise to manage and administer awards issued by government funding agencies, we agreed with CUBRC that CUBRC would serve as the prime contractor under the NIAID Contract, primarily carrying out a program management and administrative role with additional responsibility for the management of certain preclinical studies. We serve as lead technical experts on all aspects of the NIAID Contract and serve as a subcontractor of CUBRC responsible for management of chemistry, manufacturing and control activities and clinical studies. The flow of funds under this arrangement follows the respective activities being conducted by us and by CUBRC, with funds being paid to us under our subcontract with, and subaward from, CUBRC reflecting payment for our activities.
We have agreed upon a research plan with CUBRC detailing the activities to be conducted by CUBRC and by us. In addition to our obligations to conduct the activities provided for by the research plan, we are also obligated under the CUBRC subcontract to satisfy various federal reporting requirements, extending to technical reporting with respect to our activities, reporting with respect to intellectual property and financial reporting.
Payments under our subcontract with CUBRC are made in installments as activities are conducted in accordance with the research plan. Payments are based on direct and indirect costs incurred plus fixed fees, where applicable.
Under the subcontract, CUBRCs use and disclosure of our proprietary data pertaining to the project are expressly subject to a separate confidentiality agreement between CUBRC and us. CUBRC and its other subcontractors or subawardees must assign to us, subject to government rights, all intellectual property rights relating to our compounds and related data that arise from the project. Under standard government contracting terms and grant conditions, the government is entitled to at least a nonexclusive, worldwide, royalty-free license to practice or have practiced any patent on an invention that is conceived or first reduced to practice under the project.
NIAID is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond the initial 25-month base period, and CUBRC has a right to terminate its subcontract with us only to the extent that NIAID first cancels the corresponding portions of CUBRCs prime contract.
We retain rights to terminate the subcontract if CUBRC breaches the subcontract, subject in certain cases to CUBRCs failure to cure such breach, or by written notice to CUBRC, effective upon CUBRCs negotiation of a corresponding termination of CUBRCs obligations to NIAID.
Competition
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have substantially greater financial, technical and
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human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA approval for drugs and achieving widespread market acceptance. Our potential competitors drugs may be more effective, or more effectively marketed and sold, than any product candidate we may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses of their development and commercialization. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete.
We believe the key competitive factors that will affect the development and commercial success of our most advanced product candidate, eravacycline, if approved, will be efficacy, coverage of drug-resistant strains of bacteria, safety and tolerability profile, reliability, convenience of dosing, including capability for intravenous-to-oral step-down, price, availability of reimbursement from governmental and other third-party payers and susceptibility to drug resistance.
We are developing eravacycline as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative infections. If approved, eravacycline would compete with a number of currently marketed antibiotics, including meropenem, which is marketed by AstraZeneca as Merrem, imipenem/cilastatin, which is marketed by Merck as Primaxin, tigecycline, which is marketed by Pfizer as Tygacil, levofloxacin, which is marketed by Ortho-McNeil and Johnson & Johnson as Levaquin, and piperacillin/tazobactam, which is marketed by Pfizer as Zosyn, as well as antibiotics currently in Phase 3 development, including ceftazidime/avibactam and ceftaroline/avibactam, which are being developed by AstraZeneca, and cefalozine/tazobactam, which is being developed by Cubist. We also expect that eravacycline, if approved, would compete with future generic versions of currently marketed antibiotics.
If approved, we believe that eravacycline would compete effectively against these compounds on the basis of:
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broad-spectrum activity against a wide variety of multi-drug resistant Gram-negative, Gram-positive and anaerobic bacteria; |
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lower probability of drug resistance; |
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a favorable safety and tolerability profile; |
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a convenient dosing regimen; and |
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potentially, convenient intravenous-to-oral step-down. |
Recent Changes in the Regulatory Landscape
The FDAs Anti-Infective Drugs Division has undergone evolution in recent years, primarily driven by concerns that increasingly less effective antibiotics may have been approved in the last 10 to 15 years and a desire to bring what they perceive to be greater statistical rigor to their analyses. The impact of this was a rethinking of how antibiotic efficacy is measured in clinical trials, and a review of the statistical tools used to analyze the data. In February 2012, the FDA published a draft guidance entitled Guidance for Industry Complicated Urinary Tract Infections: Developing Drugs for Treatment and in September 2012, it published a draft guidance entitled Guidance for Industry Complicated Intra-Abdominal Infections: Developing Drugs for Treatment. The purpose of these guidelines was to address any uncertainties regarding what the FDA expected from sponsors and clinical trials for the indications of cUTI and cIAI. The FDA asked sponsors to include additional measurements in their evaluation of efficacy that the FDA believes are more objective and less susceptible to interpretation by investigators.
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, including any
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manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and export of pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
U.S. Government Regulation
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDAs refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDAs good laboratory practice, or GLP, regulations; |
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submission to the FDA of an IND which must become effective before human clinical trials may begin; |
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approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated; |
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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication; |
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submission to the FDA of an NDA; |
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satisfactory completion of an FDA advisory committee review, if applicable; |
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practices, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity; and |
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FDA review and approval of the NDA. |
Preclinical Studies
Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some preclinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in
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monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their ClinicalTrials.gov website.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.
Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRBs requirements or if the drug has been associated with unexpected serious harm to patients.
Special Protocol Assessment
The special protocol assessment, or SPA, process is designed to facilitate the FDAs review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug products efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsors questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request.
The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.
Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following circumstances:
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public health concerns emerge that were unrecognized at the time of the protocol assessment, or the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing has begun; |
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a sponsor fails to follow a protocol that was agreed upon with the FDA; or |
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the relevant data, assumptions, or information provided by the sponsor in a request for SPA change, are found to be false statements or misstatements, or are found to omit relevant facts. |
A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study.
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Marketing Approval
Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to the products chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the date of filing of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a filing decision.
In addition, under the Pediatric Research Equity Act of 2003, or PREA, as amended and reauthorized, an NDA or supplement to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation. Our product candidates are not designated as orphan drugs.
The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the products continued safety, quality and purity.
The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA typically will 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 an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCP.
The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted in accordance with GCPs and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA generally requests that marketing applications be supported by some data from domestic clinical studies, the FDA may accept foreign data as the sole basis for marketing approval if (1) the foreign data are applicable to the U.S. population and U.S. medical practice, (2) the studies were performed by clinical investigators with recognized competence, and
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(3) the data may be considered valid without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.
The testing and approval process for an NDA requires substantial time, effort and financial resources, and each may take several years to complete. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDAs satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drugs safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Special FDA Expedited Review and Approval Programs
The FDA has various programs, including fast track designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life threatening disease or condition and demonstrates the potential to address an unmet medical need, or if the drug qualifies as a qualified infectious disease product under the recently enacted Generating Antibiotic Incentives Now, or GAIN Act. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. We have not requested fast track designation for any of our product candidates.
The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines. Under the new PDUFA agreement, these six and ten month review periods are measured from the filing date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review.
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In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug 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 approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.
Moreover, under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, a sponsor can request designation of a product candidate as a breakthrough therapy. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with 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, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the products safety and effectiveness after commercialization.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the 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
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result in mandatory 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 or other restrictions under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
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fines, warning letters or holds on post-approval clinical trials; |
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals; |
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product seizure or detention, or refusal to permit the import or export of products; or |
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injunctions or the imposition of civil or criminal penalties. |
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 and other agencies 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.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.
Exclusivity and Approval of Competing Products
Hatch-Waxman Exclusivity
Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain applications for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the activity of the drug substance. We believe that eravacycline and our other product candidates are new chemical entities. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application or supplement. Three year exclusivity may be awarded for changes to a previously approved drug product, such as new indications, dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. For drug products that contain an antibiotic ingredient approved prior to 1997, such as tetracycline, the statute imposes certain limitations on the award of non-patent exclusivity. However, we do not believe these limitations would apply to eravacycline or any of our other investigational antibiotics.
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Qualified Infectious Disease Product Exclusivity
Under the GAIN provisions of FDASIA, which was signed into law in July 2012, the FDA may designate a product as a qualified infectious disease product. In order to receive this designation, a drug must qualify as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by either (1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens, or (2) a so-called qualifying pathogen found on a list of potentially dangerous, drug-resistant organisms to be established and maintained by the FDA under the new law. A sponsor must request such designation before submitting a marketing application. We expect that we will request such designation for eravacycline and our other product candidates prior to submitting a marketing application for such product candidates, as appropriate.
Upon approving an application for a qualified infectious disease product, the FDA will extend by an additional five years any non-patent marketing exclusivity period awarded, such as a five-year exclusivity period awarded for a new molecular entity. This extension is in addition to any pediatric exclusivity extension awarded, and the extension will be awarded only to a drug first approved on or after the date of enactment.
The GAIN provisions prohibit the grant of an exclusivity extension where the application is a supplement to an application for which an extension is in effect or has expired, is a subsequent application for a specified change to an approved product, or is an application for a product that does not meet the definition of qualified infectious disease product based on the uses for which it is ultimately approved.
Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicinal products produced by biotechnology or those medicinal products containing new active substances for specific indications such as the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, viral diseases and designated orphan medicines, and optional for other medicines which are highly innovative. Under the centralized procedure, a marketing application is submitted to the European Medicines Agency where it will be evaluated by the Committee for Medicinal Products for Human Use and a favorable opinion typically results in the grant by the European Commission of a single marketing authorization that is valid for all European Union member states within 67 days of receipt of the opinion. The initial marketing authorization is valid for five years, but once renewed is usually valid for an unlimited period. The decentralized procedure provides for approval by one or more concerned member states based on an assessment of an application performed by one member state, known as the reference member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member states assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, including Medicare and Medicaid, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursement amounts
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for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.
In the United States, a number of recent legislative reform measures have been passed to contain healthcare reimbursement for pharmaceuticals, including drugs such as our product candidates. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, known collectively as ACA, among other things, establishes annual fees to be paid by manufacturers for certain branded prescription drugs, requires manufacturers to participate in a discount program for certain outpatient drugs under Medicare Part D, increases manufacturer rebate responsibilities under the Medicaid Drug Rebate Program for outpatient drugs dispensed for Medicaid recipients, and expands oversight and support for the federal governments comparative effectiveness research of services and products. We cannot predict the full impact of ACA or future reform measures on our operations and the current legal challenges and congressional efforts to repeal ACA add to the uncertainty.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Legal Proceedings
We are not currently a party to any material legal proceedings.
Facilities
Our headquarters are located in Watertown, Massachusetts, where we occupy approximately 15,900 square feet of office and laboratory space. The term of the lease expires May 31, 2014.
Employees
As of December 31, 2012, we had 33 full-time employees, 25 of whom were primarily engaged in research and development activities. A total of 18 employees have an M.D. or Ph.D. degree. None of our employees is represented by a labor union and we consider our employee relations to be good.
Corporate Information
We were incorporated under the laws of the State of Delaware on July 7, 2006 under the name Tetraphase Pharmaceuticals, Inc. Our principal executive offices are located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472, and our telephone number is (617) 715-3600.
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Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees, their current positions and their ages as of December 31, 2012 are set forth below:
Name |
Age |
Position(s) |
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Executive Officers |
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Guy Macdonald |
53 | President and Chief Executive Officer, Director | ||||
David Lubner |
48 | Senior Vice President and Chief Financial Officer | ||||
Patrick T. Horn, M.D., Ph.D. |
57 | Chief Medical Officer | ||||
Joyce Sutcliffe, Ph.D. |
61 | Senior Vice President, Biology | ||||
Key Employees |
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Magnus Ronn, Ph.D. |
46 | Vice President, Chemistry, Manufacturing and Control | ||||
Leland Webster, Ph.D. |
49 | Vice President, Business Development | ||||
Xiao-Yi Xiao, Ph.D. |
47 | Vice President, Medicinal Chemistry | ||||
Non-Employee Directors |
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L. Patrick Gage, Ph.D.(3) |
70 | Director, Chairman of the Board of Directors | ||||
Garen Bohlin (1) |
65 | Director | ||||
Douglas Cole, M.D. (2) |
52 | Director | ||||
John G. Freund, M.D.(3) |
59 | Director | ||||
Steven R. Gullans, Ph.D. (2)(3) |
60 | Director | ||||
Karl D. Handelsman (1) |
52 | Director | ||||
Lawrence G. Miller, M.D. (2)(3) |
59 | Director | ||||
Robert M. Weisskoff, Ph.D. (1) |
50 | Director |
(1) | Member of finance and audit committee. |
(2) | Member of compensation committee. |
(3) | Member of nominating and corporate governance committee. |
Executive Officers
Guy Macdonald has served as our President and Chief Executive Officer and a member of our board of directors since January 2008. From August 2003 until January 2008, Mr. Macdonald served as Executive Vice President, Operations, of Idenix Pharmaceuticals, Inc., a biopharmaceutical company. Prior to joining Idenix, he served in various positions at Merck & Co., Inc., a pharmaceutical company, from 1981 to 2003, most recently serving as the Vice President for Anti-Infective and Hospital Products. Mr. Macdonald currently serves as a member of the board of directors of Spring Bank Pharmaceuticals, Inc., a privately held company. Mr. Macdonald received an Honours Degree in biochemistry from Dundee University in Dundee, Scotland. We believe that Mr. Macdonalds detailed knowledge of our company and his 25 year career in the global pharmaceutical and biotechnology industries, including his roles at Idenix Pharmaceuticals and Merck & Co., provides a critical contribution to our board of directors.
David Lubner has served as our Senior Vice President and Chief Financial Officer since October 2010 and from our inception in 2006 until October 2010 he served on a part-time basis as our Senior Vice President and Chief Operating Officer. Mr. Lubner also served as Chief Financial Officer of Mediphase Venture Partners, a venture capital firm, from 2006 until October 2010. From 1999 to 2005, he served as Vice President and Chief Financial Officer at PharMetrics, Inc., a pharmacy and medical claims data informatics company, until its acquisition by IMS Health in 2005. Prior to joining PharMetrics, Mr. Lubner served as Vice President and Chief Financial Officer of ProScript, Inc., a biotechnology company, from 1996 to 1999. Mr. Lubner is a member of the American Institute of CPAs. Mr. Lubner received a B.S. in business administration from Northeastern University and an M.S. in Taxation from Bentley University.
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Patrick T. Horn, M.D., Ph.D. has served as our Chief Medical Officer since January 2011. From September 2007 until December 2010, he served as Vice President, Clinical & Medical Affairs at Dyax Corporation, a biopharmaceutical company. Prior to joining Dyax, Dr. Horn served in various positions at Abbott Laboratories, a pharmaceutical company, from 2001 to 2006, most recently serving as Medical Director, Head of Clinical Pharmacology. Dr. Horn received a B.S. in Chemistry from the University of Illinois, doctorate in the Pharmacological and Physiological Sciences from the University of Chicago and an M.D. from the University of Chicago, Pritzker School of Medicine.
Joyce Sutcliffe, Ph.D. has served as our Senior Vice President, Biology, since May 2009. From October 2007 until May 2009, Dr. Sutcliffe served as Vice President, Research at NanoBio Corporation, a biopharmaceutical company. From September 2001 until September 2007, Dr. Sutcliffe served as Chief Research Scientist and Vice President, Biology at Rib-X Pharmaceuticals, Inc., a biopharmaceutical company. Prior to joining Rib-X Pharmaceuticals, she held various positions at Pfizer, Inc., a pharmaceutical company, for 16 years. Dr. Sutcliffe received a B.S. in zoology from the University of Florida and a Ph.D. in microbiology from the University of Florida, Gainesville, and has held postdoctoral positions at the University of Massachusetts Medical School and the National Institutes of Health.
Key Employees
Magnus Ronn, Ph.D. has served as our Vice President, Chemistry, Manufacturing and Control since October 2009 and as our Senior Director for Chemistry, Manufacturing and Control since our inception in 2006 until September 2009. From 2001 to 2006, he served as a Scientist at increasing levels of responsibility within Process Chemistry Research & Development at Millennium Pharmaceuticals, Inc. (now a Takeda company), a pharmaceutical company. Prior to joining Millennium, Dr. Ronn was a scientist at Roche Colorado Corporation (now known as Corden Pharma Colorado, Inc.), a pharmaceutical manufacturing company. Dr. Ronn received a B.S. in chemistry and a Ph.D. in organic chemistry from the University of Uppsala, Sweden.
Leland Webster, Ph.D. has served as our Vice President, Business Development since January 2009. From August 2007 to January 2009, Dr. Webster served as Vice President, Corporate Development at Surface Logix, Inc., a biomedical development company. Prior to joining Surface Logix, Dr. Webster served in various positions in business development (in-licensing and out-licensing) at ImmunoGen, a biopharmaceutical company, from 2004 to 2007, and at Vertex Pharmaceuticals, a biotechnology company, from 1999 to 2004. Dr. Webster served as a Senior Analyst at MPM Capital L.P., a venture capital firm, from 1994 to 1997. Dr. Webster served as Damon Runyon-Walker Winchell postdoctoral fellow in the Department of Biological Chemistry and Molecular Pharmacology at the Harvard Medical School from 1991 to 1994. Dr. Webster received a B.A. in biological sciences from Northwestern University, a Ph.D. in biochemistry from the University of Pennsylvania and an M.B.A. from the MIT Sloan School of Management.
Xiao-Yi Xiao, Ph.D. has served as our Vice President, Medicinal Chemistry since September 2006. From 2003 to 2006, Dr. Xiao served as Senior Director of Discovery Chemistry at Miikana Therapeutics (now part of EntreMed), a pharmaceutical company. Prior to joining Miikana Therapeutics, Dr. Xiao served as Director of Discovery Chemistry at Syrrx, Inc. (now a Takeda Pharmaceuticals company), a pharmaceutical company, from 2001 to 2003. From 1995 to 2001, he served in various positions at Discovery Partners International (now part of Infinity Pharmaceuticals), a chemical synthesis company. From 1993 to 1995, Dr. Xiao served in various positions at Affymax Research Institute, a biopharmaceutical company. Dr. Xiao has published more than 40 research articles and book chapters as well as over 20 issued patents and patent applications. Dr. Xiao received a B.S. in chemistry from Zhongshan University, China, and a Ph.D. in organic and bio-organic chemistry from State University of New York Stony Brook.
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Non-Employee Directors
L. Patrick Gage, Ph.D. has served as a member of our board of directors and as Chairman of our board of directors since December 2011. Since July 2002, Dr. Gage has served as a consultant to the biopharmaceutical industry. From 1998 to 2002, Dr. Gage served as President of Wyeth Research (now part of Pfizer, Inc.) and Senior Vice President, Science and Technology. Prior to joining Wyeth Research, he served in various positions at Genetics Institute, Inc., a biotechnology company, from 1989 to 1998, first as head of Research and Development, then as Chief Operating Officer and eventually as President. From 1971 to 1989, Dr. Gage served in various positions in research management with Hoffmann-La Roche Inc., a pharmaceutical company, most recently serving as Vice President responsible for U.S. drug discovery. Dr. Gage has served on the board of directors of Cytokinetics, Incorporated, a publicly traded biopharmaceuticals company, since November 2009 and as Chairman of its board of directors since March 2010. Dr. Gage also currently serves on the board of directors of two privately held companies, Alvine Pharmaceuticals and Corridor Pharmaceuticals. He served on the board of directors of PDL BioPharma, Inc., a publicly traded biotechnology company, from 2003 through 2008, as the Chairman of its board of directors in 2007, and as its Interim Chief Executive Officer from 2007 to 2008. Dr. Gage currently serves on the board of directors of a non-profit organization, the Marine Biological Laboratories. Dr. Gage received a B.S. in physics from the Massachusetts Institute of Technology and a Ph.D. in biophysics from the University of Chicago. We believe that Dr. Gages extensive industry and board experience as well as his independence allows him to serve as an effective Chairman of our board of directors and to be a key contributor to our board of directors.
Garen Bohlin has served as a member of our board of directors since July 2010. Since May 2012, Mr. Bohlin has served as a consultant to life sciences companies. From January 2010 until April 2012, he served as Executive Vice President of Constellation Pharmaceuticals, Inc., a biopharmaceutical company. Prior to joining Constellation Pharmaceuticals, Mr. Bohlin served as Chief Operating Officer of Sirtris Pharmaceuticals, a biotechnology company, from 2006 to December 2009. Mr. Bohlin was the founding Chief Executive Officer of Syntonix Pharmaceuticals, Inc., a biopharmaceutical company, from 1999 through December 2008. Earlier in his career, he held multiple executive positions at Genetics Institute, a biotechnology company, and was a partner at Arthur Andersen & Co., a public accounting and consulting organization. Mr. Bohlin has served on the board of directors of Acusphere, Inc., a privately held (previously publicly traded) biotechnology company, since 2005. Mr. Bohlin also currently serves on the board of directors of Precision Dermatology, Inc., a private company, and as chairman of the board of directors of SpringLeaf Therapeutics, Inc., a private company. He also served on the board of directors for Praecis Pharmaceuticals, Inc., previously a publicly traded biopharmaceuticals company that is now part of GlaxoSmithKline, from 2005 to 2007 and Targanta Therapeutics, Inc., previously a publicly traded biopharmaceuticals company that is now part of The Medicines Company, from 2007 to 2009. Mr. Bohlin received his B.S. in accounting and finance from The University of Illinois. We believe that Mr. Bohlins industry and board experience, including his audit committee experience, for both publicly traded and privately held companies makes him a key contributor to our board of directors.
Douglas Cole, M.D. has served as a member of our board of directors since August 2006. In 2001, Dr. Cole joined Flagship Ventures, where he currently serves as a General Partner. Prior to joining Flagship, Dr. Cole served as Program Executive at Vertex Pharmaceuticals, a biotechnology company, as Medical Director at Cytotherapeutics, Inc. (now known as StemCells Inc.), a biopharmaceutical company, and as Chief Executive Officer at Ensemble Therapeutics, a biopharmaceutical company. Dr. Cole currently serves on the board of directors of nine privately held companies, Agios Pharmaceuticals, Concert Pharmaceuticals, Ensemble Therapeutics, Receptos, Quanterix, Selecta Biosciences, Avedro, Permeon Biologics and Syros Pharmaceuticals. Dr. Cole received a B.A. magna cum laude in english from Dartmouth College and an M.D. from the University of Pennsylvania School of Medicine. In addition to representing one of our principal stockholders, we believe that Dr. Coles scientific and business background and his service on numerous boards of directors allows him to be a key contributor to our board of directors.
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John G. Freund, M.D. has served as a member of our board of directors since October 2012. Dr. Freund co-founded Skyline Ventures in 1997 and has served as a partner at Skyline since its founding. Prior to joining Skyline, Dr. Freund served as managing director in the private equity group of Chancellor Capital Management, a private capital investment firm. In 1995, he co-founded Intuitive Surgical, a medical device company, and served on its board of directors until 2000. From 1988 to 1994, Dr. Freund served in various positions at Acuson Corporation, a maker of ultrasound equipment that is now part of Siemens, most recently as Executive Vice President. Prior to joining Acuson, Dr. Freund was a general partner of Morgan Stanley Venture Partners from 1987 to 1988. From 1982 to 1988, Dr. Freund was a general partner at Morgan Stanley & Co., an investment banking company, where he co-founded the Healthcare Group in the Corporate Finance Department in 1983. He has served on the board of directors of Mako Surgical Corp., a publicly traded medical device company, since 2008, and XenoPort, Inc., a publicly traded biopharmaceutical company, since 1999. Dr. Freund also serves on the board of directors of two privately held companies, Advion and DiscoverX, and three U.S. registered investment funds managed by Capital Research and Management. He also previously served on the board of directors of three publicly traded companies, Map Pharmaceuticals, a biopharmaceutical company, Hansen Medical, a biotechnology company, and Sirtris Pharmaceuticals, a biopharmaceutical company. Dr. Freund is a member of the Advisory Board for the Harvard Business School Healthcare Initiative, and is a member of the Therapeutics Advisory Council of Harvard Medical School. Dr. Freund received a B.A. in history from Harvard College, an M.D. from Harvard Medical School, and an M.B.A. from Harvard Business School. We believe that Dr. Freunds extensive finance and investment experience, his experience as an executive and his service on the board of directors of numerous public and privately held companies allows him to be a key contributor to our board of directors.
Steven R. Gullans, Ph.D. has served as a member of our board of directors since May 2010. Dr. Gullans co-founded Excel Venture Management in February 2008 and has served as a partner at Excel since its founding. Prior to co-founding Excel, Dr. Gullans co-founded RxGen, Inc., a privately held pharmaceutical services company, where he served as Chief Executive Officer from July 2004 to February 2008, and as a member of its board of directors from April 2002 until August 2012. From 2002 until 2004, Dr. Gullans served as Chief Scientific Officer at U.S. Genomics, a pathogen-diagnostic technology company. Dr. Gullans was a faculty member at Harvard Medical School and Brigham and Womens Hospital from 1985 to 2003. Dr. Gullans currently serves on the board of directors of four privately held companies, Cleveland HeartLab, PathoGenetix, nanoMR and Catch.com. Dr. Gullans received a B.S. in biology at Union College, a Ph.D. in physiology at Duke University, and postdoctoral training at the Yale School of Medicine. In addition to representing one of our principal stockholders, we believe that Dr. Gullans scientific and business background and his service on numerous boards of directors allows him to be a key contributor to our board of directors.
Karl D. Handelsman has served as a member of our board of directors since August 2006. Since January 1999, Mr. Handelsman has served as a partner at CMEA Ventures, serving as the managing director since 2008. Prior to joining CMEA, Mr. Handelsman served as Director of Business Development at Millennium Pharmaceuticals (now a Takeda company) from 1996 to 1997. From 1992 to 1996, Mr. Handelsman served as Manager of Business Development at Tularik, Inc., a drug discovery company. Mr. Handelsman currently serves on the board of directors of two privately held companies, Velocity Pharmaceutical Development and Neos Therapeutics, Inc. Mr. Handelsman received a B.A. in biology from Boston University, an M.S. in genetics from Harvard Medical School and an M.B.A. from the Massachusetts Institute of Technology. In addition to representing one of our principal stockholders, we believe that Mr. Handelsmans scientific and business background and his service on numerous boards of directors allows him to be a key contributor to our board of directors.
Lawrence G. Miller, M.D. has served as a member of our board of directors since August 2006 and served as Chairman of our board of directors from September 2006 until December 2011. Dr. Miller founded Mediphase Venture Partners in 2000 and has served as a partner of Mediphase since its founding. Since August 2010, Dr. Miller has also served as the President and a director of Activate Networks Inc., a privately held social network analytics company. Dr. Miller served as Senior Vice President at Hambrecht & Quist Capital
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Management, an investment bank, from 1997 to 1999. Dr. Miller was a founder and director of Serenex, Inc., a privately held drug discovery and development company subsequently acquired by Pfizer, Inc. Dr. Miller also currently serves on the board of directors of two privately held companies, Patient Keeper Inc. and Relay Technology Management. Dr. Miller received a A.B. in chemistry and history from Harvard College and an M.D. from Harvard Medical School. In addition to representing one of our principal stockholders, we believe that Dr. Millers medical background, his service on numerous boards and his investment experience allows him to be a key contributor to our board of directors.
Robert M. Weisskoff, Ph.D. has served as a member of our board of directors since July 2007. Since November 2004, Dr. Weisskoff has been a partner of Fidelity Biosciences. Prior to joining Fidelity, he served in various senior roles in R&D and Business Development at pharmaceutical and medical device companies. Dr. Weisskoff held various appointments at Harvard Medical School from 1990 to 2005, including Associate Professor of Radiology from 1995 to 2000 and was on the faculty of the Harvard-MIT Health Sciences Technology (HST) Program from 1990 to 2000. Dr. Weisskoff currently serves on the board of directors of six privately held companies, Bioconnect Systems, ViewRay, Laurus Labs, Xcyton, Envivo Pharmaceuticals, and Trivitron Healthcare Pvt Ltd. Dr. Weisskoff received his Ph.D. in physics from the Massachusetts Institute of Technology, his M.B.A. from Columbia University and his A.B. in physics from Harvard University graduating magna cum laude . In addition to representing one of our principal stockholders, we believe that Dr. Weisskoffs scientific background and his service on numerous boards allows him to be a key contributor to our board of directors.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Composition
Our board of directors currently consists of nine members, all of whom were elected as directors pursuant to a stockholders agreement that we have entered into with the holders of our preferred stock. The stockholders agreement will terminate upon the closing of this offering and there will be no further contractual obligations regarding the election of our directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.
Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering provide that the authorized number of directors may be changed only by resolution of the board of directors. Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.
In accordance with the terms of our certificate of incorporation and bylaws that will become effective upon the closing of this offering, our board of directors will be divided into three classes, class I, class II and class III, with members of each class serving staggered three-year terms. Upon the closing of this offering, the members of the classes will be divided as follows:
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the class I directors will be , and , and their term will expire at the annual meeting of stockholders to be held in 2014; |
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the class II directors will be , and , and their term will expire at the annual meeting of stockholders to be held in 2015; and |
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the class III directors will be , and , and their term will expire at the annual meeting of stockholders to be held in 2016. |
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Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires.
We have no formal policy regarding board diversity. Our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape.
Director Independence
Rule 5605 of the NASDAQ Listing Rules requires a majority of a listed companys board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ Listing Rules require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under Rule 5605(a)(2), a director will only qualify as an independent director if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.
In , 2012, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of our directors, with the exception of , is an independent director as defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. Our board of directors also determined that Garen Bohlin, Karl Handelsman and Robert Weisskoff, who comprise our finance and audit committee, and Douglas Cole, Steven Gullans and Lawrence Miller, who comprise our compensation committee, satisfy the independence standards for such committees established by the Securities and Exchange Commission and the NASDAQ Listing Rules, as applicable. In making such determinations, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Board Committees
Our board of directors has established a finance and audit committee, a compensation committee and a nominating and corporate governance committee. Each of these committees will operate under a charter that will be approved by our board of directors.
Finance and Audit Committee
The members of our finance and audit committee are Garen Bohlin, Karl Handelsman and Robert Weisskoff. Garen Bohlin is the chair of the finance and audit committee. Our board of directors has determined that each of the directors serving on our finance and audit committee is independent within the meaning of Rule 10A-3 under the Exchange Act. In addition, our board of directors has determined that Garen Bohlin qualifies as an audit committee financial expert within the meaning of SEC regulations and The NASDAQ Listing Rules. In making this determination, our board has considered the formal education and nature and scope of his previous experience, coupled with past and present service on various audit committees. Our finance and audit committee assists our board of directors in its oversight of our accounting and financial
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reporting process and the audits of our financial statements. Upon the closing of this offering, our finance and audit committees responsibilities will include:
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appointing, approving the compensation of, and assessing the independence of the our registered public accounting firm; |
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overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm; |
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reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures; |
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monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; |
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overseeing our internal audit function; |
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discussing our risk management policies; |
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establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns; |
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meeting independently with our internal auditing staff, our independent registered public accounting firm and management; |
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reviewing and approving or ratifying any related person transactions; and |
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preparing the audit committee report required by Securities and Exchange Commission, or SEC, rules. All audit services to be provided to us and all non-audit services, other than de minimis non-audit services, to be provided to us by our registered public accounting firm must be approved in advance by our finance and audit committee. |
Compensation Committee
The members of our compensation committee are Douglas Cole, Steven Gullans and Lawrence Miller. Steven Gullans is the chair of the compensation committee. Our compensation committee assists our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers. Upon the completion of this offering, the compensation committees responsibilities will include:
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reviewing and approving, or making recommendations to our board with respect to, the compensation of our chief executive officer and other executive officers; |
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overseeing the evaluation of our senior executives; |
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reviewing and making recommendations to our board of directors with respect to our incentive-compensation and equity-based compensation plans; |
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overseeing and administering our equity-based plans; |
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reviewing and making recommendations to our board with respect to director compensation; |
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reviewing and discussing with management our Compensation Discussion and Analysis disclosure to the extent such disclosure is required by SEC rules; and |
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preparing the compensation committee report required by SEC rules. |
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance committee are John Freund, Patrick Gage, Steven Gullans and Lawrence Miller, and Patrick Gage is the chair of the nominating and corporate governance committee. Upon the completion of this offering, the nominating and corporate governance committees responsibilities will include:
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identifying individuals qualified to become members of our board; |
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recommending to our board the persons to be nominated for election as directors and to each of our boards committees; |
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overseeing an annual review by our board with respect to management succession planning; |
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developing and recommending to our board corporate governance principles; and |
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overseeing an annual evaluation of our board. |
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee is an officer or employee of our company, nor have they ever been an officer or employee of our company.
Code of Business Conduct and Ethics
Effective upon the closing of this offering, we plan to adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following this offering, a copy of the code will be posted on the Corporate Governance section of our website, which is located at www.tphase.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
Director Compensation
We currently do not have a formal non-employee director compensation policy. In connection with their initial elections to our board of directors, we agreed to pay Dr. Gage, our chairman of the board, an annual cash retainer of $50,000 and Mr. Bohlin an annual cash retainer of $25,000. None of our other non-employee directors receives any compensation. We reimburse our non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with attending board of director and committee meetings. We do not pay any compensation to our President and Chief Executive Officer in connection with his service on our board of directors. The compensation that we pay to our President and Chief Executive Officer is discussed in the Executive Compensation section of this prospectus.
In connection with their initial elections to our board of directors, on December 8, 2011, we granted Dr. Gage options to purchase an aggregate of 1,581,791 shares of our common stock with an exercise price of $0.07 per share, and on July 12, 2010, we granted to Mr. Bohlin options to purchase an aggregate of 944,407 shares of our common stock with an exercise price of $0.07 per share. The options granted to Dr. Gage and Mr. Bohlin each vest as to 25% of the shares on the first anniversary of commencement of service and as to an additional 6.25% of the shares at the end of each successive three-month period thereafter. We have not granted stock options to any of our other non-employee directors.
Our board of directors intends to approve a compensation policy for our non-employee directors that will become effective upon the closing of this offering. This policy will be intended to provide a total compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors interests with those of our stockholders.
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The following table sets forth information regarding compensation earned by our non-employee directors during 2012.
Name |
Fees Earned or Paid
in Cash ($) |
Total ($) | ||||||
L. Patrick Gage, Ph.D. |
50,000 | 50,000 | ||||||
Garen Bohlin |
25,000 | 25,000 | ||||||
Douglas Cole, M.D. |
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John G. Freund, M.D.(1) |
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Eric M. Gordon, Ph.D.(2) |
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Steven R. Gullans, Ph.D. |
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Karl D. Handelsman |
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Lawrence G. Miller, M.D. |
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Robert M. Weisskoff, Ph.D. |
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(1) | Dr. Freund commenced service on our board of directors on October 23, 2012. |
(2) | Dr. Gordon served as a director until his resignation from our board of directors on October 23, 2012. |
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This section discusses the material elements of our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by our executive officers named in the Summary Compensation Table below, or our named executive officers, and is intended to place in perspective the data presented in the following tables and the corresponding narrative.
In preparing to become a public company, we have begun a thorough review of all elements of our executive compensation program, including the function and design of our equity incentive programs. We have begun, and we expect to continue in the coming months, to evaluate the need for revisions to our executive compensation program to ensure our program is competitive with the companies with which we compete for executive talent and is appropriate for a public company.
Summary Compensation Table
The following table sets forth information regarding compensation earned by our President and Chief Executive Officer and our next three highest paid executive officers during the years ended December 31, 2011 and 2012. We refer to these individuals as our named executive officers.
Name |
Year |
Salary
($) |
Bonus
($) |
Option
Awards ($)(1) |
Non-Equity
Incentive Plan Compensation ($)(2) |
Total ($) | ||||||||||||||||||
Guy Macdonald, |
2012 | 373,106 | | 26,175 | 104,469 | 503,750 | ||||||||||||||||||
President and Chief Executive Officer |
2011 | 361,235 | | | 95,088 | 456,323 | ||||||||||||||||||
David Lubner |
2012 | 272,950 | | 111,597 | 43,672 | 428,219 | ||||||||||||||||||
Senior Vice President and Chief Financial Officer |
2011 | 265,000 | | | 39,750 | 304,750 | ||||||||||||||||||
Patrick T. Horn, M.D., Ph.D. |
2012 | 324,450 | | 89,576 | 64,890 | 478,916 | ||||||||||||||||||
Chief Medical Officer |
2011 | 315,000 | 50,000 | (3) | 198,310 | 59,063 | 622,373 | |||||||||||||||||
Joyce Sutcliffe, M.D. |
2012 | 272,950 | | 23,125 | 43,672 | 339,747 | ||||||||||||||||||
Senior Vice President, Biology |
2011 | 265,000 | | | 39,750 | 304,750 |
(1) | Represents the grant date fair value of option awards granted in 2011 and 2012 in accordance with ASC 718. The assumptions we use in calculating these amounts are discussed in Note 9 to our consolidated financial statements for the year ended 2011 and the nine months ended September 30, 2012. |
(2) | This amount consists of cash bonuses paid under our executive bonus program. See the Narrative Disclosure to Summary Compensation Table section of this prospectus for a description of this plan. The amounts reported for 2012 were earned in 2012 and are to be paid in January 2013. The amounts reported for 2011 were earned in 2011 and paid in February 2012. |
(3) | Represents a cash bonus paid to Dr. Horn in connection with the commencement of his employment. |
Narrative Disclosure to Summary Compensation Table
In 2012, we paid base salaries to Mr. Macdonald, Dr. Horn, Mr. Lubner and Dr. Sutcliffe of $373,106, $324,450, $272,950 and $272,950, respectively. Base salaries are used to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named executive officers. None of our named executive officers is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary.
Our board of directors may, in their discretion, award bonuses to our named executive officers from time to time. We typically establish bonus targets for our named executive officers and conduct an annual performance review process to serve as the basis for determining eligibility for any such bonuses. Among the key parameters that typically are the basis for such bonus determinations are our achievement of corporate goals and the
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achievement of specified goals and objectives by each individual employee. Our management may propose bonus awards to the compensation committee of the board or the board primarily based on such review process. Our board of directors makes the final determination of the eligibility requirements for and the amount of such bonus awards. In 2012, we awarded bonuses to Mr. Macdonald, Dr. Horn, Mr. Lubner and Dr. Sutcliffe in the amounts of $104,469, $64,890, $43,672 and $43,672, respectively, in each case based on our achievement of company goals with respect to the development of the intravenous and oral formulations of eravacycline.
Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equity ownership guidelines applicable to them, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, we believe that equity grants with a time-based vesting feature promote executive retention because this feature incentivizes our executive officers to remain in our employment during the vesting period. Accordingly our compensation committee and board of directors periodically review the equity incentive compensation of our named executive officers and from time to time may grant equity incentive awards to them in the form of stock options. In 2012, we granted options to purchase 373,923, 1,279,656, 1,594,237 and 330,361 shares of our common stock to Mr. Macdonald, Dr. Horn, Mr. Lubner and Dr. Sutcliffe, respectively, in each case based on the executive officers existing equity incentive holdings, level of responsibility within our company and our subjective assessment of the executive officers individual performance and our overall corporate performance, in each case without reference to any specific metric.
Outstanding Equity Awards at Year End
The following table sets forth information regarding outstanding stock options held by our named executive officers as of December 31, 2012.
Option Awards | ||||||||||||||||
Name |
Number of Securities
Underlying Unexercised Options (#) exercisable |
Number of Securities
Underlying Unexercised Options (#) unexercisable |
Option Exercise
Price ($) |
Option Expiration Date | ||||||||||||
Guy Macdonald |
880,984 | 0.10 | 12/5/2017 | |||||||||||||
785,642 | 0.20 | 8/8/2018 | ||||||||||||||
6,475,925 | (1) | 924,075 | 0.03 | 9/11/2019 | ||||||||||||
1,613,163 | (2) | 967,898 | 0.07 | 9/28/2020 | ||||||||||||
46,740 | (3) | 327,183 | 0.07 | 6/6/2022 | ||||||||||||
David Lubner |
875,125 | (1) | 124,875 | 0.03 | 9/11/2019 | |||||||||||
742,761 | (2) | 445,658 | 0.07 | 9/28/2020 | ||||||||||||
199,279 | (3) | 1,394,958 | 0.07 | 6/6/2022 | ||||||||||||
Patrick T. Horn, M.D., Ph.D. |
1,239,437 | (4) | 1,593,563 | 0.07 | 1/3/2021 | |||||||||||
159,957 | (3) | 1,119,699 | 0.07 | 6/6/2022 | ||||||||||||
Joyce Sutcliffe, M.D. |
218,750 | (5) | 31,250 | 0.20 | 4/14/2019 | |||||||||||
1,218,750 | (6) | 281,250 | 0.03 | 9/11/2019 | ||||||||||||
677,013 | (2) | 406,208 | 0.07 | 9/28/2020 | ||||||||||||
41,295 | (3) | 289,066 | 0.07 | 6/6/2022 |
(1) | This option vested as to 33.4% of the shares on September 11, 2009 and vests as to an additional 4.1625% of the shares at the end of each successive three-month period through and including September 11, 2013. |
(2) | This option vested as to 6.25% of the shares on September 18, 2010 and vests as to 6.25% of the shares at the end of each successive three-month period through and including June 18, 2014. |
(3) | This option vested as to 6.25% of the shares on September 6, 2012 and vests as to 6.25% of the shares at the end of each successive three-month period through and including June 6, 2016. |
(4) | This option vested as to 25% of the shares on January 3, 2012 and vests as to an additional 6.25% of the shares at the end of each successive three-month period through and including January 3, 2015. |
(5) | This option vested as to 25% of the shares on May 4, 2010 and vests as to an additional 6.25% of the shares at the end of each successive three-month period through and including May 4, 2013. |
(6) | This option vested as to 16.67% of the shares on May 4, 2010 and 2.08% of the shares on June 11, 2010 and vests as to an additional 6.25% of the shares at the end of each successive three-month period following June 11, 2010 through and including September 11, 2013. |
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Employment Agreements, Severance and Change in Control Arrangements
We do not have formal employment agreements with any of our named executive officers. We have entered into offer letter agreements and non-competition, non-solicitation and non-disclosure agreements with each of our named executive officers. Under the non-competition, non-solicitation and non-disclosure agreements, each named executive officer has agreed (i) not to compete with us during his employment and for a period of one year after the termination of his employment, (ii) not to solicit our employees during his employment and for a period of one year after the termination of his employment, (iii) to protect our confidential and proprietary information, and (iv) to assign to us related intellectual property developed during the course of his employment. Each named executive officers employment is at will.
Benefits Provided Upon Termination Without Cause
Under the terms of the offer letters we have entered into with our executive officers, if an executives employment is terminated by us without cause, subject to the executives signing a general release of potential claims against us:
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in the case of Mr. Macdonald, (1) he will be entitled to receive a lump sum payment equal to his monthly base salary for a period of nine months and (2) we will continue to provide medical and dental benefits to the extent that he was receiving them at the time of termination for nine months; |
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in the case of each of Mr. Lubner and Dr. Horn, (1) he will be entitled to receive a lump sum payment equal to his monthly base salary for a period of six months, and (2) we will continue to provide medical and dental benefits to the extent that he was receiving them at the time of termination for six months; and |
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in the case of Dr. Sutcliffe, (1) she will be entitled to receive a lump sum payment equal to her monthly base salary for a period of three months, and (2) we will continue to provide medical and dental benefits to the extent that she was receiving them at the time of termination for three months. |
Benefits Provided Upon a Change in Control
Under the terms of Mr. Macdonalds offer letter, the vesting of his initial options will accelerate with respect to 50% of the then unvested shares upon a change of control event (as defined in the offer letter). In addition, if, following the change of control event, Mr. Macdonald remains employed by us or the succeeding company for six months or, during the six months following the change of control event, Mr. Macdonalds employment is terminated without cause or he terminates his employment as a result of a substantial diminution in his authority and responsibilities, these initial options will vest and become exercisable in full.
In addition, under certain of the stock option agreements that we have entered into with our named executive officers, we have agreed that if the named executive officer is terminated without cause, or resigns for good reason, in connection with or within one year after a change in control of our company (as defined in the applicable stock option agreement) that stock option will vest in full.
We believe that equity-based awards are important vehicles by which to align the interest of our employees with the financial interests of our stockholders, and we historically have awarded stock options broadly to our employees, including our named executive officers. The material terms and conditions of our stock option and other equity compensation plans are described below.
Stock Option and Other Compensation Plans
2006 Stock Incentive Plan
Our 2006 Stock Incentive Plan, which we refer to as the 2006 Plan, was first adopted by our board of directors and first approved by our stockholders in August 2006 and was amended in December 2007, June 2008, September 2009 and May 2010.
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The 2006 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock and other stock-based awards. Our employees, officers, directors, consultants and advisors are eligible to receive awards under the 2006 Plan; however, incentive stock options may only be granted to employees. In accordance with the terms of the 2006 Plan, our board of directors, or a committee appointed by our board, administers the 2006 Plan and, subject to any limitations in the 2006 Plan, selects the recipients of awards and determines:
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the number of shares of common stock covered by options and the dates upon which those options become exercisable; |
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the exercise prices of options; |
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the duration of options; |
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the methods of payment of the exercise price of options; and |
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the number of shares of common stock subject to any restricted stock or other stock-based awards and the terms and conditions of those awards, including the issue price, conditions for repurchase and repurchase price. |
In the event of a reorganization event, as defined in the 2006 Plan, our board, or the compensation committee, has the discretion to take one or more of the following actions:
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arrange for or provide that each outstanding award will be assumed or a substantially similar award will be substituted by the acquiring or succeeding corporation (or an affiliate thereof); |
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provide, upon notice to the participant, that all unexercised awards will terminate immediately prior to the consummation of such transaction unless exercised within a specified period of time; |
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provide that all or any outstanding awards will become vested or exercisable, or restrictions applicable to such awards will lapse, in full or in part, at or immediately prior to such event; |
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in the event of a reorganization event under the terms of which holders of our common stock will receive a cash payment per share surrendered in the transaction, make or provide for an equivalent cash payment in exchange for the termination of such equity awards; or |
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provide that in the event of a liquidation or dissolution, awards will convert into the right to receive liquidation proceeds. |
As of December 31, 2012, there were options to purchase an aggregate of 41,843,074 shares of common stock outstanding under the 2006 Plan at a weighted-average exercise price of $0.06 per share and an aggregate of 3,902,466 shares of common stock had been issued upon the exercise of options granted under the 2006 Plan. As of December 31, 2012, there were 7,469,813 shares of common stock reserved for future issuance under the 2006 Plan. On and after the effective date of the 2013 stock incentive plan described below, which we refer to as the 2013 Plan, we will grant no further stock options or other awards under the 2006 Plan.
2013 Stock Incentive Plan
We expect our board of directors to adopt and our stockholders to approve the 2013 Plan, which will become effective immediately prior to the closing of this offering. The 2013 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards. Upon effectiveness of the 2013 Plan, the number of shares of our common stock that will be reserved for issuance under the 2013 Plan will be shares.
Our employees, officers, directors, consultants and advisors will be eligible to receive awards under the 2013 Plan; however, incentive stock options may only be granted to our employees. The maximum number of shares of common stock with respect to which awards may be granted to any participant under the 2013 Plan is per calendar year.
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Pursuant to the terms of the 2013 Plan, our board of directors will select the recipients of awards and determine:
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the number of shares of common stock covered by options and the dates upon which those options become exercisable; |
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the exercise price of options; |
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the duration of options; |
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the methods of payment of the exercise price of options; and |
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the number of shares of common stock subject to any restricted stock or other stock-based awards and the terms and conditions of such awards, including the issue price, conditions for repurchase, repurchase price and performance conditions, if any. |
If our board of directors delegates authority to an executive officer to grant awards under the 2013 Plan, the executive officer will have the power to make awards to all of our employees, except executive officers. Our board of directors will fix the terms of the awards to be granted by such executive officer, including the exercise price of such awards, and the maximum number of shares subject to awards that such executive officer may make.
Upon a merger or other reorganization event, our board of directors, may, in its sole discretion, take any one or more of the following actions pursuant to the 2013 Plan, as to some or all outstanding awards, other than restricted stock awards:
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provide that all outstanding awards will be assumed or substituted by the successor corporation; |
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upon written notice to a participant, provide that the participants unexercised options or awards will terminate immediately prior to the consummation of such transaction unless exercised by the participant; |
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provide that outstanding awards will become exercisable, realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon the reorganization event; |
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in the event of a reorganization event pursuant to which holders of our common stock will receive a cash payment for each share surrendered in the reorganization event, make or provide for a cash payment to the participants equal to the excess, if any, of the acquisition price times the number of shares of our common stock subject to such outstanding awards (to the extent then exercisable at prices not in excess of the acquisition price), over the aggregate exercise price of all such outstanding awards and any applicable tax withholdings, in exchange for the termination of such awards; and |
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provide that, in connection with a liquidation or dissolution, awards convert into the right to receive liquidation proceeds. |
Upon the occurrence of a reorganization event other than a liquidation or dissolution, the repurchase and other rights under each outstanding restricted stock award will continue for the benefit of the successor company and will, unless our board of directors may otherwise determine, apply to the cash, securities or other property into which our common stock is converted pursuant to the reorganization event. Upon the occurrence of a reorganization event involving a liquidation or dissolution, all restrictions and conditions on each outstanding restricted stock award will automatically be deemed terminated or satisfied, unless otherwise provided in the agreement evidencing the restricted stock award.
No award may be granted under the 2013 Plan after . Our board of directors may amend, suspend or terminate the 2013 Plan at any time, except that stockholder approval will be required to comply with applicable law or stock market requirements.
401(k) Retirement Plan
We maintain a 401(k) retirement plan that is intended to be a tax-qualified defined contribution plan under Section 401(k) of the Internal Revenue Code. In general, all of our employees are eligible to participate,
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beginning on the first day of the month following commencement of their employment. The 401(k) plan includes a salary deferral arrangement pursuant to which participants may elect to reduce their current compensation by up to the statutorily prescribed limit, equal to $17,000 in 2012, and have the amount of the reduction contributed to the 401(k) plan.
Limitation of Liability and Indemnification
As permitted by Delaware law, we have adopted provisions in our certificate of incorporation, which will be effective as of the closing date of this offering, that limit or eliminate the personal liability of our directors. Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for:
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any breach of the directors duty of loyalty to us or our stockholders; |
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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
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any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or |
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any transaction from which the director derived an improper personal benefit. |
These limitations do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission. If Delaware law is amended to authorize the further elimination or limiting of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law as so amended.
As permitted by Delaware law, our certificate of incorporation that will be effective as of the closing date of this offering will also provide that:
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we will indemnify our directors and officers to the fullest extent permitted by law; |
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we may indemnify our other employees and other agents to the same extent that we indemnify our officers and directors, unless otherwise determined by our board of directors; and |
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we will advance expenses to our directors and officers in connection with legal proceedings in connection with a legal proceeding to the fullest extent permitted by law. |
The indemnification provisions contained in our certificate of incorporation that will be effective as of the closing date of this offering are not exclusive. In addition, we plan to enter into indemnification agreements with each of our directors. We expect that each of these indemnification agreements will provide that we will indemnify the director to the fullest extent permitted by law for claims arising in his capacity as a director, provided that he acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. We expect that each of these indemnification agreements will provide that in the event that we do not assume the defense of a claim against a director, we will be required to advance his expenses in connection with his defense, provided that he undertakes to repay all amounts advanced if it is ultimately determined that he is not entitled to be indemnified by us.
We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act of 1933, which we refer to as the Securities Act, may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we understand that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
In addition, we maintain standard policies of insurance under which coverage is provided to our directors and officers against losses arising from claims made by reason of breach of duty or other wrongful act, and to us with respect to payments which may be made by us to such directors and officers pursuant to the above indemnification provisions or otherwise as a matter of law.
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The following is a description of transactions since January 1, 2010 to which we have been a party, and in which any of our directors, executive officers or beneficial owners of more than 5% of our voting securities, or affiliates or immediate family members of any of our directors, executive officers or beneficial owners of more than 5% of our voting securities, had or will have a direct or indirect material interest. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, from unrelated third parties.
Series C Preferred Stock Financing
During May and June of 2010, we issued and sold an aggregate of 175,418,122 shares of our Series C preferred stock at a purchase price per share of $0.2571 for an aggregate purchase price of $45,099,999.17.
The following table sets forth the number of shares of Series C preferred stock that were issued to our directors, executive officers and holders of more than 5% of our voting securities, and affiliates or immediate family members of our directors, executive officers and holders of more than 5% of our voting securities in connection with the Series C preferred stock financing and the aggregate cash purchase price paid by such persons and entities.
Purchaser |
Shares of Series C
Preferred Stock |
Purchase Price | ||||||
Mediphase Venture Partners II Limited Partnership |
8,556,982 | $ | 2,200,000.07 | |||||
Mediphase Venture Partners II (Annex Fund) Limited Partnership |
2,761,571 | $ | 709,999.90 | |||||
Mediphase Venture Partners (DP & UP) Limited Partnership |
9,101,517 | $ | 2,340,000.02 | |||||
Mediphase Venture Partners II Select Fund Limited Partnership |
2,917,152 | $ | 749,999.78 | |||||
Beacon Bioventures Limited Partnership |
27,043,477 | $ | 6,952,877.94 | |||||
Beacon Bioventures Principals Limited Partnership |
183,283 | $ | 47,122.06 | |||||
Skyline Venture Partners Qualified Purchaser Fund IV, L.P. |
27,226,760 | $ | 7,000,000.00 | |||||
Flagship Ventures Fund 2004, L.P. |
9,626,604 | $ | 2,474,999.89 | |||||
Flagship Ventures Fund 2007, L.P. |
19,544,924 | $ | 5,024,999.96 | |||||
CMEA Ventures VI, L.P. |
28,485,997 | $ | 7,323,749.83 | |||||
CMEA Ventures VI, GmbH & Co. KG |
685,531 | $ | 176,250.02 | |||||
Excel Medical Fund, L.P. |
27,226,760 | $ | 7,000,000.00 | |||||
Sigma Emerging Markets Ltd. |
9,723,843 | $ | 2,500,000.03 | |||||
Excel Medical Fund, L.P. |
972,384 | $ | 249,999.92 | |||||
David Lubner |
116,686 | $ | 29,999.97 |
Agreements With Our Stockholders
In connection with the Series C preferred stock financing, we entered into a registration rights agreement with the purchasers of our preferred stock. The registration rights agreement provides those holders with the right to demand that we file a registration statement, subject to certain limitations, and to request that their shares be covered by a registration statement that we are otherwise filing. See Description of Capital StockRegistration Rights for additional information.
We have also entered into a stockholders agreement with certain purchasers of our common stock and preferred stock. The stockholders agreement provides for rights of first refusal and co-sale rights in respect of
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sales of securities by certain holders of our capital stock. The stockholders agreement also provides holders of our preferred stock with a participation right to purchase their pro rata share of new securities that the Company may propose to sell and issue, subject to specified exceptions. The stockholders agreement also contains provisions with respect to the election of our board of directors and its composition. The rights of first refusal, co-sale rights and participation rights under this agreement do not apply to this offering, and the stockholders agreement will terminate upon the closing of this offering.
Severance and Change in Control Agreements
See the ManagementEmployment Agreements, Severance and Change in Control Arrangements section of this prospectus for a further discussion of these arrangements.
Indemnification of Officers and Directors
Our certificate of incorporation that will be effective as of the closing date of this offering provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. In addition, we expect to enter into indemnification agreements with each of our directors that may be broader in scope than the specific indemnification provisions contained in the Delaware General Corporation Law. See the Executive CompensationLimitation of Liability and Indemnification section of this prospectus for a further discussion of these arrangements.
Policies and Procedures for Related Person Transactions
Our board of directors plans to adopt a written related person transaction policy to set forth policies and procedures for the review and approval or ratification of related person transactions. Effective upon the closing of this offering, this policy is expected to cover any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, the amount involved exceeds $120,000, and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person.
We expect that our related person transaction policy will contain exceptions for any transaction or interest that is not considered a related person transaction under SEC rules as in effect from time to time. In addition, we expect that the policy will provide that an interest arising solely from a related persons position as an executive officer of another entity that is a participant in a transaction with us will not be subject to the policy if each of the following conditions is met:
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the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity; |
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the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction with us and do not receive any special benefits as a result of the transaction; and |
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the amount involved in the transaction equals less than the greater of $200,000 or 5% of the annual gross revenue of the company receiving payment under the transaction. |
We expect that the policy will provide that any related person transaction proposed to be entered into by us must be reported to our chief financial officer and will be reviewed and approved by our finance and audit committee in accordance with the terms of the policy, prior to effectiveness or consummation of the transaction whenever practicable. We expect that the policy will provide that if our chief financial officer determines that advance approval of a related person transaction is not practicable under the circumstances, our finance and audit committee will review and, in its discretion, may ratify the related person transaction at the next meeting of the
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finance and audit committee. We expect that the policy will also provide that alternatively, our chief financial officer may present a related person transaction arising in the time period between meetings of the finance and audit committee to the chair of the finance and audit committee, who will review and may approve the related person transaction, subject to ratification by the finance and audit committee at the next meeting of the finance and audit committee.
In addition, we expect that the policy will provide that any related person transaction previously approved by the finance and audit committee or otherwise already existing that is ongoing in nature will be reviewed by the finance and audit committee annually to ensure that such related person transaction has been conducted in accordance with the previous approval granted by the finance and audit committee, if any, and that all required disclosures regarding the related person transaction are made.
We expect that the policy will provide that transactions involving compensation of executive officers will be reviewed and approved by our compensation committee in the manner to be specified in the charter of the compensation committee.
We expect that a related person transaction reviewed under this policy will be considered approved or ratified if it is authorized by the finance and audit committee in accordance with the standards set forth in the policy after full disclosure of the related persons interests in the transaction. As appropriate for the circumstances, we expect that policy will provide that the finance and audit committee will review and consider:
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the related persons interest in the related person transaction; |
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the approximate dollar value of the amount involved in the related person transaction; |
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the approximate dollar value of the amount of the related persons interest in the transaction without regard to the amount of any profit or loss; |
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whether the transaction was undertaken in the ordinary course of business of our company; |
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whether the transaction with the related person is proposed to be, or was, entered into on terms no less favorable to us than the terms that could have been reached with an unrelated third party; |
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the purpose of, and the potential benefits to us of, the transaction; and |
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any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction. |
We expect that the policy will provide that the finance and audit committee will review all relevant information available to it about the related person transaction. We expect that the policy will provide that the finance and audit committee may approve or ratify the related person transaction only if the finance and audit committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, our best interests. We expect that the policy will provide that the finance and audit committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the related person in connection with approval of the related person transaction.
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The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2012 by:
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each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock; |
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each of our named executive officers; |
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each of our directors; and |
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all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with SEC rules. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include shares of common stock issuable upon the exercise of stock options that are immediately exercisable or exercisable within 60 days after December 31, 2012. Except as otherwise indicated, all of the shares reflected in the table are shares of common stock and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
The stock holdings reflected in the following table assume the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon closing of this offering. The percentage ownership calculations for beneficial ownership prior to this offering are based on 265,457,459 shares outstanding as of December 31, 2012, assuming the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon closing of this offering. Percentage ownership calculations for beneficial ownership after this offering also include the shares we are offering hereby. Except as otherwise indicated in the table below, addresses of named beneficial owners are in care of Tetraphase Pharmaceuticals, Inc., 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472.
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In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days after December 31, 2012. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
Name of Beneficial Owner |
Number of
Shares Beneficially Owned |
Percentage
of Shares Beneficially Owned Before Offering |
Percentage
of Shares Beneficially Owned After Offering |
|||||||||
5% Stockholders |
||||||||||||
Entities affiliated with Mediphase Venture Partners (1) |
39,696,223 | 14.95 | % | |||||||||
Entities affiliated with Flagship Ventures (2) |
45,409,659 | 17.11 | % | |||||||||
Entities affiliated with CMEA Ventures (3) |
45,409,659 | 17.11 | % | |||||||||
Skyline Venture Partners Qualified Purchaser Fund IV, L.P. (4) |
43,764,891 | 16.49 | % | |||||||||
Entities affiliated with FMR LLC (5) |
43,464,891 | 16.37 | % | |||||||||
Excel Medical Fund, L.P. (6) |
28,199,144 | 10.62 | % | |||||||||
Executive Officers and Directors |
||||||||||||
Guy Macdonald (7) |
9,802,454 | 3.56 | % | |||||||||
David Lubner (8) |
2,471,024 | * | ||||||||||
Patrick T. Horn, M.D., Ph.D. (9) |
1,576,457 | * | ||||||||||
Joyce Sutcliffe, M.D. (10) |
2,171,433 | * | ||||||||||
L. Patrick Gage, Ph.D. (11) |
395,447 | * | ||||||||||
Garen Bohlin (12) |
590,254 | * | ||||||||||
Douglas Cole, M.D. |
| | ||||||||||
John G. Freund, M.D. (13) |
43,764,891 | 16.49 | % | |||||||||
Steven R. Gullans, Ph.D. (14) |
28,199,144 | 10.62 | % | |||||||||
Karl D. Handelsman (15) |
45,409,659 | 17.11 | % | |||||||||
Lawrence G. Miller, M.D. (16) |
39,696,223 | 14.95 | % | |||||||||
Robert M. Weisskoff, Ph.D. (17) |
43,464,891 | 16.37 | % | |||||||||
All current executive officers and directors as a group (12 persons) (18) |
217,541,877 | 77.19 | % |
* | Represents beneficial ownership of less than 1% of our outstanding stock. |
(1) |
Consists of 12,155,773 shares of common stock held by Mediphase Venture Partners (DP & UP) Limited Partnership, 17,426,812 shares of common stock held by Mediphase Venture Partners II Limited Partnership, 7,196,486 shares of common stock held by Mediphase Venture Partners II (Annex Fund) Limited Partnership and 2,917,152 shares of common stock held by Mediphase Venture Partners II Select Fund L.P. Mediphase Venture Partners (DP & UP) LLC is the general partner of Mediphase Venture Partners (DP & UP) Limited Partnership. The members of Mediphase Venture Partners (DP & UP) LLC are Lawrence Miller and Paul Howard. Mediphase Venture Partners (DP & UP) LLC and each of these individuals exercises shared voting and investment power over the shares held of record by Mediphase Venture Partners (DP & UP) Limited Partnership. Mediphase Venture Partners II LLC is the general partner of Mediphase Venture Partners II Limited Partnership. The members of Mediphase Venture Partners II LLC are Lawrence Miller and Paul Howard. Mediphase Venture Partners II LLC and each of these individuals exercises shared voting and investment power over the shares held of record by Mediphase Venture Partners II Limited Partnership. Mediphase Venture Partners II (Annex Fund) LLC is the general partner of Mediphase Venture Partners II (Annex Fund) Limited Partnership. The members of Mediphase Venture Partners II (Annex Fund) LLC are Lawrence Miller and Paul Howard. Mediphase Venture Partners II (Annex Fund) LLC and each of these individuals exercises shared voting and investment power over the shares held of record by Mediphase Venture Partners II (Annex Fund) Limited Partnership. Mediphase Venture Partners II Select Fund LLC is the general partner of Mediphase Venture Partners II Select Fund |
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L.P. The members of Mediphase Venture Partners II Select Fund LLC are Lawrence Miller and Paul Howard. Mediphase Venture Partners II Select Fund LLC and each of these individuals exercises shared voting and investment power over the shares held of record by Mediphase Venture Partners II Select Fund L.P. Each of the individuals and entities listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address for each of the individuals and entities listed above is 1 Gateway Center, Suite 407, Newton, Massachusetts 02458. |
(2) | Consists of 25,864,735 shares of common stock held by Flagship Ventures Fund 2004, L.P. (Flagship 2004) and 19,544,924 shares of common stock held by Flagship Ventures Fund 2007, L.P. (Flagship 2007). Flagship Ventures General Partner LLC (Flagship LLC) is the general partner of Flagship 2004. Flagship Ventures 2007 General Partner, LLC (Flagship 2007 LLC) is the general partner of Flagship 2007. Noubar B. Afeyan Ph.D. and Edwin M. Kania, Jr. are the managers of Flagship LLC and Flagship 2007 LLC and may be deemed to share voting and investment power with respect to all shares held by Flagship 2004 and Flagship 2007. Each of the individuals and entities listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address for each of the individuals and entities listed above is One Memorial Drive, 7th Floor, Cambridge, Massachusetts 02140. |
(3) | Consists of 44,342,744 shares of common stock held by CMEA Ventures VI, L.P. and 1,066,915 shares of common stock held by CMEA Ventures VI, GmbH & Co. KG. The general partner of each of CMEA Ventures VI, L.P. and CMEA Ventures VI, GmbH & Co. KG is CMEA Ventures Management, L.P. The general partners of CMEA Ventures Management, L.P. are Karl Handelsman, David Collier, and James Watson. Each of these individuals exercises shared voting and investment power over the shares held of record by CMEA Ventures VI, L.P. and CMEA Ventures VI, GmbH & Co. KG. Each of the individuals and entities listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address for each of the individuals and entities listed above is 1 Letterman Drive, Bldg C Ste CM500, San Francisco, California 94129. |
(4) | John G. Freund and Yasunori Kaneko are the Managing Members of Skyline Venture Management IV, LLC, which is the sole general partner of Skyline Venture Partners Qualified Purchaser Fund IV, L.P., and as such Drs. Freund and Kaneko may be deemed to share voting and dispositive power with respect to all shares held by Skyline Venture Partners Qualified Purchaser Fund IV, L.P. Each of Drs. Freund and Kaneko disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. The address for each of the individuals and entities listed above is 525 University Ave, Suite 520, Palo Alto, California 94301. |
(5) | Consists of 43,172,297 shares of common stock held by Beacon Bioventures Limited Partnership and 292,594 shares of common stock held by Beacon Bioventures Principals Limited Partnership. Beacon Bioventures Advisors Limited Partnership is the general partner of Beacon Bioventures Limited Partnership and Beacon Bioventures Principals Limited Partnership. Beacon Bioventures Advisors Limited Partnership is solely managed by Northern Neck Investors LLC, its general partner and investment manager. Northern Neck Investors LLC is owned by the shareholders and certain employees of FMR LLC. Northern Neck Investors LLC is managed on a day-to-day basis by its President, Paul L. Mucci, and as such Mr. Mucci may be deemed to share voting and dispositive power with respect to all shares held by Beacon Bioventures Advisors Limited Partnership. Each of the individuals and entities listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address for each of the individuals and entities listed above is 100 Summer Street R7B, Boston, Massachusetts 02110. |
(6) | Excel Venture Management, LLC is the sole general partner of Excel Medical Fund, L.P. Excel Medical Ventures, LLC is the general partner of Excel Medical Fund, L.P. Steven R. Gullans, Frederick R. Blume, Juan Enriquez and Enrico Petrillo are the Managing Directors of Excel Medical Ventures, LLC and may be deemed to share voting and dispositive power with respect to all shares held by Excel Medical Fund, L.P. Each of the individuals and entities listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address for each of the individuals and entities listed above is 800 Boylston Street, Suite 2825, Boston, Massachusetts 02199. |
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(7) | Consists of 9,802,454 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
(8) | Includes 1,817,165 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
(9) | Consists of 1,576,457 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
(10) | Consists of 2,171,433 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
(11) | Consists of 395,447 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
(12) | Consists of 590,254 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
(13) | Consists of the shares described in note (4) above. Dr. Freund is a Managing Member of Skyline Venture Management IV, LLC, which is the sole general partner of Skyline Venture Partners Qualified Purchaser Fund IV, L.P., and as such Dr. Freund may be deemed to share voting and dispositive power with respect to all shares held by Skyline Venture Partners Qualified Purchaser Fund IV, L.P. Dr. Freund disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Dr. Freunds address is 525 University Ave, Suite 520, Palo Alto, California 94301. |
(14) | Consists of the shares described in note (6) above. Dr. Gullans is a Managing Director of Excel Venture Management, LLC, which is the sole general partner of Excel Medical Fund, L.P., and as such Dr. Gullans may be deemed to share voting and dispositive power with respect to all shares held by Excel Medical Fund, L.P. Dr. Gullans disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Dr. Gullans address is 800 Boylston St., Suite 2825, Boston, MA 02199. |
(15) | Consists of the shares described in note (3) above. Dr. Handelsman is a general partner of CMEA Ventures Management, L.P., the general partner of each of CMEA Ventures VI, L.P. and CMEA Ventures VI, GmbH & Co. KG, and as such Mr. Handelsman may be deemed to share voting and dispositive power over the shares held by CMEA Ventures VI, L.P. and CMEA Ventures VI, GmbH & Co. KG. Mr. Handelsman disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Mr. Handelsmans address is 1 Letterman Drive, Bldg C Ste CM500, San Francisco, California 94129. |
(16) | Consists of the shares described in note (1) above. Mr. Miller is a member of Mediphase Venture Partners (DP & UP) LLC, Mediphase Venture Partners II LLC, Mediphase Venture Partners II (Annex Fund) LLC and Mediphase Venture Partners II Select Fund LLC, the general partners of Mediphase Venture Partners (DP & UP) Limited Partnership, Mediphase Venture Partners II Limited Partnership, Mediphase Venture Partners II (Annex Fund) Limited Partnership and Mediphase Venture Partners II Select Fund L.P., respectively, and as such Mr. Miller may be deemed to share voting and dispositive power with respect to all shares held by these entities. Mr. Miller disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Mr. Millers address is 1 Gateway Center, Suite 407, Newton, Massachusetts 02458. |
(17) | Consists of the shares described in note (5) above. Mr. Weisskoff is a limited partner of Beacon Bioventures Advisors Limited Partnership, the general partner of Beacon Bioventures Limited Partnership and Beacon Bioventures Principals Limited Partnership, and as such Mr. Weisskoff may be deemed to share voting and dispositive power with respect to all shares held by these entities. Mr. Weisskoff disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Mr. Weisskoffs address is One Main Street, 13th Floor, Cambridge, Massachusetts 02142. |
(18) | Includes 16,353,210 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2012. |
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General
Following the closing of this offering, our authorized capital stock will consist of shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, all of which preferred stock will be undesignated. The following description of our capital stock and provisions of our restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the certificate of incorporation and the bylaws that will be in effect upon closing of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.
Common Stock
As of December 31, 2012, we had outstanding 265,457,459 shares of common stock, held of record by 39 stockholders, assuming the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering.
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Other matters shall be decided by the affirmative vote of our stockholders having a majority in voting power of the votes cast by the stockholders present or represented and voting on such matter. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Under the terms of our certificate of incorporation that will become effective upon the closing of this offering, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
Stock Options
As of December 31, 2012, options to purchase 41,843,074 shares of our common stock at a weighted average exercise price of $0.06 per share were outstanding, of which options to purchase 26,561,184 shares of our common stock were exercisable, at a weighted average exercise price of $0.05 per share.
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Warrants
As of December 31, 2012, we had outstanding warrants to purchase shares of our Series A-1 preferred stock and Series C preferred stock that upon the closing of this offering will be exercisable for an aggregate of 2,552,420 shares of our common stock at a weighted average exercise price of $0.2664. Each of these warrants was and remains exercisable in full.
Registration Rights
We have entered into a second amended and restated registration rights agreement, dated as of May 14, 2010, which we refer to as the Registration Rights Agreement, with certain of our stockholders. Upon the closing of this offering, holders of a total of 259,081,083 shares of our common stock as of December 31, 2012, including for this purpose 255,052,609 shares of our common stock issuable upon conversion of our preferred stock upon the closing of this offering and 809,907 shares issuable upon exercise of outstanding warrants to purchase shares of our Series A-1 preferred stock and Series C preferred stock, will have the right to require us to register these shares under the Securities Act under specified circumstances and will have incidental registration rights as described below. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act.
Demand Registration Rights
Beginning on the 180th day after the effective date of the registration statement of which this prospectus forms a part, subject to specified limitations set forth in the Registration Rights Agreement, at any time the holders of at least 40% of the then outstanding registrable securities, as defined in the Registration Rights Agreement, acting together, may demand in writing that we register their registrable securities under the Securities Act so long as the total amount of registrable securities registered has an aggregate proposed offering price of at least $5.0 million. We are not obligated to file a registration statement pursuant to this demand provision on more than two occasions, subject to specified exceptions.
In addition, at any time after we become eligible to file a registration statement on Form S-3 under the Securities Act, subject to specified limitations, the holders of at least 40% of the outstanding registrable securities may demand in writing that we register on Form S-3 the registrable securities held by them so long as the total amount of registrable securities being registered has an aggregate offering price of at least $2.0 million. We are not obligated to file a Form S-3 pursuant to this provision within six months of the effective date of any other registration statement that we may file.
Incidental Registration Rights
If, at any time after the closing of this offering, we propose to file a registration statement to register any of our securities under the Securities Act, either for our own account or for the account of any of our stockholders, other than pursuant to the demand registration rights described above and other than pursuant to a Form S-4 or Form S-8, the holders of our registrable securities are entitled to notice of registration and, subject to specified exceptions, we will be required to use commercially reasonable efforts to register the registrable securities then held by them that they request that we register.
Expenses
Pursuant to the Registration Rights Agreement, we are required to pay all registration expenses, including registration and filing fees, printing expenses, fees and disbursements of our counsel and accountants, fees and expenses incurred in connection with complying with state securities or blue sky laws, fees of the Financial Industry Regulatory Authority, Inc., transfer taxes, fees of transfer agents and registrations, any insurance costs and reasonable fees and disbursements of one counsel representing the selling stockholders, other than any underwriting discounts and commissions, related to any demand or incidental registration. The Registration Rights Agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to
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indemnify the selling stockholders in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions in the registration statement attributable to them.
Anti-Takeover Effects of Delaware Law and Our Charter and Bylaws
Delaware law contains, and upon the completion of this offering our certificate of incorporation and our bylaws will contain, provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors.
Staggered Board; Removal of Directors
Our certificate of incorporation and bylaws divide our board of directors into three classes with staggered three-year terms. In addition, a director may be removed only for cause and only by the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in an annual election of directors. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office. The classification of our board of directors and the limitations on the removal of directors and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.
Stockholder Action by Written Consent; Special Meetings
Upon the completion of this offering our certificate of incorporation will provide that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Upon the completion of this offering our certificate of incorporation and bylaws will also provide that, except as otherwise required by law, special meetings of our stockholders can only be called by our chairman of the board, our chief executive officer or our board of directors.
Advance Notice Requirements for Stockholder Proposals
Upon the completion of this offering our bylaws will establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of persons for election to our board of directors. Stockholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the stockholders intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.
Delaware Business Combination Statute
Upon the completion of this offering we will be subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prevents a publicly-held Delaware corporation from engaging in a business combination with any interested stockholder for three years following the date that the person became an interested stockholder, unless the interested stockholder attained such status with the approval of our board of directors or unless the business combination is approved in a prescribed manner. A business combination includes, among other things, a merger or consolidation involving us and the interested stockholder and the sale of more than 10% of our assets. In general, an interested stockholder is any entity or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person.
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Amendment of Certificate of Incorporation and Bylaws
The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporations certificate of incorporation or bylaws, unless a corporations certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Effective upon the completion of this offering, our bylaws may be amended or repealed by a majority vote of our board of directors or by the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in any annual election of directors. In addition, the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in any annual election of directors is required to amend or repeal or to adopt any provisions inconsistent with any of the provisions of our certificate of incorporation described above under Staggered Board; Removal of Directors and Stockholder Action by Written Consent; Special Meetings.
Listing on The NASDAQ Global Market
We have applied to have our common stock listed on The NASDAQ Global Market under the symbol TTPH.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval, subject to any limitations imposed by the NASDAQ Listing Rules. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make it more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and a liquid public trading market for our common stock may not develop or be sustained after this offering. Future sales of significant amounts of our common stock, including shares issued upon exercise of outstanding options or warrants or in the public market after this offering, or the anticipation of those sales, could adversely affect the public market prices prevailing from time to time and could impair our ability to raise capital through sales of our equity securities. We have applied to have our common stock listed on The NASDAQ Global Market under the symbol TTPH.
Upon the closing of this offering, and after giving effect to the issuance of the shares of our common stock offered in this offering and the conversion of our outstanding shares of preferred stock into 256,024,993 shares of common stock upon the closing of this offering, we will have outstanding an aggregate of shares of common stock, assuming no exercise of outstanding options or warrants after December 31, 2012. Of these shares, the shares sold by us (assuming that the underwriters do not exercise their over-allotment option), in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.
The remaining shares of common stock will be restricted securities, as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.
Subject to the lock-up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market as follows:
Date Available for Sale |
Number of Shares Eligible for Sale |
Comment |
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On the date of this prospectus |
Shares sold in this offering and shares saleable under Rule 144 that are not subject to a lock-up |
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90 days after the date of this prospectus |
Shares saleable under Rules 144 and 701 that are not subject to a lock-up |
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180 days after the date of this prospectus |
Lock-up released; shares saleable under Rules 144 and 701 |
In addition, of the 41,843,074 shares of common stock that were issuable pursuant to stock options outstanding as of December 31, 2012, options to purchase 26,561,184 shares of common stock had vested and were exercisable as of December 31, 2012. Upon exercise, these shares will be eligible for sale, subject to the lock-up agreements and securities laws described below. All of the 2,552,420 shares of common stock that were issuable pursuant to warrants outstanding as of December 31, 2012, were exercisable as of December 31, 2012 and upon issuance these shares will be eligible for sale, subject to the lock-up agreements and securities laws described below.
Rule 144
Affiliate Resales of Restricted Securities
In general, beginning 90 days after the effective date of the registration statement of which this prospectus forms a part, a person who is an affiliate of ours, or who was an affiliate at any time during the 90 days before a
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sale, who has beneficially owned shares of our common stock for at least six months would be entitled to sell in brokers transactions or certain riskless principal transactions or to market makers, a number of shares within any three-month period that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or |
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the average weekly trading volume in our common stock on The NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with the SEC and The NASDAQ Stock Market concurrently with either the placing of a sale order with the broker or the execution directly with a market maker.
Non-Affiliate Resales of Restricted Securities
In general, beginning 90 days after the effective date of the registration statement of which this prospectus forms a part, a person who is not an affiliate of ours at the time of sale, and has not been an affiliate at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.
Non-affiliate resales are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144.
Lock-up Agreements
Our executive officers and directors and the holders of substantially all of our outstanding shares of common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock for a period through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters.
The representatives of the underwriters currently do not anticipate shortening or waiving any of the lock-up agreements and do not have any pre-established conditions for such modifications or waivers. The representatives of the underwriters may, however, with the approval of our board of directors, release for sale in the public market all or any portion of the shares subject to the lock-up agreements.
Registration Rights
Subject to the lock-up agreements described above, upon the closing of this offering, the holders of an aggregate of 259,081,083 shares of our common stock will have the right to require us to register these shares under the Securities Act under specified circumstances. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. See Description of Capital Stock Registration Rights for additional information regarding these registration rights.
Stock Options and Warrants
As of December 31, 2012, we had outstanding options to purchase 41,843,074 shares of common stock, of which options to purchase 26,561,184 shares of common stock were vested and exercisable. Following this offering, we intend to file registration statements on Form S-8 under the Securities Act to register all of the
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shares of common stock subject to outstanding options and options and other awards issuable pursuant to the 2006 Plan and 2013 Plan.
As of December 31, 2012, we also had outstanding and exercisable warrants to purchase 2,552,420 shares of common stock (calculated on an as-converted basis). Any shares purchased by our non-affiliates pursuant to the cashless exercise features of our warrants will be freely tradable under Rule 144(b)(1), subject in certain cases to the 180-day lock-up period described above. Any shares purchased through the exercise of these warrants for cash will be eligible for sale subject to the lock-up agreements and securities laws described above.
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CERTAIN MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income and estate tax considerations applicable to non-U.S. holders with respect to their ownership and disposition of shares of our common stock. This discussion is for general information only and is not tax advice. Accordingly, all prospective non-U.S. holders of our common stock should consult their own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our common stock. For purposes of this discussion, a non-U.S. holder means a beneficial owner of our common stock who is not for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States; |
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a corporation or any other organization taxable as a corporation for U.S. federal income tax purposes, created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia; |
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
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a trust if (1) a U.S. court is able to exercise primary supervision over the trusts administration and one or more U.S. persons have the authority to control all of the trusts substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus, all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any change could alter the tax consequences to non-U.S. holders described in this prospectus. We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset, generally property held for investment.
This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holders individual circumstances nor does it address any aspects of U.S. state, local or non-U.S. taxes. This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as:
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insurance companies; |
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tax-exempt organization; |
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financial institutions; |
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brokers or dealers in securities; |
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regulated investment companies; |
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pension plans; |
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controlled foreign corporations; |
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passive foreign investment companies; |
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owners that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment; and |
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certain U.S. expatriates. |
In addition, this discussion does not address the tax treatment of partnerships or persons who hold their common stock through partnerships or other pass-through entities for U.S. federal income tax purposes. A partner in a partnership or other pass-through entity that will hold our common stock should consult his, her or its
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own tax advisor regarding the tax consequences of acquiring, holding and disposing of our common stock through a partnership or other pass-through entity, as applicable.
There can be no assurance that the Internal Revenue Service, which we refer to as the IRS, will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, an opinion of counsel with respect to the U.S. federal income or estate tax consequences to a non-U.S. holder of the purchase, ownership or disposition of our common stock.
Distributions on Our Common Stock
Distributions on our common stock generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holders investment, up to such holders tax basis in the common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in Gain on Sale, Exchange or Other Disposition of Our Common Stock.
Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holders country of residence. If we determine, at a time reasonably close to the date of payment of a distribution on our common stock, that the distribution will not constitute a dividend because we do not anticipate having current or accumulated earnings and profits, we intend not to withhold any U.S. federal income tax on the distribution as permitted by U.S. Treasury Regulations. If we or another withholding agent withholds tax on such a distribution, a non-U.S. holder may be entitled to a refund of the tax withheld, which the non-U.S. holder may claim by timely filing a U.S. tax return with the IRS.
Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements. However, such U.S. effectively connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holders country of residence.
A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty between the United States and such holders country of residence generally will be required to provide a properly executed IRS Form W-8BEN (or successor form) and satisfy applicable certification and other requirements. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing a U.S. tax return with the IRS.
Gain on Sale, Exchange or Other Disposition of Our Common Stock
In general, a non-U.S. holder will not be subject to any U.S. federal income tax on any gain realized upon such holders sale, exchange or other disposition of shares of our common stock unless:
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the gain is effectively connected with the non-U.S. holders conduct of a U.S. trade or business and, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained by such non-U.S. holder in the United States, in which case the non-U.S. holder generally |
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will be taxed at the graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code) and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above in Distributions on Our Common Stock also may apply; |
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the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holders country of residence) on the net gain derived from the disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder, if any; or |
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we are, or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holders holding period, if shorter) a U.S. real property holding corporation, unless our common stock is regularly traded on an established securities market and the non-U.S. holder holds no more than 5% of our outstanding common stock, directly or indirectly, during the shorter of the 5-year period ending on the date of the disposition or the period that the non-U.S. holder held our common stock. If we are determined to be a U.S. real property holding corporation and the foregoing exception does not apply, then a purchaser may withhold 10% of the proceeds payable to a non-U.S. holder from a sale of our common stock and the non-U.S. holder generally will be taxed on its net gain derived from the disposition at the graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code). Generally, a corporation is a U.S. real property holding corporation only if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we do not believe that we are, or have been, a U.S. real property holding corporation, or that we are likely to become one in the future. No assurance can be provided that our common stock will be regularly traded on an established securities market for purposes of the rules described above. |
U.S. Federal Estate Tax
Shares of our common stock that are owned or treated as owned at the time of death by an individual who is not a citizen or resident of the United States, as specifically defined for U.S. federal estate tax purposes, are considered U.S. situs assets and will be included in the individuals gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.
Backup Withholding and Information Reporting
We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions on our common stock paid to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders may have to comply with specific certification procedures to establish that the holder is not a United States person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our common stock. Dividends paid to non-U.S. holders subject to the U.S. withholding tax, as described above in Distributions on Our Common Stock, generally will be exempt from U.S. backup withholding.
Information reporting and backup withholding will generally apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner
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similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.
Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holders U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.
Recent Legislation Relating to Foreign Entities
Recent legislation generally imposes a U.S. federal withholding tax at a rate of 30% on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to certain foreign entities (including foreign financial institutions and foreign intermediaries), unless such foreign entity satisfies various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with the entity). Although this legislation is effective with respect to amounts paid after December 31, 2012, recent IRS guidance generally provides that such withholding tax will only apply to dividends on our common stock paid after December 31, 2013, and to gross proceeds from a sale or other disposition of our common stock occurring after December 31, 2016. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of the tax. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in our common stock.
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Barclays Capital Inc. and BMO Capital Markets Corp. are acting as the representatives of the underwriters and the book-running managers of this offering. Under the terms of an underwriting agreement, which will be filed as an exhibit to the registration statement, each of the underwriters named below has severally agreed to purchase from us the respective number of shares of common stock shown opposite its name below:
Underwriters |
Number of
Shares |
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Barclays Capital Inc. |
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BMO Capital Markets Corp. |
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Stifel, Nicolaus & Company, Incorporated |
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JMP Securities LLC |
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Needham & Company, LLC |
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Total |
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The underwriting agreement provides that the underwriters obligation to purchase shares of common stock depends on the satisfaction of the conditions contained in the underwriting agreement including:
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the representations and warranties made by us to the underwriters being true; |
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there having been no material change in our business or the financial markets; and |
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our delivery of customary closing documents to the underwriters. |
Commissions and Expenses
The following table summarizes the underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to us for the shares.
No Exercise |
Full
Exercise |
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Per Share |
$ | $ | ||||||
Total |
$ | $ |
The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $ per share. After the offering, the representatives may change the offering price and other selling terms.
The expenses of this offering that are payable by us are estimated to be approximately $ (excluding underwriting discounts and commissions).
Option to Purchase Additional Shares
We have granted the underwriters an option exercisable for 30 days after the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of shares from us at the public offering price less underwriting discounts and commissions. This option may be exercised to the extent the underwriters sell more than shares in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional
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shares based on the underwriters percentage underwriting commitment in this offering as indicated in the table at the beginning of this Underwriting Section.
Lock-Up Agreements
We, all of our directors and executive officers and holders of substantially all of our outstanding stock have agreed that, for a period of 180 days after the date of this prospectus subject to certain limited exceptions, we and they will not directly or indirectly, without the prior written consent of Barclays Capital Inc. and BMO Capital Markets Corp., (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by them in accordance with the rules and regulations of the SEC and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or other securities, in cash or otherwise, (3) make any demand for or exercise any right or file or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any of our other securities, or (4) publicly disclose the intention to do any of the foregoing.
Barclays Capital Inc. and BMO Capital Markets Corp., in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time. When determining whether or not to release common stock and other securities from lock-up agreements, Barclays Capital Inc. and BMO Capital Markets Corp. will consider, among other factors, the holders reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.
Offering Price Determination
Prior to this offering, there has been no public market for our common stock. The initial public offering price was negotiated between the representatives and us. In determining the initial public offering price of our common stock, the representatives considered:
|
the history and prospects for the industry in which we compete; |
|
our financial information; |
|
the ability of our management and our business potential and earning prospects; |
|
the prevailing securities markets at the time of this offering; and |
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the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. |
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.
Stabilization, Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange Act:
147
|
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
|
A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
|
Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. |
|
Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The NASDAQ Global Market or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Listing on The NASDAQ Global market
We have applied to have our common stock listed on The NASDAQ Global Market under the symbol TTPH.
Discretionary Sales
The underwriters have informed us that they do not expect to sell more than 5% of the common stock in the aggregate to accounts over which they exercise discretionary authority.
Stamp Taxes
If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
148
Other Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for the issuer and its affiliates, for which they received or may in the future receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common stock offered hereby. Any such short positions could adversely affect future trading prices of the common stock offered hereby. The underwriters and certain of their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) an offer to the public of any common stock which are the subject of the offering contemplated herein may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
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to legal entities which are qualified investors as defined under the Prospectus Directive; |
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by the underwriters to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or |
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in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
Each person in a Relevant Member State who receives any communication in respect of, or who acquires any common stock under, the offers contemplated here in this prospectus will be deemed to have represented, warranted and agreed to and with each underwriter and us that:
|
it is a qualified investor as defined under the Prospectus Directive; and |
|
in the case of any common stock acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the common stock acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus |
149
Directive, or in the circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale or (ii) where common stock have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of such common stock to it is not treated under the Prospectus Directive as having been made to such persons. |
For the purposes of this representation and the provision above, the expression an offer of common stock to the public in relation to any common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any common stock to be offered so as to enable an investor to decide to purchase or subscribe for the common stock, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
United Kingdom
This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the FSMA)) as received in connection with the issue or sale of the common stock in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to the common stock in, from or otherwise involving the United Kingdom.
Switzerland
This document, as well as any other material relating to the shares which are the subject of the offering contemplated by this prospectus, do not constitute an issue prospectus pursuant to Article 652a and/or 1156 of the Swiss Code of Obligations. The shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The shares are being offered in Switzerland by way of a private placement, i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the shares with the intention to distribute them to the public. The investors will be individually approached by the issuer from time to time. This document, as well as any other material relating to the shares, is personal and confidential and does not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without express consent of the issuer. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
Hong Kong
The shares may not be offered or sold 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 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 Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
150
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (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 or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (i) a corporation (which is not an accredited investor) 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 (ii) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or 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; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, 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, 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 an 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.
Electronic Distribution
A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriters or selling group members web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
151
The validity of the common stock being offered will be passed upon for us by Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts. The underwriters are represented by Latham & Watkins LLP, Boston, Massachusetts, in connection with certain legal matters related to this offering.
The consolidated financial statements as of December 31, 2010 and December 31, 2011 and for each of the two years in the period ended December 31, 2011, included in this prospectus have been audited by Ernst & Young LLP, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of common stock to be sold in this offering. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to the registration statement. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits and schedules to the registration statement filed as part of the registration statement. Statements contained in this prospectus about the contents of any contract or any other document filed as an exhibit are not necessarily complete, and, and in each instance, we refer you to the copy of the contract or other documents filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You may read and copy the registration statement of which this prospectus is a part at the SECs public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of the registration statement by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SECs public reference room. In addition, the SEC maintains an Internet website, which is located at www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SECs Internet website.
Upon completion of this offering, we will become subject to the full informational and periodic reporting requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements certified by an independent registered public accounting firm. We also maintain a website at www.tphase.com. Our website is not a part of this prospectus.
152
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Financial Statements
Years ended December 31, 2010 and 2011, the nine month periods ended September 30, 2011 and September 30, 2012 (unaudited) and the period from July 7, 2006 (inception) to September 30, 2012 (unaudited)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
F-3 | ||||
Consolidated Statements of Operations and Comprehensive Loss |
F-4 | |||
Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit) |
F-5 | |||
F-6 | ||||
F-7 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Tetraphase Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Tetraphase Pharmaceuticals, Inc. (a development stage enterprise) (the Company) as of December 31, 2010 and 2011, and the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tetraphase Pharmaceuticals, Inc. (a development stage enterprise) as of December 31, 2010 and 2011 and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 24, 2012
F-2
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
(In thousands except share and per share data)
December
31,
2010 |
December
31,
2011 |
September 30, 2012 | ||||||||||||||
Actual | Pro forma | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 34,585 | $ | 22,454 | $ | 6,748 | $ | 6,748 | ||||||||
Accounts receivable |
| 185 | 2,829 | 2,829 | ||||||||||||
Prepaid expenses and other current assets |
425 | 735 | 409 | 409 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
35,010 | 23,374 | 9,986 | 9,986 | ||||||||||||
Property and equipment, net |
991 | 534 | 267 | 267 | ||||||||||||
Restricted cash |
161 | 161 | 161 | 161 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 36,162 | $ | 24,069 | $ | 10,414 | $ | 10,414 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities, convertible preferred stock and stockholders equity (deficit) |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 1,105 | $ | 800 | $ | 591 | $ | 591 | ||||||||
Accrued liabilities |
2,522 | 3,977 | 2,726 | 2,726 | ||||||||||||
Deferred revenue |
| | 833 | 833 | ||||||||||||
Current portion of term loan |
52 | 2,197 | 2,818 | 2,818 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
3,679 | 6,974 | 6,968 | 6,968 | ||||||||||||
Preferred stock warrant liability |
26 | 306 | 388 | | ||||||||||||
Term loan |
| 5,551 | 3,476 | 3,476 | ||||||||||||
Commitments and contingencies (Note 11) |
||||||||||||||||
Series A-1 convertible preferred stock, $0.001 par value; |
||||||||||||||||
Authorized 10,072,000 shares; Issued and outstanding 10,040,000 shares at December 31, 2010, December 31, 2011 and September 30, 2012, and no shares issued and outstanding pro forma (aggregate liquidation preference of $5,991,872) |
9,925 | 9,925 | 9,925 | | ||||||||||||
Series A-2 convertible preferred stock, $0.001 par value; |
||||||||||||||||
Authorized 13,095,646 shares; Issued and outstanding 13,095,646 shares at December 31, 2010, December 31, 2011 and September 30, 2012, and no shares issued and outstanding pro forma (aggregate liquidation preference of $8,988,851) |
15,055 | 15,055 | 15,055 | | ||||||||||||
Series B convertible preferred stock, $0.001 par value; |
||||||||||||||||
Authorized 57,471,225 shares; Issued and outstanding 57,471,225 shares at December 31, 2010, December 31, 2011 and September 30, 2012, and no shares issued and outstanding pro forma (aggregate liquidation preference of $10,063,211) |
9,946 | 9,946 | 9,946 | | ||||||||||||
Series C convertible preferred stock, $0.001 par value; |
||||||||||||||||
Authorized 175,418,122 shares at December 31, 2010 and 176,973,937 shares at December 31, 2011 and September 30, 2012; Issued and outstanding 175,418,122 shares at December 31, 2010, December 31, 2011 and September 30, 2012; and no shares issued and outstanding pro forma (aggregate liquidation preference of $45,099,999) |
44,915 | 44,915 | 44,915 | | ||||||||||||
Stockholders' equity (deficit): |
||||||||||||||||
Common stock, $0.001 par value; |
||||||||||||||||
Authorized 314,802,346 shares at December 31, 2010 and 316,358,161 shares at December 31, 2011 and September 30, 2012; Issued and outstanding 8,308,038 shares, 8,882,515 shares and 9,322,696 shares at December 31, 2010, December 31, 2011 and September 30, 2012, respectively; and 265,347,689 shares issued and outstanding pro forma |
8 | 9 | 9 | 265 | ||||||||||||
Additional paid-in-capital |
6,042 | 6,386 | 6,765 | 86,738 | ||||||||||||
Deficit accumulated during the development stage |
(53,434 | ) | (74,998 | ) | (87,033 | ) | (87,033 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders deficit |
(47,384 | ) | (68,603 | ) | (80,259 | ) | (30 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities, convertible preferred stock and stockholders deficit |
$ | 36,162 | $ | 24,069 | $ | 10,414 | $ | 10,414 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-3
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Operations and Comprehensive Loss
(In thousands except share and per share data)
Years
Ended
December 31, |
Nine Months Ended
September 30, |
The Period
from July 7, 2006 (inception) to September 30, 2012 |
||||||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Contract and grant revenue |
$ | | $ | 185 | $ | | $ | 4,360 | $ | 4,545 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
14,732 | 17,737 | 13,875 | 12,545 | 70,181 | |||||||||||||||
General and administrative |
3,446 | 3,874 | 2,933 | 3,154 | 16,325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
18,178 | 21,611 | 16,808 | 15,699 | 86,506 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss from operations |
(18,178 | ) | (21,426 | ) | (16,808 | ) | (11,339 | ) | (81,961 | ) | ||||||||||
Other income (expense): |
||||||||||||||||||||
Interest income |
3 | 1 | 1 | | 608 | |||||||||||||||
Interest expense |
(36 | ) | (161 | ) | (83 | ) | (614 | ) | (1,032 | ) | ||||||||||
Other income (expense) |
733 | 22 | | (82 | ) | (4,648 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other income (expense) |
700 | (138 | ) | (82 | ) | (696 | ) | (5,072 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
$ | (17,478 | ) | $ | (21,564 | ) | $ | (16,890 | ) | $ | (12,035 | ) | $ | (87,033 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss per share applicable to common stockholders-basic and diluted |
$ | (2.16 | ) | $ | (2.53 | ) | $ | (1.99 | ) | $ | (1.32 | ) | $ | (13.13 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Weighted-average number of common shares used in net loss per share applicable to common stockholders-basic and diluted |
8,075,647 | 8,527,925 | 8,467,407 | 9,143,946 | 6,629,259 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Pro forma net loss per share applicable to common stockholders-basic and diluted (unaudited) |
$ | (0.08 | ) | $ | (0.05 | ) | ||||||||||||||
|
|
|
|
|||||||||||||||||
Weighted-average number of common shares used in pro forma net loss per share applicable to common stockholders-basic and diluted (unaudited) |
264,552,918 | 265,168,939 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||
Comprehensive loss |
$ | (17,478 | ) | $ | (21,564 | ) | $ | (16,890 | ) | $ | (12,035 | ) | $ | (87,033 | ) | |||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-4
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit)
(In thousands except share and per share data)
Series A-1
Convertible Preferred Shares |
Series A-2
Convertible Preferred Shares |
Series B Convertible
Preferred Shares |
Series C Convertible
Preferred Shares |
Common Shares |
Additional
Paid-In Capital |
Deficit
Accumulated During the Development Stage |
Total
Stockholders Equity (Deficit) |
|||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||
Balance at July 7, 2006 (ince ption) |
| $ | | | $ | | | $ | | | $ | | | $ | | $ | | $ | | $ | | |||||||||||||||||||||||||||||||||
Issuance of founders common stock |
| | | | | | | | 4,090,000 | 4 | | | 4 | |||||||||||||||||||||||||||||||||||||||||
Common stock issued for license |
| | | | | | | | 910,000 | 1 | | | 1 | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series A-1 convertible preferred stock, net of issuance costs of $115,049 |
10,040,000 | 6,712 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | | | | 1 | | 1 | |||||||||||||||||||||||||||||||||||||||||
Net loss |
(1,217 | ) | (1,217 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2006 |
10,040,000 | 6,712 | | | | | | | 5,000,000 | 5 | 1 | (1,217 | ) | (1,211 | ) | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | | | | | | 5 | | 5 | |||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (7,071 | ) | (7,071 | ) | ||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2007 |
10,040,000 | 6,712 | | | | | | | 5,000,000 | 5 | 6 | (8,288 | ) | (8,277 | ) | |||||||||||||||||||||||||||||||||||||||
Reclassification of Invest or Rights/liability upon settlement |
| 3,213 | | | | | | | | | 5,321 | | 5,321 | |||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| | | | | | | | 309,167 | | 9 | | 9 | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series of A-2 convertible preferred stock, net of issuance costs of $5,428 |
| | 13,095,646 | 15,055 | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | 45,000 | | 1 | | 1 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | 34 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (12,760 | ) | (12,760 | ) | |||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2008 |
10,040,000 | 9,925 | 13,095,646 | 15,055 | | | | | 5,354,167 | 5 | 5,371 | (21,048 | ) | (15,672 | ) | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| | | | | | | | 121,458 | | 4 | | 4 | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock, net of issuance costs of $117,171 |
| | | | 57,471,225 | 9,946 | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | 2,263,700 | 3 | 66 | | 69 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | 265 | | 265 | |||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (14,908 | ) | (14,908 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2009 |
10,040,000 | 9,925 | 13,095,646 | 15,055 | 57,471,225 | 9,946 | | | 7,739,325 | 8 | 5,706 | (35,956 | ) | (30,242 | ) | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| | | | | | | | 99,375 | | 3 | | 3 | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series C convertible preferred stock, net of issuance costs of $185,093 |
| | | | | | 175,418,122 | 44,915 | | | | | | |||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | 469,338 | | 16 | | 16 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | 317 | | 317 | |||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (17,478 | ) | (17,478 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2010 |
10,040,000 | 9,925 | 13,095,646 | 15,055 | 57,471,225 | 9,946 | 175,418,122 | 44,915 | 8,308,038 | 8 | 6,042 | (53,434 | ) | (47,384 | ) | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | 574,477 | 1 | 32 | | 33 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | 312 | | 312 | |||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (21,564 | ) | (21,564 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2011 |
10,040,000 | 9,925 | 13,095,646 | 15,055 | 57,471,225 | 9,946 | 175,418,122 | 44,915 | 8,882,515 | 9 | 6,386 | (74,998 | ) | (68,603 | ) | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | 440,181 | | 23 | | 23 | |||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | 356 | | 356 | |||||||||||||||||||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | | | | | | | (12,035 | ) | (12,035 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance at September 30, 2012 (unaudited) |
10,040,000 | $ | 9,925 | 13,095,646 | $ | 15,055 | 57,471,225 | $ | 9,946 | 175,418,122 | $ | 44,915 | 9,322,696 | 9 | 6,765 | (87,033 | ) | (80,259 | ) | |||||||||||||||||||||||||||||||||||
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Reclassification of warrants to convertible preferred stock (unaudited) |
| | | | | | | | | | 388 | | 388 | |||||||||||||||||||||||||||||||||||||||||
Conversion of convertible preferred stock into common stock (unaudited) |
(10,040,000 | ) | (9,925 | ) | (13,095,646 | ) | (15,055 | ) | (57,471,225 | ) | (9,946 | ) | (175,418,122 | ) | (44,915 | ) | 256,024,993 | 256 | 79,585 | | 79,841 | |||||||||||||||||||||||||||||||||
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Proforma balance at September 30, 2012 (unaudited) |
| $ | | | $ | | | $ | | | $ | | 265,347,689 | $ | 265 | $ | 86,738 | $ | (87,033 | ) | $ | (30 | ) | |||||||||||||||||||||||||||||||
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See accompanying notes to financial statements.
F-5
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(In thousands)
Years Ended
December 31, |
Nine Months Ended
September 30, |
The Period
from July 7, 2006 (inception) to September 30, |
||||||||||||||||||
2010 | 2011 | 2011 | 2012 | 2012 | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||
Operating activities |
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Net loss |
$ | (17,478 | ) | $ | (21,564 | ) | $ | (16,890 | ) | $ | (12,035 | ) | $ | (87,033 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||||||||||||||
Depreciation and amortization |
478 | 521 | 391 | 287 | 2,313 | |||||||||||||||
Amortization of deferred financing costs and debt discount |
9 | 78 | (284 | ) | 100 | 224 | ||||||||||||||
Fair value adjustment of warrants and investor right obligation |
| (22 | ) | 314 | 82 | 5,381 | ||||||||||||||
Stock-based compensation expense |
317 | 312 | 230 | 356 | 1,290 | |||||||||||||||
Loss from disposal of property and equipment |
4 | 1 | | | 5 | |||||||||||||||
Common stock issued for license |
| | | | 1 | |||||||||||||||
Changes in operating assets and liabilities: |
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Restricted cash |
| | | | (161 | ) | ||||||||||||||
Accounts receivable |
| (185 | ) | | (2,644 | ) | (2,829 | ) | ||||||||||||
Prepaid expenses and other current assets |
(215 | ) | (168 | ) | (53 | ) | 289 | (305 | ) | |||||||||||
Deferred revenue |
| | | 833 | 833 | |||||||||||||||
Accounts payable |
684 | (305 | ) | (532 | ) | (209 | ) | 591 | ||||||||||||
Accrued expenses |
792 | 1,455 | 636 | (1,251 | ) | 2,727 | ||||||||||||||
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Net cash used in operating activities |
(15,409 | ) | (19,877 | ) | (16,188 | ) | (14,192 | ) | (76,963 | ) | ||||||||||
Investing activities |
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Purchases of property and equipment |
(203 | ) | (65 | ) | (57 | ) | (20 | ) | (2,585 | ) | ||||||||||
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Net cash used in investing activities |
(203 | ) | (65 | ) | (57 | ) | (20 | ) | (2,585 | ) | ||||||||||
Financing activities |
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Proceeds from sale of convertible preferred stock, net of issuance costs |
44,915 | | | | 79,841 | |||||||||||||||
Deferred financing fees |
| (170 | ) | (168 | ) | | (190 | ) | ||||||||||||
Proceeds from issuance of term loan |
| 8,000 | 1,500 | | 9,550 | |||||||||||||||
Repayment of term loan |
(620 | ) | (52 | ) | (52 | ) | (1,517 | ) | (3,067 | ) | ||||||||||
Proceeds from sale of restricted common stock and common stock to founders |
| | | | 20 | |||||||||||||||
Proceeds from exercise of stock options |
16 | 33 | 17 | 23 | 142 | |||||||||||||||
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Net cash provided by (used in) financing activities |
44,311 | 7,811 | 1,297 | (1,494 | ) | 86,296 | ||||||||||||||
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Net increase (decrease) in cash and cash equivalents |
$ | 28,699 | $ | (12,131 | ) | $ | (14,948 | ) | $ | (15,706 | ) | $ | 6,748 | |||||||
Cash and cash equivalents at beginning of period |
5,886 | 34,585 | 34,585 | 22,454 | | |||||||||||||||
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Cash and cash equivalents at end of period |
$ | 34,585 | $ | 22,454 | $ | 19,637 | $ | 6,748 | $ | 6,748 | ||||||||||
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Supplemental cash flow information |
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Cash paid for interest |
$ | 32 | $ | 78 | $ | 41 | $ | 528 | $ | 838 | ||||||||||
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Fair value of warrants issued in connection with issuance of term loan |
$ | | $ | 302 | $ | 302 | $ | | $ | 328 | ||||||||||
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Reclassification of investors rights/liability to stockholders' equity |
$ | | $ | | $ | | $ | | $ | 5,321 | ||||||||||
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See accompanying notes to financial statements.
F-6
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 1. Organization and Operations
The Company
Tetraphase Pharmaceuticals, Inc. (the Company), is a clinical stage biopharmaceutical company that was incorporated in Delaware on July 7, 2006 and has a principal place of business in Watertown, Massachusetts, using its proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections. The Companys lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that the Company is developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line monotherapy for the treatment of multi-drug resistant infections, including multi-drug Gram-negative infections. The Company recently completed a successful Phase 2 clinical trial of eravacycline with intravenous administration for the treatment of patients with complicated intra-abdominal infections, or cIAI, and the Company is currently planning two Phase 3 clinical trials of eravacycline, one for the treatment of cIAI and one for the treatment of complicated urinary tract infections, or cUTI. The Company also plans to commence in the first quarter of 2013 a Phase 1 clinical trial evaluating the pharmacokinetics and safety of intravenous and oral formulations of eravacycline. Subject to obtaining additional financing beyond this offering, the Company intends to pursue development of eravacycline for the treatment of additional indications, including acute bacterial skin and skin structure infections, or ABSSSI, acute bacterial pneumonias and other serious and life-threatening infections. The Company is also pursuing the discovery and development of additional antibiotics to target unmet medical needs.
The Company is in the development stage, and is devoting substantially all of its efforts to product research and development, initial market development, and raising capital. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other development stage life science companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products, and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the industry, including rapid technological change, regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability, and dependence on key individuals.
The Company has incurred annual net operating losses in every year since its inception. The Company has not generated any product revenues related to its primary business purpose and has financed its operations primarily through private placements of its preferred stock and funding from the United States government. The Company has not completed development of any product candidate and has devoted substantially all of its financial resources and efforts to research and development, including preclinical and clinical development. The Company expects to continue to incur significant expenses and increasing operating losses for at least the next several years.
Liquidity
In May 2011, the Company executed a Loan and Security Agreement (Term Loan) with two financial institutions, Silicon Valley Bank and Oxford Finance, which provided for up to $8.0 million in funding, to be made available in two tranches. The Company borrowed the first $1.5 million in May 2011 and the second tranche for the remaining $6.5 million in December 2011 (Note 6).
F-7
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 1. Organization and Operations (continued)
Liquidity (continued)
In October 2011 the National Institutes of Healths (NIH) National Institute of Allergy and Infectious Diseases (NIAID) division awarded a contract of up to $36.0 million over a five-year term for the development of TP-271, a preclinical compound, for respiratory disease caused by bacterial biothreat pathogens (NIAID Contract). The Company is a subcontractor under this NIAID Contract which will provide funding to the Company totaling approximately $13.3 million over the five year term, including committed funding of $5.9 million during the 25-month base period from October 1, 2011 through October 31, 2013. In addition during 2011, the Company was a subawardee under a separate grant from the NIAID (NIAID Grant) (Note 3).
In February 2012 the Biomedical Advanced Research and Development Authority (BARDA), an agency of the U.S. Department of Health and Human Services, awarded a contract for up to $67.0 million for the development of eravacycline as a potential countermeasure for the treatment of disease caused by bacterial biothreat pathogens (BARDA Contract). The Company is a subcontractor under this BARDA Contract which will provide funding to the Company totaling up to approximately $39.8 million including committed funding of $6.3 million during the 12-month base period from February 1, 2012 through January 31, 2013 (Note 3).
The Company believes that its cash resources of approximately $6.7 million at September 30, 2012, together with the committed funding it expects to receive in the fourth quarter of 2012 from the NIAID Contract and the BARDA Contract of approximately $3.5 million, will be sufficient to allow the Company to fund its current operating plan and continue as a going concern through at least January 1, 2013. The Company will be required to obtain additional funding in order to continue to fund its operations after January 1, 2013 and intends to pursue a public offering of its common stock to fund future operations. However if the Company is unable to complete a sufficient public offering in a timely manner it would need to pursue other financing alternatives including private financing of debt or equity or collaboration agreements. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.
Note 2. Summary of Significant Accounting Policies
Unaudited Pro Forma Presentation
On November 14, 2012, the Companys board of directors authorized the Company to file a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock (the Common Stock) to the public. The unaudited pro forma balance sheet as of September 30, 2012 reflects the conversion of all of the Series A-1 convertible preferred stock (the Series A-1 Preferred Stock), the Series A-2 convertible preferred stock (the Series A-2 Preferred Stock), the Series B convertible preferred stock (the Series B Preferred Stock), and the Series C convertible preferred stock (the Series C Preferred Stock, collectively with the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock, the Preferred Stock) into shares of Common Stock, and the resulting adjustment in the shares issuable upon exercise of our outstanding warrants from preferred stock to common stock, occurring upon the closing of the Companys proposed initial public offering.
Unaudited pro forma net loss per share is computed using the weighted-average number of shares of Common Stock outstanding after giving effect to the pro forma effect of the conversion of all Preferred Stock during the year ended December 31, 2011 and the nine months ended September 30, 2012 into shares of the Companys Common Stock as if such conversion had occurred at the beginning of the period presented.
F-8
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Unaudited Interim Financial Data
The accompanying unaudited September 30, 2012 interim balance sheet and the statements of operations and comprehensive loss, and cash flows for the nine months ended September 31, 2011 and 2012 and statements of convertible preferred stock and stockholders equity (deficit) for the nine months ended September 30, 2012 and the related interim information contained within the notes to the financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and the notes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, the unaudited interim financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of the Companys financial position at September 30, 2012 and results of its operations and its cash flows for the nine months ended September 31, 2011 and 2012. The results for the nine months ended September 30, 2012 are not necessarily indicative of future results.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of developing and commercializing its proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses other comprehensive income and related disclosures. On an ongoing basis, the Companys management evaluates its estimates, including estimates related to clinical trial accruals, stock-based compensation expense and reported amounts of revenues and expenses during the reported period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions. The Company utilizes significant estimates and assumptions in determining the fair value of its Common Stock. The Company utilized various valuation methodologies in accordance with the framework of the 2004 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , to estimate the fair value of its Common Stock. Each valuation methodology includes estimates and assumptions that require the Companys judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, the prices at which the Company sold shares of Preferred Stock, the superior rights and preferences of securities senior to the Companys Common Stock at the time and the likelihood of achieving a liquidity event, such as an initial public offering or a sale of the Company. Significant changes to the key assumptions used in the valuations could result in different fair values of Common Stock at each valuation date.
F-9
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and restricted cash. The Company maintains its cash and cash equivalent balances in the form of money market accounts with financial institutions that management believes are creditworthy. The Companys investment policy includes guidelines on the quality of the institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company has no financial instruments with off-balance-sheet risk of loss.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tetraphase Securities Corporation, a Massachusetts Securities Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.
Fair Value Measurements
The Companys financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, the term loan and liabilities related to warrants to purchase Preferred Stock. Fair value measurements are classified and disclosed in one of the following three categories:
Level 1 | | Quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
Level 3 | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
F-10
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Fair Value Measurements (continued)
Financial instruments measured at fair value as of December 31, 2010 and 2011 and September 30, 2012 are classified below based on the three fair value hierarchy tiers described above (in thousands):
Fair Value Measurements at
Reporting Date Using |
||||||||||||||||
Balance | Level 1 | Level 2 | Level 3 | |||||||||||||
December 31, 2010 |
||||||||||||||||
Cash |
$ | 1,294 | $ | 1,294 | $ | | $ | | ||||||||
Money Market funds, included in cash equivalents |
$ | 33,291 | $ | 33,291 | $ | | $ | | ||||||||
Preferred Stock warrant liability |
$ | (26 | ) | $ | | $ | | $ | (26 | ) | ||||||
December 31, 2011 |
||||||||||||||||
Cash |
$ | 524 | $ | 524 | $ | | $ | | ||||||||
Money Market funds, included in cash equivalents |
$ | 21,930 | $ | 21,930 | $ | | $ | | ||||||||
Preferred Stock warrant liability |
$ | (306 | ) | $ | | $ | | $ | (306 | ) | ||||||
September 30, 2012 |
||||||||||||||||
Cash |
$ | 622 | $ | 622 | $ | | $ | | ||||||||
Money Market funds, included in cash equivalents |
$ | 6,126 | $ | 6,126 | $ | | $ | | ||||||||
Preferred Stock warrant liability |
$ | (388 | ) | $ | | $ | | $ | (388 | ) |
The Company measures cash equivalents at fair value on a recurring basis. The fair value of cash equivalents is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The fair value of Preferred Stock warrant liabilities was determined based on Level 3 inputs and utilizing the Black-Scholes option pricing model. The fair value of the Companys term loan payable is determined using current applicable rates for similar instruments as of the balance sheet date. The carrying value of the Companys term loan payable approximates fair value because the Companys interest rate yield is near current market rates. The Companys term loan payable is a Level 3 liability within the fair value hierarchy. The following table presents activity for the Preferred Stock warrant liabilities measured at fair value using significant unobservable inputs (Level 3) during the years ended December 31, 2010 and 2011 and the nine month period ended September 30, 2012.
(in thousands) | ||||
Fair value of warrants issued in 2010 and at December 31, 2010 |
$ | 26 | ||
Value of warrants issued in 2011 |
302 | |||
Changes in fair value recognized in earnings |
(22 | ) | ||
|
|
|||
Fair value at December 31, 2011 |
$ | 306 | ||
Changes in fair value recognized in earnings |
82 | |||
|
|
|||
Fair value at September 30, 2012 (unaudited) |
$ | 388 | ||
|
|
F-11
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Accounts Receivable
Accounts receivable at December 31, 2011 represent amounts due from CUBRC, Inc., the prime contractor under the NIAID Contract. Accounts receivable at September 30, 2012 represents amounts due from CUBRC under the Companys subcontracts and subaward under the NIAID Contract, the NIAID Grant and the BARDA Contract. The Companys practice is to bill the prime contractor amounts for which the Company has been invoiced by third parties in the case of contract research or subcontractor costs or for internal costs incurred. Expenses directly associated with the Companys NIAID Contracts that have been accrued at the end of the reporting period are not billed to the prime contractor until third party invoices have been received or until internal costs have been paid.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful economic lives of the related assets.
Restricted Cash
At December 31, 2010 and 2011 and September 30, 2012, the Company has $161,000 in restricted cash deposits with a bank of which $121,000 is collateral for a letter of credit issued to the landlord of the Companys leased facility (Note 11). Should the Company default on its rental obligations, $121,000 will be payable to the lessor of the leased facility. In addition, the Company has $40,000 in restricted cash to secure the Companys corporate credit card issued through the same bank.
Revenue Recognition
The Companys revenue is derived from its subcontracts with CUBRC under the BARDA Contract and the NIAID Contract and its subaward under the NIAID Grant (Note 3). The Company recognizes revenue under these best-efforts, cost-reimbursable and cost-plus-fixed-fee subcontracts and subaward as the Company performs services under the subcontracts and subaward so long as a subcontract and subaward has been executed and the fees for these services are fixed or determinable, legally billable and reasonably assured of collection. Recognized amounts reflect the Companys partial performance under the subcontracts and subaward and equal direct and indirect costs incurred plus fixed fees, where applicable. The Company does not recognize revenue under these arrangements for amounts related to contract periods where funding is not yet committed as amounts above committed funding thresholds would not be considered fixed or determinable or reasonably assured of collection. Revenues and expenses under these arrangements are presented gross on the statements of operations and comprehensive loss as the Company has determined it is the primary obligor under these arrangements relative to the research and development services it performs as lead technical expert.
Revenue under the Companys subcontract under the NIAID Contract is earned under a cost-plus-fixed-fee contract in which the Company is reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the Companys subcontract under the NIAID Contract are based on approved provisional
F-12
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
indirect billing rates, which permit recovery of fringe benefits, allowable overhead and general and administrative expenses and a fixed fee. During the year ended December 31, 2011, the Company recognized revenue of $183,000 from the Companys subcontract under the NIAID Contract. For the nine month period ended September 30, 2012, the Company recognized revenue of $2.0 million from the Companys subcontract under the NIAID Contract.
Revenue from the Companys subaward under the NIAID Grant is earned under a cost-reimbursable contract in which the Company is reimbursed for direct costs incurred plus allowable indirect costs. Billings under the Companys subaward under the NIAID Grant are based on approved provisional indirect billing rates, which permit recovery of fringe benefits and allowable general and administrative expenses. During the year ended December 31, 2011, the Company recognized revenue of $2,000 under the Companys subaward under the NIAID Grant. For the nine month period ended September 30, 2012, the Company recognized revenue of $154,000 from the Companys subaward under the NIAID Grant. For the period from July 7, 2006 (inception) to September 30, 2012, the Company recognized revenue of $156,000 from the Companys subaward under the NIAID Grant.
Revenue from the Companys subcontract under the BARDA Contract is earned under a cost-reimbursable contract in which the Company is reimbursed for direct costs incurred plus allowable indirect costs. Billings under the Companys subcontract under the BARDA Contract are based on approved provisional indirect billing rates, which permit recovery of fringe benefits and allowable general and administrative expenses. For the nine-month period ended September 30, 2012 and the period from July 7, 2006 (inception) to September 30, 2012, the Company recognized revenue of $2.2 million under the Companys subcontract under the BARDA Contract.
Organizational Costs
All organizational costs are expensed as incurred.
Research and Development Expenses
Research and development costs are charged to expense as incurred and include, but are not limited to:
|
employee-related expenses, including salaries, benefits, travel and stock-based compensation expense; |
|
expenses incurred under agreements with contract research organizations, contract manufacturing organizations and consultants that conduct clinical trials and preclinical studies; |
|
payments made under the Companys license agreement with Harvard University; |
|
the cost of acquiring, developing and manufacturing clinical trial materials; |
|
facility, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and |
|
costs associated with preclinical activities and regulatory operations. |
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development.
F-13
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Comprehensive Loss
Comprehensive loss consists of net income or loss and changes in equity during a period from transactions and other events and circumstances generated from non-owner sources. The Companys net loss equals comprehensive loss for all periods presented.
Income Taxes
The Company uses the liability method of accounting for income taxes . Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. The Company has evaluated available evidence and concluded that the Company may not realize the benefit of its deferred tax assets; therefore a valuation allowance has been established for the full amount of the deferred tax assets. The Companys practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Stock-Based Compensation Expense
Stock-based compensation is recognized as expense for all stock-based awards based on estimated fair values. The Company determines equity-based compensation at the grant date using the Black-Scholes option pricing model. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period using the estimated fair market value of the stock. Any changes to the estimated forfeiture rates are accounted for prospectively.
Recent Accounting Pronouncements
In June 2011, the FASB issued amended guidance intended to increase the prominence of items reported in other comprehensive income (loss). This amended guidance requires that all non-owner changes in shareholders equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. The amended guidance became effective on January 1, 2012. The Company has applied this guidance retrospectively beginning with its interim financial information for the nine months ending September 30, 2012. This amended guidance effects presentation, but does not have a material effect on the Companys consolidated financial statements.
In May 2011, the FASB amended guidance regarding the measurement of the fair value of assets and liabilities to harmonize the fair value measurement guidance under GAAP and under the International Financial Reporting Standards. This amended guidance clarifies the FASBs intent regarding the application of existing fair value measurement requirements and changes a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amended guidance became effective on January 1, 2012. The Company adopted this guidance on a prospective basis. The adoption of this amended guidance did not have a material effect on the Companys consolidated financial statements.
F-14
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements (continued)
The Company did not adopt any new accounting pronouncements during 2011 that had a material effect on the Companys consolidated financial statements.
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
Net Loss per Common Share
Basic net loss per share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of shares of Common Stock outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, preferred stock, stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.
The amounts in the table below were excluded from the calculation of diluted weighted-average shares outstanding, prior to the use of the treasury stock method, due to their anti-dilutive effect:
Year Ended December 31, |
Nine Months Ended
September 30, |
The Period from
July 7, 2006 (inception) to September 30, 2012 |
||||||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||
Preferred stock |
256,024,993 | 256,024,993 | 256,024,993 | 256,024,993 | 256,024,993 | |||||||||||||||
Warrants |
32,000 | 1,587,815 | 1,587,815 | 1,587,815 | 1,587,815 | |||||||||||||||
Outstanding stock options |
34,811,255 | 36,343,279 | 34,986,434 | 41,853,469 | 41,853,469 |
Note 3. Significant Agreements and Contracts
License Agreements
In August 2006, the Company entered into a license agreement for certain intellectual property with Harvard University (the University). The agreement required the Company to pay a nonrefundable license fee of $250,000 and certain accrued patent expenses of approximately $61,000, and to issue 910,000 shares of common stock to the University upon the closing of a successful financing. Such consideration, which totaled $312,000, was recorded in research and development expenses in 2006.
F-15
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 3. Significant Agreements and Contracts (continued)
License Agreements (continued)
The Company is obligated to make certain payments totaling up to, approximately $15.1 million upon achievement of certain development and regulatory milestones and royalties on net sales of products covered by the agreement. In accordance with the license agreement, the Company paid Harvard $325,000 in milestone payments in 2009, no payments in the year ended December 31, 2010, $1.1 million in the year ended December 31, 2011, and no payments in the nine month period ended September 30, 2012. The Company has made a total of $1.7 million in payments to the University since inception.
In January 2007 and April 2010, the Company and the University amended the license agreement to include certain additional intellectual property. The Company paid an additional $25,000 with each amendment. In February 2011, the license agreement was further amended to include additional intellectual property in the license granted by the University without the payment of any additional consideration.
Government Grant and Contracts
NIAID Grant and Contract for TP-271
The Company has received funding for its preclinical compound TP-271 under two awards from NIAID for the development, manufacturing and clinical evaluation of TP-271 for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia:
|
a grant awarded in July 2011 that provides up to a total of approximately $2.8 million over five years (the NIAID Grant); and |
|
a contract awarded in September 2011 that provides up to a total of approximately $35.8 million in funding over five years (the NIAID Contract). |
In connection with the NIAID Grant, in November 2011, CUBRC awarded the Company a 55-month, no-fee subaward of approximately $980,000, reflecting the portion of the NIAID Grant funding that may be paid to the Company for its activities.
In connection with the NIAID Contract, in October 2011, the Company entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which the Company may receive funding of up to approximately $13.3 million, reflecting the portion of the NIAID Contract funding that may be paid to the Company for its activities.
Although the NIAID Contract, the NIAID Grant and the Companys NIAID subcontract have terms of five years, and the Companys NIAID subaward has a term of 55 months, NIAID is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond an initial 25-month base period.
BARDA Contract for Eravacycline
The Company has received funding for its lead product candidate, eravacycline, under an award from BARDA. In January 2012, BARDA awarded a five-year contract that provides for up to a total of $67.0 million in funding for the development, manufacturing and clinical evaluation of eravacycline for the treatment of disease caused by bacterial biothreat pathogens (the BARDA Contract).
F-16
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 3. Significant Agreements and Contracts (continued)
Government Grant and Contracts (continued)
In connection with the BARDA Contract, in February 2012, the Company entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which it may receive funding of up to approximately $39.8 million, reflecting the portion of the BARDA funding that may be paid to the Company for its activities.
Although the BARDA Contract, and the Companys subcontract with CUBRC under the BARDA Contract, have five-year terms, BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond current-year amounts from Congressionally approved annual appropriation.
Note 4. Property and Equipment
Property and equipment at December 31, 2010 and 2011 and September 30, 2012 consisted of the following:
Estimated
Useful Life |
December 31, |
September 30,
2012 |
||||||||||||||
2010 | 2011 | |||||||||||||||
(Years) | (in thousands) | |||||||||||||||
Laboratory equipment |
5 | $ | 1,720 | $ | 1,769 | $ | 1,772 | |||||||||
Furniture and fixtures |
5 | 112 | 115 | 115 | ||||||||||||
Office and computer equipment |
3 | 85 | 97 | 114 | ||||||||||||
Leasehold improvements |
Lease term | 515 | 515 | 515 | ||||||||||||
|
|
|
|
|
|
|||||||||||
2,432 | 2,496 | 2,516 | ||||||||||||||
Less accumulated depreciation and amortization |
(1,441 | ) | (1,962 | ) | (2,249 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
$ | 991 | $ | 534 | $ | 267 | ||||||||||
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2010 and 2011 was $478,000 and $521,000, respectively. Depreciation and amortization expense for the nine months ended September 30, 2011 and 2012 was $391,000 and $287,000, respectively. Depreciation and amortization expense for the inception-to-date period ended September 30, 2012 was $2.3 million.
F-17
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 5. Accrued Liabilities
Accrued liabilities at December 31, 2010 and 2011 and September 30, 2012 consisted of the following:
December 31, |
September
30,
2012 |
|||||||||||
2010 | 2011 | |||||||||||
(in thousands) | ||||||||||||
Payroll and employee-related costs |
$ | 758 | $ | 768 | $ | 830 | ||||||
Research and development costs |
1,221 | 2,827 | 1,541 | |||||||||
Other |
543 | 382 | 355 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 2,522 | $ | 3,977 | $ | 2,726 | ||||||
|
|
|
|
|
|
Note 6. Long-Term Debt
In October 2007, the Company entered into a Loan and Security Agreement with a bank, which provided for up to $1.6 million in debt financing to finance equipment purchases made by the Company (the Equipment Term Loan). The Equipment Term Loan had a 36 month term, an interest rate of prime + 1.00% and was collateralized by the underlying equipment. In connection with the Equipment Term Loan, the Company issued a 10-year warrant to purchase 32,000 shares of Series A-1 Preferred Stock at a purchase price of $1.00 per share. As of December 31, 2010, there was $52,000 outstanding on the Equipment Term Loan. The Equipment Term Loan was paid in full in January 2011.
In May 2011, the Company executed a Loan and Security Agreement (Term Loan) with two financial institutions, Silicon Valley Bank and Oxford Finance, which provided for up to $8.0 million funding, to be made available in two tranches. The Company borrowed the first $1.5 million in May 2011 and the second tranche for the remaining $6.5 million in December 2011. The Term Loan bears interest at 10% per annum and provides for a final payment of 2.75% of the original principal due at the maturity date of November 1, 2014. Under the terms of the Term Loan, the Company was only required to pay interest (and not principal) on the first tranche and the second tranche through February 28, 2012. Each tranche will be repaid in 33 monthly payments of equal principal, plus accrued interest, after the interest only period which ended February 28, 2012. The final payment of 2.75% will be due at the same time as the last loan payment. The Term Loan matures on November 1, 2014. In connection with the entry into the Loan and Security Agreement, the Company issued to the lenders 10-year warrants to purchase an aggregate of 1,555,815 shares of Series C Preferred Stock at a price of $0.2571 per share. The Term Loan is collateralized by a blanket lien on all corporate assets, excluding intellectual property. The Term Loan contains customary default provisions that include material adverse events, as defined therein. The Company has determined that the risk of subjective acceleration under the material adverse events clause is remote and therefore has classified the outstanding principal in current and long-term liabilities based on scheduled principal payments.
The Company recorded the fair market value of the warrants in the aggregate amount of $302,000 as a discount to the Term Loan. This amount is being accreted as additional interest expense over the term of the Term Loan.
F-18
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 6. Long-Term Debt (continued)
Future principal payments on the Term Loan are as follows:
September 30,
2012 |
||||
(in thousands) | ||||
2012 |
$ | 678 | ||
2013 |
2,889 | |||
2014 |
2,914 | |||
|
|
|||
Total term loan payments |
6,481 | |||
Less current portion |
(2,818 | ) | ||
|
|
|||
Term loan payable, less current portion |
3,663 | |||
Less debt discount |
(187 | ) | ||
|
|
|||
Term loan payable, less debt discount |
$ | 3,476 | ||
|
|
Note 7. Warrants
In October 2007, the Company issued a warrant to purchase 32,000 shares of Series A-1 Preferred Stock at an exercise price of $1.00 per share to a bank. in connection with the equipment term loan (Note 6). The warrant was exercisable immediately and had a ten-year life. The Company initially valued the warrant at $26,000 using the Black-Scholes pricing model with the following assumptions; risk-free interest rate of 3.2%; dividend yield of zero; expected volatility rate of 75%; with an expected life of ten years. The Company is expensing this value of the warrant as additional interest over the term of the loan. The warrant is classified as a liability and subject to remeasurement at each balance sheet date and changes to fair value are recognized as a component of other income (expense) in the statement of operations. The change in the fair value of the warrant was immaterial during the year ended December 31, 2010. The fair value of the warrant at December 31, 2011 and September 30, 2012 was $12,000 and $7,000, respectively.
In May 2011, the Company issued warrants to purchase an aggregate of 1,555,815 shares of Series C Preferred Stock at an exercise price of $0.2571 per share in connection with the Loan and Security Agreement with two financial institutions (Note 6). The warrants are exercisable immediately and have a ten year life. The warrants were initially valued at $302,000 using the Black-Scholes pricing model with the following assumptions; risk free interest rate of 3.2%; dividend yield of zero; expected volatility of 67%; with an expected life of ten years, and are being expensed as additional interest over the term of the loan. The warrants are classified as a liability and changes to the fair value of the warrants are recognized as a component of other income (expense) in the statement of operations. The fair value of these warrants at December 31, 2011 and September 30, 2012, was $294,000 and $381,000, respectively.
F-19
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 7. Warrants (continued)
The Company estimated the fair value of the preferred stock warrants using the Black-Scholes option pricing model based on the following assumptions:
December 31,
2011 |
September 30,
2012 |
|||
Expected volatility |
67% | 59% | ||
Expected term (in years) |
6.0 - 10.0 | 5.0 - 9.0 | ||
Risk-free interest rate |
1.09%-1.89% | .62%-1.35% | ||
Expected dividend yield |
0% | 0% | ||
Estimated fair value of Series A-1 Preferred Stock |
$0.46 | $0.46 | ||
Estimated fair value of Series C Preferred Stock |
$0.32 | $0.35 |
Note 8. Stockholders Equity
As of September 30, 2012, the authorized capital stock of the Company consisted of 316,358,161 shares of Common Stock, $0.001 par value per share, and 257,612,808 shares of Preferred Stock, of which 10,072,000 shares are designated Series A-1 Preferred Stock at $0.001 par value per share, 13,095,646 shares are designated Series A-2 Preferred Stock at $0.001 par value per share, 57,471,225 shares are designated Series B Preferred Stock at $0.001 par value per share and 176,973,937 shares are designated Series C Preferred Stock at $0.001 par value per share.
In August and September 2006, the Company issued 10,040,000 shares of Series A-1 Preferred Stock, for $1.00 per share. In June 2008, the Company issued 13,095,646 shares of Series A-2 Preferred Stock for $1.15 per share. In September 2009, the Company issued 57,471,225 shares of Series B Preferred Stock for $0.175 per share and in May and June 2010, the Company issued 175,418,122 shares of Series C Preferred Stock for $0.2571 per share.
In accordance with the terms of the Series A Preferred Stock purchase agreement entered into in connection with the sale of Series A-1 Preferred Stock, the Company committed to issue and sell an additional $15.0 million of Series A-2 Preferred Stock to the Series A investors at a price per share of $1.15, upon the achievement of a pre-defined milestone (the selection of a drug candidate for pre-investigational new drug application testing).
The right of the investors (Investor Rights) to purchase Series A-2 Preferred Stock represented a freestanding financial instrument. As such, the Company accounted for the Investor Rights as liabilities. The Company adjusted the carrying value of the Investor Rights to its estimated fair value at each reporting date up to the closing of the second tranche financing on June 24, 2008. Increases or decreases in the fair value of the Investor Rights were recorded as other income or expense in the statement of operations. The Company determined the estimated fair value of the Investor Rights using a valuation model which considers the probability of achieving the milestone, the Companys cost of capital, the estimated period the rights would be outstanding, consideration received for the instrument with the rights, the number of shares to be issued to satisfy the rights and at what price, and any changes in the fair value of the underlying instrument. At the date of issuance in 2006, the Company recorded the Investor Rights at its fair value of $3.2 million and reflected its fair
F-20
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 8. Stockholders Equity (continued)
value on the consolidated balance sheet. From the date of issuance to December 31, 2007, and for the year ended December 31, 2008, the changes in fair value of the Investor Rights were $2.5 million and $2.6 million, respectively, and were recorded as other expenses in the consolidated statement of operations and comprehensive loss from inception.
During the second quarter of 2008 the Company met the pre-defined milestone and closed the second tranche of the financing (Second Closing) on June 28, 2008. In connection with the Second Closing, the Company issued 13,095,646 shares of Series A-2 Preferred Stock at $1.15 per share, resulting in net proceeds to the Company of $15.1 million. As a result of the exercise of the investor rights, the related liability was extinguished and recorded as an increase to Series A-2 Preferred Stock of $3.2 million, and an increase in additional paid-in capital of $5.3 million.
In September 2009, the Company issued 57,471,225 shares of Series B Preferred Stock at a price of $0.175 per share, resulting in net proceeds of $9.9 million to the Company. The Series B Preferred Stock purchase agreement provided for a $7.5 million second tranche, which was canceled as part of the Series C Preferred Stock financing.
In May and June 2010 the Company entered into a Series C Preferred Stock purchase agreement with investors. Under the agreement, the Company received $45.1 million from the sale of 174,056,785 shares of Series C Preferred Stock at a price of $0.2571 per share during the initial closing on May 14, 2010 and an additional 1,361,337 shares of Series C Preferred Stock at $0.2571 per share at a second closing on June 18, 2010. As part of the Series C Preferred Stock financing, the liquidation preference of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock was reduced by 40% to $0.5968 per share and $0.6864 per share, respectively.
The rights, preferences, and privileges of the Series C Preferred Stock and the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock (collectively, the Junior Preferred Stock) are as follows:
Conversion
Shares of Series C Preferred Stock and Junior Preferred Stock are convertible into Common Stock on a one-for-one basis. Conversion is at the option of the holders of Preferred Stock, although conversion is automatic upon the earlier of the consummation of an initial public offering resulting in gross proceeds to the Company of $50.0 million or more and a price per share to the public of not less than $0.75 per share or an affirmative vote of specified holders of Preferred Stock. The conversion prices of the Series C Preferred Stock will initially be equal to the Series C Preferred Stock original issue price and the conversion price of the Junior Preferred Stock will initially be equal to the original price of the Series B Preferred Stock. Subject to certain exceptions, the conversion prices are subject to adjustment in the event that the Company issues shares for consideration less than the original issue price of the Series C Preferred Stock or the Series B Preferred Stock, as the case may be, or in the case of stock distributions stock splits, recapitalizations and other similar transactions.
The Company has evaluated each of its series of Preferred Stock and determined that they should be considered an equity host and not a debt host. This evaluation is necessary to determine if any embedded features require bifurcation and therefore, accounted for separately as a derivative liability. The Companys analysis followed the whole instrument approach, which compares an individual feature against the entire preferred stock instrument which includes that feature. The Companys analysis was based on a consideration of the economic characteristics and
F-21
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 8. Stockholders Equity (continued)
risks and more specifically evaluated all the stated and implied substantive terms and features including (i) whether the preferred stock included redemption features, (ii) whether the preferred stockholders were entitled to dividends, (iii) the voting rights of the preferred stock and (iv) the existence and nature of any conversion rights. As a result of the Companys determination that the preferred stock is an equity host, the embedded conversion option is not considered a derivative liability.
The Company assessed the Series C Preferred Stock and Junior Preferred Stock for any beneficial conversion features or embedded derivatives that would require bifurcation from the Series C Preferred Stock and Junior Preferred Stock and receive separate accounting treatment. On the date of each issuance, the value of common stock into which the Series C Preferred Stock and Junior Preferred Stock is convertible had a fair value less than the effective conversion price of the Series C Preferred Stock and Junior Preferred Stock and, as such, there was no intrinsic value on the respective commitment dates. No embedded derivatives were identified that would require bifurcation.
Dividends
As part of the Series C Preferred Stock financing, all accrued dividends to holders of the Junior Preferred Stock were eliminated.
Liquidation Preference
In the event of any liquidation or dissolution of the Company, holders of the Series C Preferred Stock shall be entitled to receive, in preference to the holders of the Junior Preferred Stock and Common Stock, an amount equal to the original issue price plus any declared but unpaid dividends. After payment of the Series C liquidation preference, the holders of Junior Preferred Stock will be entitled to receive, in preference to the holders of the Common Stock, an amount equal to $0.5968 per share of Series A-1 Preferred Stock, $0.6864 per share of Series A-2 Preferred Stock and $0.1751 per share of Series B Preferred Stock plus any declared but unpaid dividends. Additionally, after all holders of Preferred Stock have received the full amounts to which they are entitled upon liquidation, any assets remaining for distribution shall be distributed among all holders of stock of the Company, pro rata based on the number of shares held by each holder. If the assets of the Company are insufficient to pay the full preferential amounts to the holders of Preferred Stock, the assets shall be distributed ratably among such holders in proportion to their aggregate liquidation preference amounts. As of December 31, 2011 and the nine month period ended September 30, 2012, the liquidation value for the Series A-1, Series A-2, Series B, and C Preferred Stock was $5,991,872, $8,988,851, $10,063,211 and $45,099,999, respectively.
Voting Rights
Holders of Preferred Stock are entitled to vote as a single class with the holders of Common Stock, and shall have one vote for each equivalent common share into which the Preferred Stock is convertible. An affirmative vote of the holders of 60% of the Preferred Stock on an as-converted basis is required in order to amend the Certificate of Incorporation or By-Laws, reclassify Common Stock or establish another class of stock, create or authorize additional shares of Preferred Stock, effect a sale, liquidation or merger of the Company or repurchase or redeem any capital stock.
F-22
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 9. Stock-based Compensation
In August 2006, the Company adopted the Tetraphase Pharmaceuticals, Inc. Stock Incentive Plan (the Plan) under which it may grant incentive stock options (ISOs), nonqualified stock options, restricted stock, and stock grants to purchase up to 32,717,324 shares of Common Stock. In May 2010, the Company amended the plan to increase the number of shares of Common Stock issuable under the Plan to 53,745,353. The options expire ten years after the grant date. As of December 31, 2011 and September 30, 2012, 13,519,559 and 7,534,594 shares, respectively, were available for future issuance under the Plan.
Terms of stock award agreements, including vesting requirements, are determined by the board of directors, subject to the provisions of the Plan. Options granted by the Company typically vest over a four year period. Certain of the options are subject to acceleration of vesting in the event of certain change of control transactions. The options are exercisable from the date of grant for a period of ten years. For options granted to date, the exercise price equaled the estimated fair value of the Common Stock as determined by the board of directors on the date of grant.
During 2009, the Company granted options to nonemployees to purchase up to 6,750,000 shares of common stock (2009 Non-employee Options). The 2009 Non-employee Options vested with respect to one-third of the underlying shares on the date of grant, with the remaining shares vesting quarterly over four years from date of grant and have a life of ten years.
During 2010, the Company granted to nonemployees options to purchase a total of 376,209 shares of Common Stock (2010 Non-employee Options). The 2010 Nonemployee Options vest quarterly through the fourth anniversary of the vesting date and have a contractual life of ten years. Stock options issued to non-employees are accounted for at fair value, and are periodically revalued as the options vest and are recognized as expense over the related service period. The total expense related to all nonemployee options for the years ended December 31, 2010 and 2011 and the nine months ended September 30, 2011 and 2012 was $137,000, $55,000, $42,000 and $160,000, respectively. The total expense related to all nonemployee options from inception to September 30, 2012 was $420,000.
F-23
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 9. Stock-based Compensation (continued)
The following table summarizes stock option activity for employees and nonemployees:
Shares |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Term (years) |
Aggregate
Intrinsic Value |
|||||||||||||
Options outstanding at December 31, 2010 |
34,811,255 | $ | 0.05 | 8.46 | $ | 842 | ||||||||||
Granted |
4,514,791 | 0.07 | ||||||||||||||
Exercised |
(574,477 | ) | 0.06 | |||||||||||||
Forfeited |
(1,053,431 | ) | 0.06 | |||||||||||||
Canceled |
(1,354,859 | ) | 0.03 | |||||||||||||
|
|
|||||||||||||||
Options outstanding at December 31, 2011 |
36,343,279 | 0.05 | 8.11 | 768 | ||||||||||||
Granted (unaudited) |
5,993,715 | 0.07 | ||||||||||||||
Exercised (unaudited) |
(440,181 | ) | 0.06 | |||||||||||||
Forfeited (unaudited) |
(34,594 | ) | 0.05 | |||||||||||||
Canceled (unaudited) |
(8,750 | ) | 0.10 | |||||||||||||
|
|
|||||||||||||||
Options outstanding at September 30, 2012 (unaudited) |
41,853,469 | 0.06 | 7.68 | 5,177 | ||||||||||||
|
|
|||||||||||||||
Options vested or expected to vest at September 30, 2012 (unaudited) (1) |
40,504,141 | 0.06 | 7.68 | 5,019 | ||||||||||||
|
|
|||||||||||||||
Options exercisable at September 30, 2012 (unaudited) |
24,109,772 | $ | 0.05 | 7.15 | $ | 3,082 | ||||||||||
|
|
(1) | This represents the number of vested options as of September 30, 2012, plus the number of unvested options that the Company estimated as of September 30, 2012 would vest, based on the unvested options at September 30, 2012, as adjusted for the estimated forfeiture rate of 3%. |
The total intrinsic value of options exercised in the years ended December 31, 2010 and 2011, the nine month periods ended September 30, 2011 and 2012 and for the period July 7, 2006 (inception) to September 30, 2012 was $4,000, $9,000, $9,000, $8,000 and $36,000, respectively. The total fair value of shares vested in the years ended December 31, 2010 and 2011, the nine month periods ended September 30, 2011 and 2012 and for the period from July 7, 2006 (inception) to September 30, 2012 was $188,000, $228,000, $172,000, $207,000, and $783,000 respectively. As of September 30, 2012, there was $594,000 of total unrecognized compensation cost related to employee and non-employee nonvested stock options granted under the Plan. Total unrecognized compensation cost will be adjusted for future forfeitures. The Company expects to recognize that cost over a remaining weighted-average period of three years.
F-24
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 9. Stock-based Compensation (continued)
The Company estimates the fair value of each employee stock award on the grant date using the Black-Scholes option-pricing model based on the following assumptions:
Years Ended December 31, |
Nine Months
Ended September 30, 2012 |
|||||
2010 | 2011 | |||||
Weighted-average expected volatility |
63% | 67% | 67% | |||
Expected life (in years) |
5.9-6.1 | 6.0-6.1 | 6.0 | |||
Risk-free interest rate |
1.52%-2.37% | 1.21%-2.41% | 0.93%-1.20% | |||
Expected dividend yield |
0% | 0% | 0% |
Expected volatility was calculated based on historical volatility data for a representative group of publicly traded companies that were selected based on their disease focus, stage of clinical trials, number of compounds in clinical trials and number of years since incorporation for which historical information was available. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, commensurate with the expected life assumption. The expected life of stock options granted represents the weighted-average period of time that stock options granted are expected to be outstanding determined using the simplified method for employee grants. For nonemployee grants, the expected life is equal to the remaining contractual term. The expected life is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population.
Compensation cost for stock options granted to employees is based on the estimated grant-date fair value and is recognized over the vesting period of the applicable option on a straight-line basis. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that the Company determines are expected to vest. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term forfeitures is distinct from cancellations and represents only the unvested portion of the surrendered option. The Company re-evaluates this analysis quarterly, and adjusts the forfeiture rate as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those options that vest.
Using the Black-Scholes option-pricing model, the weighted-average grant date fair values of options granted to employees for both the years ended December 31, 2010 and 2011 and the nine month periods ended September 30, 2011 and 2012 and the period from July 7, 2006 (inception) to September 30, 2012 was $0.04 per share.
F-25
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 9. Stock-based Compensation (continued)
Stock-based compensation expense is recognized for stock options granted to employees and non-employees and has been reported in the Companys statements of operations as follows (in thousands):
Year Ended
December 31, |
Nine Months Ended
September 30, |
The Period
from July 7, 2006 (inception) to September 30, 2012 |
||||||||||||||||||
2010 | 2011 | 2011 | 2012 | |||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Research and development |
$ | 210 | $ | 175 | $ | 128 | $ | 260 | $ | 793 | ||||||||||
General and administrative |
107 | 137 | 102 | 96 | 497 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 317 | $ | 312 | $ | 230 | $ | 356 | $ | 1,290 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Restricted Stock
During 2006, the Company issued a total of 530,000 shares of Common Stock to employees pursuant to Stock Restriction and Repurchase Agreements. Under the terms of the agreements, the issued shares of Common Stock were subject to vesting and forfeiture. Under the agreements, vesting occurred periodically at specified time intervals and specified percentages. All shares of Common Stock become fully vested within four years of the date of issuance. As of December 31, 2010 and 2011 and the nine month period ended September 30, 2012, 530,000 shares of common stock were issued and outstanding under the Stock Restriction and Repurchase Agreements. As of December 31, 2011, all of these shares were fully vested and not subject to repurchase.
In August 2006, the Company issued 2,540,000 shares of restricted Common Stock to certain founders and employees (the Recipients) for a price of $0.001 per share, for total proceeds of $3,000. The restricted stock vested over three years, during which time the Company had the right to repurchase the unvested shares at the amount paid if the relationship between the Recipients and the Company ceased. In 2006, the Company also issued an additional 1,550,000 shares of restricted Common Stock to a founder for $0.001 per share, for total proceeds of $2,000. These shares were not subject to vesting or any right to repurchase. At December 31, 2011, all 4,090,000 shares were vested and were held by the Recipients.
Note 10. Income Taxes
The Company accounts for income taxes under FASB Accounting Standards Codification 740 (ASC 740). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
For the years ended December 31, 2010 and 2011 and the nine month periods ending September 30, 2011 and 2012, the Company did not have a current or deferred income tax expense or benefit.
As of December 31, 2011 the Company had federal net operating loss carryforwards of approximately $67.0 million and state net operating loss carryforwards of $66.9 million, which are available to reduce future taxable income. The Company also had federal tax credits of $1.6 million, which may be used to offset future tax liabilities. The net operating loss (NOL) and tax credit carryforwards will expire at various dates through 2031.
F-26
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 10. Income Taxes (continued)
The net operating loss carryforwards include $134,000 of federal and state net operating losses that are attributable to stock options exercised which will be recorded as an increase to additional paid-in capital once they are realized. The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not, as yet, conducted a study of research and development (R&D) credit carryforwards. This study may result in an adjustment to the Companys R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position.
The Company has recorded no reserves or unrecognized tax benefits for tax positions taken. Since a full valuation allowance has been provided against the Companys deferred tax assets, the effect of any unrecognized tax benefits would simply be to reduce the gross amount of the deferred tax asset and the corresponding valuation allowance. As of December 31, 2011, the Company had no accrued interest or penalties related to uncertain tax positions. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
The principal components of the Companys deferred tax assets are as follows:
Year Ended
December 31, |
||||||||
2010 | 2011 | |||||||
(in thousands) | ||||||||
Deferred tax assets: |
||||||||
Net operating loss carry forwards |
$ | 18,400 | $ | 26,318 | ||||
Temporary differences |
431 | 925 | ||||||
Research and development credit carry forwards |
1,490 | 2,214 | ||||||
|
|
|
|
|||||
Deferred tax assets |
20,321 | 29,457 | ||||||
Less valuation allowance |
(20,321 | ) | (29,457 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | | ||||
|
|
|
|
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported, 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. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax assets at December 31, 2010 and 2011, respectively because the Companys management has determined that is it more likely than not that these assets will not be fully realized. The increase in the valuation allowance in 2011 primarily relates to the net loss incurred by the Company.
F-27
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 10. Income Taxes (continued)
The Company is currently open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the tax years ended 2009 through 2011. Carryforward tax attributes generated in years past may still be adjusted upon future examination if they have or will be used in a future period. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years.
A reconciliation of the Federal statutory tax rate of 34% to the Companys effective income tax rate follows:
Year ended
December 31, |
||||||||
2010 | 2011 | |||||||
Statutory tax rate |
(34.00 | )% | (34.00 | )% | ||||
State taxes, net of Federal benefits |
(5.28 | )% | (5.28 | )% | ||||
Permanent differences |
(1.22 | )% | 0.39 | % | ||||
Credits |
(3.28 | )% | (3.36 | )% | ||||
Change in valuation allowance |
43.78 | % | 42.25 | % | ||||
|
|
|
|
|||||
Effective tax rate |
| % | | % | ||||
|
|
|
|
Note 11. Commitments and Contingencies
Lease Commitments
The Company leases its facility under an operating lease that was to expire on November 30, 2012. On March 15, 2012 and September 18, 2012, the Company amended its operating lease, which extended the lease term through May 31, 2014. The Company has the option to renew the lease for an additional five years at then current market rates which may include escalations in rent payments during the new term. The Company recognizes rent expense on a straight-line basis over the non-cancelable lease term.
As of September 30, 2012, the minimum future rent payments under the lease agreement are as follows:
September 30,
2012 |
||||
(in thousands) | ||||
2012 |
$ | 149 | ||
2013 |
623 | |||
2014 |
265 | |||
|
|
|||
Total minimum lease payment |
$ | 1,037 | ||
|
|
The Company recorded $470,000, $476,000, $352,000 and $402,000 in rent expense for the years ended December 31, 2010 and 2011 and the nine month periods ended September 30, 2011 and 2012, respectively. Total rent expense since inception was $2.8 million.
Litigation
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities.
F-28
Tetraphase Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Information as of September 30, 2012, for the Nine Months Ended September 30, 2011 and 2012 and the Period from July 7, 2006 (Inception) to September 30, 2012 is unaudited)
Note 12. Subsequent Events (Unaudited)
On December 20, 2012, the Company amended its current Term Loan with Silicon Valley Bank and Oxford Finance, to provide for up to an additional $9.2 million in funding, to be made available in two tranches (2012 Term Loan). The Company borrowed the first $6.2 million under the 2012 Term Loan on December 20, 2012 (2012 Term A Loan). The second tranche of up to $3.0 million will be available to be drawn on or prior to February 28, 2013, subject to certain conditions being met (2012 Term B Loan). The 2012 Term A Loan bears interest at 9% per annum. The 2012 Term B Loan, if drawn, will bear interest at the higher of 9% per annum or the Wall Street Journal Prime Rate three (3) business days prior to the funding date plus 5.75%.
The Company is only required to pay interest (and not principal) for the first six months of each tranche of the 2012 Term Loan. Each tranche of the 2012 Term Loan is to be repaid in 33 equal monthly payments of principal, plus accrued interest, after the interest only period. A final payment of 2.90% of the original principal amount of each tranche will be due at the same time as the last loan payment for the tranche. The 2012 Term A Loan matures on March 1, 2016. In connection with the funding of the 2012 Term A Loan, the Company issued to the lenders 10-year warrants to purchase an aggregate of 964,605 shares of Series C Preferred Stock with an exercise price of $0.2571 per share. If the 2012 Term B Loan is drawn, the warrant the Company issued to Silicon Valley Bank will automatically become exercisable for an additional 233,372 shares of Series C Preferred Stock. In addition, the Company will issue to Oxford Finance a 10-year warrant to purchase an additional 233,372 shares of Series C Preferred Stock with an exercise price of $0.2571 per share. The 2012 Term Loan is collateralized by a blanket lien on all corporate assets, excluding intellectual property.
F-29
Shares
Tetraphase Pharmaceuticals, Inc.
Common Stock
Prospectus
, 2013
Barclays
BMO Capital Markets
Stifel
JMP Securities
Needham & Company
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. | Other Expenses of Issuance and Distribution. |
The following table indicates the expenses to be incurred in connection with this offering described in this Registration Statement, other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission registration fee and the FINRA filing fee.
Amount | ||||
Securities and Exchange Commission registration fee |
$ | 11,765 | ||
FINRA filing fee |
13,438 | |||
NASDAQ Global Market listing fee |
* | |||
Accountants fees and expenses |
* | |||
Legal fees and expenses |
* | |||
Blue Sky fees and expenses |
* | |||
Transfer agents fees and expenses |
* | |||
Printing and engraving expenses |
* | |||
Miscellaneous |
* | |||
Total Expenses |
$ | * | ||
|
|
* | To be filed by amendment |
Item 14. | Indemnification of Directors and Officers. |
Section 102 of the Delaware General Corporation Law permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Upon the completion of this offering, our certificate of incorporation will provide that none of our directors shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as director, notwithstanding any provision of law imposing such liability, except to the extent that the Delaware General Corporation Law prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the Delaware General Corporation Law provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against expenses (including attorneys fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he is or is threatened to be made a party by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
II-1
Upon the completion of this offering, our certificate of incorporation will provide that we will indemnify each person who was or is a party or threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of Tetraphase, or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise to the fullest extent permitted by the Delaware General Corporation Law. Upon the completion of this offering, our certificate of incorporation will provide that expenses must be advanced to these indemnitees under certain circumstances.
The indemnification provisions contained in our certificate of incorporation that will be effective as of the closing date of this offering are not exclusive. In addition, we intend to enter into indemnification agreements with each of our directors. Each indemnification agreement will provide that we will indemnify the director to the fullest extent permitted by law for claims arising in his capacity as a director, provided that he acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. In the event that we do not assume the defense of a claim against a director, we are required to advance his expenses in connection with his defense, provided that he undertakes to repay all amounts advanced if it is ultimately determined that he is not entitled to be indemnified by us.
In addition, we maintain standard policies of insurance under which coverage is provided to our directors and officers against losses arising from claims made by reason of breach of duty or other wrongful act, and to us with respect to payments which may be made by us to such directors and officers pursuant to the above indemnification provisions or otherwise as a matter of law. In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, against certain liabilities.
Item 15. | Recent Sales of Unregistered Securities. |
Set forth below is information regarding shares of common stock and preferred stock issued, and options and warrants granted, by us within the past three years that were not registered under the Securities Act of 1933, as amended. Included is the consideration, if any, we received for such shares, options and warrants and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.
(a) Issuances of Capital Stock
|
On May 10, 2010, we issued an aggregate of 174,056,785 shares of series C preferred stock at a price of $0.2571 per share, for an aggregate purchase price of $44,749,999.42, to Mediphase Venture Partners II Limited Partnership, Mediphase Venture Partners II (Annex Fund) Limited Partnership, Mediphase Venture Partners (DP & UP) Limited Partnership, Mediphase Venture Partners II Select Fund Limited Partnership, Beacon Bioventures Limited Partnership, Beacon Bioventures Principals Limited Partnership, Skyline Venture Partners Qualified Purchaser Fund IV L.P., Flagship Ventures Fund 2004, L.P., Flagship Ventures Fund 2007, L.P., CMEA Ventures VI, L.P., CMEA Ventures VI, GmbH & Co. KG, Exel Medical Fund, L.P., Sigma Emerging Markets Ltd. and AG 2003 Trust L.P. |
|
On June 18, 2010, we issued an aggregate of 1,361,337 shares of series C preferred stock at a price of $0.2571 per share, for an aggregate purchase price of $349,999.74, to Excel Medical Fund, L.P., David Lubner and Joaquim Trias. |
No underwriters were involved in the foregoing sales of securities. The securities described in this section (a) of Item 15 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required.
(b) Stock Option Grants
Between February 11, 2010 and February 11, 2013 we granted options to purchase an aggregate of 22,001,298 shares of common stock, with exercise prices ranging from $0.07 to $0.18 per share, to employees,
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directors and consultants pursuant to our 2006 Stock Incentive Plan. Between February 11, 2010 and February 11, 2013, we issued an aggregate of 1,593,766 shares of common stock upon the exercise of options for aggregate consideration of $78,195.78.
The stock options and the common stock issuable upon the exercise of such options as described in this section (b) of Item 15 were issued pursuant to written compensatory plans or arrangements with our employees, directors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.
(c) Warrant Grants
On May 16, 2011, we issued warrants to purchase an aggregate of 1,555,815 shares of Series C preferred stock at a price of $0.2571 per share to Silicon Valley Bank and to Oxford Finance. On December 20, 2012, we issued warrants to purchase an aggregate of 964,605 shares of Series C preferred stock at a price of $0.2571 per share to Silicon Valley Bank and Oxford Finance.
All of the securities described in paragraphs (a), (b) and (c) of this Item 15 are deemed restricted securities for purposes of the Securities Act. All of the certificates representing such securities included appropriate legends setting forth that the securities have not been registered and the applicable restrictions on transfer.
Item 16. | Exhibits and Financial Statement Schedules. |
The exhibits to the registration statement are listed in the Exhibit Index attached hereto and incorporated by reference herein.
Item 17. | Undertakings. |
(a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
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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 shall be deemed to be part of this registration statement as of the time it was declared effective. |
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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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Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Watertown, Commonwealth of Massachusetts, on the 11 th day of February, 2013.
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ Guy Macdonald Guy Macdonald President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Guy Macdonald and David Lubner, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any subsequent registration statements pursuant to Rule 462 of the Securities Act and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, 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/she might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Guy Macdonald Guy Macdonald |
Director, President and Chief Executive Officer (Principal Executive Officer) | February 11, 2013 | ||
/s/ David Lubner David Lubner |
Chief Financial Officer (Principal Financial and Accounting Officer) | February 11, 2013 | ||
/s/ L. Patrick Gage L. Patrick Gage, Ph.D. |
Chairman |
February 11, 2013 | ||
/s/ Garen Bohlin Garen Bohlin |
Director |
February 11, 2013 | ||
/s/ Douglas Cole Douglas Cole, M.D. |
Director |
February 11, 2013 | ||
/s/ John G. Freund John G. Freund, M.D. |
Director |
February 11, 2013 |
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Signature |
Title |
Date |
||
/s/ Steven R. Gullans Steven R. Gullans, Ph.D. |
Director |
February 11, 2013 | ||
/s/ Karl D. Handelsman Karl D. Handelsman |
Director |
February 11, 2013 | ||
/s/ Lawrence G. Miller Lawrence G. Miller, M.D. |
Director |
February 11, 2013 | ||
/s/ Robert M. Weisskoff Robert M. Weisskoff, Ph.D. |
Director |
February 11, 2013 |
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EXHIBIT INDEX
Description |
||||
1 | .1** | Underwriting Agreement | ||
3 | .1 | Amended and Restated Certificate of Incorporation of the Registrant | ||
3 | .2** | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant effective , 2013. | ||
3 | .3** | Restated Certificate of Incorporation of the Registrant to be effective upon the closing of this offering | ||
3 | .4 | Amended and Restated Bylaws of the Registrant | ||
3 | .5** | Amended and Restated Bylaws of the Registrant to be effective upon the closing of this offering | ||
4 | .1** | Specimen certificate evidencing shares of common stock | ||
5 | .1** | Opinion of Wilmer Cutler Pickering Hale and Dorr LLP | ||
10 | .1 | Second Amended and Restated Registration Rights Agreement, dated as of May 14, 2010, as amended | ||
10 | .2 | Warrant to purchase shares of Series A-1 Convertible Preferred Stock issued by the Registrant to Silicon Valley Bank expiring on September 27, 2017 | ||
10 | .3 | Warrant to purchase shares of Series C Convertible Preferred Stock issued by the Registrant to Oxford Finance LLC expiring on May 16, 2021 | ||
10 | .4 | Warrant to purchase shares of Series C Convertible Preferred Stock issued by the Registrant to Silicon Valley Bank expiring on May 16, 2021 | ||
10 | .5 | 2006 Stock Incentive Plan, as amended | ||
10 | .6 | Form of Incentive Stock Option Agreement under 2006 Stock Incentive Plan | ||
10 | .7 | Form of Nonstatutory Stock Option Agreement under 2006 Stock Incentive Plan | ||
10 | .8** | 2013 Stock Incentive Plan | ||
10 | .9** | Form of Incentive Stock Option Agreement under 2013 Stock Incentive Plan | ||
10 | .10** | Form of Nonstatutory Stock Option Agreement under 2013 Stock Incentive Plan | ||
10 | .11 | Offer letter, dated as of December 4, 2007, by and between the Registrant and Guy Macdonald, as amended | ||
10 | .12 | Offer letter, dated as of August 10, 2006, by and between the Registrant and David Lubner, as amended | ||
10 | .13 | Offer letter, dated as of December 22, 2010, by and between the Registrant and Patrick T. Horn | ||
10 | .14 | Offer letter, dated as of March 20, 2009, by and between the Registrant and Joyce Sutcliffe | ||
10 | .15 | Indemnification Agreement, dated as of August 8, 2006 by and between the Registrant and Lawrence G. Miller | ||
10 | .16 | Indemnification Agreement, dated as of August 8, 2006 by and between the Registrant and Karl D. Handelsman | ||
10 | .17 | Indemnification Agreement, dated as of August 8, 2006 by and between the Registrant and Douglas G. Cole | ||
10 | .18 | Loan and Security Agreement, dated as of May 16, 2011, among the Registrant, Tetraphase Securities Corporation, Silicon Valley Bank and Oxford Finance LLC | ||
10 | .19 | Lease Agreement, dated as of November 16, 2006, by and between the Registrant and ARE-480 Arsenal Street, LLC, as amended on September 9, 2011, March 15, 2012 and September 18, 2012 |
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Exhibit
|
Description |
|||
10 | .20 | License Agreement, dated as of August 3, 2006, by and between the Registrant and the President and Fellows of Harvard College, as amended | ||
10 | .21 | Subcontract Agreement, dated as of February 1, 2012, by and between the Registrant and CUBRC, Inc. | ||
10 | .22 | Subcontract Agreement, dated as of September 30, 2011, by and between the Registrant and CUBRC, Inc. | ||
10 | .23 | First Amendment to Loan and Security Agreement, dated December 20, 2012, by and among the Registrant, Tetraphase Securities Corporation, Silicon Valley Bank and Oxford Finance LLC | ||
10 | .24 | Warrant to purchase shares of Series C Convertible Preferred Stock issued by the Registrant to Silicon Valley Bank expiring on December 20, 2022 | ||
10 | .25 | Warrant to purchase shares of Series C Convertible Preferred Stock issued by the Registrant to Oxford Finance LLC expiring on December 20, 2022 | ||
21 | .1 | Subsidiaries of the Registrant | ||
23 | .1 | Consent of Ernst & Young LLP | ||
23 | .2** | Consent of Wilmer Cutler Pickering Hale and Dorr LLP (included in Exhibit 5.1) | ||
24 | .1 | Power of Attorney (included on signature page) |
** | To be filed by amendment. |
| Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission. |
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Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TETRAPHASE PHARMACEUTICALS, INC.
Tetraphase Pharmaceuticals, Inc. (the Corporation ), a corporation organized and existing under and by virtue of the Delaware General Corporation Law ( DGCL ), does hereby certify:
That the date of the filing of the original Certificate of Incorporation of the Corporation with the Secretary of State was July 7, 2006; and that the original Certificate of Incorporation was amended and restated on August 8, 2006, and further amended on September 28, 2007, February 27, 2008, June 24, 2008 and September 10, 2009;
That this Amended and Restated Certificate of Incorporation amends and restates the Amended and Restated Certificate of Incorporation of the Corporation, as amended;
That the Board of Directors of the Corporation (the Board of Directors ), by unanimous written consent pursuant to Section 141(f) of the DGCL, has adopted resolutions proposing and declaring advisable this Amended and Restated Certificate of Incorporation in accordance with the provisions of Sections 242 and 245 of the DGCL;
That, in lieu of a vote at a meeting of the stockholders, this Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the DGCL by the stockholders of the Corporation, and written notice of the adoption of this Amended and Restated Certificate of Incorporation has been or shall be given as provided in Section 228 of the DGCL to every stockholder entitled to such notice; and
That the text of the original Certificate of Incorporation of the Corporation is hereby amended and restated to read as herein set forth in full.
FIRST: The name of the Corporation is Tetraphase Pharmaceuticals, Inc.
SECOND: The address of the Corporations registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
FOURTH: The total number of shares of all classes of stock that the Corporation shall have authority to issue is 570,859,339, consisting solely of:
314,802,346 shares of common stock, par value $0.001 per share (the Common Stock ); and
256,056,993 shares of preferred stock (the Preferred Stock ), par value $0.001 per share, 10,072,000 of which shares are hereby designated as Series A-1
Convertible Participating Preferred Stock, par value $0.001 per share (the Series A-1 Preferred Stock ), 13,095,646 of which shares are hereby designated as Series A-2 Convertible Participating Preferred Stock, par value $0.001 per share (the Series A-2 Preferred Stock and collectively with the Series A-1 Preferred Stock, the Series A Preferred Stock ), 57,471,225 shares of which are hereby designated as Series B Convertible Participating Preferred Stock, par value $0.001 per share (the Series B Preferred Stock ), and 175,418,122 of which shares are hereby designated as Series C Convertible Participating Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ).
The following is a statement of the powers, designations, preferences, privileges, and relative, optional, and other special rights of the Preferred Stock and the Common Stock, respectively:
A. Terms of Preferred Stock
All references to any sections contained within this Part A of Article Fourth shall be deemed to be references to other sections also within this Part A of Article Fourth.
Section 1. Dividends.
(a) Generally. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in this Certificate of Incorporation) the holders of the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, as the case may be, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, as the case may be, determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the Series A-1 Original Issue Price (as defined below), the Series A-2 Original Issue Price (as defined below), the Series B Original Issue Price (as defined below) or the Series C Original Issue Price (as defined below), as the case may be; provided that, if the Corporation declares,
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pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation junior to the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the dividend payable to the holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend.
(b) The Series C Original Issue Price shall mean $0.2571 per share (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series C Preferred Stock occurring after the date of filing of this Amended and Restated Certificate of Incorporation (the Filing Date )). The Series B Original Issue Price shall mean $0.1751 per share (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series B Preferred Stock occurring after the Filing Date). The Series A-1 Original Issue Price shall mean $0.5968 per share (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series A-1 Preferred Stock occurring after the Filing Date). The Series A-2 Original Issue Price shall mean $0.6864 per share (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series A-2 Preferred Stock occurring after the Filing Date).
(c) Upon the Filing Date, any and all accruing, cumulative or declared but unpaid dividends on the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series B Preferred Stock shall be waived and forfeited.
Section 2. Liquidation, Dissolution or Winding-Up.
(a) Distributions.
(i) In the event of any liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event (as defined below) pursuant to Section 2(b) hereof, whether voluntary or involuntary (a Liquidation ), the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock (together, the Junior Preferred Stock ) or holders of Common Stock by reason of their ownership thereof, an amount per share equal to (1) the Series C Original Issue Price, plus (2) any declared but unpaid dividends to which the holders of Series C Preferred Stock are entitled under Section 1(a) hereof in respect of each such share of Series C Preferred Stock (the Series C Liquidation Value ). If upon any Liquidation of the Corporation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred Stock their full Series C Liquidation Value, the holders of shares of Series C Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts that would otherwise be payable in respect of the shares of Series C Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
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(ii) In the event of any Liquidation, whether voluntary or involuntary, the holders of shares of Junior Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, out of the assets of the Corporation available for distribution to its stockholders, after the payment of all preferential amounts required to be paid to the holders of shares of Series C Preferred Stock, but before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to (A) in the case of the Series A-1 Preferred Stock, (1) the Series A-1 Original Issue Price, plus (2) any declared but unpaid dividends to which the holders of Series A-1 Preferred Stock are entitled under Section 1(a) hereof in respect of each such share of Series A-1 Preferred Stock (the Series A-1 Liquidation Value ), (B) in the case of the Series A-2 Preferred Stock, (1) the Series A-2 Original Issue Price, plus (2) any declared but unpaid dividends to which the holders of Series A-2 Preferred Stock are entitled under Section 1(a) hereof in respect of each such share of Series A-2 Preferred Stock (the Series A-2 Liquidation Value ) and (C) in the case of the Series B Preferred Stock, (1) the Series B Original Issue Price, plus (2) any declared but unpaid dividends to which the holders of Series B Preferred Stock are entitled under Section 1(a) hereof in respect of each such share of Series B Preferred Stock (the Series B Liquidation Value ). If upon any Liquidation of the Corporation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of Junior Preferred Stock under the preceding sentence of this Section 2(a)(ii) their full Series A-1 Liquidation Value, Series A-2 Liquidation Value or Series B Liquidation Value, as the case may be, then the holders of Junior Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts that would otherwise be payable in respect of the shares of Junior Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
(iii) After payment shall have been made in full to the holders of shares of Preferred Stock pursuant to Sections 2(a)(i) and (ii) hereof, or funds necessary for such payment shall have been set aside by the Corporation in trust for the exclusive benefit of such holders of Preferred Stock so as to be available for such payment, any assets remaining available for distribution shall be distributed among all holders of stock of the Corporation, including, without limitation, the holders of Preferred Stock and the holders of Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of this Certificate of Incorporation immediately prior to such Liquidation.
(b) Deemed Liquidation Event.
(i) Each of the following events shall be considered a Deemed Liquidation Event unless the Required Stockholders elect otherwise by written notice sent to the Corporation at least thirty (30) days prior to the effective date of any such event:
(A) a merger or consolidation in which
(i) the Corporation is a constituent party or
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(ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation ( provided that, for the purpose of this Section 2(b)(i)(A), all shares of Common Stock issuable upon exercise of Derivative Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
(B) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
(ii) The Corporation shall not have the power to effect a Deemed Liquidation Event unless the agreement or plan of merger or consolidation for such transaction provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2(a) hereof.
(iii) The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such Deemed Liquidation Event shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors.
(iv) The term Required Stockholders shall mean the holders of at least sixty percent (60%) of the outstanding shares of Preferred Stock, voting together as a single class calculated on an as-converted basis.
(v) In the event of a Deemed Liquidation Event pursuant to this Section 2(b), if any portion of the consideration payable to the stockholders of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the transaction document effecting a Deemed Liquidation Event shall provide that (a) the portion of such consideration that is not subject to any contingencies or is placed into escrow (together, the Initial Consideration ) shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2(a) as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any additional consideration
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which becomes payable to the stockholders of the Corporation upon satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2(a) after taking into account the previous payment of the Initial Consideration as part of the same transaction.
Section 3. Voting Rights. Except as otherwise expressly provided herein or as required by applicable law, the holders of Preferred Stock shall be entitled to vote on all matters on which holders of Common Stock are entitled to vote, including without limitation, the election of directors. Each share of Preferred Stock shall entitle the holder thereof to such number of votes per share as shall equal the number of shares of Common Stock into which such share of Preferred Stock is convertible pursuant to Section 4(a) hereof as of the record date for the determination of stockholders entitled to vote on such matter, or if no record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as otherwise provided herein or as required by applicable law, the holders of shares of Preferred Stock and Common Stock, respectively, shall vote together as a single class on an as-converted basis on all matters submitted to a vote or consent of stockholders. Notwithstanding anything to the contrary set forth herein, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of all outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class on an as-converted basis, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Section 4. Conversion. Shares of Preferred Stock shall be entitled to be converted into shares of Common Stock or other securities, properties or rights, as set forth in this Section 4.
(a) Holders Option to Convert. Subject to and in compliance with the provisions of this Section 4, any shares of Preferred Stock may, at any time or from time to time at the option of the holder, be converted into fully paid and non-assessable shares of Common Stock.
(i) The number of shares of Common Stock to which a holder of Preferred Stock shall be entitled upon such conversion shall be equal to the product obtained by multiplying (A) the number of shares of Preferred Stock being converted by (B) the Series A-1 Conversion Rate, Series A-2 Conversion Rate, Series B Conversion Rate or Series C Conversion Rate (each determined as provided in Section 4(c) hereof), as the case may be.
(ii) To exercise conversion rights under this Section 4(a), a holder of Preferred Stock to be so converted shall surrender the certificate or certificates representing the shares being converted to the Corporation at its principal office, and shall give written notice to the Corporation at that office that such holder elects to convert such shares. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock issuable upon such conversion shall be issued. The certificate or certificates for shares of Preferred Stock surrendered for conversion shall be accompanied by evidence of proper assignment thereof to the Corporation. The date when any such written notice is received by the Corporation together with the certificate or certificates representing the shares of Preferred Stock being converted, shall be the applicable Conversion Date . As promptly as practicable, but in no event later than ten (10) days after the applicable Conversion
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Date, the Corporation shall issue and shall deliver to the holder of the shares of Preferred Stock being converted, a certificate or certificates in such denominations as such holder may request in writing for the number of full shares of Common Stock issuable upon the conversion of such shares of Preferred Stock in accordance with the provisions of this Section 4, plus cash as provided in Section 4(j) hereof in respect of any fraction of a share of Common Stock issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the applicable Conversion Date, and at such time the rights of the holder as holder of the converted shares of Preferred Stock shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of shares of Common Stock represented thereby.
(b) Automatic Conversion.
(i) Qualified Public Offering. Each share of Preferred Stock outstanding shall be converted into the number of fully paid and non-assessable shares of Common Stock into which such share is then convertible pursuant to Section 4(a) hereof, automatically and without further action, immediately upon the closing of a Qualified Public Offering. A Qualified Public Offering shall mean an underwritten public offering of shares of the Common Stock pursuant to an effective registration statement on Form S-1, or successor form, of the Securities and Exchange Commission (the SEC ), underwritten by a nationally recognized investment banking firm selected by a majority of the Board of Directors, pursuant to which the per share price to the public is not less than $0.75 (such amount to be subject to proportionate adjustment in the event of any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassifications or other similar event affecting the Common Stock occurring after the Filing Date) and the gross proceeds to the Corporation are not less than $50,000,000.
(ii) Vote of Preferred Stock. Each share of Preferred Stock outstanding shall be converted into the number of fully paid and non-assessable shares of Common Stock into which such share is then convertible pursuant to Section 4(a) hereof, automatically and without further action, immediately upon the vote of the Required Stockholders, to cause such conversion, as to all outstanding shares of Preferred Stock. The date of an event described in clause (i) or clause (ii) is referred to herein as a Mandatory Conversion Date .
(iii) Mechanics of Automatic Conversion. All holders of record of shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be given written notice of the Mandatory Conversion Date and the place designated for mandatory conversion of all such shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock pursuant to this Section 4(b). Such notice need not be given in advance of the occurrence of the Mandatory Conversion Date. Such notice shall be sent by first class or registered mail, postage prepaid, or given by electronic communication in compliance with the provisions of the DGCL, to each record holder of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. Upon receipt of such notice, each holder of shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares
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of Common Stock to which such holder is entitled pursuant to this Section 4(b). On the Mandatory Conversion Date, all outstanding shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock has been converted, and payment of any declared but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his or its attorney duly authorized in writing. As soon as practicable after the Mandatory Conversion Date and the surrender of the certificate or certificates for Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Section 4(j) hereof in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) Conversion Rates. The conversion rate in effect at any time for the Series A-1 Preferred Stock (the Series A-1 Conversion Rate ) shall equal the quotient obtained by dividing (A) $0.1751 (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series A-1 Preferred Stock occurring after the Filing Date) by (B) the Series A-1 Conversion Value then in effect, calculated as hereinafter provided. The conversion rate in effect at any time for the Series A-2 Preferred Stock (the Series A-2 Conversion Rate ) shall equal the quotient obtained by dividing (A) $0.1751 (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series A-2 Preferred Stock occurring after the Filing Date) by (B) the Series A-2 Conversion Value then in effect, calculated as hereinafter provided. The conversion rate in effect at any time for the Series B Preferred Stock (the Series B Conversion Rate ) shall equal the quotient obtained by dividing (A) $0.1751 (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series B Preferred Stock occurring after the Filing Date) by (B) the Series B Conversion Value then in effect, calculated as hereinafter provided. The conversion rate in effect at any time for the Series C Preferred Stock (the Series C Conversion Rate ) shall equal the quotient obtained by dividing (A) $0.2571 (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Series C Preferred Stock occurring after the Filing Date) by (B) the Series C Conversion Value then in effect, calculated as hereinafter provided.
(d) Series A, Series B and Series C Conversion Values. The Series A-1 Conversion Value in effect initially, and until first adjusted in accordance with this Section 4,
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shall be $0.1751. The Series A-2 Conversion Value in effect initially, and until first adjusted in accordance with this Section 4, shall be $0.1751. The Series B Conversion Value in effect initially, and until first adjusted in accordance with this Section 4, shall be $0.1751. The Series C Conversion Value in effect initially, and until first adjusted in accordance with this Section 4, shall be $0.2571.
(e) Adjustments for Extraordinary Common Stock Events. Upon the happening of an Extraordinary Common Stock Event (as defined in Section 4(m) hereof), automatically and without further action, and simultaneously with the happening of such Extraordinary Common Stock Event, the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, in effect immediately prior to such Extraordinary Common Stock Event shall be adjusted by multiplying such then effective Series A-1 Conversion Value, Series A-2 Conversion Value, Series B Conversion Value or Series C Conversion Value, as the case may be, by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be. The Series A-1 Conversion, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events.
(f) Adjustments for Dilutive Issues.
(i) Except as otherwise provided below in this Section 4(f)(i), and except with respect to an Extraordinary Common Stock Event, adjustments in respect of which are provided for in Section 4(e) hereof, if at any time while there are outstanding any shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be, the Corporation issues or is deemed to issue any additional shares of Common Stock at a Net Consideration Per Share less than the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, in effect immediately prior to such issuance or deemed issuance, then, and in each such case where applicable, such Series A-1 Conversion Value, Series A-2 Conversion Value, Series B Conversion Value and/or Series C Conversion Value, as the case may be, will be reduced as follows:
The Series A-1 Conversion, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, will be automatically adjusted to equal the result obtained by application of the following formula:
(P1 x Q1) + (P2 x Q2)
(Q1 + Q2)
where:
P1 = the Series A-1 Conversion, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, in effect immediately prior to such issuance or deemed issuance of additional shares of Common Stock;
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Q1 = the aggregate number of shares of Common Stock outstanding (including shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock and the conversion, exchange and/or exercise of all outstanding Derivative Securities, each to the extent then convertible, exchangeable and/or exercisable) immediately prior to such issuance or deemed issuance of additional shares of Common Stock;
P2 = the Net Consideration Per Share (as hereinafter defined) received by the Corporation for the shares of Common Stock issued and/or deemed issued in respect of such issuance of additional shares of Common Stock; and
Q2 = the number of shares of Common Stock issued and/or deemed issued in respect of such issuance of additional shares of Common Stock.
The following shall not be deemed issuances of additional shares of Common Stock for the purposes of this Section 4(f):
(A) shares of Common Stock issued by the Corporation pursuant to stock dividends, stock distributions, stock splits, recapitalizations and similar transactions;
(B) shares of Common Stock issued upon conversion, exchange or exercise of (1) shares of Preferred Stock outstanding on the Filing Date or issued at any closing of the transactions contemplated by the Series C Convertible Participating Preferred Stock Purchase Agreement, dated on or about the Filing Date, by and among the Corporation and the Purchasers party thereto (the Stock Purchase Agreement ), or (2) other Derivative Securities outstanding on the Filing Date;
(C) options or other rights to purchase or receive shares of Common Stock issued to officers, directors, consultants, agents and employees of the Corporation pursuant to the Corporations 2006 Stock Incentive Plan, as may be amended or modified from time to time, subject in all events to an aggregate cap under this clause (C) of 53,745,353 shares of Common Stock (or such other number of shares of Common Stock as may be approved by the Board of Directors) (subject to proportionate adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Common Stock occurring after the Filing Date), and shares of Common Stock issued upon the exercise thereof;
(D) shares of capital stock of the Corporation, or options or warrants to purchase capital stock of the Corporation (and the shares of capital stock issued upon the exercise thereof), issued by the Corporation in connection with business acquisitions approved by at least a majority of the directors designated pursuant to Sections 1(b)(i)(A)-(F) of the Second Amended and Restated Stockholders Agreement, as amended from time to time (the Stockholders Agreement ), dated on or about the Filing Date, by and among the Corporation and its stockholders party thereto (or, if no such directors are then in office, the holders of a majority of shares of Preferred Stock then collectively held by the holders entitled to designate such directors, voting together as a single class calculated on an as-converted basis);
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(E) shares of capital stock of the Corporation, or options or warrants to purchase shares of capital stock of the Corporation (and the shares of capital stock issued upon the exercise thereof), not to exceed five percent (5%) of the then issued and outstanding capital stock of the Corporation determined on a fully-diluted basis, issued to (1) financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions that are primarily of a non-equity financing nature, (2) strategic partners, (3) joint venturers, or (4) other third parties with whom the Corporation engages in a transaction, in each such case as approved by at least a majority of directors designated pursuant to Sections 1(b)(i)(A)-(E) of the Stockholders Agreement (or, if no such directors are then in office, the holders of a majority of shares of Preferred Stock then collectively held by the holders entitled to designate such directors, voting together as a single class calculated on an as-converted basis); and
(F) shares of capital stock sold and issued by the Corporation in connection with a Qualified Public Offering.
For purposes of this Section 4(f), if a part or all of the consideration received by the Corporation in connection with the issuance or deemed issuance of shares of Common Stock or the issuance or deemed issuance of any of the securities described in Section 4(f)(ii) hereof consists of property other than cash, such consideration shall be deemed to have the same value as is recorded on the books of the Corporation with respect to receipt of such property so long as such recorded value was determined reasonably and in good faith and with due care by the Board of Directors, and shall otherwise be deemed to have a value equal to its fair market value.
The Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, as so reduced, shall be further reduced in the same manner upon the happening of any successive event or events that cause reduction under this Section 4(f)(i).
(ii) For purposes of this Section 4(f), the issuance of any Derivative Securities shall be deemed an issuance of shares of Common Stock with respect to Section 4(f)(i) hereof if the Net Consideration Per Share that may be received by the Corporation for such Common Stock is less than the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, in effect immediately prior to the time of such issuance, and except as hereinafter provided, an adjustment in the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, shall be made upon each such issuance of Derivative Securities in the manner provided in Section 4(f)(i) hereof, as if such deemed Common Stock were issued for such Net Consideration Per Share. No adjustment of the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, shall be made under this Section 4(f) upon the issuance of any additional shares of Common Stock that are issued upon the exercise, conversion or exchange of any Derivative Securities if any such adjustment was previously made upon the issuance of such Derivative Securities. Any adjustment of the Series A-1 Conversion Value, the
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Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, with respect to this Section 4(f)(ii), shall be disregarded if, as and to the extent that the Derivative Securities that gave rise to such adjustment expire or are canceled without having been exercised, so that the Series A-1 Conversion, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, effective immediately upon such cancellation or expiration shall be equal to the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, that otherwise would have been in effect immediately prior to the time of the issuance of the expired or canceled Derivative Securities, with such additional adjustments as subsequently would have been made to such Series A-1 Conversion Value, Series A-2 Conversion Value, Series B Conversion Value or the Series C Conversion Value, as the case may be, had the expired or canceled Derivative Securities not been issued. In the event that the terms of any Derivative Securities previously issued by the Corporation are changed (whether by their terms or for any other reason, including without limitation, as a result of the effects of any anti-dilution adjustments contained therein) so as to lower the Net Consideration Per Share payable with respect thereto (whether or not the issuance of such Derivative Securities originally gave rise to an adjustment of the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, shall be recomputed as of the date of such change, so that the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, effective immediately upon such change shall be equal to the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, in effect at the time of the issuance of the Derivative Securities subject to such change, adjusted for the issuance thereof in accordance with the terms thereof after giving effect to such change, and with such additional adjustments as subsequently would have been made to the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, had the Derivative Securities been issued on such changed terms. For purposes of this Section 4(f)(ii), the Net Consideration Per Share that may be received by the Corporation shall be determined as follows:
(A) Net Consideration Per Share shall mean the amount equal to the total amount of consideration, if any, received by the Corporation for the issuance of such Derivative Securities or Common Stock, as the case may be, plus, in the case of Derivative Securities, the minimum amount of additional consideration, if any, payable to the Corporation upon exercise, conversion, and/or exchange thereof for shares of Common Stock, divided by the number of shares of Common Stock issued or the maximum number of shares of Common Stock that would be issued if all such Derivative Securities were exercised or converted at such Net Consideration Per Share, as the case may be.
(B) The Net Consideration Per Share that may be received by the Corporation shall be determined in each instance as of the date of issuance of Derivative Securities or Common Stock, as the case may be, without giving effect to any possible future price adjustments or rate adjustments that may be applicable with respect to such Derivative Securities and which are contingent upon future events; provided that in the case of an
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adjustment to be made as a result of a change in terms of such Derivative Securities, including such changes as may result from the effects of any anti-dilution adjustments contained therein, the Net Consideration Per Share shall be determined as of the date of such change.
(g) Adjustments for Reclassifications. If the Common Stock issuable upon the conversion of Preferred Stock shall be changed into the same or a different number of shares of any class(es) or series of stock, whether by reclassification or otherwise (other than an Extraordinary Common Stock Event or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), then, and in each such event, the holder of each share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein.
(h) Adjustments for Reorganizations. If elected by the Required Stockholders, then, as to all holders of Preferred Stock, in lieu of receiving payment in a Liquidation pursuant to Section 2(a) hereof, or of converting such Preferred Stock pursuant to Section 4(a) hereof, in the event that there shall be (i) a capital reorganization of Common Stock (other than a subdivision, combination of shares, reclassification or exchange of shares provided for elsewhere in this Section 4), or (ii) a merger or consolidation of the Corporation with or into another company, or the sale of all or substantially all of the Corporations assets or sale of more than fifty percent (50%) of the voting capital stock (in a single transaction or series of related transactions) of the Corporation (whether issued and outstanding, newly issued or from treasury, or any combination thereof, other than any sale by the Corporation of securities in an equity financing) to any other person (the foregoing (i) and (ii), a Reorganization ), then, as a part of and as a condition to the effectiveness of such Reorganization, lawful and adequate provision shall be made so that if the Corporation is not in economic effect the surviving company, each share of Preferred Stock shall be converted into a share of capital stock of the surviving company having equivalent preferences, rights, and privileges, except that in lieu of being able to convert into shares of Common Stock or common stock of the successor company, the holders of such shares of Preferred Stock (including any such capital stock issued upon conversion of such Preferred Stock) shall thereafter be entitled to receive upon conversion of such Preferred Stock (including any such capital stock issued upon conversion of such Preferred Stock) the number of shares of stock or other securities or property of the Corporation or of the successor company resulting from such merger or consolidation or sale, to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of Preferred Stock immediately prior to the Reorganization would have been entitled on such Reorganization. In any such case, appropriate provisions shall be made with respect to the rights of the holders of Preferred Stock (including any such capital stock issued upon conversion of the Preferred Stock) after such Reorganization to the end that the provisions of this Section 4 (including, without limitation, provisions for adjustment of the Series A-1 Conversion Value, the Series A-2 Conversion Value, the Series B Conversion Value or the Series C Conversion Value, as the case may be, and the number of shares issuable upon conversion of the Preferred Stock or such capital stock) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities, or assets to be deliverable thereafter upon the conversion of the Preferred Stock or such capital stock.
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(i) Certificate as to Adjustments. In each case of an adjustment or readjustment of the Series A-1 Conversion Rate, the Series A-2 Conversion Rate, Series B Conversion Rate or the Series C Conversion Rate, as the case may be, the Corporation will promptly furnish each applicable holder of Preferred Stock with a certificate, prepared by the chief financial officer of the Corporation, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based.
(j) Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of shares of Preferred Stock. Instead of any fractional shares of Common Stock that would otherwise be issuable upon conversion of shares of Preferred Stock, the Corporation shall pay to the holder of the shares of Preferred Stock that were converted a cash adjustment in respect of such fraction in an amount equal to the same fraction of the fair market price per share of Common Stock (as determined in a manner reasonably prescribed by the Board of Directors) at the close of business on the applicable Conversion Date.
(k) Partial Conversion. In the event some but not all of the shares of Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Corporation shall execute and deliver to or on the order of the holder, at the expense of the Corporation, a new certificate representing the number of shares of Preferred Stock that were not converted.
(l) Reservation of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of shares of Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, then, subject to the provisions of Section 5 hereof, the Corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
(m) Extraordinary Common Stock Event. As used herein, Extraordinary Common Stock Event means (i) the issuance of additional shares of Common Stock or any as a dividend or other distribution on outstanding Common Stock, (ii) the subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) the combination of outstanding shares of Common Stock into a smaller number of shares of Common Stock.
(n) Derivative Securities. As used herein, Derivative Securities means (i) all shares of stock and other securities that are convertible into or exchangeable for shares of Common Stock, and (ii) all options, warrants, and other rights to acquire shares of Common Stock or any class of stock or other security or securities convertible into or exchangeable for shares of Common Stock or any class of stock of other security.
(o) Further Adjustment Provisions. In the event that, at any time as a result of an adjustment made pursuant to this Section 4, the holder of any shares of Preferred Stock upon
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thereafter surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Corporation other than shares of Common Stock, the Series A-1 Conversion Rate, Series A-2 Conversion Rate, Series B Conversion Rate or the Series C Conversion Rate, as the case may be, in respect of such other shares or securities so receivable upon conversion of shares of Preferred Stock shall thereafter be adjusted, and shall be subject to further adjustment from time to time, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in this Section 4, and the remaining provisions hereof with respect to the Preferred Stock shall apply on like or similar terms to any such other shares or securities.
(p) Special Mandatory Conversion of Series C Preferred Stock.
(i) If Excel Medical Fund, L.P. ( Excel ), an affiliated entity or partner of Excel or a permitted Person (as defined in the Stock Purchase Agreement) does not purchase the shares of Series C Preferred Stock required to be purchased at the Additional Closing (as such term is defined in the Stock Purchase Agreement) in accordance with the terms of the Stock Purchase Agreement, all of such holders shares of Series C Preferred Stock shall automatically and without further action on the part of such holder be converted effective upon consummation of such Additional Closing (the Special Mandatory Conversion Date ) into such number of shares of Common Stock into which such shares of Series C Preferred Stock are then convertible under Section 4(a).
(ii) In such event, Excel shall be given written notice of the special mandatory conversion and the place designated for the special mandatory conversion of all such shares of Series C Preferred Stock pursuant to this Section 4(p). Such notice need not be given in advance of the Special Mandatory Conversion Date. Such notice shall be sent by first class or registered mail, postage prepaid, to Excel, at such holders address last shown on the records of the transfer agent for the Series C Preferred Stock (or the records of the Corporation, if it serves as its own transfer agent). Upon receipt of such notice, Excel shall surrender its certificate or certificates for all such shares of Series C Preferred Stock to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which it is entitled pursuant to this Section 4(p). On the Special Mandatory Conversion Date, all rights with respect to the Series C Preferred Stock so converted will terminate, except only the rights of Excel, upon surrender of its certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Series C Preferred Stock has been converted. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his or its attorney duly authorized in writing. As soon as practicable after the Special Mandatory Conversion Date and the surrender of the certificate or certificates for Series C Preferred Stock, the Corporation shall cause to be issued and delivered to Excel, or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Section 4(j) hereof in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. All certificates evidencing shares of Series C Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the Special Mandatory Conversion Date, be deemed to have been retired and cancelled and the shares of Series C Preferred Stock represented
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thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. Such converted Series C Preferred Stock may not be reissued, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series C Preferred Stock.
Section 5. Negative Covenants. So long as at least twenty percent (20%) of the maximum number of shares of Preferred Stock which shall ever have been issued by the Corporation remain outstanding (as calculated on an as-converted basis and subject to proportionate adjustment in the event of any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting such shares of Preferred Stock), the Corporation shall not do nor shall it cause any of its subsidiaries, if any, either directly or indirectly by amendment, merger, consolidation or otherwise, to do any of the following, nor alter, amend, modify or terminate any provision of this Section 5, without the affirmative vote or written consent of the Required Stockholders, in addition to the right of any other class or classes of capital stock to vote on such matters and any other vote required by law, and any attempt to do so will be wholly void:
(i) Amend, alter or repeal any provision of this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation (other than in connection with the creation or issuance of any additional class(es) or series or shares of capital stock, or any shares of any existing class(es) or series of capital stock (or any securities convertible into such shares), junior to the Series C Preferred Stock as to any one or more of voting, liquidation, dividends, participation, redemption or registration rights);
(ii) Increase or decrease the number of authorized shares of any series of Preferred Stock;
(iii) Create or authorize the creation of, or authorize the issuance of, by reclassification or otherwise, any additional class(es) or series or shares of capital stock, or any shares of any existing class(es) or series of capital stock, senior to, or on parity with, the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock or Series C Preferred Stock as to any one or more of voting, liquidation, dividends, participation, redemption or registration rights, or create or authorize the creation of, or authorize the issuance of, any securities convertible into such shares;
(iv) Make any material change in the character of its business except as approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement);
(v) Purchase, redeem or otherwise acquire any shares of its capital stock or any securities convertible into or exchangeable or exercisable for Common Stock, other than (A) in connection with the termination of any director, officer, employee, agent or consultant of the Corporation, (B) as permitted by any employee benefit plan approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement) or (C) as permitted or required by this Amended and Restated Certificate of Incorporation;
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(vi) Declare or pay any dividends or make any distributions upon any shares of its capital stock;
(vii) Make any loan or advance except (A) for ordinary travel, entertainment and similar expenses, (B) pursuant to any employee stock option plan or stock purchase agreement approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement) or (C) advances to any employees not in excess of $25,000 in the aggregate;
(viii) Guaranty any indebtedness except for trade accounts of the Corporation or any subsidiary acting in the ordinary course of its business, or as approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement);
(ix) Increase or decrease the size of the Board of Directors from the size contemplated by the Stockholders Agreement;
(x) Except as otherwise permitted under clauses (vii) or (viii) above, enter into any transaction with any of its officers, directors, employees or affiliates (or any of their affiliates) except in the ordinary course of business and pursuant to the reasonable requirements of the Corporations business and upon fair and reasonable terms at least as fair as could have been obtained on an arms length basis, or as approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement (excluding any director party to such transaction or who is a designee of a party (or an affiliate thereof) to such transaction));
(xi) Merge, consolidate or consummate a share exchange with any other entity or sell all or substantially all of its assets, effect any transaction (other than an equity financing of the Corporation primarily of a venture capital nature) which results in the holders of the Corporations capital stock prior to the transaction owning less than fifty percent (50%) of the voting power of the Corporations capital stock after the transaction, or effect a voluntary Liquidation;
(xii) Incur or become liable for indebtedness for borrowed money other than (A) purchase money indebtedness in an amount not in excess of $500,000 in the aggregate in any calendar year except as approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement), or (B) any renewal, extension or refinancing of any existing indebtedness, in an amount not in excess of the amount of the indebtedness being renewed, extended or refinanced, and on terms not less favorable to the Corporation than those of the indebtedness being renewed, extended or refinanced;
(xiii) Become subject to any agreement that would restrict the Corporations performance of its obligations under the terms of this Amended and Restated Certificate of Incorporation or the Corporations By-laws or the Stock Purchase Agreement and the documents, instruments and agreements executed and delivered in connection therewith;
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(xiv) Own, purchase or acquire any stock, obligations or securities of, or any interest in, or make any contribution to, any other person or entity, or own, purchase or acquire any property not used in the ordinary course of business except that the Corporation and its subsidiaries may invest in certain investment grade securities as approved by the Board of Directors (including the affirmative vote of a majority of the directors designated pursuant to Section 1(b)(i)(A)-(F) of the Stockholders Agreement);
(xv) Authorize or undertake any public offering of its securities other than in connection with a Qualified Public Offering;
(xvi) Enter into any exclusive license of the Corporations material intellectual property, including for a specified territory or field; or
(xvii) Obligate itself to do any of the foregoing.
Section 6. No Reissuance of Shares of Preferred Stock. No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion, or otherwise shall be reissued, and all such shares shall be canceled, retired, and eliminated from the shares that the Corporation is authorized to issue. The Corporation shall from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
Section 7. Notices of Record Dates, Etc. In the event (a) the Corporation establishes a record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution, or (b) there occurs any Reorganization or any Liquidation, the Corporation shall deliver to each holder of Preferred Stock, in accordance with Section 11(a) hereof, at least twenty (20) days prior to such record date or the proposed effective date of the transaction specified therein, as the case may be, a notice specifying (i) the date of such record date for the purpose of such dividend or distribution and a description of such dividend or distribution, (ii) the date on which any such dividend, distribution, Reorganization or Liquidation is expected to occur or become effective, and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for cash, securities, and/or other property deliverable upon such dividend, distribution, Reorganization or Liquidation.
Section 8. Ranking. The Preferred Stock shall rank senior to the Common Stock as to dividends and to the distribution of assets on Liquidation (as provided in Section 2 hereof).
Section 9. Definition of Common Stock. For purposes of Section 4 hereof only, the term Common Stock shall mean and include the Corporations authorized Common Stock, par value $0.001 per share, as constituted on the Filing Date.
Section 10. Miscellaneous.
(a) Notices. All notices, requests, payments, instructions or other documents to be given hereunder shall be delivered in accordance with Section 9.2 of the Stockholders Agreement.
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(b) Waiver. Any of the rights of the holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock set forth herein relating to all of the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock may be waived by the affirmative consent or vote of the Required Stockholders in compliance with Section 242(b)(2) of the DGCL. Notwithstanding the foregoing, any of the rights of the holders of the Series A-1 Preferred Stock set forth herein relating solely to the Series A-1 Preferred Stock may be waived (which waiver shall not apply to the holders of the Series A-2 Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock) by the affirmative consent or vote of the holders of at least seventy percent (70%) of the shares of Series A-1 Preferred Stock then outstanding, any of the rights of the holders of the Series A-2 Preferred Stock set forth herein relating solely to the Series A-2 Preferred Stock may be waived (which waiver shall not apply to the holders of the Series A-1 Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock) by the affirmative consent or vote of the holders of at least seventy percent (70%) of the shares of Series A-2 Preferred Stock then outstanding, any of the rights of the holders of the Series B Preferred Stock set forth herein relating solely to the Series B Preferred Stock may be waived (which waiver shall not apply to the holders of the Series A-1 Preferred Stock, the Series A-2 Preferred Stock or the Series C Preferred Stock) by the affirmative consent or vote of the holders of at least seventy-six percent (76%) of the shares of Series B Preferred Stock then outstanding, and any of the rights of the holders of the Series C Preferred Stock set forth herein relating solely to the Series C Preferred Stock may be waived (which waiver shall not apply to the holders of the Series A-1 Preferred Stock, the Series A-2 Preferred Stock or the Series B Preferred Stock) by the affirmative consent or vote of the holders of at least sixty percent (60%) of the shares of Series C Preferred Stock then outstanding.
B. Terms of Common Stock
Section 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock.
Section 2. Voting. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. Notwithstanding anything to the contrary set forth herein, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of all outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class on an as-converted basis, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Section 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock.
Section 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock.
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FIFTH: Except as set forth in this Amended and Restated Certificate of Incorporation, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation, but the stockholders may make additional bylaws and may alter or repeal any bylaw whether adopted by them or otherwise.
SIXTH: In furtherance of and not in limitation of powers conferred by statute, it is further provided:
(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
(b) Election of directors need not be by written ballot.
(c) Subject to the terms hereof, the Board of Directors is expressly authorized to adopt, amend, alter or repeal the By-laws of the Corporation.
SEVENTH: Except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
EIGHTH: The Corporation shall provide indemnification as follows:
A. Actions, Suits and Proceedings Other than by or in the Right of the Corporation . The Corporation shall indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an Indemnitee ), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
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B. Actions or Suits by or in the Right of the Corporation . The Corporation shall indemnify any Indemnitee who was or is a party to or threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made under this Section B in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including attorneys fees) which the Court of Chancery of Delaware shall deem proper.
C. Indemnification for Expenses of Successful Party . Notwithstanding any other provisions of this Article EIGHTH, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections A and B of this Article EIGHTH, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, Indemnitee shall be indemnified against all expenses (including attorneys fees) actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) an adjudication that Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by Indemnitee, (iv) an adjudication that Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe his conduct was unlawful, Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.
D. Notification and Defense of Claim . As a condition precedent to an Indemnitees right to be indemnified, such Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee. After notice from the Corporation to Indemnitee of its election so to assume such defense, the Corporation shall not be liable to Indemnitee for any legal or other expenses subsequently incurred by Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in this Section 4. Indemnitee shall have the right to employ his or her own counsel in connection with such
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action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) counsel to Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct of the defense of such action, suit, proceeding or investigation or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding or investigation, in each of which cases the fees and expenses of counsel for Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article EIGHTH. The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. The Corporation shall not be required to indemnify Indemnitee under this Article EIGHTH for any amounts paid in settlement of any action, suit, proceeding or investigation effected without its written consent. The Corporation shall not settle any action, suit, proceeding or investigation in any manner which would impose any penalty or limitation on Indemnitee without Indemnitees written consent. Neither the Corporation nor Indemnitee will unreasonably withhold or delay its consent to any proposed settlement.
E. Advance of Expenses . Subject to the provisions of Section F of this Article EIGHTH, in the event of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article EIGHTH, any expenses (including attorneys fees) incurred by or on behalf of an Indemnitee in defending an action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided , however, that the payment of such expenses incurred by or on behalf of Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article EIGHTH; and further provided that no such advancement of expenses shall be made under this Article EIGHTH if it is determined (in the manner described in Section F of this Article EIGHTH) that (i) Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe his or her conduct was unlawful. Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment.
F. Procedure for Indemnification . In order to obtain indemnification or advancement of expenses pursuant to Section A, B, C or E of this Article EIGHTH, an Indemnitee shall submit to the Corporation a written request. Any such advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of Indemnitee, unless (i) the Corporation has assumed the defense pursuant to Section D of this Article EIGHTH (and none of the circumstances described in Section D of this Article EIGHTH that would nonetheless entitle the Indemnitee to indemnification for the fees and expenses of separate counsel have occurred) or (ii) the Corporation determines within such 60 day period that Indemnitee did not meet the applicable standard of conduct set forth in Section A, B or E of this Article EIGHTH, as the case may be. Any such indemnification, unless ordered by a court, shall be made with respect to requests
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under Section A or B of this Article EIGHTH only as authorized in the specific case upon a determination by the Corporation that the indemnification of Indemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in Section A or B of this Article EIGHTH, as the case may be. Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ( disinterested directors ), whether or not a quorum, (b) by a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholders of the Corporation.
G. Remedies . The right to indemnification or advancement of expenses as granted by this Article EIGHTH shall be enforceable by Indemnitee in any court of competent jurisdiction. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this Article EIGHTH that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitees expenses (including attorneys fees) reasonably incurred in connection with successfully establishing Indemnitees right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation.
H. Limitations . Notwithstanding anything to the contrary in this Article, except as set forth in Section G of this Article EIGHTH, the Corporation shall not indemnify an Indemnitee pursuant to this Article EIGHTH in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board of Directors. Notwithstanding anything to the contrary in this Article EIGHTH, the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement.
I. Subsequent Amendment . No amendment, termination or repeal of this Article or of the relevant provisions of the DGCL or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.
J. Other Rights . The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitees official capacity and as to action in any other capacity while holding
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office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article EIGHTH. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article EIGHTH.
K. Partial Indemnification . If an Indemnitee is entitled under any provision of this Article EIGHTH to indemnification by the Corporation for some or a portion of the expenses (including attorneys fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses (including attorneys fees), judgments, fines or amounts paid in settlement to which Indemnitee is entitled.
L. Insurance . The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
M. Savings Clause . If this Article EIGHTH or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.
N. Definitions . Terms used herein and defined in Section 145(h) and Section 145(i) of the DGCL shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i).
NINTH: In the event that a director of the Corporation who is also a partner or employee of an entity that is a holder of Preferred Stock and that is in the business of investing and reinvesting in other companies or entities, or an employee or principal of an entity that manages or controls such an entity (each, a Fund ), acquires knowledge of a potential transaction or matter in such persons capacity as a partner, principal or employee of the Fund (or as the manager or general partner of the Fund) and not in his capacity as a director of the Corporation, which transaction or matter may be a corporate opportunity for both the Corporation and such Fund (a Corporate Opportunity ), then the Corporation, to the extent permitted by law, agrees that it shall have no interest or expectancy in such Corporate
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Opportunity and waives any claim that such Corporate Opportunity constituted a corporate opportunity that should have been presented to the Corporation; provided, however , that such director has acted in good faith.
TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.
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EXECUTED at Watertown, Massachusetts, on May 14, 2010.
/s/ Guy Macdonald |
||
Name: | Guy Macdonald | |
Title: | President |
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CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TETRAPHASE PHARMACEUTICALS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Tetraphase Pharmaceuticals, Inc. (hereinafter called the Corporation), organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows:
The Board of Directors of the Corporation (hereinafter called the Board), acting in accordance with Section 242 of the General Corporation Law of the State of Delaware, duly adopted a resolution by a written consent of the Board of Directors setting forth an amendment to the Corporations Amended and Restated Certificate of Incorporation, as amended (the Certificate of Incorporation), and declaring said amendment to be advisable. Said amendment has been duly approved by the written consent of the Corporations stockholders in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware. The resolution setting forth the amendment to the Certificate of Incorporation is as follows:
RESOLVED : | That the Certificate of Incorporation be amended by deleting the first paragraph of Article FOURTH of the Certificate of Incorporation and inserting in lieu thereof the following paragraph: |
FOURTH . The total number of shares of all classes of stock that the Corporation shall have authority to issue is 573,970,969, consisting solely of:
316,358,161 shares of common stock, par value $0.001 per share (the Common Stock ); and
257,612,808 shares of preferred stock (the Preferred Stock ), par value $0.001 per share, 10,072,000 of which shares are hereby designated as Series A-1 Convertible Participating Preferred Stock, par value $0.001 per share (the Series A-1 Preferred Stock ), 13,095,646 of which shares are hereby designated as Series A-2 Convertible Participating Preferred Stock, par value $0.001 per share (the Series A-2 Preferred Stock and collectively with the Series A-1 Preferred Stock, the Series A Preferred Stock ), 57,471,225 shares of which are hereby designated as Series B
Convertible Participating Preferred Stock, par value $0.001 per share (the Series B Preferred Stock ), and 176,973,937 of which shares are hereby designated as Series C Convertible Participating Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ).
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the Certificate of Incorporation to be signed by its President on this 10 th day of May, 2011.
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ Guy Macdonald |
|
Guy Macdonald | ||
President |
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TETRAPHASE PHARMACEUTICALS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Tetraphase Pharmaceuticals, Inc. (hereinafter called the Corporation), organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows:
The Board of Directors of the Corporation (hereinafter called the Board), acting in accordance with Section 242 of the General Corporation Law of the State of Delaware, duly adopted a resolution setting forth an amendment to the Corporations Amended and Restated Certificate of Incorporation, as amended (the Certificate of Incorporation), and declaring said amendment to be advisable. Said amendment has been duly approved by the written consent of the Corporations stockholders in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware. The resolution setting forth the amendment to the Certificate of Incorporation is as follows:
RESOLVED : | That the Certificate of Incorporation be amended by deleting the first paragraph of Article FOURTH of the Certificate of Incorporation and inserting in lieu thereof the following paragraph: |
FOURTH . The total number of shares of all classes of stock that the Corporation shall have authority to issue is 576,833,677, consisting solely of:
317,789,510 shares of common stock, par value $0.001 per share (the Common Stock ); and
259,044,157 shares of preferred stock (the Preferred Stock ), par value $0.001 per share, 10,072,000 of which shares are hereby designated as Series A-1 Convertible Participating Preferred Stock, par value $0.001 per share (the Series A-1 Preferred Stock ), 13,095,646 of which shares are hereby designated as Series A-2 Convertible Participating Preferred Stock, par value $0.001 per share (the Series A-2 Preferred Stock and collectively with the Series A-1 Preferred Stock, the Series A Preferred Stock ), 57,471,225 shares of which are hereby designated as Series B
Convertible Participating Preferred Stock, par value $0.001 per share (the Series B Preferred Stock ), and 178,405,286 of which shares are hereby designated as Series C Convertible Participating Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ).
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the Certificate of Incorporation to be signed by its Chief Executive Officer on this 14 th day of December, 2012.
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ Guy Macdonald |
|
Guy Macdonald | ||
Chief Executive Officer |
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
TETRAPHASE PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I STOCKHOLDERS |
1 | |||||||
1.1 |
Place of Meetings |
1 | ||||||
1.2 |
Annual Meeting |
1 | ||||||
1.3 |
Special Meetings |
1 | ||||||
1.4 |
Notice of Meetings |
1 | ||||||
1.5 |
Voting List |
2 | ||||||
1.6 |
Quorum |
2 | ||||||
1.7 |
Adjournments |
2 | ||||||
1.8 |
Voting and Proxies |
2 | ||||||
1.9 |
Action at Meeting |
3 | ||||||
1.10 |
Conduct of Meetings |
3 | ||||||
1.11 |
Action without Meeting |
4 | ||||||
ARTICLE II DIRECTORS |
5 | |||||||
2.1 |
General Powers |
5 | ||||||
2.2 |
Number; Election and Qualification |
5 | ||||||
2.3 |
Enlargement of the Board |
5 | ||||||
2.4 |
Tenure |
5 | ||||||
2.5 |
Vacancies |
5 | ||||||
2.6 |
Resignation |
6 | ||||||
2.7 |
Regular Meetings |
6 | ||||||
2.8 |
Special Meetings |
6 | ||||||
2.9 |
Notice of Special Meetings |
6 | ||||||
2.10 |
Meetings by Conference Communications Equipment |
6 | ||||||
2.11 |
Quorum |
6 | ||||||
2.12 |
Action at Meeting |
7 | ||||||
2.13 |
Action by Consent |
7 | ||||||
2.14 |
Removal |
7 | ||||||
2.15 |
Committees |
7 | ||||||
2.16 |
Compensation of Directors |
7 | ||||||
ARTICLE III OFFICERS |
8 | |||||||
3.1 |
Titles |
8 | ||||||
3.2 |
Election |
8 | ||||||
3.3 |
Qualification |
8 | ||||||
3.4 |
Tenure |
8 | ||||||
3.5 |
Resignation and Removal |
8 | ||||||
3.6 |
Vacancies |
9 | ||||||
3.7 |
Chairman of the Board |
9 |
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3.8 |
President; Chief Executive Officer |
9 | ||||||
3.9 |
Vice Presidents |
9 | ||||||
3.10 |
Secretary and Assistant Secretaries |
9 | ||||||
3.11 |
Treasurer and Assistant Treasurers |
10 | ||||||
3.12 |
Salaries |
10 | ||||||
ARTICLE IV CAPITAL STOCK |
10 | |||||||
4.1 |
Issuance of Stock |
10 | ||||||
4.2 |
Certificates of Stock |
11 | ||||||
4.3 |
Transfers |
11 | ||||||
4.4 |
Lost, Stolen or Destroyed Certificates |
11 | ||||||
4.5 |
Record Date |
12 | ||||||
ARTICLE V GENERAL PROVISIONS |
12 | |||||||
5.1 |
Fiscal Year |
12 | ||||||
5.2 |
Corporate Seal |
12 | ||||||
5.3 |
Waiver of Notice |
12 | ||||||
5.4 |
Voting of Securities |
13 | ||||||
5.5 |
Evidence of Authority |
13 | ||||||
5.6 |
Certificate of Incorporation |
13 | ||||||
5.7 |
Severability |
13 | ||||||
5.8 |
Pronouns |
13 | ||||||
ARTICLE VI AMENDMENTS |
13 | |||||||
6.1 |
By the Board of Directors |
13 | ||||||
6.2 |
By the Stockholders |
13 |
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ARTICLE I
STOCKHOLDERS
1.1 Place of Meetings . All meetings of stockholders shall be held at such place as may be designated from time to time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President or, if not so designated, at the principal office of the corporation. The Board of Directors may, in its sole discretion, determine that a meeting shall not be held at any place, but may instead be held solely by means of remote communication in a manner consistent with the General Corporation Law of the State of Delaware.
1.2 Annual Meeting . Unless directors are elected by consent in lieu of an annual meeting, the annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on a date and at a time designated by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President (which date shall not be a legal holiday in the place where the meeting is to be held). If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case all references in these By-laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting.
1.3 Special Meetings . Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, but such special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings . Except as otherwise provided by law, notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. Without limiting the manner by which notice otherwise may be given to stockholders, any notice shall be effective if given by a form of electronic transmission consented to (in a manner consistent with the General Corporation Law of the State of Delaware) by the stockholder to whom the notice is given. The notices of all meetings shall state the place, if any, date and time of the meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If notice is given by mail, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. If notice is given by electronic transmission, such notice shall be deemed given at the time specified in Section 232 of the General Corporation Law of the State of Delaware.
1.5 Voting List . The Secretary shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the corporation. If the meeting is to be held at a physical location (and not solely by means of remote communication), then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
1.6 Quorum . Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, the holders of a majority in voting power of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person, present by means of remote communication in a manner, if any, authorized by the Board of Directors in its sole discretion or represented by proxy, shall constitute a quorum for the transaction of business. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum.
1.7 Adjournments . Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these By-laws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place, if any, of the adjourned meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.
1.8 Voting and Proxies . Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law or the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or
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dissent to corporate action without a meeting, may vote or express such consent or dissent in person (including by means of remote communications, if any, by which stockholders may be deemed to be present in person and vote at such meeting) or may authorize another person or persons to vote or act for such stockholder by a proxy executed or transmitted in a manner permitted by the General Corporation Law of the State of Delaware by the stockholder or such stockholders authorized agent and delivered (including by electronic transmission) to the Secretary of the corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting . When a quorum is present at any meeting, any matter other than the election of directors to be voted upon by the stockholders at such meeting shall be decided by the affirmative vote of the holders of shares of stock having a majority in voting power of the votes cast by the holders of all of the shares of stock present or represented and voting on such matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority in voting power of the stock of that class present or represented and voting on such matter), except when a different vote is required by law, the Certificate of Incorporation or these By-laws. When a quorum is present at any meeting, any election by stockholders of directors shall be determined by a plurality of the votes cast on the election.
1.10 Conduct of Meetings .
(a) Chairman of Meeting . Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the Chairmans absence by the Vice Chairman of the Board, if any, or in the Vice Chairmans absence by the Chief Executive Officer, or in the Chief Executive Officers absence by the President, or in the Presidents absence by a Vice President, or in the absence of all of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen by vote of the stockholders at the meeting. The Secretary shall act as secretary of the meeting, but in the Secretarys absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
(b) Rules, Regulations and Procedures . The Board of Directors of the corporation may adopt by resolution such rules, regulations and procedures for the conduct of any meeting of stockholders of the corporation as it shall deem appropriate including, without limitation, such guidelines and procedures as it may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting. Except to the extent inconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the
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chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as shall be determined; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
1.11 Action without Meeting .
(a) Taking of Action by Consent . Any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on such action were present and voted. Except as otherwise provided by the Certificate of Incorporation, stockholders may act by written consent to elect directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.
(b) Electronic Transmission of Consents . A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (A) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram,
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cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
(c) Notice of Taking of Corporate Action . Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation.
ARTICLE II
DIRECTORS
2.1 General Powers . The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law or the Certificate of Incorporation.
2.2 Number; Election and Qualification . The number of directors which shall constitute the whole Board of Directors shall be determined from time to time by resolution of the stockholders or the Board of Directors, but in no event shall be less than one. The number of directors may be decreased at any time and from time to time either by the stockholders or by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors shall be elected at the annual meeting of stockholders by such stockholders as have the right to vote on such election. Directors need not be stockholders of the corporation.
2.3 Enlargement of the Board . The number of directors may be increased at any time and from time to time by the stockholders or by a majority of the directors then in office.
2.4 Tenure . Each director shall hold office until the next annual meeting and until a successor is elected and qualified, or until such directors earlier death, resignation or removal.
2.5 Vacancies . Unless and until filled by the stockholders, any vacancy on the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for
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the unexpired term of such directors predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next annual meeting of stockholders and until a successor is elected and qualified, or until such directors earlier death, resignation or removal.
2.6 Resignation . Any director may resign by delivering a resignation in writing or by electronic transmission to the corporation at its principal office or to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some later time or upon the happening of some later event.
2.7 Regular Meetings . Regular meetings of the Board of Directors may be held without notice at such time and place as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.
2.8 Special Meetings . Special meetings of the Board of Directors may be held at any time and place designated by any director.
2.9 Notice of Special Meetings . Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (i) in person or by telephone at least 24 hours in advance of the meeting, (ii) by sending written notice via reputable overnight courier, telecopy or electronic mail, or delivering written notice by hand, to such directors last known business, home or electronic mail address at least 48 hours in advance of the meeting, or (iii) by sending written notice via first-class mail to such directors last known business or home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.
2.10 Meetings by Conference Communications Equipment . Directors may participate in meetings of the Board of Directors or any committee thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.
2.11 Quorum . The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directors fixed pursuant to Section 2.2 of these By-laws shall constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.
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2.12 Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law or the Certificate of Incorporation.
2.13 Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent to the action in writing or by electronic transmission, and the written consents or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or committee.
2.14 Removal . Except as otherwise provided by the General Corporation Law of the State of Delaware, any one or more or all of the directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that the directors elected by the holders of a particular class or series of stock may be removed without cause only by vote of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. 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 the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-laws for the Board of Directors. Except as otherwise provided in the Certificate of Incorporation, these By-laws, or the resolution of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate a subcommittee any or all of the powers and authority of the committee.
2.16 Compensation of Directors . Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary entities in any other capacity and receiving compensation for such service.
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ARTICLE III
OFFICERS
3.1 Titles. The officers of the corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including a Chairman of the Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate.
3.2 Election . The Chief Executive Officer, President, Treasurer and Secretary shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting.
3.3 Qualification . No officer need be a stockholder. Any two or more offices may be held by the same person.
3.4 Tenure . Except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws, each officer shall hold office until such officers successor is elected and qualified, unless a different term is specified in the resolution electing or appointing such officer, or until such officers earlier death, resignation or removal.
3.5 Resignation and Removal . Any officer may resign by delivering a written resignation to the corporation at its principal office or to the Chief Executive Officer, the President or the Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some later time or upon the happening of some later event.
Any officer may be removed at any time, with or without cause, by vote of a majority of the directors then in office.
Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following such officers resignation or removal, or any right to damages on account of such removal, whether such officers compensation be by the month or by the year or otherwise, unless such compensation is expressly provided for in a duly authorized written agreement with the corporation.
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3.6 Vacancies . The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of Chief Executive Officer, President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of such officers predecessor and until a successor is elected and qualified, or until such officers earlier death, resignation or removal.
3.7 Chairman of the Board . The Board of Directors may appoint from its members a Chairman of the Board, who need not be an employee or officer of the corporation. If the Board of Directors appoints a Chairman of the Board, such Chairman shall perform such duties and possess such powers as are assigned by the Board of Directors and, if the Chairman of the Board is also designated as the corporations Chief Executive Officer, shall have the powers and duties of the Chief Executive Officer prescribed in Section 3.8 of these By-laws. Unless otherwise provided by the Board of Directors, the Chairman of the Board shall preside at all meetings of the Board of Directors and stockholders.
3.8 President; Chief Executive Officer . Unless the Board of Directors has designated the Chairman of the Board or another person as the corporations Chief Executive Officer, the President shall be the Chief Executive Officer of the corporation. The Chief Executive Officer shall have general charge and supervision of the business of the corporation subject to the direction of the Board of Directors. The President shall perform such other duties and shall have such other powers as the Board of Directors or the Chief Executive Officer (if the President is not the Chief Executive Officer) may from time to time prescribe. In the event of the absence, inability or refusal to act of the Chief Executive Officer or the President (if the President is not the Chief Executive Officer), the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the Chief Executive Officer and when so performing such duties shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.
3.9 Vice Presidents . Any Vice President shall perform such duties and possess such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries . The Secretary shall perform such duties and shall have such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.
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Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary, (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the chairman of the meeting shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers . The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned by the Board of Directors or the Chief Executive Officer. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these By-laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.
3.12 Salaries . Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.
ARTICLE IV
CAPITAL STOCK
4.1 Issuance of Stock . Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any shares of the authorized capital stock of the corporation held in the corporations treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such lawful consideration and on such terms as the Board of Directors may determine.
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4.2 Certificates of Stock . Every holder of stock of the corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by such holder in the corporation. Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice-Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, these By-laws, applicable securities laws or any agreement among any number of stockholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of each certificate representing shares of such class or series of stock, provided that in lieu of the foregoing requirements there may be set forth on the face or back of each certificate representing shares of such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests a copy of the full text of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
4.3 Transfers . Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-laws.
4.4 Lost, Stolen or Destroyed Certificates . The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including
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the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity and posting of such bond as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar.
4.5 Record Date . The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 10 days after the date of adoption of a record date for a consent without a meeting, nor more than 60 days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. If no record date is fixed, the record date for determining stockholders entitled to express consent to corporate action without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first consent is properly delivered to the corporation. If no record date is fixed, the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE V
GENERAL PROVISIONS
5.1 Fiscal Year . Except as from time to time otherwise designated by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January of each year and end on the last day of December in each year.
5.2 Corporate Seal . The corporate seal shall be in such form as shall be approved by the Board of Directors.
5.3 Waiver of Notice . Whenever notice is required to be given by law, by the Certificate of Incorporation or by these By-laws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before, at or after the time stated in such notice, shall be deemed equivalent to notice. Attendance of a
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person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
5.4 Voting of Securities . Except as the Board of Directors may otherwise designate, the Chief Executive Officer, the President or the Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or securityholders of any other entity, the securities of which may be held by this corporation.
5.5 Evidence of Authority . A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.
5.6 Certificate of Incorporation . All references in these By-laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time.
5.7 Severability . Any determination that any provision of these By-laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-laws.
5.8 Pronouns . All pronouns used in these By-laws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.
ARTICLE VI
AMENDMENTS
6.1 By the Board of Directors . Subject to such restrictions imposed by the Certificate of Incorporation, these By-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.
6.2 By the Stockholders . Subject to such restrictions imposed by the Certificate of Incorporation, these By-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting.
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Exhibit 10.1
EXECUTION COPY
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this Agreement ), dated as of May 14, 2010, is by and among (a) Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Company ) and (b) the individuals and entities listed on Schedule 1 hereto, as amended from time to time (the Holders ).
WHEREAS, certain of the Holders on the date hereof own shares of the Series A-1 Convertible Participating Preferred Stock, par value $0.001 per share ( Series A-1 Preferred Stock ), of the Company, Series A-2 Convertible Participating Preferred Stock, par value $0.001 per share ( Series A-2 Preferred Stock , and collectively with the Series A-1 Preferred Stock, Series A Preferred Stock ), and Series B Convertible Participating Preferred Stock, par value $0.001 per share ( Series B Preferred Stock ) of the Company;
WHEREAS, certain of the Holders on the date hereof and the Company are parties to the Registration Rights Agreement dated as of September 11, 2009 (the Prior Agreement );
WHEREAS, certain of the Holders are purchasing, concurrently herewith, shares of the Series C Convertible Participating Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ), of the Company pursuant to the Series C Convertible Participating Preferred Stock Purchase Agreement of even date herewith (the Stock Purchase Agreement );
WHEREAS, in connection with and as a condition to the initial closing of the transactions contemplated by the Stock Purchase Agreement, and in accordance with Section 12(b) of the Prior Agreement, the Company and the Holders on the date hereof wish to amend and restate in its entirety the Prior Agreement; and
WHEREAS, the parties desire to so enter into this Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions . As used herein, the following terms shall have the following meanings:
Commission means the Securities and Exchange Commission.
Common Stock means the Companys Common Stock, par value $0.001 per share.
Demand Registration has the meaning specified in Section 2(a) hereof.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fully Diluted Basis means, with respect to any calculation in respect of outstanding shares of Common Stock, that such calculation is to assume the conversion to Common Stock of all outstanding shares of Preferred Stock (as defined below).
Holder means one of the Holders identified in the introductory paragraph to this Agreement or such other Person to whom such Holder shall have assigned or transferred such Holders Registrable Securities and the rights and obligations hereunder in accordance with Section 12(g) hereof.
Indemnified Party has the meaning specified in Section 8(c) hereof.
Indemnifying Party has the meaning specified in Section 8(c) hereof.
Qualified Public Offering means an underwritten public offering of shares of Common Stock pursuant to an effective registration statement on Form S-1, or successor form, of the Commission, pursuant to which the per share price to the public is not less than $0.75 (such amount to be subject to proportionate adjustment in the event of any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event affecting the Common Stock occurring after the date hereof) and the gross proceeds to the Company are not less than $50,000,000.
Person means any individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof.
Piggyback Registration has the meaning specified in Section 3(a) hereof.
Preferred Stock means, collectively, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
Preferred Stock Registrable Securities means, at any time, all shares of Common Stock then issued or issuable upon the conversion of shares of Preferred Stock that are then Registrable Securities.
Prospectus means the (i) prospectus included in any Registration Statement, as amended or supplemented by any Prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and all other amendments and supplements to the Prospectus, including post effective amendments, and all material incorporated by reference in such Prospectus and (ii) any associated free writing prospectus.
registered and registration means a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act and the declaration or ordering by the Commission of effectiveness of such Registration Statement.
Registrable Securities means, at any time, all of the (a) shares of Common Stock then held by Mediphase Venture Partners II Limited Partnership or Skyline Venture Partners Qualified Purchaser Fund IV, L.P., (b) shares of Common Stock then issued or issuable upon the conversion of shares of Preferred Stock, (c) shares of Common Stock then issued or issuable to Silicon Valley Bank upon exercise of the Warrant to Purchase Stock, dated September 28, 2007, issued in favor of Silicon Valley Bank by the Company (the SVB Warrant) or upon conversion of shares of Series A-1 Preferred Stock issuable upon exercise of the SVB Warrant (provided, however, that such issued or issuable shares of Common Stock shall not be Registrable
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Securities for purposes of Sections 2(a)(i), 12(a) or 12(b) of the Agreement), and (d) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations or similar events), provided that the foregoing capital stock shall cease to be Registrable Securities (i) upon the sale of such capital stock pursuant to a Registration Statement or Rule 144 under the Securities Act, (ii) upon a sale or transfer of such capital stock in violation of the Stockholders Agreement, (iii) upon the assignment of rights or obligations hereunder in violation of the terms of this Agreement or (iv) at such time following the Qualified Public Offering, as they become eligible for sale without restriction pursuant to Rule 144(b) under the Securities Act.
Registration Expenses has the meaning specified in Section 7(a) hereof.
Registration Statement means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement including the Prospectus, amendments and supplements to such Registration Statement, including post effective amendments, all exhibits and all material incorporated by reference in such Registration Statement (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a similar limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation).
Required Holders means the Holders of at least sixty percent (60%) of all then outstanding Preferred Stock Registrable Securities.
Securities Act means the Securities Act of 1933, as amended.
Stockholders Agreement means the Amended and Restated Stockholders Agreement, of even date herewith, by and among the Company and its stockholders party thereto, as may be amended, modified and/or restated and in effect from time to time.
2. Demand Registration .
(a) Request for Demand Registration on Form S-1 .
(i) Request for Registration . Subject to the limitations contained in the following paragraphs of this Section 2, the holders of at least 40% of the Registrable Securities may, at any time after the date that is one hundred and eighty (180) days following the completion of the Companys initial underwritten public offering, give to the Company a written request for the registration by the Company under the Securities Act of Registrable Securities having an aggregate value of at least $5,000,000 (based on the market price or fair market value at the time of the registration request) (a Demand Registration ).
(ii) Securities Required to be Included . Subject to the limitations contained in the following paragraphs of this Section 2, upon receipt of any request for registration pursuant to this Section 2(a), the Company shall promptly give written notice of such proposed registration to all other Holders. Such Holders shall have the right, by giving written notice to the Company within thirty (30) days after the date the Company provides its notice, to elect to have included in such registration such of their Registrable Securities as such Holders may request in such notice of election, subject in the case of an underwritten offering to the terms of Section 2(c).
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(iii) Commercially Reasonable Efforts of Company . Following the expiration of the time period set forth in Section 2(a)(ii), the Company will use commercially reasonable efforts to effect promptly the registration of all such Registrable Securities. All written requests made by Holders of Registrable Securities pursuant to this Section 2(a) will specify the number of shares of Registrable Securities to be registered and will also specify the intended method of disposition thereof.
(b) Limitations on Demand Registration on Form S-1 .
(i) Number of Demand Registrations . The Holders of Registrable Securities will not be entitled to require the Company to effect more than two (2) Demand Registration pursuant to Section 2(a) hereof. For purposes of this Section 2(b), a Registration Statement shall not be counted as a Demand Registration Statement (A) until such time as such Registration Statement has been declared effective by the Commission or (B) if such Holders withdraw their request for a Demand Registration at any time prior to the Registration Statement being declared effective because such Holders (x) reasonably believe that the Registration Statement or Prospectus contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading, (y) notified the Company of such fact and requested that the Company correct such alleged misstatement or omission and (z) the Company has refused to correct such alleged misstatement or omission; provided , however, that if the initiating Holders withdraw their request for such registration prior to the Registration Statement being declared effective (other than as a result of information concerning the business or financial condition of the Company which is made known to the Holders after the date on which such registration was requested or pursuant to Section 2(b)(i)(B) hereof) but do not pay the Registration Expenses therefor, such Registration Statement shall be counted as a Demand Registration.
(ii) If at the time of any request to register Registrable Securities by the Holders pursuant to this Section 2, the Company is engaged or has plans to engage in a registered public offering or is engaged in any other activity which, in the good faith determination of the Companys Board of Directors, would be adversely affected by the requested registration, then the Company may at its option direct that such request be delayed for a period not in excess of 60 days from the date of such request, such right to delay a request to be exercised by the Company not more than once in any 12-month period.
(iii) Notwithstanding anything in the Agreement to the contrary, the Company shall not be obligated or required to effect the Demand Registration of any Registrable Securities during any six month period following the effectiveness of a Registration Statement.
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(c) Priority on Demand Registrations . In the event that the offering is to be an underwritten public offering, and the underwriter in connection therewith advises the Company in writing that marketing factors require a limitation on the number of shares to be sold in an underwritten public offering, the number of Registrable Securities to be included in the Registration Statement and underwriting shall be allocated among all Holders requesting registration in proportion, as nearly as practicable, to the respective number of Registrable Securities held by them on the date of the request for registration made by the initiating Holders pursuant to Section 2(a)(i). If any Holder would thus be entitled to include more Registrable Securities than such Holder requested to be registered, the excess shall be allocated among other requesting Holder pro rata in the manner described in the preceding sentence.
Neither the Company nor any of its stockholders (other than Holders of Registrable Securities) shall be entitled to include any securities in any underwritten Demand Registration unless the Company or such stockholders (as the case may be) shall have agreed in writing to sell such securities on the same terms and conditions as shall apply to the Registrable Securities to be included in such Demand Registration.
(d) Selection of Underwriters . If a written request for a Demand Registration is made pursuant to Section 2(a) hereof, then the Holders of a majority of the Registrable Securities to be included in any Demand Registration shall determine whether or not such Demand Registration shall be underwritten and, subject to the approval of the Company (which approval shall not be unreasonably withheld or delayed), shall select the investment banker(s) and managing underwriter(s) to administer such offering.
(e) Unlimited Registrations on Form S-3 . Subject to the limitations set forth in this Section 2(e), at any time after the Company becomes eligible to file a Registration Statement on Form S-3 (or any successor form),in addition to the rights contained in the foregoing provisions of this Section 2, Holders may, subject to the rights of the Company set forth below, at any time and from time to time to request in writing a registration with respect to which the Registrable Securities being sold have aggregate gross proceeds (exclusive of underwriters discounts and commissions) of at least $2,000,000 on Form S-3 (or any successor form) (which request will specify the number of shares of Registrable Securities to be registered and will also specify the intended method of disposition thereof), provided that such Holders will not be entitled to require the Company to effect more than two (2) registrations on Form S-3 pursuant to this Section 2(e) in any twelve (12) month period. The provisions of Sections 2(b), 2(c) and 2(d) shall apply to any exercise by the holders of the registration rights under this Section 2(e) as if the demand hereunder were a Demand Registration, with such changes and modifications to such sections as the context requires.
3. Piggyback Registrations .
(a) Rights to Piggyback .
(i) If (and on each occasion that) the Company proposes to register any of its equity securities under the Securities Act on a Registration Statement either for the Companys own account or for the account of any of its stockholders (other than for Holders pursuant to Section 2 hereof and other than pursuant to a Form S-4 or Form S-8)
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(each such registration not withdrawn or abandoned prior to the effective date thereof being herein called a Piggyback Registration ), the Company will give fifteen (15) days written notice to all Holders of Registrable Securities prior to the initial filing of the Registration Statement with the Commission in connection with such Piggyback Registration.
(ii) Subject to the provisions of Section 3(b) hereof and in the last sentence of this Section 3(a)(ii), (A) the Company will be obligated and required to include in each Piggyback Registration all Registrable Securities with respect to which the Company shall receive from Holders of Registrable Securities, within fifteen (15) days after the date on which the Company shall have given written notice of such Piggyback Registration to all Holders of Registrable Securities pursuant to Section 3(a)(i) hereof, the written requests of such Holders for inclusion in such Piggyback Registration, and (B) the Company will use its commercially reasonable efforts to effect promptly the registration of all such Registrable Securities; provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 3(a) without obligation to any Holders. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities of such Holders from any Piggyback Registration at any time prior to the effective date of such Piggyback Registration unless such Holders of Registrable Securities shall have entered into a written agreement with the Companys underwriter(s) establishing the terms and conditions under which such Holders would be obligated to sell such securities in such Piggyback Registration. The Company will not be obligated or required to include any Registrable Securities in any registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Commission under the Securities Act is applicable.
(b) Conditions of Piggyback Registrations . If the registration for which the Company gives notice pursuant to Section 3(a)(i) is a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3(a)(i). In such event, (i) the right of any Holder to include its Registrable Securities in such registration pursuant to this Section 3 shall be conditioned upon such Holders participation in such underwriting on the terms set forth herein, and (ii) all Holders including Registrable Securities in such registration shall enter into an underwriting agreement upon customary terms with the underwriter or underwriters selected for the underwriting by the Company, provided that no such Holders shall be so required unless all such Holders and all stockholders participating in such registration enter into such underwriting agreement. If any Holder who has requested inclusion of its Registrable Securities in such registration as provided above disapproves of the terms of the underwriting, such Holder may elect, by written notice to the Company, to withdraw its Registrable Securities from such Registration Statement and underwriting. If the managing underwriter advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the shares held by holders of securities of the Company other than the Holders shall be excluded from such Registration Statement and underwriting to the extent deemed advisable by the managing underwriter, and, if a further reduction of the number of shares is required, the number of shares that may be included in such Registration Statement and underwriting shall be allocated among all Holders and such other parties requesting registration in proportion, as nearly as practicable, to the respective number of shares
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of Common Stock (on an as-converted basis) held by them on the date the Company gives the notice specified in Section 3(a)(i). If any Holder would thus be entitled to include more shares than such Holder requested to be registered, the excess shall be allocated among other requesting Holders pro rata in the manner described in the preceding sentence. Notwithstanding the foregoing, the Company shall not be required, pursuant to this Section 3, to include any Registrable Securities in a Registration Statement (other than in the Initial Public Offering) if such Registrable Securities can then be sold without restriction pursuant to Rule 144(b) under the Securities Act.
(c) Selection of Underwriters . In any Piggyback Registration, the Company shall have the right to determine whether such registration is to be an underwritten registered public offering and shall (unless the Company shall otherwise agree) have the right to select the investment banker(s) and managing underwriter(s) in such registration.
4. Lockup Agreements . Each Holder of Registrable Securities, if the Company or the managing underwriter(s) so request in connection with the Companys initial underwritten public offering, will not, without the prior written consent of the Company or such underwriter(s) and provided that the officers and directors of the Company and all holders (other than, for purposes of this determination, such Holder) of at least two percent (2%) of all of the issued and outstanding shares of capital stock of the Company (determined on an as-converted basis) also agree not to, transfer or dispose any equity securities of the Company, including any sale pursuant to Rule 144 of the Commission under the Securities Act, during the seven (7) days prior to, and during the one hundred eighty (180) day period commencing on the effective date of such initial underwritten public offering, subject to extension in order to ensure FINRA compliance, except in connection with such initial underwritten public offering. The Company may impose stop-transfer instructions with respect to the Registrable Securities or other securities subject to the foregoing restriction until the end of such 180-day period. Any discretionary waiver or termination of the foregoing restriction by the Company or the underwriters shall apply pro rata to all Holders of Registrable Securities, based on the number of Registrable Securities held by such Holders, and prompt written notice of such discretionary waiver or termination shall be given to all Holders of Registrable Securities.
5. Registration Procedures .
(a) Whenever Holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its commercially reasonable efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible:
(i) prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such Registration Statement to become effective and remain effective for six (6) months from the effective date or such lesser period until all such Registrable Securities have been sold;
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(ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act (including the anti-fraud provisions thereof) and to keep the Registration Statement effective for six (6) months from the effective date or such lesser period until all such Registrable Securities are sold;
(iii) upon request, furnish to each seller of Registrable Securities such reasonable number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus and each Prospectus filed under Rule 424 of the Commission under the Securities Act) and such other documents as each such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by each such seller (it being understood that the Company consents to the use of the Prospectus, by such seller in connection with the offering and sale of the Registrable Securities covered by the Prospectus);
(iv) use its commercially reasonable efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests, use its commercially reasonable efforts to keep each such registration or qualification effective, including through new filings, amendments or renewals, during the period such Registration Statement is required to be kept effective, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, provided that the Company shall not be required, pursuant to this Section 5(a)(iv), to qualify as a foreign corporation;
(v) notify each seller of such Registrable Securities, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will promptly prepare (and, when completed, give notice to each seller of Registrable Securities) a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; provided that upon such notification by the Company, each seller of such Registrable Securities will not offer or sell such Registrable Securities until the Company has notified such seller that it has prepared a supplement or amendment to such Prospectus and delivered copies of such supplement or amendment to such seller;
(vi) cause all such Registrable Securities to be listed, prior to the date of the first sale of such Registrable Securities pursuant to such registration, on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed with the National Association of Securities Dealers automated quotation system;
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(vii) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such Registration Statement;
(viii) enter into all such customary agreements (including underwriting agreements in customary form) and take all such other actions as counsel for the Holders of Registrable Securities being sold or the underwriter(s), if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares);
(ix) make available for inspection on a confidential basis by any seller, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such seller or underwriter (in each case after reasonable prior notice), all relevant financial and other records, pertinent corporate documents and properties of the Company, and cause the Companys officers, directors, employees and independent accountants to supply on a confidential basis all relevant information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement;
(x) in the case of any underwritten public offering, use its commercially reasonable efforts to obtain:
(A) at the time of effectiveness of the Registration Statement, a comfort letter from the Companys independent certified public accountants covering such matters of the type customarily covered by cold comfort letters in underwritten public offerings as the underwriter(s) reasonably request; and
(B) at the time of any closing of the offering, a bring-down comfort letter, dated as of the date of such sale, from the Companys independent certified public accountants covering such matters of the type customarily covered by bring-down comfort letters in underwritten public offerings as the underwriter(s) reasonably request; and
(xi) in the case of any underwritten public offering, use its commercially reasonable efforts to obtain, at the time of effectiveness of each Registration Statement and at the time of any closing of the offering, an opinion or opinions from counsel to the Company, covering such matters of the type customarily covered by opinions in underwritten public offerings as the underwriters reasonably request.
6. Cooperation by Prospective Sellers, Etc.
(a) Each prospective seller of Registrable Securities will furnish to the Company in writing such information as the Company may reasonably require from such seller, and otherwise reasonably cooperate with the Company in connection with any Registration Statement with respect to such Registrable Securities.
(b) The failure of any prospective seller of Registrable Securities to furnish any information or documents in accordance with any provision contained in this Agreement shall not affect the obligations of the Company under this Agreement to any remaining sellers who
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furnish such information and documents unless in the reasonable opinion of counsel to the Company or the underwriter(s), such failure impairs or may impair the viability of the offering or the legality of the Registration Statement or the underlying offering.
(c) The Holders of Registrable Securities included in any Registration Statement will not (until further notice) effect sales thereof after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update such Registration Statement or Prospectus; but the obligations of the Company with respect to maintaining any Registration Statement current and effective shall be extended by a period of days equal to the period such suspension is in effect.
(d) At the end of any period during which the Company is obligated to keep any Registration Statement current and effective as provided by Section 5 hereof (and any extensions thereof required by Section 6(c) hereof), the Holders of Registrable Securities included in such Registration Statement shall discontinue sales of shares pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such Registration Statement which remain unsold, and such Holders shall notify the Company of the number of shares registered which remain unsold promptly after receipt of such notice from the Company.
7. Registration Expenses .
(a) All costs and expenses incurred or sustained in connection with or arising out of each registration pursuant to Sections 2 or 3 hereof, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriter(s) in connection with the blue sky qualification of Registrable Securities), printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of one counsel representing the Holders of Registrable Securities, such counsel to be selected by the Holders of a majority of the Registrable Securities to be included in such registration, fees and disbursements of all independent certified public accountants (including the expenses relating to the preparation and delivery of any special audit or cold comfort letters required by or incident to such registration), and fees and disbursements of underwriters (excluding discounts and commissions), the reasonable fees and expenses of any special experts retained by the Company of its own initiative or at the request of the managing underwriter(s) in connection with such registration, and fees and expenses of all (if any) other persons retained by the Company are herein called, collectively, Registration Expenses . Registration Expenses will be borne and paid by the Company for all Demand Registrations and Piggyback Registrations hereunder.
The Company will pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities of the Company are then listed.
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(b) The Company will not bear the cost of nor pay for any stock transfer taxes imposed in respect of the transfer of any Registrable Securities to any purchaser thereof by any Holder of Registrable Securities in connection with any registration of Registrable Securities pursuant to this Agreement.
(c) Each Holder of Registrable Securities included in such registration will pay all costs and expenses incurred or sustained in connection with or arising out of each registration pursuant to Sections 2 or 3 hereof which are not Registration Expenses and which are clearly solely attributable to the registration of such Holders Registrable Securities so included in such registration, and all other such costs and expenses not so attributable to one Holder will be borne and paid by all sellers (other than the Company) of securities included in such registration in proportion to the number of securities so included by each such seller.
8. Indemnification .
(a) Indemnification by the Company . The Company will indemnify each Holder requesting or joining in a registration and each underwriter of the securities so registered, the officers, directors and partners of each such Person and each Person, if any, who controls any thereof (within the meaning of the Securities Act) against any and all claims, losses, damages and liabilities arising out of or based on any untrue statement (or alleged untrue statement) of any material fact contained in any Prospectus (or in any related Registration Statement) or any omission (or alleged omission) to state therein any material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to any action or inaction required of the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, underwriter, officer, director and partner and controlling person for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided , however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company in an instrument duly executed by such Holder, underwriter, officer, director, partner or controlling person and stated to be specifically for use in such Prospectus or Registration Statement.
(b) Indemnification by Each Holder . Each Holder requesting or joining in a registration will indemnify, severally and not jointly, each underwriter of the securities so registered, the Company and its officers and directors and each Person, if any, who controls any thereof (within the meaning of the Securities Act) and their respective successors and assigns against any and all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of any material fact contained in any Prospectus, offering circular or other document incident to any registration, qualification or compliance (or in any related Registration Statement, notification or the like) or any omission (or alleged omission) to state therein any material fact required to be stated therein or necessary to make the statement therein not misleading, and such Holder will reimburse each underwriter, the Company and each other person indemnified pursuant to this paragraph (b) for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided , however, that this
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paragraph (b) shall apply only if (and only to the extent that) such statement or omission was made in reliance upon written information furnished to such underwriter or the Company specifically for use in such Prospectus, offering circular or other document (or related Registration Statement, notification or the like) or any amendment or supplement thereto; and, provided further, that each Holders liability hereunder with respect to any particular registration shall be limited to an amount equal to the net proceeds received by such Holder from the Registrable Securities sold by such Holder in such registration.
(c) Indemnification Proceedings . Each party entitled to indemnification pursuant to this Section 8 (the Indemnified Party ) shall give notice to the party required to provide indemnification pursuant to this Section 8 (the Indemnifying Party ) promptly after such Indemnified Party acquires actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party (at its expense) to assume the defense of any claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be reasonably acceptable to the Indemnified Party, and the Indemnified Party may participate in such defense at such partys expense; and provided , further, that the failure by any Indemnified Party to give notice as provided in this paragraph (c) shall not relieve the Indemnifying Party of its obligations under this Section 8 except to the extent that the failure results in a failure of actual notice to the Indemnifying Party and such Indemnifying Party is damaged solely as a result of the failure to give notice. 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 plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party so long as the Indemnifying Party has, in writing, acknowledged in writing its obligation to indemnify and is in compliance with all of its obligations hereunder to indemnify the Indemnified Party for all amounts in connection with such claim or litigation and which consent shall not be unreasonably withheld. If the defendants in any action subject to this Section 8 include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have reasonably determined that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party, or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party (other than solely by reason of the Indemnified Party seeking indemnification from the Indemnifying Party hereunder), the Indemnified Party shall have the right to select a separate counsel and to assume the defense and otherwise participate in the defense of such action, with the fees and expenses of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party, but only to the extent that the Indemnifying Party voluntarily agrees, or is determined by a court of competent jurisdiction, to be responsible therefor in accordance with the provisions of this Section 8, or there is a settlement of the action under circumstances in which the Indemnifying Party indemnifies the Indemnified Party in accordance with the provisions of this Section 8. The reimbursement required by this Section 8 shall be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred.
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9. Contribution in Lieu of Indemnification . If the indemnification provided for in Section 8 hereof is unavailable to a party that would have been an Indemnified Party thereunder in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each party that would have been an Indemnifying Party thereunder shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and such Indemnified Party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or such Indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro-rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 9 shall include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding any provision of this Section 9 to the contrary, (a) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation, and (b) each Holders liability hereunder with respect to any particular registration shall be limited to an amount equal to the net proceeds received by such Holder from the Registrable Securities sold by such Holder in such registration.
10. Rule 144 Requirements . From time to time after the earlier to occur of (a) the ninetieth day following the date on which there shall first become effective a Registration Statement filed by the Company under the Securities Act, or (b) the date on which the Company shall register a class of securities under Section 12 of the Exchange Act, the Company agrees to:
(a) make and keep current public information about the Company available, as those terms are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements);
(c) furnish to any holder of Registrable Securities upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii)
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such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration; and
(d) furnish to any Holder of Registrable Securities, upon request, a written statement signed by the Company, addressed to such Holder, stating whether or not the Company is in compliance with the current public information requirements of Rule 144 and Rule 144A of the Commission under the Securities Act (and, if not, a brief statement as to why or what action the Company has taken or proposes to take to comply with such requirements).
11. Participation in Underwritten Registrations . No Person may participate in any underwritten registration pursuant to this Agreement unless such Person (i) agrees to sell such Persons securities on the basis provided in any underwriting arrangements approved by the persons entitled, under the provisions hereof, to approve such arrangements, and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required by the terms of such underwriting arrangements. Any Holder of Registrable Securities to be included in any underwritten registration shall be entitled at any time to withdraw such Registrable Securities from such registration prior to its effective date in the event that such Holder shall disapprove of any of the terms of the related underwriting agreement.
12. Miscellaneous .
(a) No Other Registration Rights . Other than the Prior Agreement, the Company is not a party to any agreement granting any registration rights to any Person, and, subject to Section 13 hereof, will not on or after the date of this Agreement, without the prior written consent of the Required Holders, enter into any agreement with respect to its securities which grants registration rights to any Person, unless such rights are junior to, and are not inconsistent with and do not conflict with, the rights granted to the Holders of Registrable Securities in this Agreement.
(b) Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless such amendment, modification, supplement, waiver or consent is approved in writing by (i) the Company and (ii) the Required Holders, on behalf of all of the Holders of Registrable Securities, provided that (a) each Holder may waive any provision hereof with respect to such Holder at any time and (b) this Agreement may not be amended or terminated and the observance of any term hereunder may not be waived with respect to any Holder without the written consent of such Holder unless such amendment, termination or waiver applies to all Holders, respectively, in the same fashion. Notwithstanding the foregoing, Schedule I hereto may be amended by the Company from time to time to add information without the consent of the other parties hereto to reflect (i) transfers of rights and obligations hereunder in accordance with Section 12(g) and (ii) any Additional Purchasers that become a party hereto under Section 13 hereof.
(c) Registrable Securities Held by the Company . Whenever the consent or approval of Holders of Registrable Securities is required pursuant to this Agreement, Registrable Securities held by the Company shall not be counted in determining whether such consent or approval was duly and properly given by such Holders.
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(d) Term . Sections 3 and 12(a) of this Agreement shall terminate on the date that is five (5) years following the completion of the Companys Qualified Public Offering; provided, however, that this Agreement shall terminate in its entirety with respect to a Holder of Registrable Securities on the date on which such Holder may sell all of such Holders Registrable Securities without restriction under Rule 144 of the Commission under the Securities Act.
(e) Remedies . In the event of a breach by the Company of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.
(f) Notices . Any notice provided for in this Agreement will be in writing and will be deemed properly delivered if either personally delivered or sent by overnight courier or telecopier or mailed certified or registered mail, return receipt requested, postage prepaid, to the recipient at the address specified below:
(i) if to a Holder, at such Holders address on the stock transfer books of the Company; and
(ii) if to the Company, at:
Tetraphase Pharmaceuticals, Inc.
480 Arsenal Street, Suite 110
Watertown, MA 02472
Attention: Guy Macdonald
Facsimile No. (617) 926-3557
with a copy to:
Stuart M. Falber, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Fax: (617) 526-5000
and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 12(f). Any such notice shall be effective (A) if delivered personally or by telecopy, when received, (B) if sent by overnight courier, when receipted for, and (C) if mailed, five (5) days after being mailed as described above.
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(g) Successors and Assigns . This Agreement, and the rights and obligations of each Holder hereunder, may be assigned by such Holder to (a) any person or entity to which shares of Preferred Stock are transferred by such Holder, or (b) to any person or entity which, directly or indirectly, controls, is controlled by or is under common control with such Holder, and, in each case, such transferee shall be deemed a Holder for purposes of this Agreement; provided that such assignment of rights shall be contingent upon the transferee providing a written instrument to the Company notifying the Company of such transfer and assignment and agreeing in writing to be bound by the terms of this Agreement.
(h) Additional Shares of Preferred Stock . The Company and the Holders hereby agree that any additional shares of Preferred Stock purchased by a Holder after the date hereof pursuant to the Stock Purchase Agreement or otherwise shall be subject to this Agreement.
(i) Counterparts . This Agreement may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same instrument.
(j) Headings . The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect.
(k) Governing Law . The validity, performance, construction and effect of this Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of law.
(l) Severability . In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.
(m) Pronouns . Any reference herein to any gender or the singular or plural shall not, unless the context otherwise requires, affect the construction of this Agreement, and any such gender or number shall be interchangeable with any other gender or number, respectively.
(n) Consent to Jurisdiction .
(i) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, FOR THE PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED EXCLUSIVELY IN ANY STATE OR FEDERAL COURT SITTING IN THE CITY OF BOSTON. EACH OF THE PARTIES HERETO HEREBY AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR, PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
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(ii) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS IN ANY OTHER ACTION OR PROCEEDING RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, ON BEHALF OF ITSELF OR ITS PROPERTY, BY THE PERSONAL DELIVERY OF COPIES OF SUCH PROCESS TO SUCH PARTY. NOTHING IN THIS SECTION 12(m) SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(iii) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN SECTION 12(m)(i) ABOVE, AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(o) Entire Agreement . This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein, and supersedes and replaces all prior agreements and understandings of the parties with respect to such subject matter. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to any Registrable Securities.
(p) Effectiveness . This Agreement shall become effective when executed by the Company and the Holders of at least seventy percent (70%) of the Registrable Securities (as such terms are defined in the Prior Agreement) then outstanding, upon which time the Prior Agreement shall be amended and restated in its entirety to read as set forth herein and this Agreement shall be binding upon each of the parties to the Prior Agreement (and any successor, assignee or transferee of any such party), notwithstanding any failure by any such party to sign a counterpart signature page hereto.
13. Additional Purchasers . Persons or entities that, after the date hereof, purchase shares of Series C Preferred Stock pursuant to the Stock Purchase Agreement and become Additional Purchasers thereunder may (without the need for approval by any party to this Agreement) become parties to this Agreement by executing and delivering a Financing Signature Page (as defined in the Stock Purchase Agreement), whereupon they shall be deemed Holders for all purposes of this Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Registration Rights Agreement as an instrument under seal as of the date first written above.
COMPANY: | ||||
TETRAPHASE PHARMACEUTICALS, INC. | ||||
By: |
/s/ Guy Macdonald |
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Name: | Guy Macdonald | |||
Title: | President and CEO |
Schedule 1
Holders
Mediphase Venture Partners II Limited Partnership
Mediphase Venture Partners II (Annex Fund) Limited Partnership
Mediphase Venture Partners (DP & UP) Limited Partnership
Mediphase Venture Partners II Select Fund Limited Partnership
Beacon Bioventures Limited Partnership
Beacon Bioventures Principals Limited Partnership
Skyline Venture Partners Qualified Purchaser Fund IV, L.P.
Flagship Ventures Fund 2004, L.P.
Flagship Ventures Fund 2007, L.P.
CMEA Ventures VI, L.P.
CMEA Ventures VI, GmbH & CO. KG
Joaquin Trias
David Lubner
Silicon Valley Bank
Xiao-Yi Xiao
Excel Medical Fund, L.P.
Sigma Emerging Markets Ltd.
AG 2003 Trust L.P.
T ETRAPHASE P HARMACEUTICALS , I NC .
Amendment No. 1 to Second Amended and Restated
Registration Rights Agreement
This Amendment No. 1 (the Amendment ) to the Second Amended and Restated Registration Rights Agreement, dated as of May 14, 2010 (the Agreement ), by and among Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Company ), and the Holders (as defined in the Agreement) is entered into as of this 16 th day of May, 2011, among the Company and the Holders.
WHEREAS, the Company and the Holders are parties to the Agreement;
WHEREAS, the Company and its subsidiary Tetraphase Securities Corporation are entering into a Loan and Security Agreement with Silicon Valley Bank and Oxford Finance LLC, pursuant to which the Company has agreed to issue warrants to both Silicon Valley Bank and Oxford Finance LLC for the purchase of Series C Preferred Stock (as defined in the Agreement) and to grant certain specified registration rights with respect to the shares of capital stock issuable upon exercise of such warrants;
WHEREAS, the Company and Required Holders (as defined in the Agreement) currently outstanding desire to modify the terms of the Agreement; and
NOW THEREFORE, the Company and the Holders agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement.
2. The definition of Registrable Securities in Section 1 of the Agreement is hereby amended by deleting it in its entirety and inserting the following in lieu thereof:
Registrable Securities means, at any time, all of the (a) shares of Common Stock then held by Mediphase Venture Partners II Limited Partnership or Skyline Venture Partners Qualified Purchaser Fund IV, L.P., (b) shares of Common Stock then issued or issuable upon the conversion of shares of Preferred Stock, (c) shares of Common Stock then issued or issuable to Silicon Valley Bank upon exercise of the Warrant to Purchase Stock, dated September 28, 2007, issued in favor of Silicon Valley Bank by the Company (the SVB Warrant) or upon conversion of shares of Series A-1 Preferred Stock issuable upon exercise of the SVB Warrant (provided, however, that such issued or issuable shares of Common Stock shall not be Registrable Securities for purposes of Sections 2(a)(i), 12(a) or 12(b) of the Agreement), (d) shares of Common Stock then issued or issuable to Silicon Valley Bank upon exercise of the Warrant to Purchase Stock, dated May 16, 2011, issued in favor of Silicon Valley Bank by the Company (the SVB 2011 Warrant) or upon conversion of shares of Series C Preferred Stock issuable upon exercise of the SVB 2011 Warrant (provided, however, that such issued or issuable
shares of Common Stock shall not be Registrable Securities for purposes of Sections 2(a)(i), 12(a) or 12(b) of the Agreement), (e) shares of Common Stock then issued or issuable to Oxford Finance LLC upon exercise of the Warrant to Purchase Stock, dated May 16, 2011, issued in favor of Oxford Finance LLC by the Company (the Oxford Warrant) or upon conversion of shares of Series C Preferred Stock issuable upon exercise of the Oxford Warrant (provided, however, that such issued or issuable shares of Common Stock shall not be Registrable Securities for purposes of Sections 2(a)(i), 12(a) or 12(b) of the Agreement), and (f) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations or similar events), provided that the foregoing capital stock shall cease to be Registrable Securities (i) upon the sale of such capital stock pursuant to a Registration Statement or Rule 144 under the Securities Act, (ii) upon a sale or transfer of such capital stock in violation of the Stockholders Agreement, (iii) upon the assignment of rights or obligations hereunder in violation of the terms of this Agreement or (iv) at such time following the Qualified Public Offering, as they become eligible for sale without restriction pursuant to Rule 144(b) under the Securities Act.
3. The parties hereto acknowledge and agree that Silicon Valley Bank is currently a party to the Agreement as a Holder; that Oxford Finance LLC shall execute a counterpart signature page to the Agreement, in the form attached hereto as Exhibit A ; that by execution thereof Oxford Finance LLC shall become party to the Agreement as a Holder; and that upon such execution Schedule 1 of the Agreement shall be amended by adding Oxford Finance LLC to such Schedule 1.
4. Except as specifically set forth herein, no other portion of the Agreement shall be amended.
5. This Amendment may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Second Amended and Restated Registration Rights Agreement to be executed as of the day and year first written above.
COMPANY: | ||||
TETRAPHASE PHARMACEUTICALS, INC. | ||||
By: |
/s/ Guy Macdonald |
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Name: | Guy Macdonald | |||
Title: | President | |||
REQUIRED HOLDERS: | ||||
By: |
/s/ Guy Macdonald |
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As attorney-in-fact under power of attorney attached hereto |
EXHIBIT A
Form of Counterpart Signature Page to Registration Rights Agreement
Counterpart Signature Page to Registration Rights Agreement
By execution and delivery of this counterpart signature page, the undersigned hereby agrees to bound by the terms and conditions of the Second Amended and Restated Registration Rights Agreement (the Agreement ), dated as of May 14, 2010, by and among Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Company ), and the Holders (as defined in the Agreement), as amended from time to time, as a Holder thereunder, and authorizes this signature page to be attached to the Agreement. The undersigned further hereby acknowledges and agrees that it shall only have rights to registrations on Form S-3 pursuant to Section 2(e) of the Agreement and Piggyback Registrations pursuant to Section 3 of the Agreement and that the Registrable Securities (as defined in the Agreement) held by the Holder in connection with the exercise of the Oxford Warrant (as defined in the Agreement) shall not be Registrable Securities for purposes of Sections 2(a)(i), 12(a) or 12(b) of the Agreement.
Executed as of the date set forth below.
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Exhibit 10.2
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
WARRANT TO PURCHASE STOCK
Company: Tetraphase Pharmaceuticals, Inc., a Delaware corporation
Number of Shares: 32,000, subject to adjustment
Class of Stock: Series A-1 Convertible Participating Preferred Stock, $0.001 par value
per share
Warrant Price: $1.00, subject to adjustment
Issue Date: September 28, 2007
Expiration Date: September 27,2017
Credit Facility: This Warrant is issued in connection with that certain Loan and Security Agreement of even date herewith between Silicon Valley Bank and the Company.
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (Silicon Valley Bank, together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, is referred to hereinafter as Holder) is entitled to purchase the number of fully paid and nonassessable shares (the Shares) of the class of securities (the Class) of the above-named company (the Company) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE .
1.1 Method of Exercise . Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a certified or bank check, wire transfer of immediately available funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right . In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time elect to convert this Warrant, in whole or in part, on a cashless basis by delivering the original of this Warrant together with a duly executed Notice of Exercise and by canceling a portion of this Warrant in payment of the Warrant Price payable in respect of the number of Shares purchased upon such exercise. In the event of an exercise pursuant to this Article 1.2, the number of Shares issued to the holder shall be determined by dividing (a) the aggregate fair market value of the Shares for which this Warrant is being exercised (which shall include both the number of Shares issued to the Holder and the number of Shares subject to the portion of the Warrant being cancelled) minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.
1.3 Fair Market Value . If the Companys common stock, $0.001 par value per share (Common Stock) is traded in a public market and the Shares are Common Stock, the fair market value of a Share shall be the closing price of a share of Common Stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Companys initial public offering (IPO), the price to public per share price specified in the final prospectus relating to such offering). If the Common Stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Common Stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the IPO, the initial price to public per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Common Stock into which a Share is convertible. If the Common Stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.
1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company .
1.6.1 Acquisition . For the purpose of this Warrant, Acquisition means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Companys securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.
1.6.2 Treatment of Warrant at Acquisition .
A) Holder agrees that, in the event of an Acquisition in which the sole consideration is cash, Holder shall either (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire or (b) elect not to exercise its conversion or purchase right under this Warrant, in which case this Warrant will expire upon the closing of such Acquisition. The Company shall provide the Holder with written notice of any Acquisition (together with such reasonable information as the Holder may request in connection with such Acquisition) not less than ten (10) days prior to the closing of the proposed Acquisition.
B) Holder agrees that, in the event of an Acquisition that is an arms length sale of all or substantially all of the Companys assets to a third party that is not an Affiliate (as defined below) of the Company (a True Asset Sale), Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire; provided, however, that if the Company continues as a going concern following the closing of any such True Asset Sale and Holder elects not to exercise the Warrant, this Warrant will continue to be exercisable until the Expiration Date. The Company shall provide the Holder with such reasonable information as the Holder may request in connection with such contemplated Acquisition, which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.
C) Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.
As used herein Affiliate shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such persons or entitys officers, directors, joint venturers or partners, as applicable.
ARTICLE 2. ADJUSTMENTS TO THE SHARES .
2.1 Stock Dividends. Splits. Etc . If the Company declares or pays a dividend on the outstanding shares of the Class payable in Common Stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares as of the record date for the dividend. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of Common Stock into which the one share of the Class is convertible, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares of the Class, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.
2.2 Reclassification, Exchange, Combinations or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant (other than those transactions contemplated by Article 1.6 or Article 2.1), Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to Common Stock pursuant to the terms of the Companys Amended and Restated Certificate of Incorporation, as amended from time to time (the Certificate of Incorporation). The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities
or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Diluting Issuances . The number of shares of Common Stock issuable upon conversion of the Shares shall be subject to adjustment, from time to time in the manner set forth in the Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Class in the Certificate of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of Class.
2.4 No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, 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 under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article against impairment.
2.5 Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Companys expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .
3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows, as of the Issue Date:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the same class and series as the Shares were last issued in an arms-length transaction in which at least $500,000 of such shares were sold.
(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete as of the Issue Date.
3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the same class and series as the Shares, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the same class and series as the Shares any additional shares of any class or series of the Companys stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of any of its stock; (d) to effect an Acquisition or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the companys securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.
3.3 Registration Under Securities Act of 1933, as amended . The Company agrees that the Shares or, if the Shares are convertible into Common Stock of the Company, such Common Stock, shall have certain incidental, or Piggyback, and S3 registration rights pursuant to and as set forth in the Registration Rights Agreement dated as of August 8, 2006 among the Company and the other parties named therein (as amended from time to time, the Rights Agreement). Upon the written request of the Company, Holder agrees to become a party to, and be bound by, the Rights Agreement for purposes of the foregoing registration rights. Until such time (if any) as Holder becomes a party to the Rights Agreement, the provisions set forth in the Rights Agreement relating to the foregoing registration rights in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder.
3.4 No Shareholder Rights . Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.
3.5 Certain Information . At all times prior to the earlier to occur of (i) the IPO, or (ii) the Acquisition of the Company by an entity subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the Company agrees to provide Holder at any time and from time to time with such information as Holder may
reasonably request for purposes of Holders compliance with regulatory, accounting and reporting requirements applicable to Holder. Holder agrees to treat and hold all such information provided by the Company in confidence in accordance with the provisions of Section 12.9 of the Loan Agreement (regardless of whether the Loan Agreement is still then in force and effect).
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER . The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account . This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information . Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
4.3 Investment Experience . Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status . Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act . Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.
ARTICLE 5. MISCELLANEOUS .
5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.
5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO SILICON VALLEY BANK DATED AS OF SEPTEMBER 28, 2007, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Banks parent company) or any other affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act.
5.4 Transfer Procedure . After receipt by Silicon Valley Bank (Bank) of the executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group, Holders parent company. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.
5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HA 200
Santa Clara, CA 95054
Telephone: 408-654-7400
Facsimile: 408-496-2405
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Tetraphase Pharmaceuticals, Inc.
Attn: Chief Operating Officer
480 Arsenal Street, Suite 110
Watertown, MA 02462
Telephone: 617-715-3551
Facsimile: 617-715-3557
5.6 Amendment and Waiver . This Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.
5.7 Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
5.8 Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Article 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Article 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.
5.9 Counterparts . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.
5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.
COMPANY | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: | /s/ David C. Lubner | |
Name: (Print) David C. Lubner | ||
Title: | SVP, COO | |
HOLDER | ||
SILICON VALLEY BANK | ||
By: | /s/ Bernadette M. Michaud | |
Name: (Print) Bernadette M. Michaud | ||
Title: | VP |
APPENDIX 1
NOTICE OF EXERCISE
1. Holder elects to purchase shares of the Common/Series Preferred [strike one] Stock of pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.
[or]
1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing the shares in the name specified below:
Holders Name
(Address)
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.
HOLDER: | ||
By: | ||
Name: | ||
Title: | ||
(Date): |
SCHEDULE 1
Company Capitalization Table
See attached
Tetraphase Pharmaceuticals, Inc.
Capitalization Table
Type of Security |
Number of
Authorized Shares |
Number of
Outstanding Shares |
||||||
Common Stock |
32,032,000 | 5,530,000 | ||||||
Series A-1 Convertible Participating Preferred Stock |
25,132,000 | 10,040,000 | ||||||
Series A-2 Convertible Participating Preferred Stock |
13,095,646 | |
Exhibit 10.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
WARRANT TO PURCHASE STOCK
Company: Tetraphase Pharmaceuticals, Inc., a Delaware corporation
Number of Shares: 777,908, subject to adjustment
Class of Stock: Series C Convertible Participating Preferred Stock, $0.001 par value per share
Warrant Price: $0.2571, subject to adjustment
Issue Date: May 16, 2011
Expiration Date: May 16, 2021
Credit Facility: | This Warrant is issued in connection with that certain Loan and Security Agreement of even date herewith among Silicon Valley Bank, Oxford Finance LLC, Tetraphase Securities Corporation and the Company. |
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, OXFORD FINANCE LLC (Oxford Finance LLC, together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, is referred to hereinafter as Holder) is entitled to purchase the number of fully paid and nonassessable shares (the Shares) of the class of securities (the Class) of the above-named company (the Company) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE .
1.1 Method of Exercise . Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a certified or bank check, wire transfer of immediately available funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right . In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time elect to convert this Warrant, in whole or in part, on a cashless basis by delivering the original of this Warrant together with a duly executed Notice of Exercise and by canceling a portion of this Warrant in payment of the Warrant Price payable in respect of the number of Shares purchased upon such exercise. In the event of an exercise pursuant to this Article 1.2, the number of Shares
issued to the holder shall be determined by dividing (a) the aggregate fair market value of the Shares for which this Warrant is being exercised (which shall include both the number of Shares issued to the Holder and the number of Shares subject to the portion of the Warrant being cancelled) minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.
1.3 Fair Market Value . If the Companys common stock, $0.001 par value per share (Common Stock) is traded in a public market and the Shares are Common Stock, the fair market value of a Share shall be the closing price of a share of Common Stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Companys initial public offering (IPO), the price to public per share price specified in the final prospectus relating to such offering). If the Common Stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Common Stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the IPO, the initial price to public per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Common Stock into which a Share is convertible. If the Common Stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.
1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company .
1.6.1 Acquisition . For the purpose of this Warrant, Acquisition means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Companys securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.
1.6.2 Treatment of Warrant at Acquisition .
A) Holder agrees that, in the event of an Acquisition in which the sole consideration is cash, Holder shall either (a) exercise its conversion or purchase right under this
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Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire or (b) elect not to exercise its conversion or purchase right under this Warrant, in which case this Warrant will expire upon the closing of such Acquisition. The Company shall provide the Holder with written notice of any Acquisition (together with such reasonable information as the Holder may request in connection with such Acquisition) not less than ten (10) days prior to the closing of the proposed Acquisition.
B) Holder agrees that, in the event of an Acquisition that is an arms length sale of all or substantially all of the Companys assets to a third party that is not an Affiliate (as defined below) of the Company (a True Asset Sale), Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire; provided, however, that if the Company continues as a going concern following the closing of any such True Asset Sale and Holder elects not to exercise the Warrant, this Warrant will continue to be exercisable until the Expiration Date. The Company shall provide the Holder with such reasonable information as the Holder may request in connection with such contemplated Acquisition, which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.
C) Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.
As used herein Affiliate shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such persons or entitys officers, directors, joint venturers or partners, as applicable.
ARTICLE 2. ADJUSTMENTS TO THE SHARES .
2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend on the outstanding shares of the Class payable in Common Stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares as of the record date for the dividend. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of Common Stock into which the one share of the Class is convertible, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares of the Class, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.
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2.2 Reclassification, Exchange, Combinations or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant (other than those transactions contemplated by Article 1.6 or Article 2.1), Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to Common Stock pursuant to the terms of the Companys Amended and Restated Certificate of Incorporation, as amended from time to time (the Certificate of Incorporation). The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Diluting Issuances . The number of shares of Common Stock issuable upon conversion of the Shares shall be subject to adjustment, from time to time in the manner set forth in the Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Class in the Certificate of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of Class.
2.4 No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, 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 under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article against impairment.
2.5 Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.
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2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Companys expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .
3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows, as of the Issue Date:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the same class and series as the Shares were last issued in an arms-length transaction in which at least $500,000 of such shares were sold.
(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete as of the Issue Date.
3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the same class and series as the Shares, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the same class and series as the Shares any additional shares of any class or series of the Companys stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of any of its stock; (d) to effect an Acquisition or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the companys securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.
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3.3 Registration Under Securities Act of 1933, as amended . The Company agrees that the Shares or, if the Shares are convertible into Common Stock of the Company, such Common Stock, shall have certain incidental, or Piggyback, and S-3 registration rights pursuant to and as set forth in the Registration Rights Agreement dated as of May 14, 2010 among the Company and the other parties named therein (as amended from time to time, the Rights Agreement). Upon the written request of the Company, Holder agrees to become a party to, and be bound by, the Rights Agreement for purposes of the foregoing registration rights. Until such time (if any) as Holder becomes a party to the Rights Agreement, the provisions set forth in the Rights Agreement relating to the foregoing registration rights in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder.
3.4 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.
3.5 Certain Information . At all times prior to the earlier to occur of (i) the IPO, or (ii) the Acquisition of the Company by an entity subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the Company agrees to provide Holder at any time and from time to time with such information as Holder may reasonably request for purposes of Holders compliance with regulatory, accounting and reporting requirements applicable to Holder. Holder agrees to treat and hold all such information provided by the Company in confidence in accordance with the provisions of Section 12.9 of the Loan Agreement (regardless of whether the Loan Agreement is still then in force and effect).
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information. Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and
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acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.
ARTICLE 5. MISCELLANEOUS .
5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.
5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO OXFORD FINANCE LLC DATED AS OF MAY 16, 2011, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require
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Holder to provide an opinion of counsel if the transfer is to any affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act.
5.4 Transfer Procedure. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, Holder and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, Holder or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.
5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
Oxford Finance LLC
Attn: Vice President and General Counsel
133 North Fairfax Street
Alexandria, VA 22314
Telephone: 703-519-6082
Facsimile: 703-519-5225
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Tetraphase Pharmaceuticals, Inc.
Attn: Chief Operating Officer
480 Arsenal Street, Suite 110
Watertown, MA 02462
Telephone: 617-715-3551
Facsimile: 617-715-3557
5.6 Amendment and Waiver . This Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.
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5.7 Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
5.8 Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Article 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Article 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.
5.9 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.
5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.
COMPANY | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ David Lubner |
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Name: |
David Lubner |
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(Print) | ||
Title: | SVP, CEO | |
HOLDER | ||
OXFORD FINANCE LLC | ||
By: |
/s/ John G. Henderson |
|
Name: |
John G. Henderson |
|
(Print) | ||
Title: | Vice President & General Counsel |
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APPENDIX 1
NOTICE OF EXERCISE
1. Holder elects to purchase shares of the Common/Series Preferred [strike one] Stock of pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.
[or]
1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing the shares in the name specified below:
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Holders Name |
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(Address) |
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.
HOLDER: | ||
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By: |
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Name: |
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Title: |
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(Date): |
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SCHEDULE 1
Company Capitalization Table
See attached
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Tetraphase Pharmaceuticals, Inc.
Capitalization Table
Type of Security |
Number of Authorized
Shares |
Number of
Outstanding Shares |
||||||
Common Stock |
316,358,161 | 8,410,372 | ||||||
Series A-1 Convertible Participating Preferred Stock |
10,072,000 | 10,040,000 | ||||||
Series A-2 Convertible Participating Preferred Stock |
13,095,646 | 13,095,646 | ||||||
Series B Convertible Participating Preferred Stock |
57,471,225 | 57,471,225 | ||||||
Series C Convertible Participating Preferred Stock |
176,973,937 | 175,418,122 |
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Exhibit 10.4
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
WARRANT TO PURCHASE STOCK
Company: Tetraphase Pharmaceuticals, Inc., a Delaware corporation Number of Shares: 777,907, subject to adjustment Class of Stock: Series C Convertible Participating Preferred Stock, $0.001 par value per share Warrant Price: $0.2571, subject to adjustment Issue Date: May 16, 2011 Expiration Date: May 16, 2021 |
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Credit Facility: | This Warrant is issued in connection with that certain Loan and Security Agreement of even date herewith among Silicon Valley Bank, Oxford Finance LLC, Tetraphase Securities Corporation and the Company. |
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (Silicon Valley Bank, together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, is referred to hereinafter as Holder) is entitled to purchase the number of fully paid and nonassessable shares (the Shares) of the class of securities (the Class) of the above-named company (the Company) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE .
1.1 Method of Exercise . Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a certified or bank check, wire transfer of immediately available funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right . In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time elect to convert this Warrant, in whole or in part, on a cashless basis by delivering the original of this Warrant together with a duly executed Notice of Exercise and by canceling a portion of this Warrant in payment of the Warrant Price payable in respect of the number of Shares purchased upon such exercise. In the event of an exercise pursuant to this Article 1.2, the number of Shares
issued to the holder shall be determined by dividing (a) the aggregate fair market value of the Shares for which this Warrant is being exercised (which shall include both the number of Shares issued to the Holder and the number of Shares subject to the portion of the Warrant being cancelled) minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.
1.3 Fair Market Value . If the Companys common stock, $0.001 par value per share (Common Stock) is traded in a public market and the Shares are Common Stock, the fair market value of a Share shall be the closing price of a share of Common Stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Companys initial public offering (IPO), the price to public per share price specified in the final prospectus relating to such offering). If the Common Stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Common Stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the IPO, the initial price to public per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Common Stock into which a Share is convertible. If the Common Stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.
1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company .
1.6.1 Acquisition . For the purpose of this Warrant, Acquisition means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Companys securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.
1.6.2 Treatment of Warrant at Acquisition .
A) Holder agrees that, in the event of an Acquisition in which the sole consideration is cash, Holder shall either (a) exercise its conversion or purchase right under this
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Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire or (b) elect not to exercise its conversion or purchase right under this Warrant, in which case this Warrant will expire upon the closing of such Acquisition. The Company shall provide the Holder with written notice of any Acquisition (together with such reasonable information as the Holder may request in connection with such Acquisition) not less than ten (10) days prior to the closing of the proposed Acquisition.
B) Holder agrees that, in the event of an Acquisition that is an arms length sale of all or substantially all of the Companys assets to a third party that is not an Affiliate (as defined below) of the Company (a True Asset Sale), Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire; provided, however, that if the Company continues as a going concern following the closing of any such True Asset Sale and Holder elects not to exercise the Warrant, this Warrant will continue to be exercisable until the Expiration Date. The Company shall provide the Holder with such reasonable information as the Holder may request in connection with such contemplated Acquisition, which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.
C) Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.
As used herein Affiliate shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such persons or entitys officers, directors, joint venturers or partners, as applicable.
ARTICLE 2. ADJUSTMENTS TO THE SHARES .
2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend on the outstanding shares of the Class payable in Common Stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares as of the record date for the dividend. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of Common Stock into which the one share of the Class is convertible, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares of the Class, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.
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2.2 Reclassification, Exchange, Combinations or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant (other than those transactions contemplated by Article 1.6 or Article 2.1), Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to Common Stock pursuant to the terms of the Companys Amended and Restated Certificate of Incorporation, as amended from time to time (the Certificate of Incorporation). The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Diluting Issuances . The number of shares of Common Stock issuable upon conversion of the Shares shall be subject to adjustment, from time to time in the manner set forth in the Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Class in the Certificate of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of Class.
2.4 No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, 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 under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article against impairment.
2.5 Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.
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2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Companys expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .
3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows, as of the Issue Date:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the same class and series as the Shares were last issued in an arms-length transaction in which at least $500,000 of such shares were sold.
(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete as of the Issue Date.
3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the same class and series as the Shares, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the same class and series as the Shares any additional shares of any class or series of the Companys stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of any of its stock; (d) to effect an Acquisition or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the companys securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.
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3.3 Registration Under Securities Act of 1933, as amended . The Company agrees that the Shares or, if the Shares are convertible into Common Stock of the Company, such Common Stock, shall have certain incidental, or Piggyback, and S-3 registration rights pursuant to and as set forth in the Registration Rights Agreement dated as of May 14, 2010 among the Company and the other parties named therein (as amended from time to time, the Rights Agreement). Upon the written request of the Company, Holder agrees to become a party to, and be bound by, the Rights Agreement for purposes of the foregoing registration rights. Until such time (if any) as Holder becomes a party to the Rights Agreement, the provisions set forth in the Rights Agreement relating to the foregoing registration rights in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder.
3.4 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.
3.5 Certain Information . At all times prior to the earlier to occur of (i) the IPO, or (ii) the Acquisition of the Company by an entity subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the Company agrees to provide Holder at any time and from time to time with such information as Holder may reasonably request for purposes of Holders compliance with regulatory, accounting and reporting requirements applicable to Holder. Holder agrees to treat and hold all such information provided by the Company in confidence in accordance with the provisions of Section 12.9 of the Loan Agreement (regardless of whether the Loan Agreement is still then in force and effect).
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information. Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and
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acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.
ARTICLE 5. MISCELLANEOUS .
5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.
5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO SILICON VALLEY BANK DATED AS OF MAY 16, 2011, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require
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Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Banks parent company) or any other affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act.
5.4 Transfer Procedure. After receipt by Silicon Valley Bank (Bank) of the executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group, Holders parent company. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.
5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HA 200
Santa Clara, CA 95054
Telephone: 408-654-7400
Facsimile: 408-496-2405
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Tetraphase Pharmaceuticals, Inc.
Attn: Chief Operating Officer
480 Arsenal Street, Suite 110
Watertown, MA 02462
Telephone: 617-715-3551
Facsimile: 617-715-3557
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5.6 Amendment and Waiver . This Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.
5.7 Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
5.8 Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Article 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Article 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.
5.9 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.
5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.
COMPANY | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ David Lubner |
|
Name: |
David Lubner |
|
(Print) | ||
Title: | SVP, CEO | |
HOLDER | ||
SILICON VALLEY BANK | ||
By: |
/s/ Kathleen Welsh |
|
Name: |
Kathleen Welsh |
|
(Print) | ||
Title: | Relationship Manager |
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APPENDIX 1
NOTICE OF EXERCISE
1. Holder elects to purchase shares of the Common/Series Preferred [strike one] Stock of pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.
[or]
1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing the shares in the name specified below:
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Holders Name |
|
|
(Address) |
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.
HOLDER: | ||
|
By: |
|
|
Name: |
|
|
Title: |
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(Date): |
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SCHEDULE 1
Company Capitalization Table
See attached
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Tetraphase Pharmaceuticals, Inc.
Capitalization Table
Type of Security |
Number of Authorized
Shares |
Number of
Outstanding Shares |
||||||
Common Stock |
316,358,161 | 8,410,372 | ||||||
Series A-1 Convertible Participating Preferred Stock |
10,072,000 | 10,040,000 | ||||||
Series A-2 Convertible Participating Preferred Stock |
13,095,646 | 13,095,646 | ||||||
Series B Convertible Participating Preferred Stock |
57,471,225 | 57,471,225 | ||||||
Series C Convertible Participating Preferred Stock |
176,973,937 | 175,418,122 |
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Exhibit 10.5
TETRAPHASE PHARMACEUTICALS, INC.
2006 STOCK INCENTIVE PLAN 1
1. Purpose
The purpose of this 2006 Stock Incentive Plan (the Plan) of Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Company), is to advance the interests of the Companys stockholders by enhancing the Companys ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to align their interests with those of the Companys stockholders. Except where the context otherwise requires, the term Company shall include any of the Companys present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the Code) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the Board).
2. Eligibility
All of the Companys employees, officers, directors, consultants and advisors are eligible to receive options, restricted stock, restricted stock units and other stock-based awards (each, an Award) under the Plan. Each person who receives an Award under the Plan is deemed a Participant.
3. Administration and Delegation
(a) Administration by Board of Directors . The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Boards sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.
(b) Appointment of Committees . To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a Committee). All references in the Plan to the Board shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Boards powers or authority under the Plan have been delegated to such Committee or officers.
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As amended May 14, 2010. |
(c) Delegation to Officers . To the extent permitted by applicable law, the Board may delegate to one or more officers of the Company the power to grant Awards to employees or officers of the Company or any of its present or future subsidiary corporations and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of the Awards to be granted by such officers (including the exercise price of such Awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to Awards that the officers may grant; provided further, however, that no officer shall be authorized to grant Awards to any executive officer of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the Exchange Act)) or to any officer of the Company (as defined by Rule 16a-1 under the Exchange Act).
4. Stock Available for Awards . Subject to adjustment under Section 8, Awards may be made under the Plan for up to 53,745,353 shares of common stock, $0.001 par value per share, of the Company (the Common Stock). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. Further, shares of Common Stock tendered to the Company by a Participant to exercise an Award shall be added to the number of shares of Common Stock available for the grant of Awards under the Plan. However, in the case of Incentive Stock Options (as hereinafter defined), the foregoing provisions shall be subject to any limitations under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.
5. Stock Options
(a) General . The Board may grant options to purchase Common Stock (each, an Option) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a Nonstatutory Stock Option.
(b) Incentive Stock Options . An Option that the Board intends to be an incentive stock option as defined in Section 422 of the Code (an Incentive Stock Option) shall only be granted to employees of Tetraphase Pharmaceuticals, Inc., any of its present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code, and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or for any action taken by the Board pursuant to Section 9(f), including without limitation the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.
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(c) Exercise Price . The Board shall establish the exercise price of each Option and specify such exercise price in the applicable option agreement.
(d) Duration of Options . Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement.
(e) Exercise of Option . Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company following exercise either as soon as practicable or, subject to such conditions as the Board shall specify, on a deferred basis (with the Companys obligation to be evidenced by an instrument providing for future delivery of the deferred shares at the time or times specified by the Board).
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;
(3) when the Common Stock is registered under the Exchange Act, by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board (Fair Market Value), provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;
(4) to the extent permitted by applicable law and by the Board, by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) Substitute Options . In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Options may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Options contained in the other sections of this Section 5 or in Section 2. Substitute Options shall not count against the overall share limit set forth in Section 4(a), except as may be required by reason of Section 422 and related provisions of the Code.
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(h) Repricing of Options . The Board may, without stockholder approval, amend any outstanding Option granted under the Plan to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option. The Board may also, without stockholder approval, cancel any outstanding option (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option.
6. Restricted Stock; Restricted Stock Units
(a) General . The Board may grant Awards entitling recipients to acquire shares of Common Stock (Restricted Stock), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award. Instead of granting Awards for Restricted Stock, the Board may grant Awards entitling the recipient to receive shares of Common Stock to be delivered at the time such shares of Common Stock vest (Restricted Stock Units) (Restricted Stock and Restricted Stock Units are each referred to herein as a Restricted Stock Award).
(b) Terms and Conditions . The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any.
(c) Stock Certificates . Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participants death (the Designated Beneficiary). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participants estate.
7. Other Stock-Based Awards
Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (Other Stock Unit Awards), including without limitation stock appreciation rights and Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock Unit Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock Unit Awards may be
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paid in shares of Common Stock or cash, as the Board shall determine. Subject to the provisions of the Plan, the Board shall determine the conditions of each Other Stock Unit Award, including any purchase price applicable thereto.
8. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization . In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under this Plan, (ii) the number and class of securities and exercise price per share of each outstanding Option, (iii) the repurchase price per share subject to each outstanding Restricted Stock Award, and (iv) the terms of each other outstanding Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent determined by the Board.
(b) Reorganization Events
(1) Definition . A Reorganization Event shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (b) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or (c) any liquidation or dissolution of the Company.
(2) Consequences of a Reorganization Event on Awards Other than Restricted Stock Awards . In connection with a Reorganization Event, the Board shall take any one or more of the following actions as to all or any outstanding Awards on such terms as the Board determines: (i) provide that Awards shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to a Participant, provide that the Participants unexercised Options or other unexercised Awards shall become exercisable in full and will terminate immediately prior to the consummation of such Reorganization Event unless exercised by the Participant within a specified period following the date of such notice, (iii) provide that outstanding Awards shall become realizable or deliverable, or restrictions applicable to an Award shall lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the Acquisition Price), make or provide for a cash payment to a Participant equal to (A) the Acquisition Price times the number of shares of Common Stock subject to the Participants Options or other Awards (to the extent the exercise price does not exceed the Acquisition Price) minus (B) the aggregate exercise price of all such outstanding Options or other Awards, in exchange for the termination of such Options or other Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof) and (vi) any combination of the foregoing.
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For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.
To the extent all or any portion of an Option becomes exercisable solely as a result of clause (ii) above, the Board may provide that upon exercise of such Option the Participant shall receive shares subject to a right of repurchase by the Company or its successor at the Option exercise price; such repurchase right (x) shall lapse at the same rate as the Option would have become exercisable under its terms and (y) shall not apply to any shares subject to the Option that were exercisable under its terms without regard to clause (ii) above.
(3) Consequences of a Reorganization Event on Restricted Stock Awards . Upon the occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Companys successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a Reorganization Event involving the liquidation or dissolution of the Company, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.
9. General Provisions Applicable to Awards
(a) Transferability of Awards . Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.
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(b) Documentation . Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion . Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.
(d) Termination of Status . The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participants legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.
(e) Withholding . Each Participant shall pay to the Company, or make provision satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with an Award to such Participant. Except as the Board may otherwise provide in an Award, for so long as the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Companys minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares surrendered to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.
(f) Amendment of Award . The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participants consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock . The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Companys counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.
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(h) Acceleration . The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous
(a) No Right To Employment or Other Status . No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder . Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.
(c) Effective Date and Term of Plan . The Plan shall become effective on the date on which it is adopted by the Board. No Awards shall be granted under the Plan after the completion of 10 years from the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Companys stockholders, but Awards previously granted may extend beyond that date.
(d) Amendment of Plan . The Board may amend, suspend or terminate the Plan or any portion thereof at any time.
(e) Authorization of Sub-Plans . The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to this Plan containing (i) such limitations on the Boards discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.
(f) Compliance with Code Section 409A . No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code.
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(g) Governing Law . The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.
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Exhibit 10.6
Tetraphase Pharmaceuticals, Inc.
Incentive Stock Option Agreement
Granted Under 2006 Stock Incentive Plan
1. | Grant of Option . |
This agreement evidences the grant by Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Company), on , 200[ ] (the Grant Date) to [ ], an employee of the Company (the Participant), of an option to purchase, in whole or in part, on the terms provided herein and in the Companys 2006 Stock Incentive Plan (the Plan), a total of [ ] shares (the Shares) of common stock, $0.001 par value per share, of the Company (Common Stock) at a price of $ [ ] per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on [ ] (the Final Exercise Date).
It is intended that the option evidenced by this agreement shall be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the Code). Except as otherwise indicated by the context, the term Participant, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.
2. | Vesting Schedule . |
This option will become exercisable (vest) as to % of the original number of Shares on the [first] anniversary of the Grant Date and as to an additional % of the original number of Shares at the end of each successive [three-month] period following the first anniversary of the Grant Date until the [fourth] anniversary of the Grant Date.
The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.
3. | Exercise of Option . |
(a) Form of Exercise . Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.
(b) Continuous Relationship with the Company Required . Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an Eligible Participant).
(c) Termination of Relationship with the Company . If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.
(d) Exercise Period Upon Death or Disability . If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for cause as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.
(e) Termination for Cause . If, prior to the Final Exercise Date, the Participants employment is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment. If the Participant is party to an employment or severance agreement with the Company that contains a definition of cause for termination of employment, Cause shall have the meaning ascribed to such term in such agreement. Otherwise, Cause shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for Cause if the Company determines, within 30 days after the Participants resignation, that discharge for cause was warranted.
4. | Company Right of First Refusal . |
(a) Notice of Proposed Transfer . If the Participant proposes to sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively, transfer) any Shares acquired upon exercise of this option, then the Participant shall first give written notice of the proposed transfer (the Transfer Notice) to the Company. The Transfer Notice shall name the proposed transferee and state the number of such Shares the Participant proposes to transfer (the Offered Shares), the price per share and all other material terms and conditions of the transfer.
(b) Company Right to Purchase . For 30 days following its receipt of such Transfer Notice, the Company shall have the option to purchase all or part of the Offered Shares at the
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price and upon the terms set forth in the Transfer Notice. In the event the Company elects to purchase all or part of the Offered Shares, it shall give written notice of such election to the Participant within such 30-day period. Within 10 days after his or her receipt of such notice, the Participant shall tender to the Company at its principal offices the certificate or certificates representing the Offered Shares to be purchased by the Company, duly endorsed in blank by the Participant or with duly endorsed stock powers attached thereto, all in a form suitable for transfer of the Offered Shares to the Company. Promptly following receipt of such certificate or certificates, the Company shall deliver or mail to the Participant a check in payment of the purchase price for such Offered Shares; provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company may pay for the Offered Shares on the same terms and conditions as were set forth in the Transfer Notice; and provided further that any delay in making such payment shall not invalidate the Companys exercise of its option to purchase the Offered Shares.
(c) Shares Not Purchased By Company . If the Company does not elect to acquire all of the Offered Shares, the Participant may, within the 30-day period following the expiration of the option granted to the Company under subsection (b) above, transfer the Offered Shares which the Company has not elected to acquire to the proposed transferee, provided that such transfer shall not be on terms and conditions more favorable to the transferee than those contained in the Transfer Notice. Notwithstanding any of the above, all Offered Shares transferred pursuant to this Section 4 shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.
(d) Consequences of Non-Delivery . After the time at which the Offered Shares are required to be delivered to the Company for transfer to the Company pursuant to subsection (b) above, the Company shall not pay any dividend to the Participant on account of such Offered Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Offered Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Offered Shares.
(e) Exempt Transactions . The following transactions shall be exempt from the provisions of this Section 4:
(1) any transfer of Shares to or for the benefit of any spouse, child or grandchild of the Participant, or to a trust for their benefit;
(2) any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended (the Securities Act); and
(3) the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation);
provided , however , that in the case of a transfer pursuant to clause (1) above, such Shares shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.
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(f) Assignment of Company Right . The Company may assign its rights to purchase Offered Shares in any particular transaction under this Section 4 to one or more persons or entities.
(g) Termination . The provisions of this Section 4 shall terminate upon the earlier of the following events:
(1) the closing of the sale of shares of Common Stock in an underwritten public offering pursuant to an effective registration statement filed by the Company under the Securities Act; or
(2) the sale of all or substantially all of the capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Common Stock immediately prior to such transaction beneficially own, directly or indirectly, more than 50% of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction).
(h) No Obligation to Recognize Invalid Transfer . The Company shall not be required (1) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Section 4, or (2) to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred.
(i) Legends . The certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer of the Company securities):
The shares represented by this certificate are subject to a right of first refusal in favor of the Company, as provided in a certain stock option agreement with the Company.
(j) Other Obligations . Notwithstanding any of the provisions of this Section 4 to the contrary, the provisions of this Section 4, other than subsections (e), (h) and (i), shall not be effective and shall not apply to the Employee or the Shares if and for so long as the Employee is bound by and subject to the provisions set forth in Section 3 of the Stockholders Agreement, dated July [ ], 2006, by and among the Company and the entities and individuals party thereto, as amended from time to time.
5. | Agreement in Connection with Public Offering . |
The Participant agrees, in connection with the initial underwritten public offering of the Companys securities pursuant to a registration statement under the Securities Act, (i) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares
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of Common Stock held by the Participant (other than those shares included in the offering) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Companys securities for a period of 180 days from the effective date of such registration statement, and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering.
6. | Tax Matters . |
(a) Withholding . No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.
(b) Disqualifying Disposition . If the Participant disposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.
7. | Nontransferability of Option . |
This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.
8. | Provisions of the Plan . |
This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.
TETRAPHASE PHARMACEUTICALS, INC. | ||||||||||
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Title: |
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PARTICIPANTS ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Companys 2006 Stock Incentive Plan.
PARTICIPANT: | ||
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Address: |
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Exhibit 10.7
Tetraphase Pharmaceuticals, Inc.
Nonstatutory Stock Option Agreement
Granted Under 2006 Stock Incentive Plan
1. | Grant of Option . |
This agreement evidences the grant by Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Company), on , 200[ ] (the Grant Date) to [ ], an [employee], [consultant], [director] of the Company (the Participant), of an option to purchase, in whole or in part, on the terms provided herein and in the Companys 2006 Stock Incentive Plan (the Plan), a total of [ ] shares (the Shares) of common stock, [ ] par value per share, of the Company (Common Stock) at a price of $ [ ] per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on [ ] (the Final Exercise Date).
It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the Code). Except as otherwise indicated by the context, the term Participant, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.
2. | Vesting Schedule . |
This option will become exercisable (vest) as to % of the original number of Shares on the [first] anniversary of the Grant Date and as to an additional % of the original number of Shares at the end of each successive [three-month] period following the first anniversary of the Grant Date until the [fourth] anniversary of the Grant Date.
The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.
3. | Exercise of Option . |
(a) Form of Exercise . Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.
(b) Continuous Relationship with the Company Required . Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any other entity the employees, officers, directors, consultants, or advisors of which are eligible to receive option grants under the Plan (an Eligible Participant).
(c) Termination of Relationship with the Company . If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.
(d) Exercise Period Upon Death or Disability . If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for cause as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.
(e) Termination for Cause . If, prior to the Final Exercise Date, the Participants employment or other relationship with the Company is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment or other relationship. If the Participant is party to an employment, consulting or severance agreement with the Company that contains a definition of cause for termination of employment or other relationship, Cause shall have the meaning ascribed to such term in such agreement. Otherwise, Cause shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for Cause if the Company determines, within 30 days after the Participants resignation, that discharge for cause was warranted.
4. | Company Right of First Refusal . |
(a) Notice of Proposed Transfer . If the Participant proposes to sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively, transfer) any Shares acquired upon exercise of this option, then the Participant shall first give written notice of the proposed transfer (the Transfer Notice) to the Company. The Transfer Notice shall name the proposed transferee and state the number of such Shares the Participant proposes to transfer (the Offered Shares), the price per share and all other material terms and conditions of the transfer.
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(b) Company Right to Purchase . For 30 days following its receipt of such Transfer Notice, the Company shall have the option to purchase all or part of the Offered Shares at the price and upon the terms set forth in the Transfer Notice. In the event the Company elects to purchase all or part of the Offered Shares, it shall give written notice of such election to the Participant within such 30-day period. Within 10 days after his or her receipt of such notice, the Participant shall tender to the Company at its principal offices the certificate or certificates representing the Offered Shares to be purchased by the Company, duly endorsed in blank by the Participant or with duly endorsed stock powers attached thereto, all in a form suitable for transfer of the Offered Shares to the Company. Promptly following receipt of such certificate or certificates, the Company shall deliver or mail to the Participant a check in payment of the purchase price for such Offered Shares; provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company may pay for the Offered Shares on the same terms and conditions as were set forth in the Transfer Notice; and provided further that any delay in making such payment shall not invalidate the Companys exercise of its option to purchase the Offered Shares.
(c) Shares Not Purchased By Company . If the Company does not elect to acquire all of the Offered Shares, the Participant may, within the 30-day period following the expiration of the option granted to the Company under subsection (b) above, transfer the Offered Shares which the Company has not elected to acquire to the proposed transferee, provided that such transfer shall not be on terms and conditions more favorable to the transferee than those contained in the Transfer Notice. Notwithstanding any of the above, all Offered Shares transferred pursuant to this Section 4 shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.
(d) Consequences of Non-Delivery . After the time at which the Offered Shares are required to be delivered to the Company for transfer to the Company pursuant to subsection (b) above, the Company shall not pay any dividend to the Participant on account of such Offered Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Offered Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Offered Shares.
(e) Exempt Transactions . The following transactions shall be exempt from the provisions of this Section 4:
(1) any transfer of Shares to or for the benefit of any spouse, child or grandchild of the Participant, or to a trust for their benefit;
(2) any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended (the Securities Act); and
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(3) the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation);
provided , however , that in the case of a transfer pursuant to clause (1) above, such Shares shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.
(f) Assignment of Company Right . The Company may assign its rights to purchase Offered Shares in any particular transaction under this Section 4 to one or more persons or entities.
(g) Termination . The provisions of this Section 4 shall terminate upon the earlier of the following events:
(1) the closing of the sale of shares of Common Stock in an underwritten public offering pursuant to an effective registration statement filed by the Company under the Securities Act; or
(2) the sale of all or substantially all of the capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Common Stock immediately prior to such transaction beneficially own, directly or indirectly, more than 50% of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction).
(h) No Obligation to Recognize Invalid Transfer . The Company shall not be required (1) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Section 4, or (2) to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred.
(i) Legends . The certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer of the Company securities):
The shares represented by this certificate are subject to a right of first refusal in favor of the Company, as provided in a certain stock option agreement with the Company.
(j) Other Obligations . Notwithstanding any of the provisions of this Section 4 to the contrary, the provisions of this Section 4, other than subsections (e), (h) and (i), shall not be effective and shall not apply to the Participant or the Shares if and for so long as the Participant is bound by and subject to the provisions set forth in Section 3 of the Stockholders Agreement, dated July , 2006, by and among the Company and the entities and individuals party thereto, as amended from time to time.
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5. | Agreement in Connection with Public Offering . |
The Participant agrees, in connection with the initial underwritten public offering of the Companys securities pursuant to a registration statement under the Securities Act, (i) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock held by the Participant (other than those shares included in the offering) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Companys securities for a period of 180 days from the effective date of such registration statement, and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering.
6. | Withholding . |
No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.
7. | Nontransferability of Option . |
This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.
8. | Provisions of the Plan . |
This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.
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IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.
TETRAPHASE PHARMACEUTICALS, INC. | ||||||||||
Dated: |
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By: |
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Name: |
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Title: |
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PARTICIPANTS ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Companys 2006 Stock Incentive Plan. 1
PARTICIPANT: | ||
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Address: |
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If the Participant resides in a community property state, it is desirable to have the Participants spouse also accept the option by signature here. The following are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. Although Wisconsin is not formally a community property state, it has laws governing the division of marital property similar to community property states and it may be desirable to have a Wisconsin Participants spouse also accept the option. In addition, if the Company is granting an option to a California Participant, it must comply with California blue sky rules which require modification to this option. |
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Exhibit 10.11
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TetraPhase Pharmaceuticals, Inc. 480 Arsenal Street, Suite 110 Watertown, MA 02472 |
December 4, 2007
Mr. Guy Macdonald
125B Magazine St,
Cambridge, MA 02139
Dear Guy:
On behalf of TetraPhase Pharmaceuticals, Inc. (the Company), I am very pleased to offer you employment with the Company. The purpose of this letter is to summarize the terms of your employment with the Company, should you accept our offer.
1. Employment . You will be employed, effective January 14, 2008, to serve in the position of President and Chief Executive Officer, reporting to the Board of Directors of the Company (the Board), and will have such duties and responsibilities as are customarily assigned to an officer with such titles and such other duties and responsibilities as may be assigned to you from time to time by the Board. You agree to devote your full business time, best efforts, skill, knowledge, attention, and energies to the advancement of the Companys business and interests and to the performance of your duties and responsibilities as an employee of the Company.
2. Compensation . Your base rate of compensation will be $340,000 on an annual basis, less all applicable federal, state and local taxes and withholdings, such base salary to be paid in installments in accordance with the Companys standard payroll practices, which currently provides for payments in monthly installments. Such base salary may be adjusted from time to time in accordance with normal business practices and in the sole discretion of the Company.
3. Bonus . If the Board approves an annual bonus for fiscal year 2008 or any fiscal year thereafter, you may be eligible for a discretionary award of up to 35% of your annualized base salary in such year. The bonus award, if any, will be based on both individual and corporate performance and will be determined by the Board in its sole discretion. In order to be eligible for a bonus, if any, you must be an active employee of the Company on the date such bonus is distributed.
4. Benefits . You shall be eligible to participate in any and all benefit programs that the Company establishes and makes available to its employees from time to time, provided that you are eligible under (and subject to all provisions of) the plan documents governing those programs. Such benefits currently include: participation in group medical and dental insurance programs, term life insurance, long-term disability insurance and participation in the Companys 401(k) plan. The benefits made available by the Company, and the rules, terms, and conditions for participation in such benefit plans, may be changed by the Company at any time and from time to time without advance notice.
5. Stock Incentive Program .
(a) You will be eligible to participate in the Companys stock incentive program. The Company will grant to you, effective upon the first day of your employment, an option to purchase 880,984 shares of the Companys Common Stock (subject to adjustment for stock splits, stock dividends, combinations, reclassifications and other similar events affecting the Common Stock). In the event that the Company issues shares of its Series A-2 Convertible Participating Preferred Stock pursuant to Section 1.01(b)(i) of the Stock Purchase Agreement dated as of August 8, 2006 by and among the Company and the Purchasers (as defined therein) upon the achievement of the Milestone (as defined therein) (such shares being referred to as the Milestone Shares), then, subject to the approval of the Board, the Company will grant to you an additional option to purchase a number of shares of the Companys Common Stock equal to five percent (5%) of the shares of Common Stock issuable upon conversion of the Milestone Shares as of the date of issuance of the Milestone Shares.
(b) Each of such stock options (together, the Options) will vest (i.e., become exercisable) as to 25% of the shares covered thereby on the first anniversary of your first day of employment and as to 6.25% of the shares covered thereby every three months thereafter, subject to your continued employment by the Company. The exercise price will be equal to the fair market value of one share of Common Stock on the date of grant for each of such Options as determined by the Board. Each of such Options will be issued pursuant to the Companys 2006 Stock Incentive Plan (the Stock Plan) and the stock option agreements covering the Options, which must be executed to effect the grant of any option. Such stock option agreements shall be consistent with the form of option agreement generally used by the Company and the terms of this offer letter.
(c) Upon the occurrence of a Change in Control Event (as defined below) during your employment with the Company, the vesting of the Options shall be accelerated in part such that on the date of the Change in Control Event such Options shall vest immediately with respect to 50% of the then unvested shares covered by each of such Options and shall vest with respect to the balance of the unvested shares in accordance with vesting schedule provided for above (with 50% of the number of shares that would have otherwise vested on each subsequent vesting date in accordance with the vesting schedule above vesting on each such subsequent vesting date); provided, however, that if (i) you remain employed by the Company or the acquiring or succeeding company for six months following the Change in Control Event, (ii) during the six month period following the Change in Control Event, your employment with the Company or the acquiring or succeeding company is terminated by the Company or the acquiring or succeeding company without Cause or (iii) during the six month period following the Change in Control Event, you terminate your employment with the Company or the acquiring or succeeding company as a result of a substantial diminution in your authority and responsibilities from and after the Change in Control Event, then upon the six months date or the date of such termination, as the case may be, the balance of the unvested shares covered by such Options shall become vested and exercisable in full. For purposes of this offer letter, the definitions of Change in Control Event and Cause are set forth on Exhibit A to this offer letter.
(d) The Companys agreement to grant the Options hereunder is subject to the approval by the Board and the stockholders of the Company of an amendment or amendments to the Stock Plan to increase the number of Shares of Common Stock authorized for issuance thereunder to cover the shares of Common Stock issuable upon exercise of the Options.
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(e) In addition to the Options, the Board will review your equity compensation from time to time and may make such adjustments and grant such additional equity as it shall determine in its sole discretion.
6. At-Will Employment . Your employment with the Company will be on an at-will basis, meaning that either you or the Company may terminate the employment relationship at any time, for any reason, with or without cause and with or without notice. Although your job duties, title, compensation and benefits, as well as the Companys personnel policies and procedures, may change from time to time, the at-will nature of your employment may only be changed by a written agreement signed by you and the Company, which expressly states the intention to modify the at-will nature of your employment. Notwithstanding the foregoing, however, if the Company terminates your employment without Cause, then, in exchange for and subject to your execution of a separation agreement and release of claims in a form to be provided by, and satisfactory to, counsel for the Company, (a) you will receive as severance pay an amount equal to nine months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable over the nine-month period following such termination in accordance with the Companys regular payroll practices) and (b) during such nine-month severance period, the Company will provide you with medical and dental insurance benefits to the extent you were receiving such benefits prior to such termination and to the extent that the Company is able to provide you with such benefits at a cost to the Company that is not in excess of the cost that the Company was paying for such benefits for you prior to such termination; provided, however, that if you become employed prior to the end of the nine-month severance period and are eligible to receive medical or dental insurance benefits from your new employer, then the Company shall no longer be required to provide you with such benefits.
7. Non-Competition, Non-Solicitation and Non-Disclosure Agreement . As a condition of your employment, you will be required to execute the Companys Non-Competition, Non-Solicitation and Non-Disclosure Agreement, a copy of which is enclosed with this letter.
8. Proof of Legal Right to Work . For purposes of federal immigration law, you will be required to provide the Company with documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to the Company within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You may need to obtain a work visa in order to be eligible to work in the United States. If that is the case, your employment with the Company will be conditioned upon your obtaining a work visa in a timely manner as determined by the Company.
9. Company Policies and Procedures . As an employee of the Company, you will be required to comply with all Company policies and procedures. Violations of the Companys policies may lead to immediate termination of your employment. Further, the Companys premises, including all workspaces, furniture, documents, and other tangible materials, and all information technology resources of the Company (including computers, data and other electronic files, and all internet and email) are subject to oversight and inspection by the Company at any time. Company employees should have no expectation of privacy with regard to any Company premises, materials, resources, or information.
10. Other Agreements and Governing Law . You represent that you are not bound by any employment contract, restrictive covenant or other restriction preventing you from entering into
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employment with or carrying out your responsibilities for the Company, or which is in any way inconsistent with the terms of this letter. Please note that this offer letter is your formal offer of employment and supersedes any and all prior or contemporaneous agreements, discussions and understandings, whether written or oral, relating to the subject matter of this letter or your employment with the Company. The resolution of any disputes under this letter will be governed by Massachusetts law.
If this letter correctly sets forth the initial terms under which you will be employed by the Company, please sign the enclosed duplicate of this letter in the space provided below and return it to my attention at TetraPhase. This offer is effective through December 10, 2007. This offer is contingent on satisfactory reference checks.
On behalf of TetraPhase Pharmaceuticals, Inc. |
/s/ Lawrence Miller Lawrence Miller |
Chairman |
The foregoing correctly sets forth the terms of my at-will employment by the Company.
/s/ Guy Macdonald |
Date: |
December 10 th 2007 |
||||
Guy Macdonald |
- 4 -
EXHIBIT A
Definitions
For the purposes of this Offer Letter:
(1) Cause shall mean (a) a good faith finding by the Board that (i) you have failed to substantially perform your assigned duties for the Company, which failure is not cured within 30 days following written notice from the Company to you specifying the duties not performed, (ii) you have engaged in dishonesty, gross negligence or misconduct or (iii) you have breached any employment agreement, confidentiality agreement, non-disclosure agreement or other agreement entered into between you and the Company or (b) your conviction of, or the entry of a pleading of guilty or nolo contendere by you to, any crime involving moral turpitude or any felony.
(2) Change in Control Event shall mean:
(a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of the combined voting power of the then-outstanding 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 subsection (a), the following acquisitions shall not constitute a Change in Control Event: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), or (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or
(b) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), unless, immediately following such Business Combination all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership of the Outstanding Company Voting Securities immediately prior to such Business Combination.
- 5 -
December 19, 2008
Guy Macdonald
125B Magazine Street
Cambridge, MA 02139
Dear Guy:
To ensure compliance with Section 409A of the Internal Revenue Code of 1986, as amended, TetraPhase Pharmaceuticals, Inc. (the Company ) and you hereby agree to amend the offer letter dated December 4, 2007 by and between the Company and you (the Offer Letter ) as follows:
1. | It is agreed that Section 3 of the Offer Letter is amended by inserting the following at the end of the paragraph: |
Any bonus payable to you under this letter will be paid between January 1 and March 15 of the calendar year following the calendar year in which such bonus is earned and approved by the Board.
2. | It is further agreed that the third sentence in Section 6 of the Offer Letter is amended and restated in its entirety as follows |
Notwithstanding the foregoing, however, if the Company terminates your employment without Cause, then, in exchange for and subject to your execution and non-revocation of a separation agreement and release of claims within 60 days after your termination of employment in a form to be provided by, and satisfactory to, counsel for the Company, (a) you will receive as severance pay an amount equal to nine months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable in accordance with the Companys regular payroll practices) and (b) during such nine-month severance period, the Company will provide you with medical and dental insurance benefits to the extent you were receiving such benefits prior to such termination and to the extent that the Company is able to provide you with such benefits at a cost to the Company that is not in excess of the cost that the Company was paying for such benefits for you prior to such termination; provided, however, that if you become employed prior to the end of the nine-month severance period and are eligible to receive medical or dental insurance benefits from your new employer, then the Company shall no longer be required to provide you with such benefits. The nine-month severance period will commence with the first payroll date after the revocation period ends, provided that if the 60th day following your date of termination falls in the calendar year after the year in which your employment terminates, the payment will be made no earlier than the first day of such later calendar year.
3. | It is further agreed that the following language will be inserted as Section 11 of the Offer Letter: |
11. Section 409A of the Code . Subject to the provisions in this Section 11, any severance payments or benefits under this letter will begin only upon the date of your separation from service (determined as set forth below) which occurs on or after the date of termination of your employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to you under this letter.
(a) It is intended that each installment of the severance payments and benefits provided under this letter shall be treated as a separate payment for purposes of Section 409A of the Code and the guidance issued thereunder (Section 409A). Neither you nor the Company will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(b) The determination of whether and when your separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this paragraph, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
(c) All reimbursements and in-kind benefits provided under this letter shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in your offer letter), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
(d) Notwithstanding anything herein to the contrary, the Company shall have no liability to you or to any other person if the payments and benefits provided in this letter that are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
-2-
On behalf of TetraPhase Pharmaceuticals, Inc. |
/s/ Lawrence Miller |
Lawrence Miller |
Chairman |
By execution of this letter, you hereby agree to the foregoing amendment of the Offer Letter and reaffirm your obligations under the Offer Letter.
/s/ Guy Macdonald |
Date: |
12/23/08 |
[Add Confidentiality agreement]
-3-
Exhibit 10.12
TETRAPHASE PHARMACEUTICALS, INC.
August 10, 2006
David Lubner
4 Michael Circle
Southborough MA 01772
Dear David:
On behalf of Tetraphase Pharmaceuticals, Inc. (the Company), I am very pleased to offer you employment with the Company. The purpose of this letter is to summarize the terms of your employment with the Company, should you accept our offer.
1. Employment . You will be employed, effective September 4, 2006, to serve in the position of Senior Vice President and Chief Operating Officer, will report to the principal executive officer of the Company [and the Board of Directors] and will have such duties and responsibilities as are customarily assigned to an officer with such titles and such other duties and responsibilities as may be assigned to you by the principal executive officer of the Company and the Board of Directors. You agree to devote approximately 50% of your full business time (approximately two and one-half days per week) and your best efforts, skill, knowledge, attention and energies to the advancement of the Companys business and interests and to the performance of your duties and responsibilities as an employee of the Company.
2. Compensation . Your base rate of compensation will be $140,000 on an annual basis, less all applicable federal, state and local taxes and withholdings, such base salary to be paid in installments in accordance with the Companys standard payroll practices. Such base salary may be adjusted from time to time in accordance with normal business practices and in the sole discretion of the Company.
3. Bonus . If the Board of Directors approves an annual bonus for fiscal year 2006 or any fiscal year thereafter, you may be eligible for a discretionary award of up to 20% of your annualized base salary in such year. The bonus award, if any, will be based on both individual and corporate performance and will be determined by the Board of Directors in its sole discretion. In order to be eligible for a fiscal year bonus, if any, you must be an active employee of the Company on the date such bonus is distributed.
4. Benefits . You will be eligible to participate in any and all bonus and benefit programs that the Company establishes and makes available to its employees from time to time, provided that you are eligible under (and subject to all provisions of) the plan documents governing those programs. Such benefits may include: participation in group medical and dental insurance programs, term life insurance, long-term disability insurance and participation in the Companys 401(k) plan. The benefits made available by the Company, and the rules, terms, and conditions for participation in such benefit plans may be changed by the Company at any time and from time to time without advance notice.
Tetraphase Pharmaceuticals, Inc. Confidential
5. Stock Incentive Program . You will be eligible to participate in the Companys stock incentive program. Subject to approval by the Companys Board of Directors, the Company will grant to you an option to purchase (or an award of restricted stock for the purchase of) 280,000 shares of the Companys Common Stock (subject to adjustment for stock splits, combinations, or other recapitalizations) which will vest (i.e., become exercisable in the case of options) on the same terms and in the same manner as the restricted stock granted to you under the Restricted Stock Agreement dated August 3, 2006, subject to your continued employment by the Company. The option exercise price (or restricted stock purchase price) will equal the fair market value of one share of Common Stock on the date of grant of the option (or restricted stock award) as determined by the Companys Board of Directors. The option (or restricted stock award) will be issued pursuant to the Companys 2006 Stock Incentive Plan and the stock option agreement covering the option (or the restricted stock agreement covering the restricted stock award), which must be executed to effect the grant of any option (or restricted stock award).
6. At-Will Employment . Your employment with the Company will be on an at-will basis, meaning that either you or the Company may terminate the employment relationship at any time, for any reason, with or without cause and with or without notice. Although your job duties, title, compensation and benefits, as well as the Companys personnel policies and procedures, may change from time to time, the at-will nature of your employment may only be changed by a written agreement signed by you and the principal executive officer of the Company, which expressly states the intention to modify the at-will nature of your employment. Notwithstanding the foregoing, however, should the Company terminate your employment without cause, as that term is defined in this paragraph, you will receive as severance pay an amount equal to three (3) months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable over the three-month period following such termination in accordance with the Companys regular payroll practices) in exchange for your execution of a separation agreement and release of claims in a form to be provided by, and satisfactory to, counsel for the Company. For purposes hereof cause shall mean (a) a good faith finding by the Board of Directors of the Company that (i) you have failed to substantially perform your assigned duties for the Company, which failure is not cured within 20 days following written notice from the Company to you specifying the duties not performed, (ii) you have engaged in dishonesty, gross negligence or misconduct or (iii) you have breached any employment agreement, confidentiality agreement, non-disclosure agreement or other agreement entered into between you and the Company or (b) your conviction of, or the entry of a pleading of guilty or nolo contendere by you to, any crime involving moral turpitude or any felony.
7. Non-Competition, Non-Solicitation and Non-Disclosure Agreement . As a condition of your employment, you will be required to execute the Companys Non-Competition, Non-Solicitation and Non-Disclosure Agreement, a copy of which is enclosed with this letter.
8. Proof of Legal Right to Work . For purposes of federal immigration law, you will be required to provide the Company with documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to the
Tetraphase Pharmaceuticals, Inc. Confidential
- 2 -
Company within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You may need to obtain a work visa in order to be eligible to work in the United States. If that is the case, your employment with the Company will be conditioned upon your obtaining a work visa in a timely manner as determined by the Company.
9. Company Policies and Procedures . As an employee of the Company, you will be required to comply with all Company policies and procedures. Violations of the Companys policies may lead to immediate termination of your employment. Further, the Companys premises, including all workspaces, furniture, documents, and other tangible materials, and all information technology resources of the Company (including computers, data and other electronic files, and all internet and email) are subject to oversight and inspection by the Company at any time. Company employees should have no expectation of privacy with regard to any Company premises, materials, resources, or information.
10. Other Agreements and Governing Law . You represent that you are not bound by any employment contract, restrictive covenant or other restriction preventing you from entering into employment with or carrying out your responsibilities for the Company, or which is in any way inconsistent with the terms of this letter. Please note that this offer letter is your formal offer of employment and supersedes any and all prior or contemporaneous agreements, discussions and understandings, whether written or oral, relating to the subject matter of this letter or your employment with the Company. The resolution of any disputes under this letter will be governed by Massachusetts law.
If this letter correctly sets forth the initial terms under which you will be employed by the Company, please sign the enclosed duplicate of this letter in the space provided below and return it to me in the attached envelope along with the signed Non-Competition, Non-Solicitation and Non-Disclosure Agreement. If you do not accept this offer by August 17, 2006 , this offer will be revoked. This offer is contingent on satisfactory reference checks.
On behalf of Tetraphase Pharmaceuticals, Inc. |
/s/ Lawrence Miller Lawrence Miller President |
The foregoing correctly sets forth the terms of my employment by Tetraphase Pharmaceuticals, Inc.
/s/ David Lubner |
Date: |
8-14-06 |
||||
David Lubner |
Tetraphase Pharmaceuticals, Inc. Confidential
- 3 -
December 19, 2008
Mr. David Lubner
4 Michael Circle
Southborough MA 01772
Dear David:
To ensure compliance with Section 409A of the Internal Revenue Code of 1986, as amended, TetraPhase Pharmaceuticals, Inc. (the Company ) and you hereby agree to amend the offer letter dated August 10, 2006 by and between the Company and you (the Offer Letter ) as follows:
1. | It is agreed that Section 3 of the Offer Letter is amended by inserting the following at the end of the paragraph: |
Any bonus payable to you under this letter will be paid between January 1 and March 15 of the calendar year following the calendar year in which such bonus is earned and approved by the Board.
2. | It is further agreed that the third sentence in Section 6 of the Offer Letter is amended and restated in its entirety as follows: |
Notwithstanding the foregoing, however, should the Company terminate your employment without cause, as that term is defined in this paragraph, you will receive as severance pay an amount equal to three (3) months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable in accordance with the Companys regular payroll practices) in exchange for your execution and non-revocation of a separation agreement and release of claims within sixty (60) days after your termination of employment in a form to be provided by, and satisfactory to, counsel for the Company. The three (3) month severance period will commence with the first payroll date after the revocation period ends, provided that if the 60th day following your date of termination falls in the calendar year after the year in which your employment terminates, the payment will be made no earlier than the first day of such later calendar year.
3. | It is further agreed that the following language will be inserted as Section 11 of the Offer Letter: |
11. Section 409A of the Code . Subject to the provisions in this Section 11, any severance payments or benefits under this letter will begin only upon the date of your separation from service (determined as set forth below) which occurs on or after the date of termination of your employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to you under this letter.
Tetraphase Pharmaceuticals, Inc. Confidential
- 4 -
(a) It is intended that each installment of the severance payments and benefits provided under this letter shall be treated as a separate payment for purposes of Section 409A of the Code and the guidance issued thereunder (Section 409A). Neither you nor the Company will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(b) The determination of whether and when your separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this paragraph, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
(c) All reimbursements and in-kind benefits provided under this letter shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in your offer letter), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
(d) Notwithstanding anything herein to the contrary, the Company shall have no liability to you or to any other person if the payments and benefits provided in this letter that are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
Tetraphase Pharmaceuticals, Inc. Confidential
- 5 -
On behalf of TetraPhase Pharmaceuticals, Inc. |
/s/ Lawrence Miller |
Lawrence Miller |
Chairman |
By execution of this letter, you hereby agree to the foregoing amendment of the Offer Letter and reaffirm your obligations under the Offer Letter.
/s/ David Lubner |
Date: |
12/19/08 |
Tetraphase Pharmaceuticals, Inc. Confidential
- 6 -
June 29, 2012
Mr. David Lubner
4 Michael Circle
Southborough, MA 01772
Dear David:
As you are aware, Tetraphase Pharmaceuticals, Inc. (the Company ) has agreed to increase your severance benefits under the offer letter dated August 10, 2006, as amended December 19, 2008, by and between the Company and you (the Offer Letter ). In order to effect such increase, the Company hereby agrees that the third sentence in Section 6 of the Offer Letter be amended and restated in its entirety as follows:
Notwithstanding the foregoing, however, should the Company terminate your employment without cause, as that term is defined in this paragraph, (a) you will receive as severance pay an amount equal to six (6) months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable in accordance with the Companys regular payroll practices) and (b) during such six-month severance period, the Company will provide you with medical and dental insurance benefits to the extent you were receiving such benefits prior to such termination and to the extent that the Company is able to provide you with such benefits at a cost to the Company that is not in excess of the cost that the Company was paying for such benefits for you prior to such termination; provided, however, that if you become employed prior to the end of the six-month severance period and are eligible to receive medical or dental insurance benefits from your new employer, then the Company shall no longer be required to provide you with such benefits, each of the benefits provided above in clauses (a) and (b) to be provided in exchange for your execution of a separation agreement and release of claims in a form to be provided by, and satisfactory to, counsel for the Company. The six (6) month severance period will commence with the first payroll date after the revocation period ends, provided that if the 60th day following your date of termination falls in the calendar year after the year in which your employment terminates, the payment will be made no earlier than the first day of such later calendar year.
Tetraphase Pharmaceuticals, Inc. Confidential
Please confirm your agreement to the foregoing by signing this letter in the place indicated below.
Tetraphase Pharmaceuticals, Inc. |
/s/ Guy Macdonald |
Guy Macdonald President and Chief Executive Officer |
By execution of this letter, you hereby agree to the foregoing amendment of the Offer Letter and reaffirm your obligations under the Offer Letter.
/s/ David Lubner |
Date: |
6/29/12 |
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David Lubner |
Tetraphase Pharmaceuticals, Inc. Confidential
- 2 -
Exhibit 10.13
December 22, 2010
Patrick Horn, M.D.
295 Commonwealth Ave.
Newton, MA 02467
Dear Patrick:
On behalf of Tetraphase Pharmaceuticals, Inc. (the Company), I am very pleased to offer you employment with the Company. The purpose of this letter is to summarize the terms of your employment with the Company, should you accept our offer.
1. Employment . You will be employed to serve in the position of Chief Medical Officer, reporting to Guy Macdonald, President and Chief Executive Officer of Tetraphase Pharmaceuticals, Inc. Your start date will be January 3 r d , 2011. As Chief Medical Officer, you will have such duties and responsibilities as are customarily assigned to an employee with such title and such other duties and responsibilities as may be assigned to you by the Company. You agree to devote your full business time, best efforts, skill, knowledge, attention, and energies to the advancement of the Companys business and interests and to the performance of your duties and responsibilities as an employee of the Company.
2. Compensation . Your base rate of compensation will be $315,000 on an annual basis, less all applicable federal, state and local taxes and withholdings, such base salary to be paid in installments in accordance with the Companys standard payroll practices. Such base salary may be adjusted from time to time in accordance with normal business practices and in the sole discretion of the Company.
3. Bonus . If the Board of Directors approves an annual bonus in any fiscal year you may be eligible for a discretionary award of up to 25% of your annualized base salary in such year. The bonus award, if any, will be based on both individual and corporate performance and will be determined by the Board of Directors of the Company in its sole discretion. In order to be eligible for a bonus, if any, you must complete three months of continuous service and be an active employee of the Company on the date such bonus is distributed. Any bonus payable to you under this letter will be paid between January 1 and March 15 of the calendar year following the calendar year in which such bonus is earned and approved by the Board.
In addition, upon commencement of your employment with the Company, you will receive a Sign-on Bonus of $50,000 (less all applicable federal, state, and local taxes and withholdings). If you voluntarily terminate your employment with the Company before the first anniversary of date of hire, you will be required to refund the Sign-on Bonus to the Company.
4. Benefits . You shall be eligible to participate in any and all bonus and benefit programs that the Company establishes and makes available to its employees from time to time, provided that you are eligible under (and subject to all provisions of) the plan documents governing those programs. Such benefits may include: participation in group medical and dental
Tetraphase Pharmaceuticals, Inc. Confidential
insurance programs, term life insurance, long-term disability insurance and participation in the Companys 401(k) plan. The benefits made available by the Company, and the rules, terms, and conditions for participation in such benefit plans may be changed by the Company at any time and from time to time without advance notice.
5. Stock Incentive Program . You will be eligible to participate in the Companys stock incentive program. Subject to approval by the Companys Board of Directors, the Company will grant to you an option to purchase 2,833,000 shares of the Companys Common Stock (subject to adjustment for stock splits, combinations, or other recapitalizations) which will vest (i.e., become exercisable) as to 25% of the shares on the first anniversary of your first day of employment and as to 6.25% of the shares every three-months thereafter, subject to your continued employment by the Company. The option exercise price will be equal to the fair market value of one share of Common Stock on the date of grant of the option as determined by the Companys Board of Directors. The option will be issued pursuant to the Companys 2006 Stock Incentive Plan and the stock option agreement covering the option, which must be executed to effect the grant of any option.
6. At-Will Employment . Your employment with the Company will be on an at-will basis, meaning that either you or the Company may terminate the employment relationship at any time, for any reason, with or without cause and with or without notice. Although your job duties, title, compensation and benefits, as well as the Companys personnel policies and procedures, may change from time to time, the at-will nature of your employment may only be changed by a written agreement signed by you and the principal executive officer of the Company, which expressly states the intention to modify the at-will nature of your employment. Notwithstanding the foregoing, however, should the Company terminate your employment without cause, as that term is defined in this paragraph, (a) you will receive as severance pay an amount equal to six (6) months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable in accordance with the Companys regular payroll practices) and (b) during such six-month severance period, the Company will provide you with medical and dental insurance benefits to the extent you were receiving such benefits prior to such termination and to the extent that the Company is able to provide you with such benefits at a cost to the Company that is not in excess of the cost that the Company was paying for such benefits for you prior to such termination; provided, however, that if you become employed prior to the end of the six-month severance period and are eligible to receive medical or dental insurance benefits from your new employer, then the Company shall no longer be required to provide you with such benefits, each of the benefits provided above in clauses (a) and (b) to be provided in exchange for your execution of a separation agreement and release of claims in a form to be provided by, and satisfactory to, counsel for the Company. For purposes hereof cause shall mean (a) a good faith finding by the Board of Directors of the Company that (i) you have failed to substantially perform your assigned duties for the Company, which failure is not cured within 20 days following written notice from the Company to you specifying the duties not performed, (ii) you have engaged in dishonesty, gross negligence or misconduct or (iii) you have breached any employment agreement, confidentiality agreement, nondisclosure agreement or other agreement entered into between you and the Company or (b) your conviction of, or the entry of a pleading of guilty or nolo contendere by you to, any crime involving moral turpitude or any felony.
Tetraphase Pharmaceuticals, Inc. Confidential
- 2
7. Non-Competition, Non-Solicitation and Non-Disclosure Agreement . As a condition of your employment, you will be required to execute the Companys Non-Competition, Non-Solicitation and Non-Disclosure Agreement, a copy of which is enclosed with this letter.
8. Proof of Legal Right to Work . For purposes of federal immigration law, you will be required to provide the Company with documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to the Company within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You may need to obtain a work visa in order to be eligible to work in the United States. If that is the case, your employment with the Company will be conditioned upon your obtaining a work visa in a timely manner as determined by the Company.
9. Company Policies and Procedures . As an employee of the Company, you will be required to comply with all Company policies and procedures. Violations of the Companys policies may lead to immediate termination of your employment. Further, the Companys premises, including all workspaces, furniture, documents, and other tangible materials, and all information technology resources of the Company (including computers, data and other electronic files, and all internet and email) are subject to oversight and inspection by the Company at any time. Company employees should have no expectation of privacy with regard to any Company premises, materials, resources, or information.
10. Other Agreements and Governing Law . You represent that you are not bound by any employment contract, restrictive covenant or other restriction preventing you from entering into employment with or carrying out your responsibilities for the Company, or which is in any way inconsistent with the terms of this letter. Please note that this offer letter is your formal offer of employment and supersedes any and all prior or contemporaneous agreements, discussions and understandings, whether written or oral, relating to the subject matter of this letter or your employment with the Company. The resolution of any disputes under this letter will be governed by Massachusetts law.
11. Section 409A of the Code . Subject to the provisions in this Section 11, any severance payments or benefits under this letter will begin only upon the date of your separation from service (determined as set forth below) which occurs on or after the date of termination of your employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to you under this letter.
(a) It is intended that each installment of the severance payments and benefits provided under this letter shall be treated as a separate payment for purposes of Section 409A of the Code and the guidance issued thereunder (Section 409A). Neither you nor the Company will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
Tetraphase Pharmaceuticals, Inc. Confidential
- 3
(b) The determination of whether and when your separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-l(h). Solely for purposes of this paragraph, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
(c) All reimbursements and in-kind benefits provided under this letter shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in your offer letter), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
(d) Notwithstanding anything herein to the contrary, the Company shall have no liability to you or to any other person if the payments and benefits provided in this letter that are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
If this letter correctly sets forth the initial terms under which you will be employed by the Company, please sign the enclosed duplicate of this letter in the space provided below and return it to my attention at Tetraphase. This offer is effective through December 28 th , 2010. This offer is contingent on satisfactory reference checks.
On behalf of Tetraphase Pharmaceuticals, Inc. |
/s/ Guy Macdonald Guy Macdonald |
President and Chief Executive Officer |
The foregoing correctly sets forth the terms of my at-will employment by the Company.
/s/ Patrick Horn | Date: | 22 December 2010 | ||||
|
|
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Patrick Horn |
Tetraphase Pharmaceuticals, Inc. Confidential
- 4
Exhibit 10.14
March 20, 2009
Joyce A. Sturgeon Sutcliffe, Ph.D.
3575 Stanton Court
Ann Arbor, MI 48105
Dear Joyce:
On behalf of Tetraphase Pharmaceuticals, Inc. (the Company), I am very pleased to offer you employment with the Company. The purpose of this letter is to summarize the terms of your employment with the Company, should you accept our offer.
1. Employment . You will be employed to serve in the position of Senior Vice President, Biology, reporting to Guy Macdonald, President and Chief Executive Officer of Tetraphase Pharmaceuticals, Inc. Your agreed-upon start date will May 4, 2009. As Senior Vice President, Biology, you will have such duties and responsibilities as are customarily assigned to an employee with such title and such other duties and responsibilities as may be assigned to you by the Company. You agree to devote your full business time, best efforts, skill, knowledge, attention, and energies to the advancement of the Companys business and interests and to the performance of your duties and responsibilities as an employee of the Company.
2. Compensation . Your base rate of compensation will be $225,000 on an annual basis, less all applicable federal, state and local taxes and withholdings, such base salary to be paid in installments in accordance with the Companys standard payroll practices. Such base salary may be adjusted from time to time in accordance with normal business practices and in the sole discretion of the Company.
3. Bonus . If the Board of Directors approves an annual bonus in any fiscal year you may be eligible for a discretionary award of up to 20% of your annualized base salary in such year. The bonus award, if any, will be based on both individual and corporate performance and will be determined by the Board of Directors of the Company in its sole discretion. In order to be eligible for a bonus, if any, you must complete three months of continuous service and be an active employee of the Company on the date such bonus is distributed. Any bonus payable to you under this letter will be paid between January 1 and March 15 of the calendar year following the calendar year in which such bonus is earned and approved by the Board.
In addition, upon commencement of your employment with the Company, you will receive (i) Sign-on Bonus of up to $55,000 (less all applicable federal, state, and local taxes and withholdings) to cover expenses incurred by you in connection with your relocation to the Boston/Cambridge metro area and (ii) the Company will pay a Temporary Housing Allowance of up to $12,000 in four installments or as a lump sum to cover airfare and related commuting expenses from Michigan and temporary housing incurred by you in connection with your relocation to the Boston/Cambridge metro area. If you voluntarily terminate your employment with the Company before the first anniversary of the date of hire, you will be required to refund the Sign-on Bonus to the Company.
Tetraphase Pharmaceuticals, Inc. Confidential
4. Benefits . You shall be eligible to participate in any and all bonus and benefit programs that the Company establishes and makes available to its employees from time to time, provided that you are eligible under (and subject to all provisions of) the plan documents governing those programs. Such benefits may include: participation in group medical and dental insurance programs, term life insurance, long-term disability insurance and participation in the Companys 401(k) plan. The benefits made available by the Company, and the rules, terms, and conditions for participation in such benefit plans may be changed by the Company at any time and from time to time without advance notice.
5. Stock Incentive Program . You will be eligible to participate in the Companys stock incentive program. Subject to approval by the Companys Board of Directors, the Company will grant to you an option to purchase 250,000 shares of the Companys Common Stock (subject to adjustment for stock splits, combinations, or other recapitalizations) which will vest (i.e., become exercisable) as to 25% of the shares on the first anniversary of your first day of employment and as to 6.25% of the shares every three-months thereafter, subject to your continued employment by the Company. The option exercise price will be equal to the fair market value of one share of Common Stock on the date of grant of the option as determined by the Companys Board of Directors. The option will be issued pursuant to the Companys 2006 Stock Incentive Plan and the stock option agreement covering the option, which must be executed to effect the grant of any option.
6. At-Will Employment . Your employment with the Company will be on an at-will basis, meaning that either you or the Company may terminate the employment relationship at any time, for any reason, with or without cause and with or without notice. Although your job duties, title, compensation and benefits, as well as the Companys personnel policies and procedures, may change from time to time, the at-will nature of your employment may only be changed by a written agreement signed by you and the principal executive officer of the Company, which expressly states the intention to modify the at-will nature of your employment. Notwithstanding the foregoing, however, should the Company terminate your employment without cause, as that term is defined in this paragraph, (a) you will receive as severance pay an amount equal to three (3) months of your then-current base salary (subject to all applicable federal, state and local taxes and withholdings, and payable in accordance with the Companys regular payroll practices) and (b) during such three-month severance period, the Company will provide you with medical and dental insurance benefits to the extent you were receiving such benefits prior to such termination and to the extent that the Company is able to provide you with such benefits at a cost to the Company that is not in excess of the cost that the Company was paying for such benefits for you prior to such termination; provided, however, that if you become employed prior to the end of the three-month severance period and are eligible to receive medical or dental insurance benefits from your new employer, then the Company shall no longer be required to provide you with such benefits, each of the benefits provided above in clauses (a) and (b) to be provided in exchange for your execution of a separation agreement and release of claims in a form to be provided by, and satisfactory to, counsel for the Company. For
Tetraphase Pharmaceuticals, Inc. Confidential
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purposes hereof cause shall mean (a) a good faith finding by the Board of Directors of the Company that (i) you have failed to substantially perform your assigned duties for the Company, which failure is not cured within 20 days following written notice from the Company to you specifying the duties not performed, (ii) you have engaged in dishonesty, gross negligence or misconduct or (iii) you have breached any employment agreement, confidentiality agreement, non-disclosure agreement or other agreement entered into between you and the Company or (b) your conviction of, or the entry of a pleading of guilty or nolo contendere by you to, any crime involving moral turpitude or any felony.
7. Non-Competition, Non-Solicitation and Non-Disclosure Agreement . As a condition of your employment, you will be required to execute the Companys Non-Competition, Non-Solicitation and Non-Disclosure Agreement, a copy of which is enclosed with this letter.
8. Proof of Legal Right to Work . For purposes of federal immigration law, you will be required to provide the Company with documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to the Company within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You may need to obtain a work visa in order to be eligible to work in the United States. If that is the case, your employment with the Company will be conditioned upon your obtaining a work visa in a timely manner as determined by the Company.
9. Company Policies and Procedures . As an employee of the Company, you will be required to comply with all Company policies and procedures. Violations of the Companys policies may lead to immediate termination of your employment. Further, the Companys premises, including all workspaces, furniture, documents, and other tangible materials, and all information technology resources of the Company (including computers, data and other electronic files, and all internet and email) are subject to oversight and inspection by the Company at any time. Company employees should have no expectation of privacy with regard to any Company premises, materials, resources, or information.
10. Other Agreements and Governing Law . You represent that you are not bound by any employment contract, restrictive covenant or other restriction preventing you from entering into employment with or carrying out your responsibilities for the Company, or which is in any way inconsistent with the terms of this letter. Please note that this offer letter is your formal offer of employment and supersedes any and all prior or contemporaneous agreements, discussions and understandings, whether written or oral, relating to the subject matter of this letter or your employment with the Company. The resolution of any disputes under this letter will be governed by Massachusetts law.
11. Section 409A of the Code . Subject to the provisions in this Section 11, any severance payments or benefits under this letter will begin only upon the date of your separation from service (determined as set forth below) which occurs on or after the date of termination of your employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to you under this letter.
(a) It is intended that each installment of the severance payments and benefits provided under this letter shall be treated as a separate payment for purposes of Section 409A of the Code and the guidance issued thereunder (Section 409A). Neither you nor the Company will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
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(b) The determination of whether and when your separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this paragraph, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
(c) All reimbursements and in-kind benefits provided under this letter shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in your offer letter), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
(d) Notwithstanding anything herein to the contrary, the Company shall have no liability to you or to any other person if the payments and benefits provided in this letter that are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
If this letter correctly sets forth the initial terms under which you will be employed by the Company, please sign the enclosed duplicate of this letter in the space provided below and return it to my attention at Tetraphase. This offer is effective through March 24 th , 2009. This offer is contingent on satisfactory reference checks.
On behalf of Tetraphase Pharmaceuticals, Inc. | ||||||
/s/ David C. Lubner | ||||||
David C. Lubner | ||||||
SVP, Chief Operating Officer | ||||||
The foregoing correctly sets forth the terms of my at-will employment by the Company. | ||||||
/s/ Joyce A. Sturgeon Sutcliffe |
Date: |
3/4/09 |
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Joyce A. Sturgeon Sutcliffe |
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Exhibit 10.15
INDEMNIFICATION AGREEMENT
This Agreement is made as of the 8 th day of August 2006, by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Corporation), and Lawrence G. Miller (the Indemnitee), a director or officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as directors and officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability of directors and officers liability insurance has been severely limited, and
WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors and officers, and
WHEREAS, the Indemnitee does not regard the protection available under the Corporations Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director or officer without adequate protection, and
WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director or officer of the Corporation.
NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows:
1. Agreement to Serve . The Indemnitee agrees to serve or continue to serve as a director or officer of the Corporation for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing.
2. Definitions . As used in this Agreement:
(a) The term Proceeding shall include any threatened, pending or completed action, suit, arbitration, alternative dispute resolution proceeding, administrative hearing or other proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, and any appeal therefrom.
(b) The term Change in Control shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Companys then outstanding voting capital stock, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or
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nomination for election by the Companys stockholders was approved by a vote of at least two thirds (2/3) 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 stockholders 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 capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting capital stock of the surviving entity) at least 80% of the total voting power represented by the voting capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve apian 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 related transactions) all or substantially all of the Companys assets.
(c) The term Corporate Status shall mean the status of a person who is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, fiduciary, partner, trustee, member, employee or agent of, or in a similar capacity with, another corporation, partnership, joint venture, trust, limited liability company or other enterprise.
(d) The term Expenses shall include, without limitation, attorneys fees, retainers, court costs, transcript costs, fees and expenses of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and other disbursements or expenses of the types customarily incurred in connection with investigations, judicial or administrative proceedings or appeals, but shall not include the amount of judgments, fines or penalties against Indemnitee or amounts paid in settlement in connection with such matters.
(e) The term Special Independent Counsel shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither currently is, nor in the past five years has been, retained to represent; (i) the Corporation or the Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Special 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 Corporation or the Indemnitee in an action to determine the Indemnitees rights under this Agreement.
(f) References to other enterprise shall include employee benefit plans; references to fines shall include any excise tax assessed with respect to any employee benefit plan; references to serving at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation as referred to in this Agreement.
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3. Indemnity of Indemnitee . Subject to Sections 6, 7 and 9, the Corporation shall indemnify the Indemnitee in connection with any Proceeding as to which the Indemnitee is, was or is threatened to be made a party (or is otherwise involved) by reason of the Indemnitees Corporate Status, to the fullest extent permitted by law (as such may be amended from time to time). In furtherance of the foregoing and without limiting the generality thereof:
(a) Indemnification in Third-Party Proceedings . The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Section 3(a) if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor or a Proceeding referred to in Section 6 below) by reason of the Indemnitees Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal Proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
(b) Indemnification in Proceedings by or in the Right of the Corporation . The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Section 3(b) if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the Indemnitees Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that, if applicable law so provides, no indemnification shall be made under this Section 3(b) in respect of any claim, issue, or matter as to which the Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the Court of Chancery or such other court shall deem proper.
4. Indemnification of Expenses of Successful Party . Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein (other than a Proceeding referred to in Section 6), the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection therewith. Without limiting the foregoing, if any Proceeding or any claim, issue or matter therein is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his or her conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.
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5. Indemnification for Expenses of a Witness . To the extent that the Indemnitee is, by reason of the Indemnitees Corporate Status, a witness in any Proceeding to which the Indemnitee is not a party, the Indemnitee shall be indemnified against alt Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection therewith.
6. Exceptions to Right of Indemnification . Notwithstanding anything to the contrary to this Agreement, except as set forth in Section 10, the Corporation shall not indemnity the Indemnitee in connection with a Proceeding (or part thereof) initiated by the Indemnitee unless (a) the initiation thereof was approved by the Board of Directors of the Corporation or (b) the Proceeding was commenced following a Change in Control. Notwithstanding anything to the contrary in this Agreement, the Corporation shall not indemnify the Indemnitee to the extent the Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to the Indemnitee and the Indemnitee is subsequently reimbursed from the proceeds of insurance, the Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement.
7. Notification and Defense of Claim . As a condition precedent to the Indemnitees right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any Proceeding for which indemnity will or could be sought. With respect to any Proceeding of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such Proceeding, other than as provided below in this Section 7. The Indemnitee shall have the right to employ his or her own counsel in connection with such Proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such Proceeding or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Agreement, and provided that Indemnitees counsel shall cooperate reasonably with the Corporations counsel to minimize the cost of defending claims against the Corporation and the Indemnitee. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. The Corporation shall not be required to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent. The Corporation shall not settle any Proceeding in any manner that would impose any penalty or limitation on the Indemnitee without the Indemnitees written consent. Neither the Corporation nor the Indemnitee will unreasonably withhold or delay their consent to any proposed settlement.
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8. Advancement of Expenses . In the event that the Corporation docs not assume the defense pursuant to Section 7 of any Proceeding of which the Corporation receives notice under this Agreement, any Expenses actually and reasonably incurred by or on behalf of the Indemnitee in defending such Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding; provided , however , that the payment of such Expenses incurred by or on behalf of the Indemnitee in advance of the final disposition of such Proceeding shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Agreement. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make repayment. Any advances and undertakings to repay pursuant to this Section 8 shall be unsecured and interest-free.
9. Procedures .
(a) In order to obtain indemnification or advancement of Expenses pursuant to this Agreement, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of Expenses. Any such indemnification or advancement of Expenses shall be made promptly, and in any event within (i) in the case of indemnification under Sections 4, 5 or 9(d) or advancement of Expenses, 30 days after receipt by the Corporation of the written request of the Indemnitee, or (ii) in the case of all other indemnification, 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under this clause (ii) the Corporation determines, by clear and convincing evidence, within the 60-day period referred to above that the Indemnitee did not meet the applicable standard of conduct. Such determination, and any determination that advanced Expenses must be repaid to the Corporation, shall be made as follows:
(i) if a Change in Control shall have occurred, by Special Independent Counsel in a written opinion to the Board of Directors of the Corporation, a copy of which shall be delivered to the Indemnitee (unless the Indemnitee shall request that such determination be made by the Board of Directors of the Corporation, in which case the determination shall be made in the manner provided below in clauses (y)(1) or (y)(2)).
(ii) in all other cases, in the discretion of the Board of Directors of the Corporation, (1) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the Proceeding (disinterested directors), whether or not a quorum, (2) by a committee of disinterested directors designated by a majority vote of disinterested directors, whether or not a quorum, (3) If there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board, or (4) by the stockholders of the Corporation.
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(b) In the event that a Change in Control shall have occurred and the determination of entitlement to indemnification is to be made by Special Independent Counsel, the Special Independent Counsel shall be selected as provided in this Section 9(b). The Special Independent Counsel shall be selected by the Indemnitee, unless the Indemnitee shall request that such selection be made by the Board of Directors of the Corporation. The party making the determination shall give written notice to the other party advising it of the identity of the Special Independent Counsel so selected. The party receiving such notice may, within seven days after such written notice of selection shall have been given, deliver to the other party a written objection to such selection. Such objection may be asserted only on the ground that the Special Independent Counsel so selected does not meet the requirements of Special Independent Counsel as defined in Section 2, 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 Special Independent Counsel. If a written objection is made, the Special Independent Counsel so selected may not serve as Special Independent Counsel unless and until a court has determined that such objection is without merit. If, within 20 days after submission by the Indemnitee of a written request for indemnification, no Special Independent Counsel shall have been selected or if selected, shall have been objected to, in accordance with this paragraph either the Corporation or the Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or the Indemnitee to the others selection of Special Independent Counsel and/or for the appointment as Special Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Special Independent Counsel. The Corporation shall pay the reasonable and necessary fees and expenses of Special Independent Counsel incurred in connection with its acting in such capacity. The Corporation shall pay any and all reasonable and necessary fees and expenses incident to the procedures of this paragraph, regardless of the manner in which such Special Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding pursuant to Section 10 of this Agreement, any Special Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(c) The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner that the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that his or her conduct was unlawful.
(d) 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 Expenses actually and reasonably incurred by the Indemnitee in so cooperating shall be borne by the Corporation (irrespective of the determination as to the Indemnitees entitlement to indemnification) and the Corporation hereby indemnifies the Indemnitee therefrom.
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10. Remedies . The right to indemnification or advancement of Expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the applicable period referred to in Section 9. Unless otherwise required by law, the burden of proving that indemnification or advancement of Expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation 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. The Indemnitees Expenses actually and reasonably incurred in connection with successfully establishing the Indemnitees right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation.
11. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled.
12. Subrogation . In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights.
13. Term of Agreement . This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Section 10 of this Agreement relating thereto.
14. Indemnification Hereunder Not Exclusive . The indemnification and advancement of Expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitees official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitees status as such, whether or not the Indemnitee would be
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indemnified against such expense, liability or loss under this Agreement; provided that the Corporation 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, contract, agreement or otherwise.
15. No Special Rights . Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation.
16. Savings Clause . If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to Expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law.
17. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute the original.
18. Successors and Assigns . This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee.
19. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not he deemed to constitute part of this Agreement or to affect the construction thereof.
20. Modification and Waiver . This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification 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 provision hereof nor shall any such waiver constitute a continuing waiver.
21. Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed:
(a) if to the Indemnitee, to:
Lawrence G. Miller
c/o Mediphase Venture Partners
3 Newton Executive Park, Suite 104
Newton, MA 02462
(b) if to the Corporation, to:
Tetraphase Pharmaceuticals, Inc., at its principal office
Attn: Chief Executive Officer
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or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be.
22. Applicable Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of Expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of Expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of Expenses is sought; provided , however , that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted.
23. Enforcement . The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity.
24. Entire Agreement . This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitees rights under Delaware law or the Corporations Certificate of Incorporation or By-Laws.
25. Consent to Suit . In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction.
* * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
TETRAPHASE PHARMACEUTICALS, INC. | ||||
By: |
/s/ Lawrence G. Miller |
|||
Name: | Lawrence G. Miller | |||
Title: | President | |||
INDEMNITEE: | ||||
/s/ Lawrence G. Miller |
||||
Lawrence G. Miller |
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Exhibit 10.16
INDEMNIFICATION AGREEMENT
This Agreement is made as of the 8 th day of August 2006, by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Corporation), and Karl D. Handelsman (the Indemnitee), a director or officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as directors and officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability of directors and officers liability insurance has been severely limited, and
WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors and officers, and
WHEREAS, the Indemnitee does not regard the protection available under the Corporations Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director or officer without adequate protection, and
WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director or officer of the Corporation.
NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows:
1. Agreement to Serve . The Indemnitee agrees to serve or continue to serve as a director or officer of the Corporation for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing.
2. Definitions . As used in this Agreement:
(a) The term Proceeding shall include any threatened, pending or completed action, suit, arbitration, alternative dispute resolution proceeding, administrative hearing or other proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, and any appeal therefrom.
(b) The term Change in Control shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Companys then outstanding voting capital stock, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Companys
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stockholders was approved by a vote of at least two thirds (2/3) 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 stockholders 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 capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting capital stock of the surviving entity) at least 80% of the total voting power represented by the voting capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders 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 related transactions) all or substantially all of the Companys assets.
(c) The term Corporate Status shall mean the status of a person who is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, fiduciary, partner, trustee, member, employee or agent of, or in a similar capacity with, another corporation, partnership, joint venture, trust, limited liability company or other enterprise.
(d) The term Expenses shall include, without limitation, attorneys fees, retainers, court costs, transcript costs, fees and expenses of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and other disbursements or expenses of the types customarily incurred in connection with investigations, judicial or administrative, proceedings or appeals, but shall not include the amount of judgments, fines or penalties against Indemnitee or amounts paid in settlement in connection with such matters.
(e) The term Special Independent Counsel shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither currently is, nor in the past five years has been, retained to represent: (i) the Corporation or the Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Special 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 Corporation or the Indemnitee in an action to determine the Indemnitees rights under this Agreement.
(f) References to other enterprise shall include employee benefit plans; references to fines shall include any excise tax assessed with respect to any employee benefit plan; references to serving at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation as referred to in this Agreement.
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3. Indemnity of Indemnitee . Subject to Sections 6, 7 and 9, the Corporation shall indemnify the Indemnitee in connection with any Proceeding as to which the Indemnitee is, was or is threatened to be made a party (or is otherwise involved) by reason of the Indemnitees Corporate Status, to the fullest extent permitted by law (as such may be amended from time to time). In furtherance of the foregoing and without limiting the generality thereof:
(a) Indemnification in Third-Party Proceedings . The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Section 3(a) if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor or a Proceeding referred to in Section 6 below) by reason of the Indemnitees Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal Proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
(b) Indemnification in Proceedings by or in the Right of the Corporation . The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Section 3(b) if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the Indemnitees Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that, if applicable law so provides, no indemnification shall be made under this Section 3(b) in respect of any claim, issue, or matter as to which the Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the Court of Chancery or such other court shall deem proper.
4. Indemnification of Expenses of Successful Party . Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein (other than a Proceeding referred to in Section 6), the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection therewith. Without limiting the foregoing, if any Proceeding or any claim, issue or matter therein is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his or her conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.
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5. Indemnification for Expenses of a Witness . To the extent that the Indemnitee is, by reason of the Indemnitees Corporate Status, a witness in any Proceeding to which the Indemnitee is not a party, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection therewith.
6. Exceptions to Right of Indemnification . Notwithstanding anything to the contrary to this Agreement, except as set forth in Section 10, the Corporation shall not indemnify the Indemnitee in connection with a Proceeding (or part thereof) initiated by the Indemnitee unless (a) the initiation thereof was approved by the Board of Directors of the Corporation or (b) the Proceeding was commenced following a Change in Control. Notwithstanding anything to the contrary in this Agreement, the Corporation shall not indemnify the Indemnitee to the extent the Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to the Indemnitee and the Indemnitee is subsequently reimbursed from the proceeds of insurance, the Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement.
7. Notification and Defense of Claim . As a condition precedent to the Indemnitees right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any Proceeding for which indemnity will or could be sought. With respect to any Proceeding of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such Proceeding, other than as provided below in this Section 7. The Indemnitee shall have the right to employ his or her own counsel in connection with such Proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such Proceeding or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Agreement, and provided that Indemnitees counsel shall cooperate reasonably with the Corporations counsel to minimize the cost of defending claims against the Corporation and the Indemnitee. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. The Corporation shall not be required to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent. The Corporation shall not settle any Proceeding in any manner that would impose any penalty or limitation on the Indemnitee without the Indemnitees written consent. Neither the Corporation nor the Indemnitee will unreasonably withhold or delay their consent to any proposed settlement.
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8. Advancement of Expenses . In the event that the Corporation does not assume the defense pursuant to Section 7 of any Proceeding of which the Corporation receives notice under this Agreement, any Expenses actually and reasonably incurred by or on behalf of the Indemnitee in defending such Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding; provided , however , that the payment of such Expenses incurred by or on behalf of the Indemnitee in advance of the final disposition of such Proceeding shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Agreement. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make repayment. Any advances and undertakings to repay pursuant to this Section 8 shall be unsecured and interest-free.
9. Procedures .
(a) In order to obtain indemnification or advancement of Expenses pursuant to this Agreement, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of Expenses. Any such indemnification or advancement of Expenses shall be made promptly, and in any event within (i) in the case of indemnification under Sections 4, 5 or 9(d) or advancement of Expenses, 30 days after receipt by the Corporation of the written request of the Indemnitee, or (ii) in the case of all other indemnification, 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under this clause (ii) the Corporation determines, by clear and convincing evidence, within the 60-day period referred to above that the Indemnitee did not meet the applicable standard of conduct. Such determination, and any determination that advanced Expenses must be repaid to the Corporation, shall be made as follows:
(i) if a Change in Control shall have occurred, by Special Independent Counsel in a written opinion to the Board of Directors of the Corporation, a copy of which shall be delivered to the Indemnitee (unless the Indemnitee shall request that such determination be made by the Board of Directors of the Corporation, in which case the determination shall be made in the manner provided below in clauses (y)(l) or (y)(2)).
(ii) in all other cases, in the discretion of the Board of Directors of the Corporation, (1) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the Proceeding (disinterested directors), whether or not a quorum, (2) by a committee of disinterested directors designated by a majority vote of disinterested directors, whether or not a quorum, (3) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board, or (4) by the stockholders of the Corporation.
(b) In the event that a Change in Control shall have occurred and the determination of entitlement to indemnification is to be made by Special Independent Counsel, the Special Independent Counsel shall be selected as provided in this Section 9(b). The Special Independent Counsel shall be selected by the Indemnitee, unless the Indemnitee shall request that such selection be made by the Board of Directors of the Corporation. The party making the
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determination shall give written notice to the other party advising it of the identity of the Special Independent Counsel so selected. The party receiving such notice may, within seven days after such written notice of selection shall have been given, deliver to the other party a written objection to such selection. Such objection may be asserted only on the ground that the Special Independent Counsel so selected does not meet the requirements of Special Independent Counsel as defined in Section 2, 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 Special Independent Counsel. If a written objection is made, the Special Independent Counsel so selected may not serve as Special Independent Counsel unless and until a court has determined that such objection is without merit. If, within 20 days after submission by the Indemnitee of a written request for indemnification, no Special Independent Counsel shall have been selected or if selected, shall have been objected to, in accordance with this paragraph either the Corporation or the Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or the Indemnitee to the others selection of Special Independent Counsel and/or for the appointment as Special Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Special Independent Counsel. The Corporation shall pay the reasonable and necessary fees and expenses of Special Independent Counsel incurred in connection with its acting in such capacity. The Corporation shall pay any and all reasonable and necessary fees and expenses incident to the procedures of this paragraph, regardless of the manner in which such Special Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding pursuant to Section 10 of this Agreement, any Special Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(c) The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner that the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that his or her conduct was unlawful.
(d) 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 Expenses actually and reasonably incurred by the Indemnitee in so cooperating shall be borne by the Corporation (irrespective of the determination as to the Indemnitees entitlement to indemnification) and the Corporation hereby indemnifies the Indemnitee therefrom.
10. Remedies . The right to indemnification or advancement of Expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the applicable period referred to in Section 9. Unless otherwise required by law, the burden of proving that indemnification or advancement of Expenses is not appropriate shall be on the
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Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation 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. The Indemnitees Expenses actually and reasonably incurred in connection with successfully establishing the Indemnitees right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation.
11. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled.
12. Subrogation . In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights.
13. Term of Agreement . This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Section 10 of this Agreement relating thereto.
14. Indemnification Hereunder Not Exclusive . The indemnification and advancement of Expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitees official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitees status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation 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, contract, agreement or otherwise.
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15. No Special Rights . Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation.
16. Savings Clause . If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to Expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law.
17. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute the original.
18. Successors and Assigns . This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee.
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. Modification and Waiver . This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification 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 provision hereof nor shall any such waiver constitute a continuing waiver.
21. Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed:
(a) if to the Indemnitee, to:
Karl D. Handelsman
c/o CMEA Ventures
One Embarcadero Center
Suite 3250
San Francisco, CA 94117
(b) if to the Corporation, to:
Tetraphase Pharmaceuticals, Inc., at its principal office
Attn: Chief Executive Officer
or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case maybe.
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22. Applicable Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of Expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of Expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of Expenses is sought; provided , however , that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted.
23. Enforcement . The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity.
24. Entire Agreement . This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitees rights under Delaware law or the Corporations Certificate of Incorporation or By-Laws.
25. Consent to Suit . In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction.
* * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
TETRAPHASE PHARMACEUTICALS, INC. | ||||
By: |
/s/ Lawrence G. Miller |
|||
Name: | Lawrence G. Miller | |||
Title: | President | |||
INDEMNITEE: | ||||
|
||||
Karl D. Handelsman |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
TETRAPHASE PHARMACEUTICALS, INC. | ||||
By: |
/s/ Karl Handelsman |
|||
Name: | ||||
Title: | General Partner | |||
INDEMNITEE: | ||||
/s/ Karl D. Handelsman |
||||
Karl D. Handelsman |
Exhibit 10.17
INDEMNIFICATION AGREEMENT
This Agreement is made as of the 8th day of August 2006, by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation (the Corporation), and Douglas G. Cole, M.D. (the Indemnitee), a director or officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as directors and officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability of directors and officers liability insurance has been severely limited, and
WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors and officers, and
WHEREAS, the Indemnitee does not regard the protection available under the Corporations Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director or officer without adequate protection, and
WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director or officer of the Corporation.
NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows:
1. Agreement to Serve . The Indemnitee agrees to serve or continue to serve as a director or officer of the Corporation for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing.
2. Definitions . As used in this Agreement:
(a) The term Proceeding shall include any threatened, pending or completed action, suit, arbitration, alternative dispute resolution proceeding, administrative hearing or other proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, and any appeal therefrom.
(b) The term Change in Control shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Companys then outstanding voting capital stock, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Companys stockholders was approved by a vote of at least two thirds (2/3) 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 stockholders 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 capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting capital stock of the surviving entity) at least 80% of the total voting power represented by the voting capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders 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 related transactions) all or substantially all of the Companys assets.
(c) The term Corporate Status shall mean the status of a person who is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, fiduciary, partner, trustee, member, employee or agent of, or in a similar capacity with, another corporation, partnership, joint venture, trust, limited liability company or other enterprise.
(d) The term Expenses shall include, without limitation, attorneys fees, retainers, court costs, transcript costs, fees and expenses of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and other disbursements or expenses of the types customarily incurred in connection with investigations, judicial or administrative proceedings or appeals, but shall not include the amount of judgments, fines or penalties against Indemnitee or amounts paid in settlement in connection with such matters.
(e) The term Special Independent Counsel shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither currently is, nor in the past five years has been, retained to represent: (i) the Corporation or the Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Special 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 Corporation or the Indemnitee in an action to determine the Indemnitees rights under this Agreement.
(f) References to other enterprise shall include employee benefit plans; references to fines shall include any excise tax assessed with respect to any employee benefit plan; references to serving at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation as referred to in this Agreement.
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3. Indemnity of Indemnitee . Subject to Sections 6, 7 and 9, the Corporation shall indemnify the Indemnitee in connection with any Proceeding as to which the Indemnitee is, was or is threatened to be made a party (or is otherwise involved) by reason of the Indemnitees Corporate Status, to the fullest extent permitted by law (as such may be amended from time to time). In furtherance of the foregoing and without limiting the generality thereof:
(a) Indemnification in Third-Party Proceedings . The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Section 3(a) if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor or a Proceeding referred to in Section 6 below) by reason of the Indemnitees Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal Proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
(b) Indemnification in Proceedings by or in the Right of the Corporation . The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Section 3(b) if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the Indemnitees Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that, if applicable Jaw so provides, no indemnification shall be made under this Section 3(b) in respect of any claim, issue, or matter as to which the Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the Court of Chancery or such other court shall deem proper.
4. Indemnification of Expenses of Successful Party . Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein (other than a Proceeding referred to in Section 6), the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection therewith. Without limiting the foregoing, if any Proceeding or any claim, issue or matter therein is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his or her conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.
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5. Indemnification for Expenses of a Witness . To the extent that the Indemnitee is, by reason of the Indemnitees Corporate Status, a witness in any Proceeding to which the Indemnitee is not a party, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection therewith.
6. Exceptions to Right of Indemnification . Notwithstanding anything to the contrary to this Agreement, except as set forth in Section 10, the Corporation shall not indemnify the Indemnitee in connection with a Proceeding (or part thereof) initiated by the Indemnitee unless (a) the initiation thereof was approved by the Board of Directors of the Corporation or (b) the Proceeding was commenced following a Change in Control. Notwithstanding anything to the contrary in this Agreement, the Corporation shall not indemnify the Indemnitee to the extent the Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to the Indemnitee and the Indemnitee is subsequently reimbursed from the proceeds of insurance, the Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement.
7. Notification and Defense of Claim . As a condition precedent to the Indemnitees right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any Proceeding for which indemnity will or could be sought. With respect to any Proceeding of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such Proceeding, other than as provided below in this Section 7. The Indemnitee shall have the right to employ his or her own counsel in connection with such Proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such Proceeding or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Agreement, and provided that Indemnitees counsel shall cooperate reasonably with the Corporations counsel to minimize the cost of defending claims against the Corporation and the Indemnitee. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. The Corporation shall not be required to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent. The Corporation shall not settle any Proceeding in any manner that would impose any penalty or limitation on the Indemnitee without the Indemnitees written consent. Neither the Corporation nor the Indemnitee will unreasonably withhold or delay their consent to any proposed settlement.
8. Advancement of Expenses . In the event that the Corporation does not assume the defense pursuant to Section 7 of any Proceeding of which the Corporation receives notice under this
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Agreement, any Expenses actually and reasonably incurred by or on behalf of the Indemnitee in defending such Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding; provided , however , that the payment of such Expenses incurred by or on behalf of the Indemnitee in advance of the final disposition of such Proceeding shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Agreement. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make repayment. Any advances and undertakings to repay pursuant to this Section 8 shall be unsecured and interest free.
9. Procedures .
(a) In order to obtain indemnification or advancement of Expenses pursuant to this Agreement, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of Expenses. Any such indemnification or advancement of Expenses shall be made promptly, and in any event within (i) in the case of indemnification under Sections 4, 5 or 9(d) or advancement of Expenses, 30 days after receipt by the Corporation of the written request of the Indemnitee, or (ii) in the case of all other indemnification, 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under this clause (ii) the Corporation determines, by clear and convincing evidence, within the 60-day period referred to above that the Indemnitee did not meet the applicable standard of conduct. Such determination, and any determination that advanced Expenses must be repaid to the Corporation, shall be made as follows:
(i) if a Change in Control shall have occurred, by Special Independent Counsel in a written opinion to the Board of Directors of the Corporation, a copy of which shall be delivered to the Indemnitee (unless the Indemnitee shall request that such determination be made by the Board of Directors of the Corporation, in which case the determination shall be made in the manner provided below in clauses (y)(l) or (y)(2)).
(ii) in all other cases, in the discretion of the Board of Directors of the Corporation, (1) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the Proceeding (disinterested directors), whether or not a quorum, (2) by a committee of disinterested directors designated by a majority vote of disinterested directors, whether or not a quorum, (3) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board, or (4) by the stockholders of the Corporation.
(b) In the event that a Change in Control shall have occurred and the determination of entitlement to indemnification is to be made by Special Independent Counsel, the Special Independent Counsel shall be selected as provided in this Section 9(b). The Special Independent Counsel shall be selected by the Indemnitee, unless the Indemnitee shall request that such selection be made by the Board of Directors of the Corporation. The party making the determination shall give written notice to the other party advising it of the identity of the Special Independent Counsel so selected. The party receiving such notice may, within seven days after such
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written notice of selection shall have been given, deliver to the other party a written objection to such selection. Such objection may be asserted only on the ground that the Special Independent Counsel so selected does not meet the requirements of Special Independent Counsel as defined in Section 2, 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 Special Independent Counsel. If a written objection is made, the Special Independent Counsel so selected may not serve as Special Independent Counsel unless and until a court has determined that such objection is without merit. If, within 20 days after submission by the Indemnitee of a written request for indemnification, no Special Independent Counsel shall have been selected or if selected, shall have been objected to, in accordance with this paragraph either the Corporation or the Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or the Indemnitee to the others selection of Special Independent Counsel and/or for the appointment as Special Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Special Independent Counsel. The Corporation shall pay the reasonable and necessary fees and expenses of Special Independent Counsel incurred in connection with its acting in such capacity. The Corporation shall pay any and all reasonable and necessary fees and expenses incident to the procedures of this paragraph, regardless of the manner in which such Special Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding pursuant to Section 10 of this Agreement, any Special Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(c) The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner that the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that his or her conduct was unlawful.
(d) 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 Expenses actually and reasonably incurred by the Indemnitee in so cooperating shall be borne by the Corporation (irrespective of the determination as to the Indemnitees entitlement to indemnification) and the Corporation hereby indemnifies the Indemnitee therefrom.
10. Remedies . The right to indemnification or advancement of Expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the applicable period referred to in Section 9. Unless otherwise required by law, the burden of proving that indemnification or advancement of Expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation that the Indemnitee
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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. The Indemnitees Expenses actually and reasonably incurred in connection with successfully establishing the Indemnitees right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation.
11. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled.
12. Subrogation . In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights.
13. Term of Agreement . This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Section 10 of this Agreement relating thereto.
14. Indemnification Hereunder Not Exclusive . The indemnification and advancement of Expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitees official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitees status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation 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, contract, agreement or otherwise.
15. No Special Rights . Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation.
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16. Savings Clause . If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to Expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law.
17. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute the original.
18. Successors and Assigns . This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee.
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. Modification and Waiver . This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification 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 provision hereof nor shall any such waiver constitute a continuing waiver.
21. Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed:
(a) if to the Indemnitee, to:
Douglas G. Cole, M.D.
c/o Flagship Ventures
One Memorial Drive
7th Floor
Cambridge, MA 02142
(b) if to the Corporation, to:
Tetraphase Pharmaceuticals, Inc., at its principal office
Attn: Chief Executive Officer
or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be.
22. Applicable Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of Expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the
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applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of Expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of Expenses is sought; provided , however , that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted.
23. Enforcement . The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity.
24. Entire Agreement . This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitees rights under Delaware law or the Corporations Certificate of Incorporation or By-Laws.
25. Consent to Suit . In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
TETRAPHASE PHARMACEUTICALS, INC. | ||||
By: |
/s/ Lawrence G. Miller |
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Name: | Lawrence G. Miller | |||
Title: | President | |||
INDEMNITEE: | ||||
|
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Douglas G. Cole, M.D. |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
Exhibit 10.18
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this Agreement ) dated as of May 16, 2011 (the Effective Date ) among TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase ), TETRAPHASE SECURITIES CORPORATION , a Massachusetts corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase Securities ; Tetraphase and Tetraphase Securities are referred to herein, individually and collectively, jointly and severally, as Borrower ), SILICON VALLEY BANK , a California corporation with an office located at 275 Grove Street, Suite 2-200, Newton, MA 02466 ( SVB ), OXFORD FINANCE LLC , a Delaware limited liability company with an office located at 133 North Fairfax Street, Alexandria, Virginia 22314 ( Oxford ), and each of the other Lenders listed on Schedule 1.1 hereof, including SVB and Oxford in their capacities as Lenders, or otherwise a party hereto from time to time (each a Lender and collectively, the Lenders ), and SVB, as agent (in such capacity, the Agent ) for the Lenders, provides the terms on which the Lenders shall lend to Borrower and Borrower shall repay the Lenders. The parties agree as follows:
1 | ACCOUNTING AND OTHER TERMS |
1.1 Accounting terms not defined in this Agreement shall be construed in accordance with GAAP. Calculations and determinations must be made in accordance with GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 14. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. All references to Dollars or $ are United States Dollars, unless otherwise noted.
2 | LOANS AND TERMS OF PAYMENT |
2.1 Promise to Pay . Borrower hereby unconditionally promises to pay each Lender, the outstanding principal amount of all Term Loans advanced to Borrower by such Lender and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this Agreement.
2.2 Term Loans .
(a) Availability . (i) Subject to the terms and conditions of this Agreement, the Lenders agree, severally and not jointly, during the First Draw Period, to make term loans to Borrower in an aggregate amount up to One Million Five Hundred Thousand Dollars ($1,500,000) according to each Lenders Term A Loan Commitment as set forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly as a Term A Loan , and collectively as the Term A Loans ). After repayment, no Term A Loan may be re-borrowed.
(ii) Subject to the terms and conditions of this Agreement, the Lenders agree, severally and not jointly, during the Second Draw Period, to make term loans to Borrower in an aggregate amount up to Six Million Five Hundred Thousand Dollars ($6,500,000) according to each Lenders Term B Loan Commitment as set forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly as a Term B Loan , and collectively as the Term B Loans ; each Term A Loan or Term B Loan is hereinafter referred to singly as a Term Loan and the Term A Loans and the Term B Loans are hereinafter referred to collectively as the Term Loans ). After repayment, no Term B Loan may be re-borrowed.
(b) Repayment . (i) For the Term A Loans, Borrower shall make monthly payments of interest only commencing on the first (1 st ) Payment Date following the Funding Date of the Term A Loans, and continuing on the Payment Date of each successive month thereafter through and including the Payment Date immediately preceding the Amortization Date. Commencing on the Amortization Date, and continuing on the Payment Date of each month thereafter, Borrower shall make consecutive equal monthly payments of principal and interest, in arrears, to each Lender, as calculated by Agent (which calculations shall be deemed correct absent manifest error) based upon: (1) the amount of such Lenders Term A Loan, (2) the effective rate of interest, as determined in Section 2.3(a), and (3) a repayment schedule equal to thirty-three (33) months. All unpaid principal and accrued and unpaid interest with respect to the Term A Loans is due and payable in full on the Maturity Date. The Term A Loans may only be prepaid in accordance with Sections 2.2(c) and 2.2(d).
(ii) For the Term B Loans, Borrower shall make monthly payments of interest only commencing on the first (1 st ) Payment Date following the Funding Date of the Term B Loans, and continuing on the Payment Date of each successive month thereafter through and including the Payment Date immediately preceding the Amortization Date. Commencing on the Amortization Date, and continuing on the Payment Date of each month thereafter, Borrower shall make consecutive equal monthly payments of principal and interest, in arrears, to each Lender, as calculated by Agent (which calculations shall be deemed correct absent manifest error) based upon: (1) the amount of such Lenders Term B Loan, (2) the effective rate of interest, as determined in Section 2.3(a), and (3) a repayment schedule equal to thirty-three (33) months. All unpaid principal and accrued interest with respect to the Term B Loans is due and payable in full on the Maturity Date. The Term B Loans may only be prepaid in accordance with Sections 2.2(c) and 2.2(d).
(c) Mandatory Prepayments . If the Term Loans are accelerated following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Lenders, payable to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of: (i) all outstanding principal of the Term Loans plus accrued interest thereon through the prepayment date, (ii) the Final Payment, (iii) the Prepayment Fee, plus (iv) all other sums, that shall have become due and payable, including Lenders Expenses and interest at the Default Rate with respect to any past due amounts. Notwithstanding (but without duplication with) the foregoing, on the Maturity Date, if the Final Payment has not previously been paid in full in connection with the prepayment of the Term Loans in full, Borrower shall pay to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, the unpaid amount of the Final Payment in respect of the Term Loan(s).
(d) Permitted Prepayment of Term Loans . Borrower shall have the option to prepay all, but not less than all, of the Term Loans advanced by the Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the Term Loans at least ten (10) days prior to such prepayment, and (ii) pays to the Lenders on the date of such prepayment, payable to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of (A) all outstanding principal of the Term Loans plus accrued interest thereon through the prepayment date, (B) the Final Payment, (C) the Prepayment Fee, plus (D) all other sums, that shall have become due and payable, including Lenders Expenses, if any, and interest at the Default Rate with respect to any past due amounts.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding under the Term Loans shall accrue interest at a fixed per annum rate (which rate shall be fixed for the duration of the applicable Term Loan) equal to the Basic Rate, determined by Agent on the Funding Date of the applicable Term Loan, which interest shall be payable monthly in accordance with Sections 2.2(b) and 2.3(e). Interest shall accrue on each Term Loan commencing on, and including, the day on which the Term Loan is made, and shall accrue on a Term Loan, or any portion thereof, for the day on which the Term Loan or such portion is paid.
(b) Default Rate . Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the Default Rate ). Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Agent.
(c) 360-Day Year . Interest shall be computed on the basis of a 360-day year consisting of twelve (12) months of thirty (30) days.
(d) Debit of Accounts . Agent and each Lender may debit (including by means of automatic ACH transfer) any of Borrowers deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes the Lenders under the Loan Documents when due. Each Lender will notify Borrower promptly after debiting Borrowers accounts. These debits shall not constitute a set-off.
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(e) Payments . Except as otherwise expressly provided herein, all loan payments by Borrower hereunder shall be made to the respective Lender to which such payments are owed, at such Lenders office in immediately available funds on the date specified herein. Unless otherwise provided, interest is payable monthly on the Payment Date of each month. Payments of principal and/or interest received after 2:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue until paid. All payments to be made by Borrower hereunder or under any other Loan Document, including payments of principal and interest made hereunder and pursuant to any other Loan Document, and all fees, expenses, indemnities and reimbursements, shall be made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds.
2.4 Secured Promissory Notes. Each Term Loan shall be evidenced by a Secured Promissory Note in the form attached as Exhibit D hereto (each a Secured Promissory Note ), and shall be repayable as set forth herein. Borrower irrevocably authorizes each Lender to make or cause to be made, on or about the Funding Date of any Term Loan or at the time of receipt of any payment of principal on such Lenders Secured Promissory Note, an appropriate notation on such Lenders Secured Promissory Note Record reflecting the making of such Term Loan or (as the case may be) the receipt of such payment. The outstanding amount of each Term Loan set forth on such Lenders Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lenders Secured Promissory Note Record shall not limit or otherwise affect the obligations of Borrower hereunder or under any Secured Promissory Note to make payments of principal of or interest on any Secured Promissory Note when due. Upon receipt of an affidavit (including a customary indemnity) of an officer of a Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.
2.5 Fees . Borrower shall pay to Agent:
(a) Facility Fee . A fully earned, non-refundable facility fee of Eighty-Five Thousand Dollars ($85,000) to be shared between the Lenders pursuant to their respective Commitment Percentages, which fee shall be paid on the Effective Date;
(b) Final Payment . The Final Payment, when due hereunder, to be shared between the Lenders in accordance with their respective Pro Rata Shares;
(c) Prepayment Fee . The Prepayment Fee, when due hereunder, to be shared between the Lenders in accordance with their respective Pro Rata Shares; and
(d) Lenders Expenses . All Lenders Expenses (including reasonable attorneys fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.
3 | CONDITIONS OF LOANS |
3.1 Conditions Precedent to Initial Credit Extension . Each Lenders obligation to make a Term A Loan is subject to the condition precedent that Agent shall consent to or shall have received, in form and substance satisfactory to Agent, such documents, as Agent may reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed original signatures to the Loan Documents to which Borrower is a party;
(b) duly executed original signatures to Control Agreements with Silicon Valley Bank;
(c) duly executed original Secured Promissory Notes in favor of each Lender according to its Term A Loan Commitment Percentage and Term Loan B Commitment Percentage;
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(d) the Operating Documents of Borrower and a good standing certificate of Borrower certified by the Secretary of State of the State of Delaware and each state in which Borrower is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;
(e) the Perfection Certificate for Borrower;
(f) duly executed original signatures to an officers certificate for Borrower, in a form acceptable to Agent;
(g) certified copies, dated as of a recent date, of financing statement searches, as Agent shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;
(h) a landlords consent executed in favor of Agent in respect of Tetraphases location at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472;
(i) a copy of any applicable Registration Rights Agreement or Investors Rights Agreement and any amendments thereto;
(j) a legal opinion of Borrowers counsel dated as of the Effective Date together with the duly executed original signatures thereto;
(k) evidence satisfactory to Agent that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Agent, for the ratable benefit of the Lenders;
(l) the Warrants executed by Tetraphase in favor of each Lender; and
(m) payment of the fees and Lenders Expenses then due as specified in Section 2.5 hereof.
3.2 Conditions Precedent to all Credit Extensions . The obligation of each Lender to make a Term B Loan and each other Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:
(a) receipt by Agent of an executed Payment/Advance Form in the form of Exhibit B attached hereto;
(b) the representations and warranties in Section 5 hereof shall be true, accurate and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrowers representation and warranty on that date that the representations and warranties in Section 5 hereof are true, accurate and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;
(c) in such Lenders reasonable discretion, there has not been any Material Adverse Change or any material adverse deviation in the consolidated financial condition of Borrower from the financial condition projected in the slides prepared for the April 27, 2011 meeting of Tetraphases Board of Directors and provided to the Lenders on April 25, 2011; and
(d) payment of the fees and Lenders Expenses then due as specified in Section 2.5 hereof.
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3.3 Covenant to Deliver . Borrower agrees to deliver to Agent each item required to be delivered to Agent under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Agent of any such item shall not constitute a waiver by the Lenders of Borrowers obligation to deliver such item, and any such Credit Extension in the absence of a required item shall be made in each Lenders sole discretion.
3.4 Procedures for Borrowing . Subject to the prior satisfaction of all other applicable conditions to the making of a Term Loan set forth in this Agreement, to obtain a Term Loan, Borrower shall notify Agent (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern time at least three (3) Business Days prior to the date the Term Loan is to be made. Together with any such electronic or facsimile notification, Borrower shall deliver to Agent by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Upon receipt of a Payment/Advance Form, Agent shall promptly provide a copy of the same to each Lender. Agent may rely on any telephone notice given by a person whom Agent reasonably believes is a Responsible Officer or designee. On the Funding Date, each Lender shall credit and/or transfer (as applicable) to Borrowers Designated Deposit Account, an amount equal to its Term Loan Commitment.
4 | CREATION OF SECURITY INTEREST |
4.1 Grant of Security Interest . Borrower hereby grants Agent, for the ratable benefit of the Lenders, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Agent, for the ratable benefit of the Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral, subject only to Permitted Liens that are permitted by the terms of this agreement to have priority over Agents Lien. If Borrower shall acquire a commercial tort claim in excess of $100,000 (as defined in the Code), Borrower shall promptly notify Agent in a writing signed by Borrower of the general details thereof (and further details as may be reasonably required by Agent) and grant to Agent, for the ratable benefit of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Agent.
If this Agreement is terminated, Agents Lien in the Collateral shall continue until the Obligations arising under this Agreement and the other Loan Documents (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations arising under this Agreement and the other Loan Documents and at such time as the Lenders obligation to make Credit Extensions has terminated, Agent shall, at Borrowers sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower.
4.2 Authorization to File Financing Statements . Borrower hereby authorizes Agent to file financing statements or take any other action required to perfect Agents security interests in the Collateral, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Agents and each Lenders interest or rights hereunder, including a notice that any disposition of the Collateral, except to the extent permitted by the terms of this Agreement, by Borrower or any other Person, shall be deemed to violate the rights of Agent and Lenders under the Code. Such financing statements may indicate the Collateral as all assets of the Debtor other than intellectual property or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Agents reasonable discretion.
5 | REPRESENTATIONS AND WARRANTIES |
Borrower represents and warrants to Agent and the Lenders as follows at all times:
5.1 Due Organization, Authorization: Power and Authority . Borrower and each of its Subsidiaries is validly existing and in good standing as a Registered Organization in the respective jurisdiction of organization, and
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Borrower and each of its Subsidiaries is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrowers or such Subsidiarys business. In connection with this Agreement, Borrower has delivered to Agent a completed perfection certificate signed by an officer of Borrower (the Perfection Certificate ). Borrower represents and warrants that (a) Borrowers exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) as of the Effective Date, the Perfection Certificate accurately sets forth Borrowers organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrowers place of business, or, if more than one, its chief executive office as well as Borrowers mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of organization, organizational structure or type, or any organizational number assigned by its jurisdiction of organization; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate (including the information set forth in clause (d) above) after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower or any Subsidiary is not now a Registered Organization but later becomes one, Borrower shall notify Agent of such occurrence and provide Agent with such Persons organizational identification number within five (5) Business Days of receiving such organizational identification number.
The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrowers organizational documents, including the Operating Documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of its property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or are being obtained pursuant to Section 6.1(b), or (v) constitute an event of default under any material agreement by which Borrower or any of its Subsidiaries or its properties is bound. Borrower is not in default under any agreement to which it is a party or by which it or any of its assets is bound in which such default could reasonably be expected to have a material adverse effect on Borrowers business.
5.2 Collateral .
(a) Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien under the Loan Documents, free and clear of any and all Liens except Permitted Liens, and Borrower has no Deposit Accounts, Securities Accounts, Commodity Accounts or other investment accounts other than the Collateral Accounts or the other investment accounts, if any, described in the Perfection Certificate delivered to Agent in connection herewith with respect of which Borrower has given Agent notice and taken such actions as are necessary to give Agent a perfected security interest therein.
(b) On the Effective Date, the Collateral (other than Clinical Testing Assets) is not in the possession of any third party bailee (such as a warehouse) except as disclosed in the Perfection Certificate, and, as of the Effective Date, no such third party bailee possesses components of the Collateral (other than Clinical Testing Assets) in excess of One Hundred Thousand Dollars ($100,000). None of the components of the Collateral shall be maintained at locations other than as disclosed in the Perfection Certificate on the Effective Date or as permitted pursuant to Section 7.2. In the event that Borrower, after the Effective Date, intends to store or otherwise deliver any portion of the Collateral (other than Clinical Testing Assets) to a bailee in excess of One Hundred Thousand Dollars ($100,000), then Borrower will first receive the written consent of Agent and such bailee must execute and deliver a bailee agreement in form and substance reasonably satisfactory to Agent. The term Clinical Testing Assets means drugs that are used in pre-clinical or clinical trials, including, but not limited to, Clinical Candidates TP-434 and TP-2758, or the drug product or drug substance maintained at Borrowers vendors for the production of such clinical drugs.
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(c) All Inventory is in all material respects of good and marketable quality, free from material defects.
(d) Borrower is the sole owner of the Intellectual Property it purports to own, except for non-exclusive licenses granted to its customers in the ordinary course of business. (i) Each of Borrowers Patents that is material to Borrowers business is valid and enforceable and no part of Borrowers Intellectual Property that is material to Borrowers business has been judged invalid or unenforceable, in whole or in part, and (ii) to the best of Borrowers knowledge, no claim has been made that any part of the Intellectual Property or any practice by Borrower violates the rights of any third party except to the extent such claim could not reasonably be expected to have a material adverse effect on Borrowers business. Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is the licensee that (i) prohibits or otherwise restricts Borrower from granting a security interest in Borrowers interest in such license or agreement or any other property, or (ii) for which a default under or termination of could interfere with Agents right to sell any Collateral. Borrower shall provide written notice to Agent within ten (10) days of entering into or becoming bound by any such license or agreement (other than over-the-counter software that is commercially available to the public). Borrower shall take such commercially reasonable steps as Agent requests to obtain the consent of, or waiver by, any Person whose consent or waiver is necessary for (i) all such licenses or agreements to be deemed Collateral and for Agent to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (ii) Agent shall have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Agents rights and remedies under this Agreement and the other Loan Documents.
5.3 Litigation . On the Effective Date, except as disclosed on the Perfection Certificate, there are no actions, suits, investigations, or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than One Hundred Thousand Dollars ($100,000.00).
5.4 No Material Deterioration in Financial Condition; Financial Statements . All consolidated financial statements for Borrower and its Subsidiaries delivered to Agent fairly present, in all material respects the consolidated financial condition of Borrower and its Subsidiaries and the consolidated results of operations of Borrower and its Subsidiaries. On and prior to December 31, 2011, there has not been any material adverse deviation in the consolidated financial condition of Borrower from the financial condition projected in the slides prepared for the April 27, 2011 meeting of Tetraphases Board of Directors and provided to the Lenders on April 25, 2011. After December 31, 2011, there has not been any material adverse deviation in the consolidated financial condition of Borrower from the projections in the most recent budget submitted to Agent pursuant to Section 6.2(a)(iii).
5.5 Solvency . The fair salable value of Borrowers assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.
5.6 Regulatory Compliance . Borrower is not an investment company or a company controlled by an investment company under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a holding company or an affiliate of a holding company or a subsidiary company of a holding company as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrowers or any of its Subsidiaries properties or assets has been used by Borrower or any Subsidiary or, to Borrowers knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than in material compliance with applicable laws. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted.
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None of Borrower or its Affiliates or any of its agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person. Neither Borrower nor, to the knowledge of Borrower, any of its Affiliates or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law.
5.7 Subsidiaries; Investments . Borrower does not own any stock, shares, partnership interests or other equity securities except for Permitted Investments.
5.8 Tax Returns and Payments; Pension Contributions . Borrower and its Subsidiaries have timely filed all required tax returns and reports, and Borrower and its Subsidiaries have timely paid all foreign, federal, state, and local taxes, assessments, deposits and contributions owed by Borrower and its Subsidiaries in all jurisdictions in which Borrower or its Subsidiaries are subject to taxes, including the United States, unless such taxes are being contested in accordance with the following sentence. Borrower and its Subsidiaries may defer payment of any contested taxes, provided that Borrower or such Subsidiary (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Agent in writing of the commencement of, and any material development in, the proceedings, and (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a Permitted Lien. To Borrowers knowledge, there are no claims or adjustments proposed for any of Borrowers or its Subsidiaries prior tax years which could reasonably be expected to result in additional taxes becoming due and payable by Borrower or its subsidiaries. Borrower and its Subsidiaries have paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower and its Subsidiaries have not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower or its Subsidiaries, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
5.9 Use of Proceeds . Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements in accordance with the provisions of this Agreement, and not for personal, family, household or agricultural purposes.
5.10 Full Disclosure . No written representation, warranty or other statement of Borrower in any certificate or written statement given to Agent or any Lender, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
6 | AFFIRMATIVE COVENANTS |
Borrower shall, and shall cause each of its subsidiaries to, do all of the following:
6.1 Government Compliance.
(a) Maintain its and all its Subsidiaries legal existence and good standing in their respective jurisdictions of organization and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on Borrowers business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, the noncompliance with which could reasonably be expected to have a material adverse effect on Borrowers business.
(b) Obtain and keep in full force and effect, all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents and the grant of a security interest to Agent for the ratable benefit of the Lenders, in all of the Collateral. Borrower shall promptly provide copies to Agent of any material Governmental Approvals obtained by Borrower.
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6.2 Financial Statements, Reports, Certificates.
(a) Deliver to Agent: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet, income statement and cash flow statement covering the consolidated operations of Borrower and its Subsidiaries for such month certified by a Responsible Officer and in a form reasonably acceptable to Agent; (ii) as soon as available, but no later than one hundred fifty (150) days after the last day of Borrowers fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion (other than a going concern qualification) on the financial statements from an independent certified public accounting firm acceptable to Agent in its reasonable discretion; (iii) as soon as available after approval thereof by Borrowers Board of Directors, but no later than forty-five (45) days after the last day of each of Borrowers fiscal years, Borrowers financial projections for the entire current fiscal year as approved by Borrowers Board of Directors, which such annual projections shall be set forth in a month-by-month format (such annual financial projections as originally delivered to Agent and the Lenders are referred to herein as the Annual Projections ); (iv) within five (5) days of delivery, copies of all statements, reports and notices made available to Borrowers security holders or holders of Subordinated Debt; (v) in the event that Borrower becomes subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (documents required to be delivered pursuant to this clause (v) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrowers website on the Internet at Borrowers website address), (vi) (A) notice of any material change in the composition of the Intellectual Property (which notice may be provided as part of the Compliance Certificate delivered at the end of each month), (B) notice of the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark (which notice may be provided as part of the Compliance Certificate delivered at the end of each month), and (C) prompt notice of Borrowers knowledge of any event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property; (vii) as soon as available, but no later than thirty (30) days after the last day of each month, copies of the month-end bank statements for each deposit account or securities account maintained by Borrower or any Subsidiary, which bank statements may be provided to Agent by Borrower or directly from the applicable bank(s), and (viii) other financial information as reasonably requested by Agent.
(b) Concurrently with the delivery of the financial statements specified in Section 6.2(a)(i) above but no later than thirty (30) days after the last day of each month, deliver to Agent, a duly completed Compliance Certificate signed by a Responsible Officer.
(c) Keep proper books of record and account in accordance with GAAP in all material respects, in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. Borrower shall allow, at the sole cost of Borrower, Agent and Lenders, during regular business hours upon reasonable prior notice (except while an Event of Default has occurred and is continuing), to visit and inspect any of its properties, to examine and make abstracts or copies from any of its books and records, and to conduct a collateral audit and analysis of its operations and the Collateral. Such audits shall be conducted no more often than twice every twelve months unless an Event of Default has occurred and is continuing.
6.3 Inventory; Returns . Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrowers customary practices as they exist at the Effective Date. Borrower must promptly notify Agent of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000) individually or in the aggregate in any calendar year.
6.4 Taxes; Pensions . Timely file and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely file, all foreign, federal, state, and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any
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taxes contested pursuant to the terms of Section 5.8 hereof, and shall deliver to Agent, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
6.5 Insurance . Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers industry and location and as Agent may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Agent. All property policies shall have a lenders loss payable endorsement showing Agent as lender loss payee and waive subrogation against Agent, and all domestic liability policies shall show, or have endorsements showing, Agent, as an additional insured. All domestic policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall endeavor to give Agent at least twenty (20) days notice before canceling, amending, or declining to renew its policy. At Agents request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Agents option, be payable to Agent on behalf of the Lenders on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to $100,000 with respect to any loss, but not exceeding $250,000, in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Agent has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Agent, be payable to Agent, for the ratable benefit of the Lenders, on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Agent, Agent may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Agent deems prudent.
6.6 Operating Accounts.
(a) Maintain all of Borrowers and all of its Subsidiaries operating and other deposit accounts and securities accounts with Silicon Valley Bank or its Affiliates.
(b) Borrower and its Subsidiaries shall provide Agent five (5) days prior written notice before establishing any Collateral Account at or with any Person other than Silicon Valley Bank and its Affiliates. In addition, for each Collateral Account that Borrower or any of its Subsidiaries any time maintains, Borrower shall cause the applicable bank or financial institution at or with which such Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Agents Lien in such Collateral Account in accordance with the terms hereunder, which Control Agreement may not be terminated without prior written consent of Agent. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers or such Subsidiarys employees and identified to Agent by Borrower as such.
(c) Borrower and its Subsidiaries shall not maintain any Collateral Accounts except Collateral Accounts located in the United States in accordance with Sections 6.6(a) and (b).
6.7 Protection of Intellectual Property Rights . Borrower shall: (a) protect, defend and maintain the validity and enforceability of its Intellectual Property that is material to Borrowers business; (b) promptly advise Agent in writing of material infringement by a third party of its Intellectual Property; and (c) not allow any Intellectual Property material to Borrowers business to be abandoned, forfeited or dedicated to the public without Agents written consent.
6.8 Litigation Cooperation . From the date hereof and continuing through the termination of this Agreement, make available to Agent, without expense to Agent or the Lenders, Borrower and its officers, employees and agents and Borrowers Books, to the extent that Agent may reasonably deem them necessary to prosecute or defend any third-party suit or proceeding instituted by or against Agent or the Lenders with respect to any Collateral or relating to Borrower.
6.9 Notices of Litigation and Default . Borrower will give prompt written notice to Agent of any litigation or governmental proceedings pending or threatened (in writing) against Borrower or any of its Subsidiaries which could
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reasonably be expected to result in damages or costs to Borrower or any of its Subsidiaries of One Hundred Thousand Dollars ($100,000) or more or which could reasonably be expected to have a material adverse effect with respect to Borrowers business. Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon Borrower becoming aware of the existence of any Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default, Borrower shall give written notice to Agent of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default.
6.10 Creation/Acquisition of Subsidiaries . In the event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Agent of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required by Agent to cause each such Subsidiary to become a co-Borrower hereunder or to guarantee the Obligations of Borrower under the Loan Documents and, in each case, grant a continuing pledge and security interest in and to the assets of such Subsidiary (substantially as described on Exhibit A hereto); and Borrower or such Subsidiary, as applicable, shall grant and pledge to Agent, for the ratable benefit of the Lenders, a perfected security interest in the stock, units or other evidence of ownership of each Subsidiary.
6.11 Further Assurances .
(a) Execute any further instruments and take further action as Agent reasonably requests to perfect or continue Agents Lien in the Collateral or to effect the purposes of this Agreement.
(b) Deliver to Agent, within five (5) days after the same are sent or received, copies of all material correspondence, reports, documents and other filings with any Governmental Authority that could reasonably be expected to have a material adverse effect on any of the Governmental Approvals material to Borrowers business or otherwise on the operations of Borrower or any of its Subsidiaries.
6.12 Investments in Foreign Subsidiaries . Borrower shall not, and shall not permit any Subsidiary to, contribute, assign or otherwise transfer assets to, or otherwise make any investment in, any Foreign Subsidiary or Foreign Subsidiaries other than transfers to or investments in Foreign Subsidiaries that do not exceed $50,000 in the aggregate for all Foreign Subsidiaries in any fiscal year.
7 | NEGATIVE COVENANTS |
Borrower shall not, and shall not permit any of its Subsidiaries to, do any of the following without the prior written consent of the Required Lenders:
7.1 Dispositions . Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, Transfer ), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out, surplus, or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; or (d) of non-exclusive licenses for the use of the Intellectual Property of Borrower or its Subsidiaries in the ordinary course of business in connection with joint ventures and collaborations.
7.2 Changes in Business, Management, Ownership, or Business Locations . (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses engaged in by Borrower as of the Effective Date or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) any Key Person shall cease to be actively engaged in the management of Borrower unless a replacement for such Key Person, reasonably satisfactory to Lenders holding at least a majority of the aggregate outstanding principal balance of the Term Loans, is approved by Borrowers Board of Directors and engaged by Borrower within one hundred twenty (120) days, or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than 49% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrowers equity securities in a public offering, a private placement of public equity or to venture capital investors so long as Borrower identifies to Agent the venture capital investors or other strategic investors prior to the closing of the transaction). Borrower shall not, without at least twenty (20) days prior written notice to Agent: (A) add any new offices or business locations, including warehouses (unless such new offices or business locations
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contain less than One Hundred Thousand Dollars ($100,000) in Borrowers assets or property), (B) change its jurisdiction of organization, (C) change its organizational structure or type, (D) change its legal name, or (E) change any organizational number (if any) assigned by its jurisdiction of organization.
7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock, shares or property of another Person. A Subsidiary may merge or consolidate into another Subsidiary (provided such surviving Subsidiary is a co-Borrower hereunder or has provided a secured guaranty of Borrowers Obligations hereunder) or into Borrower provided Borrower is the surviving legal entity, and as long as no Event of Default is occurring prior thereto or arises as a result therefrom.
7.4 Indebtedness . Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance . Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein (except for Permitted Liens that are permitted by the terms of this agreement to have priority to Agents Lien), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Agent) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrowers or any Subsidiarys Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of Permitted Liens herein.
7.6 Maintenance of Collateral Accounts . Maintain any Collateral Account except pursuant to the terms of Section 6.6 hereof.
7.7 Distributions; Investments . (a) Pay any dividends (other than dividends payable solely in capital stock) or make any distribution or payment or redeem, retire or purchase any capital stock (other than repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements, stockholder rights plans, director or consultant stock option plans, or similar plans, provided such repurchases do not exceed One Hundred Thousand Dollars ($100,000) in the aggregate per fiscal year) or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.
7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrowers business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person.
7.9 Subordinated Debt . (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to the Lenders.
7.10 Compliance . Become an investment company or a company controlled by an investment company, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrowers business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
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7.11 Compliance with Anti-Terrorism Laws . Agent hereby notifies Borrower that pursuant to the requirements of Anti-Terrorism Laws, and Agents policies and practices, Agent is required to obtain, verify and record certain information and documentation that identifies Borrower and its principals, which information includes the name and address of Borrower and its principals and such other information that will allow Agent to identify such party in accordance with Anti-Terrorism Laws. Borrower will not, nor will Borrower permit any Subsidiary or Affiliate to, directly or indirectly, knowingly enter into any documents, instruments, agreements or contracts with any Person listed on the OFAC Lists. Borrower shall immediately notify Agent if Borrower has knowledge that Borrower or any Subsidiary or Affiliate is listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering. Borrower will not, nor will Borrower permit any Subsidiary or Affiliate to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law.
8 | EVENTS OF DEFAULT |
Any one of the following shall constitute an event of default (an Event of Default ) under this Agreement:
8.1 Payment Default . Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments due on the Maturity Date or the date of acceleration pursuant to Section 9.1 (a) hereof). During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2 (Financial Statements, Reports, Certificates), 6.4 (Taxes), 6.5 (Insurance), 6.6 (Operating Accounts), 6.7 (Protection of Intellectual Property Rights), 6.9 (Notices of Default), 6.10 (Creation/Acquisition of Subsidiaries) or 6.12 (Post-Closing Covenants) or Borrower or violates any covenant in Section 7; or
(b) Borrower or, to the extent applicable, any of its Subsidiaries fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this Section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment; Levy; Restraint on Business.
(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under control of Borrower (including a Subsidiary) on deposit with any Lender or any Lenders Affiliate or any bank or other institution at which Borrower maintains a Collateral Account, or (ii) a notice of lien, levy, or assessment is filed against any of Borrowers assets by any government agency, and the same under
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subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; and
(b) (i) any material portion of Borrowers assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any part of its business;
8.5 Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements . There is a default by Borrower in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Fifty Thousand Dollars ($150,000) or that could have a material adverse effect on Borrowers business.
8.7 Judgments . One or more judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction, vacation, or stay of such judgment, order or decree);
8.8 Misrepresentations . Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Agent and/or Lenders or to induce Agent and/or the Lenders to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated Debt . An event of default (after any applicable notice and/or cure periods that are a precondition to the occurrence of such event of default) occurs or a breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Agent or the Lenders, or any creditor that has signed such an agreement with Agent or the Lenders breaches any terms of such agreement; or
8.10 Governmental Approvals. Any Governmental Approval material to Borrowers business shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction that could reasonably be expected to have a material adverse effect on Borrowers business.
8.11 Lien Priority . Any Lien created hereunder or by any other Loan Document shall at any time fail to constitute a valid and perfected Lien on any of the Collateral purported to be secured thereby, subject to no prior or equal Lien, other than Permitted Liens.
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9 | RIGHTS AND REMEDIES |
9.1 Rights and Remedies .
(a) Upon the occurrence and during the continuance of an Event of Default, Agent may, and at the written direction of any Lender shall, without notice or demand, do any or all of the following: (i) deliver notice of the Event of Default to Borrower, (ii) by notice to Borrower declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations shall be immediately due and payable without any action by Agent or the Lenders) or (iii) by notice to Borrower suspend or terminate the obligations, if any, of the Lenders to advance money or extend credit for Borrowers benefit under this Agreement or under any other agreement between Borrower and Agent and/or the Lenders (but if an Event of Default described in Section 8.5 occurs all obligations, if any, of the Lenders to advance money or extend credit for Borrowers benefit under this Agreement or under any other agreement between Borrower and Agent and/or the Lenders shall be immediately terminated without any action by Agent or the Lenders).
(b) Without limiting the rights of the Agent and the Lenders set forth in Section 9.1(a) above, upon the occurrence and during the continuance of an Event of Default Agent shall have the right, at the written direction of the Required Lenders, without notice or demand, to do any or all of the following:
(i) foreclose upon and/or sell or otherwise liquidate, the Collateral;
(ii) apply to the Obligations any (a) balances and deposits of Borrower that Agent or any Lender holds or controls, or (b) any amount held or controlled by Agent or any Lender owing to or for the credit or the account of Borrower; and/or
(iii) commence and prosecute an Insolvency Proceeding or consent to Borrower commencing any Insolvency Proceeding.
(c) Without limiting the rights of the Agent and the Lenders set forth in Sections 9.1(a) and (b) above, upon the occurrence and during the continuance of an Event of Default Agent shall have the right, without notice or demand, to do any or all of the following:
(i) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Agent considers advisable, notify any Person owing Borrower money of Agents security interest in such funds, and verify the amount of such account;
(ii) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Agent requests and make it available in a location as Agent reasonably designates. Agent may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Agent a license to enter and occupy any of its premises, without charge, to exercise any of Agents rights or remedies;
(iii) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, and/or advertise for sale, the Collateral. Agent is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrowers labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Agents exercise of its rights under this Section 9.1, Borrowers rights under all licenses and all franchise agreements inure to Agent for the benefit of the Lenders;
(iv) place a hold on any account maintained with Agent or the Lenders and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(v) demand and receive possession of Borrowers Books;
(vi) appoint a receiver to cease, manage and realize any of the Collateral, and such receiver shall have any right and authority as any competent court will grant or authorize in accordance with any applicable law, including any power or authority to manage the business of Borrower; and
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(vii) Subject to clauses 9.1(a) and (b), exercise all rights and remedies available to Agent under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
Notwithstanding any provision of this Section 9.1 to the contrary, upon the occurrence and during the continuance of any Event of Default, Agent shall have the right to exercise any and all remedies referenced in this Section 9.1 without the written consent of Required Lenders following the occurrence of an Exigent Circumstance. As used in the immediately preceding sentence, Exigent Circumstance means any event or circumstance that, in the reasonable judgment of Agent, imminently threatens the ability of Agent to realize upon all or any material portion of the Collateral, such as, without limitation, fraudulent removal, concealment, or abscondment thereof, destruction or material waste thereof, or failure of Borrower after reasonable demand to maintain or reinstate adequate casualty insurance coverage, or which, in the judgment of Agent, could reasonably be expected to result in a material diminution in value of the Collateral.
9.2 Power of Attorney . Borrower hereby irrevocably appoints Agent as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrowers name on any checks or other forms of payment or security; (b) sign Borrowers name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Agent determines reasonable; (d) make, settle, and adjust all claims under Borrowers insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Agent or a third party as the Code or any applicable law permits. Borrower hereby appoints Agent as its lawful attorney-in-fact to sign Borrowers name on any documents necessary to perfect or continue the perfection of Agents security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Agent and the Lenders are under no further obligation to make Credit Extensions hereunder. Agents foregoing appointment as Borrowers attorney in fact, and all of Agents rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Agents and the Lenders obligation to provide Credit Extensions terminates.
9.3 Protective Payments . If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Agent may obtain such insurance or make such payment, and all amounts so paid by Agent are Lenders Expenses and immediately due and payable, bearing interest at the Default Rate, and secured by the Collateral. Agent will make reasonable efforts to provide Borrower with notice of Agent obtaining such insurance or making such payment at the time it is obtained or paid or within a reasonable time thereafter. No such payments by Agent are deemed an agreement to make similar payments in the future or Agents waiver of any Event of Default.
9.4 Application of Payments and Proceeds . Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of Borrower of all or any part of the Obligations, and, as between Borrower on the one hand and Agent and Lenders on the other, Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent, and (b) the proceeds of any sale of, or other realization upon all or any part of the Collateral shall be applied: first, to the Lenders Expenses; second, to accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts); third, to the principal amount of the Obligations outstanding; and fourth, to any other indebtedness or obligations of Borrower owing to Agent or any Lender under the Loan Documents. Any balance remaining shall be delivered to Borrower or to whoever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. In carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category. Any reference in this Agreement to an allocation between or sharing by the Lenders of any right, interest or obligation ratably, proportionally or in similar terms shall refer to Pro Rata Share unless expressly provided otherwise. Agent, or if applicable, each Lender, shall promptly remit to the other Lenders such sums as may be necessary to ensure the ratable repayment of each Lenders portion of any Term Loan and
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the ratable distribution of interest, fees and reimbursements paid or made by Borrower. Notwithstanding the foregoing, a Lender receiving a scheduled payment shall not be responsible for determining whether the other Lenders also received their scheduled payment on such date; provided, however, if it is later determined that a Lender received more than its ratable share of scheduled payments made on any date or dates, then such Lender shall remit to Agent or other Lenders such sums as may be necessary to ensure the ratable payment of such scheduled payments, as instructed by Agent. If any payment or distribution of any kind or character, whether in cash, properties or securities, shall be received by a Lender in excess of its ratable share, then the portion of such payment or distribution in excess of such Lenders ratable share shall be received by such Lender in trust for and shall be promptly paid over to the other Lender for application to the payments of amounts due on the other Lenders claims. To the extent any payment for the account of Borrower is required to be returned as a voidable transfer or otherwise, the Lenders shall contribute to one another as is necessary to ensure that such return of payment is on a pro rata basis. If any Lender shall obtain possession of any Collateral, it shall hold such Collateral for itself and as agent and bailee for Agent and other Lenders for purposes of perfecting Agents security interest therein.
9.5 Liability for Collateral . So long as Agent and the Lenders comply with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Agent and the Lenders, Agent and the Lenders shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6 No Waiver; Remedies Cumulative . Agents failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Agent thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Agent and then is only effective for the specific instance and purpose for which it is given. Agents rights and remedies under this Agreement and the other Loan Documents are cumulative. Agent has all rights and remedies provided under the Code, any applicable law, by law, or in equity. Agents exercise of one right or remedy is not an election, and Agents waiver of any Event of Default is not a continuing waiver. Agents delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand Waiver . Borrower waives, to the fullest extent permitted by law, demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Agent on which Borrower is liable.
10 | NOTICES |
All notices, consents, requests, approvals, demands, or other communication (collectively, Communication ) by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail (if an email address is specified herein) or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Any of Agent, Lender or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
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If to Borrower: |
c/o Tetraphase Pharmaceuticals, Inc. |
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480 Arsenal Street, Suite 110 |
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Watertown, Massachusetts 02472 |
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Attn: Mr. David Lubner |
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Phone: (617) 715-3551 |
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Fax: (617) 715-3557 |
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Email: dlubner@tphase.com |
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with a copy to: |
WilmerHale |
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60 State Street |
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Boston, Massachusetts 02109 |
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Attn: Stuart Falber, Esquire |
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Phone: (617) 526-6663 |
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Fax: (617) 526-5000 |
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Email: stuart.falber@wilmerhale.com |
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If to Agent or SVB: |
Silicon Valley Bank |
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275 Grove Street, Suite 2-200 |
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Newton, Massachusetts 02466 |
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Attention: Ms. Kate Walsh |
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Phone : (617) 630-4130 |
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Fax: (617) 527-0177 |
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If to Oxford: |
Oxford Finance LLC 133 North Fairfax Street Alexandria, Virginia 22314 |
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Attention: General Counsel |
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Phone: |
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Fax: (703) 519-5225 |
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with a copy to: |
Riemer & Braunstein LLP |
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Three Center Plaza |
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Boston, Massachusetts 02108 |
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Attn: John J. Malloy, Esquire |
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Fax: (617) 880-3449 |
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Email: jmalloy@riemerlaw.com |
11 | CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER |
New York law governs the Loan Documents without regard to principles of conflicts of law. Borrower, Lenders and Agent each submit to the exclusive jurisdiction of the State and Federal courts in the City of New York, Borough of Manhattan. NOTWITHSTANDING THE FOREGOING, AGENT AND LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT AND LENDERS (IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9.1) DEEM NECESSARY OR APPROPRIATE TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE AGENTS AND LENDERS RIGHTS AGAINST BORROWER OR ITS PROPERTY. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set
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forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrowers actual receipt thereof or three (3) days after deposit in the U.S. mails, first class, registered or certified mail return receipt requested, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, AGENT, AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 | GENERAL PROVISIONS |
12.1 Successors and Assigns . This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not transfer, pledge or assign this Agreement or any rights or obligations under it without the Agents prior written consent (which may be granted or withheld in the Agents discretion, subject to Section 12.6). The Lenders have the right, without the consent of or notice to Borrower, to sell, transfer, assign, pledge, negotiate, or grant participation in (any such sale, transfer, assignment, negotiation, or grant of a participation, a Lender Transfer) all or any part of, or any interest in, the Lenders obligations, rights, and benefits under this Agreement and the other Loan Documents provided , however , that any such Lender Transfer (other than a transfer, pledge, sale or assignment to an Eligible Assignee) of its obligations, rights, and benefits under this Agreement and the other Loan Documents shall require the prior written consent of the Required Lenders (such approved assignee, an Approved Lender ); provided further that provided no Event of Default has occurred and is continuing, no Lender Transfer may be made to any direct or indirect competitor of Borrower, or any Affiliate of a competitor of Borrower, in each case as determined by the Agent in its reasonable discretion, without Borrowers prior written consent . Borrower and the Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned until the Agent shall have received and accepted an effective assignment agreement in form satisfactory to the Agent executed, delivered and fully completed by the applicable parties thereto, and shall have received such other information regarding such Eligible Assignee or Approved Lender as the Agent reasonably shall require.
12.2 Indemnification. Borrower agrees to indemnify, defend and hold Agent and the Lenders and their respective directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Agent or the Lenders (each, an Indemnified Person ) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, Claims ) asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Lenders Expenses incurred, or paid by Indemnified Person from, following, or arising from transactions between Agent, and/or the Lenders and Borrower (including reasonable attorneys fees and expenses), except for Claims and/or losses directly caused by Lenders gross negligence or such Indemnified Persons gross negligence or willful misconduct. Borrower hereby further indemnifies, defends and holds each Indemnified Person harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of counsel for such Indemnified Person) in connection with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not such Indemnified Person shall be designated a party thereto and including any such proceeding initiated by or on behalf of Borrower, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by Agent or Lenders) asserting any right to payment for the transactions contemplated hereby which may be imposed on, incurred by or asserted against such Indemnified Person as a result of or in connection with the transactions contemplated hereby and the use or intended use of the proceeds of the loan proceeds.
12.3 Time of Essence . Time is of the essence for the performance of all Obligations in this Agreement.
12.4 Severability of Provisions . Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
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12.5 Correction of Loan Documents. After providing Borrower with prior notice and an opportunity to object, Agent and the Lenders may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties .
12.6 Amendments in Writing; Integration . (a) No amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, or any consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrower, Agent and the Required Lenders provided that
(i) no such amendment, waiver or other modification that would have the effect of increasing or reducing a Lenders Term Loan Commitment or Commitment Percentage shall be effective as to such Lender without such Lenders written consent;
(ii) no such amendment, waiver or modification that would affect the rights and duties of Agent shall be effective without Agents written consent or signature;
(iii) no such amendment, waiver or other modification shall, unless signed by all the Lenders directly affected thereby, (A) reduce the principal of, rate of interest on or any fees with respect to any Term Loan or forgive any principal, interest (other than default interest) or fees (other than late charges) with respect to any Term Loan (B) postpone the date fixed for, or waive, any payment of principal of any Term Loan or of interest on any Term Loan (other than default interest) or any fees provided for hereunder (other than late charges or for any termination of any commitment); (C) change the definition of the term Required Lenders or the percentage of Lenders which shall be required for Lenders to take any action hereunder; (D) release all or substantially all or any material portion of the Collateral, authorize Borrower to sell or otherwise dispose of all or substantially all or any material portion of the Collateral or release any guarantor of all or any portion of the Obligations or its guaranty obligations with respect thereto, except, in each case with respect to this clause (D), as otherwise may be expressly permitted under this Agreement or the other Loan Documents (including in connection with any disposition permitted hereunder); (E) amend, waive or otherwise modify this Section 12.6 or the definitions of the terms used in this Section 12.6 insofar as the definitions affect the substance of this Section 12.6; (F) consent to the assignment, delegation or other transfer by Borrower of any of its rights and obligations under any Loan Document or release Borrower of its payment obligations under any Loan Document, except, in each case with respect to this clause (F), pursuant to a merger or consolidation permitted pursuant to this Agreement; (G) amend any of the provisions of Section 9.4 or amend any of the definitions Pro Rata Share, Term Loan Commitment, Commitment Percentage or that provide for the Lenders to receive their Pro Rata Shares of any fees, payments, setoffs or proceeds of Collateral hereunder; (H) subordinate the Liens granted in favor of Agent securing the Obligations; or (I) amend any of the provisions of Section 12.10. It is hereby understood and agreed that all Lenders shall be deemed directly affected by an amendment, waiver or other modification of the type described in the preceding clauses (C), (D), (E), (F), (G) and (H) of the preceding sentence;
(iv) the provisions of the foregoing clauses (i), (ii) and (iii) are subject to the provisions of any interlender or agency agreement among the Lenders and Agent pursuant to which any Lender may agree to give its consent in connection with any amendment, waiver or modification of the Loan Documents only in the event of the unanimous agreement of all Lenders.
(b) Other than as expressly provided for in Section 12.6(a)(i)-(iii), Agent may, if requested by the Required Lenders, from time to time designate covenants in this Agreement less restrictive by notification to a representative of Borrower.
(c) This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.
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12.7 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.
12.8 Survival . All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to indemnify each Lender and Agent, as well as the confidentiality provisions in Section 12.9 below, shall survive until the statute of limitations with respect to such claim or cause of action shall have run.
12.9 Confidentiality . In handling any confidential information of Borrower, the Lenders and Agent shall exercise the same degree of care that it exercises for their own proprietary information, but disclosure of information may be made: (a) to the Lenders and Agents Subsidiaries or Affiliates (provided, however, that such Subsidiaries or Affiliates shall have agreed to be bound by the terms of this Section); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, the Lenders and Agent shall use commercially reasonable efforts to obtain such prospective transferees or purchasers agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Lenders or Agents regulators or as otherwise required in connection with an examination or audit; (e) as Agent considers appropriate in exercising remedies under the Loan Documents; and (f) to third party service providers of the Lenders and/or Agent so long as such service providers have executed a confidentiality agreement with the Lenders and Agent with terms no less restrictive than those contained herein. Confidential information does not include information that either: (i) is in the public domain or in the Lenders and/or Agents possession when disclosed to the Lenders and/or Agent, or becomes part of the public domain after disclosure to the Lenders and/or Agent; or (ii) is disclosed to the Lenders and/or Agent by a third party, if the Lenders and/or Agent does not know that the third party is prohibited from disclosing the information. Agent and the Lenders may use confidential information for any purpose, including, without limitation, for the development of client databases, reporting purposes, and market analysis, so long as Agent does not disclose Borrowers identity or the identity of any person associated with Borrower unless otherwise expressly permitted by this Agreement. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.
12.10 Right of Set Off . Borrower hereby grants to Agent and to each Lender, a lien, security interest and right of set off as security for all Obligations to Agent and each Lender hereunder, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Agent or the Lenders or any entity under the control of Agent or the Lenders (including a Agent affiliate) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Agent or the Lenders may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
12.11 Borrower Liability . Either Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Credit Extensions hereunder. Each Borrower hereunder shall be jointly and severally obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives said Credit Extension, as if each Borrower hereunder directly received all Credit Extensions. Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require Agent or any Lender to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Agent or any Lender may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrowers liability. Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Agent and the Lenders under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other
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Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Agent and the Lenders and such payment shall be promptly delivered to Agent and/or the Lenders for application to the Obligations, whether matured or unmatured.
13 | AGENT |
13.1 Appointment and Authorization of Agent . Each Lender hereby irrevocably appoints, designates and authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing sentence, the use of the term agent herein and in the other Loan Documents with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
13.2 Delegation of Duties . Agent may execute any of its duties under this Agreement or any other Loan Document by or through its, or its Affiliates, agents, employees or attorneys-in-fact and shall be entitled to obtain and rely upon the advice of counsel and other consultants or experts concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct.
13.3 Liability of Agent . Except as otherwise provided herein, no Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by Borrower or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower or any Affiliate thereof.
13.4 Reliance by Agent . Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of all Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of all Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.
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13.5 Notice of Default . Agent shall not be deemed to have knowledge or notice of the occurrence of any default and/or Event of Default, unless Agent shall have received written notice from a Lender or Borrower, describing such default or Event of Default. Agent will notify the Lenders of its receipt of any such notice. Agent shall take such action with respect to an Event of Default as may be directed in writing by the Required Lenders in accordance with Article 9(a); provided, however , that while an Event of Default has occurred and is continuing, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as Agent shall deem advisable or in the best interest of the Lenders, including without limitation, satisfaction of other security interests, liens or encumbrances on the Collateral not permitted under the Loan Documents, payment of taxes on behalf of Borrower, payments to landlords, warehouseman, bailees and other persons in possession of the Collateral and other actions to protect and safeguard the Collateral, and actions with respect to insurance claims for casualty events affecting Borrower and/or the Collateral.
13.6 Credit Decision; Disclosure of Information by Agent . Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of Borrower or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of, and investigation into, the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and its respective Subsidiaries, and all applicable bank or other regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by Agent herein, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any of its Affiliates which may come into the possession of any Agent-Related Person.
13.7 Indemnification of Agent . Whether or not the transactions contemplated hereby are consummated, each Lender shall, severally and pro rata based on its respective Pro Rata Share, indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), and hold harmless each Agent-Related Person from and against any and all Claims (which shall not include legal expenses of Agent incurred in connection with the closing of the transactions contemplated by this Agreement) incurred by it; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a judgment by a court of competent jurisdiction to have resulted from such Agent-Related Persons own gross negligence or willful misconduct; provided, however, that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 13.7. Without limitation of the foregoing, each Lender shall, severally and pro rata based on its respective Pro Rata Share, reimburse Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Lenders Expenses incurred after the closing of the transactions contemplated by this Agreement) incurred by Agent (in its capacity as Agent, and not as a Lender) in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section 13.7 shall survive the payment in full of the Obligations, the termination of this Agreement and the resignation of Agent.
13.8 Agent in its Individual Capacity . With respect to its Credit Extensions, SVB shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not Agent, and the terms Lender and Lenders include SVB in its individual capacity.
13.9 Successor Agent . Agent may resign as Agent upon ten (10) days notice to the Lenders. If Agent resigns under this Agreement, all Lenders shall appoint from among the Lenders (or the affiliates thereof) a successor Agent for the
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Lenders, which successor Agent shall (unless an Event of Default has occurred and is continuing) be subject to the approval of Borrower (which approval shall not be unreasonably withheld or delayed). If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent from among the Lenders (or the affiliates thereof). Upon the acceptance of its appointment as successor Agent hereunder, the Person acting as such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the respective term Agent means such successor Agent and the retiring Agents appointment, powers and duties in such capacities shall be terminated without any other further act or deed on its behalf. After any retiring Agents resignation hereunder as Agent, the provisions of this Article 13 and Sections 2.3(d) and 12.2 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date ten (10) days following a retiring Agents notice of resignation, the retiring Agents resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor agent as provided for above.
13.10 Agent May File Proofs of Claim . In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Borrower, Agent (irrespective of whether the principal of any Loan, shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Credit Extensions and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and Agent and their respective agents and counsel and all other amounts due the Lenders and Agent allowed in such judicial proceeding); and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Agent and, in the event that Agent shall consent to the making of such payments directly to the Lenders, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its agents and counsel, and any other amounts due Agent under Section 2.3(d). To the extent that Agent fails timely to do so, each Lender may file a claim relating to such Lenders claim.
13.11 Collateral and Guaranty Matters. The Lenders irrevocably authorize Agent, at its option and in its discretion, to release any guarantor and any Lien on any Collateral granted to or held by Agent under any Loan Document (i) upon the date that all Obligations due hereunder have been fully and indefeasibly paid in full and no Term Loan Commitments or other obligations of any Lender to provide funds to Borrower under this Agreement remain outstanding, (ii) that is transferred or to be transferred as part of or in connection with any Transfer permitted hereunder or under any other Loan Document, or (iii) as approved in accordance with Section 12.6. Upon request by Agent at any time, all Lenders will confirm in writing Agents authority to release its interest in particular types or items of Property, pursuant to this Section 13.11.
13.12 Cooperation of Borrower . If necessary, Borrower agrees to (i) execute any documents (including new Secured Promissory Notes) reasonably required to effectuate and acknowledge each assignment of a Term Loan Commitment or Loan to an assignee in accordance with Section 12.1, (ii) make Borrowers management available to meet with Agent and prospective participants and assignees of Term Loan Commitments or Credit Extensions (which meetings shall be conducted no more often than twice every twelve months unless an Event of Default has occurred and is continuing) and (iii) assist Agent or the Lenders in the preparation of information relating to the financial affairs of Borrower as any prospective participant or assignee of a Term Loan Commitment or Term Loan reasonably may request. Subject to the provisions of Section 12.9 Borrower authorizes each Lender to disclose to any prospective participant or assignee of a Term Loan Commitment, any and all information in such Lenders possession concerning Borrower and its financial affairs which has been delivered to such Lender by or on behalf of Borrower pursuant to this Agreement, or which has been delivered to such Lender by or on behalf of Borrower in connection with such Lenders credit evaluation of Borrower prior to entering into this Agreement.
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14 | DEFINITIONS |
14.1 Definitions . As used in this Agreement, the following terms have the following meanings:
Account is any account as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.
Account Debtor is any account debtor as defined in the Code with such additions to such term as may hereafter be made.
Affiliate of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Persons senior executive officers, directors, partners and, for any Person that is a limited liability company, that Persons managers and members.
Agent means SVB, not in its individual capacity, but solely in its capacity as agent on behalf of and for the benefit of the Lenders.
Agent-Related Person means the Agent, together with its Affiliates, and the officers, directors, employees, agents, advisors, auditors and attorneys-in-fact of such Persons; provided, however, that no Agent-Related Person shall be an Affiliate of Borrower.
Agreement is defined in the preamble hereof.
Amortization Date is March 1, 2012.
Anti-Terrorism Laws means any laws relating to terrorism or money laundering, including Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAC.
Approved Fund means any (i) investment company, fund, trust, securitization vehicle or conduit that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business or (ii) any Person (other than a natural person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause (i) and that, with respect to each of the preceding clauses (i) and (ii), is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) a Person (other than a natural person) or an Affiliate of a Person (other than a natural person) that administers or manages a Lender.
Approved Lender has the meaning given it in Section 12.1.
Basic Rate means with respect to a Term Loan, the per annum rate of interest (based on a year of 360 days) equal to the greater of (i) 10.00% and (ii) the sum of (a) the Prime Rate three (3) Business Days prior to the Funding Date of such Term Loan, plus (b) 6.00%.
Blocked Person means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports terrorism as defined in Executive Order No. 13224, or (e) a Person that is named a specially designated national or blocked person on the most current list published by OFAC or other similar list.
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Borrower is defined in the preamble hereof.
Borrowers Books are all Borrowers books and records including ledgers, federal, and state tax returns, records regarding Borrowers assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
Business Day is any day that is not a Saturday, Sunday or a day on which Agent is closed.
Cash Equivalents are (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poors Ratings Group or Moodys Investors Service, Inc., (c) certificates of deposit maturing no more than one (1) year after issue provided that the account in which any such certificate of deposit is maintained is subject to a Control Agreement in favor of Agent, and (d) money market accounts maintained with SVB at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition. For the avoidance of doubt, the direct purchase by Borrower, any co-borrower, any guarantor, or any subsidiary of Borrower of any Auction Rate Securities, or purchasing participations in, or entering into any type of swap or other derivative transaction, or otherwise holding or engaging in any ownership interest in any type of Auction Rate Security by Borrower, any co-borrower, any guarantor or any subsidiary of Borrower shall be conclusively determined by the Lenders as an ineligible Cash Equivalent, and any such transaction shall expressly violate each other provision of this agreement governing Permitted Investments. Notwithstanding the foregoing, Cash Equivalents does not include and Borrower and its Subsidiaries are prohibited from purchasing, purchasing participations in, entering into any type of swap or other equivalent derivative transaction, or otherwise holding or engaging in any ownership interest in any type of debt instrument, including, without limitation, any corporate or municipal bonds with a long-term nominal maturity for which the interest rate is reset through a dutch auction and more commonly referred to as an auction rate security.
Claims are defined in Section 12.2.
Code is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of New York; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Agents Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term Code shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
Collateral is any and all properties, rights and assets of Borrower described on Exhibit A and any and all other properties, rights and assets of Borrower granted by Borrower to Agent for the ratable benefit of the Lenders or arising under the Code or other applicable law, now, or in the future.
Collateral Account is any Deposit Account, Securities Account, or Commodity Account.
Commitment Percentage is set forth in Schedule 1.1, as amended from time to time.
Commodity Account is any commodity account as defined in the Code with such additions to such term as may hereafter be made.
Communication is defined in Section 10.
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Compliance Certificate is that certain certificate in the form attached hereto as Exhibit C .
Contingent Obligation is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but Contingent Obligation does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
Control Agreement is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower and Agent pursuant to which Agent obtains control (within the meaning of the Code) for the benefit of the Lenders over such Deposit Account, Securities Account, or Commodity Account.
Copyrights are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
Credit Extension is any Term Loan or any other extension of credit by Agent or Lenders for Borrowers benefit.
Default Rate is defined in Section 2.3(b).
Deposit Account is any deposit account as defined in the Code with such additions to such term as may hereafter be made.
Designated Deposit Account is Borrowers deposit account, account number 3300540761 maintained with Silicon Valley Bank.
Dollars , dollars and $ each mean lawful money of the United States.
Domestic Subsidiary means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.
Effective Date is defined in the preamble of this Agreement.
Eligible Assignee means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund and (iv) any commercial bank, savings and loan association or savings bank or any other entity which is an accredited investor (as defined in Regulation D under the Securities Act of 1933, as amended) and which extends credit or buys loans as one of its businesses, including insurance companies, mutual funds, lease financing companies and commercial finance companies, in each case, which either (A) has a rating of BBB or higher from Standard & Poors Rating Group and a rating of Baa2 or higher from Moodys Investors Service, Inc. at the date that it becomes a Lender or (B) has total assets in excess of $5,000,000,000, and in each case of clauses (i) through (iv), which, through its applicable lending office, is capable of lending to Borrower without the imposition of any withholding or similar taxes; provided that notwithstanding the foregoing, Eligible Assignee shall not include (i) Borrower, any of Borrowers Affiliates or Subsidiaries or (ii) unless an Event of Default has occurred and is continuing, a direct competitor of Borrower or a vulture hedge fund, each as determined by the Agent. Notwithstanding the foregoing, (x) in connection with assignments by a Lender due to a forced divestiture at the request of any regulatory agency,
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the restrictions set forth herein shall not apply and Eligible Assignee shall mean any Person or party and (y) in connection with a Lenders own financing or securitization transactions, the restrictions set forth herein shall not apply and Eligible Assignee shall mean any Person or party providing such financing or formed to undertake such securitization transaction and any transferee of such Person or party upon the occurrence of a default, event of default or similar occurrence with respect to such financing or securitization transaction; provided that no such sale, transfer, pledge or assignment under this clause (y) shall release such Lender from any of its obligations hereunder or substitute any such Person or party for such Lender as a party hereto until the Agent shall have received and accepted an effective assignment agreement from such Person or party in form satisfactory to the Agent executed, delivered and fully completed by the applicable parties thereto, and shall have received such other information regarding such Eligible Assignee as the Agent reasonably shall require.
Equipment is all equipment as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
ERISA is the Employee Retirement Income Security Act of 1974, as amended, and its regulations.
Event of Default is defined in Section 8.
Final Payment is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the earliest to occur of (a) the Maturity Date, or (b) the acceleration of any Term Loan, or (c) the prepayment of a Term Loan pursuant to Section 2.2(c) or (d), equal to the original principal amount of such Term Loan multiplied by the Final Payment Percentage, payable to Lenders in accordance with their respective Pro Rata Shares.
Final Payment Percentage is two and three-quarters percent (2.75%).
First Draw Period means the period commencing on May 16, 2011 and ending on the earlier of (i) May 31, 2011 and (ii) the occurrence of an Event of Default.
Foreign Subsidiary means any Subsidiary which is not a Domestic Subsidiary.
Funding Date is any date on which a Credit Extension is made to or on account of Borrower which shall be a Business Day.
GAAP is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession in the United States, which are applicable to the circumstances as of the date of determination.
General Intangibles is all general intangibles as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
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Governmental Approval is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
Governmental Authority is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
Indebtedness is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.
Indemnified Person is defined in Section 12.2.
Insolvency Proceeding is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
Intellectual Property means all of Borrowers right, title, and interest in and to the following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;
(c) any and all source code;
(d) any and all design rights which may be available to a Borrower;
(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
Inventory is all inventory as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of any Persons custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
Investment is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.
Key Person means (i) Borrowers President and Chief Executive Officer, who is Guy Macdonald, as of the Effective Date, and (ii) Borrowers Chief Financial Officer, who is David Lubner, as of the Effective Date.
Lender is any one of the Lenders.
Lenders shall mean the Persons identified on Schedule 1.1 hereto and each assignee that becomes a party to this Agreement pursuant to Section 12.1.
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Lenders Expenses are all documented audit fees and expenses, costs, and expenses (including reasonable attorneys fees and expenses, as well as appraisal fees, fees incurred on account of lien searches, inspection fees, and filing fees) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred by Agent and/or the Lenders in connection with the Loan Documents.
Lien is a claim, mortgage, deed of trust, levy, charge, pledge, security interest, or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
Loan Documents are, collectively, this Agreement, the Warrants, the Perfection Certificate, each Compliance Certificate, any subordination agreements, any note, or notes or guaranties executed by Borrower, and any other present or future agreement between Borrower for the benefit of Lenders and Agent in connection with this Agreement, all as amended, restated, or otherwise modified.
Material Adverse Change is (a) a material impairment in the perfection or priority of Agents Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or financial condition of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.
Maturity Date is, for each Term Loan, November 1, 2014.
Obligations are Borrowers obligation to pay when due any debts, principal, interest, Lenders Expenses, the Prepayment Fee, the Final Payment, and other amounts Borrower owes the Lenders now or later, whether under this Agreement, the Loan Documents (other than the Warrants), or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin (whether or not allowed) and debts, liabilities, or obligations of Borrower assigned to the Lenders and/or Agent, and the performance of Borrowers duties under the Loan Documents (other than the Warrants).
OFAC is the U.S. Department of Treasury Office of Foreign Assets Control.
OFAC Lists are, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.
Operating Documents are, for any Person, such Persons formation documents, as certified by the Secretary of State of such Persons jurisdiction of organization on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Payment/Advance Form is that certain form attached hereto as Exhibit B .
Payment Date is the first (1 st ) calendar day of each calendar month.
Perfection Certificate is defined in Section 5.1.
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Permitted Indebtedness is:
(a) Borrowers Indebtedness to the Lenders and Agent under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness of one Borrower to another Borrower;
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of Borrowers business; and
(g) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (e) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investments are:
(a) Investments shown on the Perfection Certificate and existing on the Effective Date;
(b) Investments in cash and Cash Equivalents;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;
(d) Investments consisting of deposit accounts and securities accounts in which Agent has a first perfected security interest;
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
(f) Investments by one Borrower in another Borrower and Investments by Borrower in other Subsidiaries, provided, in each case, Borrower has complied with the provisions of Section 6.10;
(g) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers, or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrowers Board of Directors; provided, however, that the aggregate outstanding principal amount of such advances or loans shall not exceed $100,000 at any time;
(h) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;
(i) Investments consisting of notes receivable of, or pre-paid royalties and other credit extensions to, customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary;
(j) Investments in Subsidiaries existing as of the date hereof or created or acquired in compliance with Section 6.10 hereof, so long as the Borrower is in compliance with Section 6.10 hereof; and
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(k) Investments comprised of up-front payments to trade vendors in the ordinary course of business.
Permitted Liens are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) statutory Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons imposed without action of such parties, provided they have no priority over any of Agents Lien and the aggregate amount of the obligations secured by such Liens does not any time exceed Twenty-Five Thousand Dollars ($25,000);
(d) leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or Intellectual Property) granted in the ordinary course of Borrowers business, if the leases, subleases, licenses and sublicenses do not prohibit granting Agent a security interest;
(e) bankers liens, rights of setoff and Liens in favor of financial institutions incurred made in the ordinary course of business arising in connection with Borrowers deposit accounts or securities accounts held at such institutions to secure solely payment of fees and similar costs and expenses and provided such accounts are maintained in compliance with Section 6.6(b) hereof;
(f) Liens to secure payment of workers compensation, employment insurance, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(g) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 or 8.7;
(h) licenses of Intellectual Property permitted by Section 7.1 hereof;
(i) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in clause (a) above, but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness may not increase; and
(j) Liens comprised of security deposits in favor of landlord(s) where Borrower or its Subsidiaries maintain locations in an amount not to exceed One Hundred Twenty-One Thousand Dollars ($121,000) plus accruing interest in the aggregate.
Person is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
Prepayment Fee means with respect to any Term Loan subject to prepayment prior to the Maturity Date, whether by mandatory or voluntary prepayment, acceleration or otherwise, an additional fee payable to the Lenders in amount equal to:
(i) | for a prepayment made on or after the Funding Date of such Term Loan through and including the first anniversary of the Funding Date of such Term Loan, four percent (4.00%) of the principal amount of such Term Loan prepaid; |
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(ii) | for a prepayment made after the date which is after the first anniversary of the Funding Date of such Term Loan through and including the second anniversary of the Funding Date of such Term Loan, two percent (2.00%) of the principal amount of the Term Loans prepaid; and |
(iii) | for a prepayment made after the date which is after the second anniversary of the Funding Date of such Term Loan but prior to the Maturity Date, one percent (1.00%) of the principal amount of the Term Loans prepaid. |
Prime Rate is SVBs most recently announced prime rate, even if it is not SVBs lowest rate.
Pro Rata Share means, as of any date of determination, with respect to each Lender, a percentage (expressed as a decimal, rounded to the ninth decimal place) determined by dividing the outstanding principal amount of Term Loans held by such Lender by the aggregate outstanding principal amount of all Term Loans.
Registered Organization is any registered organization as defined in the Code with such additions to such term as may hereafter be made
Required Lenders means (i) for so long as all of the Persons that are Lenders on the Effective Date (each an Original Lender ) have not assigned or transferred any of their interests in their respective Term Loans, Lenders holding one hundred percent (100%) of the aggregate outstanding principal balance of the Term Loans, or (ii) at any time from and after any Original Lender has assigned or transferred any interest in its Term Loans, Lenders holding, sixty-six percent (66%) or more of the aggregate outstanding principal balance of the Term Loans, plus , in respect of this clause (ii), (A) each Original Lender that has not assigned or transferred any portion of its respective Term Loan and (B) each assignee of an Original Lender provided such assignee was assigned or transferred and continues to hold 100% of the assigning Original Lenders interest in the Term Loans (in each case in respect of clauses (A) and (B) of this clause (ii), whether or not such Lender is included within the Lenders holding sixty-six percent (66%) of the Terms Loans); provided , however , that notwithstanding the foregoing, for purposes of Section 9.1(b) hereof, Required Lenders means (i) for so long as all Original Lenders retain 100% of their interests in their respective Term Loans, Lenders holding one hundred percent (100%) of the aggregate outstanding principal balance of the Term Loans, or (ii) at any time from and after any Original Lender has assigned or transferred any interest in its Term Loans, Lenders holding, sixty-six percent (66%) or more of the aggregate outstanding principal balance of the Term Loans, plus, in respect of this clause (ii), each Original Lender that has not assigned or transferred any portion of its respective Term Loan (in each case in respect of this clause (ii), whether or not such Original Lender is included within the Lenders holding sixty-six percent (66%) of the Term Loans). For purposes of this definition only, a Lender shall be deemed to include itself, and any Lender that is an Affiliate or Approved Fund of such Lender.
Requirement of Law is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
Responsible Officer is any of the President, Chief Executive Officer, or Chief Financial Officer of Borrower acting alone.
Second Draw Period means the period commencing on June 1, 2011 and ending on the earlier of (i) December 31, 2011 and (ii) the occurrence of an Event of Default.
Secured Promissory Note is defined in Section 2.4.
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Secured Promissory Note Record is a record maintained by each Lender with respect to the outstanding Obligations owed by Borrower to Lender and credits made thereto.
Securities Account is any securities account as defined in the Code with such additions to such term as may hereafter be made.
Subordinated Debt is indebtedness incurred by Borrower subordinated to all of Borrowers now or hereafter indebtedness to the Lenders (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Agent and the Lenders entered into between Agent, Borrower, and the other creditor), on terms acceptable to Agent and the Lenders.
Subsidiary means, with respect to any Person, any Person of which more than 50.0% of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled, directly or indirectly, by such Person or one or more of Affiliates of such Person.
Term Loan is defined in Section 2.2(a)(ii) hereof.
Term A Loan is defined in Section 2.2(a)(i) hereof.
Term B Loan is defined in Section 2.2(a)(ii) hereof.
Term Loan Commitment means, for any Lender, the obligation of such Lender to make a Term Loan, up to the principal amount shown on Schedule 1.1 . Term Loan Commitments means the aggregate amount of such commitments of all Lenders.
Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
Transfer is defined in Section 7.1.
Warrants are those certain Warrants to Purchase Stock dated as of the Effective Date executed by Borrower in favor of Lenders.
[Signature Page to Follow]
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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the Effective Date.
BORROWER :
TETRAPHASE PHARMACEUTICALS, INC. | ||
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TETRAPHASE SECURITIES CORPORATION | ||
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AGENT AND LENDERS :
SILICON VALLEY BANK, as Agent and a Lender | ||
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OXFORD FINANCE LLC, as a Lender | ||
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[Signature Page to Loan and Security Agreement]
SCHEDULE 1.1
LENDERS AND COMMITMENTS
Term A Loans
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance LLC |
$ | 750,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 750,000 | 50 | % | ||||
TOTAL |
$ | 1,500,000 | 100.00 | % |
Term B Loans
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance LLC |
$ | 3,250,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 3,250,000 | 50 | % | ||||
TOTAL |
$ | 6,500,000 | 100.00 | % |
Aggregate (all Term Loans)
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance LLC |
$ | 4,000,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 4,000,000 | 50 | % | ||||
TOTAL |
$ | 8,000,000 | 100.00 | % |
EXHIBIT A
The Collateral consists of all of Borrowers right, title and interest in and to the following personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and
All Borrowers Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include any Intellectual Property except to the extent that it is necessary under applicable law to have a security interest in Intellectual Property in order to have a perfected lien and security interest in and to the IP Proceeds defined below; provided, however, the Collateral shall include all Accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the Intellectual Property and any claims for damage by way of any past, present, or future infringement of any of the Intellectual Property (collectively, the IP Proceeds ).
EXHIBIT B
Loan Payment/Advance Request Form
DISBURSEMENT LETTER
The undersigned, being the duly elected and acting of TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase ) and TETRAPHASE SECURITIES CORPORATION , a Massachusetts corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase Securities ; Tetraphase and Tetraphase Securities are referred to herein, individually and collectively, jointly and severally, as Borrower ), does hereby certify in such capacity to SILICON VALLEY BANK , as Agent (the Agent ) in connection with that certain Loan and Security Agreement dated on or about the date hereof by and between Borrower, the Lenders party thereto and Agent (the Loan Agreement; with other capitalized terms used below having the meanings ascribed thereto in the Loan Agreement) that:
1. The representations and warranties made by Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects as of the date hereof.
2. No event or condition has occurred that would constitute an Event of Default under the Loan Agreement or any other Loan Document.
3. Borrower is in compliance with the covenants and requirements contained in Sections 4, 6 and 7 of the Loan Agreement.
4. All conditions referred to in Section 3 of the Loan Agreement to the making of the Loan to be made on or about the date hereof have been satisfied or waived by Agent.
5. No Material Adverse Change has occurred.
6. The undersigned is a Responsible Officer.
7. The proceeds for the Term Loan shall be disbursed as follows:
The aggregate net proceeds of the Term Loan in the amount of $ shall be transferred to Borrowers account as follows:
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TETRAPHASE PHARMACEUTICALS, INC. | ||
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AGENT AND LENDERS : | ||
SILICON VALLEY BANK, as Agent and a Lender | ||
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OXFORD FINANCE LLC, as a Lender | ||
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EXHIBIT C - COMPLIANCE CERTIFICATE
TO: | Silicon Valley Bank, as Agent | |
FROM: | TETRAPHASE PHARMACEUTICALS, INC./ TETRAPHASE SECURITIES CORPORATION |
The undersigned authorized officer of TETRAPHASE PHARMACEUTICALS, INC. and TETRAPHASE SECURITIES CORPORATION (collectively, Borrower) hereby certifies in such capacity that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, Agent, and the Lenders (the Agreement),
(i) Borrower is in complete compliance for the period ending with all required covenants except as noted below;
(ii) There are no Events of Default, except as noted below;
(iii) Except as noted below, all representations and warranties of Borrower stated in the Loan Documents are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date.
(iv) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state, and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement;
(v) No Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Agent
Attached are the required documents, if any, supporting our certification(s). The Officer on behalf of Borrower further certifies that the attached financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes and except, in the case of unaudited financial statements, for the absence of footnotes and subject to year-end audit adjustments as to the interim financial statements. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status since the last Compliance Certificate by circling Yes, No, or N/A under Complies column.
Reporting Covenant |
Requirement |
Complies |
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1) | Financial statements | Monthly within 30 days | Yes | No | N/A | |||||||
2) | Annual (CPA Audited) statements | Within 150 days after Fiscal Year End | Yes | No | N/A | |||||||
3) | Annual Financial Projections/Budget (prepared on a monthly basis) | Annually (w/n 45 days of FYE). and when revised | Yes | No | N/A |
4) | A/R & A/P agings | If applicable | Yes | No | N/A | |||||||
5) | 8-K, 10-K and 10-Q Filings | If applicable | Yes | No | N/A | |||||||
6) | Intellectual Property | Material Changes to composition of IP | Yes | No | N/A | |||||||
7) | Intellectual Property | New Registrations | Yes | No | N/A | |||||||
8) | Total amount of Borrowers cash and cash equivalents at the last day of the measurement period | $ | ||||||||||
9) | Month | QTD | YTD | |||||||||
$ | ||||||||||||
10) | Deposit and Securities Accounts | (Please list all accounts; attach separate sheet if additional space needed) | ||||||||||
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1) | Silicon Valley Bank | Yes | No | Yes | No | |||||||
2) | Silicon Valley Bank | Yes | No | Yes | No | |||||||
3) | Silicon Valley Bank | Yes | No | Yes | No | |||||||
4) | Yes | No | Yes | No | ||||||||
5) | Yes | No | Yes | No | ||||||||
6) | Yes | No | Yes | No | ||||||||
Financial Covenants | Requirement | Actual | Compliance | |||||||||
Other Matters | ||||||||||||
Have there been any changes in management since the last Compliance Certificate? | Yes | No | ||||||||||
Have there been any transfers/sales/disposals/retirement of Collateral or IP prohibited by the Agreement? | Yes | No | ||||||||||
Have there been any new or pending claims or causes of action against Borrower that involve more than $100,000? | Yes | No | ||||||||||
Exceptions | ||||||||||||
Please explain any exceptions with respect to the certification above: (If no exceptions exist, state No exceptions. Attach separate sheet if additional space needed.) |
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TETRAPHASE PHARMACEUTICALS, INC./ TETRAPHASE SECURITIES CORPORATION | DATE | |||||||||||||
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Compliance Status | Yes | No |
EXHIBIT D
SECURED PROMISSORY NOTE
$ | Dated: , 2011 |
FOR VALUE RECEIVED, the undersigned, , a corporation with offices located at ( Borrower ) HEREBY PROMISES TO PAY to the order of OXFORD FINANCE LLC/SILICON VALLEY BANK ( Lender ) the principal amount of [ ] MILLION DOLLARS [($ )] or such lesser amount as shall equal the outstanding principal balance of the Term Loan made to Borrower by Lender, plus interest on the aggregate unpaid principal amount of Term Loan, at the rates and in accordance with the terms of the Loan and Security Agreement dated by and among Borrower, Silicon Valley Bank, as Agent and as a Lender, and the Lenders from time to time party thereto (as amended, restated, supplemented or otherwise modified from time to time, the Loan Agreement). If not sooner paid, the entire principal amount and all accrued and unpaid interest hereunder shall be due and payable on the Maturity Date as set forth in the Loan Agreement. Any capitalized term not otherwise defined herein shall have the meaning attributed to such term in the Loan Agreement.
Borrower agrees to pay any initial partial monthly interest payment from the date the Term Loan is made to Borrower under this Secured Promissory Note (this Note) to the first Payment Date (Interim Interest) on the first Payment Date.
Principal, interest and all other amounts due with respect to the Term Loan, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement and this Note. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.
The Loan Agreement, among other things, (a) provides for the making of a secured Term Loan by Lender to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.
This Note may not be prepaid except as set forth in Section 2.2 (c) and Section 2.2(d) of the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal amount of the Term Loan, interest on the Term Loan and all other amounts due Lender under the Loan Agreement is secured under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys fees and costs, incurred by Lender in the enforcement or attempt to enforce any of Borrowers obligations hereunder not performed when due.
This Note shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York.
Note Register; Ownership of Note . The ownership of an interest in this Note shall be registered on a record of ownership maintained by Lender or its agent. Notwithstanding anything else in this Note to the contrary, the right to the principal of, and stated interest on, this Note may be transferred only if the transfer is registered on such record of ownership and the transferee is identified as the owner of an interest in the obligation. Borrower shall be entitled to treat the registered holder of this Note (as recorded on such record of ownership) as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in this Note on the part of any other person or entity.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.
BORROWER : | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
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TETRAPHASE SECURITIES CORPORATION | ||
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Exhibit 10.19
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 1
LEASE AGREEMENT
THIS LEASE AGREEMENT is made as of this 16 th day of November, 2006, between ARE-480 Arsenal Street, LLC, a Delaware limited liability company (Landlord), and Tetraphase Pharmaceuticals, Inc., a Delaware corporation (Tenant).
BASIC LEASE PROVISIONS
Address for Rent Payment: | Landlords Notice Address: | |
385 E. Colorado Boulevard, Suite 299 | 385 E. Colorado Boulevard, Suite 299 | |
Pasadena, CA 91101 | Pasadena, CA 91101 | |
Attention: Accounts Receivable | Attention: Accounts Receivable | |
Tenants Notice Address: | ||
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Attention: |
The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:
[ X ] EXHIBIT A PREMISES DESCRIPTION | [ X ] EXHIBIT B DESCRIPTION OF PROJECT | |
[ X ] EXHIBIT C WORK LETTER | [ X ] EXHIBIT D TENANTS PERSONAL PROPERTY | |
[ X ] EXHIBIT E RULES AND REGULATIONS | [ X ] EXHIBIT F FORM OF LETTER OF CREDIT |
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1. Lease of Premises. Upon and subject to all of the terms and conditions hereof, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the Premises. Tenant shall have, as appurtenant to the Premises, the right to use those portions of the Project which are for the non-exclusive use of tenants of the Project (collectively, the Common Areas ), including, without limitation, those portions of the elevators and parking areas serving the Project which are included in the Common Areas. Notwithstanding the foregoing, Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenants use of the Premises for the Permitted Use. Tenant shall have access to the Premises 24 hours per day, 365 days per year, subject to Landlords reasonable requirements with regard to any work to be performed by Landlord on the Project or the Premises.
2. Delivery; Acceptance of Premises; Commencement Date . Tenant acknowledges and agrees that Landlord will be constructing Landlords Work following the Commencement Date. Accordingly, the entire Premises will not be delivered to Tenant for Tenants use on the Commencement Date. Landlord shall use reasonable efforts to deliver the entire Premises to Tenant, with Landlords Work Substantially Completed, as soon as possible following the Commencement Date ( Delivery or Deliver ). Landlord shall not be liable to Tenant for any loss or damage resulting from delays in the Delivery of the Premises (subject to the provisions regarding Landlords waiver of Base Rent and Operating Expenses during performance of Landlords Work set forth in Section 4 hereof), and this Lease shall not be void or voidable except as provided herein. Notwithstanding the foregoing, in the event that Landlord has not Substantially Completed Landlords Work on or before May 15, 2007 ( Outside Date ), then Tenant shall have the right to terminate this Lease by written notice to Landlord within 5 days after the Outside Date. As used herein, the terms Landlords Work, Tenants Work, , Force Majeure Delays, Tenant Delays and Substantially Completed shall have the meanings set forth for such terms in the work letter to be entered into by Landlord and Tenant, which work letter shall be in substantially the form attached hereto as Exhibit C (the Work Letter ).
The Term of this Lease shall be the Base Term, as defined above in the Basic Lease Provisions and any Extension Terms which Tenant may elect pursuant to Section 40 hereof.
Except as set forth in the Work Letter, if applicable: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 8 hereof); (ii) Landlord shall have no obligation for any defects in the Premises; and (iii) Tenants taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Rent except as specifically set forth in Section 4 hereof.
Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenants business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenants representations, warranties, acknowledgments and agreements contained herein.
3. Right to Terminate . Tenant may terminate the Term of this Lease for any reason effective as of the last calendar day of the 42 nd full calendar month of the Term hereof (the Early Termination Date ), upon 9 months prior written notice to Landlord. Such notice to Landlord (a Termination Notice ) shall be accompanied by Tenants payment to Landlord of a termination payment in an amount equal to 9 months Base Rent at the rate which will be in effect as of the Early Termination Date. Any Termination Notice so delivered shall apply to the entire Premises and shall be final and irrevocable. If Tenant delivers a Termination Notice in accordance with the foregoing requirements, then
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(i) the Early Termination Date shall be deemed to be the date on which the Term expires for all purposes under the Lease, (ii) Tenant shall comply with all of the obligations of Tenant under this Lease that arise during or are attributable to the period ending on such Early Termination Date, (iii) Tenant shall have no further right to exercise the Extension Option set forth in Section 40 hereof, and (iv) Tenant shall vacate and surrender the Premises on the Early Termination Date in accordance with Section 29 hereof. Such termination right shall not apply to any assignee of Tenants interest in the Lease that requires Landlords consent under Section 23 hereof or, at Landlords election, if an Event of Default (as hereinafter defined) has occurred and is continuing at the time of Tenants exercise of such option.
4. Rent .
(a) Base Rent . The first months Base Rent and the Security Deposit shall be due and payable on delivery of an executed copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off except as expressly set forth herein, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 6 ) due hereunder except for any abatement as may be expressly provided in this Lease. Notwithstanding the foregoing, Base Rent due and payable during the first 12 calendar months of the Term (including any partial month following the Commencement Date), i.e., from the Commencement Date until November 14, 2007, shall be reduced to an amount equal to 50% of the Base Rent set forth above, or $20,135.55 per month. Thereafter, Base Rent due and payable during the immediately succeeding 6 calendar months of the Term (increased by the Rent Adjustment Percentage as provided in Section 5 hereof), i.e., November 15, 2007 until May 14, 2008, shall be increased to an amount equal to 72.5% of such increased Base Rent, or $30,072.44. Commencing on May 15, 2008, and continuing thereafter for the remainder of the Term, Base Rent shall be due and payable in the amount set forth above, subject to adjustment as provided in Section 5 hereof.
(b) Rent During Construction of Landlords Work . Notwithstanding anything herein to the contrary, Landlord agrees that, during Landlords construction of Landlords Work following the Commencement Date, in addition to the reduction in Base Rent set forth in Section 4(a) , Landlord shall waive Tenants obligation to pay Base Rent and Operating Expenses hereunder on a day-for-day basis with respect to the portion of the Premises which is rendered unusable to Tenant due to such construction activity. Such waiver with respect to Base Rent shall only take effect if and to the extent that more than 50% of the Premises is rendered unusable as aforesaid. By way of example, and without intending to limit the generality of the foregoing, if 60% of the Premises is rendered unusable due to such construction activity, 60% of Operating Expenses shall be waived and 10% of Base Rent shall be waived, in each case for the number of days that such portion of the Premises is rendered unusable. Following Substantial Completion of Landlords Work, Landlord shall prepare and deliver to Tenant an accounting of the reduction in Base Rent and Operating Expenses to which Tenant is entitled pursuant to this section, and such amounts shall be deducted from Tenants next payment of Base Rent and Operating Expenses hereunder. Calculation of any credit against Base Rent hereunder shall be based on the full amount of Base Rent set forth in the Basic Lease Provisions above, not the reduced amount to be paid by Tenant pursuant to Section 4(a) .
(c) Additional Rent. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent ( Additional Rent ): (i) Tenants Share of Operating Expenses (as defined in Section 6 ), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 4
5. Base Rent Adjustments . Base Rent shall be increased on each annual anniversary of the first day of the first full month during the Term of this Lease, i.e., each December 1 (each an Adjustment Date ) by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such Adjustment Date. Base Rent, as so adjusted, shall thereafter be due as provided herein. Base Rent adjustments for any fractional calendar month shall be prorated.
6. Operating Expense Payments . Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the Annual Estimate ), which may be revised by Landlord from time to time during such calendar year. During each month of the Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 th of Tenants Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.
The term Operating Expenses means all Building and Project related operating costs in connection with the shell and core of the Building, site improvements, maintenance, taxes, utilities, transportation services, insurance, the costs of capital repairs and improvements amortized over the lesser of 7 years and the useful life of such capital items, in the case of repairs or improvements to the HVAC system and equipment serving the Premises, or, in the case of any other work, over the useful life of such capital items, and the costs of Landlords third party property manager, not to exceed 3.0% of Base Rent, or, if there is no third party property manager, administration rent in the amount of 3.0% of Base Rent), excluding only:
(a) the original construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation;
(b) capital expenditures for expansion of the Project;
(c) interest, principal payments of Mortgage (as defined in Section 28 ) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments of base rent (but not taxes or operating expenses) under any ground lease or other underlying lease of all or any portion of the Project;
(d) depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses);
(e) advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;
(f) legal and other expenses incurred in the negotiation or enforcement of leases;
(g) completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;
(h) costs of utilities outside normal business hours sold to tenants of the Project;
(i) costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;
(j) salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project;
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(k) general organizational, administrative and overhead costs relating to maintaining Landlords existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;
(l) costs (including attorneys fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;
(m) costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 8 );
(n) penalties, fines or interest incurred as a result of Landlords inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord«s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;
(o) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;
(p) costs of Landlords charitable or political contributions, or of fine art maintained at the Project;
(q) costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;
(r) costs incurred in the sale or refinancing of the Project;
(s) net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein, or any income taxes arising out of or related to ownership and operation of income producing real estate, or any excise taxes imposed upon Landlord based upon gross or net rentals or other income received by it;
(t) costs incurred in connection with upgrading the Building to comply with laws, rules, codes and other Legal Requirements in effect prior to the Commencement Date; and
(u) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project.
Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an Annual Statement ) showing in reasonable detail: (a) the total and Tenants Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenants payments in respect of Operating Expenses for such year. If Tenants Share of actual Operating Expenses for such year exceeds Tenants payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenants payments of Operating Expenses for such year exceed Tenants Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 6
The Annual Statement shall be final and binding upon Tenant unless Tenant, within 90 days after Tenants receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. If, during such 90 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlords statement of Tenants Share of Operating Expenses, Landlord will provide Tenant with access to Landlords books and records relating to the operation of the Project and such information as Landlord reasonably determines to be responsive to Tenants questions (the Expense Information ). If, after Tenants review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenants Share of Operating Expenses, then Tenant shall have the right to have an independent public accounting firm selected by Tenant working pursuant to a fee arrangement other than a contingent fee (at Tenants sole cost and expense) and approved by Landlord (which approval shall not be unreasonably withheld or delayed), audit and/or review the Expense Information for the year in question (the Independent Review ). The results of any such Independent Review shall be binding on Landlord and Tenant. If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenants Share of Operating Expenses for such calendar year, Landlord shall at Landlords option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. If the Independent Review shows that Tenants payments with respect to Operating Expenses for such calendar year were less than Tenants Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review. Operating Expenses for the calendar years in which Tenants obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term, Tenants Share of Operating Expenses for such year shall be computed as though the Building had been 95% occupied on average during such year.
Tenants Share shall be the percentage set forth in the Basic Lease Provisions as Tenants Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Landlord may equitably increase Tenants Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenants Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as Rent .
7. Security Deposit . Tenant shall deposit with Landlord, upon delivery of an executed copy of this Lease to Landlord, a security deposit (the Security Deposit ) for the performance of all of Tenants obligations hereunder in the amount set forth in the Basic Lease Provisions, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the Letter of Credit ): (i) substantially in the form attached hereto as Exhibit F or such other form satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution satisfactory to Landlord; Landlord approves Silicon Valley Bank as an approved issuer, and (v) redeemable by presentation of a sight draft in the State of California. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenants obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlords damages in case of Tenants default. Upon each occurrence of a Default (as defined in Section 21 ), Landlord may use all or any part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law. Upon any such use of all or any portion of the Security Deposit,
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Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth in the Basic Lease Provisions. Tenant hereby waives the provisions of any law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Upon bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for periods prior to the filing of such proceedings. Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 days after demand from Landlord, restore the Security Deposit to its original amount. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlords option, to the last assignee of Tenants interest hereunder) within 30 days after the expiration or earlier termination of this Lease.
If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by Landlord to a person or entity assuming Landlords obligations under this Section 7 , or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenants right to the return of the Security Deposit shall apply solely against Landlords transferee. The Security Deposit is not an advance rental deposit or a measure of Landlords damages in case of Tenants default. Landlords obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon.
8. Use . The Premises shall be used solely for the Permitted Use set forth in the Basic Lease Provisions, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, ADA ) (collectively, Legal Requirements and each, a Legal Requirement ). Tenant shall, upon 5 days written notice from Landlord (a Discontinuance Notice ), discontinue any use of the Premises which is declared by any Governmental Authority (as defined in Section 10 ) having jurisdiction to be a violation of a Legal Requirement. Upon receipt of any Discontinuance Notice, Tenant shall have the right to terminate this Lease by written notice to Landlord given not more than 90 days thereafter. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenants or Landlords insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a place of public accommodation, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenants failure to comply with the provisions of this Section or otherwise caused by Tenants use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment weighing 500 pounds or more in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord. Landlord consents to the installation of NMR machinery in the Premises. Except as may be provided under the Work Letter, Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenants Share as usually furnished for the Permitted Use.
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Landlord shall, as an Operating Expense (to the extent such Legal Requirement is generally applicable to similar buildings in the area in which the Project is located) or at Tenants expense (to the extent such Legal Requirement is applicable solely by reason of Tenants, as compared to other tenants of the Project, particular use of the Premises) make any alterations or modifications to the Common Areas or the exterior of the Building that are required by Legal Requirements, including the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with regulations promulgated pursuant thereto, ADA ). Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys fees, charges and disbursements and costs of suit) (collectively, Claims ) arising out of or in connection with any Legal Requirements which apply to Tenants particular use of the Premises, as opposed to general use categories such as research and development or office use, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement. Notwithstanding the foregoing or any other provision of this Lease, however, Tenant shall not be responsible for compliance with any such Legal Requirements requiring (a) any structural repairs or modifications; (b) any repairs or modification of any condition existing in the Premises or the Building prior to the Lease Commencement Date; (c) repairs or modifications to any utility or any building service equipment; or (c) installation of new building service equipment, such as fire detection or suppression equipment, unless such repairs, modifications, or installations shall (i) be due to Tenants particular manner of use of the Premises (as opposed to research and development or office use generally), or (ii) be due to the negligence or willful misconduct of Tenant or any agent, employee, or contractor of Tenant.
9. Holding Over . If, with Landlords express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 5 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlords sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) if Tenant holds over for more than 30 days and Landlord gives Tenant written notice that Landlord requires possession of the Premises for delivery to a subsequent tenant, Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenants holding over, including consequential damages of which Tenant has received prior notice. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 9 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.
10. Taxes . Landlord shall pay, as part of Operating Expenses, all taxes, levies, assessments and governmental charges of any kind (collectively referred to as Taxes ) imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, Governmental Authority ) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from
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statutes or regulations, or interpretations thereof, promulgated by, any Governmental Authority, or (v) imposed as a license or other fee on Landlords business of leasing space in the Project. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes. Taxes shall not include any net income taxes imposed on Landlord. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenants personal property or trade fixtures are levied against Landlord or Landlords property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes. Landlords determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord immediately upon demand. The Landlords taxes shall mean such amounts as shall be finally determined after deducting abatements, rebates or refunds, if any, less the costs and expenses of obtaining the same. For the purposes of determining payments due from Tenant to Landlord, the Landlords taxes shall be deemed to be the taxes assessed for each calendar year until such time as an abatement, rebate or refund shall be made for such tax year, and if any such abatement, rebate or refund shall be made for any tax year, an appropriate adjustment or refund shall be made within thirty (30) days of receipt of the same by Landlord in the amount due from or paid by Tenant to Landlord on account of such Taxes dependent upon the amount of such abatement, rebate or refund less the cost and expense of obtaining the same. Landlords obligations pursuant to this Section 10 to rebate, refund or otherwise adjust any payment by Tenant of Additional Rent shall survive the expiration or earlier termination of this Lease.
11. Parking . Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right, at no additional cost to Tenant, in common with other tenants of the Project pro rata in accordance with the rentable area of the Premises and the rentable areas of the Project occupied by such other tenants, to park in those areas designated for non-reserved parking, subject in each case to Landlords rules and regulations. Landlord may allocate parking spaces among Tenant and other tenants in the Project pro rata as described above if Landlord determines that such parking facilities are becoming crowded, provided that, subject to all matters of record, Force Majeure, a Taking and the exercise by Landlord of its rights hereunder as aforesaid, Tenant shall at all times be entitled to use 22 parking spaces. Landlord shall not be responsible for enforcing Tenants parking rights against any third parties, including other tenants of the Project. Notwithstanding anything herein to the contrary, Tenant shall at all times be entitled to 22 parking spaces.
12. Utilities, Services.
Landlord shall provide, subject to the terms of this Section 12 , water, electricity, heat, light, power, telephone, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services (collectively, Utilities ). Landlord shall pay, as Operating Expenses or subject to Tenants reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon. Landlord may cause, at Tenants expense, any Utilities to be separated metered or charged directly to Tenant by the provider. Landlord represents that the Premises are currently submetered with respect to electrical service and that Landlord shall pass through to Tenant the actual amount charged by the electrical provider, as measured by such submeter, without any mark-up by Landlord. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No
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interruption or failure of Utilities, from any cause whatsoever other than Landlords willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use.
13. Alterations and Tenants Property . Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other then by ordinary plugs or jacks) to Building Systems (as defined in Section 14 ) ( Alterations ) shall be subject to Landlords prior written consent, which may be given or withheld in Landlords sole discretion if any such Alteration affects the structure or Building Systems, but which shall otherwise not be unreasonably withheld or delayed. Notwithstanding the foregoing, Tenant may make alterations to the Premises which do not affect the Building structure without Landlords consent and without the need for construction documents, provided that such alterations involve only non-structural work to the Premises (such as replacement of floor coverings, window coverings, fixtures, equipment and signage), and do not exceed $50,000 in cost for any one project. If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlords reasonable discretion. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlords right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord (in an amount not to exceed $2,000 for any one project) for review and approval of Tenants plans and specifications and monitoring of construction (i.e., engineering plan review, on-site inspections of work and similar work by or on behalf of Landlord). Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.
Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) as built plans for any such Alteration.
Other than (i) the items, if any, listed on Exhibit E attached hereto, (ii) any items agreed by Landlord in writing to be included on Exhibit E in the future, and (iii) any trade fixtures, machinery, equipment and other personal property not paid for out of the TI Fund (as defined in the Work Letter) which may be removed without material damage to the Premises, which damage shall be repaired (including capping or terminating utility hook-ups behind walls) by Tenant during the Term (collectively, Tenants Property ), all property of any kind paid for with the TI Fund, all Alterations, real property fixtures, built-in machinery and equipment, built-in casework and cabinets and other similar additions and improvements built into the Premises so as to become an integral part of the Premises such as fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass
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washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch (collectively, Installations ) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term and shall remain upon and be surrendered with the Premises as a part thereof in accordance with Section 29 following the expiration or earlier termination of this Lease; provided , however , that Landlord shall, at the time its approval of such Installation is requested, notify Tenant if it has elected to cause Tenant to remove such Installation upon the expiration or earlier termination of this Lease. Landlord agrees that Tenant shall have no obligation to remove any Installation included within the initial Landlords Work. If Landlord so elects, Tenant shall remove such Installation upon the expiration or earlier termination of this Lease and restore any damage caused by or occasioned as a result of such removal, including, when removing any of Tenants Property which was plumbed, wired or otherwise connected to any of the Building Systems, capping off all such connections behind the walls of the Premises and repairing any holes. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant.
14. Landlords Repairs . Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including foundation, roof, exterior walls, structural floors, HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project ( Building Systems ), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenants agents, servants, employees, invitees and contractors (collectively, Tenant Parties ) excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenants sole cost and expense. Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided , however , that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 24 hours advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall have a reasonable opportunity to effect such repair. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenants written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlords expense and agrees that the parties respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 19 .
15. Tenants Repairs . Subject to Section 14 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls. Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 10 days of Landlords notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant. Subject to Sections 18 and 19, Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.
16. Mechanics Liens . Tenant shall discharge, by bond or otherwise, any mechanics lien filed against the Premises or against the Project for work claimed to have been done for, or materials
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claimed to have been furnished to, Tenant within 10 days after the filing thereof, at Tenants sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenants business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.
17. Indemnification . Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, unless caused solely by the willful misconduct or negligence of Landlord or any of Landlords agents, employees or contractors. Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further hereby irrevocably waives any and all Claims for injury to Tenants business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records), unless caused by the willful misconduct or negligence of Landlord. Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.
Landlord shall indemnify and save harmless Tenant, and the directors, officers, agents, and employees of Tenant, against and from all claims, expenses, or liabilities of whatever nature (a) arising directly or indirectly from any default or breach by Landlord or Landlords contractors, licensees, agents, servants, or employees under any of the terms or covenants of this Lease or failure of Landlord or such persons to comply with any rule, order, regulation, or lawful direction now or hereafter in force of any public authority, in each case to the extent the same related, directly or indirectly to the management operation or repair of the Building and/or the use of the common areas; or (b) arising directly or indirectly from any accident, injury, or damage, however caused, to any person or property, on the common area; or (c) arising directly or indirectly from any accident, injury, or damage to any person or property occurring outside the Premises but within the Building or on the land, to the extent such accident, injury, or damage results, or is claimed to have resulted, from any negligent act or omission, or negligence on the part of Landlord, or Landlords contractors, licensees, agents, servants, employees, or customers, or anyone claiming by or through Landlord; provided, however, that in no event shall Landlord be obligated under this Section 17 to indemnify or save harmless Tenant, or the directors, officers, agents, employees of Tenant, to the extent such claim, expense, or liability results from any omission, fault, negligence, or other misconduct of Tenant or the officers, agents, or employees of Tenant.
This indemnity and hold harmless agreement shall include, without limitation, indemnity against all expenses, attorneys fees and liabilities incurred in connection with any such claim or proceeding brought thereon and the defense thereof with counsel reasonably acceptable to Tenant. At the request of Tenant, Landlord shall defend any such claim or proceeding directly on behalf and for the benefit of Tenant. The provisions of this Section shall survive the Term of this Lease.
18. Insurance . Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project. Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than $2,000,000 for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers compensation insurance and fidelity bonds for
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employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurers cost calculations).
Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenants expense; workers compensation insurance with no less than the minimum limits required by law; employers liability insurance with such limits as required by law; and commercial general liability insurance, with a minimum limit of not less than $2,000,000 per occurrence for bodily injury and property damage with respect to the Premises. The commercial general liability insurance policy shall name Landlord and Alexandria Real Estate Equities, Inc. and their respective officers, directors, employees, managers, agents, invitees and contractors (collectively, Landlord Parties ), as additional insureds. In addition, the commercial general liability insurance policy shall insure on an occurrence and not a claims-made basis; shall be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in Bests Insurance Guide; shall not be cancelable for nonpayment of premium unless 30 days prior written notice shall have been given to Landlord from the insurer; shall contain a hostile fire endorsement and a contractual liability endorsement; and shall provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenants policies). Copies of such policies (if requested by Landlord), or certificates of insurance showing the limits of coverage required hereunder and showing Landlord and Alexandria Real Estate Equities, Inc. as additional insureds, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance. Tenants policy may be a blanket policy with an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant shall, at least 5 days prior to the expiration of such policies, furnish Landlord with renewal certificates.
In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.
The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors ( Related Parties ), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the others insurer.
Landlord may require insurance policy limits to be raised to conform with requirements of Landlords lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.
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19. Restoration . If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the Restoration Period ). If the Restoration Period is estimated to exceed 12 months (the Maximum Restoration Period ), either Landlord or Tenant may, by written notice to the other within 30 days after Tenants receipt of such estimate, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction. Unless either party so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises, including the initial Landlords Work (excluding any improvements installed thereafter by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 31 ) in, on or about the Premises (collectively referred to herein as Hazardous Materials Clearances ); provided , however , that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, (a) Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, in which event Landlord shall be relieved of its obligation to make such repairs or restoration, or (b) Tenant may elect to terminate this Lease by notice thereof to Landlord, and, in either case, this Lease shall terminate as of the date that is 75 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.
Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section 35 ) events or to obtain Hazardous Material Clearances, all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either Landlord or Tenant may terminate this Lease if the Premises are damaged during the last 1 year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage, or if insurance proceeds are not available for such restoration. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 19 , Tenant waives any right to terminate the Lease by reason of damage or casualty loss.
The provisions of this Lease, including this Section 19 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 19 sets forth their entire understanding and agreement with respect to such matters.
20. Condemnation . If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a Taking or Taken ), and the Taking would in Landlords reasonable judgment either prevent or materially interfere with Tenants use of the Premises for the conduct of Tenants business, including parking and access, or materially interfere with or impair Landlords ownership or operation of the Project, then upon written notice by Landlord or Tenant this Lease shall terminate and Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenants Share of Operating Expenses and the Rent payable hereunder during the unexpired
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Term shall be reduced to such extent as may be fair and reasonable under the circumstances. During the performance of such restoration by Landlord, Rent shall be abated in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenants interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlords award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenants Property, if a separate award for such items is made to Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.
21. Events of Default . Each of the following events shall be a default ( Default ) by Tenant under this Lease:
(a) Payment Defaults . Tenant shall fail to pay any installment of Rent or any other payment hereunder within 5 days after written notice from Landlord that the same is due, provided that Landlord shall not be obligated to give such a notice more than one time in any 12 month period.
(b) Insurance . Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, and Tenant shall fail to obtain replacement insurance within 30 days after receipt of notice thereof from Landlord or Tenants insurer, as applicable, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 20 days before the expiration of the current coverage.
(c) Abandonment . Tenant shall abandon the Premises. Landlord agrees that Tenant shall not be deemed to have abandoned the Premises if (i) Tenant provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, (ii) Tenant completes Tenants obligations with respect to the Surrender Plan in compliance with Section 29 , (iii) Tenant has made reasonable arrangements with Landlord for the security of the Premises for the balance of the Term, and (iv) Tenant continues during the balance of the Term to satisfy all of its obligations under the Lease as they come due.
(d) Improper Transfer . Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenants interest in this Lease or the Premises except as expressly permitted herein, or Tenants interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.
(e) Liens . Tenant shall fail to discharge, bond over or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after any notice to Tenant that such lien is filed against the Premises.
(f) Insolvency Events . Tenant or any guarantor or surety of Tenants obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a Proceeding for Relief ); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).
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(g) Estoppel Certificate or Subordination Agreement. Tenant fails to execute any document required from Tenant under Sections 24 or 28 within 5 business days after a second notice requesting such document.
(h) Other Defaults . Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 21 , and, except as otherwise expressly provided herein, such failure shall continue for a period of 21 days after written notice thereof from Landlord to Tenant.
Any notice given under Section 21(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenants default pursuant to Section 21(h) is such that it cannot be cured by the payment of money and reasonably requires more than 21 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 21 day period and thereafter diligently prosecutes the same to completion; provided , however , that such cure shall be completed no later than 45 days from the date of Landlords notice.
22. Landlords Remedies .
(a) Payment By Landlord; Interest . Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the Default Rate ), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenants Default hereunder.
(b) Late Payment Rent . Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum equal to 3% of the overdue Rent as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.
(c) Remedies . Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.
(i) Terminate this Lease, or at Landlords option, Tenants right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;
(ii) Upon any termination of this Lease, whether pursuant to the foregoing Section 22(c)(i) or otherwise, Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus
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(2) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(3) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(4) Any other amount necessary to compensate Landlord for costs incurred by Landlord as a result of Tenants default hereunder, specifically including, but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and
(5) At Landlords election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.
The term rent as used in this Section 22 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 22(c)(ii) (A) and (B) , above, the worth at the time of award shall be computed by allowing interest at the Default Rate. As used in Section 22(c)(ii)(C) above, the worth at the time of award shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
(iii) Landlord may continue this Lease in effect after Tenants Default and recover rent as it becomes due (Landlord and Tenant hereby agreeing that Tenant has the right to sublet or assign hereunder, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.
(iv) Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlords sole discretion, succeed to Tenants interest in such subleases, licenses, concessions or arrangements. Upon Landlords election to succeed to Tenants interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.
(v) Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 31(d) hereof, at Tenants expense.
(d) Effect of Exercise . Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only by the express written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlords right to enforce one or more of its
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rights in connection with any subsequent default. A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlords intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine. Upon termination of this Lease by Landlord, Landlord shall use commercially reasonable efforts to relet the Premises. Landlord shall not be liable for, nor shall Tenants obligations hereunder be diminished because of, Landlords failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenants Default.
23. Assignment and Subletting .
(a) General Prohibition . Without Landlords prior written consent, subject to and on the conditions described in this Section 23 , except for any Permitted Assignment, Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. Except for any Permitted Assignment, if Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 50% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 23 . Notwithstanding the foregoing, neither an initial public offering of shares by Tenant, nor any private financing by institutional investors who regularly invest in private life science companies shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 23 .
(b) Permitted Transfers . If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 10 business days, but not more than 45 days, before the date Tenant desires the assignment or sublease to be effective (the Assignment Date ), Tenant shall give Landlord a notice (the Assignment Notice ) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 10 business days after receipt of the Assignment Notice: (i) grant such consent, (ii) refuse such consent, in its sole and absolute discretion, if the proposed assignment, hypothecation or other transfer or subletting concerns more than (together with all other then effective subleases) 50% of the Premises, (iii) refuse such consent, in its reasonable discretion, if the proposed subletting concerns (together with all other then effective subleases) 50% or less of the Premises (provided that Landlord shall further have the right to review and approve or disapprove the proposed form of sublease prior to the effective date of any such subletting), or (iv) if the proposed assignment or sublease is for greater than 50% of the Premises or for the remainder of the Base Term or the Extension Term (as hereinafter defined), as applicable, terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an Assignment Termination ). If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such
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Assignment Notice by written notice to Landlord of such election within 5 business days after Landlords notice electing to exercise the Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlords consent to the proposed assignment, sublease or other transfer. Tenant shall reimburse Landlord for all of Landlords reasonable out-of-pocket expenses in connection with its consideration of any Assignment Notice.
Notwithstanding the foregoing, Landlords consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant shall not be required. In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord but without obtaining Landlords prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles ( GAAP )) of the assignee is not less than the net worth (as determined in accordance with GAAP) of Tenant as of the date of Tenants most current quarterly or annual financial statements, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (all of the transfers described in this paragraph are sometimes hereinafter referred to as a Permitted Assignment ).
(c) Additional Conditions . As a condition to any such assignment or subletting, whether or not Landlords consent is required, Landlord may require:
(i) that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided , however , in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and
(ii) A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation: permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlords sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.
(d) No Release of Tenant, Sharing of Excess Rents . Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenants obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for
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compliance with all of Tenants other obligations under this Lease. If the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the sum of the rental payable under this Lease (excluding however, any Rent payable under this Section) and actual and reasonable brokerage fees, legal costs and any design fees or construction costs directly related to and required pursuant to the terms of any such sublease and any tenant concessions granted to obtain such sublease or assignment ( Excess Rent ), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenants obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlords application, may collect such rent and apply it toward Tenants obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.
(e) No Waiver . The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.
(f) Prior Conduct and Nature of Proposed Transferee. Notwithstanding any other provision of this Section 23 , except for any Permitted Assignment (as to which the terms of this Section 23(f) shall not apply, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such partys action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party. In addition, it shall be reasonable for Landlord to withhold its consent to any assignment or sublease to a proposed assignee or sublessee who, in Landlords reasonable judgment, has an objectionable business reputation or intends to use the Premises or the Project for any purpose which may be controversial. Finally, it shall be reasonable for Landlord to withhold its consent to any assignment or sublease to a proposed assignee or sublessee who has been offered and is considering a lease of comparable space in any of Landlords properties located in Watertown or Waltham, Massachusetts.
24. Estoppel Certificate. Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenants failure to deliver such statement within such time shall, at the option of Landlord, be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.
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25. Quiet Enjoyment . So long as Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.
26. Prorations. All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.
27. Rules and Regulations . Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto as Exhibit D . If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.
28. Subordination . This Lease and Tenants interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided , however that so long as there is no Default hereunder, Tenants right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenants quiet enjoyment of the Premises as set forth in Section 25 hereof. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenants consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term Mortgage whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the Holder of a Mortgage shall be deemed to include the beneficiary under a deed of trust.
29. Surrender . Prior to the Commencement Date, Landlord shall use reasonable efforts to deliver a copy of the Surrender Plan of the prior tenant in the Premises with evidence that such Surrender Plan is complete. Notwithstanding the foregoing, Landlords inability to deliver such Surrender Plan, despite reasonable efforts to do so, shall not be deemed a default hereunder or otherwise excuse Tenant from any of Tenants obligations under this Section 29 or any other provision of this Lease. Upon the expiration of the Term or earlier termination of Tenants right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by Tenant or any Tenant Party (collectively, Tenant HazMat Operations ) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 19 and 20 excepted. At least 3 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the Surrender Plan ). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises by Tenant or any Tenant Party, and shall be subject to the review and
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approval of Landlords environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenants expense as set forth below, to cause Landlords environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlords environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $5,000. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlords environmental consultant with respect to the surrender of the Premises to third parties.
If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 29 .
Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlords election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenants Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenants expense, and Tenant waives all claims against Landlord for any damages resulting from Landlords retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 31 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.
30. Waiver of Jury Trial . TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
31. Environmental Requirements .
(a) Prohibition/Compliance/Indemnity . Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials used by Tenant or any Tenant Party in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by Tenant or any Tenant Party otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any
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and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys, consultants and experts fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, Environmental Claims ) which arise during or after the Term as a result of such contamination. Notwithstanding the foregoing, Tenant shall in no event be liable to Landlord or any Landlord Party hereunder as a result of, and this indemnification of Landlord and the Landlord Parties by Tenant shall not include Environmental Claims arising from known conditions existing in, on, under or about the Premises on or before the date hereof, as disclosed by those certain environmental reports more particularly described on Exhibit G hereto (each, a Pre-existing Condition), to the extent that the Tenant can reasonably prove that any such Environmental Claim does not arise or result, in whole or part, from any exacerbation of or contribution to, such a Pre-existing Condition, by (x) the actions of Tenant or any Tenant Party, or (y) any contamination emanating from in, on or under the Premises during the Term. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlords approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project.
(b) Business. Landlord acknowledges that it is not the intent of this Section 31 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises ( Hazardous Materials List ). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also deliver an updated list before any new Hazardous Material is brought onto, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises. Tenant shall deliver to Landlord true and correct copies of the following documents (the Haz Mat Documents ) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlords sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 29 cannot be accomplished in 3 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with information which could be detrimental to Tenants business should such information become possessed by Tenants competitors.
(c) Tenant Representation and Warranty . Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with
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Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenants or such predecessors action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlords sole and absolute discretion.
(d) Testing . Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenants use. Tenant shall be required to pay the cost of such annual test of the Premises; provided, however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant. In addition, at any time, and from time to time, but not more frequently than once per year unless (i) Landlord has reasonable grounds to believe or release of Hazardous Materials has occurred, or (ii) more frequent testing is required by the Holder of any Mortgage affecting the Project, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenants use of the Premises. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which Tenant is liable under this Section 31 , Tenant shall pay all costs to conduct such tests. If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements. Landlords receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.
(e) Underground Tanks . If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks.
(f) Tenants Obligations . Tenants obligations under this Section 31 shall survive the expiration or earlier termination of the Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlords sole discretion, which Rent shall be prorated daily.
(g) Definitions. As used herein, the term Environmental Requirements means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term Hazardous Materials means and includes any substance, material, waste, pollutant, or contaminant listed or defined
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as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the operator of Tenants facility and the owner of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.
32. Tenants Remedies/Limitation of Liability . Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlords obligations hereunder.
All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term Landlord in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owners ownership.
33. Inspection and Access . Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlords representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenants use or occupancy of the Premises for the Permitted Use. At Landlords request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlords access rights hereunder.
34. Security . Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenants officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenants cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.
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35. Force Majeure . Other than for the obligations of either party under this Lease that can be performed by the payment of money, neither Landlord nor Tenant shall be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, strikes, lockouts, or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond the reasonable control of Landlord or Tenant, as applicable ( Force Majeure ).
36. Brokers, Entire Agreement, Amendment . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, Broker) in connection with this transaction and that no Broker brought about this transaction other than Meredith & Grew, Inc. and CB Richard Ellis/Whittier Partners (whose commission shall in each case be payable by Landlord under a separate agreement). Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 36 , claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.
37. Limitation on Landlords Liability. NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANTS PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORDS INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORDS INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST ANY OF LANDLORDS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORDS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANTS BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.
38. Severability . If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.
39. Signs; Exterior Appearance . Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlords sole discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlords standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal
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property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises other than signage in Tenant reception area. Interior signs on doors shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Interior signs on the directory tablet within the Building shall be affixed for Tenant by Landlord at Landlords expense, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlords standard lettering. The directory tablet shall be provided exclusively for the display of the name and location of tenants.
40. Right to Extend Term. Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:
(a) Extension Rights . Tenant shall have one right (the Extension Right ) to extend the term of this Lease for 5 years (the Extension Term ) on the same terms and conditions as this Lease (other than Base Rent) by giving Landlord written notice of its election to exercise each Extension Right at least 12 months prior, and no earlier than 9 months prior, to the expiration of the Base Term of the Lease or the expiration of any prior Extension Term.
Upon the commencement of any Extension Term, Base Rent shall be payable at the Market Rate (as defined below). Base Rent shall thereafter be adjusted on each annual anniversary of the commencement of such Extension Term by multiplying the Base Rent payable immediately before such adjustment by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such adjustment. The term Market Rate for purposes of this Lease shall mean the annual amount per rentable square foot that a willing, comparable, new non-renewal tenant of credit quality similar to Tenant would pay, and a willing, comparable landlord of the Building or a comparable office building in the immediate vicinity of the Building would accept, at arms length, giving appropriate consideration to annual rental rates per rentable square foot, and abatement provisions reflecting free rent, length of lease term, size and location of premises being leased, improvement allowances (if any), brokerage commissions (if any) and any other concessions which would be granted by Landlord or a comparable landlord and other generally applicable terms and conditions. As used herein, Market Rate shall be determined by Landlord in accordance with the provisions hereof and agreed to by Tenant, but shall in no event be less than the Base Rent payable as of the date immediately preceding the commencement of such Extension Term increased by the Rent Adjustment Percentage multiplied by such Base Rent. In addition, Landlord may impose a market rent for the parking rights provided hereunder.
If, on or before the date which is 120 days prior to the expiration of the Base Term of this Lease, or the expiration of any prior Extension Term, Tenant has not agreed with Landlords determination of the Market Rate and the rent escalations during such subsequent Extension Term after negotiating in good faith, Tenant may by written notice to Landlord not later than 120 days prior to the expiration of the Base Term of this Lease, or the expiration of any then effective Extension Term, elect arbitration as described in Section 40(b) below. If Tenant does not elect such arbitration, Tenant shall be deemed to have waived any right to extend, or further extend, the Term of the Lease and all of the remaining Extension Rights shall terminate.
(b) Arbitration .
(i) Within 10 days of Tenants notice to Landlord of its election to arbitrate Market Rate and escalations, each party shall deliver to the other a proposal containing the Market Rate and escalations that the submitting party believes to be correct ( Extension Proposal ). If either party fails to timely submit an Extension Proposal, the other partys submitted proposal shall determine the Base Rent and escalations for the Extension Term. If both parties submit Extension Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market
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Rate and escalations. If Landlord and Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the meeting, select an Arbitrator. If either party fails to timely give notice of its selection for an Arbitrator, the other partys submitted proposal shall determine the Base Rent for the Extension Term. The 2 Arbitrators so appointed shall, within 5 business days after their appointment, appoint a third Arbitrator. If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior written notice to the other party of such intent.
(ii) The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the third Arbitrator, as applicable. The decision of the single Arbitrator shall be final and binding upon the parties. The average of the two closest Arbitrators in a three Arbitrator panel shall be final and binding upon the parties. Each party shall pay the fees and expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne equally by both parties. If the Market Rate and escalations are not determined by the first day of the Extension Term, then Tenant shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased by the Rent Adjustment Percentage until such determination is made. After the determination of the Market Rate and escalations, the parties shall make any necessary adjustments to such payments made by Tenant. Landlord and Tenant shall then execute an amendment recognizing the Market Rate and escalations for the Extension Term.
(iii) An Arbitrator shall be any person appointed by or on behalf of either party or appointed pursuant to the provisions hereof and: (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of experience in the appraisal of improved office and high tech industrial real estate in the Watertown, Massachusetts metropolitan area, or (B) a licensed commercial real estate broker with not less than 15 years experience representing landlords and/or tenants in the leasing of high tech or life sciences space in the Watertown, Massachusetts metropolitan area, (ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and (iii) be in all respects impartial and disinterested.
(c) Rights Personal. Extension Rights are personal to Tenant and any Permitted Assignees and are not otherwise assignable without Landlords consent, which may be granted or withheld in Landlords sole discretion separate and apart from any consent by Landlord to an assignment of Tenants interest in the Lease .
(d) Exceptions . Notwithstanding anything set forth above to the contrary, Extension Rights shall not be in effect and Tenant may not exercise any of the Extension Rights during any period of time that Tenant is in Default under any provision of this Lease.
(e) No Extensions . The period of time within which any Extension Rights may be exercised shall not be extended or enlarged by reason of Tenants inability to exercise the Extension Rights.
(f) Termination . The Extension Rights shall terminate and be of no further force or effect even after Tenants due and timely exercise of an Extension Right, if, after such exercise, but prior to the commencement date of an Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of an Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.
41. Representations . Landlord represents and warrants to Tenant that, as of the date of this Lease, Landlord has full power and authority to enter into this Lease and has obtained all consents and taken all actions necessary in connection therewith. Tenant represents and warrants to Landlord that, as of the date of this Lease, Tenant has full power and authority to enter into this Lease and has obtained all consents and take all actions necessary in connection therewith.
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 29
42. Miscellaneous .
(a) Notices . All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.
(b) Joint and Several Liability . If and when included within the term Tenant , as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.
(c) Financial Information . Tenant shall furnish Landlord with true and complete copies of (i) Tenants most recent audited annual financial statements within 45 days of the end of each of Tenants fiscal years during the Term, (ii) Tenants most recent unaudited quarterly financial statements within 45 days of the end of each of Tenants first three fiscal quarters of each of Tenants fiscal years during the Term, (iii) at Landlords request from time to time, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders.
(d) Recordation . This Lease shall not be filed by or on behalf of Tenant in any public record. At the request of either party hereto, the other party shall execute and deliver a memorandum of lease in statutory form which may be recorded at the expense of the requesting party. Tenant shall execute and deliver a termination of such memorandum of lease, in recordable form, to Landlord upon the expiration or earlier termination of this Lease.
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 30
(e) Interpretation . The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.
(f) Not Binding Until Executed . The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.
(g) Limitations on Interest . It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlords and Tenants express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.
(h) Choice of Law . Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.
(i) Time . Time is of the essence as to the performance of Tenants obligations under this Lease.
(j) Incorporation by Reference . All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.
(k) Hazardous Activities . Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenants routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlords reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenants Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.
[Signatures appear on following page]
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 31
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 1
EXHIBIT A TO LEASE
DESCRIPTION OF PREMISES
© All rights reserved Alexandria Real Estate Equities 2001
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 2
© All rights reserved Alexandria Real Estate Equities 2001
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 3
© All rights reserved Alexandria Real Estate Equities 2001
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480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 1
EXHIBIT B TO LEASE
DESCRIPTION OF PROJECT
(see attached)
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 2
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 3
TetraPhase
480 Arsenal Street
MEP Scope of Work
November 22, 2006
Based on Architectural Drawing A-2.1 dated 16 November 2006
1. | FIRE PROTECTION | |||||
1.1. Modify existing fire protection system to accommodate new architectural layout. | ||||||
2. | PLUMBING | |||||
2.1. | Connect and trim four {4) new lab sinks. | |||||
2.2. | Vacuum service to one {1) BSC. No C02 (assumed local) | |||||
2.3. | Nitrogen, compressed air, vacuum and NPCW to two walk-in hoods. | |||||
2.4. | Chilled water piping to one (1) Huber Chiller (approximately 25 feet) | |||||
2.5. Connect to existing nitrogen and compressed air piping and extend nitrogen and compressed air to benchtop hoods and NMR drops (wall turrets). | ||||||
2.6. | New compressed air, and NPCW to hoods. | |||||
2.7. | Four (4) RODIpoints of use piped from existing RODIsystem. | |||||
2.8. | Four (4) new deck mounted emergency eyewash units. | |||||
2.9. | Helium and C02 to be local, by tenant. | |||||
3. | HVAC | |||||
3.1. | Hoods to be exhausted based on ASHRAE/ANSIstandards. | |||||
3.2. | One (1) new lab exhaust fan (15 hp) | |||||
3.3. | One (1) new air handling unit (5 hp) | |||||
3.4. | Hot water reheat piping | |||||
3.5. | Ductwork demolition, modifications, and installation. | |||||
3.6. | Control modifications to accommodate modified layout. | |||||
3.7. | Tek-air hood management system |
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
4. | ELECTRICAL | |||||
4.1. Remove wiremold, circuits to wiremold, cord drops, and outlets in affected area. | ||||||
4.2. | Remove lighting. | |||||
4.3. | Provide new wiremold on benches with circuits, and new hood wiring. | |||||
4.4. Reinstall existing fixtures and provide new fixtures for coordinated layout. | ||||||
4.5. | New localcontrolswitching. | |||||
4.6. | Rework exit/emergency lighting. | |||||
4.7. | Relocate fire alarm devices. | |||||
4.8. | Remove and reinstall tel/data for new floor plan. | |||||
4.9. | Furnish and install transformation and panels as required. | |||||
4.10. | Power to new HVAC equipment. |
TETRAPHASE |
Date | 11/29/2006 |
|
|
|
480 ARSENAL STREET
WATERTOWN, MASSACHUSETTS
PRELIMINARY BUDGET ESTIMATE
DIVISION/DESCRIPTION | QTY | UNIT$ | LINE SUM | DIV.SUM | ||||||||||||
DEMOLITION |
||||||||||||||||
MAKESAFE ELECTRIC |
1 LS | 800 | 800 | |||||||||||||
REMOVE WALLS |
730 SF | 2.50 | 1,825 | |||||||||||||
REMOVE FLOORING |
3098 SF | 0.85 | 2,633 | |||||||||||||
REMOVE CEILINGS |
3098 SF | 0.80 | 2,478 | |||||||||||||
DEMOUTIONDUMPSTERS (SUB) |
2 EA | 675 | 1,350 | |||||||||||||
DISMANTLE CASEWORK AND BENCHES |
6 MD | 540 | 3,240 | |||||||||||||
REMOVE EXISTING HOOD |
1 EA | 400 | 400 | |||||||||||||
HOOD DECONTAMINATION BY OTHERS |
NIC | |||||||||||||||
REMOVE GLAZE WALL AT LAB ENTRANCE |
1 lS | 600 | 600 | |||||||||||||
REMOVE EXISTING SUPPLY DUCTWORK & REGISTEF |
1 lS | 900 | 900 | |||||||||||||
GENERAL lABOR (2 DAYS PER WEEK) |
9 WKS | 600 | 5,400 | |||||||||||||
$ | 19,627 | |||||||||||||||
CARPENTRY I MILLWORK |
||||||||||||||||
INSTALL DOUBLE DOORS |
1 PR | 300 | 300 | |||||||||||||
INSTALL SINGLE DOOR |
3 EA | 225 | 675 | |||||||||||||
EXHAUST FAN PLATFORM |
1 EA | 600 | 600 | |||||||||||||
CARPENTRY & MATERIALS |
10 DVS | 600 | 6,000 | |||||||||||||
$ | 7,575 | |||||||||||||||
ROOF WORK AND CAULKING |
||||||||||||||||
FLASHING FOR NEW EXHAUST FAN |
EA | 950 | 950 | |||||||||||||
FlASHING INTAKE AIR HOOD |
EA | 950 | 950 | |||||||||||||
INTERIOR CAULKING |
LS | 600 | 600 | |||||||||||||
$ | 2,500 | |||||||||||||||
DOORS |
||||||||||||||||
DOUBLE SOLID CORE WOOD DRS & HDWRE |
1 PR | 1,775 | 1,775 | |||||||||||||
SINGLE SOLID CORE WOOD DR & HDWRE |
1 EA | 930 | 930 | |||||||||||||
SINGLE RATED H.M.OR & HDWRE |
2 EA | 985 | 1,970 | |||||||||||||
HM.DOUBLE DOOR FRAME |
1 EA | 275 | 275 | |||||||||||||
HM SINGLE DOOR FRAME |
3 EA | 200 | 600 | |||||||||||||
BORROWED LITES |
2 EA | 125 | 250 | |||||||||||||
DOOR CLOSERS |
3 EA | 135 | 405 | |||||||||||||
EXISTING DOUBLE LAB ENTRANCE DOOR |
TO REMAIN | |||||||||||||||
ACCESS COORS |
EA | 225 | 225 | |||||||||||||
6,430 | ||||||||||||||||
GLASS |
||||||||||||||||
GLAZING PANELS AT DOORS |
2 EA | 175 | 350 | |||||||||||||
$ | 350 |
1
Tetraphase Pharmaceuticals, Inc. Confidential
TETRAPHASE |
Date | 11/29/2006 | ||||||
480 ARSENAL STREET |
||||||||
|
WATERTOWN, MASSACHUSETTS
PRELIMINARY BUDGET ESTIMATE
DIVISION / DESCRIPTION | QTY | UNIT$ | LINE SUM | DIV.SUM | ||||||||||||
DRYWALL |
||||||||||||||||
WALL BLOCKING |
1 LS | 2,000 | 2,000 | |||||||||||||
INSTALL DOOR FRAMES |
4 EA | 80 | 320 | |||||||||||||
INSTALLATION OF ACCESS PANELS |
1 EA | 75 | 75 | |||||||||||||
INFILL WALL OPENINGS |
2 EA | 450 | 900 | |||||||||||||
FULL HEIGHT PARTITIONS |
910 SF | 9.50 | 8,645 | |||||||||||||
CUT IN DOOR OPENINGS |
2 EA | 450 | 900 | |||||||||||||
PATCH EXISTING WALLS |
1 lS | 1,800 | 1,800 | |||||||||||||
GYPSUM BOARD CEILINGS |
160 SF | 10.00 | 1,600 | |||||||||||||
INFILL DOOR OPENINGS |
4 EA | 500 | 2,000 | |||||||||||||
$ | 18,240 | |||||||||||||||
CEILINGS |
||||||||||||||||
2×4 VINYL FACED GYP BD W/ STAND SUSPENSION |
2,756 SF | 2.95 | 8,130 | |||||||||||||
2×4 FISSURED CEILING W/ STANDARD GRID |
828 SF | 2.55 | 2,111 | |||||||||||||
$ | 10,242 | |||||||||||||||
FLOORING |
||||||||||||||||
VCT FLOORING |
4,122 SF | 2.60 | 10,717 | |||||||||||||
EPOXY FLOORING |
120 SF | 12.50 | 1,500 | |||||||||||||
EPOXY BERMS AT DOORS |
2 EA | 150 | 300 | |||||||||||||
BASE |
799 LF | 2.65 | 2,117 | |||||||||||||
$ | 14,636 | |||||||||||||||
PAINTING |
||||||||||||||||
PAINT WALLS |
6,390 SF | 0.90 | 5,751 | |||||||||||||
EPOXY WALL PAINT |
650 SF | 1.25 | 813 | |||||||||||||
PAINT DOORS |
4 EA | 100 | 400 | |||||||||||||
TOUCH UP |
1 LS | 900 | 900 | |||||||||||||
ELECTROSTATICALLY PAINT REUSED CASEWORK |
1 LS | 1,200 | 1,200 | |||||||||||||
PAINT EXISTING WALLS |
NJC | $ | 9,064 | |||||||||||||
SPECIALTIES |
||||||||||||||||
SIGNAGE |
|
BY TETRAPHASE |
|
|||||||||||||
FIRE EXTINGUISHERS |
|
EXISTING TO REMAIN |
|
|||||||||||||
$ | 0 | |||||||||||||||
LAB EQUIPMENT |
||||||||||||||||
LAB EQUIPMENT |
|
BY TETRAPHASE |
|
$ | 0 |
2
Tetraphase Pharmaceuticals, Inc. Confidential
TETRAPHASE |
Date | 11/29/2006 | ||||||
|
480 ARSENAL STREET
WATERTOWN, MASSACHUSETTS
PRELIMINARY BUDGET ESTIMATE
DIVISION / DESCRlPTION | QTY | UNIT$ | LINESUM | DIV.SUM | ||||||||||||
LAB CASEWORK & CHEMICAL FUME HOODS |
||||||||||||||||
RELOCATE 8 CHEMICAL FUME HOOD |
EA | 950 | 950 | |||||||||||||
6·0 CHEMICAL FUME HOODS |
4 EA | 7,200 | 28,800 | |||||||||||||
INSTALL 6-0 CHEMICAL FUME HOODS |
4 EA | INCLUDED | ||||||||||||||
6·0 CHEMICAL FUME HOODS |
5 EA | 9,600 | 48,000 | |||||||||||||
INSTALL 8-0 CHEMICAL FUME HOODS |
5 EA | INCLUDED | ||||||||||||||
RELOCATE PENINSULA BENCHES |
1 LS | 2,800 | 2,800 | |||||||||||||
RECONFIGURE EXISTING BASE CABINETS |
2 EA | 1,250 | 2,500 | |||||||||||||
6-0 EPOXY BENCHTOPS |
26 LF | 150 | 3,900 | |||||||||||||
3·0 EPOXY BENCHTOPS |
44 LF | 95 | 4,180 | |||||||||||||
REAGENT SHELVING 2 HIGH |
20 LF | 150 | 3,000 | |||||||||||||
50% BASE CABINETS |
48 LF | 200 | 9,600 | |||||||||||||
25% BASEDRAWER UNITS |
24 LF | 260 | 6,240 | |||||||||||||
25% KNEE SPACES |
24 LF | 50 | 1,200 | |||||||||||||
NEW EPOXY SINKS |
3 EA | 450 | 1,350 | |||||||||||||
UTILITY RISERS |
2EA | 450 | 900 | |||||||||||||
REUSE 2 EXISTING PENINSULA ISLANDS & BENCHTOPS |
INCLUDED | |||||||||||||||
INSTALL NEW CASEWORK |
LS | 9,500 | 9,500 | |||||||||||||
BUILD IWO (2)EA VENTED ALCOVES |
ALW | 0 | 0 | |||||||||||||
8; WALK IN HOODS |
2 EA | 15,000 | 30,000 | |||||||||||||
ENCLOSE VENTED ALCOVES WI GLASS DOORS |
0 SF | 90 | 0 | |||||||||||||
LABORATORY TABLES |
BY TETRAPHASE | |||||||||||||||
$ | 152,920 | |||||||||||||||
SPRINKLER |
||||||||||||||||
SUPPLEMENTW/ NEW SPRINKLER HEADS AS REQD |
INCL TRADES PERMITS | |||||||||||||||
INCL RELOCATIONS |
INCL SPRINKLER | |||||||||||||||
BUDGET |
1 LS | 9,500 | 9,500 | |||||||||||||
$ | 9,600 | |||||||||||||||
PLUMBlNG |
||||||||||||||||
CUT & CAP SERVICES AS REQD |
INCL | |||||||||||||||
LAB SINK TRIM |
4 EA | INCL | ||||||||||||||
RODIFAUCETS |
4 EA | INCL | ||||||||||||||
6 0 FUME HOOD CONNECTS |
4 EA | INCL | ||||||||||||||
8·0 FUME HOOD CONNECTS |
5 EA | INCL | ||||||||||||||
NITROGEN 180 DEG TURRETS |
3 EA | INCL | ||||||||||||||
COMPRESSED AIR 180 DEG TURRETS |
3 EA | INCL | ||||||||||||||
HOOKUP RELOCATED 8-0 CFH |
1 EA | INCL | ||||||||||||||
EMERGENCY EYEWASH DECK MOUNTED |
4EA | INCL | ||||||||||||||
PLUMBING PERMIT |
INCL | |||||||||||||||
ALCOVE GASSES |
2 EA | INCL | ||||||||||||||
PROC CHILLED WATER PIPING TO 1 CHILLER |
1 EA | INCL | ||||||||||||||
PLUMBING BUDGET |
1 IS | 105,132 | 105,132 | |||||||||||||
$ | 106,132 |
3
Tetraphase Pharmaceuticals, Inc. Confidential
TETRAPHASE |
Date | 11/29/2006 | ||||||
480 ARSENAL STREET |
||||||||
WATERTOWN, MASSACHUSETTS
PRELIMINARY BUDGET ESTIMATE
DIVISION / DESCRIPTION | QTY | UNIT$ | LINE SUM | DIV.SUM | ||||||||||
HVAC |
||||||||||||||
CUT AND DROP EXISTING UNUSABLE DUCTWORK |
INCLUDED | |||||||||||||
REUSE EXISTING MAINAIR HANDLER AND REBALANCE |
INCLUDED | |||||||||||||
MODIFY EXHAUST SYSTEM TO HANDLE ADDED HOODS & ROTO VAPS |
INCLUDED | |||||||||||||
NEW 6,000 CFM (5 HP) TRANSFER FAN W/COOLING ( |
INCLUDED | |||||||||||||
REMOVE EXISTING SECONDARY AIR HANDLER |
INCLUDED | |||||||||||||
NEW 15 HP LAB EXHAUST FAN |
INCLUDED | |||||||||||||
ROTC VAP EXHAUST DROPS {150 CFM EA) |
10 EA | INCLUDED | ||||||||||||
REGISTER.DIFFUSERS, GRILLES |
INCLUDED | |||||||||||||
SUPPLY & EXHAUST BOXES FOR CHEM LAB & EQUIP RM |
INCLUDED | |||||||||||||
MODIFY SUPPLY DUCTWORK |
INCLUDED | |||||||||||||
BALANCING |
INCLUDED | |||||||||||||
STARTUP |
INCLUDED | |||||||||||||
HOOD MANAGEMENT |
1 LS | 109,000 | 109,000 | |||||||||||
Delete Humidification in NMR Room |
1 LS | -6,500 | -6,500 | |||||||||||
HVACBUDGET |
1 LS | 158,000 | 158,000 | |||||||||||
$ | 260,600 | |||||||||||||
ELECTRICAL |
||||||||||||||
SWITCHGEAR J DISTRIBUTION |
1 LS | 5,780 | 10,680 | |||||||||||
.HVAC POWER WIRING |
1 LS | 2,875 | 3,975 | |||||||||||
LIGHTING |
1 LS | 4,950 | 6,450 | |||||||||||
EXIT / EMERGENCY LIGHTING |
1 LS | 475 | 755 | |||||||||||
FIRE ALARM |
1 LS | 1,130 | 1,980 | |||||||||||
n OUTLETS, WIREMOLD AND HOODS |
1 LS | 17,940 | 29,580 | |||||||||||
TEL/DATA |
1 LS | 8,760 | 11,240 | |||||||||||
JOB DIRECT EXPENSES & OTHER MATERIALS |
1 LS | 3,950 | 5,350 | |||||||||||
UGHT & PWR TO SOLVENT, WASTE, NMR & MATLS | INCLUDED | |||||||||||||
ELECTRICAL PERMIT |
INCLUDED | |||||||||||||
TEMPORARY SERVICES |
INCLUDED | |||||||||||||
ENGINEERING AND DOCS |
INCLUDED | |||||||||||||
$ | 69,910 | |||||||||||||
SUPERVISION |
||||||||||||||
PROJECT SUPERINTENDENT |
9 WKS | 2,975 | 26,775 | |||||||||||
PROJECT MANAGER ( 2 DAYS / WK) |
8 WKS | 1,190 | 9,520 | |||||||||||
ESTIMATOR / PLANNER |
1.5 WK | 3,400 | 5,100 | |||||||||||
ADMINISTRATIVE ASSISTANT |
8 DAY | 275 | 2,200 | |||||||||||
ACCOUNTANT |
8 DAY | 350 | 2,800 | |||||||||||
$ | 46,395 |
4
Tetraphase Pharmaceuticals, Inc. Confidential
TETRAPHASE | Date | 11/29/2006 | ||
480 ARSENAL STREET | ||||
WATERTOWN,MASSACHUSETTS |
||||||||||||||||
PRELIMINARY BUDGET ESTIMATE |
||||||||||||||||
DIVISION / DESCRIPTION | QTY | UNIT$ | UNESUM | OIV.SUM | ||||||||||||
GENERAL CONDITIONS |
||||||||||||||||
JOBSJTE TELEPHONE/FAX |
2 MO | 900 | 1,800 | |||||||||||||
CONSTRUCTION OFFICES |
||||||||||||||||
USEEXISTING COURIER/ OVERNITE / POSTAGE |
2 MO | 450 | 900 | |||||||||||||
FIELD OFFICE SUPPLIES & COPIER RENTAL |
2 MO | 475 | 950 | |||||||||||||
MISC.TOOLS & SUPPLIES |
2MO | 600 | 1,200 | |||||||||||||
TEMP. TOILETS |
USEEXISTING | |||||||||||||||
REPRODUCTION OF CONTRACT DOCUMENTS |
1 LS | 950 | 950 | |||||||||||||
WEEKLY CLEANING |
9 DAYS | 360 | 3,240 | |||||||||||||
DUMPSTER |
5EA | 675 | 3,375 | |||||||||||||
SAFETY & PROTECTION |
1LS | 1,500 | 1,500 | |||||||||||||
FINALCLEANING |
1 LS | 3,250 | 3,250 | |||||||||||||
$ | 17,165 | |||||||||||||||
ENGINEERING | ||||||||||||||||
ARCHITECTURAL DESIGN & DRAWINGS |
L.S | 22,000 | 22,000 | |||||||||||||
MECHANICAUELECTRICAL ENGINEERING |
W/ SUBS | |||||||||||||||
STRUCTURAL |
1 LS | 2,500 | W/SUBS | |||||||||||||
$ | 22,000 | |||||||||||||||
INSURANCE & PERMITS | ||||||||||||||||
GENERAL LIABILITY INSURANCE | 1LS | $ | 5,194 | 5,194 | ||||||||||||
BUILDING PERMITS | 1LS | $ | 7,752 | 7,752 | ||||||||||||
$ | 12,946 | |||||||||||||||
CONTINGENCY |
1 LS | 35,000 | 35,000 | |||||||||||||
$ | 35,000 | |||||||||||||||
OVERHEAD & PROFIT |
6.5 | % | $ | 53,305 | 53,305 | |||||||||||
$ | 53,305 | |||||||||||||||
TOTAL BUDGET COST |
$ | 873,435 |
CLARIFICATIONS AND ALTERNATIVES
1 | Pricing assumes that electric usage and Power Company Backcharges a1e paid for by the Landlord |
2 | Pricing assumes Haz Materials Handlirlg and DisposalIs by Landlord |
3 | Pricing assumes house HVAC system Is adequate to handle new loads. |
4 | Pricing assumes that existing electric service Is adequate to handle new work. |
5
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 1
EXHIBIT C TO LEASE
WORK LETTER
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 1
EXHIBIT D TO LEASE
Rules and Regulations
1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.
3. Except for animals assisting the disabled, no animals shall be allowed in the offices, halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenants expense.
6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.
7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no For Sale or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other pests.
9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.
10. Tenant shall not cause any unnecessary labor by reason of Tenants carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.
11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.
12. Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.
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13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.
14. No auction, public or private, will be permitted on the Premises or the Project.
15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.
16. The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.
17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlords consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.
18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.
19. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenants ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.
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EXHIBIT E TO LEASE
TENANTS PERSONAL PROPERTY
I. Existing (purchased from former tenant Protein Forest Inc. PFI):
Lab Equipment:
G7883 CD Glasswasher
GR Ext Ice Flaker MKS 400 Stor
Drum Cabinet w/Rollers for 2-55 Gal. Drums
Furniture:
Reception Area
2 Lounge Chairs w/Wood Arm Cap
Mojo Side Table 22 × 16
Receptionist station
Conference Room:
Epson EMP720c LCD Projector
Virtu Board w/incl Doors, Glass Sh
16 Webb Chairs (Conf Room)
1 Rectangular Table 48 × 96 (Lg Conf Tbl)
Rectangular Table 48 × 72 (Sm Conf Table)
Virtu Server Cart 24 × 36 (Corner Table)
Executive Offices and Office Area:
All Workstations in 6 offices and all cubicle workstations in office Area, area formerly marked on PFI floor plan as Software Development RoomH and Tech Station, OH Bins, Panels, etc.
27 lzzy Zachary Chairs (green office chairs)
12 Cache in Chairs (Side Chairs in Offices)
Cafeteria:
28 Zag Chairs (Cafe Chairs)
7 Square Table Tops & Bases (Cafe Tables)
II. To be purchased in the future (List is meant to be illustrative and not limited to these specific items):
Medicinal Chemistry:
400 MHzNMR
Agilent 1200 LC/MS
Agilent 1200 HPLCs
Lyophilizer
-20° Freezers
Fridges
Process Chemistry:
Large chiller/heater
Small chiller/heater
Large rotovap
Large vac.oven
SOL glass reactors
-20° Freezers
Fridges
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Tetraphase Pharmaceuticals, Inc. Confidential
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 2
Biology:
Microbiology:
-80° Freezers
Balances, analytical
Incubator, water jacketed, stacked
Water shaker
Microplate reader (plus microplate handling system)
Table top centrifuges
-20° Freezers
Fridges
Various rotors
Microscope
Balances
Magnetic stirrer
Orbital shaker
Electronic pipettor
Microcentrifuge
Vortex mixers
Cell Biology:
Cryogenic storage, liquid N2-based
Incubators (C02)
Microplate reader
Microscope fluorescence
Digital camera for microscope
Centrifuges
General Biology:
Autoclave
Sonicators (plus Sonicator tip)
Thermocyclers
Hybridization ovens
Shaking Incubators
Electroporation
Gyratory shakers
Western Blot
General[R&D equip. and Computers etc.]:
Rotovaps (for hoods)
Glasswasher
Ice machine
Chemical Storage cabinets
Computers - New hires -laptops
Computers - New Hires- desktops
IT - general network etc.
Telephone system and phones
Fax machines
Printers
Copier
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 2
EXHIBIT F TO LEASE
FORM OF LETTER OF CREDIT
IRREVOCABLE STANDBY LETTER OF CREDIT NO.SVBSF
DATE:NOVEMBER , 2006
BENEFICIARY:
ARE-480 ARSENAL STREET, LLC.
C/0 ALEXANDRIA REAL ESTATE EQUITIES, INC.
385 EAST COLORADO BLVD, SUITE 299
PASADENA, CA 91101
APPLICANT:
TETRAPHASE PHARMACEUTICALS INC
480 ARSENAL STREET, SUITE 110
WATERTOWN,MA 02472
AMOUNT:US $ , AND 00/100 U.S. DOLLARS)
EXPIRATION DATE: , 2007 (ONE YEAR FROM LC ISSUE DATE)
LOCATION: AT OUR COUNTERS IN SANTA CLARA, CALIFORNIA
DEAR SIR/MADAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBSF IN YOUR FAVOR AVAILABLE BY YOUR DRAFT DRAWN ON US AT SIGHT IN THE FORM OF EXHIBIT A ATTACHED AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:
1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S),IF ANY.
2. A DATED CERTIFICATION FROM THE BENEFICIARY, PURPORTEDLY SIGNED BY AN AUTHORIZED OFFICER, FOLLOWED BY HIS/HER DESIGNATED TITLE, STATING THE FOLLOWING:
(A) THE BENEFICIARY HEREBY CERTIFIES THAT TETRAPHASE PHARMACEUTICALS INC OR ITS SUCCESSORS OR ASSIGNS UNDER THE LEASE HAS DEFAULTED IN ITS OBLIGATIONS UNDER THE LEASE AGREEMENT,DATED , 2006 [INSERT LEASE DATE] BY AND BETWEEN TETRAPHASE PHARMACEUTICALS INC AND ARE-480 ARSENAL STREET, LLC.(AS THE SAME MAY BE AMENDED AND ASSIGNED FROM TIME TO TIME, THE LEASE) AND THAT BENEFICIARY IS DUE THE AMOUNT REQUESTED IN THIS DRAW REQUEST.
OR
(B) THE BENEFICIARY HEREBY CERTIFIES THAT TETRAPHASE PHARMACEUTICALS INC OR ITS SUCCESSORS OR ASSIGNS UNDER THE LEASE HAS DEFAULTED IN ITS OBLIGATIONS UNDER THE LEASE, THAT BENEFICIARY IS BARRED BY APPLICABLE LAW FROM SENDING A NOTICE OF DEFAULT AND THAT BENEFICIARY IS DUE THE AMOUNT REQUESTED IN THIS DRAW REQUEST.
OR
(C) THE BENEFICIARY IS IN RECEIPT OF SILICON VALLEY BANK NOTICE OF NON-EXTENSION OF LETTER OF CREDIT NO.SVBSF (THE LETTER OF CREDIT) AND CERTIFIES THAT IT IS ENTITLED TO DRAW THE ENTIRE AMOUNT OF THE LETTER OF CREDIT.
OR
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(D) THE BENEFICIARY HEREBY CERTIFIES THAT BENEFICIARY IS DUE THE AMOUNT REQUESTED IN THIS DRAW REQUEST PURSUANT TO THE TERMS AND CONDITIONS OF THE LEASE.
THE LEASE AGREEMENT MENTIONED ABOVE IS FOR IDENTIFICATION PURPOSES ONLY AND IT IS NOT INTENDED THAT SAID LEASE AGREEMENT BE INCORPORATED HEREIN OR FORM PART OF THIS LETTER OF CREDIT.
PARTIAL DRAWINGS ARE ALLOWED. THIS LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS HEREUNDER FOR ENDORSEMENT OF THE DRAWING AMOUNT AND WILL BE RETURNED TO THE BENEFICIARY UNLESS IT IS FULLY UTILIZED.
DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF CREDIT.
THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT AND/OR EACH FUTURE EXPIRATION DATE UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO THE THEN CURRENT EXPIRATION DATE WE NOTIFY YOU BY OVERNIGHT COURIER SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND THE CURRENT EXPIRATION DATE.IN NO EVENT SHALL THIS LETTER OF CREDIT BE AUTOMATICALLY EXTENDED BEYOND MARCH 31,2018 WHICH SHALL BE THE FINAL EXPIRATION DATE OF THIS LETTER OF CREDIT.
THIS LETTER OF CREDIT IS TRANSFERABLE BY THE ISSUING BANK AT THE REQUEST OF BENEFICIARY ONE OR MORE TIMES BUT IN EACH INSTANCE TO A SINGLE BENEFICIARY AND ONLY IN ITS ENTIRETY UP TO THE THEN AVAILABLE AMOUNT IN FAVOR OF ANY NOMINATED TRANSFEREE ASSUMING SUCH TRANSFER TO SUCH TRANSFEREE WOULD BE IN COMPLIANCE WITH THEN APPLICABLE LAW AND REGULATIONS, INCLUDING BUT NOT LIMITED TO THE REGULATIONS OF THE U.S. DEPARTMENT OF TREASURY AND U.S. DEPARTMENT OF COMMERCE.AT THE TIME OF TRANSFER,THE ORIGINAL LETTER OF CREDIT AND ORIGINAL AMENDMENT(S),IF ANY, MUST BE SURRENDERED TO US TOGETHER WITH OUR LETTER OF TRANSFER DOCUMENTATION (IN THE FORM OF EXHIBIT B ATTACHED HERETO).OUR TRANSFER FEE OF% OF 1% OF THE TRANSFER AMOUNT (MINIMUM $250.00) WILL BE PAID BY THE APPLICANT. ANY TRANSFER OF THIS LETTER OF CREDIT MAY NOT CHANGE THE PLACE OF EXPIRATION OF THE LETTER OF CREDIT FROM OUR ABOVE-SPECIFIED OFFICE. EACH TRANSFER SHALL BE EVIDENCED BY OUR ENDORSEMENT ON THE REVERSE OF THE ORIGINAL LETTER OF CREDIT AND WE SHALL FORWARD THE ORIGINAL LETTER OF CREDIT TO THE TRANSFEREE.
ALL DEMANDS FOR PAYMENT SHALL BE MADE BY PRESENTATION OF THE ORIGINAL APPROPRIATE DOCUMENTS ON A BUSINESS DAY AT OUR OFFICE (THE BANKS OFFICE) AT: SILICON VALLEY BANK, 3003 TASMAN DRIVE, SANTA CLARA, CA 95054, ATTENTION: STANDBY LETTER OF CREDIT NEGOTIATION SECTION.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS THAT THE DRAFTS DRAWN UNDER AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED UPON PRESENTATION TO THE DRAWEE,IF NEGOTIATED ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.
IF ANY INSTRUCTIONS ACCOMPANYING A DRAWING UNDER THIS LETTER OF CREDIT REQUEST THAT PAYMENT IS TO BE MADE BY TRANSFER TO YOURACCOUNTWITHANOTHER BANK, WE WILL ONLY EFFECT SUCH PAYMENT BY FED WIRE TO A U.S. REGULATED BANK, AND WE AND/OR SUCH OTHER BANK MAY RELY ON AN ACCOUNT NUMBER SPECIFIED IN SUCH INSTRUCTIONS EVEN IF THE NUMBER IDENTIFIES A PERSON OR ENTITY DIFFERENT FROM THE INTENDED PAYEE.
Tetraphase Pharmaceuticals, Inc. Confidential
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. Page 4
EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS, (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500.
SILICON VALLEY BANK | ||||
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AUTHORIZED SIGNATURE |
AUTHORIZED SIGNATURE |
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Tetraphase Pharmaceuticals, Inc. Confidential
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 5
EXHIBIT A to LETTER OF CREDIT
DATE: |
REF.NO. |
AT SIGHT OF THIS DRAFT
PAY TO THE ORDER OF US$
US DOLLARS
|
DRAWN UNDER SILICON VALLEY BANK, SANTA CLARA, CALIFORNIA, STANDBY LETTER OF CREDIT NUMBER NO. DATED
TO: SILICON VALLEY BANK | ||||
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3003 TASMAN DRIVE | ||||
SANTA CLARA, CA 95054 | (BENEFICIARYS NAME) | |||
Authorized Signature |
GUIDELINES TO PREPARE THE DRAFT
1.DATE:ISSUANCE DATE OF DRAFT.
2.REF. NO.: BENEFICIARYS REFERENCE NUMBER, IF ANY.
3. PAYTOTHE ORDER OF: NAME OF BENEFICIARY AS INDICATED IN THE LIC (MAKE SURE BENEFICIARY ENDORSES IT ON THE REVERSE SIDE).
4. US$: AMOUNT OF DRAWING IN FIGURES.
5. US DOLLARS: AMOUNT OF DRAWING IN WORDS.
6. LETTER OF CREDIT NUMBER:SILICON VALLEY BANKS STANDBY UC NUMBER THAT PERTAINS TO THE DRAWING.
7.DATED:ISSUANCE DATE OF THE STANDBY UC.
8.BENEFICIARYS NAME: NAME OF BENEFICIARY AS INDICATED IN THE UC.
9.AUTHORIZED SIGNATURE:SIGNED BY AN AUTHORIZED SIGNEROF BENEFICIARY.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS DRAFT, PLEASE CALL OUR L/C PAYMENT SECTION AND ASK FOR:
ALICE DA LUZ:408-654-7120
EFRAIN TUVILLA: 408-654-6349
28464922.2 0725011753? 98459290
BOS111 12079564.8
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EXHIBIT B to Letter of Credit
DATE: | ||
TO: SILICON VALLEY BANK 3003 TASMAN DRIVE | RE: SANTA CLARA,.CA 95054 | |
ATTN:INTERNATIONAL DIVISION. STANDBY LETTERS OF CREDIT | ||
GENTLEMEN: | ||
IRREVOCABLE STANDBY LETTER OF CREDIT NO. ISSUED BY SILICON VALLEY BANK, SANTA CLARA UCAMOUNT: |
FOR VALUE RECEIVED,THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LEDER OF CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LEDER OF CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF,INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
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SINCERELY, (BENEFICIARYS NAME) (SIGNATURE OF BENEFICIARY) (NAME AND TITLE)
28464922.2 072501 1753P 98459290
BOS111 12079564.8
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Tetraphase Pharmaceuticals, Inc. Confidential
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 7
SIGNATURE AUTHENTICATED
The name(s}, title(s), and signature(s) conform to that/those on file with us for the company and the signature(s) is/are authorized to execute this instrument.
We further confirm that the company has·been identified applying the appropriate que diligence and enhanced due diligence as required by BSA and all its subsequent amendments.
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(Name of Bank)
(Address of Bank)
(City, State, ZIP Code)
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(Authorized Name and Title)
(Author-ized Signature)
(Telephone number)
28464922.2 0725011753P 98459290
BOS111 12079564.8
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Tetraphase Pharmaceuticals, Inc. Confidential
480 Arsenal Street/Tetraphase Pharmaceuticals, Inc. - Page 8
EXHIBIT G TO LEASE
ENVIRONMENTAL REPORTS
1. Phase I Environmental Site Assessment Report, prepared by GZA GeoEnvironmental, Inc. (GZA), dated June 2001.
2. Watertown Materials Management Center Facility Exit Report Volume Iand Volume II,prepared by GZA, dated February 2002.
3. | Tenant Exit Audit Review, prepared by ENVIRON International Corporation (ENVIRON), dated October 21, 2002. |
4. | Mold Investigation and Remediation Report,prepared by ENVIRON, dated December 29, 2003. |
5. | Decommissioning Plan Letter by Protein Forest, Inc. (Protein Forest},dated October 3, 2006. |
6. | Surrender Plan from Protein Forest to Tim White of ARE, dated November 3,2006. |
7. | Letter from the Commonwealth of Massachusetts to RusselGarlick of Protein Forest, dated September 27, 2005. |
8. | ChemicalList for Premise Surrender by Protein Forest, dated November 4, 2006. |
28464922.2 072501 1753P 98459290
BOS111 12079564.8
© All rights reserved Alexandria Real Estate Equities 2001
CONFIDENTIAL DO NOT COPY OR DISTRIBUTE
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this First Amendment ) is made as of September 9, 2011 by and between ARE-480 ARSENAL STREET, LLC , a Delaware limited liability company (Landlord ), and TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation ( Tenant ).
RECITALS
A. Landlord and Tenant are parties to that certain Lease Agreement dated as of November 16, 2006 (the Lease ). Pursuant to the Lease, Tenant leases approximately 15,149 rentable square feet as more particularly described in Exhibit A to the Lease (the Original premises ) in a building located at 480 Arsenal Street, Watertown, Massachusetts. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.
B. Landlord and Tenant desire, subject to the terms and conditions set forth herein, to, among other things, amend the Lease to expand the Premises by adding approximately 750 rentable square feet to the Original Premises for a total of 15,899 as more particularly described on Exhibit A to this First Amendment (the Expansion Premises ).
NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Delivery; Acceptance of Expansion Premises; Expansion Rent Commencement Date .
(a) Landlord shall use reasonable efforts to deliver the Expansion Premises to Tenant on or before November 1, 2011 ( Delivery or Deliver ) with Landlords Work (defined below) substantially complete. Tenant acknowledges that there is currently a tenant occupying the Expansion Premises, and the parties agree that if Landlord fails to timely Deliver the Expansion Premises, including, without limitation, as a result of such existing tenants failure to early vacate and surrender the Expansion Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease with respect to the Expansion Premises shall not be void or voidable. For the purposes of this Section 1 , Landlords Work shall mean the following work items to be done within the Expansion Premises in conformance to Building standards and otherwise reasonable acceptable to Landlord and Tenant: the removal or a portion of the wall and the installation of a building-standard interior door between the Original Premises and the Expansion Premises as depicted on Exhibit A to this First Amendment. Other than Landlords Work, Landlord shall have no obligation to perform any work at the Building in connection with Tenants occupancy or obtain any permits, approvals or entitlements related to Tenants specific use of the Premises or Tenants business operations therein.
(b) The Expansion Premises Commencement Date shall be the date that Landlord Delivers the Expansion Premises to Tenant broom clean, free of all occupants with Landlords Work substantially complete. Upon request of Landlord, Tenant shall execute and
1
deliver a written acknowledgement of the Expansion Premises Commencement Date when the same is established in the form attached hereto as Exhibit B ; provided, however, that Tenants failure to execute and deliver such acknowledgement shall not affect Landlords rights hereunder.
(c) Except for Landlords Work: (i) Tenant shall accept the Expansion Premises in their condition as of the Expansion Premises Commencement Date, subject to all applicable Legal Requirements; (ii) Landlord shall have no obligation for any defects in the Expansion Premises; and (iii) Tenants taking possession of the Expansion Premises were in good condition at the time possession was taken.
(d) Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Expansion Premises, and/or the suitability of the Expansion Premises for the conduct of Tenants business, and Tenant waives any implied warranty that the Expansion Premises are suitable for the Permitted Use.
2. Base Rent . Commencing on the Expansion Premises Commencement Date, the following amendments shall be deemed made to definitions contained on page 1 of the Lease:
3. Other Changes to Defined Terms . As of the Expansion Premises Commencement Date, Base Rent shall be increased to $47,569.22. Thereafter, Base Rent shall adjust in accordance with Section 5 of the Lease.
(i) | The defined term Premises shall include the Original Premises and the Expansion Premises and shall comprise 15,889 rentable square feet. Exhibit A to this First Amendment shall be deemed added to Exhibit A to the Lease; |
(ii) | The defined term Tenants Share of Operating Expenses shall be increased to 11.296%. |
4. Early Termination . For avoidance of doubt, Section 3 of the Lease is hereby deleted in its entirely and is of no further force or effect.
5. OFAC . Tenant, and all beneficial owners of Tenant, are currently (a) in compliance with and shall at all times during the Term of the Lease remain in compliance with the regulations of the Office of Foreign Assets Control (OFAC ) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the OFAC Rules ), (b) not listed on, and shall not during the term of the Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
6. Broker . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, Broker ) in connection with the
2
transaction reflected in this First Amendment and that no Broker brought about this transaction other than CBRE-NE. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than CBRE-NE, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.
7. Miscellaneous .
(a) This First Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment may be amended only by an agreement in writing, signed by the parties hereto.
(b) This First Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.
(c) This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto.
(d) Except as amended and/or modified by this First Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and the provisions of the Lease, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment.
[Signatures are on the next page.]
3
IN WITNESS WHEREOF , the parties hereto have executed this First Amendment as of the day and year first above written
LANDLORD: |
ARE-480 ARSENAL STREET, LLC, A Delaware limited liability company |
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By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, managing member |
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By: |
ARE-QRS Corp., a Maryland corporation general partner |
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By: |
/s/ Eric S. Johnson |
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Eric S. Johnson Vice President Real Estate Legal Affairs |
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TENANT: |
TETRAPHASE PHARMACEUTICALS, INC., A Delaware corporation |
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By: |
/s/ Guy Macdonald |
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Its |
President & CEO |
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EXHIBIT A
EXPANSION PREMISES
5
EXHIBIT B
ACKNOWLEDGMENT OF EXPANSION PREMISES COMMENCEMENT DATE
This ACKNOWLEDGEMENT OF EXPANSION PREMISES COMMENCEMENT DATE is made as of this day of , 20 , between ARE-480 ARSENAL STREET, LLC, a Delaware limited liability company ( Landlord ), and TETRAPHASE PHARMACEUTICALS, INC., a Delaware corporation ( Tenant ), and is attached to and made a part of the Lease dated as of November 15, 2006, as amended by the First Amendment dated as of , 2011, (as amended, the Lease ), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.
Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Expansion Premises Commencement Date is , and the termination date of the Base Term of the Lease shall be midnight on November 30, 2012. In case of a conflict between this Acknowledgment of Expansion Premises Commencement Date and the Lease, this Acknowledgement of Expansion Premises Commencement Date shall control for all purposes.
IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF EXPANSION PREMISES COMMENCEMENT DATE TO BE EFFECTIVE ON THE DATE FIRST WRITTEN ABOVE.
LANDLORD: |
ARE-480 ARSENAL STREET, LLC, A Delaware limited liability company |
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By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, managing member |
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By: |
ARE-QRS Corp., a Maryland corporation general partner |
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By: |
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TENANT: |
TETRAPHASE PHARMACEUTICALS, INC., A Delaware corporation |
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By: |
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Its |
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6
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (this Second Amendment ) is made as of March 15, 2012 by and between ARE-480 ARSENAL STREET, LLC , a Delaware limited liability company ( Landlord ), and TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation ( Tenant ).
RECITALS
A. Landlord and Tenant are parties to that certain Lease Agreement dated as of November 16, 2006 as amended by that certain First Amendment to Lease dated as of September 9, 2011 (as amended, the Lease ). Pursuant to the Lease, Tenant leases approximately 15,899 rentable square feet as more particularly described in the Lease in a building located at 480 Arsenal Street, Watertown, Massachusetts. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.
B. The Base Term of the Lease expires on November 30, 2012.
C. Landlord and Tenant desire, subject to the terms and conditions set forth herein, to, among other things, amend the Lease to (i) extend the Base Term of the Lease for a period of 6 months commencing on December 1, 2012 and ending on May 31, 2013 ( Interim Extension Term ), (ii) provide for payment of Base Rent during the Interim Extension Term and (iii) amend Section 40 of the Lease.
NOW, THEREFORE , in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Base Term . The Base Term of the Lease is hereby extended for a period of 6 months and shall expire on May 31, 2013.
2. Rent . Notwithstanding anything to the contrary in the Lease, Base Rent during the Interim Extension Term shall be $50,452.83 per month and Tenant shall continue to pay Tenants Share of Operating Expenses and all other charges as set forth in the Lease.
3. Section 40/Right To Extend Term . The phrase at least 12 months prior, and no earlier than 9 months prior, to expiration of the Base Term of the Lease or the expiration of any prior Extension Term in the first paragraph of Section 40(a) of the Lease is hereby deleted in its entirety and replaced with no earlier than June 1, 2012 and no later than August 31, 2012.
4. Broker . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, Broker ) in connection with the transaction reflected in this Second Amendment and that no Broker brought about this transaction other than CBRE-NE. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than CBRE-NE, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.
Tetraphase Pharmaceuticals, Inc. Confidential
5. Miscellaneous .
(a) This Second Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Second Amendment may be amended only by an agreement in writing, signed by the parties hereto.
(b) This Second Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.
(c) This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Second Amendment attached thereto.
(d) Except as amended and/or modified by this Second Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Second Amendment. In the event of any conflict between the provisions of this Second Amendment and the provisions of the Lease, the provisions of this Second Amendment shall prevail. Whether or not specifically amended by this Second Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Second Amendment.
[Signatures are on the next page.]
Tetraphase Pharmaceuticals, Inc. Confidential
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IN WITNESS WHEREOF , the parties hereto have executed this Second Amendment as of the day and year first above written.
LANDLORD: |
ARE-480 ARSENAL STREET, LLC, a Delaware limited liability company |
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By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, managing member |
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By: |
ARE-QRS CORP., a Maryland corporation, general partner |
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By: |
/s/ Eric S. Johnson |
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Eric S. Johnson Vice President Real Estate Legal Affairs |
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TENANT: |
TETRAPHASE PHARMACEUTICALS, INC., a Delaware corporation |
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By: |
/s/ David Lubner |
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Its: |
SVP, CFO |
Tetraphase Pharmaceuticals, Inc. Confidential
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THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE (this Third Amendment ) is made as of September 18, 2012 by and between ARE-480 ARSENAL STREET, LLC , a Delaware limited liability company ( Landlord ), and TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation ( Tenant ).
RECITALS
A. Landlord and Tenant are parties to that certain Lease Agreement dated as of November 16, 2006 as amended by that certain First Amendment to Lease dated as of September 9, 2011 and that certain Second Amendment to Lease dated as of March 15, 2012 (as amended, the Lease ), Pursuant to the Lease, Tenant leases approximately 15,899 rentable square feet as more particularly described in the Lease in a building located at 480 Arsenal Street, Watertown, Massachusetts. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.
B. The Base Term of the Lease expires on May 31, 2013.
C. Landlord and Tenant desire, subject to the terms and conditions set forth herein, to, among other things, amend the Lease to (i) extend the Base Term of the Lease for a period of one year commencing on June 1, 2013 and ending on May 31, 2014 ( Extension Term ), (ii) provide for payment of Base Rent during the Extension Term, (iii) delete Section 40 of the Lease and (iv) increase the Security Deposit.
NOW, THEREFORE , in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Base Term . The Base Term of the Lease is hereby extended for a period of one year and shall expire on May 31, 2014.
2. Rent . Notwithstanding anything to the contrary in the Lease, Base Rent during the Extension Term shall be $52,996.66 per month and Tenant shall continue to pay Tenants Share of Operating Expenses and all other charges as set forth in the Lease.
3. Section 40/Right To Extend Term . Section 40 of the Lease is hereby deleted in its entirety and Tenant shall have no further right to extend the Term.
4. Security Deposit . Notwithstanding anything to the contrary in the Lease, effective as of May 31, 2013, the Security Deposit amount shall be increased from $120,813.27 to $158,989.98 ( Increased Security Deposit Amount ). On or before May 31, 2013, Tenant shall deliver to Landlord (i) a substitute Letter of Credit or (ii) an amendment to the existing Letter of Credit, in compliance with Section 7 of the Lease and reflecting the Increased Security Deposit Amount.
Tetraphase Pharmaceuticals, Inc. Confidential
5. Broker . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, Broker ) in connection with the transaction reflected in this Third Amendment and that no Broker brought about this transaction other than CBRE-NE. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than CBRE-NE, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.
6. Miscellaneous .
(a) This Third Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Third Amendment may be amended only by an agreement in writing, signed by the parties hereto.
(b) This Third Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.
(c) This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Third Amendment attached thereto.
(d) Except as amended and/or modified by this Third Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Third Amendment. In the event of any conflict between the provisions of this Third Amendment and the provisions of the Lease, the provisions of this Third Amendment shall prevail. Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment.
[Signatures are on the next page.]
Tetraphase Pharmaceuticals, Inc. Confidential
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IN WITNESS WHEREOF , the parties hereto have executed this Third Amendment as of the day and year first above written.
LANDLORD: |
ARE-480 ARSENAL STREET, LLC , a Delaware limited liability company |
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By: |
ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, managing member |
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By: |
ARE-QRS CORP., a Maryland corporation, general partner |
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By: |
/s/ Eric S. Johnson |
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Eric S. Johnson Vice President Real Estate Legal Affairs |
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TENANT: |
TETRAPHASE PHARMACEUTICALS, INC., a Delaware corporation |
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By: |
/s/ David Lubner |
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Its: |
SVP, CFO |
Tetraphase Pharmaceuticals, Inc. Confidential
3
Exhibit 10.20
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Double asterisks denote omissions.
LICENSE AGREEMENT
Between
TETRAPHASE PHARMACEUTICALS, INC.
And
PRESIDENT AND FELLOWS OF
HARVARD COLLEGE
Table of Contents
Section |
Page | |||||
1. |
Definitions | 1 | ||||
2. |
Title; Disclosure | 6 | ||||
3. |
Patent Filing, Prosecution and Maintenance | 7 | ||||
4. |
License Grant | 9 | ||||
5. |
Development and Commercialization | 13 | ||||
6. |
Consideration for Grant of License | 14 | ||||
7. |
Reports; Payments; Records | 19 | ||||
8. |
Enforcement of Patent Rights | 20 | ||||
9. |
Warranties; Limitation of Liability | 22 | ||||
10. |
Indemnification | 23 | ||||
11. |
Term and Termination | 25 | ||||
12. |
Miscellaneous | 27 |
Exhibit 1.5 |
Development Milestones | |||
Exhibit 1.6 |
Development Plan | |||
Exhibit 6.2.1 |
Form of Investment Representation Letter | |||
Exhibit 6.2.2.1 |
Capitalization Table |
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LICENSE AGREEMENT
This License Agreement is entered into as of this 3rd day of August, 2006 (the Effective Date), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business c/o Mediphase Venture Partners, 3 Newton Executive Park, Suite 104, Newton, MA 02462 (Licensee) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Ave., Cambridge, MA (Harvard). Dr. Andrew G. Myers shall also be party to this Agreement, but solely for purposes of Article 2.
WHEREAS, Harvard is the owner of the Harvard Patent Rights (as defined below) and has the right to grant licenses under the Harvard Patent Rights; and
WHEREAS, Harvard desires to have products based on such patent rights developed and commercialized to benefit the public and is willing to grant a license under such patent rights; and
WHEREAS, Licensee has represented to Harvard, in order to induce Harvard to enter into this Agreement, that Licensee shall commit itself to commercially reasonable efforts to develop, obtain regulatory approval for and commercialize products based on such patent rights; and
WHEREAS, Licensee wishes to obtain a license under such patent rights and Harvard wishes to grant Licensee a license under such patent rights, all in accordance with the terms and conditions of this Agreement; and
WHEREAS, Licensee wishes to retain the services of Dr. Andrew G. Myers as a consultant with respect to the subject matter of this Agreement.
NOW, THEREFORE, the panics hereto, intending to be legally bound, hereby agree as follows:
1. Definitions.
Whenever used in this Agreement with an initial capital letter, the terms defined in this Article I, whether used in the singular or the plural, shall have the meanings specified below.
1.1. Affiliate shall mean, with respect to either party, any person, organization or entity controlling, controlled by or under common control with, such party. For purposes of this definition only, control of another person, organization or entity shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the activities, management or policies of such person, organization or entity, whether through the ownership of voting securities, by contract or otherwise. Without limiting the foregoing, control shall be presumed to exist when a person, organization or entity (i) owns or directly controls fifty percent (50%) or more of the outstanding voting stock or other ownership interest of the other organization or entity, or (ii) possesses, directly or indirectly, the power to elect or appoint fifty percent (50%) or more of the members of the governing body of the organization or other entity. The parties acknowledge that in the case of certain entities organized under the laws of certain countries outside of the United States, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and that in such cases such lower percentage shall be substituted in the preceding sentence.
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1.2. Calendar Quarter shall mean each of the periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31, for so long as this Agreement is in effect.
1.3. Combination Product shall mean a pharmaceutical preparation that includes one or more Non-Covered Components in addition to one or more Covered Components. All references to Licensed Product in this Agreement shall be deemed to include Combination Product.
1.4. Covered Component shall mean any compound (or part thereof) the production, making, use, sale or importation of which falls within the scope of a Valid Claim.
1.5. Development Milestones shall mean the development and commercialization milestones set forth in Exhibit 1.5 hereto.
1.6. Development Plan shall mean the plan for the development and commercialization of Licensed Products attached hereto as Exhibit 1.6, as such plan may be adjusted from time to time pursuant to Section 5.2.
1.7. Dr. Myers shall mean Dr. Andrew G. Myers.
1.8. FDA shall mean the United States Food and Drug Administration.
1.9. Harvard Inventions shall mean any inventions or discoveries made solely by Dr. Myers (so long as he is an employee of Harvard) in the performance of services for Licensee relating to tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline.
1.10. Harvard Patent Rights shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] (including the PCT application and/or the US regular utility application filed at or prior to the one year conversion date claiming priority to such provisional application); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions.
1.11. IND shall mean an FDA Investigational New Drug application, Clinical Study Application, Clinical Trial Exemption, or similar application or submission for approval to conduct human clinical investigations filed with or submitted to a Regulator Authority in any country in conformance with the requirements of such Regulatory Authority.
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1.12. IND-Enabling GLP Toxicology Studies shall mean genotoxicity, acute toxicology, safely pharmacology, and/or sub-chronic toxicology studies, in species that satisfy applicable regulatory requirements, using applicable Good Laboratory Practices, that meet the standard necessary for submission as part of the filing of an IND with a Regulatory Authority.
1.13. Infringed Patent shall mean an issued and unexpired patent (a) that has not been abandoned, held invalid, revoked, held or rendered unenforceable or lost through interference and (b) the claims of which would be infringed by Licensees practice of the Harvard Patent Rights and/or Joint Patent Rights in the making, using, offering for sale, selling or importation of Licensed Products.
1.14. Initiation shall mean, with respect to a Phase I Clinical Trial, Phase II Clinical Trial or Phase III Clinical Trial, the administration of the first dose to the first patient in such Clinical Trial.
1.15. Joint Inventions shall mean all inventions and discoveries made jointly by (a) one or more employees (or others on behalf) of Licensee and (b) Dr. Myers (so long as he is an employee of Harvard) in the performance of services for Licensee relating to tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline.
1.16. Joint Patent Rights shall mean (a) any and all patents and patent applications claiming any Joint Inventions; (b) any United States or foreign patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of at least one of the patents or patent applications identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; and (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c).
1.17. Licensed Patent Rights shall mean the Harvard Patent Rights and Harvards interest in the Joint Patent Rights.
1.18. Licensed Product shall mean any product, the manufacture, use, offer for sale, sale or importation of which falls within the scope of a Valid Claim.
1.19. Major European Country shall mean any of the following: (a) France, Germany, Italy or the United Kingdom; or (b) the European Union as a whole.
1.20. Marketing Authorization shall mean all approvals from the relevant Regulatory Authority necessary to market and sell a Licensed Product in a country.
1.21. NDA shall mean a New Drug Application, Biologies License Application, Worldwide Marketing Application, Marketing Authorization Application, filing pursuant to Section 510(k) of the United States Federal Food, Drug, and Cosmetic Act, or similar application or submission for Marketing Authorization of a Licensed Product filed with a Regulatory Authority to obtain marketing approval for a biological pharmaceutical or diagnostic product in that country or in that group of countries.
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1.22. Net Sales shall mean the gross amount billed or invoiced by or on behalf of Licensee, its Affiliates and Sublicensees (in each case, the Invoicing Entity) on sales, leases or other transfers of Licensed Products, less the following to the extent applicable on such sales, leases or other transfers of Licensed Products and not previously deducted from the gross invoice price: (a) customary trade, quantity, and cash discounts to the extent actually allowed and taken; (b) amounts actually repaid or credited by reason of rejection or return of any previously sold, leased or otherwise transferred Licensed Products and uncollectible portions of billed or invoiced amounts with respect to any previously sold, leased or otherwise transferred Licensed Products; (c) rebates, chargebacks, retroactive price reductions, allowances and fees actually paid or credited to customers, wholesalers, distributors, third party payors, governmental agencies, administrators and contractees with respect to Licensed Products sold, leased or otherwise transferred; (d) transportation, freight and insurance charges that are paid by or on behalf of the Invoicing Entity; and (e) to the extent separately stated on purchase orders, invoices, or other documents of sale, any sales, value added or similar taxes, custom duties or other similar governmental charges levied directly on the production, sale, transportation, delivery, or use of a Licensed Product that are paid by or on behalf of the Invoking Entity, but not including any tax levied with respect to income; provided that:
(i) in any transfers of Licensed Products among an Invoicing Entity, Affiliates of such Invoicing Entity and Sublicensees, not for the purpose of resale by any such Affiliate or Sublicensee, Net Sales shall be equal to the fair market value of the Licensed Products so transferred, assuming an arms length transaction made in the ordinary course of business; and
(ii) in the event that an Invoicing Party receives non-monetary consideration for any Licensed Products or in the case of transactions not at arms length with a non-Affiliate of such Invoicing Entity that is not a Sublicensee, Net Sales shall be calculated based on the fair market value of such consideration or transaction, assuming an arms length transaction made in the ordinary course of business.
Sales of Licensed Products by an Invoicing Party to an Affiliate of such Invoicing Party or to a Sublicensee for resale by such Affiliate or Sublicensee shall not be deemed Net Sales and Net Sales shall be determined based on the gross amount invoiced or billed by such Affiliate or Sublicensee on resale to an independent third party purchaser.
In the event that a Licensed Product is sold in any country in the form of a Combination Product, Net Sales of such Combination Product will be adjusted by multiplying actual Net Sales of such Combination Product (i.e., Net Sales as determined above without regard to this paragraph) in such country by the fraction A/(A+B), where A is the average invoice price in such country of a Licensed Product containing the same strength of Covered Component(s) that is included in such Combination Product sold without the Non-Covered Components, if sold separately in such country, and B is the average invoice price of the Non-Covered Component(s) that is included in such Combination Product in such country, if sold separately in such country.
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If, in a specific country, either the Covered Component(s) or the Non-Covered Component(s) is not sold separately, the relative value of the Covered Component(s) and the Non-Covered Component(s) in the Combination Product shall be negotiated in and agreed upon in good faith by the parties in order to determine the appropriate ratio for calculating Net Sales with respect to such Combination Product in such country.
1.23. Non-Covered Component shall mean a clinically active component of a product that is not a Covered Component.
1.24. Non-Royalty Sublicense Income shall mean any payments or other consideration that Licensee or any of its Affiliates receives in connection with a Sublicense, other than royalties based on sales, leases or other transfers of Licensed Products by a Sublicensee. In the event that Licensee or an Affiliate of Licensee receives non-monetary consideration in connection with a Sublicense or in the case of transactions not at arms length, Non-Royalty Sublicense Income shall be calculated based on the fair market value of such consideration or transaction, assuming an arms length transaction made in the ordinary course of business. Non-Royalty Sublicense Income shall not include payments specifically committed to cover future costs to be actually incurred by Licensee or any of its Affiliates (including customary overhead) in the performance of research and development activities to be performed by Licensee or any of its Affiliates in connection with a Licensed Product or a product expected to become a Licensed Product.
1.25. Phase I Clinical Trial shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(a).
1.26. Phase II Clinical Trial shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(b).
1.27. Phase III Clinical Trial shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(c).
1.28. Regulatory Authority shall mean any applicable government regulatory authority involved in granting approvals for the manufacturing, marketing, reimbursement and/or pricing of a Licensed Product, including, in the United States, the FDA.
1.29. Relative Contribution Rate shall mean the relative contribution of Dr. Myers in conceiving, making and/or reducing to practice a Joint Invention. Promptly after disclosure of a Joint Invention under Section 2.4 or 2.5, the parties will negotiate in good faith to agree upon the Relative Contribution Rate, which shall not exceed [**] percent ([**]%). If the parties are unable to agree upon the Relative Contribution Rate within [**] days of such disclosure, the matter will be referred to an independent patent counsel appointed by and mutually acceptable to the parties, who will determine the Relative Contribution Rate (not to exceed [**] percent ([**]%)).
1.30. Sublicense shall mean: (a) any right granted, license given, or agreement entered into by Licensee to or with any other person or entity (or by a Sublicensee to or with a further Sublicensee permitted by Section 4.2.2.4), under or with respect to or permitting any use of any of the Licensed Patent Rights or otherwise permitting the development, manufacture,
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marketing, distribution, use and/or sale of Licensed Products; (b) any option or other right granted by Licensee to any other person or entity (or by a Sublicensee to a further Sublicensee permitted by Section 4.2.2.4) to negotiate for or receive any of the rights described under clause (a); or (c) any standstill or similar obligation undertaken by Licensee toward any other person or entity (or by a Sublicensee toward a further Sublicensee permitted by Section 4.2.2.4) not to grant any of the rights described in clause (a) or (b) to any third party; in each case regardless of whether such grant of rights, license given or agreement entered into is referred to or is described as a sublicense. For clarity, Sublicense does not include any implied license that may be deemed to be granted as part of a sale of a License Product.
1.31. Sublicensee shall mean any person or entity granted a Sublicense.
1.32. Third Party Proposed Product shall mean an actual or potential Licensed Product (a) that is for a therapeutic category (e.g., infectious diseases, inflammatory conditions and oncological conditions) for which no Licensed Product is being developed or commercialized by Licensee, any Affiliate of Licensee or any Sublicensee and (b) that does not contain or consist of any Covered Component that is included in a Licensed Product that is being clinically developed or commercialized by Licensee, any Affiliate of Licensee or any Sublicensee. For the avoidance of doubt, sub-categories within the same general therapeutic category shall be considered the same therapeutic category (e.g., infectious diseases shall include subcategories such as bacterial diseases and fungal diseases).
1.33. Valid Claim shall mean: (a) a claim of an issued and unexpired patent within the Harvard Patent Rights or, except as excluded pursuant to Section 3.4.2, Joint Patent Rights that has not been (i) held permanently revoked, unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, (ii) rendered unenforceable through disclaimer or otherwise, (iii) abandoned, or (iv) lost through an interference proceeding; (b) a pending claim of a pending patent application within the Harvard Patent Rights (in a particular country) that (i) has been asserted and continues to be prosecuted in good faith, (ii) has not been abandoned or finally rejected without the possibility of appeal or refiling and (iii) has not remained un-issued for a period of [**] or more years from the date of issuance of the first substantive patent office action considering the patentability of such claim by the applicable patent office in such country, provided that if after the earliest possible date for requesting examination in such country Harvard fails to request examination by such patent office within [**] days after Licensee requests Harvard to do so, such [**]-year period shall run from the date of Licensees request that Harvard request examination; or (c) except as excluded pursuant to Section 3.4.2, a pending claim of a patent application within the Joint Patent Rights.
2. Title; Disclosure.
2.1. The entire right, title and interest in Harvard Inventions shall be owned solely by Harvard.
2.2. The entire right, title and interest in Joint Inventions shall be owned jointly by Harvard and Licensee.
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2.3. All determinations of inventorship under this Agreement shall be made in accordance with United States patent law. In case of dispute between Harvard and Licensee over inventorship, a mutually acceptable outside patent counsel shall make the determination of the inventor(s) by applying the standards contained in United States patent law.
2.4. Harvard shall disclose to Licensee in a confidential writing the development, making, conception or reduction to practice of any Harvard Inventions or Joint Inventions of which it becomes aware, promptly after its receipt of an invention disclosure form from Dr. Myers.
2.5. Licensee shall disclose to Harvards Office of Technology Development in a confidential writing the development, making, conception or reduction to practice of any Harvard Inventions or Joint Inventions promptly after it becomes aware thereof.
2.6. Dr. Myers shall disclose to Licensee and Harvards Office of Technology Development in a confidential writing the development, making, conception or reduction to practice of any Harvard Inventions or Joint Inventions promptly after he becomes aware thereof.
2.7. Any consulting or other agreement pursuant to which Dr. Myers performs services for or on behalf of Licensee (so long as he is an employee of Harvard) (a Consulting Agreement) shall be consistent with and subordinate to the provisions of this Article 2. Any such Consulting Agreement shall require Dr. Myers to assign his rights in Harvard Inventions and Joint Inventions in a manner consistent with the provisions of this Article 2 and shall allow Dr. Myers to make the disclosures contemplated by Section 2.6.
2.8. In the case of any discrepancy between Article 2 of this Agreement and any Consulting Agreement, the terms of this Agreement shall prevail; provided that (a) Licensee shall have no liability for or obligation to enforce Dr. Myers obligations hereunder and (b) Licensees sole and exclusive liability to Harvard and Harvards sole and exclusive remedy against Licensee for such discrepancy shall be for Licensee to acknowledge that the terms of this Agreement prevail over the noncompliant provisions of such Consulting Agreement and to take reasonable steps to amend the Consulting Agreement to render it consistent with this Agreement.
3. Patent Filing, Prosecution and Maintenance.
3.1. Harvard Patent Rights. Harvard shall be responsible for the preparation, filing, prosecution, protection and maintenance of all Harvard Patent Rights, using patent counsel reasonably acceptable to Licensee. With respect to Harvard Patent Rights, Harvard shall: (a) use independent patent counsel reasonably acceptable to Licensee and instruct such patent counsel to furnish the Licensee with copies of all correspondence relating to the Harvard Patent Rights from the United States Patent and Trademark Office (USPTO) and any other patent office, as well as copies of all proposed responses to such correspondence in time for Licensee to review and comment on such response; (b) give Licensee an opportunity to review the text of each patent application before filing; (c) consult with Licensee with respect thereto; (d) supply Licensee with a copy of the application as filed, together with notice of its filing date and serial number; (e) keep Licensee advised of the status of actual and prospective patent filings; and (f) provide advance copies of any papers related to the filing, prosecution, protection and maintenance of such patent filings. Harvard shall give Licensee the opportunity to provide comments on and make requests of Harvard concerning the preparation, filing, prosecution, protection and maintenance of the Harvard Patent Rights, and shall consider such comments and requests in good faith.
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3.2. Joint Patent Rights. Licensee shall have the first right to prepare, file, prosecute, protect and maintain Joint Patent Rights, at its cost; provided, however, that Licensee may elect to waive such right on a case-by-case basis and if so, Licensee shall notify Harvard promptly in writing and Harvard shall have the right, but not the obligation, to prepare, file, prosecute, protect and maintain such Joint Patent Rights. With respect to Joint Patent Rights, the filing party shall: (a) use independent patent counsel reasonably acceptable to the non-filing party and instruct such patent counsel to furnish the non-filing party with copies of all correspondence relating to the Joint Patent Rights from the USPTO and any other patent office, as well as copies of all proposed responses to such correspondence in time for the other party to review and comment on such response; (b) give the non-filing party an opportunity to review the text of each patent application before filing; (c) consult with the non-filing party with respect thereto; (d) supply the non-filing party with a copy of the application as filed, together with notice of its filing date and serial number; (e) keep the non-filing party advised of the status of actual and prospective patent filings; and (f) provide advance copies of any papers related to the filing, prosecution, protection and maintenance of such patent filings. The filing party shall give the non-filing party the opportunity to provide comments on and make requests of the filing party concerning the preparation, filing, prosecution, protection and maintenance of the Joint Patent Rights, and shall consider such comments and requests in good faith.
3.3. Expenses. Subject to Section 3.4 below, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard pursuant to this Article 3 within [**] days after Harvard invoices Licensee. In addition, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard prior to the execution of this Agreement with respect to the preparation, filing, prosecution, protection and maintenance of Harvard Patent Rights (estimated to be approximately [**] U.S. Cents ($[**])) within [**] days after the date on which the financing described in Section 11.2.2 below closes.
3.4. Abandonment. Should Licensee decide that it does not wish to pay for the preparation, filing, prosecution, protection or maintenance of any Harvard Patent Rights and/or Joint Patent Rights in a particular country (Abandoned Patent Rights), Licensee shall provide Harvard with prompt written notice of such election. Upon receipt of such notice by Harvard, Licensee shall be released from its obligation to reimburse Harvard for the expenses incurred thereafter as to such Abandoned Patent Rights; provided, however, that expenses authorized prior to the receipt by Harvard of such notice shall be deemed incurred prior to the notice.
3.4.1. Effect of Abandonment of Harvard Patent Rights. In the event of Licensees abandonment of any Harvard Patent Rights (Abandoned Harvard Patent Rights), any license granted by Harvard to Licensee hereunder with respect to such Abandoned Harvard Patent Rights will terminate, and Licensee will have no rights whatsoever to exploit such Abandoned Harvard Patent Rights. Harvard shall then be free, without further notice or obligation to Licensee, to grant rights in and to such Abandoned Harvard Patent Rights to third parties. Such Abandoned Harvard Patent Rights shall cease to constitute Harvard Patent Rights.
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3.4.2. Effect of Abandonment of Joint Patent Rights. In the event of Licensees abandonment of any Joint Patent Rights (Abandoned Joint Patent Rights), Harvard, in its sole discretion, may choose to terminate any license granted by Harvard to Licensee hereunder with respect to such Abandoned Joint Patent Rights. If Harvard exercises its right to terminate and continues to pay for the preparation, filing, prosecution, protection and maintenance of such Abandoned Joint Patent Rights, it thereafter shall have the right to practice and exploit the inventions claimed in such Abandoned Joint Patent Rights without any duty to account to Licensee or any obligation to obtain any consent or approval of Licensee for such use and exploitation. Harvard also shall then be free, without further notice or obligation to Licensee, and Licensee hereby grants Harvard an exclusive license, to grant rights in and to such Abandoned Joint Patent Rights to third parties; provided, however, that Licensee shall have (and Harvard hereby grants Licensee) the right, without further notice or obligation to Harvard, to practice and exploit the inventions claimed in such Abandoned Joint Patent Rights in connection with Licensees development and commercialization of a Licensed Product and to grant rights in and to such Abandoned Joint Patent Rights to third parties in connection with any license of a Licensed Product developed by or on behalf of Licensee. The claims of any such Abandoned Joint Patent Rights shall cease to constitute Valid Claims.
3.5. No Warranty. Nothing contained herein shall be deemed to be a warranty by either party that it can or will be able to obtain patents on patent applications included in the Harvard Patent Rights or Joint Patent Rights, or that any of the Harvard Patent Rights or Joint Patent Rights will afford adequate or commercially worthwhile protection.
3.6. Small Entity Designation. If Licensee, any Sublicensee and/or any holder of an option to obtain a Sublicense does not qualify, or at any point during the term of this Agreement ceases to qualify, as a small entity as provided by the USPTO, Licensee shall so notify Harvard immediately, in order to enable Harvard to comply with USPTG regulations regarding payment of fees with respect to Harvard Patent Rights and Joint Patent Rights.
4. License Grant.
4.1. Licenses.
4.1.1. Harvard Patent Rights. Subject to the terms and conditions set forth in this Agreement, Harvard hereby grants to Licensee an exclusive (except as set forth in clauses (a) and (b) below), worldwide, royalty-bearing license under the Harvard Patent Rights solely to develop, make, have made, use, market, offer for sale, sell and import Licensed Products; provided, however, that:
(a) Harvard shall retain the right to make and use Licensed Products, and to grant licenses to other not-for-profit research organizations to make and use Licensed Products, for internal research, teaching and other educational purposes and not for the purpose of commercial manufacture, distribution or provision of services for a fee; and
(b) the U.S. federal government shall retain rights in the Licensed Patent Rights pursuant to 35 USC §§200-212, 37 CFR §401 et seq. and applicable governmental implementing regulations, and any right granted in this Agreement greater than that permitted under 35 USC §§200-212 or 37 CFR §401 et seq. shall be subject to modification as may be required to conform to the provisions of those statutes and regulations.
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4.1.2. Joint Patent Rights. Subject to the terms and conditions set forth in this Agreement, Harvard hereby grants to Licensee an exclusive, worldwide, royalty-bearing license under Harvards interest in the Joint Patent Rights solely to develop, make, have made, use, market, offer for sale, sell and import Licensed Products.
4.2. Sublicense.
4.2.1. Sublicense Grant. Licensee shall be entitled to grant Sublicenses to third parties under the licenses granted pursuant to Section 4.1 if the contemplated Sublicense complies with the terms of this Section 4.2. Any such Sublicense shall be on terms and conditions in compliance with and not inconsistent with the terms of this Agreement. Such Sublicenses shall only be made for consideration and in bona-fide arms length transactions.
4.2.2. Sublicense Agreements. Sublicenses shall be granted only pursuant to written agreements, which shall be subject and subordinate to the terms and conditions of this Agreement. Such Sublicense agreements shall contain, among other things, provisions to the following effect:
4.2.2.1. All provisions necessary to ensure Licensees ability to perform its obligations under this Agreement, including without limitation its obligations under Sections 6.3, 6.4, 6.5, 7.1.1, 7.3, 9.1 and 12.1;
4.2.2.2. A section substantially the same as Article 10, which also shall state that the Indemnitees (as defined in Article 10) are intended third party beneficiaries of such Sublicense agreement for the purpose of enforcing such indemnification and insurance provisions;
4.2.2.3. In the event of termination of the licenses set forth in Section 4.1 above (in whole or in part (e.g., termination in a particular country)), any existing Sublicense shall terminate to the extent such licenses terminate; provided, however, that, for each Sublicensee, upon termination of a Sublicense agreement, if the Sublicensee is not then in breach of the Sublicense such that Licensee would have the right to terminate such Sublicense agreement, such Sublicensee shall have the right to seek a license from Harvard. Harvard agrees to negotiate such licenses in good faith under reasonable terms and conditions, which shall not impose any representations, warranties, obligations or liabilities on Harvard that are not included in this Agreement;
4.2.2.4. The Sublicensee shall not be entitled to sublicense its rights under such Sublicense agreement without Harvards prior written consent; provided that , if the Sublicensee is a major pharmaceutical company, the Sublicensee may grant further Sublicenses with respect to Licensed Products that the Sublicensee is developing and/or commercializing in at least one of (a) the United States, (b) any Major European Country or (c) Japan, in each case subject to Sections 4.2.2.1, 4.2.2.2, 4.2.2.3 and 4.2.2.5, without Harvards consent; and
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4.2.2.5. The Sublicensee shall not be entitled to assign the Sublicense agreement without the prior written consent of Harvard, except that Sublicensee may assign the Sublicense agreement to an Affiliate or to a successor in connection with the merger, consolidation, or sale of all or substantially all of its assets or that portion of its business to which the Sublicense agreement relates; provided, however, that any permitted assignee agrees in writing in a manner reasonably satisfactory to Harvard to be bound by the terms of such Sublicense agreement.
4.2.3. Delivery of Sublicense Agreement. Licensee or Sublicensee shall furnish Harvard with a fully executed copy of any Sublicense agreement or further Sublicense agreement under Section 4.2.2.4, promptly after its execution. Harvard shall keep any such copies of Sublicense agreements in its confidential files and shall use them solely for the purpose of monitoring Licensees and Sublicensees compliance with their obligations hereunder and enforcing Harvards rights under this Agreement.
4.2.4. Breach by Sublicensee. Any act or omission by a Sublicensee that would have constituted a breach of this Agreement had it been an act or omission by Licensee, shall constitute a breach of this Agreement.
4.3. Improvements. In the future event that Harvard owns and controls patents and/or patent applications for which Dr. Myers is an inventor that (a) are not Harvard Patent Rights or Joint Patent Rights and (b) include claims that are dominated by any Valid Claims of the Harvard Patent Rights described in Section 1.10(a) (e), Licensee may notify Harvard in writing that it wishes to obtain a license under such patents and/or patent applications solely with respect to those claims that are dominated by such Valid Claims of the Harvard Patent Rights described in Section 1.10(a) (e). Harvard will grant Licensee a license under such claims by amending this Agreement to include such claims in the definition of Licensed Patent Rights if (i) Harvard is not, at the time of its receipt of Licensees notice, subject to any legal or pre-existing contractual obligations or restraints that would prevent it from granting the requested license and (ii) either (A) the inventors of the invention claimed in such claims (and, in the case of non-Harvard inventors, the institutions with which such inventors are affiliated) do not reasonably object to the grant of the requested license based on an argument that the terms of the license contemplated by this Section 4.3, when considered from the perspective of the parties as of the date of such license, do not provide fair value to Harvard for the license of such patent rights (and, consequently, such inventors financial interest in such patent rights will be adversely affected) or (B) if any such inventors or institutions do object, the neutral third party appointed by the parties pursuant to the immediately following sentence does not affirmatively determine that the terms of the license contemplated by this Section 4.3, when considered from the perspective of the parties as of the date of such license, do not provide fair value to Harvard for the license of such patent rights. If Harvard relies upon clause (ii) above to refuse to grant Licensee a license under such claims, Licensee will have the right to seek a determination from a neutral third party (mutually acceptable to the parties) as to whether the terms of the license contemplated by this Section 4.3, when considered from the perspective of the parties as of the date of such license, provide fair value to Harvard for the license of such patent rights. Licensee shall not be required to pay any additional upfront consideration for such license, except for a license issuance fee to be agreed upon by the parties, which will not exceed [**] U.S. Dollars ($[**]). The other financial terms of this Agreement (e.g., milestone payments, royalty
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payments and payments on account of Non-Royalty Sublicense Income) will apply to the requested license (i.e., other than the to-be-agreed upfront consideration, the effect of such requested license shall be to include such additional patents and/or patent applications in Harvard Patent Rights licensed to Licensee under this Agreement, without modifying the economic terms of this Agreement).
4.4. Future Inventions. In the future event that Harvard owns and controls patents and/or patent applications for which Dr. Myers is an inventor that (a) are not dominated by any Valid Claims of the Harvard Patent Rights described in Section 1.10(a) (e) and (b) include claims with respect to tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline, Licensee may notify Harvard in writing that it wishes to obtain a license under such patents and/or patent applications solely with respect to claims covering tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline. Harvard will enter into good faith negotiations with Licensee for a license under such claims if (a) Harvard is not, at the lime of its receipt of Licensees notice, subject to any legal, public policy or pre-existing contractual obligations or restraints that would prevent it from granting the requested license and has not already commenced negotiations for any agreement that would impose such obligations or restraints and (b) Harvard believes that Licensee is an appropriate party to which to grant the requested license (taking into account Licensees resources and the potential applications for such patent rights).
4.5. Third Party Proposed Products.
4.5.1. If, at any time following the [**] anniversary of the Effective Date of this Agreement, a third party makes a bona fide proposal to Harvard for developing a Third Party Proposed Product and Harvard is interested in having such Third Party Proposed Product developed and commercialized, Harvard shall notify Licensee of and shall provide Licensee with information regarding the third partys proposal. Within [**] days of the receipt of such notification from Harvard, Licensee shall notify Harvard whether it is interested in developing such Third Party Proposed Product
4.5.2. If Licensee notifies Harvard within such [**] day period that it is interested in developing such Third Party Proposed Product, the parties will agree upon a development plan with respect to such Third Party Proposed Product, which development plan shall be similar to the Development Plan with respect to other Licensed Products developed by Licensee, subject to necessary adjustments, and will include reasonable milestones. In such case, Licensee shall be obligated (a) to use commercially reasonable efforts to develop and commercialize the Third Party Proposed Product in accordance with such new development plan and (b) to meet the milestones with respect to the Third Party Proposed Product.
4.5.3. In the event Licensee thereafter fails to comply in any material respect with such mutually agreed development and commercialization obligations, and fails to cure such noncompliance after notice from Harvard within the time periods specified in Section 11.2.3.2, Harvard shall be entitled to terminate the license granted in this Agreement under Harvard Patent Rights with respect to such Third Party Proposed Product and shall be free to grant a third party a license under any relevant Harvard Patent Rights solely to develop, make, have made, use, market, offer for sale, sell, and import such Third Party Proposed Product.
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4.5.4. If Licensee states in its notification to Harvard that it is not interested in developing such Third Party Proposed Product but that it wishes to grant a Sublicense under any relevant Harvard Patent Rights to such third party with respect to such Third Party Proposed Product, Licensee shall have [**] days (or such longer time as shall be agreed to by the parties in writing) to negotiate and enter into such a Sublicense agreement with such third party; provided, however, that if Licensee demonstrates that it and such third party have entered into a term sheet with respect to such a Sublicense agreement during such [**] days, Licensee shall be entitled to extend that period for the execution of a binding Sublicense agreement by an additional [**] days.
4.5.5. If Licensee fails to enter into such a Sublicense agreement within such [**] day period or [**] day period, as applicable, Licensee shall promptly (but in any event within [**] days of the end of such period) provide Harvard in writing an explanation for such failure along with the proposed terms offered by Licensee to Sublicensee. If Harvard determines in its good faith judgment that the terms offered by Licensee to such third party were not commercially reasonable, Harvard shall notify Licensee of such determination and provide Licensee with an additional [**] days to enter into a Sublicense with such third party. If Licensee fails to enter into an agreement with such third party within such additional [**] day period, then Harvard shall be free to grant such third party a license under the relevant Harvard Patent Rights solely to develop, make, have made, use, market, offer for sale, sell and import such Third Party Proposed Product; provided, however, that (a) Harvard shall not grant such third party license on terms more favorable to the third party than the terms of the license granted to Licensee in this Agreement with respect to such Third Party Proposed Product unless Harvard first amends this Agreement to provide Licensee with such more favorable terms (and after such amendment provides Licensee with a notice pursuant to Section 4.5.1 that commences a [**] day notice period thereunder during which Licensee may elect to develop such Third Party Proposed Product, in which case Sections 4.5.2 and 4.5.3 will apply) and (b) Harvard must grant such third party license within [**] days after the end of the [**] day period referenced above. The license granted to Licensee in this Agreement under Harvard Patent Rights with respect to such Third Party Proposed Product shall terminate automatically on the effective date of such third party license.
4.6. No Other Grant of Rights. Except as expressly provided in this Agreement, nothing in this Agreement shall be construed to confer any ownership interest, license or other rights upon Licensee by implication, estoppel or otherwise as to any technology, intellectual property rights, products or biological materials of Harvard or any other entity, regardless of whether such technology, intellectual property rights, products or biological materials are dominant, subordinate or otherwise related to any Licensed Patent Rights.
5. Development and Commercialization.
5.1. Diligence. Licensee shall use commercially reasonable efforts, and shall cause its Sublicensees to use commercially reasonable efforts: (i) to develop Licensed Products in accordance with the Development Plan; (ii) to introduce Licensed Products into the commercial market; and (iii) to market Licensed Products following such introduction into the market. In addition, Licensee, by itself or through its Affiliates or Sublicensees, also shall achieve each of the Development Milestones within the time periods specified in Exhibit 1.5. Licensees sole and exclusive liability and Harvards sole and exclusive remedy for any breach of this Section 5.1 shall be the termination right set forth in Section 11.2.3.1, to the extent applicable.
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5.2. Adjustment of Development Plan. Licensee shall be entitled, from time to time, to make such adjustments to the then applicable Development Plan as Licensee believes, in its good faith judgment, are needed in order to improve Licensees ability to meet the Development Milestones. Licensee shall provide Harvard with copies of any such adjusted Development Plans.
5.3. Reporting. Within [**] days after the end of each calendar year, Licensee shall furnish Harvard with a written report summarizing its, its Affiliates, and its Sublicensees efforts during the prior year to develop and commercialize Licensed Products, including without limitation: (i) research and development activities, including in reasonable detail medicinal chemistry efforts and animal efficacy and toxicity studies relating to potential Licensed Products; (ii) commercialization efforts; and (iii) marketing efforts. Each report shall contain a sufficient level of detail for Harvard to assess whether Licensee is in compliance with its obligations under Section 5.1.
5.4. Failure. Both parties agree that timely achievement of Development Milestones is subject to considerable uncertainty, given the novelty of the technology embodied in the Licensed Patent Rights, territorial or legal restrictions on the use of pharmaceutical products, the regulatory climate and approval process, and pricing or other government restrictions on certain pharmaceutical products. Accordingly, in the event Licensee fails to achieve any Development Milestone, the parties agree to discuss and, if appropriate, revise said milestone by adding a period of up to [**] months to achieve such milestone, upon Licensees written notice to Harvard, accompanied by an explanation for the reasons for such failure and a detailed written plan for promptly achieving such milestones. If Licensee does not provide Harvard with a reasonable basis for its failure to meet a Development Milestone (and lack of finances shall not constitute reasonable basis for such failure) or does not provide Harvard with a detailed written plan for promptly achieving such milestones, Harvard shall notify Licensee in writing of Licensees failure and shall allow Licensee [**] days to cure its failure. Licensees failure to cure such delay within such [**]-day period shall constitute a material breach of this Agreement and Harvard shall have the right to terminate this Agreement forthwith.
6. Consideration for Grant of License
6.1. License Issuance Fee. As partial consideration for the license granted hereunder, Licensee shall pay Harvard a non-refundable license fee of [**] U.S. Dollars ($[**]) within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below).
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6.2. Equity.
6.2.1. Initial Grant. As partial consideration for the license granted hereunder, and subject to the execution and delivery of an investment representation letter by Harvard in substantially the form attached hereto as Exhibit 6.2.1, within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below), Licensee shall issue to Harvard such number of shares of common stock (the Shares) of Licensee that constitutes the greater of:
(a) [**] shares of common stock, adjusted for any stock splits and similar events; or
(b) [**] percent ([**]%) of the outstanding common stock of Licensee, on a Fully Diluted Basis, as of the date of completion of the Qualifying Financing, after giving effect to such issuance to Harvard and to the sale in the Qualifying Financing of shares of capital stock having an aggregate purchase price, which together with the aggregate purchase price received by the Company from any investment in its capital stock made prior to the Qualifying Financing, does not exceed the Funding Threshold (i.e., assuming only such shares issued in the Qualifying Financing that are necessary to achieve the Funding Threshold are then outstanding). For purposes of illustration, if the Qualifying Financing were to involve the sale of shares of capital stock having an aggregate purchase price of $[**] and no cash investment in Licensees capital stock had been made prior to the Qualifying Financing, then the calculation above in this clause (b) shall only apply to and shall only include the shares of capital stock sold in the Qualifying Financing having an aggregate purchase price of $[**] and shall not include the additional shares of capital stock sold in the Qualifying Financing (i.e., Harvards shareholdings will be diluted with respect to the additional shares of capital stock sold in the Qualifying Financing).
6.2.2. Representations and Warranties. Licensee hereby represents and warrants to Harvard that:
6.2.2.1. The capitalization table attached hereto as Exhibit 6.2.2.1 (the Cap Table) sets forth all of the outstanding capital stock of Licensee on a Fully Diluted Basis as of the Effective Date after assuming and giving effect to the Shares to be issued to Harvard under Section 6.2.1;
6.2.2.2. Other than as set forth in the Cap Table, as of the Effective Date, there are no outstanding shares of capital stock, convertible securities, outstanding warrants, options or other rights to subscribe for purchase or acquire from Licensee any capital stock of Licensee and there are no contracts or binding commitments providing for the issuance of, or the granting of rights to acquire, any capital stock of Licensee or under which Licensee is obligated to issue any of its securities; and
6.2.2.3. The Shares, when issued pursuant to the terms hereof, shall, upon such issuance, be duly authorized, validly issued, fully paid and nonassessable.
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6.2.3. Anti-Dilution. If, at any time, after the initial issuance of Shares pursuant to Section 6.2.1 and prior to the achievement of the Funding Threshold (as defined below), Licensee issues Additional Securities (as defined below) that would cause the common stock issued to Harvard under this Article 6 to represent less than [**] percent ([**]%) of Licensees outstanding stock on a Fully-Diluted Basis (a Diluting Issuance), then, within [**] days after the date of such Diluting Issuance, subject to the execution and delivery of an investment representation letter by Harvard in substantially the form attached hereto as Exhibit 6.2.1, Licensee shall issue additional shares of common stock to Harvard such that after giving effect to such issuance to Harvard, the common stock issued to Harvard under this Article 6 shall represent [**] percent ([**]%) of Licensees outstanding stock on a Fully Diluted Basis. Such issuances to Harvard shall continue until such time and with respect to those securities as are issued by Licensee prior to Licensee achieving the Funding Threshold. Upon achievement of the Funding Threshold, no additional shares shall be due to Harvard pursuant to this Section 6.2.3.
6.2.4. Definitions. The following terms shall have the following meanings:
(a) Additional Securities shall mean shares of capital stock, convertible securities, warrants, options or other rights to subscribe for, purchase or acquire from Licensee any capital stock of Licensee
(b) Fully Diluted Basis shall mean, as of a specified date, the number of shares of common stock of Licensee then outstanding (assuming conversion of all other classes of stock into common stock) plus the number of shares of common stock of Licensee issuable upon exercise or conversion of then outstanding convertible securities (other than other classes of stock), options, rights or warrants of Licensee (which shall be determined without regard to whether such securities are then vested, exercisable or convertible).
(c) Funding Threshold shall mean a total investment from and after the incorporation of Licensee of [**] U.S. Dollars ($[**]) in cash in exchange for Licensees capital stock.
6.3. Milestone Payments.
6.3.1. As partial consideration for the license granted hereunder, Licensee shall pay Harvard the following milestone payments with respect to each Licensed Product, regardless of whether such milestones are achieved by Licensee, an Affiliate of Licensee or a Sublicensee:
6.3.1.1. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.2. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.3. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.4. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.5. Two Million U.S. Dollars ($2,000,000) upon Initiation of a Phase III Clinical Trial with respect to such Licensed Product;
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6.3.1.6. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.7. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.8. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.9. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;
6.3.1.10. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product; and
6.3.1.11. [**] U.S. Dollars ($[**]) upon [**].
Licensee shall notify Harvard in writing within [**] days following the achievement of each milestone described in this Section 6.3.1, and shall make the appropriate milestone payment within [**] days after the achievement of such milestone. Each milestone payment set forth in this Section 6.3.1 shall be payable no more than once per Licensed Product.
For purposes of this Section 6.3.1, [**] shall include [**] by operation of rule or regulation due to the [**].
For purposes of this Section 6.3.1, if all active pharmaceutical ingredient(s) in a Licensed Product that are Covered Component(s) are the same (irrespective of formulation differences that are not deemed by the applicable Regulatory Authority to result in different active pharmaceutical ingredient(s)) as active pharmaceutical ingredient(s) in Licensed Products for which Licensee has already paid a given milestone payment under this Section 6.3.1, then Licensee shall not be required to pay such milestone payment with respect to such Licensed Product.
6.3.2. The milestones set forth in Section 6.3.1 are intended to be successive, except that the [**] milestones set forth in Sections 6.3.1.6, 6.3.1.7, 6.3.1.8, 6.3.1.9, 6.3.1.10 and 6.3.1.11 are not intended to be successive (i.e., the achievement of such milestones in [**] may occur in any order). In the event that a Licensed Product is not required to [**] associated with a particular milestone ( Skipped Milestone ), such Skipped Milestone shall be deemed to have been achieved upon the achievement by such Licensed Product of the next successive milestone ( Achieved Milestone ). Payment for any Skipped Milestone that is owed in accordance with the provisions of this Section 6.3.2 shall be due within [**] days after the achievement of the Achieved Milestone.
6.4. Net Sales.
6.4.1. Royalties . As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of Net Sales of Licensed Products:
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6.4.1.1. [**] percent ([**]%) of calendar year annual Net Sales up to [**] U.S. Dollars ($[**]);
6.4.1.2. [**] percent ([**]%) of calendar year annual Net Sales in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]);
6.4.1.3. [**] percent ([**]%) of calendar year annual Net Sales in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]); and
6.4.1.4. [**] percent ([**]%) of calendar year annual Net Sales in excess of [**] U.S. Dollars ($[**]).
With respect to each Licensed Product, royalties will be payable on a country-by-country basis, so long as the making, using or selling of the Licensed Product is covered by a Valid Claim in the country in which such Licensed Product is made, used or sold.
6.4.2. Joint Patent Rights Only Licensed Products. Notwithstanding the foregoing, in the event that the making, using or selling of a Licensed Product is covered only by a Valid Claim within the Joint Patent Rights (and not by any Valid Claim within the Harvard Patent Rights) in a certain country, the royalty payment rates specified above with respect to such Licensed Product shall be multiplied by the Relative Contribution Rate in such country.
6.4.3. Third Party Royalty Set Off. Notwithstanding the foregoing, in the event that Licensee is required to obtain a license from a third party to an Infringed Patent (as defined below) in order to make, use or sell Licensed Products, and Licensee obtains such a license after arms length negotiations, Licensee may offset an amount of up to [**] percent ([**]%) of any amounts paid under such third party license with respect to sales of such Licensed Product against the royalty payments that are due to Harvard pursuant to this Section 6.4 with respect to sales of such Licensed Product in such country; provided that in no event shall (a) the royalty payments to Harvard with respect to such Licensed Product be reduced for any Calendar Quarter by more than [**] percent ([**]%) of the amount otherwise due for such Calendar Quarter with respect to such Licensed Product under this Section 6.4 and (b) the offset that Licensee is entitled to make against royalty payments due to Harvard be greater than any offset that Licensee is entitled to make against royalty payments due to such third party licensee on account of royalty payments made to Harvard under this Agreement. If Licensee is unable to fully offset [**] percent ([**]%) of such amounts paid under third party licenses against royalties due for a Calendar Quarter, Licensee shall be entitled to carry forward to subsequent Calendar Quarters any undeducted amounts for deduction in such subsequent Calendar Quarters, subject to the limitations set forth in subsections (a) and (b) above.
6.5. Non-Royalty Sublicense Income. As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of Non-Royalty Sublicense Income:
6.5.1. if Licensee grants a Sublicense [**] with respect to the Licensed Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense;
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6.5.2. if Licensee grants a Sublicense [**] with respect to the Licensed Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense; and
6.5.3. if Licensee grants a Sublicense [**] with respect to the Licensed Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense.
7. Reports; Payments; Records.
7.1. Reports and Payments.
7.1.1. Reports. Within [**] days after the conclusion of each Calendar Quarter commencing with the first Calendar Quarter in which Net Sales are generated or Non-Royalty Sublicense Income received, Licensee shall deliver to Harvard a report containing the following information (in each instance, with a Licensed Product-by-Licensed Product breakdown):
(a) the number of units of Licensed Products sold by Licensee, its Affiliates and Sublicensees for the applicable Calendar Quarter;
(b) the gross amount billed for Licensed Products sold by Licensee, its Affiliates and Sublicensees during the applicable Calendar Quarter;
(c) a calculation of Net Sales for the applicable Calendar Quarter, including an itemized listing of applicable deductions; and
(d) the total amount payable to Harvard in U.S. Dollars on Net Sales for the applicable Calendar Quarter, together with the exchange rates used for conversion.
In addition, Licensee shall include in each such report a statement of all Non-Royalty Sublicense Income and the amounts payable to Harvard in respect thereto for the applicable Calendar Quarter. Each such report shall be certified on behalf of Licensee as true, correct and complete in all material respects by Licensees Chief Financial Officer or an executive level officer with comparable authority. If no amounts are due to Harvard for any Calendar Quarter, the report shall so state.
7.1.2. Payment for Net Sales. Within [**] days after the end of each Calendar Quarter, Licensee shall pay Harvard all amounts due with respect to Net Sales and Non-Royalty Sublicense Income for the applicable Calendar Quarter.
7.2. Payment Currency. All payments due under this Agreement shall be payable in U.S. Dollars. Conversion of foreign currency to U.S. Dollars shall be made at the conversion rate existing in the United States (as reported in The Wall Street Journal ) on the last working day of the applicable Calendar Quarter. Such payments shall be without deduction of exchange, collection, or other charges.
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7.3. Records. Licensee shall maintain, and shall cause its Affiliates and Sublicensees to maintain, complete and accurate records of Licensed Products that are made, used or sold under this Agreement, any amounts payable to Harvard in relation to such Licensed Products and all Non-Royalty Sublicense Income received by Licensee and its Affiliates, which records shall contain sufficient information to permit Harvard to confirm the accuracy of any reports or notifications delivered to Harvard under Section 7.1. Licensee, its Affiliates and/or its Sublicensees, as applicable, shall retain such records relating to a given Calendar Quarter for at least [**] years after the conclusion of that Calendar Quarter, during which time Harvard shall have the right, at its expense, to cause an independent, certified public accountant to inspect such records during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement. Such accountant shall enter into a confidentiality agreement reasonably satisfactory to Licensee and shall not disclose to Harvard any information other than information relating to the accuracy of reports and payments delivered under this Agreement. The parties shall reconcile any underpayment or overpayment within [**] days after the accountant delivers the results of the audit. In the event that any audit performed under this Section 7.3 reveals an underpayment in excess of five percent (5%) in any calendar year, the audited entity shall bear the full cost of such audit. Harvard may exercise its rights under this Section 7.3 [**] per audited entity and only with reasonable prior notice to the audited entity.
7.4. Late Payments. Any payments by Licensee that are not paid on or before the date such payments are due under this Agreement shall bear interest at the lower of (a) [**] percent ([**]%) per month and (b) the maximum rate allowed by law. Interest shall accrue beginning on the first day following the due date for payment and shall be compounded quarterly. Payment of such interest by Licensee shall not limit in any way, Harvards right to exercise any other remedies Harvard may have as a consequence of the lateness of any payment.
7.5. P ayment Method. Each payment due to Harvard under this Agreement shall be paid by check or wire transfer of funds to Harvards account in accordance with written instructions provided by Harvard. If made by wire transfer, such payments shall be marked so as to refer to this Agreement.
7.6. Withholding and Similar Taxes. Licensee shall use reasonable and legal efforts to reduce tax withholding on payments made to Harvard hereunder. Notwithstanding such efforts, if Licensee concludes that tax withholdings under the laws of any country are required with respect to payments to Harvard, Licensee shall withhold the required amount and pay it to the appropriate governmental authority. In such a case, Licensee will promptly provide Harvard with original receipts or other evidence reasonably desirable and sufficient to allow Harvard to document such tax withholdings adequately for purposes of claiming foreign tax credits and similar benefits.
8. Enforcement of Patent Rights.
8.1. Notice. In the event either party becomes aware of any possible or actual infringement of any Licensed Patent Rights relating to Licensed Products (collectively, an Infringement), that party shall promptly notify the other party and provide it with details regarding such Infringement
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8.2. Suit by Licensee. Licensee shall have the first right, but not the obligation, to take action in the prosecution, prevention, or termination of any Infringement. Before Licensee commences an action with respect to any Infringement, Licensee shall consider in good faith the views of Harvard and potential effects on the public interest in making its decision whether to sue. Should Licensee elect to bring suit against an infringer, Licensee shall keep Harvard reasonably informed of the progress of the action and shall give Harvard a reasonable opportunity in advance to consult with Licensee and offer its views about major decisions affecting the litigation. Licensee shall give careful consideration to those views, but shall have the right to control the action; provided, however, that if Licensee fails to defend in good faith the validity and/or enforceability of the Licensed Patent Rights in the action, or if Licensees license to a Valid Claim in suit terminates, Harvard may elect to take control of the action pursuant to Section 8.3. Should Licensee elect to bring suit against an infringer and Harvard is joined as party plaintiff in any such suit, Harvard shall have the right to approve the counsel selected by Licensee to represent Licensee and Harvard, such approval not to be unreasonably withheld, delayed or conditioned (the parties agree that counsels conflict of interest shall be reasonable grounds for withholding approval). The expenses of such suit or suits that Licensee elects to bring, including any expenses of Licensors incurred in conjunction with the prosecution of such suits or the settlement thereof, shall be paid for entirely by Licensee and Licensee shall hold Licensors free, clear and harmless from and against any and all costs of such litigation, including attorneys fees. Licensee shall not compromise or settle such litigation without the prior written consent of Harvard, which consent shall not be unreasonably withheld, delayed or conditioned (the parties agree that Harvard may withhold approval of any settlement that may reasonably be interpreted to impose any obligations on Harvard or limit the scope, validity or enforceability of any Licensed Patent Rights). In the event Licensee exercises its right to sue pursuant to this Section 8.2, it shall first reimburse itself out of any sums recovered in such suit or in settlement thereof for all costs and expenses of every kind and character, including reasonable attorneys fees, reasonably incurred in the prosecution of any such suit. If, after such reimbursement, any funds shall remain from said recovery, then Harvard shall receive an amount equal to [**] percent ([**]%) of such funds and the remaining [**] percent ([**]%) of such funds shall be retained by Licensee.
8.3. Suit by Harvard. If Licensee does not take action in the prosecution, prevention, or termination of any Infringement pursuant to Section 8.2 above, and has not commenced negotiations with the infringer for the discontinuance of said Infringement, within [**] days after receipt of notice to Licensee by Harvard of the existence of an Infringement, Harvard may elect to do so. Should Harvard elect to bring suit against an infringer and Licensee is joined as party plaintiff in any such suit, Licensee shall have the right to approve the counsel selected by Harvard to represent Harvard, such approval not to be unreasonably withheld, delayed or conditioned (the parties agree that counsels conflict of interest shall be reasonable grounds for withholding approval). The expenses of such suit or suits that Harvard elects to bring, including any expenses of Licensee incurred in conjunction with the prosecution of such suits or the settlement thereof, shall be paid for entirely by Harvard and Harvard shall hold Licensee free, clear and harmless from and against any and all costs of such litigation, including attorneys fees. Harvard shall not compromise or settle such litigation without the prior written consent of Licensee, which consent shall not be unreasonably withheld, delayed or conditioned (the parties agree that Licensee may withhold approval of any settlement that may reasonably be interpreted to impose any obligations on Licensee or limit the scope, validity or enforceability of any
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Licensed Patent Rights). In the event Harvard exercises its right to sue pursuant to this Section 8.3, it shall first reimburse itself out of any sums recovered in such suit or in settlement thereof for all costs and expenses of every kind and character, including reasonable attorneys fees, reasonably incurred in the prosecution of any such suit. If, after such reimbursement, any funds shall remain from said recovery, then Licensee shall receive an amount equal to [**] percent ([**]%) of such funds and the remaining [**] percent ([**]%) of such funds shall be retained by Harvard.
8.4. Own Counsel. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted under this Article 8 by the other party for Infringement.
8.5. Cooperation. Each party agrees to cooperate fully in any action under this Article 8 which is controlled by the other party, provided that the controlling party reimburses the cooperating party promptly for any costs and expenses incurred by the cooperating party in connection with providing such assistance.
8.6. Standing. If a party lacks standing and the other party has standing to bring any such suit, action or proceeding, then such other party shall do so at the request of and at the expense of the requesting party. If either party determines that it is necessary or desirable for another party to join any such suit, action or proceeding, the other party shall execute all papers and perform such other acts as may be reasonably required in the circumstances.
8.7. Declaratory Judgment. If a declaratory judgment action is brought naming Licensee and/or any of its Affiliates or Sublicensees as a defendant and alleging invalidity or unenforceability of any claims within the Harvard Patent Rights, Licensee shall promptly notify Harvard in writing and Harvard may elect, upon written notice to Licensee within [**] days after Harvard receives notice of the commencement of such action, to take over the sole defense of the invalidity or unenforceability aspect of the action at its own expense. The Party defending any such action shall give the other Party the opportunity to provide comments on and make requests of the defending Party concerning the conduct of such defense, and shall consider such comments and requests in good faith.
9. Warranties; Limitation of Liability.
9.1. Compliance with Law . Licensee represents and warrants that it will comply, and will ensure that its Affiliates and Sublicensees comply, with all local, state, and international laws and regulations relating to the development, manufacture, use, sale and importation of Licensed Products. Without limiting the foregoing, Licensee represents and warrants that it will comply, and will ensure that its Affiliates and Sublicensees will comply, with all United States export control laws and regulations with respect to Licensed Products.
9.2. No Warranty.
9.2.1. Harvard makes no warranties whatsoever as to the commercial or scientific value of the Harvard Patent Rights or Joint Patent Rights or the inventions disclosed therein. Harvard makes no representation that the practice of the Harvard Patent Rights or Joint Patent Rights or the development, manufacture, use, sale or importation of any Licensed Product, or any element thereof, will not infringe the patent or proprietary rights of any third party.
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9.2.2. Except as otherwise expressly provided in this Agreement, no party makes any warranty with respect to any technology, patents, goods, services, rights or other subject matter of this Agreement and hereby disclaims warranties of merchantability, fitness for a particular purpose and noninfringement with respect to any and all of the foregoing.
9.3. Limitation of Liability.
9.3.1. Except with respect to Licensees indemnification obligations under Article 10, neither party will be liable to the other with respect to any subject matter of this Agreement under any contract, negligence, strict liability or other legal or equitable theory for (i) any indirect incidental, consequential or punitive damages or lost profits or (ii) cost of procurement of substitute goods, technology or services.
9.3.2. Harvards aggregate liability for all damages of any kind arising out of or relating to this Agreement or its subject matter shall not exceed the amounts paid to Harvard under this Agreement.
10. Indemnification.
10.1. Indemnity.
10.1.1. Licensee shall indemnify, defend and hold harmless Harvard and its current or former directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students, and agents and their respective successors, heirs and assigns (collectively, the Indemnitees) from and against any third party claim, liability, cost, expense, damage, deficiency, loss or obligation or any kind or nature (including, without limitation, reasonable attorneys fees and other costs and expenses of litigation) (collectively, Claims), based upon, arising out of, or otherwise relating to any acts or omissions of the Licensee, its Affiliates, or any of its Sublicensees in connection with Licensed Products or this Agreement or any cause of action relating to product liability concerning any product, process, or service made, used or sold pursuant to any right or license granted under this Agreement. Neither Licensee nor Harvard shall settle any Claim without the prior written consent of the other, which consent shall not be unreasonably withheld, delayed or conditioned, except that Licensee may settle any Claim to which Licensees indemnification obligations hereunder apply without the consent of Harvard if such settlement releases all Indemnitees from liability in respect of such Claim, does not impose any obligations on any Indemnitee and does not limit the scope, validity or enforceability of any Licensed Patent Right.
10.1.2. Licensee shall, at its own expense, provide attorneys reasonably acceptable to Harvard to defend against any actions brought or filed against any Indemnitee hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought.
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10.2. Insurance.
10.2.1. Beginning at the time any Licensed Product is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee, or by an Affiliate, Sublicensee or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $[**] per incident and $[**] annual aggregate and naming the Indemnitees as additional insureds. During clinical trials of any such Licensed Product, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in such equal or lesser amount as Harvard shall require, naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide: (a) product liability coverage and (b) broad form contractual liability coverage for Companys indemnification under this Agreement.
10.2.2. If Licensee elects to self-insure all or part of the limits described above in Section 10.2.1 (including deductibles or retentions which are in excess of $[**] annual aggregate) such self-insurance program must be acceptable to Harvard and the Risk Management Foundation of the Harvard Medical Institutions, Inc. in their sole discretion. The minimum amounts of insurance coverage required shall not be construed to create a limit of Licensees liability with respect to its indemnification under this Agreement.
10.2.3. Licensee shall provide Harvard with written evidence of such insurance upon request of Harvard. Licensee shall provide Harvard with written notice at least [**] days prior to the cancellation, non-renewal or material change in such insurance; if Licensee does not obtain replacement insurance providing comparable coverage within such [**]) day period, Harvard shall have the right to terminate this Agreement effective at the end of such [**] day period without notice or any additional waiting periods.
10.2.4. Licensee shall maintain such commercial general liability insurance beyond the expiration or termination of this Agreement during: (a) the period that any Licensed Product is being commercially distributed or sold by Licensee, or an Affiliate, Sublicensee or agent of Licensee; and (b) a reasonable period after the period referred to in (a) above which in no event shall be less than [**] years.
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11. Term and Termination.
11.1. Term . The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article 11, shall continue in full force and effect on a Licensed Product-by-Licensed Product and country-by-country basis until expiration of the last to expire of the Harvard Patents Rights and Joint Patent Rights.
11.2. Termination.
11.2.1. Termination Without Cause. Licensee may terminate this Agreement upon sixty (60) days prior written notice to Harvard.
11.2.2. Termination for Failure to Obtain Financing . In the event that Licensee fails to complete an investment in the capital stock of Licensee that results in the receipt by Licensee of at least [**] U.S. Dollars ($[**]) (a Qualifying Financing) within [**] days after the Effective Date, Harvard may terminate this Agreement immediately upon written notice to Licensee. Notwithstanding the foregoing, if Harvard fails to exercise this right to terminate and Licensee subsequently completes a Qualifying Financing (after the [**] day period) and issues Shares to Harvard as set forth in Section 6.2.1, the termination right set forth in this Section 11.2.2 shall expire and have no further force or effect. The termination right set forth in this Section 11.2.2 is Harvards sole and exclusive remedy and Licensees sole and exclusive liability for any failure by Licensee to complete a Qualifying Financing.
11.2.3. Termination for Default.
11.2.3.1. In the event that either party commits a material breach of its obligations under this Agreement and fails to cure that breach within [**] days after receiving written notice thereof, the other party may terminate this Agreement immediately upon written notice to the party in breach.
11.2.3.2. If Licensee defaults in its obligations under Section 10.2 to procure and maintain insurance or, if Licensee has in any event failed to comply with the notice requirements contained therein and does not cure such failure within [**] business day of written notice thereof from Harvard, then Harvard may terminate this Agreement immediately without notice or additional waiting period.
11.2.4. Bankruptcy. Harvard may terminate this Agreement upon notice to Licensee if Licensee becomes insolvent, is adjudged bankrupt, applies for judicial or extra-judicial settlement with its creditors, makes an assignment for the benefit of its creditors, voluntarily files for bankruptcy or has a receiver or trustee (or the like) in bankruptcy appointed by reason of its insolvency, or in the event an involuntary bankruptcy action is filed against Licensee and not dismissed within ninety (90) days, or if the other party becomes the subject of liquidation or dissolution proceedings or otherwise discontinues business; provided that the termination right set forth in this Section 11.2.4 shall not be exercisable if Licensee continues to perform its obligations under this Agreement in all material respects.
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11.3. Effect of Termination.
11.3.1. T ermination of Rights. Upon termination of this Agreement by either party pursuant to any of the provisions of Section 11.2: (a) the rights and licenses granted to Licensee under Article 4 shall terminate and all rights in and to and under the Harvard Patent Rights and Harvards interest in the Joint Inventions shall revert to Harvard; and (b) any existing agreements that contain a Sublicense shall terminate to the extent of such Sublicense; provided, however, that, for each Sublicensee, upon termination of the Sublicense agreement with such Sublicensee, if the Sublicensee is not then in breach of its Sublicense agreement with Licensee such that Licensee would have the right to terminate such Sublicense, such Sublicensee shall have the right to seek a license from Harvard. Harvard agrees to negotiate such licenses in good faith under reasonable terms and conditions, which shall not impose any representations, warranties, obligations or liabilities on Harvard that are not included in this Agreement. Notwithstanding the foregoing, Licensee shall have a non-exclusive license under Harvards interest in any Joint Patent Rights to develop, make, have made, use, market, offer for sale, sell and import Licensed Products, provided that Licensee pays the applicable royalties and payments to Harvard in accordance with Sections 6.4 and 6.5, provides reports and audit rights to Harvard pursuant to Article 7 and maintains insurance in accordance with the requirements of Section 10.2.
11.3.2. Accruing Obligations. Termination of this Agreement shall not relieve the parties of obligations occurring prior to such termination, including obligations to pay amounts accruing hereunder up to the date of termination.
11.3.3. Transfer of Regulatory Filings. In addition, in the event Licensee terminates this Agreement pursuant to Section 11.2.1 or Harvard terminates this Agreement pursuant to Section 5.4, 11.2.2, 11.2.3 or 11.2.4, at Harvards request Licensee shall promptly deliver and assign to Harvard all documents and other materials filed by or on behalf of Licensee and its Affiliates with regulatory agencies in furtherance of applications for regulatory approval in the relevant country with respect to Licensed Products (Assigned Materials).
11.3.3.1. In the event that Harvard grants a third party a license to make, use, offer for sale, sell or import a Licensed Product and, in connection therewith, also grants the third party a license under or with respect to, or access to, any of the Assigned Materials relating to such Licensed Product, Harvard shall pay Licensee royalties in the amount of [**] percent ([**]%) of all Net Harvard Receipts (as defined below) received by Harvard in connection with such Licensed Product under such license. All such royalties shall be paid by Harvard within [**] days of receipt. With such distribution, Harvard shall provide a financial accounting showing Harvard Receipts (as defined below) received and all deductions therefrom. Licensee shall keep such reports in confidence; provided that Licensee shall be permitted to include the information in such reports in its financial statements and public disclosures as reasonably required to satisfy accounting rules and securities laws and regulations.
11.3.3.2. Net Harvard Receipts shall mean Harvard Receipts less Harvard Expenses.
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11.3.3.3. Harvard Receipts shall mean all amounts in cash and other consideration actually received by Harvard from the grant of a license to make, use, offer for sale, sell or import a Licensed Product, which license is accompanied by a license or grant of right to use the Assigned Materials with respect to such Licensed Product. Notwithstanding the above, Harvard Receipts shall not include payments specifically committed to (a) reimburse patent expenses incurred by Harvard in connection with such Licensed Product and (b) cover future costs to be actually incurred by Harvard (including customary overhead) in accordance with detailed budgets and research workplans included in sponsored research agreements relating to such Licensed Product. The parties do not envision that Harvard would ever elect to commercialize the Licensed Product directly or through any Harvard Affiliate; however, in the event that Harvard commercializes the Licensed Product directly or through an Affiliate, the parties will negotiate appropriate royalty rates to be paid by Harvard comparable to the royalty rates to be paid by Licensee under Section 6.4.1.
11.3.3.4. Harvard Expenses shall mean all out-of-pocket expenses and professional fees that are not reimbursed or otherwise paid by a licensee or other third party, including legal fees, patent agent fees and fees paid to other experts, incurred by Harvard in connection with: (a) the filing, prosecution, maintenance or enforcement of any patent application or patent covering the relevant Licensed Product; or (b) the preparation, negotiation, execution and/or enforcement of any agreement pursuant to which the Harvard Receipts are received.
11.4. Survival. The parties respective rights, obligations and duties under Articles 7 and 10 and under this Article 11, as well as any rights, obligations and duties which by their nature extend beyond the expiration or termination of this Agreement, shall survive any expiration or termination of this Agreement. In addition, Licensees obligations under Section 6.5 with respect to Sublicenses granted prior to termination of the Agreement shall survive termination; provided that the basis for the Non-Royalty Sublicense Income under such Sublicenses received after the termination of this Agreement to which such surviving Section 6.5 obligations relate is, in whole or in part, licenses and/or sublicenses under Harvard Patent Rights or Joint Patent Rights and not exclusively other rights and licenses granted by Licensee in connection with such Sublicense. Harvards obligations under Section 12.15 shall survive expiration or termination of this Agreement.
12. Miscellaneous.
12.1. Preference for United States Industry. During the period of exclusivity of this license in the United States, Licensee shall cause any Licensed Product produced for sale in the United States to be manufactured substantially in the United States.
12.2. Use of Name. Licensee shall not, and shall ensure that its Affiliates and Sublicensees shall not, use the name or insignia of Harvard or the name of any of Harvard officers, faculty, other researchers or students, or any adaptation of such names, in any advertising promotional or sales literature, including without limitation any press release or any document employed to obtain funds, without the prior written approval of Harvard; provided that Dr. Myers consent to the use of his name and his affiliation with Harvard shall be sufficient approval for the use of his name and affiliation. The restriction set forth in this Section 12.2 shall not apply to any information required by law to be disclosed to any governmental entity, including without limitation any information required to be disclosed pursuant to rules and regulations promulgated by the United States Securities and Exchange Commissions or the rules and regulations of any stock exchange or NASDAQ.
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12.3. Entire Agreement. This Agreement is the sole agreement with respect to the subject matter hereof and except as expressly set forth herein, supersedes all other agreements and understandings between the parties with respect to the same.
12.4. Notices. Unless otherwise specifically provided, all notices required or permitted by this Agreement shall be in writing and may be delivered personally, or may be sent by facsimile or certified mail, return receipt requested, to the following addresses, unless the parties are subsequently notified of any change of address in accordance with this Section 12.4:
If to License: |
Tetraphase Pharmaceuticals, Inc. c/o Mediphase Venture Partners 3 Newton Executive Park, Suite 104 Newton, Massachusetts 02462 |
|
Attn.: Chief Executive Officer | ||
If to Harvard: |
Office of Technology Development Harvard University Holyoke Center 727 1350 Massachusetts Avenue Cambridge, Massachusetts 02138 |
|
Attn.: Chief Technology Development Officer |
Any notice shall be deemed to have been received as follows: (i) by personal delivery, upon receipt; (ii) by facsimile, one business day after transmission or dispatch; (iii) by airmail, seven (7) business days after delivery to the postal authorities by the party serving notice. If notice is sent by facsimile, a confirming copy of the same shall be sent by mail to the same address.
12.5. Governing Law and Jurisdiction. This Agreement will be governed by, and construed in accordance with, the substantive laws of the Commonwealth of Massachusetts, without giving effect to any choice or conflict of law provision, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent shall have been granted. Sole jurisdiction is hereby granted by the parties to the state courts of the Commonwealth of Massachusetts or the federal courts of the District of Massachusetts, without restricting any right of appeal.
12.6. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns.
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12.7. Headings. Article, section and subsection headings are inserted for convenience of reference only and do not form a part of this Agreement.
12.8. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original.
12.9. Amendment; Waiver. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions hereof shall in no manner affect the rights at a later time to enforce the same. No waiver by either party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement.
12.10. No Agency or Partnership. Nothing contained in this Agreement shall give any party the right to bind another, or be deemed to constitute either parties as agents for each other or as partners with each other or any third party.
12.11. Assignment and Successors. This Agreement may not be assigned by either party without the consent of the other, which consent shall not be unreasonably withheld, delayed or conditioned, except that each party may, without such consent, assign this Agreement and the rights, obligations and interests of such party to any of its Affiliates, to any purchaser of all or substantially all of its business, stock, assets or research to which the subject matter of this Agreement relates, or to any successor corporation resulting from any merger or consolidation of such party with or into such corporation; provided, in each case, that the assignee agrees in writing to be bound by the terms of this Agreement. Any assignment purported or attempted to be made in violation of the terms of this Section 12.11 shall be null and void and of no legal effect.
12.12. Force Majeure. Neither party will be responsible for delays resulting from causes beyond the reasonable control of such party, including without limitation fire, explosion, flood, war, strike, or riot, provided that the nonperforming party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance under this Agreement with reasonable dispatch whenever such causes are removed.
12.13. Interpretation. The parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to both parties hereto and not in favor of or against either party, regardless of which party was generally responsible for the preparation of this Agreement.
12.14. Severability. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of this Agreement shall not be affected.
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12.15. Confidentiality. Harvard shall keep confidential, not disclose to any third party and not use for any purpose other than monitoring Licensees performance under this Agreement any information (including reports) provided to Harvard by Licensee or by Dr. Myers under Sections 2.5, 2.6, 5.3, 7.1 and 7.3 of this Agreement; provided, however, that Harvard (i) may include in its annual reports totals derived from information received from Licensee (without attribution to Licensee) that show revenues generated by the patents and patent applications licensed under this Agreement and (ii) may use and disclose information provided under Sections 2.5 and 2.6 to file patent applications with respect to Harvard Inventions and, as permitted under this Agreement, Joint Inventions; and provided further that the non-disclosure and non-use obligations shall not apply to any information that (a) is or becomes part of the public domain other than by Harvards breach of this Section 12.15, (b) is included within Abandoned Harvard Patent Rights or Abandoned Joint Patent Rights, or (c) is required to be disclosed by Harvard pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law (provided that, in such case, Harvard shall notify Licensee immediately upon receipt thereof and give Licensee sufficient advance notice to permit it to seek a protective order or other similar order with respect to such information). To the extent that it is reasonably necessary, Harvard may disclose information it is otherwise obligated under this Section 12.15 not to disclose to (y) its employees on a need-to-know basis and on condition that such employees abide by the obligations set forth in this Section 12.15 and (z) in confidence, to lawyers, accountants and financial advisors.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
President and Fellows of Harvard College | Tetraphase Pharmaceuticals, Inc. | |||||||
By: |
/s/ Isaac Kohlberg |
By: |
/s/ Lawrence G. Miller |
|||||
Name: |
|
Name: |
Lawrence G. Miller |
|||||
Title: |
|
Title: |
President |
I, the undersigned, hereby confirm that I have read the Agreement, that its contents are acceptable to me and that I agree to be bound by the terms of Article 2.
/s/ Andrew G. Myers | ||||||||
Andrew G. Myers |
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Exhibit 1.5
Development Milestones
1. Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date.
2. Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date.
3. Licensee shall [**] for a Licensed Product within [**] months of the Effective Date.
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Exhibit 1.6
Development Plan
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Tetraphase Pharmaceuticals
CONFIDENTIAL
Tetraphase Pharmaceuticals: Initial Plan
Summary
This company is to be formed to ensure rapid development of commercial products based on the groundbreaking studies of tetracycline synthesis conducted by Prof. Andrew Myers and colleagues in the Department of Chemistry and Chemical Biology at Harvard University. The initial goal of the company is to create multiple antibiotic candidates based on these synthetic technologies, and to advance these candidates into clinical trials. Subsequently, the company will pursue further antibacterial compounds, through synthetic pathways or in-licensing. The overall goal is to become an integrated pharmaceutical company and a leader in the development of antibacterials. The company name, Tetraphase Pharmaceuticals, refers to the initial focus on tetracyclines, as well as the multiple phases of development that will encompass other types of antibacterials (see below).
Background
Tetracyclines as a class of anti-infective compounds were first employed in the 1940s (chlortetracycline); tetracycline itself was introduced in 1953, and second generation tetracyclines appeared in the 1960s and early 1970s. Indeed, over the three decades from the late 1940s onward, nearly 30% of all approved antibiotics were tetracyclines. Their use has spanned the spectrum of bacterial infections, including gram-positive and gram-negative bacteria, Chlamydia, mycoplasma and spirochetes. Of note, the anti-inflammatory properties of tetracyclines were also recognized, and it is likely that the effectiveness of this class in conditions such as acne derives at least in part from anti-inflammatory efficacy.
Although tetracyclines, especially doxycycline, remain in widespread use, resistance to tetracyclines emerged as a major problem in the 1970s and has led to reduced efficacy and utility of this class. However, as resistance has subsequently developed to other classes of antibiotics, interest in tetracyclines has been rekindled, in part due to their oral absorption and potentially wide spectrum of action. A new class of tetracyclines, the glycylcyclines, was synthesized in the 1990s, and in mid-2005, a member of this class, tigecycline (Tygacil, Wyeth), received approval in the U.S.
Despite significant interest in this class over the last 15 years, development of new tetracyclines has been hampered by difficulties in synthesis. Little structural diversity has been generated, with almost all efforts directed at a small number of core intermediates. This lack of chemical diversity has led to limitations in anti-infective diversity, with little success in overcoming drug resistance. The glycylcyclines, such as tigecycline, appear to provide an improvement in overcoming resistance, although toxicity remains an issue.
The Myers technology offers a way out of this box, with the potential to create multiple novel structures based on different intermediates, and even to expand the number of rings overall. Based on the performance of compounds in this class, it is reasonable to hypothesize that compounds can be designed with improved efficacy, i.e., decreased resistance, coupled with limited toxicity.
CONFIDENTIAL | 1 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
Market
The worldwide market for anti-infectives is in excess of $25 billion, but the market is in transition. Although the total worldwide anti-infective market was in excess of $25 billion in 2004, growth in this sector has been limited. Indeed, through much of the last 1980s and 1990s, this market was perceived as stagnant: effective antibiotics were available for most bacterial pathogens. This perception encouraged a lack of effort in this area. Indeed, several major pharmaceutical companies have reduced or eliminated their antibiotic development programs. Only a handful of new antibacterials have been approved in the last 10 years, most for complex, often hospital-based infections. In a survey conducted in 2004, only 6 of 506 drugs under development at the pharmaceutical companies and larger biotechnology companies were new antibacterial agents (Spellberg et al., 2004). Concurrently, rapidly-developing resistance is limiting the utility of current antibacterials; resistant staphylococcus species are becoming endemic (especially methicillin resistant staphylococcus aureus, or MRSA), and resistance in other gram-positive and gram-negative pathogens is increasing.
The confluence of these trends creates a significant opportunity for anti-infective development, and in particular for a company with an intense focus on antibacterials. There are clear opportunities to develop branded antibiotics which can generate annual sales of $300-500 million.
The target compound for the expanded tetracycline class would therefore have the following characteristics:
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Efficacy against staph, aureus and gram negative organisms |
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Limited gastrointestinal adverse effects |
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Oral and parenteral availability |
These features would make the compound applicable to the following common indications:
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Urinary tract infections, including catheter and non-catheter based |
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Skin and soft tissue infections |
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Intra-abdominal infections, e.g., appendicitis, diverticulitis, post-operative |
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Pneumonia, both hospital and community-acquired |
Note that Tygacil, the recently approved tetracycline, has been approved for both skin and soft tissue infections and intro-abdominal infections.
An enhanced tetracycline which could address the indications listed above would be expected to have a market opportunity of at least $500 million, and perhaps as much as $1 billion.
Current Status of Tetracyclines
When first introduced into clinical practice in the 1940s, the tetracyclines had broad activity against gram-positive and gram-negative bacteria and chlmaydia, mycoplasma, etc. The class was used widely in both humans and animals, and by 1953 initial resistance was observed. Since
CONFIDENTIAL | 2 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
that time, resistance to tetracyclines has increased markedly, limited the use of the class in many common infections. Current indications include urinary tract infections, Lyme disease, shigellosis and rickeettsial, chlamydial and mycoplasmal infections. Doxycycline is the most widely used tetracycline currently, due to limited adverse effects and twice daily dosing.
The first new tetracycline in over 30 years, tigecycline (Tygacil, Wyeth) was approved in June 2005. Tigecycline, the first glycylcycline tetracycline, is a minocycline analog characterized by a substitution at the 9 position (or position 1 of the D ring; see below), It has substantial advantages over earlier tetracyclines. It is active against methicillin-resistant staphylococcous aureus (MRSA), as well as some gram-negatives, including enterococci, enterobacteria, and possibly acinetobacter. Tigecycline evades the major bacterial tetracycline efflux pumps, and also binds to modified bacterial ribosomes, another potential cause of resistance. The drug is approved for complex skin and soft tissue infections, as well as complicated intra-abdominal infections. Major adverse events, as is common in the tetracycline class, occur in the gastrointestinal system. In Phase III studies, 29.5% of patients reported nausea, 19.7% vomiting and 12.7% of patients experienced diarrhea. Tigecycline is administered intravenously every 12 hours.
As such, tigecycline has an attractive clinical spectrum, and pre-approval studies indicate efficacy comparable to currently first-line antibiotics. However, the drug must be administered intravenously and leads to a disturbing incidence of gastrointestinal adverse events. Launch of tigecycline has rekindled interest in the tetracycline class, but there is clearly room for improvement over tigecycline characteristics.
A second glycylcycline is under development by Paratek (PTK-0796). Although limited information is available, this compound is in Phase I clinical trials and is said to possess a similar antibacterial spectrum as tigecycline, but with reduced potency against gram-negative bacteria. The compound was recently partnered with Merck.
Tetracycline optimization
The core structure of all clinically useful tetracyclines is similar, consisting of 4 rings, and conserved areas to the east and south of the molecule (see below), the areas known to participate in binding to the bacterial ribosomal target. Limited substitutions from tetracycline itself have led to analogs with some improvements in spectrum and clinical characteristics. Prior to the introduction of tigecycline, clinically available tetracyclines had substitutions on the 5, 6 and 7 positions compared to tetracycline (e.g., doxycycline, chlortetracycline, oxytetracycline, minocycline).
CONFIDENTIAL | 3 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
The recently introduced tigecycline and the investigational Paratek compound (PTK-0796) are analogs of minocycline, with substitutions at the 9 position as illustrated below:
CONFIDENTIAL | 4 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
The Myers approach allows a tremendous range of variations, most obviously at positions 6, 7, 8, 9 and 10 (on the C and D rings), but also at other positions likely to be involved in ribosomal binding. Addition of a fifth ring with concomitant substitutions also becomes possible. The shaded area in the figure below is constant in clinically-useful tetracyclines, and is accessible in the Myers synthesis. The Myers synthesis also offers broad opportunities in the unshaded area.
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These criteria [**].
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Company Objectives
As described the above, the overall objective is to create an integrated pharmaceutical company focused on antibacterials. Initial phases of development will focus on tetracyclines, subsequently broadening to include other classes and types of antibacterials.
CONFIDENTIAL | 5 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
Stage I
Initially, the company will be [**]
Thus, the near-term objectives of the company will be:
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This process is estimated to require approximately [**]
Stage II
[**]. The company will [**].
Stage III
[**], the company will [**].
Stage IV
[**], the company will [**].
Intellectual Property
The company will [**].
Company structure and pre-clinical development
As noted above, the core competencies of the company will be [**] development.
Pre-clinical [**]. After review of proposals and cost estimates, the consensus of company advisors is that [**].
[**].
Goals:
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CONFIDENTIAL | 6 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
Tasks |
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The goals are to [**].
Goals: [**].
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CONFIDENTIAL | 7 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
Tasks |
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Clinical development
[**]. The company will develop [**].
Commercial Potential
Estimation of the commercial potential of [**].
Pricing
Using [**] it is estimated that the [**].
Forecast
At this time there are [**]. The forecast is built on the following assumptions:
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Sales Forecast
($ in millions)
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Potential
As previously stated, this proposal is built on the Tetraphase product [**] the forecast above.
Company personnel and recruitment
As noted above, approximately [**] personnel will be required for [**], organized as follows:
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[**]
CONFIDENTIAL | 8 | March 2006 |
Tetraphase Pharmaceuticals
CONFIDENTIAL
With regard to recruitment, [**].
Facility
[**].
Advisors
Advisors with [**].
Prof. Andrew Myers, Chairman: Prof. Myers expertise in synthetic chemistry forms the basis for the company, and his ongoing involvement is crucial in the creation and execution of the appropriate synthetic pathways and compounds. Prof. Myers will work closely with the company on a regular basis, attending research meetings and providing guidance.
Dr. Eric Gordon, Drug Development Advisor: Dr. Gordon is Chairman of the Mediphase Scientific Advisory Board and is widely known for his expertise and success in the development of anti-infectives. While holding senior positions in chemistry at Bristol Myers Squibb, Dr. Gordon supervised the development of approved drugs. He subsequently was a founder of two anti-infective-focused biotechnology companies, Versicor and Vicuron.
Dr. Joaquim Trias, Bacteriology Advisor: Dr. Trias served as Vice President, Microbiology Drug Research at Vicuron for 8 years. Previously, he was a senior scientist at Microcide Pharmaceuticals, and prior to that was in the Dept. of Microbiology at the University of Barcelona.
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Financing
[**] initial financing for the company, which will likely include [**]. The initial financing will [**].
Budget
See attached.
CONFIDENTIAL | 9 | March 2006 |
Budget Yrs. 1-2 |
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Exhibit 6.2.1
Form of Investment Representation Letter
Exhibit 6.2.1
Investment Representation Letter
Tetraphase Pharmaceuticals, Inc.
c/o Mediphase Venture Partners
3 Newton Executive Park
Newton, MA 02462
Re: Issuance of Shares of Common Stock of Tetraphase Pharmaceuticals, Inc.
Dear Sirs:
In order to induce Tetraphase Pharmaceuticals, Inc. (the Company ) to issue to President and Fellows of Harvard College ( Harvard ) [ ] shares (the Shares ) of common stock, par value $0.001 per share, of the Company (the Common Stock ), pursuant to Section 6.2.1 of that certain License Agreement, dated July [ ], 2006, between the Company and Harvard (the License Agreement ), Harvard hereby represents, warrants and covenants to the Company as follows:
1. Harvard is acquiring the Shares for its own account for investment only, and not with a view to, or for sale in connection with any distribution of the Shares in violation of the Securities Act of 1933, as amended, (the Securities Act ), or any rule or regulation under the Securities Act.
2. Harvard has had such opportunity as it has deemed adequate to obtain from representatives of the Company such information as is necessary to permit Harvard to evaluate the merits and risks of its acquisition of the Shares.
3. Harvard has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the acquisition of the Shares and to make an informed investment decision with respect to such acquisition.
4. Harvard can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding such Shares for an indefinite period.
5. Harvard understands that (i) the Shares have not been registered under the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act; (ii) the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, the exemption from registration under Rule 144 or otherwise may not be available for at least one year and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register the Shares under the Securities Act.
6. A legend substantially in the following form will be placed on the certificates represented the Shares:
The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under such Act or an opinion of counsel satisfactory to the corporation to the effect that such registration is not required.
7. The foregoing representations and warrants are true as of the date of this Investment Representation Letter and shall be true as of the date the Company issues the Shares to Harvard. If such representations and warranties shall not be true in any respect prior to such date, Harvard will give prompt written notice of such fact to the Company.
8. Harvard agrees, in connection with the initial underwritten public offering of the Company securities pursuant to a registration statement under the Securities Act, (i) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock held by Harvard (other than those shares included in the offering) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Companys securities for a period of 180 days from the effective date of such registration statement, and (ii) to execute any agreement reflecting clause (i) as may be requested by the Company or the managing underwriters at the time of such offering.
[Remainder of page intentionally left blank.]
This Investment Representation Letter shall be binding upon and inure to the benefit of the Company and Harvard and its assigns.
This Investment Representation Letter shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Massachusetts without giving effect to the principles of conflicts of laws thereof.
This Investment Representation Letter may be exercised in counterparts and by facsimile signature.
President and Fellows of Harvard College | ||
By: | ||
Name: | ||
Title: | ||
Date: |
Investment Representation Letter Signature Page
A6820amend1
Amendment to License Agreement
This Amendment to License Agreement (this Amendment) is entered into as of this 31 st day of January, 2007 (the Effective Date), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business 480 Arsenal St., Suite 110, Watertown, MA 02472 (Licensee) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, Massachusetts 01238 (Harvard).
WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (the License Agreement), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvards interest in Joint Patent Rights (as such terms are defined in the License Agreement);
WHEREAS, Dr. Andrew G. Myers, a Harvard researcher, is (or by definition will be) an inventor of the inventions claimed in the Harvard Patent Rights and Joint Patent Rights;
WHEREAS, Dr. Myers is an inventor of technology claimed in a new patent application [**] owned by Harvard that is neither a Harvard Patent Right nor a Joint Patent Right, but which claims subject matter related thereto; and
WHEREAS, Licensee wishes to obtain a license under such new patent application and Harvard wishes to grant Licensee a license thereunder;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. | Capitalized terms used in this Amendment that are not defined herein shall have the meanings set forth in the License Agreement. |
2. | Section 1.10 of the License Agreement is replaced in its entirety with the following: |
Harvard Patent Rights shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] (including the PCT applications and/or the US regular utility applications filed at or prior to the one year conversion date claiming priority to such provisional applications); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions.
3. | Section 6.1 of the License Agreement is replaced in its entirety with the following: |
License Issuance Fee. As partial consideration for the license granted hereunder, Licensee shall pay Harvard the following non-refund able license fees:
(a) [**] U.S. Dollars ($[**]), payable within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below); and
(b) [**] U.S. Dollars ($[**]) with respect to [**] by January 31, 2007.
4. | Section 3.3 of the License Agreement |
Expenses. Subject to Section 3.4 below, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard pursuant to this Article 3 within [**] days after Harvard invoices Licensee. In addition, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard prior to the execution of this Agreement with respect to the preparation, filing, prosecution, protection and maintenance of Harvard Patent Rights (estimated to be approximately [**] U.S. Cents ($[**])) within [**] days after the date on which the financing described in Section 11.2.2 below closes. In the event that this Agreement is amended in accordance with Section 4.3 to add a new patent or patent application to the definition of Harvard Patent Rights, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard prior such amendment with respect to the preparation, filing, prosecution, protection and maintenance of such new patent or patent application within [**] days after Harvard invoices Licensee.
5. | All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect. |
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representatives as of the date first written above.
President and Fellows of Harvard College | Tetraphase Pharmaceuticals, Inc. | |||||||
By: | /s/ Isaac T. Kohlberg | By: | /s/ David C. Lubner | |||||
Name: | Isaac T. Kohlberg | Name: | David C. Lubner | |||||
Title: | Sr. Associate Provost | Title: | SVP, COO | |||||
Chief Technology Dev. Officer |
Amendment to License Agreement
This second Amendment to License Agreement (this Second Amendment) is entered into as of this 6th day of April, 2010 (the Effective Date), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business at 480 Arsenal St., Suite 110, Watertown, MA 02472 (Licensee) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, Massachusetts 01238 (Harvard).
WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (as previously amended, the License Agreement), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvards interest in Joint Patent Rights (as such terms are defined in the License Agreement);
WHEREAS, on January 31, 2007, the parties amended the License Agreement to include a new patent application [**] under Harvard Patent Rights;
WHEREAS, Dr. Myers is an inventor of technology claimed in an additional new patent application [**] owned by Harvard that is neither a Harvard Patent Right nor a Joint Patent Right, but which claims subject matter related thereto; and
WHEREAS, Licensee wishes to obtain a license under such new patent application and Harvard wishes to grant Licensee a license thereunder;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. | Capitalized terms used in this Second Amendment that are not defined herein shall have the meanings set forth in the License Agreement. |
2. | Section 1.10 of the License Agreement is replaced in its entirety with the following: |
Harvard Patent Rights shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] being referred to as the Additional Patent Application) (including the PCT applications and/or the US regular utility applications filed at or prior to the one year conversion date claiming priority to such provisional applications); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions. The Additional Patent Application and all patents and patent applications listed in clauses (b) through (e) that correspond to the Additional Patent
Application shall be referred to herein as the Additional Patent Rights. For clarity, Additional Patent Rights are a subset of Harvard Patent Rights.
3. | Section 5.4 of the License Agreement is amended by adding to the end of such Section the following: |
Notwithstanding the foregoing, in the event that the Development Milestone that is not achieved and not cured under this Section 5.4 and with respect to which Licensee is in material breach is an Additional Patent Right Development Milestone (as set forth on Exhibit 1.5), then Harvards right to terminate this Agreement under Section 5.4 shall be limited to the Additional Patent Rights such that the license and other rights granted under this Agreement to the Additional Patent Rights shall terminate, with this Agreement otherwise remaining in full force and effect in all respects.
4. | Section 6.1 of the License Agreement is replaced in its entirety with the following: |
License Issuance Fee. As partial consideration for the license granted hereunder, Licensee shall pay Harvard the following non-refundable license fees:
(a) [**] U.S. Dollars ($[**]), payable within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below);
(b) [**] U.S. Dollars ($[**]) with respect to [**] by January 31, 2007.
(c) [**] U.S. Dollars ($[**]) with respect to the Additional Patent Rights by April 23, 2010.
5. | Section 6.3.1.4 of the License Agreement is replaced in its entirety with the following: |
[**] U.S Dollars ($[**]) upon [**] with respect to such Licensed Product; provided however, that if such Licensed Product is covered by the Additional Patent Rights then the amount due for this milestone payment shall be [**] U.S Dollars ($[**]).
6. | Exhibit 1.5 of the License Agreement is replaced in its entirety with the Exhibit 1.5 attached to this Second Amendment, so as to include additional Development Milestones with respect to the Additional Patent Rights. |
7. | Harvard acknowledges that Licensee has paid the license fees required by Section 6.1(a) and (b). |
8. | All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect. |
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed by their duly authorized representatives as of the date first written above.
President and Fellows of Harvard College | Tetraphase Pharmaceuticals, Inc. | |
By: /s/ Isaac T. Kohlberg | By: /s/ Guy Macdonald | |
Name: Isaac T. Kohlberg, Senior Associate Provost | Name: Guy Macdonald | |
Title: Chief Technology Development Officer Office of Technology Development Harvard University |
Title: President & CEO |
Exhibit 1.5
Development Milestones
1. | Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date. |
2. | Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date. |
3. | Licensee shall [**] for a Licensed Product within [**] months of the Effective Date. |
The following Development Milestones (the Additional Patent Rights Development Milestones) will apply with respect to Licensed Products covered by the Additional Patent Rights:
1. | [**] with respect to such a Licensed Product by [**]. |
2. | [**] with respect to such a Licensed Product by [**]. |
3. | [**] with respect to such a Licensed Product by [**]. |
4. | [**] with respect to such a Licensed Product by [**]. |
Third Amendment to License Agreement
This Third Amendment to License Agreement (this Third Amendment) is entered into as of this 18 day of February, 2011 (the Effective Date), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business at 480 Arsenal St., Suite 110, Watertown, MA 02472 (Licensee) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, Massachusetts 01238 (Harvard).
WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (as previously amended, the License Agreement), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvards interest in Joint Patent Rights (as such terms are defined in the License Agreement);
WHEREAS, on January 31, 2007, the parties amended the License Agreement (the First Amendment) to include a new patent application [**] under Harvard Patent Rights;
WHEREAS, on April 6, 2010, the parties amended the License Agreement (the Second Amendment) to include the Additional Patent Application (as defined in the Second Amendment) under Harvard Patent Rights; and
WHEREAS, the parties agreed in a letter dated June, 2, 2010 to include [**] for all purposes of the License Agreement as Additional Patent Rights (as defined in the Second Amendment); and
WHEREAS Dr. Myers is an inventor of technology claimed in a new patent application [**] owned by Harvard which claims subject matter related to the License Agreement;
WHEREAS, Licensee wishes to obtain a license under such new patent application and Harvard wishes to grant Licensee a license thereunder;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. | Capitalized terms used in this Third Amendment that are not defined herein shall have the meanings set forth in the License Agreement. |
2. | Section 1.10 of the License Agreement is replaced in its entirety with the following: |
Harvard Patent Rights shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] being referred to as the Additional Patent Applications) (including the PCT applications and/or the US regular utility applications filed at or prior to the one year conversion date claiming priority to such provisional applications); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is
entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions. The Additional Patent Applications and all patents and patent applications listed in clauses (b) through (e) that correspond to the Additional Patent Applications shall be referred to herein as the Additional Patent Rights. For clarity, Additional Patent Rights are a subset of Harvard Patent Rights.
2. | All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect. |
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be executed by their duly authorized representatives as of the date first written above.
President and Fellows of Harvard College | Tetraphase Pharmaceuticals, Inc. | |
By: /s/ Isaac T. Kohlberg | By: /s/ Guy Macdonald | |
Name: Isaac T. Kohlberg, Senior Associate Provost | Name: Guy Macdonald | |
Title: Chief Technology Development Officer Office of Technology Development Harvard University |
Title: President & CEO |
Exhibit 10.21
Subcontract No. |
7834S1 | Prime Contract No. | HHSO100201200002C | |||
Start Date |
2/1/2012 | End Date | 1/31/2017 | |||
Contract Value |
$39,779,362 | Funded Amount | See Part VIII table | |||
Subcontract Type |
Cost Plus Fixed Fee (CPFF) Subcontract | |||||
Title |
Development of TP-434 for Treatment of Select Bacterial Infections |
* | End date is dependent upon authorized funding and exercise of options for the prime contract by the Government |
THIS SUBCONTRACT is by and between:
CUBRC, Inc. |
Administrative Point of Contact: | |
PO Box 400 |
Susan R. Schock | |
4455 Genesee Street |
Phone: 716.204.5137 | |
Buffalo, NY 14225 |
Fax: 716.204.5450 | |
Mobile: 716.510.2139 | ||
(hereinafter called the CUBRC) |
E-mail: Susan.schock@cubrc.org | |
and | ||
Tetraphase Pharmaceuticals, Inc. |
Administrative Point of Contact: | |
480 Arsenal Street |
David C. Lubner | |
Watertown, MA 02472 |
Phone: 617.715.3551 | |
Fax: 617.735.4802 | ||
Mobile: 508.735.4802 | ||
(hereinafter called the Tetraphase) |
Email: dlubner@tphase.com |
WITNESSETH
WHEREAS, both parties acknowledge that this work is funded under Prime Contract No. HHSO100201200002C by the Biomedical Advanced Research and Development Authority (BARDA), Department of Health and Human Services (HHS) and CUBRC, Inc. shall be the Prime Contractor while Tetraphase Pharmaceuticals, Inc. shall be a subcontractor to CUBRC. CUBRC desires to have Tetraphase perform certain services and Tetraphase desires to undertake the performance of said services as a subcontractor to CUBRC. NOW, THEREFORE, the parties hereby covenant and agree pursuant to the Schedule, General Provisions, and Exhibits hereinafter incorporated as follows:
SCHEDULE
PART I | COSTING AND STATEMENT OF WORK |
Tetraphase, as an independent contractor, and not as an agent of the Government nor of CUBRC, shall furnish all necessary labor, facilities and equipment and shall undertake reasonable efforts in carrying out the specific objectives set out in the Statement of Work. Tetraphase agrees to complete the Statement of Work, herein incorporated as Exhibit A-1 in accordance with the cost proposal dated 12/6/11 which is incorporated by reference to this subcontract.
PART II | DELIVERABLES |
Tetraphase shall undertake reasonable efforts to provide to CUBRC the deliverables as described in the Statement of Work, as well as the administrative and/or closeout deliverables itemized below. Tetraphase hereby grants to CUBRC, concurrent with the duration of Tetraphases performance of this Subcontract, a non-exclusive, revocable, right to use TP-434 and related data provided by Tetraphase hereunder, solely for purposes of performing obligations of CUBRC, or CUBRC subcontractors and/or consultants approved in advance by Tetraphase, under Prime Contract HHSO100201200002 and for no other purposes whatsoever, except as may be authorized in writing by Tetraphase. CUBRC shall include Tetraphase on the distribution of ALL transmissions of ALL Deliverables (without exception) to BARDA in connection with this Subcontract AND the Prime Contract.
Contract Deliverables
Unless otherwise stated, each deliverable in the table below shall be provided as one (1) electronic copy to contracts@cubrc.org, the Contract BARDA Liaison, and the Contract Assistant Program Manager. It is understood that all deliverables provided are subject to distribution to BARDA. CUBRC shall, without exception, simultaneously copy Tetraphase on ALL transmissions of ALL Deliverables to BARDA in connection with this Subcontract and Prime Contract. Scheduling of items designated with an asterisk (*) below are subject to BARDAs and CUBRCs participation and cooperation.
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
01 |
Kickoff Meeting* | Tetraphase shall plan for and participate in a Kickoff meeting after contract award |
Within [**] of contract award.
Cooperatively (w CUBRC) develop itinerary and agenda at least [**] business days in advance.
Cooperatively (w CUBRC) develop meeting minutes within [**] business days after the meeting. |
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02 | Quarterly Meetings* | Tetraphase shall participate in recurring face-to-face Program Review Meetings approximately every third month either in Washington D.C. or at |
Cooperatively (w CUBRC) develop agenda at least [**] business days in advance of site visit
|
2
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
work sites of Tetraphase or subcontractors. The meetings will be used to discuss contract progress in relation to the Program Management deliverables described below as well as study designs, technical, regulatory, and ethical aspects of the program. |
Cooperatively (w CUBRC) develop meeting minutes within [**] business days after the meeting. |
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03 |
[**] Teleconference* | Tetraphase shall participate in teleconferences every [**] with CUBRC and BARDA to discuss the performance of the contract. |
Cooperatively (w CUBRC) develop agenda no later than [**] business days in advance of meeting
Cooperatively (w CUBRC) develop meeting minutes within [**] business days of the meeting. |
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04 |
Monthly & Annual Technical Progress Reports/Annual Meeting* |
The Monthly and Annual Technical Progress report shall address each of the below items and be cross-referenced to the Work Breakdown Structure (WBS), Statement of Work (SOW), Integrated Master Schedule (IMS), and Performance Measurement Baseline Review report (PMBR), Earned Value Management (EVM), and Contract Performance Report (CPR).
1. An Executive Summary highlighting the progress, issues and relevant to manufacturing, clinical and regulatory activities. The Executive Summary should highlight only critical issues for that reporting period and resolution approach; limited to 2 pages.
2. Progress in meeting contract milestones related to manufacturing, regulatory and clinical activities broken out by subtasks within each milestone, overall project assessment, problems encountered and recommended solutions. The reports shall detail the planned and actual progress during the period covered, explaining occurrences of any differences between the two and the corrective steps.
3. The reports shall also include a [**]-month rolling forecast of the key planned manufacturing, regulatory and clinical activities, referencing the WBS/IMS.
|
Monthly Reports:
CUBRC will provide Tetraphase a template which includes a draft of all content related to pre-clinical progress for review on the [**]calendar day of every month.
CUBRC will provide Tetraphase a template for all CMC and Clinical Technical Progress Reports
Tetraphase shall submit its inputs and any edits to the Monthly Reports [**] business days after receipt from CUBRC.
Annual Reports:
CUBRC will provide Tetraphase a template which includes a draft of all content related to pre-clinical progress on the [**]calendar day of the final month of each contract year for the previous twelve calendar months.
Tetraphase shall submit its inputs to the Annual Reports [**] business days before the 30th calendar day of the final month of each contract year for the previous twelve calendar months. Monthly progress reports are not required for the periods when the Annual Report(s) and Final Report are due.
|
3
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
4. A tracking log of progress on regulatory submissions with the FDA number, description of submission, date of submission, status of submission and next steps.
5. Provide updated EVM CPR
6. Estimated and Actual Expenses.
a. This report shall also contain a narrative or table detailing whether there is a significant discrepancy (>[**]) at this time between the % of work completed and the cumulative costs incurred to date. Monthly and actual expenses should be broken down to the appropriate WBS level. This section of the report should also contain estimates for the Subcontractors expenses from the previous month if the Subcontractor did not submit a bill in the previous month. If the subcontractor(s) was not working or did not incur any costs in the previous month, then a statement to this effect should be included in this report for those respective subcontractors. |
Cooperatively (w CUBRC) develop a draft report including .ppt slides [**] business days prior to the annual meeting.
Cooperatively (w CUBRC) develop meeting minutes within [**] business days of meeting
Cooperatively (w CUBRC) develop FINAL annual report within [**] business days after the conclusion of the annual meeting.
BARDA, CUBRC and Tetraphase shall participate in an in-process review. |
|||||
05 |
Integrated Master Plan (IMP) |
Cooperatively (w CUBRC) develop an IMP including WBS, and critical path milestones.
Tetraphase will provide CUBRC with its Earned Value Management Plan. |
Cooperatively (w CUBRC) develop the IMP within [**] days of contract award and cooperatively update periodically as required.
Cooperatively (w CUBRC) develop responses to all concerns raised by BARDA |
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06 |
Earned Value Management (EVM) / Contract Performance Report (CPR) |
Tetraphase will provide a monthly CPR at an agreed upon reporting level using WBS and Variance Analysis report formats agreed upon by BARDA.
The supplemental monthly CAP report shall contain, at the work package level, time phased budget (budgeted cost of work scheduled), earned value (budgeted cost of work performed), and actual costs of work performed as captured in Tetraphases EVM systems. Tetraphase shall provide a rationale in the package of its use of % complete as EVMS methodology or identity if any other EVMS methodology is being used. |
Tetraphase shall provide EVM/CPR as part of the Monthly Progress Report
Tetraphase shall provide top level or key changes in baseline cost as a result of anticipated cost savings or risks
BARDA may request, on a monthly or ad hoc basis that the CUBRC and Tetraphase provide raw data at a reporting level or lower level as BARDA deems necessary.
Cooperatively (w CUBRC), Tetraphase must address, in writing, all concerns raised by BARDA. |
4
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
07 |
Performance Measurement Baseline Review (PMBR) |
PMBR Report shall address each of the items listed below and be cross-referenced to the IMP, WBS, SOW, and Risk Management Plan.
1. Provide baseline proposal
2. Responsibility Assignment Matrix
3. A description of the work scope through control account Work Authorization Documents and/or WBS Dictionary down to the control account level
4. Template for work packages
5. IMS with the inclusion of agreed major milestones and control account plans for all control accounts
6. Baseline revision documentation and program log(s) risk management plan |
Due within [**] days of contract award
Cooperatively (w CUBRC), provide baseline proposal .ppt briefing [**] business days prior to meeting
Cooperatively (w CUBRC) provide agenda to COR [**] business days in advance of meeting
COR approves (with CO concurrence) and distributes agenda no later than [**] business days in advance of meeting
COR approves (with CO concurrence) all meeting material no later than [**] business days in advance of meeting
Cooperatively (w CUBRC) provide minutes within [**] business days of the meeting
COR reviews and approves (with CO concurrence) minutes
BARDA will review documentation and provide written comments and questions to Contractor
Cooperatively (w CUBRC) address BARDAs comments and resubmit PMBR report for BARDA approval within [**] business days. |
|||
08 |
Risk Management Plan | Tetraphase shall provide a Risk Management Plan that outlines the impacts of each risk in relation to the cost, schedule, and performance objectives for preclinical, manufacturing, regulatory and clinical activities. The plan shall include risk mitigation strategies. Each risk mitigation strategy will capture how the corrective action will reduce impacts on cost, schedule and performance. |
Due within [**] days of contract award
Provide updated Risk Management Plan in Monthly Progress Report
Tetraphase must address, in writing, all concerns raised by BARDA within [**] business days of receipt of BARDAs concerns. |
5
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
09 |
Deviation Notification and Mitigation Strategy | Process for changing IMS activities associated with cost and schedule as baselined at the PMBR. Tetraphase shall notify CUBRC of significant changes to the IMS defined as increases in cost above [**]% or schedule slippage of more than [**] days, which would require a PoP extension. Tetraphase shall provide a high level management strategy for risk mitigation. |
Due as needed |
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10 |
Go/No-Go In-Process Review (IPR) Presentation | Tetraphase shall provide a presentation detailing technical progress made towards completion of Go/No-Go decision gate milestones related to manufacturing, regulatory or clinical activities following a prescribed template provided by BARDA prior to the In-Process Review. |
Cooperatively (w CUBRC) develop presentation in .ppt format [**] business days prior to the In-Process Review
Cooperatively (w CUBRC) develop written justification of progress towards satisfying Go/No-Go criteria
|
|||
11 |
Incident Report | Tetraphase shall communicate and document all critical programmatic concerns, risks, or potential risks with CUBRC. |
Due within [**] hours of activity or incident or within [**] hours for a security activity or incident
Email or telephone with written follow-up
Additional updates due to CUBRC within [**] hours of additional developments
Cooperatively (w CUBRC) develop within [**] business days after delivery of an Incident Report, a Corrective Action Plan (if deemed necessary by either party) to address any potential issues.
If corrective action is deemed necessary, cooperatively (w CUBRC) develop written summary of its consideration of concerns raised by BARDA within [**] business days of delivery of Incident Report. |
6
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
12 |
Draft and Final Technical Progress Report |
A draft Final Technical Progress Report containing a summation of the work performed and the results obtained for the entire contract PoP. The draft report shall be duly marked as Draft.
The Final Technical Progress Report incorporating feedback received from BARDA and containing a summation of the work performed and the results obtained for the entire contract PoP. The final report shall document the results of the entire contract. This report shall be in sufficient detail to fully describe the progress achieved under all milestones. The final report shall be duly marked as Final. |
Cooperatively (w CUBRC) develop a draft Technical Progress Report [**] calendar days before the end of the PoP and the Final Technical Progress Report at least [**] business days before completion date of the PoP.
Subcontractor prepared reports shall be submitted to CUBRC for subsequent review and comment by BARDA no later than [**] business days after receipt by Tetraphase
Cooperatively (w CUBRC) develop, with the Final Technical Progress Report, a summary (not to exceed 200 words) of salient results achieved during the performance of the contract. |
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13 |
Draft and Final Reports for Clinical and Non-Clinical Studies |
Tetraphase shall provide Draft and Final Clinical Study Reports to CUBRC.
CUBRC shall ensure Tetraphase receives Draft and Final Reports for ALL Non-clinical studies and shall provide a copy of the Final Report BEFORE transmission to BARDA. |
Draft report due at least [**] business days prior to submission to FDA.
Subcontractor-prepared Final reports received by Tetraphase shall be submitted to CUBRC no later than [**] business days after receipt.
The Government shall provide written comments to the Draft Final Report for Clinical and Non-Clinical Studies within [**] business days after the submission.
Final report due [**] calendar days after receiving comments on the Draft Final Report for Clinical and Non-Clinical Studies. If corrective action is recommended, Tetraphase may choose to address, in writing, concerns raised by BARDA.
Tetraphase shall provide CUBRC a response to BARDAs recommendations prior to FDA submission.
Final FDA submissions shall be provided to CUBRC concurrently with submission to the FDA. |
|||
14 |
Standard Operating Procedures | Tetraphase shall make internal and subcontractor Standard Operating Procedures (SOPs) available for review electronically. | Upon request from CUBRC as required by BARDA. |
7
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
15 |
Manufacturing Campaign Reports |
Tetraphase shall provide Manufacturing Campaign Reports to CUBRC in connection with this Subcontract agreement prior to submission to FDA.
BARDA reserves the right to request within the PoP a non-proprietary Manufacturing Campaign Report for distribution within the USG. |
Tetraphase will submit C of A, C of C, and stability data at least [**] business days prior to FDA submission.
If corrective action is recommended, Tetraphase may address, in writing, concerns raised by BARDA.
Tetraphase provide CUBRC a response to BARDAs concerns and/or recommendations prior to FDA submission.
Final FDA submission shall be provided to CUBRC concurrently with submission to the FDA. |
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16 |
FDA Correspondence | Tetraphase shall memorialize any correspondence between Tetraphase and FDA relating to studies covered by this Subcontract Agreement and provide a copy to CUBRC. All documents shall be duly marked as either Draft or Final. |
Tetraphase shall provide written summary of any FDA correspondence within [**] business days of correspondence. |
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17 |
FDA Meetings | Tetraphase shall forward the dates and times of any meeting scheduled with the FDA relating to studies covered by this Subcontract agreement to CUBRC and make a request to FDA for appropriate CUBRC and BARDA staff to attend the FDA meetings. Subject to FDA permission/approval, CUBRC staff shall include up to a maximum of two people; BARDA staff shall include up to a maximum of four people (COR, CO and up to 2 subject matter experts). |
Tetraphase shall notify CUBRC and BARDA concurrently of upcoming FDA meeting within [**] hours of scheduling Type A, B or C meetings OR within [**] hours of meeting occurrence for ad hoc meetings.
Tetraphase shall forward initial Tetraphase and FDA-issued draft minutes and final minutes of any meeting with the FDA to CUBRC within [**] business days of receipt. All documents shall be duly marked as either Draft or Final. |
8
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
18 | FDA Submissions | Tetraphase shall provide CUBRC all draft documents before submission to the FDA to allow BARDA the opportunity to review and comment upon. Tetraphase shall provide an electronic copy of the final FDA submission to CUBRC. All documents shall be duly marked as either Draft or Final. |
Tetraphase shall submit draft FDA submissions to CUBRC at least [**] business days prior to FDA submission
BARDA will provide feedback within [**] business days of receipt by them and CUBRC shall immediately (without delay), forward BARDAs feedback to Tetraphase.
If corrective action is recommended, Tetraphase may address, in writing, its consideration of all concerns raised by BARDA
Tetraphase provide CUBRC a response to BARDAs concerns and/or recommendations prior to FDA submission
Final FDA submissions shall be provided to CUBRC concurrently with submission to CDER. |
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19 | FDA Audits | In the event of an FDA inspection which occurs as a result of this contract and for the product, or for any other FDA inspection that has the reasonable potential to impact the performance of this contract, Tetraphase shall provide CUBRC with an exact copy (non-redacted) of the FDA Form 483 and the Establishment Inspection Report (EIR). Tetraphase shall provide CUBRC with copies of the plan for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines as identified in the audit report, status updates during the plans execution and a copy of all final responses to the FDA. Tetraphase shall also provide redacted copies of any FDA audits received from subcontractors that occur as a result of this contract or for this product. Tetraphase shall make arrangements for BARDA representative(s) to be present during the final debrief by the regulatory inspector. |
Tetraphase shall notify CUBRC and BARDA within [**] business days of a scheduled FDA audit or within [**] hours of an ad hoc site visit/audit if the FDA does not provide advance notice.
Tetraphase shall provide copies of any FDA audit report received from subcontractors that occur as a result of this contract or for this product within [**] business days of receiving correspondence from the FDA or third party.
Within [**] business days of audit report, Tetraphase shall provide CUBRC with a plan for addressing areas of nonconformance, if any are identified. |
9
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
20 |
QA Audit Reports | BARDA reserves the right to participate in QA audits in connection with this Subcontract Agreement. Upon completion of the audit/site visit, Tetraphase shall provide CUBRC with a report capturing the findings, results and next steps in proceeding with the subcontractor. If action is requested of the subcontractor, detailed concerns for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines, as identified in the audit report, must be provided to CUBRC. Tetraphase shall provide responses from the subcontractors to address these concerns and plans for corrective action execution. |
Tetraphase shall notify CUBRC and BARDA of upcoming, ongoing, or recent audits/site visits of subcontractors as part of weekly communications
Tetraphase shall notify CUBRC and BARDA within [**] business days of report completion. |
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21 |
BARDA Audit | Tetraphase shall accommodate periodic or ad hoc site visits by BARDA. If BARDA, Tetraphase, or other parties identifies any issues during an audit, Tetraphase shall respond to the audit issues outlined in the audit report, identify potential solutions, and provide a copy of the report to CUBRC. |
If issues are identified during the audit, Tetraphase shall submit a report to CUBRC detailing the finding and corrective action(s) within [**] business days of the audit.
Once corrective action is completed, Tetraphase will provide a final report to CUBRC.
|
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22 |
Technical Documents |
Upon request, Tetraphase shall provide CUBRC with deliverables from the following contract funded activities: process Development Reports, Assay Qualification Plan/Report, Assay Validation Plan/Report, Assay Technology Transfer Report, Batch Records, SOPs, Master Production Records, Certificate of Analysis, Clinical Studies Data or Reports.
BARDA reserves the right to request within the PoP a non-proprietary technical document for distribution within the USG. |
Tetraphase shall provide technical document within [**] business days of request. Tetraphase can request additional time on an as needed basis.
If corrective action is recommended, Tetraphase may address, in writing, concerns raised by BARDA |
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23 |
Animal Model or Other Technology Transfer Package | CUBRC to provide template of required data to Tetraphase. Tetraphase will provide Animal Model or Other Technology Transfer Package relevant data, as necessary, but subject to the limitations/restrictions of use and distribution as noted in the Data Rights Assertion (Exhibits A and B of Attachment 11, of the Prime Contract) |
Tetraphase shall provide package within [**] business days of request. |
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24 |
Raw Data or Data Analysis | Tetraphase shall provide raw data or data analysis in connection with studies covered by this Subcontract Agreement to CUBRC when requested by BARDA. |
Tetraphase shall provide data or data analysis within [**] business days of request. |
10
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
25 | IRB, IEC, and human subject protocols at US sites. |
Tetraphase will notify CUBRC if any of the following change
All amendments or changes to the protocol, identified by protocol version number, date, or both and dates it is valid.
All changes in informed consent documents, identified by version number, dates, or both and dates it is valid.
Termination or temporary suspension of patient accrual.
Termination or temporary suspension of the protocol.
Any change in IRB approval.
In addition, Tetraphase will ensure the following are in place and submit to CUBRC.
IRB- or IEC-approved clinical research protocol identified by version number, date, or both, including details of study design, proposed interventions, patient eligibility, and exclusion criteria.
Documentation of IRB or IEC approval, including OHRP federal wide number, IRB or IEC registration number, and IRB and IEC name.
IRB- or IEC- approved informed consent document, identified by version number, date, or both and dates it is valid.
Plans for the management side effects.
Procedures for assessing and reporting adverse events.
Plans for data and safety monitoring (see B above) and monitoring of the clinical study site, pharmacy, and laboratory.
Documentation that the Contractor and all study staff responsible for the design or conduct of the research have received training in the protection of human subjects.
Tetraphase must designate an official(s) to solicit and review financial disclosure statements from each investigator participating in research funded under this subcontract. Based on established guidelines consistent with the regulations, the designated official(s) must determine whether a conflict of interest exists, and if so, determine what actions should be taken to manage, reduce, or eliminate such conflict. |
Tetraphase will do so within [**] business days by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IRB and a copy of any responses from the IRB or IEC |
11
CDRL# |
Deliverable |
Deliverable Description |
Reporting Procedures and Due Dates |
|||
26 |
Clinical Study(ies) | Tetraphase must submit drafts of written summaries of all reviews conducted by the monitoring group to CUBRC consistent with the clinical terms of the award. Final summaries will be provided when available. CUBRC will provide to BARDA. |
Tetraphase will provide within [**] days of reviews or meetings. |
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27 |
Clinical Study(ies) | Tetraphase will coordinate regular teleconferences and meetings with their subcontractors supporting clinical work and will include CUBRC in all such dialogues as necessary and appropriate. |
Tetraphase will provide invitations to the Contract BARDA Liaison, and the Contract Assistant Program Manager at the same time as other participants.
Tetraphase will provide meeting minutes of record to CUBRC within [**] business days of any teleconference or physical meeting. |
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28 |
Invention/Patent Reports | Invention/Patent Reports | As required by FAR 52.227-11 and upon completion | |||
29 |
Government Property Reports | Government Property Reports as per Part XI below to Pasternak@cubrc.org | Government Property Reports as per Part XI below | |||
30 |
Invoice | Monthly Invoice per Part IX below to invoice@cubrc.org | Monthly Invoice will be due the [**]calendar day of the month. If that corresponds with a holiday or weekend, the invoice will be due on the latest business day that precedes the [**]. | |||
31 |
Closeout Documentation | Upon completion per Article XXII and submitted to contracts@cubrc.org | Upon completion per Article XXII and submitted to contracts@cubrc.org |
Patent reports include invention disclosure reports, confirmatory license and Government support certification as applicable, as well as annual utilization reports and a final invention/patent report on the expiration date of this subcontract. If no invention is disclosed or no activity has occurred on a previously disclosed invention, a negative report shall still be submitted.
CUBRC shall provide Tetraphase with the opportunity to review and comment on the draft deliverables for each item identified in the above table prepared by CUBRC for submission to the Customer. CUBRC shall provide Tetraphase with maximum time but in no event anything less than [**] business days to review and provide comments, subject to submission deadlines. CUBRC shall reflect comments provided by Tetraphase in such documents particularly with respect to all technical matters relating to TP-434, before submission to the Customer.
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All reports and documentation required by FAR Clause 52.227-11, Patent Rights-Ownership by the Contractor including, but not limited to, the invention disclosure report, the confirmatory license, and the Government support certification, shall be directed to the Extramural Inventions and Technology Resources, OPERA, OER, 6705 Rockledge Drive, Room 2207, MSC 7987, Bethesda, Maryland 20892-7987 (Telephone: 301-435-1986). In addition, one copy of an annual utilization report and a copy of the final invention statement, shall be submitted to the Contracting Officer. The final invention statement (see FAR 27.303(b)(2)(ii)) shall be submitted to the Contracting Officer on the expiration date of this subcontract. See also FAR clause 52.227-11, Patent Rights - Ownership by the Contractor. If no invention is disclosed or no activity has occurred on a previously disclosed invention during the applicable reporting period, a negative report shall be submitted to the Contracting Officer at the address listed above. Tetraphase shall notify CUBRC of all patent related submissions made under this agreement.
PART III | PACKAGING, MARKING AND SHIPPING |
All deliverables required under this Subcontract shall be packaged, marked and shipping in accordance with Government specifications. At a minimum, all deliverables shall be marked with the Subcontract Number, the Prime Contract Number and Tetraphases name. Tetraphase shall guarantee that all required materials shall be delivered in immediate usable and acceptable conditions.
PART IV | INSPECTION AND ACCEPTANCE |
The CUBRC Program Manager or the Deputy Program Manager will perform initial inspection and acceptance of materials and services to be provided under this Subcontract. Final inspection and acceptance shall occur upon inspection and acceptance by the designated Government official.
PART V | SUBCONTRACT TYPE |
This is a Cost-Plus-Fixed-Fee (CPFF) type Subcontract under Prime Contract HHSO100201200002C.
PART VI | PERIOD OF PERFORMANCE |
The services for this effort to be performed by Tetraphase shall commence on February 1, 2012 and shall be completed January 31, 2017 . It is anticipated that the entire program will proceed for a maximum of five years from the date of award of the Prime Contract, dependent upon the exercise of the options. Currently, only CLIN 0001, the base period, has been authorized by the Government.
PART VII | SUBCONTRACT VALUE |
The total Subcontract Value shall be a Not-to-exceed amount of $ 39,779,362 for services identified in the table below. The total Not-to-exceed amount is dependent upon the exercise of all options. As applicable, unless the Government exercises options, this subcontract will consist only of the current authorized funding. The table below identifies the not-to-exceed funding by CLIN. Each CLIN will be funded as separate, independent work efforts and funds may not be intermingled or substituted among the CLINS.
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PART VIII | AUTHORIZED FUNDING |
The Total Authorized Funding shall not exceed the amounts shown in the following table for this CPFF Subcontract. This Subcontract will be incrementally funded. Any contract modifications shall specify the authorized funding and associated work effort.
WBS as Proposed |
Description |
Program Total ($) |
Current Action
($Cost) |
Current Action
($Fee) |
Authorized Funding
($) |
|||||
1.1.1.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.1.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.1.4 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.3 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.4 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.5 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.6 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.7 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.8 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.9 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.10 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.11 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.12 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.14 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.15 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.16 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.1.17 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.2.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.2.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.2.2.3 |
[**] | [**] | [**] | [**] | [**] |
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WBS as Proposed |
Description |
Program Total ($) |
Current Action
($Cost) |
Current Action
($Fee) |
Authorized Funding
($) |
|||||
1.1.2.2.4 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.3.1.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.3.1.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.3.2.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.3.2.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.3.2.3 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.4.1.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.4.1.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.4.1.3 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.5.1.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.5.2.1 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.5.2.2 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.5.2.3 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.5.2.4 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.5.2.5 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.6.1.1 |
[**] | [**] | ||||||||
1.1.6.1.2 |
[**] | [**] | ||||||||
1.1.6.1.3 |
[**] | [**] | [**] | [**] | [**] | |||||
1.1.6.2.1 |
[**] | [**] | ||||||||
1.1.6.3.1 |
[**] | [**] | ||||||||
Total |
[**] | [**] | [**] | [**] |
Notwithstanding any other provision of this Subcontract, Tetraphase shall not proceed with the performance of any work after the total sum allotted by this paragraph, Authorized Funding, has been expended, unless and until Tetraphase shall have been notified, in writing, by CUBRC that said sum has been increased. If CUBRC shall notify Tetraphase that said sum shall not be increased, the Subcontract shall be considered completed. CUBRCs liability for the funding contemplated hereby is expressly limited to the sum stated in this provision, as increased hereunder. Nothing in excess of the amount stated in this provision, as increased hereunder, shall be expended until written notification is furnished by CUBRC.
PART IX | INVOICES AND PAYMENT |
Tetraphase shall submit monthly invoices for this effort by the [**] of the following month. Invoices shall be submitted to either invoice@cubrc.org or to:
ATTN: Accounts Payable
CUBRC, Inc.
PO Box 400
Buffalo, NY 14225
All invoices must be signed by an authorized Tetraphase representative. By submission of an invoice, Tetraphase certifies that all costs invoiced are allowable in accordance with FAR 52.216-7 and FAR Part 31, Cost Principles and the requirements of this Subcontract, are accurate and represent actual costs incurred for the period.
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Tetraphase agrees to provide a detailed breakdown on invoices of the following cost categories:
a. | Direct Labor - List individuals by name, title/position, hourly/annual rate, level of effort (actual hours or % of effort), breakdown by task performed by personnel, and amount claimed. |
b. | Fringe Benefits - Cite rate and amount |
c. | Overhead - Cite rate and amount |
d. | Materials & Supplies - Include detailed breakdown of all purchased materials and supplies |
e. | Travel - Identify travelers, dates, destination, purpose of trip, and amount. Cite COA, if appropriate. List separately domestic travel, general scientific meeting travel, and foreign travel. |
f. | Consultant Fees - Identify individuals and amounts. |
g. | Subcontracts - Attach Subcontractor invoice(s). Cite applicable COA or notification. |
h. | Equipment - Cite authorization and amount. |
i. | Other Direct Costs - Include detailed breakdown when total amount is greater than $1,000. |
j. | G&A - Cite rate and amount. |
k. | Total Cost |
l. | Fixed Fee |
m. | Total CPFF |
Monthly invoices must include the cumulative total expenses to date, adjusted (as applicable) to show any amounts suspended by the Government. In order to verify allowability, further breakdown of costs may be requested at the Governments discretion.
CUBRC shall pay the fixed fee specified in the costing in PART VII to the Subcontractor for performance of this Subcontract for those options that are exercised. Payment of fixed fee is subject to the FAR 52.216-8, Fixed Fee clause in Exhibit B, which sets aside a reserve to protect the Governments interest. This reserve shall not exceed fifteen percent (15%) or $100,000, whichever is less. Seventy-five percent (75%) of the withheld fee shall be released when the terms of FAR 52.216-8 are satisfied and the Subcontractor has requested such release. Up to ninety percent (90%) may be released when the terms of FAR 52.216-8 are satisfied and the Subcontractor has requested such release.
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Completion Invoice: The completion invoice shall be submitted promptly upon completion of the work, but no later than [**] from the Subcontract completion date, or within [**] days after settlement of the final indirect cost rates covering the year in which the Subcontract is physically complete (whichever date is later). Tetraphase shall submit the completion invoice when all costs have been assigned to the Subcontract and it completes all performance provisions.
Final Invoice: A final invoice may be required after the amounts owed have been settled between the Government and the Contractor (e.g., resolution of all suspensions and audit exceptions).
CUBRC shall make payment within [**] days after receipt of an invoice containing all the information and applicable supporting material as required by this Subcontract.
PART X | GOVERNMENT PROPERTY |
Tetraphase is responsible and accountable for all Government Property, furnished or acquired, in their possession pursuant to FAR 52.245-1 and HHS Contracting Guide for Contract of Government Property. (See Exhibit F) Government Property shall include all Government Furnished Property, if any, and Contractor Acquired Property. Any loss or destruction of, or damage to, Government Property or Contractor Acquired Property in the possession of Tetraphase must be reported to CUBRC within [**] days of discovery. Tetraphase shall comply with the HHS Publication, Contractors Guide for Control of Government Property which is incorporated into this subcontract by reference and is available at http://www.hhs.gov/hhsmanuals/ (HHS Logistics Management Manual)
Tetraphase shall set up a property control system to maintain records of all property that is acquired by or furnished to Tetraphase. Tetraphase shall furnish the CUBRC Property Coordinator listed below a complete inventory of all Government Property in its possession using Exhibit D Government Property Report or other reports as deemed appropriate and necessary by the CUBRC Property Coordinator, Mr. Jeffrey Pasternak ( Pasternak@cubrc.org ) to comply with HHS requirements. Exhibit D must be submitted by [**] annually and within [**] days upon contract completion. The reporting period will be the start date of this subcontract through [**] annually and for the entire period of performance upon completion or termination. Disposition instructions will be provided to Tetraphase in accordance with the Governments direction.
Any property furnished to or acquired by Tetraphase under this subcontract that is not tested to destruction, completely expended in performance of this subcontract, or incorporated and made part of a deliverable end item shall not be used for any other purposes (private, personal, company-internal, etc.) or contract (Government or private), unless and until Tetraphase receives written permission from CUBRC via a modification or amendment to this subcontract. Tetraphase shall retain all, and not dispose of any, property purchased or acquired under this subcontract that is not tested to destruction, completely expended or incorporated and made part of a deliverable end item until disposition instructions are received from CUBRC.
CUBRC shall furnish Tetraphase the following items of Government Property: None
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PART XI | FLOWDOWN CLAUSES |
The Clauses specified in Exhibit B are hereby incorporated and made part of this Subcontract. The intent of the parties is for these clauses to govern the respective rights and responsibilities of the parties to this Subcontract so as to enable CUBRC to carry out its contract responsibilities to the Government. Clauses or portions thereof that are not applicable to the type of subcontract, scope of work, and/or dollar value of this Subcontract are self-deleting.
PART XII | REPRESENTATIONS AND CERTIFICATIONS |
Tetraphase will maintain its Representations, Certifications and Other Statements of Offeror in ORCA current and up to date. Tetraphase shall immediately notify CUBRC of any change of status regarding any certification or representation.
PART XIII | AMENDMENTS REQUIRED BY PRIME CONTRACT |
Tetraphase shall, at the request of CUBRC, negotiate in good faith amendments to this Subcontract to incorporate additional provisions herein or to change provisions hereof, as may be necessary in order to facilitate CUBRCs compliance with the provisions of the applicable Prime Contract or with the provisions of amendments to such Prime Contract. Any such amendment to this Subcontract shall provide for mutually-agreed increases or decreases in the estimated cost of, or the time required for, performance of any part of the work to be performed under this Subcontract.
PART XIV | OTHER DIRECT COSTS - INCLUDING TRAVEL, SUBCONTRACTS, CONSULTANTS AND MATERIALS |
Award of any Firm Fixed Price (FFP) subcontract or FFP consulting agreement in excess of $150,000 or any cost reimbursement subcontract or consulting agreement of any dollar amount shall not proceed without the prior written consent of CUBRC who will obtain a BARDA Contracting Officer Authorization (COA) Letter upon review of the supporting documentation required by FAR Clause 52.244-2, Subcontracts. After receiving written consent of the subcontract/consultant agreement by CUBRC, a copy of the signed, executed subcontract/consulting agreement shall be provided to CUBRC to be forwarded to the CO.
Per Article B.4 of the Prime Contract, the Government Contracting Officer must approve the items listed below, in writing in order for the associated charges to be allowable costs under this Subcontract. All requests shall be submitted to contracts@cubrc.org with appropriate justification, including consultant agreements and draft subcontract agreements, for submission to the Government.
(1) | Acquisition, by purchase or lease, of any interest in real property; |
(2) | Special rearrangement or alteration of facilities; |
(3) | Purchase or lease of any item of general purpose office furniture or office equipment regardless of dollar value; |
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(4) | Accountable Government Property (see the Contractors Guide for Control for Government Property incorporated by Part X of this subcontract; accountable government property includes permanent research equipment and general purpose equipment having a unit acquisition cost of $1,000 or more, with a life expectancy of more than two years); |
(5) | Travel to attend general scientific meetings; |
(6) | Foreign travel - Subject to the procedure specified under subparagraph b.2 below; |
(7) | Patient care costs; |
(8) | Printing costs as defined in the Government Printing and Binding Regulations; |
(9) | Light Refreshment and Meal Expenditures - Requests to use contract funds to provide light refreshments and/or meals to either federal or nonfederal employees must be submitted to the Contracting Officers Representative (COR), with a copy to the Contracting Officer, at least six (6) weeks in advance of the event and are subject to HHS Policy on Promoting Efficient Spending: Use of Appropriate Funding for Conferences and Meeting, Food and Promotional Items and Printing and Publications. The request shall contain the following information: (a) name, date, and location of the event at which the light refreshments and/or meals will be provide; (b) a brief description of the purpose of the event; (c) a cost breakdown of the estimated light refreshments and/or meals costs; (d) the number of nonfederal and federal attendees receiving light refreshments and/or meals; and (e) if the event will be held at a government facility; and |
(10) | Travel costs - Total expenditures for travel (transportation, lodging, subsistence, and incidental expenses) incurred in direct performance of this subcontract during the base segment shall not exceed $[**] without the prior written approval of CUBRC. An explanation and justification for such travel shall be provided to CUBRC to be forwarded to the Government Contracting Officer for approval. Subject to the authorized dollar amount, Tetraphase shall invoice and be reimbursed for all travel costs in accordance with Federal Acquisition Regulations (FAR) 31.2 - Contracts with Commercial Organizations, Subsection 31.205-46, Travel Costs. Travel, materials and other direct costs shall be reimbursed at cost plus applicable burdens and fee. |
GENERAL PROVISIONS
ARTICLE I | CONFIDENTIALITY |
It is recognized that in the course of performance of their obligations under this Subcontract, either party (CUBRC or Tetraphase) may disclose to the other certain confidential and/or proprietary information of their own or received from a third party. In the event of such a disclosure, the party receiving the disclosure agrees that such information shall be deemed Proprietary Information of the other party under the Confidentiality Agreement dated as of December 11, 2009 between CUBRC and Tetraphase, as amended, and to maintain such information in confidence in accordance with the terms and conditions thereof. Notwithstanding the foregoing, confidential and /or proprietary information that relates to or arises out of Project IP (as defined below) shall be deemed confidential and/or proprietary information of Tetraphase.
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ARTICLE II | DISCLOSURE OF INFORMATION TO THIRD PARTIES |
Per Article H.8, Publication and Publicity in the prime contract, no information related to data obtained under this subcontract shall be released or publicized without the prior written consent of the BARDA. Tetraphase shall submit all publications and publicity announcements to CUBRC at contracts@cubrc.org to be forwarded to BARDA for approval.
In addition to the requirements set forth in HHSAR Clause 352.227-70, Publications and Publicity incorporated by reference in SECTION I of this contract, Section 507 of P.L. 104-208 mandates that Contractors and Subcontractor at all levels funded with Federal dollars, in whole or in part, acknowledge Federal funding when issuing statements, press releases, requests for proposals, bid solicitations and other documents. Contractors are required to state (1) the percentage and dollar amounts of the total program or project costs financed with Federal money, and (2) the percentage and dollar amount of the total costs financed by nongovernmental sources.
Furthermore, Tetraphase shall acknowledge the support of the Biomedical Advanced Research and Development Authority whenever publicizing the work under this subcontract in any media by including an acknowledgment substantially as follows:
This project has been funded in whole or in part with Federal funds from the Biomedical Advanced Research and Development Authority, Office of the Assistant Secretary for Preparedness and Response, Office of the Secretary, Department of Health and Human Services, under Contract No. HHSO100201200002C.
Additionally, per prime contract Article H.9, Review of Press Releases, Tetraphase agrees to accurately and factually represent the work conducted under the subcontract in all press releases. Misrepresenting subcontract results or releasing information that is injurious to the integrity of BARDA may be construed as improper conduct. Press releases shall be considered to include the public release of information to any medium, excluding peer-reviewed scientific publications. Tetraphase shall ensure that the COR, via CUBRC, has received an advance copy of any press release related to the contract not less than four (4) business days prior to the issuance of the press release.
ARTICLE III | USE OF EITHER PARTYS NAME |
In connection with this Subcontract or any relationships arising out of, by or through this Subcontract or any report, study, or document produced in connection therewith, neither party shall not, without the prior written consent of the other party, use the name of the other party, its members, affiliates, agents or assignees, or any member of its staff of any of the foregoing or any logo, symbol or insignia of the other Party or any of the foregoing, in any form of document, publicity, advertising, or disseminated material.
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ARTICLE IV | PROPERTY LIABILITY |
CUBRC shall not be liable for loss or destruction of, or damage to, property owned or furnished by Tetraphase in connection with this Subcontract unless such loss, destruction or damage results from willful misconduct or failure to exercise good faith on the part of CUBRCs officers.
ARTICLE V | NON-SOLICITATION OF EMPLOYEES |
It is expressly agreed and understood by the parties that the personnel of the other party, including consultants, who are engaged in pursuit and/or performance of this program shall not be solicited for the purpose of inducing them to join the partys employ during the course of this Subcontract and any follow-on subcontracts. This clause shall in no way be construed to restrict, limit or encumber the rights of any employee granted by law. This clause does not preclude employees of either party from pursuing employment opportunities with the other party on their own initiative or in response to public advertisements published by either party.
ARTICLE VI | WARRANTY |
Tetraphase warrants that it is and shall remain free of any obligation or restriction which would interfere or be inconsistent with or present a conflict of interest concerning the Work to be furnished by Tetraphase under this Subcontract.
Tetraphase warrants that it will perform the services under this Subcontract with the degree of high professional skill and sound practices and judgment which is normally exercised by recognized professional firms with respect to services of a similar nature. All warranties shall apply to CUBRC and its customers.
ARTICLE VII | INTELLECTUAL PROPERTY |
All inventions or intellectual property in existence prior to this Subcontract that are used in connection with the activities conducted hereunder shall remain the property of the party introducing the same and records shall be made of such information introduced.
Title and ownership of any intellectual properties, whether or not copyrighted, patented or patentable, or otherwise created solely by Tetraphase shall reside with Tetraphase.
CUBRC hereby assigns and agrees to engage only other subcontractors that agree, subject to the rights of the Government, to assign to Tetraphase all right, title and interest throughout the world in and to all intellectual property that relates in whole or in part to Tetraphase compounds or information or data obtained using those compounds, including inventions (whether or not patentable), which are discovered or reduced to practice by CUBRC and/or CUBRCs other subcontractors (hereinafter collectively referred to as Project IP) in the course of carrying out work pursuant to the Statement of Work under this program. CUBRC will disclose to Tetraphase all Project IP of which it becomes aware. CUBRC will, at the expense and the written request of Tetraphase, use best efforts to execute and cause its other subcontractors to execute all documents as Tetraphase may reasonably request to transfer to and vest in Tetraphase the ownership and registration of all intellectual property rights that may exist in such Project IP. For the sake of clarity, the preceding shall exclude improvements solely relating to the Pre-existing IP of CUBRC or CUBRCs other subcontractors. Tetraphase will develop and provide suitable language for CUBRC to incorporate into the required subcontracting and other documents.
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In performing services under this Subcontract, Tetraphase will use reasonable efforts under the circumstances to avoid knowingly infringing any intellectual property, including without limitation one or more patents of any third party, or misappropriating trade secrets. If either party becomes aware of any potential infringement and/or misappropriation during the term of this Subcontract, such party agrees to promptly notify the other in writing.
Except as specifically provided above, nothing contained in this Subcontract shall be deemed to grant either directly or by implication, estoppel, or otherwise, any license under any existing rights of intellectual property owned by either party, their employees, and/or their agents.
To the extent that any invention has been funded, in whole or in part, by the Federal Government, the assignment of title or the granting of any license above is subject to federal law set forth in 35 U.S.C. §§200 et. seq., as amended, and the regulations promulgated thereunder, as amended, or any successor statutes of regulations (the Federal Patent Policy). Any right granted in this Subcontract greater than that permitted under the Federal Patent Policy shall be modified as may be required to conform to the provisions of the Federal Patent Policy.
ARTICLE VIII | INSURANCE |
Tetraphase, at no additional cost to CUBRC, shall maintain at a minimum the following types of insurance coverage and limits of liability during performance of this Subcontract:
1) Commercial General Liability (CGL) with limits of insurance of not less than $1,000,000 each Occurrence and $2,000,000 Annual Aggregate. CGL coverage shall be written on ISO Occurrence form CG 00 01 10 93 or a substitute form providing equivalent coverage and shall cover liability arising from premises, operations, independent Subcontractors, products-completed operations, and personal and advertising injury. If the CGL coverage contains a General Aggregate Limit, such General Aggregate shall apply separately to each project.
CUBRC shall be included as Additional Insureds on Tetraphases CGL policy using ISO Additional Insured endorsement CG 20 10 11 85, or CG 20 10 10 93 and CG 20 37 10 01, or CG 20 33 10 01 and CG 20 37 10 01, or an endorsement providing equivalent coverage to the Additional Insureds. This insurance for the Additional Insureds shall be as broad as the coverage provided for the named insured Tetraphase. This insurance for the Additional Insureds shall apply as primary and non-contributing insurance before any insurance or self-insurance, including any deductible, maintained by, or provided to, the Additional Insureds.
2) Business Automobile Liability (AL) with limits of insurance of not less than $1,000,000 each accident.
AL coverage must include coverage for liability arising out of all owned, leased, hired and non-owned automobiles.
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CUBRC shall be included as Additional Insureds on Tetraphases AL policy. The AL coverage for the Additional Insureds shall apply as primary and non-contributing insurance before any insurance maintained by the Additional Insureds.
3) Workers Compensation (WC) & Employers Liability (EL) with limits of insurance of not less than $1,000,000 each accident for bodily injury by accident and $1,000,000 each employee for injury by disease.
4) Commercial Umbrella Liability (UL) with limits of insurance of not less than $5,000,000. UL coverage must include CUBRC as an Additional Insured.
5) As appropriate, Tetraphase shall ensure that its lower-tier subcontractors carry Professional Liability insurance.
Tetraphase waives all rights against CUBRC and its agents, officers, directors and employees for recovery of damages to the extent these damages are covered by CGL, AL, WC & EL or UL insurance maintained per the requirements stated above.
A Certificate of Insurance acceptable to CUBRC shall be submitted to CUBRC upon completion of negotiations of this Agreement. A copy of the General Liability Additional Insured endorsement shall be attached to the Certificate of Insurance.
No insurance policy required above will be cancelled, allowed to expire or reduced in coverage without at least 30 days, or reasonable time, prior written notice to the CUBRC.
ARTICLE IX | INDEMNIFICATION |
(a) To the fullest extent permitted by law, Tetraphase shall defend, indemnify and hold harmless CUBRC and its officers, directors, agents and employees (the CUBRC Indemnitees) from and against all damages, liabilities, losses and expenses (including but not limited to reasonable attorneys fees) (Losses) incurred in connection with any third-party claim, action or proceeding (Claims) arising out of the performance or lack of performance by Tetraphase of the work under this Subcontract (including any amendments or additions thereto), provided that any such Loss is attributable to bodily injury, sickness, disease or death, or physical injury to tangible property including loss of use of that property, or loss of use of tangible property that is not physically injured, and caused by any:
(i) act or omission of any Tetraphase Indemnitee or any subcontractor engaged by Tetraphase to perform work under this Subcontract; or
(ii) violation of any statutory duty, regulation, ordinance, rule or obligation by Tetraphase.
Notwithstanding the foregoing, the indemnity in this clause (a) shall not apply to the extent that any such Losses (A) are attributable to the negligence or willful misconduct of any CUBRC Indemnitees, (B) a breach of any representation, warranty or obligation of CUBRC under this Subcontract or (C) are otherwise subject to an obligation by CUBRC to indemnify the Tetraphase Indemnitees under clause (b).
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The obligations under this clause (a) shall not limit in any way the amount or type of insurance required to be provided to or for the benefit of CUBRC as described in Article VIII (Insurance).
(b) To the fullest extent permitted by law, CUBRC shall defend, indemnify and hold harmless Tetraphase and its officers, directors, agents and employees (the Tetraphase Indemnitees) from and against all Losses incurred in connection with any Claims arising out of the performance or lack of performance by CUBRC of the work under this Subcontract or the Prime Contract (including any amendments or additions thereto), provided that any such Loss is attributable to bodily injury, sickness, disease or death, or physical injury to tangible property including loss of use of that property, or loss of use of tangible property that is not physically injured, and caused in whole or in part by any:
(i) act or omission of any CUBRC Indemnitee or any contractor or subcontractor (other than Tetraphase) engaged by CUBRC to perform work under this Subcontract or the Prime Contract; or
(ii) violation of any statutory duty, regulation, ordinance, rule or obligation by CUBRC.
Notwithstanding the foregoing, the indemnity in this clause (b) shall not apply to the extent that any such Losses (A) are attributable to the negligence or willful misconduct of any Tetraphase Indemnitees, (B) a breach of any representation, warranty or obligation of Tetraphase under this Subcontract or (C) are otherwise subject to an obligation by Tetraphase to indemnify the CUBRC Indemnitees under clause (a).
(c) The obligations under this Article shall not be construed to negate, abridge or reduce any other right or obligation that would otherwise exist as to any person or entity described in this Article.
(d) Any party liable to provide indemnification hereunder shall be entitled, at its option, to control the defense and settlement of any Claim on which it is liable, provided that the indemnifying party shall act reasonably and in good faith with respect to all matters relating to the settlement or disposition of the Claim as the disposition or settlement relates to the indemnified party. The indemnified party shall reasonably cooperate in the investigation, defense and settlement of any Claim for which indemnification is sought hereunder and shall provide prompt notice of any such Claim or reasonably expected Claim to the indemnifying party. An indemnified party shall have the right to retain its own separate legal counsel at its own expense. No settlement or compromise of a Claim subject to the indemnification provision will be binding on either party without prior written consent. Such consent of settlement or compromise will not be unreasonably withheld. Neither party will admit fault on behalf of the other party without the written approval of that party.
To the extent that the CUBRC suffers a price reduction under its Prime Contract as a result of defective cost or pricing data or certifications furnished by Tetraphase in connection with this Subcontract, that were not complete, accurate, and current, Tetraphase shall indemnify CUBRC in the full amount of any such reduction (and for all costs reasonably incurred by the CUBRC in connection therewith) provided that the CUBRC furnished Tetraphase with sufficient notice to enable Tetraphase to defend against any claim for defective cost or pricing data, and further provided that the CUBRC cooperates with Tetraphase in the presentation of such defense to the United States Government (which cooperation and defense shall be at Tetraphases costs and expense).
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ARTICLE X | TERMINATION |
A. | Termination for Convenience: |
1. CUBRC may terminate part or all of the Subcontract for its convenience only to the extent that the corresponding parts of the Prime Contract are terminated by the US Government. CUBRC and Tetraphase shall continue all work not terminated. Such termination shall be in accordance with FAR 52.249-6 Termination (Cost-Reimbursement).
2. Tetraphase may terminate part, or all, of this Subcontract at any time by giving written notice to CUBRC; provided however that such termination shall not be effective until the U.S. Government terminates or cancels corresponding portions of the Prime Contract. CUBRC shall use its best efforts to secure a final termination settlement terminating or canceling the corresponding portions of the Prime Contract on terms agreeable to all three organizations.
3. Neither CUBRC nor Tetraphase shall assign, transfer or convey, in whole or in part, this subcontract without the prior written consent of the other party. Such consent shall not be unreasonably withheld. Notwithstanding the foregoing however, Tetraphase may assign this Subcontract without CUBRCs consent to an affiliate of Tetraphase or to a third party that acquires, by merger, sale of assets, recapitalization, reorganization or similar transaction, or otherwise, all or substantially all of the business of Tetraphase to which the subject matter of this Subcontract relates.
4. Upon termination, in accordance with CUBRCs written direction, Tetraphase will immediately: (a) initiate a prompt and orderly cessation of work; (b) prepare and submit to CUBRC an itemization of all completed and partially completed deliverables and services; (c) deliver to CUBRC deliverables satisfactorily completed up to the date of termination at the agreed upon prices in the relevant Statement of Work; and (d) deliver upon request any work in process. CUBRC will compensate Tetraphase for the actual, allowable, and reasonable expenses (to include profit) incurred by Tetraphase for work in process up to and including the earliest date upon which such work in process can be reasonably stopped, provided Tetraphase has used reasonable efforts to mitigate CUBRCs liability under this clause.
5. In no event shall either party be liable for lost or anticipated profits, unabsorbed indirect costs or overhead, or for any sum in excess of the total subcontract value. Tetraphases termination claim shall be submitted within [**] calendar days from the effective date of the termination.
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6. CUBRC hereby acknowledges that Tetraphase may terminate the license right of CUBRC to use TP-434 for the purposes specified in this Agreement during the period of performance of the Subcontract. Grounds for termination of CUBRCs license rights to use TP-434 may include, without limitation, an acquisition of the assets of Tetraphase relating to this Agreement, including TP-434; an acquisition of a controlling ownership interest in the shares of Tetraphase by merger or otherwise; or a grant by Tetraphase to a party other than Tetraphase of an exclusive or partially exclusive license to use TP-434 in one or more fields of use applicable to this Agreement, where such acquirer or licensee declines to assume or otherwise continue CUBRCs TP-434 license rights to use TP-434 for the purposes specified in this Agreement.
7. Notwithstanding any other provision of this Agreement and in addition to the right specified in paragraph A.2 above, Tetraphase shall notify CUBRC of its intent to terminate part or all of prospective obligations under this Subcontract, which termination shall be effective at the conclusion of the then-current Subcontract period. Tetraphase shall provide reasonable support to CUBRC in the negotiation of a termination for convenience of the Prime Contract between BARDA and CUBRC.
B. | Termination for Default: |
1. Tetraphase, by written notice to CUBRC, may terminate this Subcontract if CUBRC materially breaches its obligations to Tetraphase under one or more of the Schedule Part IX (payment) but only if the invoice is not disputed in good faith, General Provisions Article I (Confidentiality), or General Provision Article XX (Communications with CUBRCs Customer) hereunder. Except for alleged breaches of CUBRCs obligations under General Provisions Article I, CUBRC shall have [**] calendar days (or such longer period as the Tetraphase may authorize in writing) to cure any such failure(s) after CUBRCs receipt of notice from the Tetraphase. If the parties cannot resolve their differences so as to avoid such termination, CUBRC may notify the U.S. Government of such action and its impact on the Prime Contract. Nothing in this paragraph shall be deemed to limit any other rights and/or remedies that either party may have under this Subcontract.
2. Tetraphase shall be compensated only for the work actually delivered and accepted. CUBRC and Tetraphase shall agree on the amount of payment for these other deliverables.
3. Tetraphase shall continue all work not terminated.
C. | Termination for Bankruptcy: |
In the event of the bankruptcy or insolvency of either party, or of any assignment by either party for the benefit of its creditors, the other party shall have the right to terminate this Subcontract.
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ARTICLE XI | RECORDS RETENTION |
Tetraphase shall retain records relating to this Subcontract as prescribed in the Federal Acquisition Regulation (FAR) Subpart 4.703 through 4.705-3. Tetraphase shall ensure that appropriate internal controls are in place and properly functioning to satisfy this requirement. CUBRC shall have access to such records, and any other records Tetraphase is required to maintain under this Subcontract, for the purpose of audit during normal business hours, upon reasonable notice for so long as such records are required to be retained. Audit rights shall be available to CUBRC on all performance related reports and other records, except records pertaining to proprietary indirect cost data. Audit of any proprietary indirect cost data may be accomplished through the responsible Defense Contract Audit Agency (DCAA) or other cognizant U.S. Government representative, or a mutually agreeable third party auditor from a nationally recognized firm of certified public accountants.
ARTICLE XII | CHANGES |
Subject to Article XIII, this Subcontract and the attached Statement of Work may be amended only by mutual written agreement of the parties officials with contractual signature authority. The contractual authority for Tetraphase is the SVP/CFO. The contractual authority for CUBRC is the Director, Contracts & Legal. Either party may designate alternate signatories by giving written notice to the other party. In addition, the Statement of Work to the Prime Contract may not be amended by CUBRC without the prior written consent of Tetraphase. Either Party may, at any time, propose changes to the services, the time of performance or place of performance to be provided under this Subcontract, consistent with the Prime Contract requirements. The Parties shall negotiate amendments in good faith, which shall include adjustments, as appropriate, in the estimated cost of, or time required for performance of this Subcontract. Any changes in direction or delivery of this Subcontract by Tetraphase shall not proceed without Tetraphase having received written consent from CUBRC.
ARTICLE XIII | SUBCONTRACTS |
Tetraphase agrees to obtain CUBRCs written approval before subcontracting under this Subcontract. This limitation shall not apply to the purchase of standard commercial supplies or raw material.
CUBRC shall not engage any subcontractor under the Prime Contract referenced in Part V above without the prior written consent via email of the Tetraphase SVP/CFO or his authorized designee, which shall not be unreasonably withheld, provided, that Tetraphase may reasonably decline to authorize subcontractors that are commercial competitors of Tetraphase or with respect to which Tetraphase reasonably concludes that such engagement would adversely impact Tetraphases commercial competitive position.
ARTICLE XIV | WAIVER |
Failure to exercise any right under this Subcontract in one or more instances shall not be deemed a waiver of such rights in any other instance.
ARTICLE XV | SEVERABILITY |
In the event that any part, term or provision of this Subcontract shall be held to be illegal, void or in conflict with any law of a federal, state, or local government entity having jurisdiction over this Subcontract, the validity of the remaining portions or provisions hereof shall not be affected or rendered invalid thereby; provided, however, the Parties agree to negotiate amendments to this Subcontract in good faith so that to the maximum extent possible the Parties shall each receive the intended benefits and burdens of this Subcontract.
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ARTICLE XVI | GOVERNING LAW |
This Subcontract shall be construed and interpreted, and the rights of the parties shall be determined, in accordance with the laws of the State of New York except that matters of U.S. federal acquisition regulations and clauses shall be determined in accordance with the federal common law of government contracts. Any judicial proceeding instituted regarding this subcontract shall be commenced only in the state or federal courts of the State of New York.
ARTICLE XVII | DISPUTES |
Any claim for the threatened, alleged, or actual breach of this Agreement by either Party (a Dispute), which cannot otherwise be resolved after good faith negotiations by the Parties, shall first be referred for resolution to the Parties respective executive management in writing. If the Parties executive management are unable to resolve the Dispute within [**] calendar days of such referral, then the Parties may mutually agree upon alternate dispute resolution or either Party may file suit in a court of competent jurisdiction in accordance with the Governing Law article. Notwithstanding the prior two sentences, either Party may immediately seek injunctive relief in a court of competent jurisdiction to prevent irreparable harm or to protect against improper use, disclosure, or threatened improper use or disclosure of intellectual property or confidential information.
In the event that any matter arising under or relating to the Prime Contract is within the scope of the Disputes clause of the Prime Contract, CUBRC shall disclose such matter to Tetraphase. To the extent that such matter affects the interests of Tetraphase, Tetraphase may, upon written notice, require CUBRC to pursue such claim, dispute or appeal under the Disputes clause of the Prime Contract as a sponsored claim on behalf of Tetraphase, at Tetraphases expense, and Tetraphase will engage its own counsel at its expense and shall oversee the conduct and/or reasonable settlement of the matter.
ARTICLE XVIII | EXPORT CONTROLS |
Tetraphase shall comply with all applicable U.S. export control laws and regulations, including but not limited to, the requirements of the Arms Export Control Act, 22 USC 2751-2794, the International Traffic in Arms Regulation (ITAR), 22 CFR 120 et seq., the Export Administration Act, 50 USC app. 2401-2420, and the Export Administration Regulations, 15 CFR 730-744. Tetraphase shall obtain all required export licenses or agreements necessary to perform this Subcontract, as applicable. Without limiting the foregoing, Tetraphase agrees that it will not transfer any export controlled item, data or services, to include transfer to foreign persons employed by or associated with, or under contract to Tetraphase, without the authority of an Export License or applicable license exception. Tetraphase shall indemnify and hold CUBRC harmless from and against any and all claims, liabilities and expenses resulting from Tetraphases failure to comply with the export laws and regulations of the United States. Tetraphase shall incorporate this Export Controls provision into any lower tiered Subcontracts awarded by Tetraphase for performance under this Subcontract.
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ARTICLE XIX | FORCE MAJEURE |
Neither party shall be liable for damages for delay in delivery arising out of causes beyond its reasonable control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy, acts of any Government authority, fires, floods, epidemics, quarantine restrictions, strikes, embargoes, or unusually severe weather. If the delay is caused by the delay of a subcontractor of Tetraphase and if such delay arises out of causes beyond the reasonable control of both Tetraphase and its subcontractor, and without the fault or negligence of either of them, Tetraphase shall not be liable to CUBRC for damages unless the articles or services to be furnished by the lower tiered supplier were obtainable from other sources in sufficient time to permit Tetraphase to meet the required delivery schedule. Tetraphase will notify CUBRC in writing within ten (10) days after the beginning of any such cause.
ARTICLE XX | COMMUNICATION WITH CUBRCS CUSTOMER |
CUBRC shall be responsible for all formal communication and coordination with the Customer, as it relates to the Prime Contract, this Subcontract, and any related Subcontract.
Unless with respect to communications pursuant to FAR clause 52.227-11 or otherwise specified by CUBRC or BARDA in writing, all formal contact with the CUBRCs Customer with respect to the work to be performed under the Prime Contract, including Tetraphases work under this Subcontract, shall be the responsibility of CUBRC and follow these specific guidelines:
|
All formal communication with the Customer shall be initiated and scheduled by CUBRC (e.g., teleconference calls, webinars, and face-to-face meetings); |
|
A representative from CUBRC must be present on all teleconferences, webinars, and face-to-face meetings with the Customer; |
|
A representative from CUBRC must be copied on any dialog (e.g., e-mail) with the Customer; and |
CUBRC shall inform Tetraphase of relevant communication with its subcontractors or the Customer related to the technical scope of this Subcontract and the Prime Contract; and will provide to Tetraphase copies of all such written communications at the time of such communication and shall, without exception, simultaneously copy Tetraphase on ALL transmissions of ALL Deliverables to BARDA in connection with this Subcontract and Prime-Contract.
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ARTICLE XXI | SURVIVABILITY |
(a) If this Subcontract expires, is completed, or is terminated for default or convenience, neither Tetraphase nor CUBRC shall be relieved of those obligations contained under the following Articles of this Subcontract which shall survive expiration, completion or termination:
Confidentiality |
Disclosure |
Use of Either Partys Name |
Intellectual Property |
Records Retention |
Indemnification |
Governing Law |
Export Controls |
Warranty |
Termination |
Invoices and Payment, and |
(b) Those U. S. Government flowdown provisions in Exhibit B that by their nature should survive.
ARTICLE XXII | CLOSE-OUT |
Upon expiration, completion or termination of this Subcontract, Tetraphase shall submit:
|
Government Property Report (Exhibit D) |
|
Final Report of Inventions |
|
Contractors Assignment and Release ( Exhibit E) |
|
Statement acknowledging submission of all required deliverables |
|
Arrangement For Audit Access |
|
Final Invoice in accordance with the Invoices and Payment clause of this Subcontract. |
Payment of Final Invoice is contingent upon receipt of all applicable deliverables and Close-out documents.
ARTICLE XXIII | ENTIRE AGREEMENT |
This Subcontract consists of the Schedule - PARTS I XIII, General Provisions - ARTICLES I - XXIII, and Exhibits A - G which constitutes the entire agreement between the parties. In case of conflict between the Schedule and the General Provisions, the Schedule shall prevail.
This Subcontract is the entire Agreement between the Parties with respect to the subject matter hereof and supersede all prior and contemporaneous negotiations or agreements whether written or oral.
30
IN WITNESS WHEREOF, the Parties have executed, or caused this Subcontract to be executed, as of the date set forth below.
CUBRC, Inc. | Tetraphase Pharmaceuticals, Inc. | |||
/s/ Susan R. Schock |
/s/ David C. Lubner |
|||
Signature |
Signature |
|||
Susan R. Schock |
David C. Lubner |
|||
Name |
Name |
|||
Director, Contracts & Legal |
SVP/CFO |
|||
Title |
Title |
|||
15 February 2012 |
2/15/12 |
|||
Date |
Date |
31
LIST OF EXHIBITS
A | Statement of Work |
B | CPFF FAR and HHSAR CLAUSES |
C | Contract Clauses Flowed Down from Prime Contract |
D | Government Property Forms |
E | Closeout Documentation |
F | HHS Government Property Guide |
G | Tetraphase Data Rights Assertion |
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Exhibit A-1
BARDA Broad Agency Announcement (BAA)
(Solicitation # CBRN-BAA-10-100-SOL-00012)
Advanced Research and Development of Chemical, Biological, Radiological, and Nuclear Medical Countermeasures
23 OCTOBER 2011 (TP-434)
Topic Area of Interest No. (#3),
Contractual Statement of Work
1. | CLIN 1 |
This option includes [**]
1.1 | Program Management |
Tetraphase shall provide for the following as outlined below and in the contract deliverables list (PART II of the Parent Subcontract):
1.1.1 | The overall management, integration and coordination of all contract activities, including a technical and administrative infrastructure to ensure the efficient planning, initiation, implementation, and direction of all contract activities undertaken by Tetraphase; |
1.1.2 | A Principal Investigator (PI) responsible for the overall technical project management, tracking, monitoring and reporting on status and progress, including projects undertaken by subcontractors.; The contract deliverables list (reference), identifies all contract deliverables and reporting requirements for this contract. |
1.1.3 | Project Manager(s) responsible for monitoring and tracking day-to-day progress and timelines; communicating directly with subcontractors to Tetraphase; monitoring interim milestones and timelines for each Work Package within his or her portfolio of experimental work. Project Manager portfolios will consist of a subset of Work Packages corresponding to one or more of the following areas of technical activity: Pre-Clinical (as applicable), Clinical, CMC and Regulatory. The contract deliverables list (reference) identifies all contract deliverables and reporting requirements for this contract. |
1.1.4 | Administrative and legal staff to provide development of compliant subcontracts, consulting, and other legal agreements, and ensure timely acquisition of all proprietary rights, including IP rights, and reporting all inventions made in the performance of the project. |
1.1.5 | Contract administration staff with responsibility for executing the day to day activities involved in administration of the contract. These activities include, but are not limited to effort tracking and authorization, subcontractor approval, administration and compliance, and monthly and annual reporting requirements. |
33
1.1.6 | Administrative staff with responsibility for financial and EVMS management and reporting on all activities conducted by the Tetraphase and any subcontractors. These activities include, but are not limited to, budgeting/forecasting, variance analysis, invoice preparation, financial compliance, EVMS progress/reporting, and monthly and annual CPR/financial reporting. |
1.1.7 | Contract Review Meetings. |
1.1.7.1 | Tetraphase shall participate in regular meetings to coordinate and oversee the contract effort as directed by CUBRC. Such meetings may include, but are not limited to, meeting of CUBRC, Tetraphase and subcontractors to discuss clinical manufacturing progress, product development, product assay development, scale up manufacturing development, clinical sample assays development, preclinical/clinical study designs and regulatory issues; meetings with other HHS officials to discuss the technical, regulatory, and ethical aspects of the program; and meeting with technical consultants to discuss technical data. |
1.1.7.2 | Tetraphase shall participate in teleconferences every [**] between CUBRC, BARDA and other subcontractors as appropriate to review technical progress. Teleconferences or additional face-to-face meetings shall be more frequent at the request of CUBRC. |
1.1.8 | Integrated Master Schedule |
1.1.8.1 | Within [**] calendar days of the effective date of the contract, Tetraphase shall work with CUBRC on the development and submission of a first draft of an updated Integrated Master Schedule, inclusive of the key milestones and Go/No Go decision gates, in a format agreed upon by BARDA. The Integrated Master Schedule shall be incorporated into the contract, and will be used to monitor performance of the contract. The IMS for the period of performance will be accepted by BARDA at the Performance Measurement Baseline Review (PMBR) |
1.1.9 | Integrated Master Plan |
1.1.9.1 | Work Breakdown Structure: Tetraphase shall utilize a WBS template agreed upon by CUBRC for reporting on the contact. Tetraphase shall expand and delineate the Contract Work Breakdown Structure (CWBS) to a level agreed upon by CUBRC as part of the Integrated Master Plan for contract reporting. The CWBS shall be discernable and consistent. CUBRC may require Tetraphase to furnish WBS data at the work package level or at a lower level if there is significant complexity and risk associated with the task. |
1.1.9.2 | GO/ NO-GO Decision Gates: The Integrated Master Plan outlines key milestones with Go/No Go decision criteria (entrance and exit criteria for each phase of the project). The project plan should include, but not be limited to, milestones in manufacturing, non-clinical and clinical studies, and regulatory submissions. |
34
1.1.9.3 | Earned Value Management System Plan: Subject to the requirements under HHSAR Clause 352.234-4, Tetraphase shall use principles of Earned Value Management System (EVMS) in the management of this contract. The Seven Principles are: |
I. | Plan all work scope for the program to completion. |
II. | Break down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule, and cost objectives. |
III. | Integrate program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments may be measured. Control Changes to the baseline. |
IV. | Use actual cost incurred and recorded in accomplishing the work performed. |
V. | Objectively assess accomplishments at the work performance level. |
VI. | Analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and work to be performed. |
VII. | Use earned value information in the companys management processes. |
Elements of EVMS shall be applied to all CLINs as part of the Integrated Master Project Plan, Tetraphase shall submit a written summary of the management procedures that it will establish, maintain and use to comply with EVMS requirements.
1.1.10 | Risk Management Plan: Tetraphase shall develop a risk management plan within [**] days of contract award highlighting potential problems and/or issues that may arise during the life of the contract, their impact on cost, schedule and performance, and appropriate remediation plans for all CMC, Clinical and Regulatory activities. This plan should reference relevant WBS elements where appropriate. Updates to this plan shall be included every [**] in the monthly Project Status Report. |
1.1.11 | Performance Measurement Baseline Review (PMBR): Tetraphase will participate in a PMBR within [**] days of contract award and as scheduled mutually with BARDA and CUBRC. The goals of the PMBR are as FOLLOWS: |
I. | Jointly assess areas such as the planning for complete coverage of the SOW, logical scheduling of the work activities, adequate resources, and identification of inherent risks |
II. | Confirm the integrity of the Performance Measurement Baseline (PMB) |
III. | Foster the use of EVM as a means of communication |
IV. | Provide confidence in the validity of reporting |
V. | Identify risks associated with the PMB |
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VI. | Present any revised PMBs for mutual agreement |
VII. | Present an Integrated Master Schedule |
VIII. | Present the Risk Management Plan for the contract as a whole |
1.1.12 | Monthly and Annual Reports: Tetraphase shall deliver Project Status Reports on a monthly basis for all Clinical, CMC and Regulatory activities and shall review content related to Pre-Clinical activities. The reports shall address the items below cross referenced to the WBS, SOW, IMS, and EVM: |
I. | Executive summary highlighting the progress, issues, and relevant activities in manufacturing, clinical, and regulatory; |
II. | Progress in meeting contract milestones, detailing the planned progress and actual progress during the reporting period, explaining any differences between the two and corrective steps; |
III. | Updated Risk Management Plan (Every [**]); |
IV. | Progress of regulatory submissions; |
1.1.13 | Data Management: Tetraphase shall develop and implement data management and quality control systems/procedures, including transmission, storage, confidentiality, and retrieval of all contract data; |
1.1.13.1 | Provide for the statistical design and analysis of data resulting from the research; |
1.1.13.2 | Provide raw data or specific analyses of data generated with contract funding to CUBRC to provide to BARDA, upon request. |
1.2 | Non-Clinical Toxicology (WBS 1.1.2) |
[**]
1.3 | Non-Clinical Studies (WBS 1.1.3) |
[**]
1.4 | Clinical studies (WBS 1.1.4) |
[**]
1.5 | Regulatory (WBS 1.1.5) |
[**]
1.6 | CMC (WBS 1.1.6) |
[**]
2. | CLIN 2 |
Tetraphase shall carry out the following tasks and subtasks. The activities consist of [**].
2.1 | Program Management (consistent with section 1.1) (WBS 1.2.1) |
2.1.1 | Program management scope in CLIN 2 is consistent with program management scope in the base year. |
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2.2 | Non-Clinical Toxicology (WBS 1.2.2) |
[**]
2.3 | Non-Clinical Studies (WBS 1.2.3) |
[**]
2.4 | Clinical studies (WBS 1.2.4) |
[**]
2.5 | Regulatory (WBS 1.2.5) |
[**]
2.6 | CMC (WBS 1.2.6) |
[**]
3. | CLIN 3 |
Tetraphase shall carry out the following tasks and subtasks. Tasks associated with CLIN 3 include [**] .
3.1 | Program Management (Consistent with section 1.1) (WBS 1.3.1) |
3.1.1 | Program management scope in CLIN 3 is consistent with program management scope in the base year. |
3.2 | Non-Clinical Toxicology (WBS 1.3.2) [**] |
3.3 | Non-Clinical Studies (WBS 1.3.3) |
[**]
3.4 | Clinical studies (WBS 1.3.4) [**] |
[**]
3.5 | Regulatory (WBS 1.3.5) |
[**]
3.6 | CMC (WBS 1.3.6) |
[**]
4. | CLIN 4 |
Tetraphase shall carry out the following tasks and subtasks. Tasks for this option include [**].
4.1 | Program Management (Consistent with section 1.1) (WBS 1.4.1) |
4.1.1 | Program management scope in CLIN 4 year is consistent with program management scope in the base year. |
4.2 | Non-Clinical Toxicology (WBS 1.4.2) |
[**]
4.3 | Non-Clinical Studies (WBS 1.4.3) |
[**]
4.4 | Clinical studies (WBS 1.4.4) [**] |
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4.5 | Regulatory (WBS 1.4.5) |
[**]
4.6 | CMC (WBS 1.4.6) |
[**]
5. | CLIN 5 |
Tetraphase shall carry out the following tasks and subtasks. [**].
5.1 | Program Management (Consistent with section 1.1) (WBS 1.5.1) |
5.1.1 | Program management scope in CLIN 5 is consistent with program management scope in the base year. |
5.2 | Non-Clinical Toxicology (WBS 1.5.2) |
[**]
5.3 | Non-Clinical Studies (WBS 1.5.3) |
[**]
5.4 | Clinical studies (WBS 1.5.4) [**] |
5.5 | Regulatory (WBS 1.5.5) |
[**]
5.6 | CMC (WBS 1.5.6) |
[**]
6. | CLIN 6 |
Tetraphase shall carry out the following tasks and subtasks and in accordance with agreed upon Integrated Master Schedule and Integrated Master Plan (defined in 1.1.8 and 1.1.9) which shall further detail the conduct of the specific tasks and subtasks. Tasks for this option include [**].
6.1 | Program Management (Consistent with section 1.1) (WBS 1.6.1) |
6.1.1 | Program management scope emphasizes subcontractor management and risk |
6.2 | Non-Clinical Toxicology (WBS 1.6.2) [**] |
6.3 | Non-Clinical Studies (WBS 1.6.3) [**] |
6.4 | Clinical studies (WBS 1.6.4) |
[**]
6.5 | Regulatory (WBS 1.6.5) |
[**]
6.6 | CMC (WBS 1.6.6) [**] |
7. | CLIN 7 |
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Tetraphase shall carry out the following tasks and subtasks and in accordance with agreed upon Integrated Master Schedule and Integrated Master Plan (defined in 1.1.8 and 1.1.9) which shall further detail the conduct of the specific tasks and subtasks. Tasks for this option include [**].
7.1 | Program Management (Consistent with section 1.1) (WBS 1.7.1) |
7.1.1 | Program management scope emphasizes subcontractor management and risk. |
7.2 | Non-Clinical Toxicology (WBS 1.7.2) [**] |
7.3 | Non-Clinical Studies (WBS 1.7.3) [**] |
7.4 | Clinical studies (WBS 1.7.4) |
[**]
7.5 | Regulatory (WBS 1.7.5) |
[**]
7.6 | CMC (WBS 1.7.6) [**] |
8. | CLIN 8 |
The contractor shall carry out the following tasks and subtasks and in accordance with agreed upon Integrated Master Schedule and Integrated Master Plan (defined in 1.1.8 and 1.1.9) which shall further detail the conduct of the specific tasks and subtasks. Tasks for this option include [**].
8.1 | Program Management (Consistent with section 1.1) (WBS 1.8.1) |
8.1.1 | Program management scope emphasizes subcontractor management and risk. |
8.2 | Non-Clinical Toxicology (WBS 1.8.2) [**] |
8.3 | Non-Clinical Studies (WBS 1.8.3) [**] |
8.4 | Clinical studies (WBS 1.8.4) |
[**]
8.5 | Regulatory (WBS 1.8.5) |
[**]
8.6 | CMC (WBS 1.8.6) [**] |
9. | Other Items |
9.1 Facilities, Equipment and Other Resources. (Contract: Section J) Tetraphase shall provide equipment; facilities and other resources required for implementation of this SOW to comply with all Federal and HHS regulations in:
9.1.1 | The production, characterization, and release testing of active pharmaceutical ingredient and final drug product under cGMP; |
9.1.1.1 | The design and conduct of NDA-enabling non-clinical studies under GLP; and |
9.1.2 | Design and conduct of clinical trials in humans under GCP. |
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Attachment 5
INCLUSION ENROLLMENT REPORT
This report format should NOT be used for data collection from study participants
Study Title: |
||||||||||
Total Enrollment: |
Protocol Number: | |||||||||
Contract Number: |
||||||||||
PART A. TOTAL ENROLLMENT REPORT: Number of Subjects Enrolled to Date (Cumulative) by Ethnicity and Race |
||||||||||
Ethnic Category |
Sex/Gender |
|||||||||
Females |
Males | Unknown or Not Reported | Total | |||||||
Hispanic or Latino |
||||||||||
Not Hispanic or Latino |
||||||||||
Unknown (Individuals not reporting ethnicity) |
||||||||||
Ethnic Category: Total of All Subjects* |
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Racial Categories |
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American Indian/Alaska Native |
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Asian |
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Native Hawaiian or Other Pacific Islander |
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Black or African American |
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White |
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More than one race |
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Unknown or not reported |
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Racial Categories: Total of All Subjects* |
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PART B. HISPANIC ENROLLMENT REPORT: Number of Hispanics or Latinos Enrolled to Date (Cumulative) |
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Racial Categories |
Females |
Males | Unknown or Not Reported | Total | ||||||
American Indian or Alaska Native |
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Asian |
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Native Hawaiian or Other Pacific Islander |
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Black or African American |
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White |
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More Than One Race |
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Unknown or not reported |
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Racial Categories: Total of Hispanics or Latinos** |
*These | totals must agree |
**These | totals must agree |
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Attachment 6
Research Patient Care Costs
(a) Research patient care costs are the costs of routine and ancillary services provided to patients participating in research programs described in this contract.
(b) Research patient care costs shall be computed in a manner consistent with the principles and procedures used by the Medicare Program for determining the part of Medicare reimbursement based on reasonable costs. The Diagnostic Related Group (DRG) prospective reimbursement method used to determine the remaining portion of Medicare reimbursement shall not be used to determine research patient care costs. Research patient care rates or amounts shall be established by the Secretary of HHS or his/her duly authorized representative.
(c) Prior to submitting an invoice for research patient care costs under this contract, Tetraphase must make every reasonable effort to obtain third party payment, where third party payors (including Government agencies) are authorized or are under a legal obligation to pay all or a portion of the charges incurred under this contract for research patient care.
(d) The contractor must maintain adequate procedures to identify those research patients participating in this contract who are eligible for third party reimbursement.
(e) Only those charges not recoverable from third party payors or patients and which are consistent with the terms and conditions of the contract are chargeable to this contract.
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Attachment 9
Department of Health & Human Services
HHS
Office of the Assistant Secretary for Preparedness and Readiness
ASPR
Biomedical Advanced Research and Development Authority
BARDA
7 Principles of Earned Value
Management
Tier 2
System Implementation
Intent Guide
01 November 2010
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TABLE OF CONTENTS
OVERVIEW | 3 | |||
EVM IMPLEMENTATION TIERS | 4 | |||
SEVEN PRINCIPLES OF EVM | 4 | |||
Principle 1: Plan all Work Scope |
4 | |||
Principle 2: Break Work into Finite Pieces and Define Person/Organization Responsible for Work |
5 | |||
Principle 3a: Integrate Scope, Schedule and Budget into a Performance Measurement Baseline |
6 | |||
Principle 3b: Control Changes to the Baseline |
6 | |||
Principle 4: Use Actual Costs Incurred and Recorded in Accomplishing the Work Performed |
7 | |||
Principle 5: Objectively Assess Accomplishments at the Work Performance Level |
7 | |||
Principle 6a: Analyze Significant Variances From the Plan |
9 | |||
Principle 6b: Prepare an Estimate at Completion Based on Performance to Date and Work to be Performed |
9 | |||
Principle 7: Use EVMS Information in the Companys Management Processes |
9 | |||
APPENDIX: GLOSSARY OF TERMS | 11 |
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Enclosure 1 CUBRC-Tetraphase Revised SOW | October 23, 2011 |
OVERVIEW
Earned Value Management (EVM) is a program management tool, technique, and discipline that facilitates systematic planning for and monitoring of, high value, complex projects. It integrates a projects scope of work with the related budget and schedule to permit detailed assessment of overall performance during the life of the project.
Several government-wide guidance documents govern the definition and use of EVM systems. Guidelines outlining the qualities and characteristics of an EVM system are set forth in the American National Standards Institute/Electronic Industries Alliance (ANSI/EIA) Standard-748 (most current version). More detailed and specific guidance and direction is contained in OMB Circular A-11, Preparation, Submission and Execution of the Budget, specifically in Part 7 of that Circular A-11, Planning, Budgeting, Acquisition, and Management of Capital Assets, and its supplement, the Capital Programming Guide. Based on this collective OMB guidance, EVMS is intended to be used on those parts of acquisitions that will involve developmental effort. This would include not only those acquisitions designated by the agency as major systems but also those acquisitions that include significant developmental, modification, or upgrade during the operational or steady-state phase of a program.
The FAR rule on EVMS became effective on July 5, 2006. Its purpose is to implement EVMS policy in accordance with OMB Circular A-11. Because the new FAR coverage applies throughout the executive branch and to agencies with disparate definitions of and processes and procedures for major systems acquisitions, the FAR Council decided against a one-size-fits all approach and left several significant aspects of the detailed implementation up to the discretion of each covered agency.
The FAR and Health and Human Services Acquistion Regulations (HHSAR) language for EVMS will be utilized for all construction or Information Technology (IT) projects. Since most of the acquisitions at the Biomedical Advanced Research and Development Agency (BARDA) are unique in that most acquisitions are not Information Technology projects or construction projects, BARDA is developing EVM language that incorporates the 7 Principles of Earned Value Management. These principles allow flexibility to an EVM system structure but still meet the spirit of the ANSI/EIA Standard-748. It also incorporates discipline in implementation and operations and also provides the same reporting data outlined by OMB.
The Seven Principles of Earned Value Management are as follows:
1. | Plan all work scope to completion |
2. | Break down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule and cost objectives |
3. | Integrate program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments can be measured. Control changes to the baseline. |
4. | Use actual costs incurred and recorded in accomplishing the work performed. |
5. | Objectively assess accomplishments at the work performance level. |
6. | Analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and work to be performed. |
7. | Use earned value information in the companys management processes. |
8. |
EVM IMPLEMENTATION TIERS
BARDA will be implementing a tiered approach to EVM based on the type of acquisition, size of the acquisition and the technical readiness level. There are three tiers and they are as follows:
TIER 1
For all construction contracts and IT contracts the ANSI/EIA-748 Standard for Earned Value Management Systems will apply and all relevant FAR/HHSAR clauses pertaining to EVMS will be incorporated in the contract. The National Defense Industrial Association (NDIA) Program Management Systems Committee (PMSC) ANSI/EIA-748 Standard for Earned Value Management Systems Intent Guide should be used as guidance.
TIER 2
For countermeasure research and development contracts that have a total acquisition costs greater than or equal to $25 million and have a Technical Readiness Level (TRL) of less than 7 will apply EVM principles for tracking cost, schedule and technical performance that comply with the 7 Principles of EVM Implementation.
TIER 3
For countermeasure research and development contracts that are greater than or equal to $10 million but less than $25 million and/or have a TRL of less than 7 will apply EVM principles for tracking cost, schedule and technical performance that comply with the 7 Principles of EVM Implementation.
This Guide is an explanation of the intent of what is expected for a Tier 2 or 3 system implementation of the 7 Principles of EVM.
SEVEN PRINCIPLES OF EVM
1.6 | Principle 1: Plan all Work Scope |
In a performance measurement system implementation the Statement of Work (SOW) should reflect all work that is to be performed. In a 7 Principles implementation a Work Breakdown Structure (WBS) shall be developed to include all elements of the SOW. The level of the WBS may not be as detailed as in a Tier 1 implementation. It would be developed at a higher level, such as level three or four. It is beneficial and required to develop a WBS dictionary that
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explains what work is going to be performed in each WBS. This will ensure that the contractor has identified all work scope and left no major work undefined. It is recommended that the work packages descriptions are clear and detailed so that there is an understanding of the work that is to be performed in the work packages. For the 7 Principles implementation programs it would be acceptable for the WBS Dictionary be expanded to include information that would normally be kept on a Work Authorization Document, such as charge numbers associated with the work, period of performance, the manager who is responsible for the work, and budget associated with the WBS. The additional WAD info would only be added to the lowest level (i.e. level 3 or 4) of the WBS. The roll up level WBS would only include scope. By doing this documentation is limited to one document instead of two.
By developing a WBS and a WBS Dictionary/Work Authorization Document the work scope has been defined but the documentation is greatly reduced and the costs associated with developing and updating the documentation is reduced. The intent of the combination document is not to reduce the level of information provided to the government but to reduce the amount of documents that need to be produced.
1.7 | Principle 2: Break Work into Finite Pieces and Define Person/Organization Responsible for Work |
In a 7 Principles Tier 2 implementation it is recommended that the work be broken into finite pieces in the schedule tool. It is recommended to plan the work by the lowest level WBS. The lowest level WBS (level 3 or 4) should be the control account and the activities would act as the work packages. For Tier 2 programs that are of larger value (greater than $25M) the expectation is that the control account will be at least at level 4 and potentially level 5. Most of the normal functions accomplished when scheduling will be required on a 7 Principles Tier 2 implementation. These normal functions include, network scheduling, horizontal and vertical traceability, forecasting schedule start and completion dates, and running critical path analysis. As part of vertical traceability it is expected that all contract milestones will be listed on the schedule.
The schedule should include but is not limited to include the following fields:
WBS number
Control Account number
Work package number
Task name
Duration
Baseline Start and Finish Dates
Actual Start and Finish Dates
Forecast Start and Finish Dates
Predecessor/Successors
Activity Percent Complete
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All the work scheduled at the lowest level WBS should be identified by a single responsible manager. This manager, known as a Control Account Manager should be identified in the schedule tool and/or in a cost tool. In a 7 Principles implementation, only individuals at the lowest level WBS need be identified and there is no requirement for the costs to roll up by organization, although if it is not cost intensive or tool restricted then developing the OBS is recommended. In many cases, BARDA will provide the top three levels of the WBS for the contractor to use.
1.8 | Principle 3a: Integrate Scope, Schedule and Budget into a Performance Measurement Baseline |
This principle integrates the work scope, the schedule and the budget into a performance measurement baseline. Since we discussed work scope and schedule the focus of this principle is the incorporation of the budget in a time-phased manner. The budget must be integrated with the scope of work and the schedule into a Performance Measurement Baseline (PMB). An accepted way of incorporating the budget and integrating with the scope and schedule is to resource load the Microsoft Project (or other scheduling tool) schedule. This is done by loading the individual people and their loaded rate into the tool. This budget data will be input at the work package level with a rate that includes the indirect costs. The budget will have to have the capability to be rolled up to the control account level and will need to be reported in a way that provides the responsible manager (Control Account Manager) with information needed to manage the program. Resource loading of the schedule is not the only way to incorporate the budget. As long as the budget in the budget/EV tool is linked to the schedule activities and it is flexible to change when schedule baseline dates change, then loading the budget in the Budget/EV tool is an acceptable way to integrate the cost and schedule baselines.
It is recommended that management reserve and undistributed budget be utilized in the budgeting process. Undistributed budget is budget that has not yet been distributed to a control account and it requires additional time to plan the work and distribute the budget to a control account. It is a temporary holding account and budget should only stay in Undistributed Budget for one or two months. If the work scope is easily identified to all the control accounts then the use of Undistributed Budget may not be necessary.
Management Reserve is budget that is set aside, normally by the Program Manager, to be used to budget future but currently unknown tasks. It is associated with risk issues and is to be used to mitigate risk. It is not part of the Performance Measurement Baseline and it should not be used for out of scope work and to cover overruns.
Principle 3b: Control Changes to the Baseline
A properly controlled PMB is crucial to effective program management. The timely and accurate incorporation of contractual changes ensures that the information generated from the execution of the baseline plan provides an accurate picture of progress and facilitates correct management actions and decisions. The accurate and timely incorporation of authorized and negotiated changes into the PMB ensures that valid performance measurement information is generated for the new scope being executed. Near term new scope effort should be planned and have budget in control accounts. Far term new scope effort that cannot be reasonably planned in the near term can either be put in planning packages in the control account or left in Undistributed Budget if the control account has not been identified. The timely and accurate incorporation of authorized and negotiated changes into the PMB ensures that valid performance measurement information is generated for the new scope being executed. Budget revisions are made when work is added to the contract and are traceable from authorized contract target costs to the control account budgets or from management reserve. Management reserve may be used for future work when additional in-scope work has been identified.
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Retroactive changes to the baseline may mask variance trends and prevent the use of performance data to project estimates of cost and schedule at completion. Controlling retroactive adjustments, which should only be made in the current period, if possible, is imperative because they could arbitrarily eliminate existing cost and schedule variances.
The use of program budget logs should be used to track and log all budget changes. The ability to track budget values for both the internal and external changes will help in the maintenance of the performance measurement baseline from program start to completion. Contractor is expected to utilize baseline change documentation facilitating the change. It should provide the rationale/justification, approval process, work scope additions or deletions, dollars, changes to schedules, estimate at completion, etc. It should also include contractual change documents for external changes, such as a contract modification, letter to proceed, not to exceed letter, change order, etc., that transmit and authorize the change or addition to work, budget, and schedule. Other documents that should change if a change of scope has been authorized is: Statement of Work, WBS (changes if applicable); WBS Dictionary (additions or deletions to scope); work authorization documents authorizing new scope, schedule and budget; schedules.
Principle 4: Use Actual Costs Incurred and Recorded in Accomplishing the Work Performed
Some of the new acquisitions at BARDA will be required to be compliant with the Cost Accounting Standards. For 7 Principles implementation contractors must utilize a work order/job order/task code charge number structure that uniquely identifies costs at the control account level. This will allow for accumulation and summarization of costs to higher levels of the work breakdown structure. Actual costs are accumulated in the formal accounting system in a manner consistent with the way the related work is planned and budgeted. Actual costs reported in the performance reports agrees with the costs recorded in the accounting system or can be explained as timing differences. The contractor will have to be able to incorporate and reconcile to the accounting system actual costs on their Contract Performance Reports (CPR) to the customer. Depending on the amount of material and subcontractors on the program, it is beneficial for management purposes, to include accruals, or estimated actuals, for these costs. Since material and subcontractor invoices are not paid and recorded in the accounting system for up to several months after the work has been planned, performance data will be skewed. Accruing or estimating actual costs based on receipt (for material) and expended hours for subcontractors will alleviate this issue. The use of accrual/estimated actuals should be reviewed on a case by case basis depending on the size of program, the amount of material or subcontractor budget and costs. If the material and subcontract effort is minimal then the time and effort needed to manage the accruals would outweigh the benefit of having the costs accrued since the performance data would only be minimally affected.
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If the subcontractor has a fixed price contract the prime contractor, then the prime contractor must report actual costs in line with the work that is accomplished. The way this is accomplished is to record the actual costs equal to the work that was performed on the CPR.
1.9 | Principle 5: Objectively Assess Accomplishments at the Work Performance Level |
In order to meet this Principle, the scheduling of the scope of work in work packages or activities need to incorporate measurable units or milestones in order to objectively assess accomplishments or obtain what we call earned value. These units or milestones are given a value based on labor resources needed to accomplish the work (which becomes the Budgeted Cost of Work Scheduled or BCWS). When they are accomplished (known as Budgeted Cost of Work Performed or BCWP) they receive the value associated with the budget which measures progress.
Schedule status to measure progress needs to be on at least on a monthly basis although it is preferred on a bi-weekly basis. As part of the status process progress dates, such as actual start/complete and forecast start/complete need to be updated.
Since Microsoft Project seems to be the schedule tool of choice by most contractors, there are four types of earned value methodologies utilized by Microsoft Project of which two assess progress by the completion of milestones and they are the 50/50 and 0/100 methodologies. In both cases, progress is reported for completion milestones and in the 50/50 methodology fifty percent of the value of the work package/activity is credited for starting the work. The other two earned value methodologies are assessed percent complete (also know as Supervisors Estimate) and level of effort (LOE). All four methodologies are legitimate earn value measurement techniques but the assessed percent complete based or supervisors estimates are highly discouraged. The reason is that it is highly subjective and is not based on any quantifiable criteria. BARDA will not accept these earned value methodologies unless approved as an exception on a case by case basis. If percent complete on work packages is used with objective measurable activities, the contractor must show distinct relationship between the budget planned at the work package level and the value earned at the activity level. If this is done properly then the measurement will be objective and the schedule variance will be clearly understood and easy to explain. If this is not done properly then schedule activities are not aligned with the budget in the performance measurement baseline and schedule variances will not be easy to understand. If the latter is the case, BARDA will not accept that as an acceptable earned value methodology.
There are built in weaknesses with the 0/100 and 50/50 methodologies also. If the responsible manager is being asked to plan their work in monthly increments in order to utilize the 0/100 methodology then they may be asked to break the work up in pieces that dont make logical sense or represent the natural ending of the work. Also the 50/50 methodology, which is usually used for a two month work package, will provide skewed monthly data if the resources in the work package are not loaded equally for each month. It will give an artificial positive or negative schedule variance the first month and vice versa the next month.
Additional earned value methodologies, such as the weighted milestone methodology and percent complete with milestone gates may be utilized. The weighted milestone method allows value to be earned based on the resource value in each month, which eliminates artificial schedule variances.
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For all discrete measurable work packages or control accounts, there must be an activity in each month to measure. Gaps, in which there is nothing to measure in a month or months is not acceptable.
For subcontractors that have a fixed price contract with the prime contractor, the expectation is that there will be no cost variance. The ACWP reported on the CPR will equal the BCWP earned, regardless of the payment schedule with subcontractor.
Principle 6a: Analyze Significant Variances From the Plan
The purpose of this principle is to ensure that the earned value data is analyzed by the contractor and reported to the customer. The 7 Principles programs should be able to calculate the cost variance (BCWP minus Actual Cost of Work Performed (ACWP) and the schedule variance (BCWP minus BCWS) at least on a cumulative basis. It is recommended that variances be calculated on a current month basis also. The EVM system should also provide both monthly and cumulative Cost Performance Index (BCWP divided by ACWP) and Schedule Performance Index (BCWP divided by the BCWS). This data should be provided at the control account level and at the roll up levels and it needs to be in a format for Control Account Managers and program management to be able to utilize in managing the work.
It is also recommended that the To-Complete Performance Index (TCPI) be included in the Control Account Manager performance report. The TCPI is a valuable index that calculates the cost performance the control account needs to perform at in order to complete the work within the current reported EAC. When the TCPI is compared against the cumulative CPI it gives a good indication whether or not the current EAC is reasonable. For example, if a cumulative CPI is .85 and the TCPI calculates to equal 1.15 that is the performance factor that work would need to perform at in order to meet the current EAC. If the cumulative CPI is .85 then it can be determined that the current EAC might not be reasonable. It allows management and Project Controls the opportunity to question the Control Account Manager as to the validity of the current EAC. As a rule in thumb if the deviation between the CPI and the TCPI is greater than .2 then the CAM should reassess the control account EAC.
These reports, which should be provided monthly, should also include the current Budget at Completion (BAC) and the current Estimate at Completion (EAC). In addition, it would be a plus if the CAM could see a report with their time-phased spread of hours and dollars for their budget plan (BCWS), work accomplished (BCWP) and actual costs (ACWP).
For all variances that exceed the contractual variance threshold will include a description of what caused the variance, impact to the control account and the program, and a corrective action.
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Principle 6b: Prepare an Estimate at Completion Based on Performance to Date and Work to be Performed
Providing an updated EAC is a prime concern of the customer and the contractor. Therefore a robust EAC process should be in place whether the program is ANSI compliant or not.
Based on the performance to date the Estimates at Completion can be updated on a monthly basis by the Control Account Manager in the scheduling tool during the status process or in the cost/EVM tool at the end of the months process prior to submittal of the EVM report. The EAC is an element of the performance measurement system that needs to accurately reflect the contractors best estimate of what it will cost to complete the project.
Program management should be able to validate control account managers EACs by looking at performance indices, such as the To-Complete Performance Index, as well as independent statistical EACs.
Principle 7: Use EVMS Information in the Companys Management Processes
One of the key areas that concerns government Program Management Offices (PMO) is the level of importance that contractors place on EVM as a management tool. During a site visit, such as conducting an Integrated Baseline Review, the PMO gauges what the interest, knowledge, and most importantly, the usage of the performance measurement data in managing the program. They want to know that the managers on the program, including the program manager, have received some earned value training. The level of involvement and use of the EVM data to manage their schedule, cost and technical issues is ascertained by questions. The PMO can also tell by how robust the EACs are and if the variance narratives are being written with impacts to the program and corrective actions being monitored by the contractor. It is important that the contractors management team, including the Program Manager, utilize the data from the performance measurement system as a management tool. They should be knowledgeable and understand the data. They should know what is causing the variances and ensure that the variance narratives are written properly and answer what the issues, impacts and corrective actions are. They should be able to demonstrate that they use the information to assist them in the management decision process. They should hold their Control Account Managers accountable to use the data and write clear proper variance analysis report (VAR). If the Control Account Manager does not write a proper VAR then Project Controls needs to help instruct them how to do it. It is recommended that prior to the Earned Value report be sent to the government that the Program Manager has a meeting with the Control Account Managers and Project Control and review the data and ensure that the variance analysis is complete and that the Program Manager agrees with it. This review is also used to ensure that the EACs are acceptable to the Program Manager, who is ultimately responsible for the program EAC. This is an efficient and quick way to make any adjustments to the earned value report since all the key personnel are in one room. If the data appears to be unreliable then the PM needs to hold Project Controls accountable to ensure that they are using discipline in changing baselines, assessing process properly, and capturing actual costs to ensure that the data that is reported is accurate.
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APPENDIX: GLOSSARY OF TERMS
Actual Cost of Work Performed (ACWP) |
The costs actually applied and recorded in accomplishing the work performed within a specified period. |
Actual Direct Cost |
Those costs identified specifically with a contract, based upon the contractors cost identification and accumulation system as accepted by the cognizant DCAA representatives. (See Direct Costs). |
Advance Agreement (AA) |
An agreement between the contractor and the Contract Administration Office concerning the application of an approved earned value management system to contracts within the affected facility. |
Authorized Work |
That effort which has been authorized and is on contract, or that for which authorized contract costs have not been agreed to but for which written authorization has been received. |
Baseline |
(See Performance Measurement Baseline). |
Budget at Completion (BAC) |
The sum of all budgets (BCWS) allocated to the contract. Synonymous with the term Performance Measurement Baseline. |
Budgeted Cost for Work Performed (BCWP) |
The sum of the budgets for completed Work Packages and completed portions of open Work Packages, plus the appropriate portion of the budgets for level of effort and apportioned effort (Also see Earned Value). |
Budgeted Cost for Work Scheduled (BCWP) |
The sum of the budgets for completed Work Packages, planning packages, etc., scheduled to be accomplished (including in-process Work Packages), plus the amount of level of effort and apportioned effort scheduled to be accomplished within a given time period. |
Change Order (CO) |
A formal authorization by the Procuring Contracting Officer for a change of scope to an existing contract |
Contract Modification |
A written and binding authorization to proceed created after change proposal negotiations. |
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Contract Budget Base (CBB) |
The negotiated contract cost plus the estimated cost of authorized unpriced work, where: (1) Negotiated Contract Cost is that cost on which contractual agreement has been reached. For an incentive contract, it is the definitized contract target cost plus/minus the value of changes which have been priced and incorporated into the contract through contract change order or supplemental agreement. For fixed-fee contracts, it is the negotiated estimated cost. Changes to the estimated cost will consist only of the formal contract modifications or change orders or change in the contract statement of work, not for cost growth, and |
(2) Estimated cost of authorized, unpriced work is the estimated cost (excluding fee or profit) for that work for which written authorization has been received, but for which definitized contract prices have not been incorporated into the contract through supplemental agreement.
Control Account |
A management control point at which actual costs can be accumulated and compared to budgeted cost for work performed. A control account is a natural control point for cost/schedule planning and control since it represents the work assigned to one responsible organizational element on one contract work breakdown structure (CWBS) element. |
Control Account Manager (CAM) |
A member of a functional organization responsible for task performance detailed in a Control Account and for managing the resources authorized to accomplish the tasks. |
Control Account Plan (CAP) Report |
A CAP report is a timephased report which reflects all the work and effort to be performed in a control account. The CAP report will reflect the hours and dollars by element of cost (labor, subcontract, ODC, etc). |
Contract Performance Report (CPR) |
The monthly report submitted to the customer showing the current, cumulative and at completion status, the performance measurement baseline, manpower loading, and a narrative explanation of significant program variances. |
Contract Target Cost |
The dollar value (excluding fee or profit) negotiated in the original contract plus the cumulative cost (excluding fee or profit) applicable to all definitized changes to the contract. It consists of the estimated cost negotiated for a cost plus fixed fee contract and the definitized target cost for an incentive contract. The contract target cost does not include the value of authorized/un-negotiated work, and is thus equal to the contract budget base only when all authorized work has been negotiated/definitized. |
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Cost Performance Index (CPI) |
An efficiency rating reflecting a projects budget performance - either over or under. Measured as a ratio of the budgeted value of work accomplished versus the actual costs expended for a given project time period. The formula for CPI is BCWP/ACWP. |
Discrete Effort |
Program effort that has a measurable output, product or service. |
Direct Costs |
Those costs (labor, material, etc.) that can be reasonably and consistently related directly to service performed on a unit of work, and are charged directly to the contract, without distribution to an overhead unit. |
Earned Value |
See Budgeted Cost for Work Performed (BCWP) |
Earned Value Management System (EVMS) |
A project management system utilized for measuring project progress in an objective manner. Combines measurements of scope, schedule, and cost in a single integrated system. |
Estimate at Completion (EAC) |
A value (expressed in dollars and/or hours) developed to represent a realistic appraisal of the final cost of tasks when accomplished. Its the sum of direct & indirect costs to date plus the estimate of costs for all authorized Work remaining. The EAC = ACWP + the Estimate-to-Complete. |
Estimate to Completion (ETC) |
A value (expressed in dollar and/or hours) developed to represent a realistic appraisal of the cost of the work still required to be accomplished in completing a task. |
Indirect Costs |
Represents those costs, because they are incurred for common or joint objectives, are not readily subject to treatment as direct costs. (See overhead). |
Integrated Baseline Review (IBR) |
An Integrated Baseline Review (IBR) is a formal review led by the Government Program Manager and Technical Support Staff. An IBR is conducted jointly with the Government and their Contractor counterparts. The purpose of an IBR is to: verify the technical content of the Performance Measurement Baseline (PMB); assess the accuracy of the related resources (budgets) and schedules; identify potential risks. |
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Integrated Master Plan (IMP) |
The overall program plan including the work definition, technical approach, performance criteria, and completion criteria. |
Integrated Master Schedule (IMS) |
The IMS expands the IMP to the work planning level. It defines the tasks, their durations, milestones, milestone dates which relate to the IMP completion criteria, and interdependencies required to complete the program. The IMP and IMS are used to track and execute the program. |
Integrated Product Team (IPT) |
A grouping of project personnel along project objective lines rather than along organizational lines. Integrated Product Teams are work teams that represent a transition from a functional organization structure to a multi-functional project objective arrangement. |
Internal Replanning |
Replanning actions performed by the program for remaining effort within the recognized total allocated budget. |
Level of Effort (LOE) |
Work that does not result in a final product, e. g., liaison, coordination, follow-up, or other support activities, and which cannot be effectively associated with a definable end product process result. It is measured only in terms of resources actually consumed within a given time period. |
Management Reserve (MR) |
An amount of the total Contract Budget Base (CBB) withheld for management control purposes rather than designated for the accomplishment of a specific task or set of tasks. It is not a part of the Performance Measurement Baseline. |
Negotiated Contract Target Cost |
The estimated cost negotiated in a Cost Plus Award Fee (CPAF), Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF) or Fixed Price Incentive Fee (FPIF) contract. |
Original Budget |
The budget established at, or near, the time the contract was signed, based on the negotiated contract cost. |
Overhead |
Indirect labor and material, supplies and services costs and other charges, which cannot be consistently identified with individual programs. |
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Other Direct Costs |
A group of accounting elements which can be isolated to specific tasks, other than labor and material. Included in ODC are such items as travel, computer time, and services |
Performance Measurement Baseline (PMB) |
The time-phased budget plan against which contract performance is measured. It is formed by the budgets assigned to scheduled Control Accounts and the allocation of overhead costs. For future effort, not planned to the Control Account level, the performance measurement baseline also includes budgets assigned to higher level WBS elements, and undistributed budgets. It equals the total assigned budget less management reserve. |
Performing Organization |
A defined unit within the program organization structure, which applies the resources to performs the authorized scope of work. |
Planning Package |
A logical aggregation of far term work within a Control Account that can be identified and budgeted but not yet defined into Work Packages. |
Reprogramming |
Replanning of the effort remaining in the contract, resulting in a new budget allocation which exceeds the contract budget base. The resulting baseline is called an Over Target Baseline (OTB). |
Responsible Organization |
A defined unit within programs organization structure that is assigned responsibility for accomplishing specific tasks. |
Risk Register |
Is a tool commonly used in project planning and organizational risk assessments. It is often referred to as a Risk Log. It is used for identifying, analyzing and managing risks. |
Schedule Performance Index (SPI) |
An efficiency rating reflecting how quickly or slowly project work is progressing. Measured as a ratio of work accomplished versus work planned for a given period of time. The formula for SPI is BCWP/BCWS. |
Significant Variances |
Those differences between planned and actual cost and schedule performance which require further review, analysis, or action. Appropriate thresholds are established as to the magnitude of variances which will require variance analysis. |
56
Statistical Estimate at Completion |
Is a single point estimate that can be quickly prepared and used to test the reasonableness of the current cost estimates and budget and to indicate when a comprehensive EAC should be prepared |
To-Complete Performance Index (TCPI) |
An efficiency rating that provides a projection of the anticipated performance required to achieve the EAC. TCPI indicates the future required cost efficiency needed to achieve a target EAC (Estimate At Complete). Any significant difference between TCPI and the CPI needed to meet the EAC should be accounted for by management in their forecast of the final cost. |
Total Allocated Budget (TAB) |
The sum of all budgets allocated to the contract. Total allocated budget consists of the performance measurement baseline and all management reserve. The total allocated budget will reconcile directly to the Contract Budget Base (CBB). Any differences will be documented as to quantity and cause. |
Undistributed Budget (UB) |
Budget applicable to contract effort which has not yet been identified to WBS elements at or below the lowest level of reporting to the Government. |
Variance Analysis Report (VAR) |
The internal report completed by the Control Account Manager and submitted, through the Intermediate Manager, to the program manager for those Control Accounts which have variances in excess of established thresholds. |
Variances |
(See Significant Variances). |
Work Authorization Document (WAD) |
A form used to formally authorize and budget work to the Control Account Manager. This document must include, as a minimum, the Control Account number, Statement of Work, scheduled start and finish dates, budget, and the identity of the CAM. It must be approved by Intermediate Manager, and be agreed to by the Control Account Manager. |
Work Breakdown Structure (WBS) |
A product-oriented, family-tree composed of hardware, software, services, data and facilities which results from system engineering efforts. A work breakdown structure displays and defines the product(s) to be developed and/ or produced and relates the elements of work to be accomplished to each other and to the end product. |
57
(1) Program WBS. The work breakdown structure that covers the acquisition of a specific defense material item and is related to contractual effort. A program work breakdown structure includes all applicable elements consisting of at least the first three levels of the work breakdown structure and extended by the program manager and /or contractor(s). A program work breakdown structure has uniform element terminology, definition, and placement in the family tree structure. |
(2) Contract WBS (CWBS) The complete WBS for a contract, developed and used by a contractor within the guidelines of MIL-Handbook 881 (latest revision) or NASA WBS Handbook (insert reference) or other customer guidelines and according to the contract work statement. It includes the approved work breakdown structure for reporting purposes and its discretionary extension to the lower levels by the contractor, in accordance with MIL-Handbook 881 and the contract work statement. It includes all the elements for the products (hardware, software, data, or services) which are the responsibility of the contractor. |
Work Packages |
Detailed short-span jobs, or material items, identified by the contractor for accomplishing work required to complete the contract. A Work Package has the following characteristics. |
1. It represents units of work at levels where work is performed. |
2. It is clearly distinguishable from all other work packages. |
3. It is assignable to a single organizational element. |
4. It has scheduled start and finish dates and, as applicable, interim milestones, all of which are representative of physical accomplishment. |
5. It has a budget or assigned value expressed in terms of dollars, man-hours or other measurable units. |
6. Its duration is limited to a relatively short span of time or it is subdivided by discrete value milestones to facilitate the objective measurement of work performed. |
7. Itis integrated with detailed engineering, manufacturing, or other schedules. |
Work Package Budgets |
Resources which are formally assigned by the CAM to accomplish a Work Package, expressed in dollars and/or hours. |
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Attachment 11
PROPRIETARY DATA SUMMARY LISTING
OF
TETRAPHASE PHARMACEUTICALS, INC.
Exhibit A
Identification and Assertion of Restrictions on the Governments Use, Release, or
Disclosure of Technical Data or Computer Software.
The Offeror asserts for itself, or the persons identified below, that the Governments rights to use, release, or disclose the following technical data or computer software should be restricted. Assertions in the table below shall not create any obligation to deliver any data not otherwise required under this contract.
Technical Data or Computer Software to be Furnished
|
Basis for
|
Asserted Rights
|
Name of Person
|
|||
Pre-existing Data - Such data may include, without limitation, the data or categories of data as noted in Exhibit A, attached hereto, as may be amended from time to time. | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.22714 Alt. II; not permitted to be disclosed outside of the | Tetraphase Pharmaceuticals, Inc. | |||
Data to be produced concurrently but with non-federal funds at private expense - Such data may include, without limitation, the data or categories of data as noted in Exhibit B, attached hereto, as may | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.22714 Alt. II; not permitted to be disclosed outside of the | Tetraphase Pharmaceuticals, Inc. |
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Exhibit A
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Attachment 11
PROPRIETARY DATA SUMMARY LISTING
OF
TETRAPHASE PHARMACEUTICALS, INC.
Exhibit B
Identification and Assertion of Restrictions on the Governments Use, Release, or Disclosure of Technical Data or Computer Software.
The Offeror asserts for itself, or the persons identified below, that the Governments rights to use, release, or disclose the following technical data or computer software should be restricted. Assertions in the table below shall not create any obligation to deliver any data not otherwise required under this contract.
Technical Data or Computer
|
Basis for Assertion** |
Asserted Rights
|
Name of Person Asserting Restrictions **** |
|||
Pre-existing Data Such data may include, without limitation, the data or categories of data as noted in Exhibit A, attached hereto, as may be amended from time to time. | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.22714 Alt. II; not permitted to be disclosed outside of the | Tetraphase Pharmaceuticals, Inc. | |||
Data to be produced concurrently but with non-federal funds at private expense Such data may include, without limitation, the data or categories of data as noted in Exhibit B, attached hereto, as may | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.22714 Alt. II; not permitted to be disclosed outside of the | Tetraphase Pharmaceuticals, Inc. |
Exhibit B
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EXHIBIT B
CPFF FAR and HHSAR CLAUSES
Applicable to Subcontracts under Prime Contract HHSO100201200002C
It is intended that the referenced clauses shall apply to Tetraphase in such manner as is necessary to reflect the position of Tetraphase as a subcontractor to CUBRC, to implement Tetraphases obligations to the United States Government, and to enable CUBRC to meet its obligations under its Prime Contract. In such clauses, unless otherwise specifically stated, the term Contractor means Tetraphase except in the term Prime Contractor, subcontractor means Tetraphases lower tier subcontractors, Contract means this Subcontract, both Contracting Officer and Government mean CUBRC except in the terms Government Property, Government-Owned Property, and Former Government Surplus Property or as otherwise indicated. The above substitutions do not apply to those clauses pertaining to Tetraphases proprietary financial information or rights in intellectual property.
The following U.S. Government Clauses are incorporated herein by reference.
FAR CLAUSES INCORPORATED BY REFERENCE
52.202-1 | Definitions | JUL 2004 | ||||
52.203-3 | Gratuities | APR 1984 | ||||
52.203-5 | Covenant Against Contingent Fees | APR 1984 | ||||
52.203-6 | Restrictions On Subcontractor Sales To The Government | SEP 2006 | ||||
52.203-7 | Anti-Kickback Procedures | OCT 2010 | ||||
52.203-8 | Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity | JAN 1997 | ||||
52.203-10 | Price Or Fee Adjustment For Illegal Or Improper Activity | JAN 1997 | ||||
52.203-12 | Limitation On Payments To Influence Certain Federal Transactions | OCT 2010 | ||||
52.203-13 | Contractor Code of Business Ethics & Conduct | APR 2010 | ||||
52.203-14 | Display of Hotline Poster(s) | DEC 2007 | ||||
52.204-4 | Printed or Copied Double-Sided on Postconsumer Fiber Content Paper | MAY 2011 | ||||
52.204-7 | Central Contractor Registration | APR 2008 | ||||
52.204-8 | Annual Representations and Certifications | |||||
52.209-6 | Protecting the Governments Interest When Subcontracting With Contractors Debarred, Suspended, or Proposed for Debarment | DEC 2010 | ||||
52.215-2 | Audit and Records-Negotiation (except that Contracting Officer shall refer to the Government) | OCT 2010 | ||||
52.215-8 | Order of Precedence Uniform Contract Format | OCT 1997 | ||||
52.215-10 | Price Reduction for Defective Cost or Pricing Data | OCT 2010 | ||||
52.215-12 | Subcontractor Cost or Pricing Data | OCT 2010 | ||||
52.215-14 | Integrity of Unit Prices | OCT 2010 | ||||
52.215-15 | Pension Adjustments and Asset Reversions | OCT 2010 | ||||
52.215-17 | Waiver of Facilities Capital Cost of Money | OCT 1997 |
52.215-18 | Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions | JUL 2005 | ||
52.215-19 | Notification of Ownership Changes | OCT 1997 | ||
52.215-21 | Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing DataModification | OCT 2010 | ||
52.215-23 | Limitations on Pass-Through Charges | OCT 2009 | ||
52.216-7 | Allowable Cost and Payment | DEC 2002 | ||
52.216-8 | Fixed Fee | JUN 2011 | ||
52.219-4 | Notice of Price Evaluation Preference for HUBZone Small Business Concerns | JUL 2005 | ||
52.219-8 | Utilization of Small Business Concerns | JAN 2011 | ||
52.219-9 | Small Business Subcontracting Plan | JAN 2011 | ||
52.219-16 | Liquidated Damages Subcontracting Plan | JAN 1999 | ||
52.219-25 | Small Disadvantaged Business Participation Program-Disadvantaged Status and Reporting | DEC 2010 | ||
52.222-2 | Payment of Overtime Premium | JUL 1990 | ||
52.222-3 | Convict Labor | JUN 2003 | ||
52.222-19 | Child Labor-Cooperation with Authorities & Remedies | JUN 2010 | ||
52.222-21 | Prohibition Of Segregated Facilities | FEB 1999 | ||
52.222-26 | Equal Opportunity | MAR 2007 | ||
52.222-35 | Equal Opportunity For Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans | SEP 2010 | ||
52.222-36 | Affirmative Action For Workers With Disabilities | OCT 2010 | ||
52.222-37 | Employment Reports On Special Disabled Veterans, Veterans Of The Vietnam Era, and Other Eligible Veterans | SEP 2010 | ||
52.222-50 | Combating Trafficking in Persons | FEB 2009 | ||
52.222-54 | Employment Eligibility Verification | JAN 2009 | ||
52.223-18 | Encouraging Contractor Policies to Ban Text Messaging While Driving | SEP 2010 | ||
52.224-1 | Privacy Act Notification | APR 1984 | ||
52.224-2 | Privacy Act | APR 1984 | ||
52.225-1 | Buy American Act-Supplies | FEB 2009 | ||
52.225-13 | Restrictions on Certain Foreign Purchases | JUN 2008 | ||
52.227-1 | Authorization and Consent, Alternate I (Apr 1984) | DEC 2007 | ||
52.227-2 | Notice And Assistance Regarding Patent And Copyright Infringement | DEC 2007 | ||
52.227-11 | Patent Rights-Ownership By The Contractor (Note: In accordance with FAR 27.303(b)(2), paragraph (e) is modified to include the requirements in FAR 27.303(b)(2)(i) through (iv). The frequency of reporting in (i) is annual. | DEC 2007 | ||
52.227-14
Alt. II |
Rights in Data General: Alternate II, with additional permissible disclosures specified as None in the Limited Rights Notice in paragraph (g)(3). The categories of data that, if provided, would be provided with Limited Rights are described in Attachment G to this Subcontract. | DEC 2007 |
52.227-16 | Additional Data Requirements | JUN 1987 | ||
52.232-9 | Limitation On Withholding Of Payments | APR 1984 | ||
52.232-20 | Limitation of Cost | APR 1984 | ||
52.232-23 | Assignment of Claims | JAN 1986 | ||
52.233-4 | Applicable Law for Breach of Contract Claim | OCT 2004 | ||
52.242-1 | Notice of Intent to Disallow Costs | APR 1984 | ||
52.242-3 | Penalties for Unallowable Costs | MAY 2001 | ||
52.242-4 | Certification of Final Indirect Costs | JAN 1997 | ||
52.242-13 | Bankruptcy | JUL 1995 | ||
52.242-15 | Stop-Work Order, Alternate I | AUG 1989 | ||
52.243-2 | Changes--Cost-Reimbursement, Alternate V | APR 1987 | ||
52.244-2 | Subcontracts, Alternate I | OCT 2010 | ||
52.244-5 | Competition in Subcontracting | DEC 1996 | ||
52.244-6 | Subcontracts for Commercial Items | DEC 2010 | ||
52.245-1 | Government Property | JUN 2007 | ||
52.245-9 | Use and Charges | AUG 2010 | ||
52.246-9 | Inspection of Research & Development (Short Form) | APR 1984 | ||
52.246-23 | Limitation of Liability | FEB 1997 | ||
52.247-63 | Preference for U.S. Flag Air Carriers | JUN 2003 | ||
52.249-6 | Termination (Cost-Reimbursement) | MAY 2004 | ||
52.249-14 | Excusable Delays | APR 1984 | ||
52.251-1 | Government Supply Sources | APR 1984 | ||
2.253-1 | Computer Generated Forms | JAN 1991 |
DEPARTMENT OF HEALTH AND HUMAN SERVICES
ACQUISITION REGULATION (HHSAR) (48 CHAPTER 3)
CLAUSES INCORPORATED BY REFERENCE:
352.201-70 | Paperwork Reduction Act | JAN 2006 | ||||
352.202-1 | Definitions- with Alternate paragraph (h)(Jan 2006) | JAN 2006 | ||||
352.203-70 | Anti-Lobbying | JAN 2006 | ||||
352.216-70 | Additional Cost Principles | JAN 2006 | ||||
352.222-70 | Contractor Cooperation in Equal Employment Opportunity Investigations | JAN 2010 | ||||
352.223-70 | Safety and Health | JAN 2006 | ||||
352.224-70 | Privacy Act | JAN 2006 | ||||
352.227-70 | Publications and Publicity | JAN 2006 | ||||
352.228-7 | Insurance Liability to Third Persons | DEC 1991 | ||||
352.231-71 | Pricing of Adjustments | JAN 2001 | ||||
352.233-71 | Litigation and Claims | JAN 2006 | ||||
352.242-70 | Key Personnel | JAN 2006 | ||||
352.242-73 | Withholding of Contract Payments | JAN 2006 | ||||
352.242-74 | Final Decisions on Audit Findings | APR 1984 | ||||
352.270-4 | Protection of Human Subjects | JAN 2006 | ||||
352.270-6 | Restriction on Use of Human Subjects | JAN 2006 |
ARTICLE I.2. ADDITIONAL FAR CONTRACT CLAUSES INCLUDED IN FULL TEXT
This contract incorporates the following clauses in full text.
FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:
a. | FAR Clause 52.217-9, Option to Extend the Term of the Contract (Mar 2000) |
(a) The Government may extend the term of this contract by written notice to the Contractor within 30 days after the Government has completed its analysis of the deliverables associated with the applicable GO/NO GO Decision gate; provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least 30 days before the contract expires. The preliminary notice does not commit the Government to an extension.
(b) If the Government exercises this option, the extended contract shall be considered to include this option clause.
(c) The total duration of this contract, including the exercise of any options under this clause, shall not exceed 5 years.
b. | FAR Clause 52.219-28, Post-Award Small Business Program Representation (April 2009). |
(a) | Definitions . As used in this clause |
Long-term contract means a contract of more than five years in duration, including options. However, the term does not include contracts that exceed five years in duration because the period of performance has been extended for a cumulative period not to exceed six months under the clause at 52.217-8, Option to Extend Services, or other appropriate authority.
Small business concern means a concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on Government contracts, and qualified as a small business under the criteria in 13 CFR part 121 and the size standard in paragraph (c) of this clause. Such a concern is not dominant in its field of operation when it does not exercise a controlling or major influence on a national basis in a kind of business activity in which a number of business concerns are primarily engaged. In determining whether dominance exists, consideration shall be given to all appropriate factors, including volume of business, number of employees, financial resources, competitive status or position, ownership or control of materials, processes, patents, license agreements, facilities, sales territory, and nature of business activity.
(b) If the Contractor represented that it was a small business concern prior to award of this contract, the Contractor shall represent its size status according to paragraph (e) of this clause or, if applicable, paragraph (g) of this clause, upon the occurrence of any of the following:
(1) Within 30 days after execution of a novation agreement or within 30 days after modification of the contract to include this clause, if the novation agreement was executed prior to inclusion of this clause in the contract.
(2) Within 30 days after a merger or acquisition that does not require a novation or within 30 days after modification of the contract to include this clause, if the merger or acquisition occurred prior to inclusion of this clause in the contract.
(3) For long-term contracts
(i) Within 60 to 120 days prior to the end of the fifth year of the contract; and
(ii) Within 60 to 120 days prior to the date specified in the contract for exercising any option thereafter.
(c) The Contractor shall represent its size status in accordance with the size standard in effect at the time of this representation that corresponds to the North American Industry Classification System (NAICS) code assigned to this contract. The small business size standard corresponding to this NAICS code can be found at http://www.sba.gov/contractingopportunities/officials/size/index.html .
(d) The small business size standard for a Contractor providing a product which it does not manufacture itself, for a contract other than a construction or service contract, is 500 employees.
(e) Except as provided in paragraph (g) of this clause, the Contractor shall make the representation required by paragraph (b) of this clause by validating or updating all its representations in the Online Representations and Certifications Application and its data in the Central Contractor Registration, as necessary, to ensure that they reflect the Contractors current status. The Contractor shall notify the contracting office in writing within the timeframes specified in paragraph (b) of this clause that the data have been validated or updated, and provide the date of the validation or update.
(f) If the Contractor represented that it was other than a small business concern prior to award of this contract, the Contractor may, but is not required to, take the actions required by paragraphs (e) or (g) of this clause.
(g) If the Contractor does not have representations and certifications in ORCA, or does not have a representation in ORCA for the NAICS code applicable to this contract, the Contractor is required to complete the following representation and submit it to the contracting office, along with the contract number and the date on which the representation was completed:
The Contractor represents that it [ ] is, [ ] is not a small business concern under NAICS Code assigned to contract number.
[Contractor to sign and date and insert authorized signers name and title] .
EXHIBIT C
ADDITIONAL FLOW DOWN CLAUSES FROM
PRIME CONTRACT HHSO100201200002C
It is intended that the referenced clauses shall apply to Tetraphase in such manner as is necessary to reflect the position of Tetraphase as a subcontractor to CUBRC, to insure Tetraphases obligations to CUBRC and to the United States Government, and to enable CUBRC to meet its obligations under its Prime Contract. In such clauses, unless otherwise specifically stated, the term Contractor means Tetraphase except in the term Prime Contractor, Subcontractor means Tetraphases lower tier Subcontractor, Contract means this Subcontract, both Contracting Officer and Government mean CUBRC except in the terms Government Property, Government-Owned Property, and Former Government Surplus Property or as otherwise indicated. The above substitutions do not apply to those clauses dealing with Tetraphase proprietary financial information or rights in intellectual property.
The following clauses of the Prime Contract are incorporated herein.
ARTICLE B.5. ADVANCE UNDERSTANDINGS
a. | Man-in-Plant |
With seven (7) days advance notice to the Contractor in writing from the Contracting Officer, the Government may place a man-in-plant in the Contractors facility, who shall be subject to the Contractors policies and procedures regarding security and facility access at all times while in the Contractors facility.
b. | Security Plan |
No Security Plan is required for this effort due to an approved security waiver dated 6 December 2011.
c. | Subcontracts and Consultants |
Award of any FFP subcontract or FFP consulting agreement in excess of $150,000 or any cost reimbursement subcontract or consulting agreement shall not proceed without the prior written consent of the Contracting Officer via a Contracting Officer Authorization (COA) Letter upon review of the supporting documentation required by FAR Clause 52.244-2, Subcontracts. After receiving written consent of the subcontract by the Contracting Officer, a copy of the signed, executed subcontract and consulting agreement shall be provided to the Contracting Officer.
CUBRC shall undertake its best efforts to secure any required approvals of subcontracts, consulting agreements and/or modifications in furtherance of the Prime Contract to which Tetraphase is a party.
d. | Site Visits and Inspections |
At the discretion of the USG and independent of activities conducted by the Contractor, with ten (10) business days notice to the contractor, the USG reserves the right to conduct site visits and inspections on an as needed basis.
e. | Invoices - Cost and Personnel Reporting, and Variances from the Negotiated Budget |
The Contractor agrees to provide a detailed breakdown on invoices of the following cost categories:
a. Direct Labor - List individuals by name, title/position, hourly/annual rate, level of effort (actual hours or % of effort), breakdown by task performed by personnel, and amount claimed.
b. Fringe Benefits - Cite rate and amount
c. Overhead - Cite rate and amount
d. Materials & Supplies - Include detailed breakdown when total amount is greater than $1,000.
e. Travel - Identify travelers, dates, destination, purpose of trip, and amount. Cite COA, if appropriate. List separately domestic travel, general scientific meeting travel, and foreign travel.
f. Consultant Fees - Identify individuals and amounts.
g. Subcontracts - Attach Subcontractor invoice(s). Cite applicable COA or notification.
h. Equipment - Cite authorization and amount.
i. Other Direct Costs - Include detailed breakdown when total amount is greater than $1,000.
j. G&A - Cite rate and amount.
k. Total Cost
l. Fixed Fee
m. Total CPFF
Monthly invoices must include the cumulative total expenses to date, adjusted (as applicable) to show any amounts suspended by the Government. In order to verify allowability, further breakdown of costs may be requested at the Governments discretion.
f. | Confidential Treatment of Sensitive Information |
The Contractor shall guarantee strict confidentiality of any information/data of a sensitive nature that is provided to the Contractor by the Government during the performance of the contract. The Government has determined that the information/data that the Contractor will be provided during the performance of the contract is of a sensitive nature.
Disclosure of information/data that is sensitive in nature, in whole or in part, by the Contractor can only be made after the Contractor receives prior written approval from the Contracting Officer. Whenever the Contractor is uncertain with regard to the proper handling of information/data under the contract, the Contractor shall obtain a written determination from the Contracting Officer. (See also HHSAR clause 352.224-70).
Notwithstanding the foregoing, such information/data shall not be deemed of a sensitive nature with respect to the Contractor for purposes of this contract if such information/data: (a) was already known to the Contractor; (b) was generally available or known, or was otherwise part of the public domain, at the time of its disclosure to the Contractor; (c) became generally available or known, or otherwise became part of the public domain, after its disclosure to, or, with respect to the information/data by, the Contractor through no fault of the Contractor; (d) was disclosed to the Contractor, other than under an obligation of confidentiality or non-use, by a third party who had no obligation to the Government that controls such information/data not to disclose such information/data to others; or (e) was independently discovered or developed by the Contractor, as evidenced by its written records, without the use of information/data belonging to the Government.
Contractor may disclose information/data of a sensitive nature provided by the Government to the extent that such disclosure is: (a) made in response to a valid order of a court of competent jurisdiction or other supra-national, federal, national, regional, state, provincial or local governmental or regulatory body of competent jurisdiction; provided , however , that the Contractor shall first have given notice to the Government and give the Government a reasonable opportunity to quash such order and to obtain a protective order requiring that the information/data of a sensitive nature that is the subject of such order be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued; and provided further that if a disclosure order is not quashed or a protective order is not obtained, the information/data disclosed in response to such court or governmental order shall be limited to that information which is legally required to be disclosed in response to such court or governmental order; (b) otherwise required by law, in the opinion of legal counsel to the Contractor as expressed in an opinion letter in form and substance reasonably satisfactory to the Government, which shall be provided to the Government at least two (2) business days prior to the Contractors disclosure of the information/data; or (c) made by the Contractor to the Regulatory Authorities as required in connection with any filing, application or request for Regulatory Approval; provided , however , that reasonable measures shall be taken to assure confidential treatment of such information/data.
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g. | Sharing of contract deliverables within United States Government (USG) |
In an effort to build a robust medical countermeasure pipeline through increased collaboration, BARDA may share technical deliverables with USG entities responsible for Medical Countermeasure Development. In accordance with recommendations from the Public Health Emergency Medical Countermeasure Enterprise Review, agreements established in the Integrated Portfolios Portfolio Advisory Committee (PAC) Charter, Technology Transfer Agreements (TTA) between BARDA and the Defense Threat Reduction Agency and the National Institute of Allergies and Infectious Diseases (NIAID), BARDA may share technical deliverables set forth in Article F.2 with colleagues within the Integrated Portfolio. This advance understanding does not authorize BARDA to share financial information outside HHS. The Contractor is advised to review the terms of FAR Clause 52.227-14 regarding the Governments rights to deliverables submitted during performance as well as the Governments rights to data contained within those deliverables.
h. | Earned Value Management System (EVMS) Implementation Requirements |
The Contractor and BARDA agree that the EVMS implementation requirements that are contained in this contract are limited to the implementation requirements outlined by the 7 Principles of Earned Value Management Tier 2 System Implementation Intent Guide contained in Attachment 9 of the contract. The total amount of this contract reflects the use of the 7 Principles of EVMS Implementation. Any EVMS implementation requirements that are beyond the intent of the 7 Principles of EVMS Implementation shall not proceed until the Contracting Officer sends a written request for a proposal to the Contractor and a bilateral modification is issued to the contract for the purposes of incorporating the additional costs for the performance of these requirements into the contract.
i. | Overtime Compensation |
No overtime (premium) compensation is authorized under the subject contract. Billing of actual hours should be limited to total productive hours in a month (8 hours/day).
ARTICLE C.2. REPORTING REQUIREMENTS
Technical Reports
In addition to those reports required by the other terms of this contract, the Contractor shall prepare and submit the following reports in the manner stated below and in accordance with the DELIVERIES Article in SECTION F of this contract and in SECTION J-List of Attachments, attached hereto and made a part of the contract.
A. | Monthly Progress Report |
This report shall include a description of the activities during the reporting period, and the activities planned for the ensuing reporting period. The first reporting period consists of the first full month of performance plus any fractional part of the initial month. Thereafter, the reporting period shall consist of each calendar month.
The Contractor shall submit a Monthly Progress Report according to the dates set forth in ARTICLE F.2. of this contract. The format should include:
A cover page that includes the contract number and title; the type of report and period that it covers; the Contractors name, address, telephone number, fax number, and e-mail address; the Tetraphase PI name, address, telephone number, fax number, and e-mail address; and the date of submission; The progress report shall conform to the requirements set forth in the DELIVERIES Article in SECTION F of this contract.
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SECTION I - EXECUTIVE SUMMARY |
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SECTION II - PROGRESS |
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SECTION II Part A: OVERALL PROGRESS - A description of overall progress. |
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SECTION II Part B: MANAGEMENT AND ADMINISTRATIVE UPDATE - A description of all meetings, conference calls, etc. that have taken place during the reporting period. Include progress on administration and management issues (e.g., evaluating, and managing subcontractor performance, and personnel changes). |
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SECTION II Part C: TECHNICAL PROGRESS - For each activity related to Gantt chart, document the results of work completed and cost incurred during the period covered in relation to proposed progress, effort and budget. The report shall be in sufficient detail to explain comprehensively the results achieved. The description shall include pertinent data and/or graphs in sufficient detail to explain any significant results achieved and preliminary conclusions resulting from analysis and scientific evaluation of data accumulated to date under the contract. The report shall include a description of problems encountered and proposed corrective action; differences between planned and actual progress, why the differences have occurred and what corrective actions are planned; preliminary conclusions resulting from analysis and scientific evaluation of data accumulated to date under the project. |
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SECTION II Part D: PROPOSED WORK - A summary of work proposed related to Gantt chart for the next reporting period and preprints/reprints of papers and abstracts. |
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SECTION III Part A: Earned Value Management Reporting: Contractor will provide a monthly Contract Performance Report (CPR) at an agreed upon reporting level (WBS level 3) using the BARDA provided WBS and a Variance Analysis Report. EVMS shall be applied to all Cost Plus Fixed Fee CLINs as part of the Integrated Master Project Plan following the Seven Principles of Earned Value Management. In accordance with FAR 52.215-2, Audit and Records-Negotiation, BARDA may request, on a quarterly or ad hoc basis that the Contractor provide raw data. BARDA may request additional data at a reporting level or at lower levels, as BARDA deems necessary. |
A Monthly Progress Report will not be required in the same month that the Quarterly or Annual Technical Progress Report is submitted.
B. Annual Progress Report
This report shall include a summation of the results of the entire contract work for the period covered. An Annual Technical Progress Report will not be required for the period when the Final Technical Progress Report is due. Monthly and Quarterly Progress Reports shall not be submitted in the same month when an Annual Progress Report is due.
The first Annual Progress Report shall be submitted in accordance with the date set forth in ARTICLE F.2. of this contract. Each Annual Progress Report shall include:
A Cover page that includes the contract number and title; the type of report and period that it covers; the Contractors name, address, telephone number, fax number, and email address; the Tetraphase PI name, address, telephone number, fax number, and e-mail address; and the date of submission; The progress report shall conform to the requirements set forth in the DELIVERIES Article in SECTION F of this contract.
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SECTION I: EXECUTIVE SUMMARY - A brief overview of the work completed, and the major accomplishments achieved during the reporting period. |
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SECTION II: PROGRESS |
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SECTION II Part A: OVERALL PROGRESS - A description of overall progress. |
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SECTION II Part B: MANAGEMENT AND ADMINISTRATIVE UPDATE - A description of all meetings, conference calls, etc. that have taken place during the reporting period. Include progress on administration and management issues (e.g. evaluating, and managing subcontractor performance; regulatory compliance audits, and personnel changes). |
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SECTION II Part C: TECHNICAL PROGRESS - A detailed description of the work performed structured to follow the activities and decision gates outlined at the Integrated Baseline Review and as described in the Integrated Master Plan. The Report should include a description of any problems (technical or financial) that occurred or were identified during the reporting period, and how these problems were resolved. |
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SECTION II Part D: PROPOSED WORK - A summary of work proposed for the next year period to include an updated Gantt Chart. |
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SECTION III Part A: EARNED VALUE MANAGEMENT REPORTING - Contractor will provide a quarterly Contract Performance Report (CPR) at an agreed upon (WBS level 3) reporting level using the BARDA provided WBS and a Variance Analysis Report. EVMS shall be applied to all Cost Plus Fixed Fee CLINs as part of the Integrated Master Project Plan following the Seven Principles of Earned Value Management. In accordance with FAR 52.215-2, Audit and Records-Negotiation, BARDA may request, on a quarterly or ad hoc basis that the Contractor provide raw data. BARDA may request additional data at a reporting level or at lower levels, as BARDA deems necessary. |
Contractor also should include the following in the Annual Progress Report:
1. Copies of manuscripts (published and unpublished), abstracts, and any protocols or methods developed specifically under the contract during the reporting period; and
2. A summary of any Subject Inventions per the requirements under FAR Clause 52.227-11.
C. | Draft Final Technical Progress Report and Final Technical Progress Report |
These reports are to include a summation of the work performed and results obtained for the entire contract period of performance. This report shall be in sufficient detail to describe comprehensively the results achieved. The Draft Final Report and Final Report shall be submitted in accordance with the DELIVERIES Article in SECTION F of the contract. An Annual Technical Progress Report will not be required for the period when the Final Technical Progress Report is due. The Draft Final Technical Progress Report and the Final Technical Progress Report shall be submitted in accordance with the dates set forth in ARTICLE F.2. of this contract. The report shall conform to the following format:
1. | Cover page to include the contract number, contract title, performance period covered, Contractors name and address, telephone number, fax number, email address; the Tetraphase PI name, address, telephone number, fax number, and e-mail address; and submission date. |
2. | SECTION I: EXECUTIVE SUMMARY - Summarize the purpose and scope of the contract effort including a summary of the major accomplishments relative to the specific activities set forth in the Statement of Work. |
3. | SECTION II: RESULTS - A detailed description of the work performed related to the Gantt chart, the results obtained, and the impact of the results on the scientific and/or public health community including a listing of all manuscripts (published and in preparation) and abstracts presented during the entire period of performance and a summary of all inventions. |
Draft Technical Progress Report : The Contractor is required to submit the Draft Final Technical Progress Report to the Contracting Officers Technical Representative and Contracting Officer. The Contracting Officers Technical Representative and Contracting Officer will review the Draft Final Technical Progress Report and provide the Contractor with comments in accordance with the dates set forth in ARTICLE F.2. of this contract.
Final Technical Progress Report : The Contractor will deliver the final version of the Final Technical Progress Report on or before the completion date of the contract. The final version shall include or address the Contracting Officers Technical Representative comments and Contracting Officer comments on the draft report. Final Technical Progress Report shall be submitted on or before the completion date of the contract.
D. | Summary of Salient Results |
The Contractor shall submit, with the Final Technical Progress Report, a summary (not to exceed 200 words) of salient results achieved during the performance of the contract.
E. | Other Technical Progress Reports |
1. | Draft Report for Clinical and Non-Clinical Studies and Final Report for Clinical and Non-Clinical Studies |
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The non-clinical and clinical trial reports shall follow the format of International Conference on Harmonization document ICH E3 Guidelines on Structure and Content of Clinical Study Reports ( http://www.pharmacontract.ch/support/su_ich_liste.htm ) |
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Draft Final Report for Clinical and Non-Clinical Studies funded by this contract will be submitted to the Contracting Officers Technical Representative and Contracting Officer (CO) for review and comment within the time frames set forth by ARTICLE F.2. of this contract. |
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Subcontractor prepared reports received by the Prime Contractor shall be submitted to the Contracting Officers Technical Representative and Contracting Officer (CO) for review and comment as set forth by ARTICLE F.2. of this contract. |
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The Government shall provide written comments to the Draft Final Report for Clinical and Non-Clinical Studies in accordance with the dates set forth in ARTICLE F.2. of this contract. |
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The comprehensive Final Report for Clinical and Non-Clinical Studies will be submitted to the Contracting Officer and the Contracting Officers Technical Representative as set forth by ARTICLE F.2. of this contract. The final version shall include or address the Contracting Officers Technical Representative comments and Contracting Officer comments on the draft report. |
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See section ARTICLE F.2. REPORTING REQUIREMENTS AND DELIVERABLES for additional clarification and deliverable requirements. |
F. | Audit Reports |
Upon receipt of an FDA Form 483 related to conformance to FDA regulations and guidance, including adherence to GLP, GMP, or GCP guidelines, as it relates to performance under this contract where the results will adversely impact contract performance, the Contractor shall provide the Contracting Officers Technical Representative and the Contracting Officer with copies of Form 483 within the time frame set forth by ARTICLE F.2 of this contract. Furthermore, the Contractor shall provide a plan for addressing areas of nonconformance to FDA regulations and guidance for GLP, GMP or GCP guidelines as identified in the final audit report within the time frame set forth by ARTICLE F.2 of this contract. See ARTICLE F.2. DELIVERABLES.
G. | Clinical and Non-Clinical Protocols |
BARDA has a responsibility to obtain documentation concerning mechanisms and procedures that are in place to protect the safety of participants and animals in BARDA funded clinical trials and non-clinical studies. Therefore, the Contractor shall develop a protocol for each clinical trial and non-clinical study funded under this contract and submit all such protocols and protocol amendments to the BARDA Contracting Officers Representative (COR) for evaluation and comment. Approval is required before work under a protocol may begin. BARDA COR comments will be forwarded to the Contractor within ten (10) business days. The Contractor must address, in writing, all concerns (e.g. study design, safety, regulatory, ethical, and conflict of interest) raised by the BARDA COR.
If the draft protocols are to be submitted to the FDA, BARDA review shall occur before submission, pursuant to the terms set forth by ARTICLE F.2 of this contract. The Contractor shall consider revising their protocols to address BARDAs concerns and recommendations prior to FDA submission. The Contractor must provide BARDA with a copy of FDA submissions, within the time frame set forth by ARTICLE F.2 of this contract.
Execution of clinical and non-clinical studies requires written authorization from BARDA. The Government will provide written authorization to the Contractor upon either 1) receiving documentation in which all COR comments have been satisfactorily addressed; or 2) receiving documentation that the FDA has reviewed and commented on the protocol.
BARDA shall have rights to all protocols, data resulting from execution of these protocols, and final reports funded by BARDA under this contract, as set forth in PART II of this contract and defined in the FAR. BARDA reserves the right to request that the Awardee provide any contract deliverable in a non-proprietary form to ensure BARDA has the ability to review and distribute the deliverables as BARDA deems necessary.
Important information regarding performing human subject research is available at http://www3.niaid.nih.gov/healthscience/clinicalstudies/ .
Any updates to technical reports are to be addressed in the Monthly and Annual Progress Reports. The Contractor shall advise the Contracting Officers Technical Representative or designee in writing and via electronic communication in a timely manner of any issues potentially affecting contract performance.
1. | Non-Clinical Terms of Award |
These Non-Clinical Terms of Award detail an agreement between the Biomedical Advanced Research and Development Authority (BARDA) and the Contractor; they apply to all grants and contracts that involve non-clinical research.
a. | Safety and Monitoring Issues |
i. | PHS Policy on Humane Care and use of Laboratory Animals |
Before study execution and then with the annual progress report, the Contractor must submit to BARDA a copy of the current Institutional Animal Care and Use Committees (IACUC) documentation of continuing review and approval and the Office of Laboratory Animal Welfare (OLAW) federal wide assurance number for the institution or site.
If other institutions are involved in the research (e.g., a multicenter trial or study), each institutions IACUC must review and approve the protocol. They must also provide BARDA initial and annual documentation of continuing review and approval and federal wide assurance number.
The Contractor must ensure that the application, as well as all protocols, are reviewed by the performing institutions IACUC.
To help ensure the safety of animals used in BARDA-funded studies, the Contractor must provide BARDA copies of documents related to all major changes in the status of ongoing protocols, including the following:
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All amendments or changes to the protocol, identified by protocol version number, date, or both and date it is valid. |
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All material changes in IACUC policies and procedures, identified by version number, date, and all required signatories (if applicable). |
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Termination or temporary suspension of the study(ies) for regulatory issues. |
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Termination or temporary suspension of the protocol. |
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Any change that is made in the specific IACUC approval for the indicated study(ies). |
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Any other problems or issues that could affect the scientific integrity of the study(ies), i.e., fraud, misrepresentation, misappropriation of funds, etc. |
Contractor must notify BARDA of any of the above changes within five (5) business days from the time the Contractor becomes aware of such changes by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IACUC and a copy of any responses from the IACUC.
If a non-clinical protocol has been reviewed by an institutional biosafety committee (IBC) or the NIH Recombinant DNA Advisory Committee (RAC), the Contractor must provide information about the initial and ongoing review and approval, if any. See the NIH Guidelines for Research Involving Recombinant DNA Molecules.
ii. | Non-Clinical Data and Safety Monitoring Requirements |
BARDA strongly recommends continued safety monitoring for all non-clinical studies of investigational drugs, devices, or biologics. FDA expects non-clinical studies to include safety in addition to efficacy. Awardee should consider evaluation of clinical relevant safety markers in the pivotal and non-pivotal, non-clinical studies. In preparation for clinical trials of licensed or not yet licensed products, it is imperative that BARDA-sponsored studies of any type measure the risk and safety parameters that are elicited and proved a safety profile from the studies for future human risk assessment.
A risk is minimal where the probability and magnitude of harm or discomfort anticipated in the proposed research are not greater than those ordinarily encountered in daily life or during the performance of routine physical or psychological examinations or tests. For example, the risk of drawing a small amount of blood from a healthy subject for research purposes is no greater than the risk of doing so as part of a routine physical examination (45 CFR 46.102(i)).
BARDA will work with the Contractor on decisions regarding the type and extent of safety data accrual to be employed before the start of efficacy or safety studies.
The Contractor shall inform BARDA of any upcoming site visits and/or audits of CRP facilities funded under this effort. BARDA reserves the right to accompany the awardee on site visits and/or audits of CROs as BARDA deems necessary.
b. | BARDA Review Process before Non-Clinical study Execution Begins |
BARDA is under the same policy-driven assurances as NIH in that it has a responsibility to ensure that mechanisms and procedures are in place to protect the safety and welfare of animals used in BARDA-funded non-clinical trials. Therefore, before study execution, the Contractor must provide the following (as applicable) for review and comment by BARDA:
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IACUC approved (signed) non-clinical research protocol identified by version number, date, or both, including details of study design, euthanasia criteria, proposed interventions, and exclusion criteria. |
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For non-pivotal mouse studies, the Contractor will provide an annual animal care and use protocol. |
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Documentation of IACUC approval, including OLAW federal wide number, IACUC registration number, and IACUC name. |
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Contractor should reduce the number of animals required for a study using power of statistics. |
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Plans for the management of side effects, rules for interventions and euthanasia criteria. |
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Procedures for assessing and collecting safety data were appropriate. |
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If a study is contracted through Contract Research Organizations (CROs), work orders and service agreements the Contractor shall assure an integrated safety documentation plan is in place for the study site, pharmacy service records on the dosing material to be used and excipients, and laboratory services (including histopathology). |
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Documentation that the Contractor and all required staff responsible for the conduct of the research have received training in the protection and handling of animals, or that the CRO has the required documentation. |
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Purchasing of animals and/or other supplies for non-clinical studies funded in part or in whole by BARDA requires written approval by the Contracting Officer in accordance with the contract. The Contractor must have the ability to return/re-sell animals, at purchase price, to distributor or a third part, in the event that the Contracting Officer Authorization is not granted. |
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Provide justification for whether studies require good laboratory practice (GLP) conditions. |
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Provide justification for whether studies will be classified as non-pivotal or pivotal studies. |
Documentation of each of the above items shall be submitted to the BARDA for evaluation and comment in conjunction with the protocol. Execution of non-clinical studies requires written authorization from BARDA in accordance with this section of the contract.
c. | References |
Public Health Service Policy on Humane Care and Use of Laboratory Animals
http://grants.nih.gov/grants/olaw/InvestigatorsNeed2Know.pdf
USDA Animal Welfare Act
http://awic.nal.usda.gov/nal_display/index.php?info_center=3&tax_level=3&tax_subject=182&topic_id=1118&level3_id=6735&level4_id=0&level5_id=0&placement_default=0
2. | Clinical Terms of Award |
These Clinical Terms of Award detail an agreement between the Biomedical Advanced Research and Development Authority (BARDA) and the Contractor; they apply to all clinical research under this contract.
Safety and Monitoring Issues
a. | Institutional Review Board or Independent Ethics Committee Approval |
Before study execution, the Contractor must submit to BARDA a copy of the current IRB-or IEC-approved informed consent document for US sites, documentation of continuing review and approval and the OHRP federal wide assurance number for the institution or site.
If other institutions are involved in the research (e.g., a multicenter clinical trial or study), each institutions IRB or IEC must review and approve the protocol. They must also provide BARDA initial and annual documentation of continuing review and approval, including the current approved informed consent document and federal wide number.
The Contractor must ensure that the application as well as all protocols are reviewed by the appropriate IRB or IEC.
To help ensure the safety of participants enrolled in BARDA-funded studies, the Contractor must provide BARDA copies of documents related to all major changes in the statues of ongoing protocols, including the following:
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All amendments or changes to the protocol, identified by protocol version number, date, or both and dates it is valid. |
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All changes in informed consent documents, identified by version number, dates, or both and dates it is valid. |
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Termination or temporary suspension of patient accrual. |
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Termination or temporary suspension of the protocol. |
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Any change in IRB approval. |
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Any other problems or issues that could affect the participants in the studies. |
The Contractor must notify BARDA through the Project Officer (PO) or Contracting Officer (CO) of any of the above changes within five (5) business days by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IRB and a copy of any responses from the IRB or IEC.
If a clinical protocol has been reviewed by an institutional biosafety committee (IBC) or the NIH Recombinant DNA Advisory Committee (RAC), the Contractor must provide information about the initial and ongoing review and approval, if any. See the NIH Guidelines for Research Involving Recombinant DNA Molecules.
b. | Data and Safety Monitoring Requirements |
BARDA strongly recommends independent safety monitoring for clinical trials of investigational drugs, devices, or biologics; clinical trial of licensed products; and clinical research of any type involving more than minimal risk to volunteers. Independent monitoring can take a variety of forms. Phase III clinical trials must be reviewed by an independent data and safety monitoring board (DSMB); other trials may require DSMB oversight as well. The Contractor shall inform BARDA of any upcoming site visits and/or audits of CRO facilities funded under this effort. BARDA reserves the right to accompany the Contractor on site visits and/or audits of CROs as BARDA deems necessary.
A risk is minimal where the probability and magnitude of harm or discomfort anticipated in the proposed research and not greater than those ordinarily encountered in daily life or during the performance of routine physical or psychological examinations or tests. For examples, the risk of drawing a small amount of blood from a healthy individual for research purposes is no greater than the risk of doing so as part of a routine physical examination (45 CFR 46.102I).
Final decisions regarding the type of monitoring to be used must be made jointly by BARDA and the Contractor before enrollment starts. Discussions with the responsible BARDA Project Officer regarding appropriate safety monitoring and approval of the final monitoring plan by BARDA must occur before patient enrollment begins and may include discussions about the appointment of one of the following.
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Independent Safety Monitor - a physician or other appropriate expert who is independent of the study and available in real time to review and recommend appropriate action regarding adverse events and other safety issues. |
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Independent Monitoring Committee (IMC) or Safety Monitoring Committee (SMC) - a small group of independent investigators and biostatisticians who review data from a particular study. |
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Data and Safety Monitoring Board - an independent committee charged with reviewing safety and trial progress and providing advice with respect to study continuation, modification, and termination. The Contractor may be required to use an established BARDA DSMB or to organize an independent DSMB. All phase III clinical trials must be reviewed by a DSMB; other trials may require DSMB oversight as well. Please refer to: NIAID Principles for Use of a Data and Safety Monitoring Board (DSMB) For Oversight of Clinical Trials Policy. |
When a monitor or monitoring board is organized, a description of it, its charter or operating procedures (including a proposed meeting schedule and plan for review of adverse events), and roster and curriculum vitae from all members must be submitted to and approved by BARDA before enrollment starts. The Contractor will also ensure that the monitors and board members report any conflicts of interest and the Contractor will maintain a record of this. The Contractor will share conflict of interest reports with BARDA.
Additionally, the Contractor must submit written summaries of all reviews conducted by the monitoring group to the BARDA within thirty (30) days of reviews or meetings.
A. | BARDA Protocol Review Process Before Patient Enrollment Begins |
BARDA has a responsibility to ensure that mechanisms and procedures are in place to protect the safety of participants in BARDA-supported clinical trial. Therefore, before patient accrual or participant enrollment, the Contractor must ensure the following (as applicable) are in place prior to patient accrual or enrollment at each participating institution.
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IRB- or IEC-approved clinical research protocol identified by version number, date, or both, including details of study design, proposed interventions, patient eligibility, and exclusion criteria. |
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Documentation of IRB or IEC approval, including OHRP federal wide number, IRB or IEC registration number, and IRB and IEC name. |
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IRB- or IEC- approved informed consent document, identified by version number, date, or both and dates it is valid. |
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Plans for the management side effects. |
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Procedures for assessing and reporting adverse events. |
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Plans for data and safety monitoring (see B above) and monitoring of the clinical study site, pharmacy, and laboratory. |
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Documentation that the Contractor and all study staff responsible for the design or conduct of the research have received training in the protection of human subjects. |
Documentation to demonstrate that each of the above items are in place shall be submitted to the BARDA) for evaluation and comment in conjunction with the protocol. Execution of clinical studies requires written authorization from BARDA in accordance with this section of this contract.
B. | Investigational New drug or Investigational Device Exemption Requirements |
Consistent with federal regulations, clinical research projects involving the use of investigational therapeutics, vaccines, or other medical interventions (including licensed products and devices for a purpose other than that for which they were licensed) in humans under a research protocol must be performed under a Food and Drug Administration (FDA) investigational new drug (IND) or investigational device exemption (IDE).
Exceptions must be granted in writing by FDA. If the proposed clinical trial will be performed under an IND or IDE, the Contractor must provide BARDA with the name and institution of the IND or IDE sponsor, the date the IND or IDE was filed with FDA, the FDA IND or IDE number, any written comments from GDA, and the written responses to those comments.
Unless FDA notifies Contractor otherwise, the Contractor must wait thirty (30) calendar days from FDA receipt of an initial IND or IDE application before initiating a clinical trial.
The Contractor must notify BARDA if the FDA places the study on clinical hold and provide BARDA any written comments from FDA, written responses to the comments, and documentation in writing that the hold has been lifted.
The Contractor must not use grant or contract funds during a clinical hold to fund clinical studies that are on hold. The Contractor must not enter into any new financial obligations related to clinical activities for the clinical trial on clinical hold.
C. | Required Time-Sensitive Notification |
Under an IND or IDE, the sponsor must provide FDA safety reports of serious adverse events. Under these Clinical Terms of Award, the Contractor must submit copies to the responsible BARDA representative or the Contracting Officers technical representative (COR) as follows:
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Expedited safety report of unexpected or life-threatening experience or death A copy of any report of unexpected or life-threatening experience or death associated with the use of an IND drug, which must be reported to FDA by telephone or fax as soon as possible but no later than seven (7) days after the IND sponsors receipt of the information, must be submitted to the BARDA representative or the contraction officers technical representative within 24 hours of FDA notification. |
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Expedited safety reports of serious and unexpected adverse experiences A copy of any report of unexpected and serious adverse experience associated with use of an IND drug or any finding from tests in laboratory animals that suggests a significant risk for human subjects, which must be reported in writing to FDA as soon as possible but no later than 15 day after the IND sponsors receipt of the information, must be submitted to the BARDA representatives or the Contracting Officers Technical Representative within 24 hours of FDA notification. |
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IDE reports of unanticipated adverse device effect A copy of any reports of unanticipated adverse device effect submitted to FDA must be submitted to the BARDA representative or the Contracting Officers Technical Representative within 24 hours of FDA notification. |
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Other adverse events documented during the course of the trial should be included in the annual IND or IDE report and reported to the BARDA annually. |
In case of problems or issues, the BARDA representative or the Contracting Officers Technical Representative will contact the Contractor within ten (10) business days by email or fax, followed within thirty (30) calendar days by an official letter to the Contractors Project Leader, with a copy to the institutions office of sponsored programs, listing issues and appropriate actions to be discussed.
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Safety reporting for research not performed under an IND or IDE. |
Final decisions regarding ongoing safety reporting requirements for research not performed under an IND or IDE must be made jointly by the BARDA Project Officer or the Contracting Officers Technical Representative and the Contractor.
H. | Other Reports/Deliverables |
1. | Meeting Minutes |
The Contractor shall provide an electronic copy of meeting minutes for all conference calls and face-to-face meetings including the Government and Contractor. Minutes will be submitted directly to the BARDA COR for review and official approval pursuant to the terms set forth in ARTICLE F.2. of this contract.
2. | Data |
The Contractor shall provide raw data or specific analysis of data generated with contract funding at the request of the BARDA COR. See FAR 52.227-14. Data/data analysis will be delivered to the Government pursuant to the terms set forth in ARTICLE F.2 of this contract.
ARTICLE C.3. SUBJECT INVENTION REPORTING REQUIREMENT
All reports and documentation required by FAR Clause 52.227-11, including, but not limited to, the invention disclosure report, the confirmatory license, and the Government support certification, shall be directed to the Extramural Inventions and Technology Resources Branch, OPERA, NIH, 6705 Rockledge Drive, Room 2207, MSC 7987, Bethesda, Maryland 20892-7987 (Telephone: 301-435-1986). In addition, one copy of an annual utilization report, and a copy of the final invention statement, shall be submitted to the Contracting Officer. The final invention statement (see FAR 27.303(b)(2)(ii)) shall be submitted to the Contracting Officer on the expiration date of the contract. See also FAR clause 52.227-11 (Patent Rights-Ownership by the Contractor).
Reports and documentation submitted to the Contracting Officer shall be sent to the Contracting Officer to the address set forth in SECTION G CONTRACT ADMINISTRATION DATA.
If no invention is disclosed or no activity has occurred on a previously disclosed invention during the applicable reporting period, a negative report shall be submitted to the Contracting Officer at the address listed above.
To assist contractors in complying with invention reporting requirements of the clause, Interagency Edison, an electronic invention reporting system has been developed. Use of Interagency Edison is encouraged as it streamlines the reporting process and greatly reduces paperwork. Access to the system is through a secure interactive Web site to ensure that all information submitted is protected. Interagency Edison and information relating to the capabilities of the system can be obtained from the Web ( http://www.iedison.gov ), or by contacting the Extramural Inventions and Technology Resources Branch, OPERA, NIH.
ARTICLE C.4. PROJECT MEETING CONFERENCE CALLS ONCE EVERY [**]
A conference call between the Contracting Officers Technical Representative and the Contractors Program Manager and Tetraphase PI shall occur once every [**] . During this call, the Program Manager will discuss the activities during the reporting period, any problems that have arisen, and the activities planned for the ensuing reporting period. The Contractors Program Manager and Tetraphase PI may choose to include other key personnel on the conference call to give detailed updates on specific projects or this may be requested by the Contracting Officers Technical Representative.
ARTICLE C.5. PROJECT MEETINGS
The Contractor and Tetraphase PI shall participate in Project Meetings to coordinate the performance of the contract, as requested by the Contracting Officers Technical Representative. These meetings may include face-to-face meetings with BARDA/AMCG in Washington, D.C. and at work sites of the Contractor and its subcontractors. Such meetings may include, but are not limited to, meetings of the Contractor (and subcontractors invited by the Contractor) to discuss study designs, site visits to the Contractors and subcontractors facilities, and meetings with the Contractor and HHS officials to discuss the technical, regulatory, and ethical aspects of the program. The Contractor must provide data, reports, and presentations to groups of outside experts (subject to appropriate protections for Contractor confidential or proprietary data) and USG personnel as required by the Contracting Officers Technical Representative in order to facilitate review of contract activities.
ARTICLE G.6. REIMBURSEMENT OF COST
1) The Government shall reimburse the Contractor the cost determined by the Contracting Officer to be allowable (hereinafter referred to as allowable cost) in accordance with the clause entitled Allowable Cost and Payment in Section I, Contract Clauses, and FAR Subpart 31.2. Examples of allowable costs include, but are not limited to, the following:
a) All direct materials and supplies that are used in the performing of the work provided for under the contract, including those purchased for subcontracts and purchase orders.
b) All direct labor, including supervisory, that is properly chargeable directly to the contract, plus fringe benefits.
c) All other items of cost budgeted for and accepted in the negotiation of this basic contract or modifications thereto.
d) Travel costs including per diem or actual subsistence for personnel while in an actual travel status in direct performance of the work and services required under this contract subject to the following:
(i) | Air travel shall be by the most direct route using air coach or air tourist (less than first class) unless it is clearly unreasonable or impractical (e.g., not available for reasons other than avoidable delay in making reservations, would require circuitous routing or entail additional expense offsetting the savings on fare, or would not make necessary connections). |
(ii) | Rail travel shall be by the most direct route, first class with lower berth or nearest equivalent. |
(iii) | Costs incurred for lodging, meals, and incidental expenses shall be considered reasonable and allowable to the extent that they do not exceed on a daily basis the per diem rates set forth in the Federal Travel Regulation (FTR). |
(iv) | Travel via privately owned automobile shall be reimbursed at not more than the current General Services Administration (GSA) FTR established mileage rate. |
ARTICLE G.9. CONTRACT COMMUNICATIONS/CORRESPONDENCE (JULY 1999)
The Contractor shall identify all correspondence, reports, and other data pertinent to this contract by imprinting the contract number from Page 1 of the contract
SECTION H - SPECIAL CONTRACT REQUIREMENTS
ARTICLE H.1. PROTECTION OF HUMAN SUBJECTS, HHSAR 352.270-4 (January 2006)
(a) The Contractor agrees that the rights and welfare of human subjects involved in research under this contract shall be protected in accordance with 45 CFR Part 46 and with the Contractors current Assurance of Compliance on file with the Office for Human Research Protections (OHRP), Department of Health and Human Services. The Contractor further agrees to provide certification at least annually that the Institutional Review Board has reviewed and approved the procedures, which involve human subjects in accordance with 45 CFR Part 46 and the Assurance of Compliance.
(b) The Contractor shall bear full responsibility for the performance of all work and services involving the use of human subjects under this contract and shall ensure that work is conducted in a proper manner and as safely as is feasible. The parties hereto agree that the Contractor retains the right to control and direct the performance of all work under this contract. The Contractor shall not deem anything in this contract to constitute the Contractor or any subcontractor, agent or employee of the Contractor, or any other person, organization, institution, or group of any kind whatsoever, as the agent or employee of the Government. The Contractor agrees that it has entered into this contract and will discharge its obligations, duties, and undertakings and the work pursuant thereto, whether requiring professional judgment or otherwise, as an independent contractor without imputing liability on the part of the Government for the acts of the Contractor or its employees.
(c) If at any time during the performance of this contract, the Contracting Officer determines, in consultation with OHRP that the Contractor is not in compliance with any of the requirements and/or standards stated in paragraphs (a) and (b) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance. The Contracting Officer may communicate the notice of suspension by telephone with confirmation in writing. If the Contractor fails to complete corrective action within the period of time designated in the Contracting Officers written notice of suspension, the Contracting Officer may, after consultation with OHRP, terminate this contract in whole or in part, and the Contractors name may be removed from the list of those contractors with approved Human Subject Assurances.
ARTICLE H.2. HUMAN MATERIALS (ASSURANCE OF OHRP COMPLIANCE)
The acquisition and supply of all human specimen material (including fetal material) used under this contract shall be obtained by the Contractor in full compliance with applicable Federal, State and Local laws and the provisions of the Uniform Anatomical Gift Act in the United States, and no undue inducements, monetary or otherwise, will be offered to any person to influence their donation of human material.
The Contractor shall provide written documentation that all human materials obtained as a result of research involving human subjects conducted under this contract, by collaborating sites, or by subcontractors identified under this contract, were obtained with prior approval by the Office for Human Research Protections (OHRP) of an Assurance to comply with the requirements of 45 CFR 46 to protect human research subjects. This restriction applies to all collaborating sites without OHRP-approved Assurances, whether domestic or foreign, and compliance must be ensured by the Contractor.
Provision by the Contractor to the Contracting Officer of a properly completed Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263(formerly Optional Form 310), certifying IRB review and approval of the protocol from which the human materials were obtained constitutes the written documentation required. The human subject certification can be met by submission of a self designated form provided that it contains the information required by the Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263(formerly Optional Form 310).
ARTICLE H.3. RESEARCH INVOLVING HUMAN FETAL TISSUE
All research involving human fetal tissue shall be conducted in accordance with the Public Health Service Act, 42 U.S.C. 289g-1 and 289g-2. Implementing regulations and guidance for conducting research on human fetal tissue may be found at 45 CFR 46, Subpart B and http://grants1.nih.gov/grants/guide/notice-files/not93-235.html and any subsequent revisions to this NIH Guide to Grants and Contracts (Guide) Notice.
The Contractor shall make available, for audit by the Secretary, HHS, the physician statements and informed consents required by 42 USC 289g-1(b) and (c), or ensure HHS access to those records, if maintained by an entity other than the Contractor.
ARTICLE H.4. NEEDLE EXCHANGE
The Contractor shall not use contract funds to carry out any program of distributing sterile needles or syringes for the hypodermic injection of any illegal drug.
ARTICLE H.5. CARE OF LIVE VERTEBRATE ANIMALS, HHSAR 352.270-5 (October 2009)
(a) Before undertaking performance of any contract involving animal-related activities where the species is regulated by USDA, the Contractor shall register with the Secretary of Agriculture of the United States in accordance with 7 U.S.C. 2136 and 9 CFR sections 2.25 through 2.28. The Contractor shall furnish evidence of the registration to the Contracting Officer.
(b) The Contractor shall acquire vertebrate animals used in research from a dealer licensed by the Secretary of Agriculture under 7 U.S.C. 2133 and 9 CFR Sections 2.1-2.11, or from a source that is exempt from licensing under those sections.
(c) The Contractor agrees that the care, use and intended use of any live vertebrate animals in the performance of this contract shall conform with the Public Health Service (PHS) Policy on Humane Care of Use of Laboratory Animals (PHS Policy), the current Animal Welfare Assurance (Assurance), the Guide for the Care and Use of Laboratory Animals (National Academy Press, Washington, DC) and the pertinent laws and regulations of the United States Department of Agriculture (see 7 U.S.C. 2131 et seq. and 9 CFR Subchapter A, Parts 1-4). In case of conflict between standards, the more stringent standard shall govern.
(d) If at any time during performance of this contract, the Contracting Officer determines, in consultation with the Office of Laboratory Animal Welfare (OLAW), National Institutes of Health (NIH), that the Contractor is not in compliance with any of the requirements and standards stated in paragraphs (a) through (c) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance. Notice of the suspension may be communicated by telephone and confirmed in writing. If the Contractor fails to complete corrective action within the period of time designated in the Contracting Officers written notice of suspension, the Contracting Officer may, in consultation with OLAW, NIH, terminate this contract in whole or in part, and the Contractors name may be removed from the list of those contractors with approved Assurances.
Note: The Contractor may request registration of its facility and a current listing of licensed dealers from the Regional Office of the Animal and Plant Health Inspection Service (APHIS), USDA, for the region in which its research facility is located. The location of the appropriate APHIS Regional Office, as well as information concerning this program may be obtained by contacting the Animal Care Staff, USDA/APHIS, 4700 River Road, Riverdale, Maryland 20737 (E-mail: ace@aphis.usda.gov ; Web site: ( http://www.aphis.usda.gov/animal_welfare ).
ARTICLE H.6. ANIMAL WELFARE
All research involving live, vertebrate animals shall be conducted in accordance with the Public Health Service Policy on Humane Care and Use of Laboratory Animals. This policy may be accessed at:
http://grants1.nih.gov/grants/olaw/references/phspol.htm .
ARTICLE H.7. PROTECTION OF PERSONNEL WHO WORK WITH NONHUMAN PRIMATES
All Contractor personnel who work with nonhuman primates or enter rooms or areas containing nonhuman primates shall comply with the procedures set forth in NIH Policy Manual 3044-2, entitled, Protection of NIH Personnel Who Work with Nonhuman Primates, located at the following URL:
http://www1.od.nih.gov/oma/manualchapters/intramural/3044-2/
ARTICLE H.8. PUBLICATION AND PUBLICITY
No information related to data obtained under this contract shall be released or publicized without the prior written consent of the Contracting Officer Technical Representative.
In addition to the requirements set forth in HHSAR Clause 352.227-70, Publications and Publicity incorporated by reference in SECTION I of this contract, Section 507 of P.L. 104-208 mandates that Contractors funded with Federal dollars, in whole or in part, acknowledge Federal funding when issuing statements, press releases, requests for
proposals, bid solicitations and other documents. Contractors are required to state (1) the percentage and dollar amounts of the total program or project costs financed with Federal money, and (2) the percentage and dollar amount of the total costs financed by nongovernmental sources.
Furthermore, the Contractor shall acknowledge the support of the Biomedical Advanced Research and Development Authority whenever publicizing the work under this contract in any media by including an acknowledgment substantially as follows:
This project has been funded in whole or in part with Federal funds from the Biomedical Advanced Research and Development Authority, Office of the Assistant Secretary for Preparedness and Response, Office of the Secretary, Department of Health and Human Services, under Contract No. HHSO100201200002C
ARTICLE H.9. REVIEW OF PRESS RELEASES
The contractor agrees to accurately and factually represent the work conducted under the contract in all press releases. Misrepresenting contract results or releasing information that is injurious to the integrity of BARDA may be construed as improper conduct. Press releases shall be considered to include the public release of information to any medium, excluding peer-reviewed scientific publications. The contractor shall ensure that the COR has received an advance copy of any press release related to the contract not less than four (4) business days prior to the issuance of the press release.
ARTICLE H.10. REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE
Anyone who becomes aware of the existence or apparent existence of fraud, waste and abuse in BARDA funded programs is encouraged to report such matters to the HHS Inspector Generals Office in writing or on the Inspector Generals Hotline. The toll free number is 1-800-HHS-TIPS (1-800-447-8477). All telephone calls will be handled confidentially. The e-mail address is Htips@os.dhhs.gov and the mailing address is:
Office of Inspector General
Department of Health and Human Services
TIPS HOTLINEP.O. Box 23489
Washington, D.C. 20026
ARTICLE H.11. PROHIBITION ON CONTRACTOR INVOLVEMENT WITH TERRORIST ACTIVITIES
The Contractor acknowledges that U.S. Executive Orders and Laws, including but not limited to E.O. 13224 and P.L. 107-56, prohibit transactions with, and the provision of resources and support to, individuals and organizations associated with terrorism. It is the legal responsibility of the Contractor to ensure compliance with these Executive Orders and Laws. This clause must be included in all subcontracts issued under this contract.
ARTICLE H.12. CONFLICT OF INTEREST
The Contractor represents and warrants that, to the best of the Contractors knowledge and belief, there are no relevant facts or circumstances which could give rise to an organizational conflict of interest, as defined in FAR Subpart 9.5, or that the Contractor has disclosed all such relevant information. Prior to commencement of any work, the Contractor agrees to notify the Contracting Officer promptly that, to the best of its knowledge and belief, no actual or potential conflict of interest exists or to identify to the Contracting Officer any actual or potential conflict of interest the firm may have. In emergency situations, however, work may begin but notification shall be made within five (5) business days. The Contractor agrees that if an actual or potential organizational conflict of interest is identified during performance, the Contractor shall promptly make a full disclosure in writing to the Contracting Officer. This disclosure shall include a description of actions, which the Contractor has taken or proposes to take, after consultation with the Contracting Officer, to avoid, mitigate, or neutralize the actual or potential conflict of interest. The Contractor shall continue performance until notified by the Contracting Officer of any contrary action to be taken. Remedies include termination of this contract for convenience, in whole or in part, if the Contracting Officer deems such termination necessary to avoid an organizational conflict of interest. If the Contractor was aware of a potential organizational conflict of interest prior to award or discovered an actual or potential conflict after award and did not disclose it or misrepresented relevant information to the Contracting Officer, the Government may terminate the contract for default, debar the Contractor from Government contracting, or pursue such other remedies as may be permitted by law or this contract.
ARTICLE H.13. PROHIBITION ON THE USE OF APPROPRIATED FUNDS FOR LOBBYING ACTIVITIES AND HHSAR 352.203-70 ANTI-LOBBYING (Jan 2006)
The Contractor is hereby notified of the restrictions on the use of Department of Health and Human Services funding for lobbying of Federal, State and Local legislative bodies.
Section 1352 of Title 10, United Stated Code (Public Law 101-121, effective 12/23/89), among other things, prohibits a recipient (and their subcontractors) of a Federal contract, grant, loan, or cooperative agreement from using appropriated funds (other than profits from a federal contract) to pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any of the following covered Federal actions; the awarding of any Federal contract; the making of any Federal grant; the making of any Federal loan; the entering into of any cooperative agreement; or the modification of any Federal contract, grant, loan, or cooperative agreement. For additional information of prohibitions against lobbying activities, see FAR Subpart 3.8 and FAR Clause 52.203-12.
In addition, as set forth in HHSAR 352.203-70 Anti-Lobbying (January 2006), the current Department of Health and Human Services Appropriations Act provides that no part of any appropriation contained in this Act shall be used, other than for normal and
recognized executive-legislative relationships, for publicity or propaganda purposes, for the preparation, distribution, or use of any kit, pamphlet, booklet, publication, radio, television, or video presentation designed to support, or defeat legislation pending before the Congress, or any State or Local legislature except in presentation to the Congress, or any State or Local legislative body itself.
The current Department of Health and Human Services Appropriations Act also provides that no part of any appropriation contained in this Act shall be used to pay the salary or expenses of any contract or grant recipient, or agent acting for such recipient, related to any activity designed to influence legislation or appropriations pending before the Congress, or any State or Local legislature.
ARTICLE H.14. PRIVACY ACT APPLICABILITY
1) Notification is hereby given that the Contractor and its employees are subject to criminal penalties for violation of the Privacy Act to the same extent as employees of the Government. The Contractor shall assure that each of its employees knows the prescribed rules of conduct and that each is aware that he or she can be subjected to criminal penalty for violation of the Act. A copy of 45 CFR Part 5b, Privacy Act Regulations, may be obtained at http://www.gpoaccess.gov/cfr/index.html
2) The Project Officer is hereby designated as the official who is responsible for monitoring contractor compliance with the Privacy Act.
3) The Contractor shall follow the Privacy Act guidance as contained in the Privacy Act System of Records number 09-25-0200. This document may be obtained at the following link: http://oma.od.nih.gov/ms/privacy/pa-files/0200.htm
ARTICLE H.15. LABORATORY LICENSE REQUIREMENTS
The Contractor shall comply with all applicable requirements of Section 353 of the Public Health Service Act (Clinical Laboratory Improvement Act as amended). This requirement shall also be included in any subcontract for services under the contract.
ARTICLE H.16. DISSEMINATION OF INFORMATION (May 1998)
No information related to data obtained under this contract shall be released or publicized without the prior written consent of the Contracting Officer.
ARTICLE H.17. IDENTIFICATION AND DISPOSITION OF DATA
Tetraphase will be required to ensure that certain data generated under this contract is provided certain data generated under this contract to the Department of Health and Human Services (DHHS). DHHS reserves the right to review any other data determined by DHHS to have been generated under this contract. The Contractor and its subcontractor Tetraphase shall ensure that keep copies of all data required by the Food and Drug Administration (FDA) relevant to this contract are kept for the time specified by the FDA.
ARTICLE H.18. INFORMATION ON COMPLIANCE WITH ANIMAL CARE REQUIREMENTS
Registration with the U. S. Dept. of Agriculture (USDA) is required to use regulated species of animals for biomedical purposes. USDA is responsible for the enforcement of the Animal Welfare Act (7 U.S.C. 2131 et. seq.), http://www.nal.usda.gov/awic/legislat/awa.htm .
The Public Health Service (PHS) Policy is administered by the Office of Laboratory Animal Welfare (OLAW) http://grants2.nih.gov/grants/olaw/olaw.htm . An essential requirement of the PHS Policy http://grants2.nih.gov/grants/olaw/references/phspol.htm is that every institution using live vertebrate animals must obtain an approved assurance from OLAW before they can receive funding from any component of the U. S. Public Health Service.
The PHS Policy requires that Assured institutions base their programs of animal care and use on the Guide for the Care and Use of Laboratory Animals http://www.nap.edu/readingroom/books/labrats/ and that they comply with the regulations (9 CFR, Subchapter A) http://www.nal.usda.gov/awic/legislat/usdaleg1.htm issued by the U.S. Department of Agriculture (USDA) under the Animal Welfare Act. The Guide may differ from USDA regulations in some respects. Compliance with the USDA regulations is an absolute requirement of this Policy.
The Association for Assessment and Accreditation of Laboratory Animal Care International (AAALAC) http://www.aaalac.org is a professional organization that inspects and evaluates programs of animal care for institutions at their request. Those that meet the high standards are given the accredited status. As of the 2002 revision of the PHS Policy, the only accrediting body recognized by PHS is the AAALAC. While AAALAC Accreditation is not required to conduct biomedical research, it is highly desirable. AAALAC uses the Guide as their primary evaluation tool. They also use the Guide for the Care and Use of Agricultural Animals in Agricultural Research and Teaching . It is published by the Federated of Animal Science Societies http://www.fass.org .
ARTICLE H.19. REQUIREMENTS FOR ADEQUATE ASSURANCE OF PROTECTION OF VERTEBRATE ANIMAL SUBJECTS
The PHS Policy on Humane Care and Use of Laboratory Animals requires that applicant organizations proposing to use vertebrate animals file a written Animal Welfare Assurance with the Office for Laboratory Animal Welfare (OLAW), establishing appropriate policies and procedures to ensure the humane care and use of live vertebrate animals involved in research activities supported by the PHS. The PHS Policy stipulates that an applicant organization, whether domestic or foreign, bears responsibility for the humane care and use of animals in PHS-supported research activities. Also, the PHS policy defines animal as any live, vertebrate animal used, or intended for use, in research, research training, experimentation, biological testing or for related purposes. This Policy implements and supplements the U.S. Government Principles for the
Utilization and Care of Vertebrate Animals Used in Testing, Research, and Training, and requires that institutions use the Guide for the Care and Use of Laboratory Animals as a basis for developing and implementing an institutional animal care and use program. This Policy does not affect applicable State or local laws or regulations that impose more stringent standards for the care and use of laboratory animals. All institutions are required to comply, as applicable, with the Animal Welfare Act as amended (7 USC 2131 et. seq.) and other Federal statutes and regulations relating to animals. These documents are available from the Office of Laboratory Animal Welfare, National Institutes of Health, Bethesda, MD 20892, (301) 496-7163. See http://grants.nih.gov/grants/olaw/olaw.htm .
No PHS supported work for research involving vertebrate animals will be conducted by an organization, unless that organization is operating in accordance with an approved Animal Welfare Assurance and provides verification that the Institutional Animal Care and Use Committee (IACUC) has reviewed and approved the proposed activity in accordance with the PHS policy. Applications may be referred by the PHS back to the institution for further review in the case of apparent or potential violations of the PHS Policy. No award to an individual will be made unless that individual is affiliated with an assured organization that accepts responsibility for compliance with the PHS Policy. Foreign applicant organizations applying for PHS awards for activities involving vertebrate animals are required to comply with PHS Policy or provide evidence that acceptable standards for the humane care and use of animals will be met. Foreign applicant organizations are not required to submit IACUC approval, but should provide information that is satisfactory to the Government to provide assurances for the humane care of such animals.
ARTICLE H.20. APPROVAL OF REQUIRED ASSURANCE BY OLAW
Under governing regulations, federal funds which are administered by the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority (BARDA) shall not be expended by the Contractor for research involving live vertebrate animals, nor shall live vertebrate animals be involved in research activities by the Contractor under this award unless a satisfactory assurance of compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28 is submitted within 30 days of the date of this award and approved by the Office of Laboratory Animal Welfare (OLAW). Each performance site (if any) must also assure compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28 with the following restriction: Only activities which do not directly involve live vertebrate animals (i.e. are clearly severable and independent from those activities that do involve live vertebrate animals) may be conducted by the Contractor or individual performance sites pending OLAW approval of their respective assurance of compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28. Additional information regarding OLAW may be obtained via the Internet at http://grants2.nih.gov/grants/olaw/references/phspol.htm
ARTICLE H.21. REGISTRATION WITH THE SELECT AGENT PROGRAM FOR WORK INVOLVING THE POSSESSION, USE, AND/OR TRANSFER OF SELECT BIOLOGICAL AGENTS OR TOXINS
Work involving select biological agents or toxins shall not be conducted under this contract until the Contractor and any affected subcontractor(s) are granted a certificate of registration or are authorized to work with the applicable select agents.
For prime or subcontract awards to domestic institutions who possess, use, and/or transfer Select Agents under this contract, the institution must complete registration with the Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (DHHS) or the Animal and Plant Health Inspection Services (APHIS), U.S. Department of Agriculture (USDA), as applicable, before performing work involving Select Agents, in accordance with 42 CFR 73. No Government funds can be used for work involving Select Agents, as defined in 42 CFR 73, if the final registration certificate is denied.
For prime or subcontract awards to foreign institutions who possess, use, and/or transfer Select Agents under this contract, the institution must provide information satisfactory to the Government that a process equivalent to that described in 42 CFR 73 ( http://www.cdc.gov/od/sap/docs/42cfr73.pdf ) for U.S. institutions is in place and will be administered on behalf of all Select Agent work sponsored by these funds before using these funds for any work directly involving the Select Agents. The Contractor must provide information addressing the following key elements appropriate for the foreign institution: safety, security, training, procedures for ensuring that only approved/appropriate individuals have access to the Select Agents, and any applicable laws, regulations and policies equivalent to 42 CFR 73 . The Government will assess the policies and procedures for comparability to the U.S. requirements described in 42 CFR Part 73 . When requested by the contracting officer, the Contractor shall provide key information delineating any laws, regulations, policies, and procedures applicable to the foreign institution for the safe and secure possession, use, and transfer of Select Agents. This includes summaries of safety, security, and training plans, and applicable laws, regulations, and policies. For the purpose of security risk assessments, the Contractor must provide the names of all individuals at the foreign institution who will have access to the Select Agents and procedures for ensuring that only approved and appropriate individuals have access to Select Agents under the contract.
Listings of HHS select agents and toxins, biologic agents and toxins, and overlap agents or toxins as well as information about the registration process, can be obtained on the Select Agent Program Web site at http://www.cdc.gov/od/sap/ .
ARTICLE H.22. EPA ENERGY STAR REQUIREMENTS
In compliance with Executive Order 12845 (requiring Agencies to purchase energy efficient computer equipment) all microcomputers, including personal computers, monitors, and printers that are purchased using Government funds in performance of a contract shall be equipped with or meet the energy efficient low-power standby feature as defined by the EPA Energy Star program unless the equipment always meets EPA Energy Star efficiency levels. The microcomputer, as configured with all components, must be Energy Star compliant.
This low-power feature must already be activated when the computer equipment is delivered to the agency and be of equivalent functionality of similar power managed models. If the equipment will be used on a local area network, the vendor must provide equipment that is fully compatible with the network environment. In addition, the equipment will run commercial off-the-shelf software both before and after recovery from its energy conservation mode.
ARTICLE H.23. MANUFACTURING STANDARDS
The Good Manufacturing Practice Regulations (GMP)(21 CFR Parts 210-211) and regulations pertaining to small molecules will be the standard to be applied for manufacturing, processing, packaging, storage and delivery of this product.
If at any time during the life of the contract, the Contractor fails to comply with GMP in the manufacturing, processing, packaging, storage, stability and other testing of the manufactured drug substance or product and delivery of this product and such failure results in a material adverse effect on the safety, purity or potency of the product (a material failure) as identified by the FDA, the Contractor shall have thirty (30) calendar days from the time such material failure is identified to cure such material failure. If, within the thirty (30) calendar day period, the Contractor fails to take such an action to the satisfaction of the USG Project Officer, or fails to provide a remediation plan that is acceptable to the COR, then the contract may be terminated.
ARTICLE H.24. EXPORT CONTROL NOTIFICATION
Offerors are responsible for ensuring compliance with all export control laws and regulations that maybe applicable to the export of and foreign access to their proposed technologies. Offerors may consult with the Department of State with any questions regarding the International Traffic in Arms Regulation (ITAR) (22 CFR Parts 120-130) and /or the Department of Commerce regarding the Export Administration Regulations (15 CFR Parts 730-774).
ARTICLE H.25. INSTITUTIONAL RESPONSIBILITY REGARDING CONFLICTING INTERESTS OF INVESTIGATORS
The Contractor shall comply with the requirements of 45 CFR Part 94, Responsible Prospective Contractors, which promotes objectivity in research by establishing standards to ensure that investigators (defined as the principal investigator and any other person who is responsible for the design, conduct, or reporting of research funded under BARDA contracts) will not be biased by any conflicting financial interest. For the purposes of this part relating to financial interests, Investigator includes the Investigators spouse and dependent children. 45 CFR Part 94 is available at the following Web site: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=9f130b6d2d48bb73803ca91ce943be3a;rgn=div5;view=text;node=45%3A1.0.1.1.53;idno= 45;cc=ecfr
As required by 45 CFR Part 94, the Contractor shall, at a minimum:
a. Maintain a written, enforceable policy on conflict of interest that complies with 45 CFR Part 94 and inform each investigator of the policy, the investigators reporting responsibilities, and the applicable regulations. The Contractor must take reasonable steps to ensure that investigators working as collaborators or subcontractors comply with the regulations.
b. Designate an official(s) to solicit and review financial disclosure statements from each investigator participating in BARDA-funded research. Based on established guidelines consistent with the regulations, the designated official(s) must determine whether a conflict of interest exists, and if so, determine what actions should be taken to manage, reduce, or eliminate such conflict. A conflict of interest exists when the designated official(s) reasonably determines that a Significant Financial Interest could directly and significantly affect the design, conduct, or reporting of the BARDA-funded research. The Contractor may require the management of other conflicting financial interests in addition to those described in this paragraph, as it deems appropriate. Examples of conditions or restrictions that might be imposed to manage actual or potential conflicts of interests are included in 45 CFR Part 94, under Management of Conflicting Interests.
c. Require all financial disclosures to be updated during the period of the award, either on an annual basis or as new reportable Significant Financial Interests are obtained.
d. Maintain records, identifiable to each award, of all financial disclosures and all actions taken by the Contractor with respect to each conflicting interest 3 years after final payment or, where applicable, for the other time periods specified in 48 CFR Part 4, subpart 4.7, Contract Records Retention.
e. Establish adequate enforcement mechanisms and provide for sanctions where appropriate.
If a conflict of interest is identified, the Contractor shall report to the Contracting Officer the existence of the conflicting interest found. This report shall be made and the conflicting interest managed, reduced, or eliminated, at least on a temporary basis, within sixty (60) days of that identification.
If the failure of an investigator to comply with the conflict of interest policy has biased the design, conduct, or reporting of the BARDA-funded research, the Contractor must promptly notify the Contracting Officer of the corrective action taken or to be taken. The Contracting Officer will take appropriate action or refer the matter to the Contractor for further action which may include directions to the Contractor on how to maintain appropriate objectivity in the funded research.
The Contracting Officer may at any time inquire into the Contractors procedures and actions regarding conflicts of interests in BARDA-funded research including a review of all records pertinent to compliance with 45 CFR Part 94. The Contracting Officer may require submission of the records or review them on site. On the basis of this review, the Contracting Officer may decide that a particular
conflict of interest will bias the objectivity of the BARDA-funded research to such an extent that further corrective action is needed or that the Contractor has not managed, reduced, or eliminated the conflict of interest. The issuance of a Stop Work Order by the Contracting Officer may be necessary until the matter is resolved.
If the Contracting Officer determines that BARDA-funded clinical research, whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment, has been designed, conducted, or reported by an investigator with a conflict of interest that was not disclosed or managed, the Contractor must require disclosure of the conflict of interest in each public presentation of the results of the research.
EXHIBIT D
GOVERNMENT PROPERTY
SUBCONTRACTOR INVENTORY STATEMENT
FOR THE PERIOD ENDING 30 SEPTEMBER
¨ INTERIM | ¨ FINAL |
Subcontractor Name | Period of Performance: | |||||
Subcontract No. | From: | |||||
Prime Contract No. | To: |
A physical inventory of all classes of accountable Government Property under the above referenced subcontract was completed, and
¨ | The official property records (attached) were found to be in agreement except for the discrepancies reported herein (please identify separately). |
¨ | No property was furnished or acquired in performance of the subcontract. |
If property has been furnished or acquired in performance of this subcontract, and this is a FINAL report, please check all that may apply below:
¨ | We request property disposition instructions from CUBRC; |
¨ | Property has been approved, or is pending approval for utilization on a imminent follow-on subcontract. |
¨ | Property was returned to issuing Agency or provider as instructed by CUBRC; |
¨ | Property was consumed in performance of the subcontract; |
Note: This inventory statement reflects the accountability of all Government-furnished or Subcontractor-acquired property since inception of the referenced subcontract through the current report date.
Signature of Subcontractor Property Official | Date |
Name and Title of Official |
Please contact the CUBRC Administrative Point of Contact listed on the face page of this agreement for an electronic copy of this spreadsheet.
EXHIBIT D
Contracting Site - Contract number - Inventory Sheet |
||||||||||
DHHS TAG |
S/N | TYPE | MAKE | MODEL | LOCATION | |||||
EXHIBIT E
SUBCONTRACTORS ASSIGNMENT AND RELEASE
Pursuant to the terms of Subcontract No. for the period through (ending date) and in consideration of the sum of $ (cumulative expenses claimed/to be claimed) which has been paid under Subcontract No. to (hereinafter called the Subcontractor) or to its assignees, if any, the Subcontractor, upon payment of the said sum by CUBRC, Inc., Buffalo, New York, 14225 does remise, release, and discharge CUBRC, its officers, agents, and employees, of and from all liabilities, obligations, claims, and demands whatsoever under or arising from the said Subcontract.
IN WITNESS WHEREOF, this release has been executed this day of , 20 .
Signature of Authorizing Official |
Name and Title of Authorizing Official |
CERTIFICATE
(To be completed by an officer other than the one certifying above if Subcontractor is not a sole proprietorship)
I, (Name of Official), certify that I am (Official Title) of the organization named as Subcontractor in the foregoing release, that (Official Certifying Above) who signed said release on behalf of the Subcontractor was then (Official Title) of said organization; that said release was duly
signed from and on behalf of said corporation/organization by authority of its governing body and is within the scope of its corporate powers.
Signature of Authorizing Official | Date |
Name and Title of Authorizing Official |
EXHIBIT F
HHS Government Property Guide
HHS Contracting Guide
HHS Contracting Guide for Contract of Government Property
Health & Human
Services
- 1 -
TABLE OF CONTENTS
HHS Contracting Guide for Contract of Government Property |
1 | |||
Health & Human |
1 | |||
Services |
1 | |||
TABLE OF CONTENTS |
2 | |||
Foreword |
8 | |||
Chapter I. Introduction |
8 | |||
Purpose and Scope of Guide |
8 | |||
Chapter II. Contractor Responsibility and Liability |
8 | |||
Contractor Responsibility |
8 | |||
Chapter III. Contract Start-Up |
8 | |||
Authorization |
8 | |||
Chapter IV. Contract Administration |
8 | |||
Reporting and Reimbursement for Acquisition |
8 | |||
Chapter V. Contract Close-Out |
8 | |||
Final Inventory and Certification |
8 | |||
Chapter VI. Special Considerations |
8 | |||
On-site Contractors |
8 | |||
Chapter VII. Forms and Instructions |
8 | |||
Standard Form 1428 Inventory Schedule |
8 | |||
Glossary |
8 | |||
Condition Codes (link pending) |
8 | |||
Contract Property Administrator Addresses |
8 | |||
Government Property to be Classified as Sensitive Equipment Regardless of Dollar Value |
8 | |||
FOREWORD |
9 | |||
Assistant Secretary for Management and Budget |
9 | |||
CHAPTER I: INTRODUCTION |
9 | |||
PURPOSE AND SCOPE OF THE GUIDE |
9 | |||
HOW TO USE THIS GUIDE |
9 | |||
Chapter II outlines your responsibilities and liability for government property |
10 | |||
Life Cycle Chapters |
10 | |||
Special Consideration Chapters |
10 | |||
KEY PLAYERS AT HHS |
10 | |||
CHAPTER II: CONTRACTOR RESPONSIBILITY AND LIABILITY |
11 | |||
CONTRACTOR RESPONSIBILITY |
11 | |||
Prime Contact |
11 | |||
Maintenance of Official Records |
11 | |||
Contract Requirements |
11 | |||
Property Control |
11 | |||
Acquisitions |
12 | |||
Decontamination |
12 | |||
Subcontractor Property |
12 | |||
CONTRACTOR LIABILITY |
12 | |||
CHAPTER III: CONTRACT START-UP |
12 | |||
Authorization |
12 | |||
Maintenance of Official Records |
13 | |||
Refer also to FAR Part 45.102 and 105 |
13 | |||
Residual Property |
13 | |||
Government-furnished property |
13 | |||
Contractor-Acquired Government Property |
13 | |||
Designation of Property Administrator |
13 | |||
Using Property Under More Than One Contract |
13 |
-2-
Start-Up Inventory |
13 | |||
Inventory Requirements |
14 | |||
HHS decal number |
14 | |||
Property Control System |
14 | |||
Elements |
14 | |||
Maintenance and calibration |
14 | |||
Acquisition |
15 | |||
Receiving |
15 | |||
Identification and Records |
15 | |||
Storage and Movement |
15 | |||
Property Consumption |
15 | |||
Utilization |
15 | |||
Maintenance and Calibration |
15 | |||
The goal is safe, efficient and economical operation of government equipment |
15 | |||
Records are kept of maintenance and calibration performed, including cost and date |
16 | |||
Maintenance and calibration are performed by technically qualified personnel |
16 | |||
Physical Inventory |
16 | |||
Inventories are conducted using the wall-to-wall approach |
16 | |||
Physical inventory results are promptly reconciled with property records |
16 | |||
Inventory results and discrepancies are promptly reported to the Contract Property Administrator |
16 | |||
Subcontract Administration |
16 | |||
Subcontractor is aware of contractual property provisions |
16 | |||
Reporting |
16 | |||
Any other reports specified in this Guide or in the contract |
17 | |||
Disposal |
17 | |||
Disposition instructions provided by the Contract Property Administrator are carried out as directed |
17 | |||
Disposal |
17 | |||
The quantity, condition code and location are reported accurately for property items requiring disposition |
17 | |||
Contract Completion or Termination |
17 | |||
HHS Review of System |
17 | |||
Disapproval of System |
17 | |||
CHAPTER IV: CONTRACT ADMINISTRATION |
18 | |||
ACQUIRING PROPERTY |
18 | |||
Authorization Required |
18 | |||
Unauthorized Property Acquisitions |
18 | |||
Government-Furnished Property |
18 | |||
Transfer Between Multiple Contracts |
18 | |||
Acquiring Excess Government Property |
18 | |||
Contract-Acquired Property |
19 | |||
GSA Supply Sources |
19 | |||
FEDSTRIP and Customer Supply Centers |
19 | |||
Reporting and Reimbursement for Acquisitions |
19 | |||
Receipt of Contractor-Acquired Property |
19 | |||
Discrepancies in Shipments |
19 | |||
Receipt of Government-Furnished Property |
20 | |||
Discrepancies in Shipments |
20 | |||
Leased Property |
20 | |||
Subcontractor Acquisitions |
20 | |||
Receipt of Component Parts |
20 | |||
Fabricating Equipment |
21 | |||
Records |
21 | |||
Installed Property |
21 | |||
Reimbursement for Acquisitions |
21 | |||
Attach Copy of Standard Form 1428 Inventory Schedule |
21 | |||
Invoice Preparation |
21 |
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Property Identification |
22 | |||
Decals |
22 | |||
Bar code decals identify accountable property |
22 | |||
Metal decals may be requested for property that is expose to the environment |
22 | |||
Items that Cannot be Decaled |
22 | |||
Sensitive Items |
22 | |||
Precious Metals |
23 | |||
Recovery of Precious Metals |
23 | |||
Special Test Equipment and Components |
23 | |||
Annual Inventory |
23 | |||
HHS decal number |
24 | |||
Associated HHS decal numbers |
24 | |||
Manufacturers name |
24 | |||
Item description |
24 | |||
Manufacturers model number |
24 | |||
Acquisition Date |
24 | |||
Manufacturers serial number |
24 | |||
Actual cost of item |
24 | |||
Subcontractor Inventory |
24 | |||
Certification |
24 | |||
Reconciliation of Inventory |
24 | |||
Overage Procedures |
24 | |||
Shortage Procedures |
24 | |||
Missing Stolen and Damaged Property |
24 | |||
HHS decal number (if applicable) |
25 | |||
Manufacturers name and model number |
25 | |||
Date the item was last inventoried |
25 | |||
Cost of item and projected cost of repairs, for damaged property |
25 | |||
The last time the item was physically seen |
25 | |||
The names of the individuals who used the item |
25 | |||
The names of individuals who had access to the item |
25 | |||
The name of the individual who discovered it was missing |
25 | |||
The date and time the item was first discovered missing |
25 | |||
The actions taken to try to locate the item |
25 | |||
Previous similar occurrences and measures taken to prevent future occurrences |
25 | |||
Records |
25 | |||
Personal Property |
25 | |||
Acquisition Maintenance and calibration |
25 | |||
Receiving Physical Inventory |
26 | |||
Identification/records Subcontract administration |
26 | |||
Storage and movement Reporting |
26 | |||
Property consumption Disposal |
26 | |||
Utilization Contract Completion |
26 | |||
Audit Records |
26 | |||
Basic Information |
26 | |||
Expendable Supplies and Materials Item Description |
26 | |||
Unit of Measure |
26 | |||
Unit Price Contract Number |
26 | |||
Quantity Received |
26 | |||
Location |
26 | |||
Quantity on Hand |
26 | |||
Posting Reference |
26 | |||
Nonexpendable Personal Property/Equipment Owned or Leased |
26 | |||
HHS Decal Number |
26 | |||
Item Description |
26 | |||
Manufacturers Serial Number |
26 |
-4-
Manufacturers Model Number |
26 | |||
Actual Cost of Item |
26 | |||
Monthly Cost |
27 | |||
Acquisition Date |
27 | |||
Installation Date |
27 | |||
Contract Number |
27 | |||
Credits Accrued |
27 | |||
Government-furnished or Contractor-accrued |
27 | |||
Contractors Current Order Number |
27 | |||
Associated HHS Decal |
27 | |||
Expiration Date Numbers |
27 | |||
Maintenance Cost |
27 | |||
Acquisition Price if Purchased |
27 | |||
Current Location |
27 | |||
Buy-Out Price |
27 | |||
Condition Code |
27 | |||
Requirements |
27 | |||
Capitalization |
27 | |||
STORAGE AND MOVEMENT |
27 | |||
Guidelines for the storage and movement of government property are covered in this section |
27 | |||
Storage |
27 | |||
Movement of Property |
28 | |||
TRADE-INS |
28 | |||
Request for Authorization |
28 | |||
EXCESS PROPERTY |
28 | |||
Report of Excess |
28 | |||
Disposal Instructions |
29 | |||
Abandonment and Destruction |
29 | |||
Letter from Organization |
29 | |||
CANNIBALIZATION |
29 | |||
CONTAMINATION |
30 | |||
Signature |
30 | |||
Title and Date |
30 | |||
Packing, Crafting, and Shipping |
30 | |||
CHAPTER V: CONTRACT CLOSE-OUT |
30 | |||
FINAL INVENTORY AND CERTIFICATION |
30 | |||
Inventory Requirements |
30 | |||
HHS decal number |
30 | |||
Item Description |
31 | |||
Acquisition Cost |
31 | |||
Manufacturers name |
31 | |||
Condition Code |
31 | |||
Manufacturers Model Number |
31 | |||
Quantity |
31 | |||
Manufacturers Serial Number |
31 | |||
Physical Location of Item |
31 | |||
Certification |
31 | |||
Follow-On Inventories |
31 | |||
Government Terminates Contract |
31 | |||
Subcontractor Inventories |
31 | |||
DISPOSITION OF PROPERTY |
32 | |||
Leased Property |
32 | |||
Disposal Options |
32 |
-5-
CHAPTER VI: SPECIAL CONSIDERATIONS |
32 | |||
ON-SITE CONTRACTORS |
32 | |||
Suspected Theft Property |
32 | |||
FOREIGN GOVERNMENTS/INTERNAL ORGANIZATIONS |
33 | |||
NON-PROFIT/EDUCATION ORGANIZATIONS |
33 | |||
Acquisitions: Less than $5000/$1000 |
33 | |||
Acquisitions: More than $5000/$1000 |
33 | |||
Title Consideration |
34 | |||
VEHICLES |
34 | |||
Title/Certification of Origin |
34 | |||
How to Obtain License Tags |
34 | |||
Returning License Tags |
34 | |||
Identification of Government Vehicles |
35 | |||
Trailers |
35 | |||
Reporting Requirements |
35 | |||
Accident Reports |
35 | |||
Maintenance Records |
35 | |||
Vehicle Reports |
35 | |||
Vehicle Listing |
35 | |||
Type of vehicle (e.g..... sedan or station wagon) |
35 | |||
Model, make and year (e.g.... 1990 Chevrolet Blazer) |
35 | |||
License tag number |
35 | |||
Serial number |
35 | |||
Vehicle mileage |
35 | |||
Vehicle location |
35 | |||
Name and telephone number of your property contact |
36 | |||
Projected Vehicle Acquisitions |
36 | |||
Disposal |
36 | |||
GSA Vehicles |
36 | |||
CHAPTER VII: FORMS AND INSTRUCTIONS |
36 | |||
Standard Form 1428 Inventory Schedule |
36 | |||
Reporting Component Parts |
36 | |||
GLOSSARY |
36 | |||
Accountable Personal Property |
37 | |||
Cannibalization |
37 | |||
Component Part |
37 | |||
Condition Codes |
37 | |||
Contaminated Property |
37 | |||
Contract Modification |
37 | |||
Contracting Officers Authorization (COA) |
37 | |||
Contractor-Acquired Property |
37 | |||
Customer Supply Center |
37 | |||
Decals |
37 | |||
Disposition |
38 | |||
Excess Property |
38 | |||
Government property that is not required for immediate or foreseeable use |
38 | |||
Expendable Property |
38 | |||
Facilities |
38 | |||
Fedstrip |
38 | |||
Follow-On Contract |
38 | |||
A contract that is re-competed or renewed and awarded to the same or different contractor |
38 | |||
Government-Furnished Property |
38 | |||
Government Property |
38 | |||
Hazard-Free Certification |
38 | |||
Leased Property |
38 |
-6-
Property that is either acquired by the contractor or the Government under a lease agreement |
38 | |||
Liability |
38 | |||
The degree of a contractors obligation to the Government for contractor inventory |
38 | |||
Material |
39 | |||
Materiel |
39 | |||
Items that are generally referred to as supplies, material, apparatus, and equipment |
39 | |||
Modification |
39 | |||
Nonexpendable Property |
39 | |||
Non-Profit Organization |
39 | |||
Personal Property |
39 | |||
Physical Inventory |
39 | |||
Precious Metals |
39 | |||
Property |
39 | |||
Property Control System |
39 | |||
Property Management |
39 | |||
Real Property |
40 | |||
Salvage |
40 | |||
Scrap |
40 | |||
Screening |
40 | |||
Sensitive Items |
40 | |||
Special Test Equipment |
40 | |||
Start-Up Inventory |
40 | |||
Stock Record |
40 | |||
Subcontractor |
40 | |||
Supply Item |
41 | |||
Surplus Property |
41 | |||
Title |
41 | |||
The legal right to claim, control, and dispose of property as a result of a purchase |
41 | |||
Trade-In |
41 | |||
Unauthorized Property |
41 | |||
Unrequired Property |
41 | |||
Voucher |
41 | |||
Document prepared by the contractor for reimbursement of appropriate expenses incurred |
41 | |||
Disclaimer (New Window) * Federal Shortcuts (New Window) * Feedback |
41 | |||
HHS Contracting Guide for Contract of Government Property |
41 |
-7-
Foreword
Chapter I. Introduction
Purpose and Scope of Guide
How to Use the Guide
Key Players at HHS
Chapter II. Contractor Responsibility and Liability
Contractor Responsibility
Contractor Liability
Chapter III. Contract Start-Up
Authorization
Start-Up Inventory
Property Control System
Chapter IV. Contract Administration
Reporting and Reimbursement for Acquisition
Property Identification
Annual Inventory
Missing, Stolen and Damaged Property
Records
Personal Property
Storage and Movement
Trade-ins
Excess Property
Cannibalization Contamination
Chapter V. Contract Close-Out
Final Inventory and Certification
Disposition of Property
Chapter VI. Special Considerations
On-site Contractors
Foreign Governments/ International Organizations
Non-profit/ Educational Organizations
Vehicles
Chapter VII. Forms and Instructions
Standard Form 1428 Inventory Schedule
Glossary
Appendix
Condition Codes (link pending)
Contract Property Administrator Addresses
Government Property to be Classified as Sensitive Equipment Regardless of Dollar Value
- 8 -
FOREWORD
This guide conveys the policy of the Department of Health and Human Services (HHS) covering the management and control of Government property. This Guide will help you learn the basics of HHS property administration. It provides information needed by contractors to administer government property under a HHS contract or grant to for-profit organizations.
This publication replaces the 1974 edition Control of Property in the Possession of Contractors. It was prepared by the Office of Management and Acquisition, Office of Acquisition and Grants Management, Acquisition and Logistics Research Staff.
We hope this guide provides the information you need. If you have unanswered questions after reading it, please contact your Contract Property Administrator for further questions.
Assistant Secretary for Management and Budget
CHAPTER I: INTRODUCTION
PURPOSE AND SCOPE OF THE GUIDE
This Guide outlines the basic policies and procedures for both cost-reimbursement and fixed-price contractors to follow in the management, control and use of government property provided under a HHS contract.
This includes government-furnished property (GFP) as well as contractor-acquired property (CAP). The Guide applies to contract property administration for the management of supplies, materials and both real and personal property that is furnished by the Government or acquired by contractors, including rented or leased items.
When the generic term property is used in the For an Alternative Navigation Method. Use Text Links to Navigate. It refers to personal property, other types of property are specifically identified (e.g. buildings, real estate). The Guide complements the Federal Acquisition Regulation (FAR) and is not intended to supersede any FAR requirements as expressed in the contract. The FAR contains the official Federal policies on property used in contracts. Any differences between this guide and the FAR as expressed in the contract, the FAR will take precedence. It is a summary of HHS policies and procedures for contract property administration and therefore may not cover every question you have. If you need further assistance or additional information, contact your Contract Property Administrator.
HOW TO USE THIS GUIDE
To help you locate the information you need, this Guide is structured within a basic framework, as shown in the Table of Contents.
Chapter I contains an overview of the key players at HHS who will be involved in the property aspects of your contract.
- 9 -
Chapter II outlines your responsibilities and liability for government property.
Life Cycle Chapters
Chapters III, IV, V are organized by the life cycle of your contract, beginning with start-up and followed by contract administration and close-out.
Special Consideration Chapters
Chapter VI covers additional features which may or may not apply to your contract. If your contract falls under any of these categories, read the appropriate part of the chapter in addition to the standard life cycle chapters. These special considerations are: On-site contractors, non-profit or educational organizations, foreign governments or international organizations, and government vehicles.
In the remainder of the Guide, you will find forms and instructions, a glossary of property terms, an appendix with condition codes, HHS addresses, and an index. We suggest that you review the glossary to ensure that you understand exactly what is meant by terms such as personal property, nonexpendable property and accountable property.
Use of the index is encouraged as well. For example, if you want to locate information about excess property, the appropriate page numbers are listed under excess.
KEY PLAYERS AT HHS
The key players at HHS that you will deal with regarding your government property are: the Contract Property Administrator, Project Officer and Contracting Officer. Generally, the Contract Property Administrator monitors, coordinates and manages property requirements. The Project Officer provides technical direction and Interfaces with the Contract Property Administrator about your property requirements, and the Contracting Officer authorizes the transactions.
This section describes their overall roles in the authorization, administration and oversight of contract property.
The Contract Property Administration is the designated representative of the Contracting Officer and will be referenced in the contract. References in the FAR to the Plant Clearance Officer apply to the Contract Property Administrator at HHS. The Contract Property Administrator administers the contract requirements and obligations related to government property, and is responsible for all property administration functions from acquisition of the property to final disposition.
You should deal directly with the Contract Property Administrator in the administration of your government property. It is the Contract Property Administrators responsibility to coordinate property issues with the Project Officer and Contracting Officer. Within HHS the Contract Property Administrator is also assigned the responsibility of reviewing and approving property control systems and notifying you when your property control system does not meet HHS requirements; however, the Contract Property Administrator may not obligate government funds, or execute modifications to our contract, or otherwise make changes to your contract.
There are a number of Contract property Administration office locations at HHS: Use of the term Contract Property Administrator in this Guide refers to the Contract Property Administrator at the office designated in your contract, and is appointed pursuant to delegated authority.
- 10 -
The Project Officer is an Agency program official who is designated in the contract as the technical representative of the Contracting Officer. Project Officers are trained as required by HHS Acquisition Regulations (HHSAR) and are appointed to administer and monitor contract performance. They are not authorized to obligate government funds or to execute contract modifications. Your Project Officer cannot grant you approval to acquire property with contract funds, nor can the Project Officer authorize you to transfer or dispose of any items.
The Project Officer is responsible for providing a property requirements listing along with a justification to the contracting officer, who coordinates the review, approval and physical transfer of the property with the Contract Property Administrator.
The Contracting Officer is the only HHS official who can authorize you to use government property or acquire property under the contract. The Contracting Officers authorization will be stated in your contract, modification, or through the use of a Contracting Officer.
CHAPTER II: CONTRACTOR RESPONSIBILITY AND LIABILITY
CONTRACTOR RESPONSIBILITY
You must assure that your employees are knowledgeable of your contract and of the FAR, HHSAR, FPMR, and FIRMR provisions; they should have sufficient training in all areas of contract property administration. The General Services Administration (GSA) and several non-government training institutions offer three to five day courses in the administration of contractor-held property. These courses provide insight into government property administration. Your Contract Property Administrator can give you more specific information on these courses.
Prime Contact
It is your responsibility to designate an individual within your organization as the prime contact for the Contract Property Administrator. Provide the individuals name, address, telephone number and signature at the inception of the contract. In the event that any of this information changes, including your organizations address or the name of the contact person, notify your Contract Property Administrator.
Maintenance of Official Records
Contractors are responsible for maintaining the Governments official property records unless the contract cites the FAR clauses that relieve that responsibility.
Contract Requirements
It is the contractors responsibility to review the contract clauses and assure that the government property required to accomplish the scope of work is accurately reflected in the contract. The basic contract will include a detailed listing of accountable government property (both real and personal property with an acquisition cost of $1000 or more, with a life expectancy of more than two years and sensitive items regardless of acquisition value). If accountable property is provided without contract authorization, promptly notify your Contracting Officer with a copy to the Contract Property Administrator.
- 11 -
Property Control
The contractor is held accountable and responsible for government property, regardless of value, from the time of receipt until the disposal of each item as directed by the Contracting Officer. You are responsible for the control of all GFP and CAP upon delivery of the property into your custody.
Acquisitions
Acquisitions of accountable property must be authorized by the Contracting Officer before acquiring the items. Identification of the property will be stated in the basic contract, a subsequent modification or Contracting Officers Authorization (COA) letter. Accountable property that is listed in work assignments, delivery orders or task orders is not authorized for acquisition or use until it has been authorized.
Decontamination
The contractor is responsible for decontaminating government property which may have been contaminated while in the contractors possession. When government property is to be transferred, disposed of, or excessed, a certification that property is free from all hazards, including biological, chemical, radioactive, or other health hazardous agents must be sent to the Contract Property Administrator.
Subcontractor Property
It is the prime contractors responsibility to hold the subcontractor responsible for reporting any transactions involving government property. Subcontractors are governed by the same requirements as prime contractors for the control of government property.
CONTRACTOR LIABILITY
Contractors may be liable for government property in their possession, subject to the terms of the contract. You may be liable when government property is missing, damaged or stolen, or when there is evidence of improper or unreasonable consumption. If approval of your property control system was withheld or withdrawn, or if you fail to correct deficiencies identified by the Contract Property Administrator, the Contracting Officer may require you to accept a higher level of liability for loss of or damage to government property.
CHAPTER III: CONTRACT START-UP
Chapters 3, 4, 5 apply to all contractors (Contract Start-Up, Contract Administration, and Contract Close-Out). Portions of Chapter 6 Special Considerations, may also apply to you.
Authorization
Prior to the start of work, review your contract concerning the authorization of property. Property that is listed in work assignments or task orders is not authorized for acquisition or use until it has been authorized in the contract, modification, or the Contracting Officers Authorization (COA). If government property not listed in the contract is provided to you, notify your Contracting Officer.
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Review the detailed listing of property in our contract to assure that the government property required to accomplish the scope of work is accurately reflected in the contract. Be sure to check your contract for the clauses described in this section of the Guide. If any of the clauses described below are included in your contract, refer to the FAR to determine your full requirements, responsibilities and liability for the property.
Maintenance of Official Records
You are responsible for maintaining the official property records unless the contract cites the FAR clauses that relieve you of that responsibility. The clauses are normally cited in Part II, Section I of the contract, and may be incorporated by reference.
Refer also to FAR Part 45.102 and 105.
Residual Property
The residual property clause authorizes use of property from a previous contract contains this clause, be sure that you know exactly what is included in the residual inventory, and that the inventory listing is correct.
Government-furnished property
All accountable government property provided under your contract will be described and/or listed in the contract, including the Contracting Officers Authorization (COA), and amendments/modification. The listing of accountable property items should include an item description (sometimes referred to as expanded nomenclature), manufacturers name, serial number, model number, and a HHS decal number.
Contractor-Acquired Government Property
If you are authorized to acquire accountable property from a vendor, your contract will include a clause or COA letter that authorizes the transactions. Accountable property that you acquire and change to the contract must be authorized on an individual line item basis in the contract.
Designation of Property Administrator
A reference or clause may be made to your contract to provide the name and office location of your Contract Property Administrator at HHS.
Using Property Under More Than One Contract
Government property is to be used only under the contract for which it is authorized, unless otherwise authorized by the Contracting Officer. If your organization has more than one contract with HHS, the Contracting Officer may authorize use of government property under more than one contract.
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Start-Up Inventory
At the start of your contract, you are required to conduct a physical inventory of accountable government property provided to you or acquired with contract funds, as well as any property being leased or rented with contract funds. If your contract is a follow-on make every effort to conduct a joint inventory with the previous contractor. Your start-up inventory may be done concurrently with the transfer from the previous contractor.
Inventory Requirements
The start-up inventory will be a physical inventory. Any discrepancies with the government-furnished listing in the contract should be noted. The inventory must include the following information:
HHS decal number
Manufacturers name
Manufacturers model number
Manufacturers serial number
Record and reconcile your inventory results with the property clause in your contract, and submit the report to your Contract Property Administrator. For overages, shortages or damage, provide a statement of the condition and apparent cause. Include the name of your companys property contact for the Contract Property Administrator. Prime contractors must submit a consolidated inventory report of all government property, to include subcontractor inventory.
Property Control System
Shortly after contract award, the Contract Property Administrator will request a copy of the written procedures for your internal property control system unless HHS already has it. HHS reviews the property control system to determine if it is adequate to assure compliance with government regulations and contract terms, and to assure that the property is adequately protected, maintained, utilized and accounted for. The adequacy of your property control system helps to demonstrate your ability to manage government property.
A contractor with a few employees may not have a need for written procedures for effective management of Government property. In such cases, the Contracts Property Administrator will evaluate the adequacy of the contractors system on the basis of the contractors explanation of his controls and observation of the system.
Elements
An acceptable property control system must comply with the FAR. It identifies all types and classes of government property and addresses your policies on the following elements:
Maintenance and calibration
Physical inventory
Identification and records
Storage and movement
Property consumption
Contract completion or termination
The property control system must enable us to locate any item of government property within a reasonable time. Generally, this should not exceed two working days. The system should also provide a complete, current, auditable record of all transactions which the Government may review as frequently as conditions warrant.
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The following section briefly outlines the major requirements for each element of your property control system.
Acquisition
Items are ordered in accordance with quantities stipulated in the contract. Existing equipment on-hand is screened before submitting requisitions. Correct source is identified (either government-furnished or contractor-acquired).
Receiving
Property received is inspected for discrepancies. Receiving report is prepared and distributed to appropriate offices. Discrepant items are segregated and documented (partial shipments, for example).
Identification and Records
Equipment received is promptly and properly classified and labeled with a HHS property decal. Inventory control and financial records are established and maintained for the property. Basic information is contained in the records, as outlined in the FAR.
Storage and Movement
An adequate system to control movement and location of property is maintained. Property in storage is protected, preserved and inspected to prevent loss, damage and deterioration. Adequate safeguards are provided for securing government property. A first in/first out system is established for stored items, subject to age deterioration and warranty expiration.
Property Consumption
Property is consumed only under contract performance. Stock record system of records is maintained for consumable items.
Utilization
Methods are established to ensure that government property is utilized only for purposes authorized by the contract. Contractual authorization is obtained to use property for other than its original authorized purpose. A system is established to review and identify government property to release when it is no longer required for contract performance. Criteria are established and retention of idle equipment is documented and justified by the program manager.
Maintenance and Calibration
A scheduled maintenance program is established, consisting of a systematic written procedure for servicing and inspecting equipment.
The goal is safe, efficient and economical operation of government equipment.
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A program is implemented for the following categories of maintenance: preventive maintenance, routing repair and adjustment emergency repair, and calibration.
A calibration control system is designed for all measuring and test equipment to provide control of the evaluation, calibration, maintenance, repair and use of it.
Records are kept of maintenance and calibration performed, including cost and date.
Maintenance and calibration are performed by technically qualified personnel.
System is capable of identifying high maintenance costs for review; corrective action is taken by management and is documented.
Physical Inventory
Physical inventories are generally conducted at the start of the contract, annually on the anniversary of contract award, fiscal year end, on a special basis if directed by the Government, and within 90 days upon contract completion or termination as specified in the contract.
Inventories should be taken by personnel other than those having custody of the property or maintaining the records unless the contractors operation is too small to do otherwise.
Inventories are conducted using the wall-to-wall approach.
Physical inventory results are promptly reconciled with property records.
Inventory results and discrepancies are promptly reported to the Contract Property Administrator.
Subcontract Administration
Procedures and controls are established to assure that government property in a subcontractors possession is adequately protected.
Subcontractor is aware of contractual property provisions.
Subcontractor will report loss, damage or destruction of government property to the prime contractor for notification of the Contract Property Administrator.
Reporting
Annual inventory reports are to be provided to the Contract Property Administrator by October 31st each year.
Any loss of or damage to government property is immediately reported to the Contract Property Administrator.
Government property excess to contract requirements is promptly reported to Contract Property
Administrator.
Standard Form 1428 Inventory Schedule is submitted for all accountable contractor-acquired and leased property; receipt of GFP is reported to the Contract Property Administrator when the property is received.
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Any other reports specified in this Guide or in the contract.
Disposal
Disposition instructions provided by the Contract Property Administrator are carried out as directed.
Disposal
Disposition instructions provided by the Contract Property Administrator are carried out as directed in accordance with instructions, the disposal of property is properly documented.
The quantity, condition code and location are reported accurately for property items requiring disposition.
A decontamination certification is included in the final inventory report at the conclusion of the contract, unless waived by the Contracting Officer.
Contract Completion or Termination
Residual property is reviewed for appropriate actions (such as decontamination or repair) before transfer or disposal of property.
A full accounting is effected for all government property in possession of the prime contractor and subcontractor. The final inventory report is submitted promptly unless the Contracting Officer specifically approves an extension of time.
Pending issues are resolved, such as inventory adjustments and determinations of liability, before contract closure.
The Contract Property Administrator is notified when all pending actions on property-related issues are completed.
HHS Review of System
Your written system of procedures for property control must be submitted to the Contract Property Administrator for review within 30 days from the date it is requested. The review and approval of a contractors property control system at a specific site by one agency is binding on all other government departments and agencies, under interagency agreements. However, HHS may impose special property administration requirements to meet Agency needs.
Disapproval of System
If your system does not comply with the FAR or contract requirements, corrections will be required after notification of deficiencies. If you do not correct the deficiencies within the schedule that was agreed upon, the Contract property Administrator will recommend disapproval of your system by the Contracting Officer. Your liability for loss of or damage to government property may increase if approval is withheld or withdrawn.
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CHAPTER IV: CONTRACT ADMINISTRATION
ACQUIRING PROPERTY
There are several ways to acquire property. You may obtain GFP through a transfer of property from an HHS office or another contract, or by securing excess property (this requires a special contract authorization). You may be authorized to acquire property by purchasing it from GSA supply sources (requiring a special authorization in your contract) or from a private vendor, or you may be required to lease or rent the property.
Authorization Required
Regardless of how you acquire property, any use of accountable government property under a HHS contract must be authorized in writing by the Contracting Officer.
Unauthorized Property Acquisitions
If you possess accountable GFP or CAP which has been authorized by the Contracting Officer, immediately report details about your possession of the property to your Contracting Officer with a copy to the Contracts Property Administrator.
The Contracting Officer will determine if it is appropriate to allow you to retain any unauthorized property. If the Contracting Officer grants authorization, the acquisition will be ratified and reflected in a contract modification.
Government-Furnished Property
The furnishing of government property will be coordinated by your Contract Property Administrator. You must identify your needs to your contracting Officer who will coordinate with the Project Officer; the clear definition of your needs before property is provided will facilitate the authorization process. The transaction must be authorized before property is physically transferred to you. When you receive the property, examine it to see that it will meet your needs and that it is in the proper condition for work performance. If the property does not meet your needs, notify the Contracting Officer Immediately.
Transfer Between Multiple Contracts
If you have more than one contract with HHS and want to have property transferred from one contract to another, coordinate this through your Contracting Officer who will coordinate with the Contract Property Administrator. If the transfer is approved, the Contracting Officer will issue a modification to effect the transfer.
Acquiring Excess Government Property
If you are located near a government installation, you may be able to acquire excess property. This requires the approval of your Contracting Officer to issue a contractors identification card (GSA Form 2946). If authorized, your Contract Property Administrator will provide catalogs of excess property. Contact your Contract Property Administrator for details about obtaining excess property.
Also, surplus personal property may be donated through State agencies to non-profit tax-exempt activities such as medical institutions, hospitals, schools, universities etc. Refer to FAR Part 45.609 and FPMR 101-44.207
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Contract-Acquired Property
Prior to authorizing the acquisition of CAP, there is a justification process and a determination of the method that is in the best interest of the Government. The documentation of this process and the analysis called a property justification, is coordinated by the Contracting Officer with the Project Officer.
Property justifications are required for all leased items, regardless of value. If accountable CAP has been authorized under your contract, the contract will specify whether the property is to be purchased, leased or rented. The FAR and FPMR contain detailed information about procurement requirements; they may assist you in developing adequate procedures.
GSA Supply Sources
GSA and Federal Supply Schedules should always be considered as a first source of supply. If you are authorized to acquire property from a GSA supply source; FEDSTRIP (Federal Standard Requisitioning and Issue Procedures) or Customer Supply Centers, contract clause, modification or letter of authorization from your Contracting Officer is required to authorize use of these supply sources.
FEDSTRIP and Customer Supply Centers
FEDSTRIP and Customer Supply Centers are operated by GSA to serve the retail needs of federal agencies. Cost-reimbursement contractors may also use these sources if authorized FEDSTRIP is used for ordering large quantities of items while Customer Supply Centers are intended for small quantity orders. If you are interested in using these first supply sources, contact your Contract Property Administrator for details.
Reporting and Reimbursement for Acquisitions
Prime contractors must submit consolidated reports that include subcontractor acquisitions. Subcontractor acquisitions are subject to the same reporting and justification requirements as prime contractors for acquiring property under the contract. The prime contractor coordinates subcontractor transactions, subcontractors do not deal directly with the Contract Property Administrator, except for subcontractors to the Small Business Administration.
Receipt of Contractor-Acquired Property
Immediately upon receipt of accountable property items, report the acquisitions on Standard Form 1428 Inventory Schedule. Submit the completed Standard Form 1428 Inventory Schedule to your Contract Property Administrator (a copy of the form must also be attached to your reimbursement voucher). Specific instructions for completion of Standard Form 1428 Inventory Schedule are located in Chapter VII of this Guide.
Accountable property is nonexpendable personal property with an acquisition cost of $1000 or more, and with a useful life of two years or more and sensitive items (regardless of acquisition value. All accountable property items acquired under your contract must be reported on Standard Form 1428 Inventory Schedule, including such commodities as components, accessories, improvements and add-ons that exceed the accountable threshold as well as leased or rented items. Be sure to report design, labor and/or transportation costs, if applicable. These costs are included in the acquisition cost of the item in the Agencys records.
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Discrepancies in Shipments
If you discover an overage, shortage or damage upon receipt of CAP, take whatever action are necessary directly with the vendor or the supplier.
Receipt of Government-Furnished Property
When you receive accountable GFP, notify your Contract Property Administrator by letter immediately upon receipt of the property; this applies to unauthorized as well as authorized government property. If an HHS Property Transfer document is forwarded to you for signature, sign it and return it to your Contract Property Administrator. If you send a letter, include the decal number, acquisition cost, item description, model number, serial number, condition code, and physical location of the property. Remember prime contractors report to the Contract Property Administrator all transfers to subcontractors.
If your Contract Property Administrator forwards an HHS Transfer Form for your signature, verify that all information recorded on the form is correct. Remember to check the condition of the property and ensure that it will meet the requirements of the work to be performed. If there are any discrepancies with the form, sign it where indicated and return it to your Contract Property Administrator.
Discrepancies in Shipments
If you discover an overage, shortage or damage upon receipt of GFP, or if property is unusable for any reason, provide a statement of the condition and apparent cause to the Contract Property Administrator. If necessary, file the appropriate claim forms with the shipping company.
Leased Property
The acquisition of leased property must also be reported on Standard Form 1428 Inventor Schedule if the acquisition cost of the leased item would exceed the accountable threshold (see Glossary) and if the lease term exceeds two months. Chapter VII in this Guide contains details about the specific information that is reported.
Notify your Contracting Officer with a copy to the Contract Property Administrator at least 45 days before termination of a lease arrangement, whether due to the expiration of the actual lease or the termination/expiration of your contract. Also advise the Contracting Officer of any credits toward purchase of the item. The advance notice to HHS will allow the Government to decide whether to purchase the item or return it upon lease expiration, or to buy out the lease if it has not expired.
Subcontractor Acquisitions
Accountable items acquired by a subcontractor are reported by the prime contractor to the Contract Property Administrator on Standard Form 1428 Inventory Schedule. Reimbursement to a subcontractor is coordinated and processed by the prime contractor; prime contractors are reimbursed by HHS for authorized subcontractor acquisitions. HHS communicates directly with the prime contractor only, except for contracts with the Small Business Administration under its 8(a) program.
Receipt of Component Parts
Component parts or other items acquired for addition to a piece of property that has already been reported and decaled, must be reported on Standard Form 1428 Inventory Schedule if the components price exceeds the accountable threshold. State the HHS decal number of the main unit and indicate that the components will be added to that piece of property. Also record any entry for such costs as design, labor and transportation, if applicable, these costs are added to the acquisition value of the item.
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Fabricating Equipment
If equipment, components or additional items are acquired individually and then assembled into one main unit, report the acquisition of accountable items individually as they are purchased. Include a statement on Standard Form 1428 Inventory Schedule that one major unit is being constructed. When the item has been completed, notify the Contract Property Administrator, and state this on your Standard Form 1428 Inventory Schedule.
Records
If the construction of prototype or special research equipment is authorized by the contract, report the costs for design and labor along with the value of the components to include equipment, material and supplies.
Special test equipment fabricated from materials that are government property are recorded as government-owned immediately upon fabrication. If equipment is fabricated from materials that are contractor-owned, the completed item is recorded as government property when title passes to the Government.
Installed Property
Before installing government equipment at your site, you must obtain authorization from your Contracting Officer, and a modification or authorizing letter must be issued. Before installing the property, consider how the property can be removed at contract completion. It is suggested that you discuss this with your Project Officer. Provide your Contracting Officer with a detailed report on the cost of removal and restoration, as well as a planned disposal method. Include labor costs for installation and/or set-up, and transportation costs in the total cost.
Reimbursement for Acquisitions
Contractors generally submit SF-1034 and/or SF-1035, Public Voucher for Purchases and Services Other than Personal (New Window), for reimbursement of costs incurred under contract performance. You must itemize acquisitions under the personal Property/Equipment category of your voucher and not simply list them as Other Direct Costs. The Contract Property Administrator receives a copy of your voucher from the HHS paying office and checks voucher entries to ensure that property acquisitions are reported under the proper category.
Attach Copy of Standard Form 1428 Inventory Schedule
The original Standard Form 1428 Inventory Schedule is submitted to your Contract Property Administrator. A copy of the form must be attached to your voucher to support reimbursement claims. If you submit a voucher including costs for accountable personal property items, but fail to attach a copy of the Standard Form 1428 Inventory Schedule payment for the personal property items may be suspended by the Contracting Officer.
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Invoice Preparation
If you have questions about voucher/invoice preparation and processing related to personal property, please contact your Contract Property Administrator. Any other questions about vouchers should be directed to the paying office designated in your contract.
Property Identification
This section describes requirements for decals, sensitive items, precious metals, and special test equipment.
Decals
Decals are identifying tags designed by HHS to identify Agency property and to display the specific number assigned to a particular item or to identify a specific class of property. HHS has a variety of decals to identify property classifications:
Bar code decals identify accountable property.
For other than accountable property, a decal that states Property if U.S. HHS may be furnished, if requested.
Blank paper decals maybe provided for components or other add-ons (the HHS decal number of the main unit is written on the decal and affixed to the component).
Decals may be furnished for leased items (the decal number is preceded by the letter L or R).
Metal decals may be requested for property that is expose to the environment.
If you are provided GFP without affixed decals, contact your Contract Property Administrator in writing to request the decals. Your Contract Property Administrator will furnish decals for accountable CAP. The HHS decal numbers should be referenced in your correspondence.
Items that Cannot be Decaled
Some property items cannot be decaled. These include submersible items and those subject to chemical exposure and weather conditions. You may request metal decals for property that is exposed to the environment. Other items cannot be decaled because the decal will not adhere to that particular type of surface (pumps, some typewriters, for example). In these cases, make every effort to indelibly mark the item by painting or etching the decal number on it. Items that cannot be decaled or otherwise marked with the decal number, such as platinum crucibles, are subject to additional controls. One option for recording the decal numbers is to attach the decal to your copy of Standard Form 1428 Inventory Schedule that shows receipt of the item Stock cards can also be used, recording detailed information about the item, and attaching the decal to the stock card.
Sensitive Items
Sensitive Items are property items that are highly desirable an easily converted to personal use. Special efforts must be made to control and protect sensitive items. Sensitive items classified as accountable property, and must be reported on Standard Form 1428 Inventory Schedule if you need assistance in identifying sensitive items, contact your Contract Property Administrator for more information. Sensitive items are listed in Appendix C. Signature receipts are required to establish individual accountability for all sensitive items regardless of value.
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Precious Metals
When authorized precious metals can be acquired directly or indirectly, as government-furnished or contractor-acquired personal property. Precious metals such as platinum, used in the composition of crucibles or evaporating dishes, for example, are commodities requiring sensitive item accountability as well as classification as precious metals. Keep records of the amount of precious metal comprising the commodity.
Some precious metals, such as gold and silver, may exist within the boards and wiring of computer and laboratory instruments. Maintain a record of this information to assure appropriate recovery if out-right disposal is considered.
Recovery of Precious Metals
The recovery of precious metals must be reported annually to your Contract Property Administrator, report the amount recovered and the methods of recovery. Contractors that consistently use photographic services, for example, must develop a program for the recovery of silver. Contractors should contact the Contract Property Administrator who will contact the regional GSA Federal Supply Service or the Defense Logistics Agency (DLA) serving the area for assistance. (NOTE: October 12, 2006 - the GSA Federal Supply Service (FSS) is being merged with the Federal Technology Service (FTS) into the Federal Acquisition Service (FAS). As more is known about the structure of the new FAS, the instruction found here will be updated).
The contracting Officer will approve a credit to the contract when the silver is properly disposed of at a profit.
Special Test Equipment and Components
Special test equipment authorized as GFP or CAP under the contract will be marked with a serial number and the HHS decal number. If it is not feasible to mark the equipment, report this to the Contract Property Administrator Special test equipment components valued as $1,000 or more and incorporated in a manner that makes removal and re-utilization feasible and economical, must also be marked. Property identification should be legible, permanent, conspicuous and temper-proof, consisting of serial number and decal number. Remember: off-the-shelf testing equipment is not classified as special test equipment (see Glossary).
Annual Inventory
A physical inventory of accountable government property must be conducted by September 30th and submitted by October 31st of each year. Your inventory must include accountable government property items acquired, furnished, rented and/or leased under the contract. Employees who conduct inventories should not be the same individuals who maintain the property records. Following the physical inventory, prepare an inventory report and submit it to your Contract Property Administrator and Contracting Officer.
Include all accountable government property in your possession, even if it has not been authorized by the Contracting Officer. Remember software (commercially leased) has been classified by HHS as sensitive; and is subject to reporting requirements.
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The minimum information that must be recorded follows:
HHS decal number
Associated HHS decal numbers
Manufacturers name
Item description
Manufacturers model number
Acquisition Date
Manufacturers serial number
Actual cost of item
Subcontractor Inventory
Prime contractors must submit a consolidated report of all accountable government property under the contract, to include subcontractor inventory. Subcontractors should report their inventories to the prime contractor.
Certification
Your final inventory report must include a certification that all items are required for continued contract performance and are free from contamination. Property that is no longer usable or required must be reported and identified as such.
Reconciliation of Inventory
Reconcile your inventory with your property records. If you discover overages or shortages, report them in your cover letter and submit back-up documentation, described in the following paragraphs to initiate the appropriate actions.
Overage Procedures
For overages your Contract Property Administrator will notify your Contracting Officer. You will be contacted and asked to provide information about how you acquired the property and to justify your continued need for it. Your Project Officer may initiate the property justification process if your retention of the item is approved by the Contracting Officer.
Shortage Procedures
First, attempt to locate the item. If you have property at more than one site, check your other locations. If you cannot find the item, submit a statement explaining all related circumstances, including the actions you have taken to try to locate the property. In your letter, you may request relief of accountability for the item. If you suspect the item was stolen, report this immediately to the local police. The Missing, Stolen and Damaged Property section of the Guide outlines the required content of your statement.
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Missing Stolen and Damaged Property
Promptly notify the Contract Property Administrator of any loss, damage to, or destruction of government property in your possession or control, or in the possession or control of a subcontractor. You are required to investigate the circumstances of each incident and ensure that measures are taken to prevent recurrence. You must respect all known facts and circumstances of the case to include the following information.
Description of item(s) missing, stolen, damaged, or unreasonably consumed to include condition of the item before it was missing/stolen:
HHS decal number (if applicable)
Manufacturers name and model number
Date the item was last inventoried
Cost of item and projected cost of repairs, for damaged property
The last time the item was physically seen
The names of the individuals who used the item
The names of individuals who had access to the item
The name of the individual who discovered it was missing
The date and time the item was first discovered missing
The actions taken to try to locate the item
Previous similar occurrences and measures taken to prevent future occurrences
Other facts or circumstances relevant to determination of liability and responsibility for repair or Replacement
Any loss due to theft or suspected theft must be reported immediately to the local police and the Federal Bureau of Investigation (FBI). Check the U. S. Government listings in your telephone directory for the phone number. Send a copy of the police report to the Contract Property Administrator. The Contracting Officer will determine your liability for losses.
Records
Your Property records must identify all types and classes of government property (expendable supplies, materials, nonexpendable personal property/equipment and real property). The records must be safeguarded from tampering and/or destruction. Separate property records should be maintained for each contract.
Personal Property
Your personal property records must ensure that the following areas of property administration are covered:
Acquisition Maintenance and calibration
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Receiving Physical Inventory
Identification/records Subcontract administration
Storage and movement Reporting
Property consumption Disposal
Utilization Contract Completion
Audit Records
Your records should provide a complete, current, auditable record of all transactions. They must be accessible to authorized government personnel; your records are subject to review by the Government as conditions warrant. Compliance reviews may take place at any reasonable time during contract performance, completion, termination, or any time during the period you are required to retain such records. Records must be retained for the time period specified in FAR.4.705 or for any longer period specified in your records.
Basic Information
Your inventory records must provide the following information for every item of government property in your possession:
Expendable Supplies and Materials Item Description
Unit of Measure
Unit Price Contract Number
Quantity Received
Location
Quantity Issued Disposition
Quantity on Hand
Posting Reference
Nonexpendable Personal Property/Equipment Owned or Leased
HHS Decal Number
Item Description
Manufacturers Serial Number
Manufacturers Model Number
Actual Cost of Item
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Monthly Cost
Acquisition Date
Installation Date
Contract Number
Credits Accrued
Government-furnished or Contractor-accrued
Contractors Current Order Number
Associated HHS Decal
Expiration Date Numbers
Maintenance Cost
Acquisition Price if Purchased
Current Location
Buy-Out Price
Condition Code
Requirements
Your property control records for all government real property, including alterations, construction work and sites, will include an itemized record of the description, location, acquisition cost and disposition. These records must include maps, drawings, plans, specifications, and supplementary data. They must be complete and include original cost of the property, and improvements, changes and additions.
Capitalization
If you incur any cost for new construction, assembly to the real property, expansions, extensions, conversions, additions, alterations and improvements, the cost will be capitalized. HHS must record the cost as a capitalized asset. To assist the Agency in carrying out its responsibility, report this information to HHS. The costs for real property involving destruction of the facility or costs for ordinary maintenance or repair of the property are not capitalized.
STORAGE AND MOVEMENT
Guidelines for the storage and movement of government property are covered in this section.
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Storage
Take measures to protect and preserve stored government property in order to prevent loss, damage and deterioration. The property should be clearly identified as government property and should not be intermingled with non-government property. Ensure that stored items requiring special handling (such as flammables or explosives) are stored safely and are adequately protected.
Movement of Property
Document the movement of government property when property is removed from any of your sites for return to the Department or delivery to another contractor or agency. In these instances the physical relocation of the government property must be documented in writing, with copies provided to the Contract Property Administrator and the Project Officer. Notify your Contract Property Administrator before the property is moved, and instructions will be provided.
TRADE-INS
Trade-Ins or exchanges may be authorized for outdated equipment in a contractors inventory, or in order to decrease the purchase cost of a new item. This type of transaction occurs rarely, and is authorized only when there is a definite advantage to the Government.
Request for Authorization
If you wish to trade in or exchange government property for identical items, or for newer state-of-the-art items that are similar, send a written request to your Contracting Officer with a copy to the Contract Property Administrator. Your Contract Property Administrator will coordinate with the Contracting Officer, who may grant approval for the trade-in or exchange.
If the trade-in is disallowed, and you have no further use for the time, it will be offered to HHS offices for use, or referred to other agencies through the routine excess process.
EXCESS PROPERTY
You must report to your Contract Property Administrator all government property that is excess to your needs. Property in your possession may be considered excess if it is no longer required for contract performance or no longer in working order and repair is considered impractical. Your Contract Property Administrator will coordinate with your Contracting Officer to determine if the item is required on another contract or by the sponsoring program. If the property cannot be used elsewhere in the Department, there is a series of steps that HHS must follow to dispose of excess property.
This sometimes a lengthy process, and you may be required to store the excess property while the procedures are being carried out. You are responsible for the property as long as it is in your possession.
Report of Excess
The Contract Property Administrator in conjunction with HHS property management will issue an SF-120 (Report of Excess Personal Property), and SF-126 (Report of Personal Property for Sale) or an SF-15 (Sale of Government Property) for government property, regardless of value, that is not required for further use by the Department. The appropriate form will be executed and an informational copy forwarded to your designated representative. This individuals name normally appears on the forms as the contact person for anyone requesting additional information on the excess property. The Contract Property Administrator will advise your representative of the steps that are involved and will issue final disposal instruction when release of the items is appropriate.
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Quite often, GSA forwards a form or a letter directly to the contractor. If you receive any of this material directly from GSA, please forward it to your Contract Property Administrator.
Information provided by GSA to your Contract Property Administrator will be sent to you as needed.
Disposal Instructions
You may not dispose of any item until you receive the Contracting Officers approval and complete written instructions from the Contract Property Administrator. Disposal options include transfer, donation, trade-in, sale, abandonment, cannibalization, scrapping or destruction of the property.
Once you have declared an item as excess with the concurrence of your Contracting Officer, the Contract Property Administrator will notify GSA of the excess item for transfer to another government agency/department or contractor. If the item cannot be transferred, it is offered to state agencies in the GSA region for donation. If the states are not interested in the item, it is then offered to the public for sale. If GSA is unable to dispose of the item, the Contract Property Administrator is notified by GSA that HHS is authorized to conduct a small lot sale or abandon the item.
Abandonment and Destruction
Excess property may be destroyed or abandoned by HHS only after every effort has been made to dispose of it by other authorized methods. With GSAs permission, HHS may elect to abandon property at a site under certain circumstances during the life of a contract or during close-out of the contract. Authorization for abandonment requires a written determination by the Contracting Officer.
If you are authorized to abandon an item, remove all government markings from the item. Prepare and submit to your Contract Property Administrator a certification that the item is disposed of, and that it is disposed of in a manner that does not endanger the health and safety of the public.
When the Contract Property Administrator informs you that an item cannot be disposed of through GSA, you may be asked to identify any non-profit organizations in your local community that are interested in the item. If you are a for-profit firm, the item must be donated to a third party, as previously described. Local organizations to consider include high schools, vocational schools, colleges or service organizations (such as Goodwill Industries, Salvation Army, or Volunteers of America).
Letter from Organization
If it is known that an organization is interested, request a letter from them stating that they are a non-profit organization, and stating how the item will be used. The letter should be forwarded directly to the Contracting Officer with a copy to the Contract Property Administrator by the organization. The property item must be from contamination; it is your responsibility to provide this certification.
CANNIBALIZATION
Cannibalization refers to either the alteration of a piece of government property that is generally obsolete due to age or technological advances, or reducing equipment to parts in order to obtain needed components. In other words, you are cannibalizing property when you remove serviceable parts from an item, rendering it unserviceable or reducing its value. You may not cannibalize government equipment unless you have received the Contracting Officers approval and written instructions from the Contract Property Administrator.
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CONTAMINATION
The descriptions of transfers and disposal actions contained in this Guide assume that the property involved is decontaminated. Any contamination of personal property/equipment must be immediately reported to both the Contract Property Hazard-Free Certification Administrator and the Contracting Officer along with a certification that items are hazard-free. The contractor is normally expected to decontaminate the item so that it may be used again.
The following certification, signed by the contractor or an authorized official, must accompany each copy of the excess declaration or final inventory when shipment from the contractors facility will be required.
I certify that the listed property is free of biological, chemical, radioactive, other health hazardous contamination and that the property is safe for shipment, except for the following line items:
*(Enter line item numbers or No Exceptions)
Signature
Title and Date
Packing, Crafting, and Shipping
When shipment of government property is required, the contractor is responsible for proper packing, crafting and handling to ensure it reaches its destination in good condition. Shipments shall be made pursuant to the directions of the Contracting Officer or Contract Property Administrator and the contractor must advise the Contract Property Administrator of the items shipped, date of shipment, number of crates or parcels, carriers name and the waybill number immediately after carriers pickup.
CHAPTER V: CONTRACT CLOSE-OUT
FINAL INVENTORY AND CERTIFICATION
At the end of your contract you must conduct a final inventory. Employees who conduct inventories should not be the same individuals who maintain the property records.
Inventory Requirements
The final inventory will cover all property items furnished or acquired under the terms of your contract, including nonexpendable/expendable property items regardless of cost, and supply items and material not consumed during contract performance. The amount of accrued lease credits for leased property will also be included on the final inventory. Advise the Contract Property Administrator of any and all unusual circumstances related to the inventory. Failure to provide the prescribed final inventory will delay contract close-out and final payment.
You are required to report the following information on your final inventory:
HHS decal number
Associated HHS decal numbers
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Item Description
Acquisition Cost
Manufacturers name
Condition Code
Manufacturers Model Number
Quantity
Manufacturers Serial Number
Physical Location of Item
Certification
Final inventories must include the following certifications:
I certify that except for items consumed in the performance of the contract, this inventory includes all materials, supplies and equipment furnished by the Government or acquired by the contractor for the account of the Government under contract number .
I further certify that all property is in a state free from contamination by any hazardous or toxic substances, and require no additional clean-up or decontamination efforts.
Contractors that have no government property in their possession must submit a certification to that effect.
Follow-On Inventories
When government property under your contract is being transferred to another contract, it is suggested that a joint inventory be conducted. This may effect the transfer of the property, relief or liability for the closing contractor and receipt by the follow-on contractor.
Government Terminates Contract
If the Government elects to terminate a contract for the convenience of the Government, the requirements for a termination inventory are the same as outlined for a final inventory. The termination inventory must be conducted primarily to disposal purposes.
Subcontractor Inventories
Prime contractors must submit a consolidated inventory report of all government property, to include subcontractor inventory. Subcontractors should report their inventories to the prime contractor. Subcontractor inventory is reported in the same detail as outlined for prime contractors, state the location of the subcontractor property being reported.
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DISPOSITION OF PROPERTY
Your Contract Property Administrator will provide written instructions for the disposition of your property. You may remove government property from your site only in accordance with those instructions. You are responsible for the property until final disposition has been completed.
Leased Property
Notify your Contract Property Administrator at least 45 days before a lease arrangement is terminated, and report the status of any purchase credits. This applies to leases due to expire when your contract ends, and to leases that continue after the completion or termination of your contract. If the lease is expiring, the Government may elect to purchase the item, or if the lease has not expired, the Government may choose to buy out the lease. Your advance notice to the Contract Property Administrator will permit sufficient time for a determination to be made.
Disposal Options
In disposing of the property, the Government may elect to exercise any of the options described below:
If a cost reimbursement-type contract allow the contractor to buy contractor-acquired items/inventory at 100% of acquisition value; return the items/inventory to the original supplier for credit, less any reasonable restocking charge. (Do not finalize the purchase or return any merchandize without written instructions from the Contract Property Administrator ); transfer all or part of the inventory to another contract; transfer the inventory to a licensee by means of a Revocable License Agreement for a loan; have the inventory returned to HHS; or report the inventory as excess.
Other options the Government may consider for the disposition of your property include sale to the public, donation, abandonment, scrapping destruction. Your Contract Property Administrator will provide specific written instructions for the disposal of your property.
CHAPTER VI: SPECIAL CONSIDERATIONS
Chapters 1, 2, 3, 4, 5 apply to all contractors. Portions of Chapter VI may also apply to you. If your contract falls in any of these categories, read the appropriate section of the chapter; On-site contractors, foreign governments or international organizations, non-profit or educational organizations, and government vehicles. The information that appears in Chapter VI is supplementary to the first five chapters, describing only additional information or special considerations.
ON-SITE CONTRACTORS
On-site contractors are organizations working under contract on HHS premises. Any use of government real and personal property must be authorized in the contract as GFP, or on an access to basis. In either instance, it will be itemized in the basic contract or in a subsequent contract modification.
Suspected Theft Property
The procedures for missing, stolen and damaged property vary slightly for on-site contractors when theft or suspected theft is involved. Notify HHS internal security office as well as your Contract Property Administrator.
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On-site contractors are guided by the instructions, procedures, and practices outlined in Chapters 1, 2, 3, 4, 5 of the Guide. In these chapters, the requirements for inventories, points of contact, acquisitions, transfers, disposition and other property administration areas are covered.
FOREIGN GOVERNMENTS/INTERNAL ORGANIZATIONS
This section pertains to contractors that are foreign governments or international organizations. Before awarding this type of contract, the Contracting Officer will determine whether costs will be recovered or rental charged for the use of government-furnished property. The contract will specify if property is provided on a rental or non-rental basis. The official property records will be maintained by HHS for all foreign governments and international organizations.
Foreign governments or international organizations performing cost-reimbursement contracts may be permitted to carry insurance for loss or damage to government property, and the cost of the insurance permitted as an allowable expense to the contract, or they may claim immunity from liability, as determined by the Contracting Officer.
Contractors that are foreign governments or international organizations are guided by the instructions, procedures, and practices outlined Chapters 1-5 of this Guide. In those chapters, The requirements for inventories, points of contact, acquisitions, transfers, disposition and other property administration areas are covered.
NON-PROFIT/EDUCATION ORGANIZATIONS
When contractor-acquired property is authorized for a non-profit or educational organization under a HHS contract with the primary purpose of research, there are special conditions for the vesting of title. Except as outlined in this section of the Guide, or in the contract, title to CAP ordinarily vests in the non-profit or educational organization working under a research contract. At the Governments discretion, however, in some instances title may vest in the Government, and the non-profit/educational organization will be subject to the requirements described in Chapters 1, 2, 3, 4, 5 of this Guide.
Acquisitions: Less than $5000/$1000
If you are classified in the basic contract or subsequent modifications as an educational or non-profit institution, and you obtain the Contracting Officers approval before acquisition of the property, you will automatically acquire and retain title for any items of personal property costing less than $5000 acquired on a reimbursable basis. Contracts awarded prior to the implementation of the Federal Acquisition Regulation (FAR) in April 1984 must use $1000 as the dollar figure for vesting title.
The Acquisition of all property items under the contract requires the prior approval of the Contracting Officer. Within ten days after the end of the calendar quarter during which you receive property, you must furnish the Contracting Officer and the Contract Property Administrator with a list of CAP valued at less than $5000/$1000 - refer to FAR Part 45 - Government Property for more information.
Acquisitions: More than $5000/$1000
If property costs $5000/$1000 or more, and the parties specifically agree in the contract, title may:
vest in the contractor upon acquisition;
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vest in the contractor, subject to the Governments right to direct transfer of the title to the Government or to a third party within 12 months after contract completion/termination; or
vest in the Government if the Contracting Officer determines that vesting of title in the contractor would not further the objectives of the Agencys research program.
All acquisitions of contractor-acquired property valued at $5000/$1000 or more must be reported on Standard Form 1428 Inventory Schedule to the Contract Property Administrator. A copy of the form must be attached to the reimbursement voucher.
Title Consideration
When title to CAP vests in a non-profit/educational institution, neither depreciation, amortization or use changes are allowable for those items under any existing or future government contracts or subcontracts. Title may not be transferred to the contractor if the contract is performed at a government installation (on-site) and there is a continuing need for the property following contract completion. The absence of an agreement covering title to property that cost $5000/$1000 or more and that was acquired by the contractor with government funds does not limit the Agencys right to act to vest title in a contractor. If there is no contract clause showing who has title, the Contract Property Administrator will record the vesting of title to the property in HHS.
Non-profit/educational organizations using property titled in HHS are guided by the instructions, procedures and practices outlined in Chapters 1-5 of this Guide. In these chapters, the requirements for inventories, points of contact, acquisitions, transfers, disposition and other property administration areas are covered.
VEHICLES
This section covers basic information about government vehicles authorized under your contract. If you need additional information, contact your Contract Property Administrator.
Title/Certification of Origin
If you are authorized to acquire vehicles under your contract, you must ensure that each vehicle is registered in HHS name on the title/certification of origin. Do not register government vehicles with the State: HHS will furnish license tags.
How to Obtain License Tags
You may request license tags in advance, upon receipt of the Notification of Shipment from the vendor. Complete a Standard Form 1428 Inventory Schedule (New Window) to request tags; be sure to attach a copy of the Notification of Shipment. The purpose of using Standard Form 1428 Inventory Schedule in this instance is to provide the information HHS needs for processing your license tags. Report the acquisition of the vehicle to Standard Form 1428 Inventory Schedule in the standard format (see Chapter 7 for details). After the vehicle is received, forward the title/certificate of origin to the Contract Property Administrator. Please furnish the name and telephone number of your contact point for government property.
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Returning License Tags
It is your responsibility to return the license tags to your Contract Property Administrator when the vehicle is taken out of service. If the vehicle is replaced, new tags must be issued for the replacement vehicles.
Identification of Government Vehicles
The Contract Property Administrator will provide license tags, legends and Agency decals to identify the vehicle as HHS-owned.
Trailers
If you receive a title/certificate of origin for a trailer you acquire under your contract, forward the title or certificate to your Contract Property Administrator.
Reporting Requirements
There are special reporting requirements for government vehicles; they are outlined in the following section:
Accident Reports
If a government vehicle is involved in an accident, complete a report of the incident. Forward two copies of the accident report to your Contract Property Administrator, and keep a copy for your files.
Maintenance Records
You must ensure that government vehicles authorized under your contract are maintained in safe, mechanically sound condition. Keep current records of the cost and type of maintenance performed, such as oil changes, tire rotations, and tune-ups. Your maintenance records must include back-up documentation; these records are subject to review by the Government.
Vehicle Reports
Submit a report to your Contract Property Administrator listing all vehicles under your contract, and identifying projected vehicle acquisition needs for the next one year period. Include a copy of your maintenance records/log for the current quarter, showing the type and cost of maintenance performed. You do not need to send copies of the supporting documentation.
Vehicle Listing
Include the following information in your vehicle listing:
Type of vehicle (e.g..... sedan or station wagon)
Model, make and year (e.g.... 1990 Chevrolet Blazer)
License tag number
Serial number
Vehicle mileage
Vehicle location
Name and telephone number of your property contact.
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Projected Vehicle Acquisitions
In your annual report, identify your projected vehicle acquisition needs for the next one year period, to include replacements and additional vehicles. The standard lead time for acquiring vehicles through GSA is 8-10 months. Thus, it is essential that you provide HHS sufficient time to process your request.
Disposal
If you have been authorized by the Contract Property Administrator to dispose of HHS vehicles through release to a state agency or buyer, you may not release the vehicle(s) until the Contract Property Administrator provides you with one of the following:
a transfer of title initiated by the Contract Property Administrator, or
SF-97, Certificate of Release of a Vehicle. This requires the signature of the buyer/receiver and provides written instructions about relief of accountability.
GSA Vehicles
A contractor may be authorized by the Contracting Officer to lease GSA vehicles. The Contract Property Administrator will assist in implementing this with GSAs Interagency Fleet Management System.
CHAPTER VII: FORMS AND INSTRUCTIONS
This chapter provides a sample form and specific instructions for the completion of Standard Form 1428 Inventory Schedule. Use of the form is discussed in Chapter 4 of this Guide. In the section entitled Reporting and Reimbursement for Acquisitions. If you need additional forms during the life of your contract, contact your Contract Property Administrator.
Standard Form 1428 Inventory Schedule
Standard Form 1428 Inventory Schedule (New Window) is used to report the receipt of accountable government-furnished/ contractor-acquired property that is purchased, leased or rented.
Reporting Component Parts
The acquisition of leased property must be reported on Standard Form 1428 Inventory Schedule if the acquisition value of the leased item exceeds the accountable threshold and if the lease term exceeds two months. The following information must be reported on the form: acquisition value, duration of lease, expiration date, monthly rental or lease cost, and buy-out value.
GLOSSARY
Abandonment - Leaving government-owned property in a non-federal location following expiration of a contract, or following a determination that the item is no longer recruited for use on the contract. Abandonment may be authorized by the Government if no other alternative is available for disposal due to the items low value or condition and as long as the property is free from contamination.
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Accountable Personal Property
Non-expendable personal property with an acquisition cost of $1000 or more, and sensitive items regardless of dollar value.
Cannibalization
The removal of serviceable components from otherwise unserviceable government property. Authorization is required before government property may be cannibalized.
Component Part
Nonexpendable property which is installed or affixed to an item of accountable property. It must be integral to the functioning of the main unit and not have the capacity to stand alone. Examples include, a memory board for a computer and a probe for a photo ionizer.
Condition Codes
Appraisals of the current condition of government accountable property through the assignment of designated codes. For example, condition code 1 refers to unused property in good condition. See appendix A for the list of condition codes.
Contaminated Property
Equipment/supplies that have been exposed to toxic or radioactive materials, chemicals or other waste products which render them unsafe for use.
Contract Modification
A negotiated or unilateral change in the basic contract that alters funding, scope of work, personnel, government property authorizations, or any other terms of the basic contract.
Contracting Officers Authorization (COA)
A document issued by a Contracting Officer to a Contractor to authorize the purchase of contractor acquired property.
Contractor-Acquired Property
Property purchased or otherwise provided by the contractor using contract funds and reportable as government property.
Customer Supply Center
A supply operation maintained by the General Services Administration (GSA) for the Government and its authorized contractors. The Customer Supply Center is used to procure small quantity orders of supply items. A contractor may be authorized by the Contracting Officer to use this source of supply.
Decals
Tags designed and used in HHS to identify Agency property. Decals are affixed to accountable property and display the specific numbers assigned to individual items of government property.
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Disposition
The sale, transfer (without the exchange of funds), donation, destruction, or abandonment of property.
Excess Property
Government property that is not required for immediate or foreseeable use.
Expendable Property
Supplies and materials that are consumed or expended routinely; that lose their identify under contract performance; such as pens, pencils and typewriter ribbons.
Facilities
Property used in accordance with terms of the contract for production, maintenance, research, development, or testing. The term does not include material, special test equipment, special tooling, or Agency-peculiar property, but it does include plant equipment and real property.
Fedstrip
An acronym (Federal Standard Requisitioning and Issue Procedures) referring to a procedure used by the Government and its authorized contractors to procure goods from the General Services Administration (GSA). A contractor may be authorized by the Contracting Officer to use this source of supply.
Follow-On Contract
A contract that is re-competed or renewed and awarded to the same or different contractor.
Government-Furnished Property
Property in the possession of or acquired directly by the Government, and subsequently delivered or otherwise made available to the contractor.
Government Property
All real and/or personal property owned by, or leased to the Government under the terms of a contract. Government property includes government-furnished and contractor-acquired property.
Hazard-Free Certification
A certification stating an item(s) is free from contamination. It is submitted when government property is no longer required at the contractors facility or upon conclusion of the contract.
Leased Property
Property that is either acquired by the contractor or the Government under a lease agreement.
Liability
The degree of a contractors obligation to the Government for contractor inventory.
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Material
All items not identified as equipment which are necessary for the equipping, maintenance, operating and support of government activities whether administrative or operational.
Materiel
Items that are generally referred to as supplies, material, apparatus, and equipment.
Modification
A negotiated or unilateral change in the basic contract that alters funding, scope of work, personnel, government property authorizations, or any other items of the basic contract.
Nonexpendable Property
Personal property which is durable with an expected useful life of two or more years, is complete in itself, and does not lose its identity or become a component part of another item.
Non-Profit Organization
Any corporation, foundation, trust, educational or other institution recognized by HHS and referenced in the contract as operated for scientific or educational purposes, not organized for profit, and no part of the net earnings of another corporation which inures to the profit of any private shareholder or individual.
Personal Property
All government property, excluding real property, which is either furnished by the Government or acquired with contract funds.
Physical Inventory
A wall-to-wall sighting and recording of all equipment items within a certain area. The types of inventories are start-up, annual, special and final.
Precious Metals
Uncommon and highly valuable metals characterized by their superior resistance to corrosion and oxidation, such as platinum and gold.
Property
Both real and personal. It includes facilities, supplies and material, special tooling, special test equipment, furniture, office equipment, ADP hardware and Agency-peculiar property.
Property Control System
Identifies a contractors internal management program encompassing the protection, preservation, accounting for, and control of government property from its acquisition through disposal.
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Property Management
The overall responsibility required for the management, acquisition, utilization and disposal of personal property.
Real Property
Buildings, grounds, improvements, structures, and features permanently installed in, or attached to, facilities.
Salvage
Property that has no reasonable prospect of sale or use as serviceable property without major repairs because of its worn, damaged, deteriorated, or incomplete condition or its specialized nature. While salvage has no reasonable prospect of sale or use without major repairs. It has some value in excess of its scrap value.
Scrap
Property that has no reasonable prospect of being sold except for the recovery value of its basic material content.
Screening
The examination of excess property by government or contractor employees to determine its usefulness. A screening pass is issued by the HHS Contract Property Administrator to contractor personnel, granting access to GSA holding areas.
Sensitive Items
Items of personal property (supplies and equipment) that are highly desirable and easily converted to person use; these items maybe subject to additional controls. (See Appendix C)
Special Test Equipment
Units that are engineered, designed, fabricated or modified to accomplish special purpose testing. Special test equipment consists of items or assemblies of equipment that are interconnected and interdependent, becoming a new functional entity for special testing purposes.
Start-Up Inventory
Physical inventory of GFP performed shortly after contract award and reported to the Control Property Administrator.
Stock Record
A perpetual inventory that is maintained for supply and materiel items, and shows by nomenclature the quantities of each item, issues, and balance on hand.
Subcontractor
An organization responsible directly to the prime contractor. Assists the contractor in carrying out the scope of work.
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Supply Item
A category of government property that is of a low dollar value and generally has a life expectancy of less than two years.
Surplus Property
Government-owned personal property classified previously as excess but not requested for transfer by any federal agency; thus, it is available for donation or sale.
Title
The legal right to claim, control, and dispose of property as a result of a purchase.
Trade-In
The exchange of an item of property for a similar replacement whereby the vendor agrees to apply the value of the replaced item toward the purchase price of the new item.
Unauthorized Property
Government-furnished or contractor-acquired property that is not authorized by an appropriate contract clause and/or modification and is in the possession of a contractor.
Unrequired Property
Government-furnished property or property acquired by the contractor during the life of the contract that is no longer needed to perform the scope of work under the contract for which it is authorized.
Voucher
Document prepared by the contractor for reimbursement of appropriate expenses incurred.
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HHS Contracting Guide for Contract of Government Property
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ATTACHMENT/EXHIBIT G
Rights in Data General: Alternate II, with additional permissible disclosures specified as None in the Limited Rights Notice in paragraph (g)(3). The categories of data that, if provided, would be provided with Limited Rights are described in Attachment G to this Subcontract.
PROPRIETARY DATA SUMMARY LISTING
OF
TETRAPHASE PHARMACEUTICALS, INC.
Exhibit A
Identification and Assertion of Restrictions on the Governments Use, Release, or
Disclosure of Technical Data or Computer Software.
The Offeror asserts for itself, or the persons identified below, that the Governments rights to use, release, or disclose the following technical data or computer software should be restricted. Assertions in the table below shall not create any obligation to deliver any data not otherwise required under this contract.
Technical Data or Computer Software to be Furnished With Restrictions* |
Basis for Assertion** |
Asserted Rights Category*** |
Name of Person Asserting Restrictions **** |
|||
Pre-existing Data Such data may include, without limitation, the data or categories of data as noted in Exhibit A, attached hereto, as may be amended from time to time. | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.227-14 Alt. II; not permitted to be disclosed outside of the Government | Tetraphase Pharmaceuticals, Inc. | |||
Data to be produced concurrently but with non-federal funds at private expense Such data may include, without limitation, the data or categories of data as noted in Exhibit B, attached hereto, as may be amended from time to time. | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.227-14 Alt. II; not permitted to be disclosed outside of the Government | Tetraphase Pharmaceuticals, Inc. |
Exhibit A
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(if applicable) |
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(if applicable) |
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PROPRIETARY DATA SUMMARY LISTING
OF
TETRAPHASE PHARMACEUTICALS, INC.
Exhibit B
Identification and Assertion of Restrictions on the Governments Use, Release, or Disclosure of Technical Data or Computer Software.
The Offeror asserts for itself, or the persons identified below, that the Governments rights to use, release, or disclose the following technical data or computer software should be restricted. Assertions in the table below shall not create any obligation to deliver any data not otherwise required under this contract.
Technical Data or Computer Software to be Furnished With Restrictions* |
Basis for Assertion** |
Asserted Rights Category*** |
Name of Person Asserting Restrictions **** |
|||
Pre-existing Data Such data may include, without limitation, the data or categories of data as noted in Exhibit A, attached hereto, as may be amended from time to time. | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.227-14 Alt. II; not permitted to be disclosed outside of the Government | Tetraphase Pharmaceuticals, Inc. | |||
Data to be produced concurrently but with non-federal funds at private expense Such data may include, without limitation, the data or categories of data as noted in Exhibit B, attached hereto, as may be amended from time to time. | Developed at private expense and not first produced under this contract | Limited Rights per FAR 52.227-14 Alt. II; not permitted to be disclosed outside of the Government | Tetraphase Pharmaceuticals, Inc. |
Subject Matter |
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Exhibit 10.22
|
Subcontract No. | 07822S1 | Prime Contract No. | HHSN272201100028C | |||
Start Date | 9/30/2011 | End Date | 31 October 2013 | |||
Contract Value | $13,327,071 | Funded Amount | See Part VIII table | |||
Subcontract Type | Cost Plus Fixed Fee (CPFF) Subcontract | |||||
Title | Development of Novel Tetracycline Countermeasures for Respiratory Disease Caused by Biothreat and Antibiotic-Resistant Public Health Pathogens |
THIS SUBCONTRACT is by and between:
CUBRC, Inc. | Administrative Point of Contact: | |||
4455 Genesee Street | Susan R. Schock | |||
Buffalo, NY 14225 | Phone: | 716.204.5137 | ||
Fax: | 716.204.5450 | |||
Mobile: | 716.510.2139 | |||
(hereinafter called the CUBRC) | E-mail: | Susan.schock@cubrc.org |
and
Tetraphase Pharmaceuticals, Inc. | Administrative Point of Contact: | |||
480 Arsenal Street | David C. Lubner | |||
Watertown, MA 02472 | Phone: | 617.715.3551 | ||
Fax: | 617.735.4802 | |||
Mobile: | 508.735.4802 | |||
(hereinafter called the Tetraphase) | Email: | dlubner@tphase.com |
WITNESSETH
WHEREAS, both parties acknowledge that this work is funded under Prime Contract No. HHSN272201100028C funded by the National Institute of Allergy and Infectious Diseases (NIAID), National Institutes of Health (NIH), Department of Health and Human Services (HHS) and CUBRC, Inc. shall be the Prime Contractor while Tetraphase Pharmaceuticals, Inc. shall be a subcontractor to CUBRC. CUBRC desires to have Tetraphase perform certain services and Tetraphase desires to undertake the performance of said services as a subcontractor to CUBRC. NOW, THEREFORE, the parties hereby covenant and agree pursuant to the Schedule, General Provisions, and Exhibits hereinafter incorporated as follows:
SCHEDULE
PART I STATEMENT OF WORK
Tetraphase agrees to complete the Statement of Work, herein incorporated as Exhibit A-1.
07822S1 Tetraphase Subcontract | 1 of 36 |
PART II DELIVERABLES
The deliverables as described in the Statement of Work, as well as the administrative and/or closeout deliverables itemized below shall be provided to CUBRC by Tetraphase.
Title | Due Date | Submit To | ||
Review of Strategic Staged Product Development and Work Plan | [**] |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Monthly Technical Progress Reportsdevelop all content for CMC and clinical activities and review and edit the technical summaries of completed preclinical studies using template provided | [**] business days before the [**] of following month |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Annual Technical Reportdevelop all content for CMC and clinical activities and review and edit the technical summaries of completed preclinical studies using template provided | [**] business days before the [**] of first month of new 12 month period |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Draft Final Technical Reportdevelop all content for CMC and clinical activities and provide review and edit the technical summaries of completed preclinical studies using template provided | Draft final report due [**] calendar days prior to completion of the contract. |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Review of Final Technical Report and Summary of Salient Results | [**] business days after received |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Audit Reports | [**] days after completion of the audit |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Clinical Protocols and supporting documents (draft, final, and revisions) | As requested |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Review of GO/NO GO Decision Gate Reports or Deviation/Change request | [**] calendar days prior to the date planned for exercising an option |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Draft and Final Regulatory Submission Documents to the FDA, including pre-IND, IND and End of Phase I package, as necessary | As requested |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Copies of FDA Correspondence and Meeting Summaries | Within [**] business days upon receipt of these from the FDA |
Radcliff@cubrc.org
contracts@cubrc.org |
07822S1 Tetraphase Subcontract | 2 of 36 |
Co-development of Draft non-clinical protocols and approval of Final non-clinical protocols (safety, toxicity, and efficacy) | [**] business days before animals are ordered (in vivo studies) or study is initiated (in vitro studies) |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Review of Draft and Final nonclinical study reports (safety, toxicity, and efficacy) delivered to Tetraphase by CUBRC |
[**] business days after their received for draft reports; [**] business days after it is received for final reports |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Draft Clinical Study Report | As requested |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Final Clinical Study Report | [**] calendar days after completion of data analysis |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Other Clinical Reports (e.g. IND annual reports, NIH clinical population reports, and clinical safety monitoring reports) | As requested |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Samples of Therapeutics (not for human use) | [**] doses of equivalent amount delivered to COTR or as directed by COTR |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Employee Rosters | As requested |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Contractor-Employee Non-Disclosure Agreements | As requested |
Radcliff@cubrc.org
contracts@cubrc.org |
||
Monthly Invoice | [**] of following month | Invoice@cubrc.org | ||
Invention and Patent Report(s) | As required by FAR 52.227-11 and upon completion | Government | ||
Government Property Inventory Report | Annually by [**] | Contracts@cubrc.org | ||
Closeout Documentation | Upon completion | Contracts@cubrc.org |
Patent reports include invention disclosure reports, confirmatory license and Government support certification as applicable, as well as annual utilization reports and a final invention/patent report on the expiration date of this subcontract. If no invention is disclosed or no activity has occurred on a previously disclosed invention, a negative report shall still be submitted.
CUBRC shall provide Tetraphase with the opportunity to review and comment on the draft deliverables for each item identified in the above table prepared by CUBRC for submission to the Customer. CUBRC shall provide Tetraphase with maximum time to review and provide comments, subject to submission deadlines, which time shall in no event be less than [**] calendar days, unless 1) Tetraphase has not met its delivery schedule to CUBRC on a specific/subject deliverable or unless 2) mutually agreed to in writing (via e-mail) between the CUBRC Director of Contracts & Legal and the Tetraphase SVP/CFO or President/CEO. CUBRC shall reflect comments provided by Tetraphase in such documents particularly with respect to all technical matters relating to TP-271, before submission to the Customer.
07822S1 Tetraphase Subcontract | 3 of 36 |
All reports and documentation required by FAR Clause 52.227-11, Patent Rights-Ownership by the Contractor including, but not limited to, the invention disclosure report, the confirmatory license, and the
Government support certification, shall be directed to the Division of Extramural Inventions and Technology Resources (DEITR), OPERA, OER, NIH, 6705 Rockledge Drive, Suite 310, MSC 7980, Bethesda, Maryland 20892-7980 (Telephone: 301-435-1986). If no invention is disclosed or no activity has occurred on a previously disclosed invention during the applicable reporting period, a negative report shall be submitted to the Contracting Officer at the address listed above. Tetraphase shall notify CUBRC of all submissions to DEITR.
PART III PACKAGING, MARKING AND SHIPPING
All deliverables required under this Subcontract shall be packaged, marked and shipping in accordance with best commercial practices. At a minimum, all deliverables shall be marked with the Subcontract Number, the Prime Contract Number and Tetraphases name. Tetraphase shall guarantee that all required materials shall be delivered in immediate usable and acceptable conditions.
PART IV INSPECTION AND ACCEPTANCE
The CUBRC Program Manager or the Deputy Program Manager will perform initial inspection and acceptance of materials and services to be provided under this Subcontract. Final inspection and acceptance shall occur upon inspection and acceptance by the designated Government official.
PART V SUBCONTRACT TYPE
This is a Cost-Plus-Fixed-Fee (CPFF) type Subcontract under Prime Contract HHSN272201100028C.
PART VI PERIOD OF PERFORMANCE
The services for this effort to be performed by Tetraphase shall commence on 30 September 2011 and shall be completed 31 October 2013.
PART VII SUBCONTRACT VALUE
The total Subcontract Value shall be a Not-to-exceed amount of $13,327,071 for services associated with the summary tables in Exhibit A-2. The total Not-to-exceed amount is dependent upon the exercise of all options.
07822S1 Tetraphase Subcontract | 4 of 36 |
PART VIII AUTHORIZED FUNDING
The Total Authorized Funding shall not exceed the amounts shown in the following table for this CPFF Subcontract. This Subcontract will be incrementally funded. Any contract modifications shall specify the authorized funding and associated work effort.
Task
|
Task Description |
Task Code |
Subcontract
|
Current
|
Current
|
Authorized
|
||||||
1.01 |
[**] | [**] | [**] | [**] | [**] | [**] | ||||||
1.02 |
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1.03 |
[**] | [**] | [**] | |||||||||
1.04 |
[**] | [**] | [**] | |||||||||
1.05 |
[**] | [**] | [**] | |||||||||
1.06 |
[**] | [**] | [**] | |||||||||
1.07 |
[**] | [**] | [**] | |||||||||
1.08 |
[**] | [**] | [**] | |||||||||
1.09 |
[**] | [**] | [**] | |||||||||
1.10 |
[**] | [**] | [**] | |||||||||
1.11 |
[**] | [**] | [**] | |||||||||
1.12 |
[**] | [**] | [**] | |||||||||
1.13 |
[**] | [**] | [**] | |||||||||
1.14 |
[**] | [**] | [**] | |||||||||
Totals: | [**] | [**] | [**] | [**] |
Notwithstanding any other provision of this Subcontract, Tetraphase shall not proceed with the performance of any work after the total sum allotted by this paragraph, Authorized Funding, has been expended, unless and until Tetraphase shall have been notified, in writing, by CUBRC that said sum has been increased. If CUBRC shall notify Tetraphase that said sum shall not be increased, the Subcontract shall be considered completed. CUBRCs liability for the funding contemplated hereby is expressly limited to the sum stated in this provision, as increased hereunder. Nothing in excess of the amount stated in this provision, as increased hereunder, shall be expended until written notification is furnished by CUBRC.
PART IX INVOICES AND PAYMENT
Tetraphase shall submit monthly invoices for this effort by the [**] of the following month. Invoices shall be submitted to either invoice@cubrc.org or to:
ATTN: Accounts Payable
CUBRC, Inc.
4455 Genesee Street
Buffalo, NY 14225
All invoices must be signed by an authorized Tetraphase representative. By submission of an invoice, Tetraphase certifies that all costs invoiced are allowable in accordance with FAR 52.216-7 and FAR Part 31, Cost Principles and the requirements of this Subcontract, are accurate and represent actual costs incurred for the period.
07822S1 Tetraphase Subcontract | 5 of 36 |
Additionally, the following statement must be on each invoice:
I hereby certify that the salaries charged in this invoice are in compliance with the SALARY RATE LIMITATION LEGISLATION PROVISIONS Article H.6 in this Subcontract.
Article H.6, Salary Rate Limitation, HHSAR 352.231.70 (January 2010) can be found in Exhibit C, Special Requirements.
All invoices shall be broken out at the task level and be summarized on a cover sheet. The cover sheet shall also include Tetraphases Federal Taxpayer Identification Number (TIN) and the DUNS and a unique Invoice Number. Each invoice submitted shall include, at a minimum, the Subcontract Number, current and cumulative costs by cost element (e.g. labor, materials, travel, other direct costs), and fee where applicable. Per NIAID invoice instructions, a list detailing a breakout of the labor, materials, travel, individual subcontractors, individual consultants and other direct costs that corresponds with each months summary invoices as a backup supporting document. Invoices that do not contain this information shall be returned to Tetraphase without payment.
CUBRC shall pay the fixed fee specified in the costing in Exhibit A-2 to the Subcontractor for performance of this Subcontract for those options that are exercised. Payment of fixed fee is subject to the FAR 52.216-8, Fixed Fee clause in Exhibit B, which sets aside a reserve to protect the Governments interest. This reserve shall not exceed fifteen percent (15%) or $100,000, whichever is less. Seventy-five percent (75%) of the withheld fee shall be released when the terms of FAR 52.216-8 are satisfied and the Subcontractor has requested such release. Up to ninety percent (90%) may be released when the terms of FAR 52.216-8 are satisfied and the Subcontractor has requested such release.
Completion Invoice: The completion invoice shall be submitted promptly upon completion of the work, but no later than [**] from the Subcontract completion date, or within [**] days after settlement of the final indirect cost rates covering the year in which the Subcontract is physically complete (whichever date is later). Tetraphase shall submit the completion invoice when all costs have been assigned to the Subcontract and it completes all performance provisions.
Final Invoice: A final invoice may be required after the amounts owed have been settled between the Government and the Contractor (e.g., resolution of all suspensions and audit exceptions).
CUBRC shall make payment within [**] days after receipt of an invoice containing all the information and applicable supporting material as required by this Subcontract.
PART X KEY PERSONNEL
Key Personnel is defined as those persons employed by Tetraphase whose technical expertise is of key importance to the successful completion of the Statement of Work. Tetraphase shall exercise its reasonable discretion to designate Key Personnel and shall notify CUBRC of changes in Key Personnel. [**] shall initially be considered Key Personnel for this effort.
PART XI GOVERNMENT PROPERTY
Tetraphase is responsible and liable for all Government property, furnished or acquired, in their possession pursuant to FAR 52.245-1 and HHS Contracting Guide for Contract of Government Property. (See Exhibit F) Any loss or destruction of, or damage to, Government Property in the possession of Tetraphase must be reported to CUBRC within [**] days of discovery.
Tetraphase shall set up a property control system to maintain records of property that is acquired or furnished to the Tetraphase. Tetraphase shall furnish the CUBRC Property Coordinator listed below a complete inventory of all Government Property in its possession that has not been tested to destruction, completely expended in performance, or incorporated and made a part of a deliverable end item using Exhibit D Government Property Report. Exhibit A must be submitted by [**] annually and within [**] days upon completion. The reporting period will be the start date of this subcontract through [**] annually and for the entire period of performance upon completion or termination. Disposition instructions will be provided to Tetraphase in accordance with the Governments direction.
07822S1 Tetraphase Subcontract | 6 of 36 |
Any property purchased or acquired by Tetraphase under this subcontract that is not tested to destruction, completely expended in performance of this subcontract, or incorporated and made part of a deliverable end item shall not be used for any other purposes (private, personal, company-internal, etc.) or contract (Government or private), unless and until Tetraphase receives written permission from CUBRC via a modification or amendment to this subcontract. Tetraphase shall retain all, and not dispose of any, property purchased or acquired under this subcontract that is not tested to destruction, completely expended or incorporated and made part of a deliverable end item until disposition instructions are received from CUBRC.
CUBRC shall furnish Tetraphase the following items of Government Property: None
PART XII FLOWDOWN CLAUSES
The Clauses specified in Exhibit B are hereby incorporated and made part of this Subcontract. The intent of the parties is for these clauses to govern the respective rights and responsibilities of the parties to this Subcontract so as to enable CUBRC to carry out its contract responsibilities to the Government. Clauses or portions thereof that are not applicable to the type of subcontract, scope of work, and/or dollar value of this Subcontract are self-deleting.
PART XIII REPRESENTATIONS AND CERTIFICATIONS
Tetraphases Representations, Certifications and Other Statements of Offeror executed 11/2/2010 by Tetraphase for this award as well as its representations and certifications in ORCA, if applicable, are hereby incorporated by reference. Tetraphase shall immediately notify CUBRC of any change of status regarding any certification or representation.
PART XIV AMENDMENTS REQUIRED BY PRIME CONTRACT
Tetraphase shall, at the request of CUBRC, negotiate in good faith amendments to this Subcontract to incorporate additional provisions herein or to change provisions hereof, as may be necessary in order to facilitate CUBRCs compliance with the provisions of the applicable Prime Contract or with the provisions of amendments to such Prime Contract. Any such amendment to this Subcontract shall provide for mutually-agreed increases or decreases in the estimated cost of, or the time required for, performance of any part of the work to be performed under this Subcontract.
PART XV OTHER DIRECT COSTS INCLUDING TRAVEL AND MATERIALS
Except as reflected in Exhibit A-2, travel, materials, subcontracts, consultants and other direct cost charges are unallowable to this Subcontract without prior written approval from CUBRC and the Government Contracting Officer concurrence. All requests for approval shall be submitted to CUBRC with reasonable advance notice before incurring these charges. Travel authorized under this Subcontract shall be governed by and in compliance with the Federal Travel Regulation (FTR) located at www.gsa.gov/federaltravelregulation and any other applicable Federal regulation or statue. Travel, materials and other direct costs shall be reimbursed at cost plus applicable burdens and fee.
Per Article B.4 of the Prime Contract and except as reflected in Exhibit A-2, the Government Contracting Officer must approve the items listed below, in writing in order for the associated charges to be allowable costs under this Subcontract. All requests shall be submitted to contracts@cubrc.org with appropriate justification, including consultant agreements and draft subcontract agreements, for submission to the Government.
07822S1 Tetraphase Subcontract | 7 of 36 |
(1) | Acquisition, by purchase or lease, of any interest in real property; |
(2) | Special rearrangement or alternation of facilities; |
(3) | Purchase or lease of any item of general purpose office furniture or office equipment regardless of dollar value; |
(4) | Travel costs; |
(5) | Consultant costs; |
(6) | Subcontract costs; |
(7) | Patient care costs; |
(8) | Accountable government property |
(9) | Research funding |
GENERAL PROVISIONS
ARTICLE I CONFIDENTIALITY
It is recognized that in the course of performance of their obligations under this Subcontract, either party (CUBRC or Tetraphase) may disclose to the other certain confidential and/or proprietary information of their own or received from a third party. In the event of such a disclosure, the party receiving the disclosure agrees that such information shall be deemed Proprietary Information of the other party under the Confidentiality Agreement dated as of December 11, 2009 between CUBRC and Tetraphase, as amended, and to maintain such information in confidence in accordance with the terms and conditions thereof. Notwithstanding the foregoing, confidential and /or proprietary information that relates to or arises out of Project IP (as defined below) shall be deemed confidential and/or proprietary information of Tetraphase.
ARTICLE II DISCLOSURE OF INFORMATION TO THIRD PARTIES
The Government encourages the publication of the results of work under this Subcontract. A copy of each article Tetraphase submits for publication shall be forwarded promptly to CUBRC at contracts @cubrc.org.
Tetraphase shall also inform CUBRC when the article or other publication is published and furnish a copy of it as finally published. Tetraphase shall not display the HHS logo on any publications unless previously authorized by the cognizant Government official via the CUBRC contracts staff.
ARTICLE III USE OF EITHER PARTYS NAME
In connection with this Subcontract or any relationships arising out of, by or through this Subcontract or any report, study, or document produced in connection therewith, neither party shall not, without the prior written consent of the other party, use the name of the other party, its members, affiliates, agents or assignees, or any member of its staff of any of the foregoing or any logo, symbol or insignia of the other Party or any of the foregoing, in any form of document, publicity, advertising, or disseminated material.
ARTICLE IV PROPERTY LIABILITY
CUBRC shall not be liable for loss or destruction of, or damage to, property owned or furnished by Tetraphase in connection with this Subcontract unless such loss, destruction or damage results from willful misconduct or failure to exercise good faith on the part of CUBRCs officers.
ARTICLE V NON-SOLICITATION OF EMPLOYEES
It is expressly agreed and understood by the parties that the personnel of the other party, including consultants, who are engaged in pursuit and/or performance of this program shall not be solicited for the purpose of inducing them to join the partys employ during the course of this Subcontract and any follow-on subcontracts. This clause shall in no way be construed to restrict, limit or encumber the rights of any employee granted by law. This clause does not preclude employees of either party from pursuing employment opportunities with the other party on their own initiative or in response to public advertisements published by either party.
07822S1 Tetraphase Subcontract | 8 of 36 |
ARTICLE VI WARRANTY
Tetraphase warrants that it is and shall remain free of any obligation or restriction which would interfere or be inconsistent with or present a conflict of interest concerning the Work to be furnished by Tetraphase under this Subcontract.
Tetraphase warrants that it will perform the services under this Subcontract with the degree of high professional skill and sound practices and judgment which is normally exercised by recognized professional firms with respect to services of a similar nature. All warranties shall apply to CUBRC and its customers.
ARTICLE VII INTELLECTUAL PROPERTY
All inventions or intellectual property in existence prior to this Subcontract that are used in connection with the activities conducted hereunder shall remain the property of the party introducing the same and records shall be made of such information introduced.
Title and ownership of any intellectual properties, whether or not copyrighted, patented or patentable, or otherwise created solely by Tetraphase shall reside with Tetraphase.
CUBRC hereby assigns and agrees to engage only other subcontractors that agree, subject to the rights of the Government, to assign to Tetraphase all right, title and interest throughout the world in and to all intellectual property that relates in whole or in part to Tetraphase compounds or information or data obtained using those compounds, including inventions (whether or not patentable), which are discovered or reduced to practice by CUBRC and/or CUBRCs other subcontractors (hereinafter collectively referred to as Project IP) in the course of carrying out work pursuant to the Statement of Work under this program. CUBRC will disclose to Tetraphase all Project IP of which it becomes aware. CUBRC will, at the expense and the written request of Tetraphase, use best efforts to execute and cause its other subcontractors to execute all documents as Tetraphase may reasonably request to transfer to and vest in Tetraphase the ownership and registration of all intellectual property rights that may exist in such Project IP. For the sake of clarity, the preceding shall exclude improvements solely relating to the Pre-existing IP of CUBRC or CUBRCs other subcontractors. Tetraphase will develop and provide suitable language for CUBRC to incorporate into the required subcontracting and other documents.
In performing services under this Subcontract, Tetraphase will use reasonable efforts under the circumstances to avoid knowingly infringing any intellectual property, including without limitation one or more patents of any third party, or misappropriating trade secrets. If either party becomes aware of any potential infringement and/or misappropriation during the term of this Subcontract, such party agrees to promptly notify the other in writing.
Except as specifically provided above, nothing contained in this Subcontract shall be deemed to grant either directly or by implication, estoppel, or otherwise, any license under any existing rights of intellectual property owned by either party, their employees, and/or their agents.
To the extent that any invention has been funded, in whole or in part, by the Federal Government, the assignment of title or the granting of any license above is subject to federal law set forth in 35 U.S.C. §§200 et. seq., as amended, and the regulations promulgated thereunder, as amended, or any successor statutes of regulations (the Federal Patent Policy). Any right granted in this Subcontract greater than that permitted under the Federal Patent Policy shall be modified as may be required to conform to the provisions of the Federal Patent Policy.
07822S1 Tetraphase Subcontract | 9 of 36 |
ARTICLE VIII INSURANCE
Tetraphase, at no additional cost to CUBRC, shall maintain at a minimum the following types of insurance coverage and limits of liability during performance of this Subcontract:
1) Commercial General Liability (CGL) with limits of insurance of not less than $1,000,000 each Occurrence and $2,000,000 Annual Aggregate. CGL coverage shall be written on ISO Occurrence form CG 00 01 10 93 or a substitute form providing equivalent coverage and shall cover liability arising from premises, operations, independent Subcontractors, products-completed operations, and personal and advertising injury. If the CGL coverage contains a General Aggregate Limit, such General Aggregate shall apply separately to each project.
CUBRC shall be included as Additional Insureds on Tetraphases CGL policy using ISO Additional Insured endorsement CG 20 10 11 85, or CG 20 10 10 93 and CG 20 37 10 01, or CG 20 33 10 01 and CG 20 37 10 01, or an endorsement providing equivalent coverage to the Additional Insureds. This insurance for the Additional Insureds shall be as broad as the coverage provided for the named insured Tetraphase. This insurance for the Additional Insureds shall apply as primary and non-contributing insurance before any insurance or self-insurance, including any deductible, maintained by, or provided to, the Additional Insureds.
2) | Business Automobile Liability (AL) with limits of insurance of not less than $1,000,000 each accident. |
AL coverage must include coverage for liability arising out of all owned, leased, hired and non-owned automobiles.
CUBRC shall be included as Additional Insureds on Tetraphases AL policy. The AL coverage for the Additional Insureds shall apply as primary and non-contributing insurance before any insurance maintained by the Additional Insureds.
3) | Workers Compensation (WC) & Employers Liability (EL) with limits of insurance of not less than $100,000 each accident for bodily injury by accident and $100,000 each employee for injury by disease. |
4) | Commercial Umbrella Liability (UL) with limits of insurance of not less than $5,000,000. UL coverage must include CUBRC as an Additional Insured. |
Tetraphase waives all rights against CUBRC and its agents, officers, directors and employees for recovery of damages to the extent these damages are covered by CGL, AL, WC & EL or UL insurance maintained per the requirements stated above.
A Certificate of Insurance acceptable to CUBRC shall be submitted to CUBRC upon completion of negotiations of this Agreement. A copy of the General Liability Additional Insured endorsement shall be attached to the Certificate of Insurance.
No insurance policy required above will be cancelled, allowed to expire or reduced in coverage without at least 30 days, or reasonable time, prior written notice to the CUBRC.
ARTICLE IX INDEMNIFICATION
(a) To the fullest extent permitted by law, Tetraphase shall defend, indemnify and hold harmless CUBRC and its officers, directors, agents and employees (the CUBRC Indemnitees) from and against all damages, liabilities, losses and expenses (including but not limited to reasonable attorneys fees) (Losses) incurred in connection with any third-party claim, action or proceeding (Claims) arising out of the performance or lack of performance by Tetraphase of the work under this Subcontract (including
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any amendments or additions thereto), provided that any such Loss is attributable to bodily injury, sickness, disease or death, or physical injury to tangible property including loss of use of that property, or loss of use of tangible property that is not physically injured, and caused by any:
(i) act or omission of any Tetraphase Indemnitee or any subcontractor engaged by Tetraphase to perform work under this Subcontract; or
(ii) violation of any statutory duty, regulation, ordinance, rule or obligation by Tetraphase.
Notwithstanding the foregoing, the indemnity in this clause (a) shall not apply to the extent that any such Losses (A) are attributable to the negligence or willful misconduct of any CUBRC Indemnitees, (B) a breach of any representation, warranty or obligation of CUBRC under this Subcontract or (C) are otherwise subject to an obligation by CUBRC to indemnify the Tetraphase Indemnitees under clause (b).
The obligations under this clause (a) shall not limit in any way the amount or type of insurance required to be provided to or for the benefit of CUBRC as described in Article VIII (Insurance).
(b) To the fullest extent permitted by law, CUBRC shall defend, indemnify and hold harmless Tetraphase and its officers, directors, agents and employees (the Tetraphase Indemnitees) from and against all Losses incurred in connection with any Claims arising out of the performance or lack of performance by CUBRC of the work under this Subcontract or the Prime Contract (including any amendments or additions thereto), provided that any such Loss is attributable to bodily injury, sickness, disease or death, or physical injury to tangible property including loss of use of that property, or loss of use of tangible property that is not physically injured, and caused in whole or in part by any:
(i) act or omission of any CUBRC Indemnitee or any contractor or subcontractor (other than Tetraphase) engaged by CUBRC to perform work under this Subcontract or the Prime Contract; or
(ii) violation of any statutory duty, regulation, ordinance, rule or obligation by CUBRC.
Notwithstanding the foregoing, the indemnity in this clause (b) shall not apply to the extent that any such Losses (A) are attributable to the negligence or willful misconduct of any Tetraphase Indemnitees, (B) a breach of any representation, warranty or obligation of Tetraphase under this Subcontract or (C) are otherwise subject to an obligation by Tetraphase to indemnify the CUBRC Indemnitees under clause (a).
(c) The obligations under this Article shall not be construed to negate, abridge or reduce any other right or obligation that would otherwise exist as to any person or entity described in this Article.
(d) Any party liable to provide indemnification hereunder shall be entitled, at its option, to control the defense and settlement of any Claim on which it is liable, provided that the indemnifying party shall act reasonably and in good faith with respect to all matters relating to the settlement or disposition of the Claim as the disposition or settlement relates to the indemnified party. The indemnified party shall reasonably cooperate in the investigation, defense and settlement of any Claim for which indemnification is sought hereunder and shall provide prompt notice of any such Claim or reasonably expected Claim to the indemnifying party. An indemnified party shall have the right to retain its own separate legal counsel at its own expense. No settlement or compromise of a Claim subject to the indemnification provision will be binding on either party without prior written consent. Such consent of settlement or compromise will not be unreasonably withheld. Neither party will admit fault on behalf of the other party without the written approval of that party.
To the extent that the CUBRC suffers a price reduction under its Prime Contract as a result of defective cost or pricing data or certifications furnished by Tetraphase in connection with this Subcontract, that were not complete, accurate, and current, Tetraphase shall indemnify CUBRC in the full amount of any such reduction (and for all costs reasonably incurred by the CUBRC in connection therewith) provided that the CUBRC furnished Tetraphase with sufficient notice to enable Tetraphase to defend against any claim for defective cost or pricing data, and further provided that the CUBRC cooperates with Tetraphase in the presentation of such defense to the United States Government (which cooperation and defense shall be at Tetraphases costs and expense).
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ARTICLE X TERMINATION
A. | Termination for Convenience: |
1. CUBRC may terminate part or all of the Subcontract for its convenience only to the extent that the corresponding parts of the Prime Contract are terminated by the US Government. CUBRC and Tetraphase shall continue all work not terminated. Such termination shall be in accordance with FAR 52.249-6 Termination (Cost-Reimbursement). |
2. Tetraphase may terminate part, or all, of this Subcontract by giving written notice to CUBRC; provided however that such termination shall not be effective until the U.S. Government terminates or cancels corresponding portions of the Prime Contract. CUBRC shall use its best efforts to secure a final termination settlement terminating or canceling the corresponding portions of the Prime Contract on terms agreeable to all three organizations. |
3. Neither CUBRC nor Tetraphase shall assign, transfer or convey, in whole or in part, this subcontract without the prior written consent of the other party. Such consent shall not be unreasonably withheld. Notwithstanding the foregoing however, Tetraphase may assign this Subcontract without CUBRCs consent to an affiliate of Tetraphase or to a third party that acquires, by merger, sale of assets, recapitalization, reorganization or similar transaction, or otherwise, all or substantially all of the business of Tetraphase to which the subject matter of this Subcontract relates. |
4. Upon termination, in accordance with CUBRCs written direction, Tetraphase will immediately: (a) initiate a prompt and orderly cessation of work; (b) prepare and submit to CUBRC an itemization of all completed and partially completed deliverables and services; (c) deliver to CUBRC deliverables satisfactorily completed up to the date of termination at the agreed upon prices in the relevant Statement of Work; and (d) deliver upon request any work in process. CUBRC will compensate Tetraphase for the actual, allowable, and reasonable expenses (to include profit) incurred by Tetraphase for work in process up to and including the earliest date upon which such work in process can be reasonably stopped, provided Tetraphase has used reasonable efforts to mitigate CUBRCs liability under this clause. |
5. In no event shall either party be liable for lost or anticipated profits, unabsorbed indirect costs or overhead, or for any sum in excess of the total subcontract value. Tetraphases termination claim shall be submitted within [**] calendar days from the effective date of the termination. |
B. | Termination for Default: |
1. Tetraphase, by written notice to CUBRC, may terminate this Subcontract if CUBRC materially breaches its obligations to Tetraphase under one or more of the Schedule Part IX (payment) but only if the invoice is not disputed in good faith, General Provisions Article I (Confidentiality), or General Provision Article XX (Communications with CUBRCs Customer) hereunder. Except for alleged breaches of CUBRCs obligations under General Provisions Article I, CUBRC shall have [**] calendar days (or such longer period as the Tetraphase may authorize in writing) to cure any such failure(s) after CUBRCs receipt of notice from the Tetraphase. If the parties cannot resolve their differences so as to avoid such termination, CUBRC may notify the U.S. Government of such action and its impact on the Prime Contract. Nothing in this paragraph shall be deemed to limit any other rights and/or remedies that either party may have under this Subcontract. |
2. Tetraphase shall be compensated only for the work actually delivered and accepted. CUBRC and Tetraphase shall agree on the amount of payment for these other deliverables. |
3. Tetraphase shall continue all work not terminated. |
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C. | Termination for Bankruptcy: |
In the event of the bankruptcy or insolvency of either party, or of any assignment by either party for the benefit of its creditors, the other party shall have the right to terminate this Subcontract. |
ARTICLE XI RECORDS RETENTION
Tetraphase shall retain records relating to this Subcontract as prescribed in the Federal Acquisition Regulation (FAR) Subpart 4.703 through 4.705-3. Tetraphase shall ensure that appropriate internal controls are in place and properly functioning to satisfy this requirement.
CUBRC shall have access to such records, and any other records Tetraphase is required to maintain under this Subcontract, for the purpose of audit during normal business hours, upon reasonable notice for so long as such records are required to be retained. Audit rights shall be available to CUBRC on all performance related reports and other records, except records pertaining to proprietary indirect cost data. Audit of any proprietary indirect cost data may be accomplished through the responsible Defense Contract Audit Agency (DCAA) or other cognizant U.S. Government representative, or a mutually agreeable third party auditor from a nationally recognized firm of certified public accountants.
ARTICLE XII CHANGES
Subject to Article XIII, this Subcontract and the attached Statement of Work may be amended only by mutual written agreement of the parties officials with contractual signature authority. The contractual authority for Tetraphase is the SVP/CFO. The contractual authority for CUBRC is the Director, Contracts & Legal. Either party may designate alternate signatories by giving written notice to the other party. In addition, the Statement of Work to the Prime Contract may not be amended by CUBRC without the prior written consent of Tetraphase. Either Party may, at any time, propose changes to the services, the time of performance or place of performance to be provided under this Subcontract, consistent with the Prime Contract requirements. The Parties shall negotiate amendments in good faith, which shall include adjustments, as appropriate, in the estimated cost of, or time required for performance of this Subcontract. Any changes in direction or delivery of this Subcontract by Tetraphase shall not proceed without Tetraphase having received written consent from CUBRC.
ARTICLE XIII SUBCONTRACTS
Tetraphase agrees to obtain CUBRCs written approval before subcontracting under this Subcontract. This limitation shall not apply to the purchase of standard commercial supplies or raw material.
CUBRC shall not engage any subcontractor under the Prime Contract referenced in Part V above without the prior written consent via email of the Tetraphase SVP/CFO or his authorized designee, which shall not be unreasonably withheld, provided, that Tetraphase may reasonably decline to authorize subcontractors that are commercial competitors of Tetraphase or with respect to which Tetraphase reasonably concludes that such engagement would adversely impact Tetraphases commercial competitive position.
ARTICLE XIV WAIVER
Failure to exercise any right under this Subcontract in one or more instances shall not be deemed a waiver of such rights in any other instance.
ARTICLE XV SEVERABILITY
In the event that any part, term or provision of this Subcontract shall be held to be illegal, void or in conflict with any law of a federal, state, or local government entity having jurisdiction over this Subcontract, the validity of the remaining portions or provisions hereof shall not be affected or rendered invalid thereby; provided, however, the Parties agree to negotiate amendments to this Subcontract in good faith so that to the maximum extent possible the Parties shall each receive the intended benefits and burdens of this Subcontract.
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ARTICLE XVI GOVERNING LAW
This Subcontract shall be construed and interpreted, and the rights of the parties shall be determined, in accordance with the laws of the State of New York except that matters of U.S. federal acquisition regulations and clauses shall be determined in accordance with the federal common law of government contracts. Any judicial proceeding instituted regarding this subcontract shall be commenced only in the state or federal courts of the State of New York.
ARTICLE XVII DISPUTES
Any claim for the threatened, alleged, or actual breach of this Agreement by either Party (a Dispute), which cannot otherwise be resolved after good faith negotiations by the Parties, shall first be referred for resolution to the Parties respective executive management in writing. If the Parties executive management are unable to resolve the Dispute within [**] calendar days of such referral, then the Parties may mutually agree upon alternate dispute resolution or either Party may file suit in a court of competent jurisdiction in accordance with the Governing Law article. Notwithstanding the prior two sentences, either Party may immediately seek injunctive relief in a court of competent jurisdiction to prevent irreparable harm or to protect against improper use, disclosure, or threatened improper use or disclosure of intellectual property or confidential information.
In the event that any matter arising under or relating to the Prime Contract is within the scope of the Disputes clause of the Prime Contract, CUBRC shall disclose such matter to Tetraphase. To the extent that such matter affects the interests of Tetraphase, Tetraphase may, upon written notice, require CUBRC to pursue such claim, dispute or appeal under the Disputes clause of the Prime Contract as a sponsored claim on behalf of Tetraphase, at Tetraphases expense, and Tetraphase will engage its own counsel at its expense and shall oversee the conduct and/or reasonable settlement of the matter.
ARTICLE XVIII EXPORT CONTROLS
Tetraphase shall comply with all applicable U.S. export control laws and regulations, including but not limited to, the requirements of the Arms Export Control Act, 22 USC 2751-2794, the International Traffic in Arms Regulation (ITAR), 22 CFR 120 et seq., the Export Administration Act, 50 USC app. 2401-2420, and the Export Administration Regulations, 15 CFR 730-744. Tetraphase shall obtain all required export licenses or agreements necessary to perform this Subcontract, as applicable. Without limiting the foregoing, Tetraphase agrees that it will not transfer any export controlled item, data or services, to include transfer to foreign persons employed by or associated with, or under contract to Tetraphase, without the authority of an Export License or applicable license exception. Tetraphase shall indemnify and hold CUBRC harmless from and against any and all claims, liabilities and expenses resulting from Tetraphases failure to comply with the export laws and regulations of the United States.
Tetraphase shall incorporate this Export Controls provision into any lower tiered Subcontracts awarded by Tetraphase for performance under this Subcontract.
ARTICLE XIX FORCE MAJEURE
Neither party shall be liable for damages for delay in delivery arising out of causes beyond its reasonable control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy, acts of any Government authority, fires, floods, epidemics, quarantine restrictions, strikes, embargoes, or unusually severe weather. If the delay is caused by the delay of a subcontractor of Tetraphase and if such delay arises out of causes beyond the reasonable control of both Tetraphase and its subcontractor, and without the fault or negligence of either of them, Tetraphase shall not be liable to CUBRC for damages unless the articles or services to be furnished by the lower tiered supplier were obtainable from other sources in sufficient time to permit Tetraphase to meet the required delivery schedule. Tetraphase will notify CUBRC in writing within ten (10) days after the beginning of any such cause.
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ARTICLE XX COMMUNICATION WITH CUBRCS CUSTOMER
CUBRC shall be responsible for all communication and coordination with the Customer, as it relates to the Prime Contract, this Subcontract, and any related Subcontract.
Unless with respect to communications pursuant to FAR clause 52.227-11 or otherwise specified by CUBRC in writing, all contact with the CUBRCs Customer with respect to the work to be performed under the Prime Contract, including Tetraphases work under this Subcontract, shall be the responsibility of CUBRC. The Customer has provided the following specific direction to CUBRC:
|
All communication with the Customer shall be initiated and scheduled by CUBRC (e.g., teleconference calls, webinars, and face-to-face meetings); |
|
A representative from CUBRC must be present on all teleconferences, webinars, and face-to-face meetings with the Customer; |
|
A representative from CUBRC must be copied on any dialog (e.g., e-mail) with the Customer; and |
|
Any written communication with the Customer initiated by Tetraphase must be approved by CUBRC prior to initiation and include the statement as mutually agreed upon by CUBRC and Tetraphase in the message. |
CUBRC shall inform Tetraphase of relevant communication with its subcontractors or the Customer related to the technical scope of this Subcontract and the Prime Contract; and will provide to Tetraphase copies of all such written communications either at the time of such communication or promptly thereafter.
ARTICLE XXI SURVIVABILITY
(a) If this Subcontract expires, is completed, or is terminated for default or convenience, neither Tetraphase nor CUBRC shall be relieved of those obligations contained under the following Articles of this Subcontract which shall survive expiration, completion or termination:
Confidentiality
Disclosure
Use of Either Partys Name
Intellectual Property
Records Retention
Indemnification
Governing Law
Export Controls
Warranty
Termination
Invoices and Payment, and
(b) Those U. S. Government flowdown provisions in Exhibit B that by their nature should survive.
ARTICLE XXII CLOSE-OUT
Upon expiration, completion or termination of this Subcontract, Tetraphase shall submit:
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Government Property Report (Exhibit D) |
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Final Report of Inventions |
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Contractors Assignment and Release ( Exhibit E) |
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Statement acknowledging submission of all required deliverables |
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Arrangement For Audit Access |
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Final Invoice in accordance with the Invoices and Payment clause of this Subcontract. |
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Payment of Final Invoice is contingent upon receipt of all applicable deliverables and Close-out documents.
ARTICLE XXIII ENTIRE AGREEMENT
This Subcontract consists of the SchedulePARTS I XIII, General ProvisionsARTICLES I XXIII, and Exhibits A F which constitutes the entire agreement between the parties. In case of conflict between the Schedule and the General Provisions, the Schedule shall prevail.
This Subcontract is the entire Agreement between the Parties with respect to the subject matter hereof and supersede all prior and contemporaneous negotiations or agreements whether written or oral.
IN WITNESS WHEREOF, the Parties have executed, or caused this Subcontract to be executed, as of the date set forth below.
CUBRC, Inc. /s/ Susan R. Schock |
Tetraphase Pharmaceuticals, Inc. /s/ David C. Lubner |
|
Signature |
Signature |
|
Susan R. Schock Name |
David C. Lubner Name |
|
Director, Contracts & Legal Title |
SVP/CFO Title |
|
18 October 2011 Date |
October 14, 2011 Date |
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LIST OF EXHIBITS
A-1 Statement of Work
A-2 Budget
B CPFF FAR/HHSAR/NIH CLAUSES
C Section HSpecial Contract Requirements flowed down from Prime Contract
D Government Property Forms
E Closeout Documentation
F HHS Government Property Guide
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Exhibit A-1
STATEMENT OF WORK
October 4, 2011
1.01 | Program Kickoff |
[**] Confidential Materials omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Double asterisks denote omissions.
A total of three pages were omitted.
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EXHIBIT A-2
COST SUMMARIES
[**] Confidential Materials omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Double asterisks denote omissions.
A total of eleven pages were omitted.
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EXHIBIT B
CPFF FAR/HHSAR/NIH CLAUSES
Applicable to Subcontracts under Prime Contract HHSN272201100028C
It is intended that the referenced clauses shall apply to Tetraphase in such manner as is necessary to reflect the position of Tetraphase as a subcontractor to CUBRC, to implement Tetraphases obligations to the United States Government, and to enable CUBRC to meet its obligations under its Prime Contract. In such clauses, unless otherwise specifically stated, the term Contractor means Tetraphase except in the term Prime Contractor, subcontractor means Tetraphases lower tier subcontractors, Contract means this Subcontract, both Contracting Officer and Government mean CUBRC except in the terms Government Property, Government-Owned Property, and Former Government Surplus Property or as otherwise indicated. The above substitutions do not apply to those clauses pertaining to Tetraphases proprietary financial information or rights in intellectual property.
The following U.S. Government Clauses are incorporated herein by reference.
FAR CLAUSES INCORPORATED BY REFERENCE
52.202-1 | Definitions | JUL 2004 | ||||
52.203-3 | Gratuities | APR 1984 | ||||
52.203-5 | Covenant Against Contingent Fees | APR 1984 | ||||
52.203-6 | Restrictions On Subcontractor Sales To The Government | SEP 2006 | ||||
52.203-7 | Anti-Kickback Procedures (excepting subparagraph (c)(1)) | JUL 1995 | ||||
52.203-8 | Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity | JAN 1997 | ||||
52.203-10 | Price Or Fee Adjustment For Illegal Or Improper Activity | JAN 1997 | ||||
52.203-12 | Limitation On Payments To Influence Certain Federal Transactions | SEP 2007 | ||||
52.203-13 | Contractor Code of Business Ethics & Conduct | DEC 2008 | ||||
52.203-14 |
Display of Hotline Poster(s) (Note: (3) Any required posters may be obtained as follows: HHS Contractor Code of Ethics and Business Conduct Poster Obtain from hhtp://oig.hhs.gov/fraud/hotline/OIG-Hotline_Poster.pdf |
MAR 2009 | ||||
52.203-15 | Whistleblower Protections Under the American Recovery & Reinvestment Act of 2009 | MAR 2009 | ||||
52.204-4 | Printed or Copied Double-Sided on Postconsumer Fiber Content Paper | MAY 2011 | ||||
52.204-8 | Annual Representations and Certifications | |||||
52.204-10 | Reporting Executive Compensation and First-Tier Subcontract Awards | JUL 2010 | ||||
52.209-6 | Protecting the Governments Interest When Subcontracting With Contractors Debarred, Suspended, or Proposed for Debarment | SEP 2006 |
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52.209-9 | Updates of Publicly Available Information Regarding Responsibility Matters | JAN 2011 | ||||
52.215-2 | Audit and Records-Negotiation (except that Contracting Officer shall refer to the Government) | OCT 2010 | ||||
52.215-8 | Order of Precedence Uniform Contract Format | OCT 1997 | ||||
52.215-10 | Price Reduction for Defective Cost or Pricing Data | AUG 2011 | ||||
52.215-12 | Subcontractor Cost or Pricing Data | OCT 2010 | ||||
52.215-14 | Integrity of Unit Prices | OCT 2010 | ||||
52.215-15 | Pension Adjustments and Asset Reversions | OCT 2010 | ||||
52.215-17 | Waiver of Facilities Capital Cost of Money | OCT 1997 | ||||
52.215-18 | Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions | JUL 2005 | ||||
52.215-19 | Notification of Ownership Changes | OCT 1997 | ||||
52.215-21 | Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing DataModification | OCT 2010 | ||||
52.215-23 | Limitations on Pass-Through Charges | OCT 2009 | ||||
52.216-7 | Allowable Cost and Payment | DEC 2002 | ||||
52.216-8 | Fixed Fee | JUN 2011 | ||||
52.217-6 | Option for Increased Quantity | MAR 1989 | ||||
52.219-4 | Notice of Price Evaluation Preference for HUBZone Small Business Concerns | JUL 2005 | ||||
52.222-2 | Payment of Overtime Premium (Note: The dollar amount in paragraph (a) of this clause is $0 unless otherwise specified in the contract) | JUL 1990 | ||||
52.222-3 | Convict Labor | JUN 2003 | ||||
52.222-21 | Prohibition Of Segregated Facilities | FEB 1999 | ||||
52.222-26 | Equal Opportunity | MAR 2007 | ||||
52.222-35 | Equal Opportunity For Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans | SEP 2010 | ||||
52.222-36 | Affirmative Action For Workers With Disabilities | OCT 2010 | ||||
52.222-37 | Employment Reports On Special Disabled Veterans, Veterans Of The Vietnam Era, and Other Eligible Veterans | SEP 2010 | ||||
52.222-40 | Notification of Employee Rights Under the National Labor Relations Act | DEC 2010 | ||||
52.222-50 | Combating Trafficking in Persons | FEB 2009 | ||||
52.222-54 | Employment Eligibility Verification | JAN 2009 | ||||
52.223-18 | Encouraging Contractor Policies to Ban Text Messaging While Driving | AUG 2011 | ||||
52.225-1 | Buy American Act-Supplies | FEB 2009 | ||||
52.225-13 | Restrictions on Certain Foreign Purchases | JUN 2008 | ||||
52.227-1 | Authorization and Consent, Alternate I | APR 1984 | ||||
52.227-2 | Notice And Assistance Regarding Patent And Copyright Infringement | DEC 2007 | ||||
52.227-11 | Patent Rights-Ownership By The Contractor (Note: In accordance with FAR 27.303(b)(2), paragraph (e) is modified to include the requirements in FAR 27.303(b)(2)(i) through (iv). The frequency of reporting in (i) is annual. | DEC 2007 | ||||
52.227-16 | Additional Data Requirements | JUN 1987 |
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EXHIBIT C
SECTION HSPECIAL CONTRACT REQUIREMENTS FLOWDOWNS
FROM
PRIME CONTRACT HHSN272201100028C
It is intended that the referenced clauses shall apply to Tetraphase in such manner as is necessary to reflect the position of Tetraphase as a subcontractor to CUBRC, to insure Tetraphases obligations to CUBRC and to the United States Government, and to enable CUBRC to meet its obligations under its Prime Contract. In such clauses, unless otherwise specifically stated, the term Contractor means Tetraphase except in the term Prime Contractor, Subcontractor means Tetraphases lower tier Subcontractor, Contract means this Subcontract, both Contracting Officer and Government mean CUBRC except in the terms Government Property, Government-Owned Property, and Former Government Surplus Property or as otherwise indicated. The above substitutions do not apply to those clauses dealing with Tetraphase proprietary financial information or rights in intellectual property.
The following Special Requirements of the Prime Contract are incorporated herein.
SECTION HSPECIAL CONTRACT REQUIREMENTS
ARTICLE H.1. PROTECTION OF HUMAN SUBJECTS, HHSAR 352.270-4(b) (January 2006)
a. | The Contractor agrees that the rights and welfare of human subjects involved in research under this contract shall be protected in accordance with 45 CFR Part 46 and with the Contractors current Assurance of Compliance on file with the Office for Human Research Protections (OHRP), Department of Health and Human Services. The Contractor further agrees to provide certification at least annually that the Institutional Review Board has reviewed and approved the procedures, which involve human subjects in accordance with 45 CFR Part 46 and the Assurance of Compliance. |
b. | The Contractor shall bear full responsibility for the performance of all work and services involving the use of human subjects under this contract and shall ensure that work is conducted in a proper manner and as safely as is feasible. The parties hereto agree that the Contractor retains the right to control and direct the performance of all work under this contract. The Contractor shall not deem anything in this contract to constitute the Contractor or any subcontractor, agent or employee of the Contractor, or any other person, organization, institution, or group of any kind whatsoever, as the agent or employee of the Government. The Contractor agrees that it has entered into this contract and will discharge its obligations, duties, and undertakings and the work pursuant thereto, whether requiring professional judgment or otherwise, as an independent contractor without imputing liability on the part of the Government for the acts of the Contractor or its employees. |
c. If at any time during the performance of this contract, the Contracting Officer determines, in consultation with OHRP that the Contractor is not in compliance with any of the requirements and/or standards stated in paragraphs (a) and (b) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance. The Contracting Officer may communicate the notice of suspension by telephone with confirmation in writing. If the Contractor fails to complete corrective action within the period of time designated in the Contracting Officers written notice of suspension, the Contracting Officer may, after consultation with OHRP, terminate this contract in whole or in part, and the Contractors name may be removed from the list of those contractors with approved Human Subject Assurances. |
(End of clause)
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ARTICLE H.2. HUMAN SUBJECTS
Research involving human subjects shall not be conducted under this contract until the protocol developed in Phase I has been approved by NIAID, written notice of such approval has been provided by the Contracting Officer, and the Contractor has provided to the Contracting Officer a properly completed Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263 (formerly Optional Form 310) certifying IRB review and approval of the protocol. The human subject certification can be met by submission of the Contractors self designated form, provided that it contains the information required by the Protection of Human Subjects Assurance identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263 (formerly Optional Form 310).
When research involving Human Subjects will take place at collaborating sites or other performance sites, the Contractor shall obtain, and keep on file, a properly completed Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263 (formerly Optional Form 310) certifying IRB review and approval of the research.
ARTICLE H.3. REQUIRED EDUCATION IN THE PROTECTION OF HUMAN RESEARCH PARTICIPANTS
NIH policy requires education on the protection of human subject participants for all investigators receiving NIH contract awards for research involving human subjects. For a complete description of the NIH Policy announcement on required education in the protection of human subject participants, the Contractor should access the NIH Guide for Grants and Contracts Announcement dated June 5, 2000 at the following website: http://grants.nih.gov/grants/guide/notice-files/NOT-OD-00-039.html.
The information below is a summary of the NIH Policy Announcement:
The Contractor shall maintain the following information: (1) a list of the names and titles of the principal investigator and any other individuals working under the contract who are responsible for the design and/or conduct of the research; (2) the title of the education program(s) in the protection of human subjects that has been completed for each named personnel and; (3) a one sentence description of the educational program(s) listed in (2) above. This requirement extends to investigators and all individuals responsible for the design and/or conduct of the research who are working as subcontractors or consultants under the contract.
Prior to any substitution of the Principal Investigator or any other individuals responsible for the design and/or conduct of the research under the contract, the Contractor shall provide the following written information to the Contracting Officer: the title of the education program and a one sentence description of the program that has been completed by the replacement.
ARTICLE H.4. DATA AND SAFETY MONITORING IN CLINICAL TRIALS
The Contractor is directed to the full text of the NIH Policy regarding Data and Safety Monitoring and Reporting of Adverse Events, which may be found at the following web sites:
http://grants.nih.gov/grants/guide/notice-files/not98-084.html
http://grants.nih.gov/grants/guide/notice-files/not99-107.html
http://grants.nih.gov/grants/guide/notice-files/NOT-OD-00-038.html
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The Contractor must comply with the NIH Policy cited in these NIH Announcements and any other data and safety monitoring requirements found elsewhere in this contract.
Data and Safety Monitoring shall be performed in accordance with the approved Data and Safety Monitoring Plan.
The Data and Safety Monitoring Board shall be established and approved prior to beginning the conduct of the clinical trial.
ARTICLE H.5. REGISTRATION AND RESULTS REPORTING FOR APPLICABLE CLINICAL TRIALS IN CLINICALTRIALS.GOV
The Food and Drug Administration Amendments Act of 2007 (FDAAA) at:
http://frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ085.110.pdf, Title VIII, expands the National Institutes of Healths (NIHs) clinical trials registry and results database known as ClinicalTrials.gov and imposes new requirements that apply to specified applicable clinical trials, including those supported in whole or in part by NIH funds. FDAAA requires:
the registration of certain applicable clinical trials (see Definitions at: http://grants.nih.gov/ClinicalTrials_fdaaa/ definitions.htm) in ClinicalTrials.gov no later than 21 days after the first subject is enrolled; and
the reporting of summary results information (including adverse events) no later than 1 year after the completion date (See Definitions at link above) for registered applicable clinical trials involving drugs that are approved under section 505 of the Food, Drug and Cosmetic Act (FDCA) or licensed under section 351 of the PHS Act, biologics, or of devices that are cleared under section 510k of FDCA.
In addition, the Contractor shall notify the Contracting Officers Technical Representative (COTR), with the trial registration number (NCT number), once the registration is accomplished. This notification may be included in the Technical Progress Report covering the period in which registration occurred, or as a stand alone notification.
The Contractor is the Sponsor, therefore the Responsible Party for the purposes of compliance with FDAAA which includes registration (and results reporting, if required) of applicable clinical trial(s) performed under this contract in the Government database, ClinicalTrials.gov ( http://www.ClinicalTrials.gov).
Additional information is available at: http://prsinfo.clinicaltrials.gov .
ARTICLE H.6. HUMAN MATERIALS (ASSURANCE OF OHRP COMPLIANCE)
The acquisition and supply of all human specimen material (including fetal material) used under this contract shall be obtained by the Contractor in full compliance with applicable State and Local laws and the provisions of the Uniform Anatomical Gift Act in the United States, and no undue inducements, monetary or otherwise, will be offered to any person to influence their donation of human material.
The Contractor shall provide written documentation that all human materials obtained as a result of research involving human subjects conducted under this contract, by collaborating sites, or by subcontractors identified under this contract, were obtained with prior approval by the Office for Human Research Protections (OHRP) of an Assurance to comply with the requirements of 45 CFR 46 to protect human research subjects. This restriction applies to all collaborating sites without OHRP-approved Assurances, whether domestic or foreign, and compliance must be ensured by the Contractor.
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Provision by the Contractor to the Contracting Officer of a properly completed Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263(formerly Optional Form 310), certifying IRB review and approval of the protocol from which the human materials were obtained constitutes the written documentation required. The human subject certification can be met by submission of a self designated form, provided that it contains the information required by the Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption, Form OMB No. 0990-0263(formerly Optional Form 310).
ARTICLE H.7. SALARY RATE LIMITATION, HHSAR 352.231-70 (January 2010)
a. | Pursuant to the current and applicable prior HHS appropriations acts, the Contractor shall not use contract funds to pay the direct salary of an individual at a rate in excess of the Federal Executive Schedule Level I in effect on the date an expense is incurred. |
b. | For purposes of the salary rate limitation, the terms direct salary, salary, and institutional base salary have the same meaning and are collectively referred to as direct salary in this clause. An individuals direct salary is the annual compensation that the Contractor pays for an individuals direct effort (costs) under the contract. Direct salary excludes any income that an individual may be permitted to earn outside of duties to the Contractor. Direct salary also excludes fringe benefits, overhead, and general and administrative expenses (also referred to as indirect costs or facilities and administrative [F&A] costs). |
Note: | The salary rate limitation does not restrict the salary that an organization may pay an individual working under an HHS contract or order; it merely limits the portion of that salary that may be paid with Federal funds. |
c. | The salary rate limitation also applies to individuals under subcontracts. If this is a multiple-year contract or order, it may be subject to unilateral modification by the Contracting Officer to ensure that an individual is not paid at a rate that exceeds the salary rate limitation provision established in the HHS appropriations act in effect when the expense is incurred regardless of the rate initially used to establish contract or order funding. |
d. | See the salaries and wages pay tables on the U.S. Office of Personnel Management Web site for Federal Executive Schedule salary levels that apply to the current and prior periods. |
(End of clause)
See the following Web site for Executive Schedule rates of pay: http://www.opm.gov/oca/.
(For current year rates, click on Salaries and Wages / Executive Schedule / Rates of Pay for the Executive Schedule. For prior year rates, click on Salaries and Wages / select Another Year at the top of the page / Executive Schedule / Rates of Pay for the Executive Schedule. Rates are effective January 1 of each calendar year unless otherwise noted.)
ARTICLE H.8. NIH POLICY ON ENHANCING PUBLIC ACCESS TO ARCHIVED PUBLICATIONS RESULTING FROM NIH-FUNDED RESEARCH
NIH-funded investigators shall submit to the NIH National Library of Medicines (NLM) PubMed Central (PMC) an electronic version of the authors final manuscript, upon acceptance for publication, resulting
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from research supported in whole or in part with direct costs from NIH. NIH defines the authors final manuscript as the final version accepted for journal publication, and includes all modifications from the publishing peer review process. The PMC archive will preserve permanently these manuscripts for use by the public, health care providers, educators, scientists, and NIH. The Policy directs electronic submissions to the NIH/NLM/PMC: http://www.pubmedcentral.nih.gov.
Additional information is available at http://grants.nih.gov/grants/guide/notice-files/NOT-OD-08-033.html.
ARTICLE H.9. NEEDLE DISTRIBUTION
The Contractor shall not use contract funds to distribute any needle or syringe for the purpose of preventing the spread of blood borne pathogens in any location that has been determined by authorities to be inappropriate for such distribution.
ARTICLE H.10. PRESS RELEASES
The Contractor shall clearly state, when issuing statements, press releases, requests for proposals, bid solicitations and other documents describing projects or programs funded in whole or in part with Federal money: (1) the percentage of the total costs of the program or project which will be financed with Federal money; (2) the dollar amount of Federal funds for the project or program; and (3) the percentage and dollar amount of the total costs of the project or program that will be financed by nongovernmental sources.
ARTICLE H.11. RESTRICTION ON ABORTIONS
The Contractor shall not use contract funds for any abortion.
ARTICLE H.12. CONTINUED BAN ON FUNDING OF HUMAN EMBRYO RESEARCH
The Contractor shall not use contract funds for (1) the creation of a human embryo or embryos for research purposes; or (2) research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero under 45 CFR 46.204(b) and Section 498(b) of the Public Health Service Act (42 U.S.C. 289g(b)). The term human embryo or embryos includes any organism, not protected as a human subject under 45 CFR 46 as of the date of the enactment of this Act, that is derived by fertilization, parthenogenesis, cloning, or any other means from one or more human gametes or human diploid cells.
Additionally, in accordance with a March 4, 1997 Presidential Memorandum, Federal funds may not be used for cloning of human beings.
ARTICLE H.13. DISSEMINATION OF FALSE OR DELIBERATELY MISLEADING SCIENTIFIC INFORMATION
The Contractor shall not use contract funds to disseminate scientific information that is deliberately false or misleading.
ARTICLE H.14. RESTRICTION ON EMPLOYMENT OF UNAUTHORIZED ALIEN WORKERS
The Contractor shall not use contract funds to employ workers described in section 274A(h)(3) of the Immigration and Nationality Act, which reads as follows:
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(3) Definition of unauthorized alien.As used in this section, the term unauthorized alien means, with respect to the employment of an alien at a particular time, that the alien is not at that time either (A) an alien lawfully admitted for permanent residence, or (B) authorized to be so employed by this Act or by the Attorney General.
ARTICLE H.15. CARE OF LIVE VERTEBRATE ANIMALS, HHSAR 352.270-5(b) (October 2009)
a. Before undertaking performance of any contract involving animal-related activities where the species is regulated by USDA, the Contractor shall register with the Secretary of Agriculture of the United States in accordance with 7 U.S.C. 2136 and 9 CFR sections 2.25 through 2.28. The Contractor shall furnish evidence of the registration to the Contracting Officer.
b. The Contractor shall acquire vertebrate animals used in research from a dealer licensed by the Secretary of Agriculture under 7 U.S.C. 2133 and 9 CFR Sections 2.1-2.11, or from a source that is exempt from licensing under those sections.
c. The Contractor agrees that the care, use and intended use of any live vertebrate animals in the performance of this contract shall conform with the Public Health Service (PHS) Policy on Humane Care of Use of Laboratory Animals (PHS Policy), the current Animal Welfare Assurance (Assurance), the Guide for the Care and Use of Laboratory Animals (National Academy Press, Washington, DC) and the pertinent laws and regulations of the United States Department of Agriculture (see 7 U.S.C. 2131 et seq. and 9 CFR Subchapter A, Parts 1-4). In case of conflict between standards, the more stringent standard shall govern.
d. If at any time during performance of this contract, the Contracting Officer determines, in consultation with the Office of Laboratory Animal Welfare (OLAW), National Institutes of Health (NIH), that the Contractor is not in compliance with any of the requirements and standards stated in paragraphs (a) through (c) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance. Notice of the suspension may be communicated by telephone and confirmed in writing. If the Contractor fails to complete corrective action within the period of time designated in the Contracting Officers written notice of suspension, the Contracting Officer may, in consultation with OLAW, NIH, terminate this contract in whole or in part, and the Contractors name may be removed from the list of those contractors with approved Assurances.
Note: The Contractor may request registration of its facility and a current listing of licensed dealers from the Regional Office of the Animal and Plant Health Inspection Service (APHIS), USDA, for the region in which its research facility is located. The location of the appropriate APHIS Regional Office, as well as nformation concerning this program may be obtained by contacting the Animal Care Staff, USDA/APHIS, 4700 River Road, Riverdale, Maryland 20737 (E-mail: ace@aphis.usda.gov; Web site: ( http://www.aphis.usda.gov/animal_welfare).
(End of Clause)
ARTICLE H.16. ANIMAL WELFARE
All research involving live, vertebrate animals shall be conducted in accordance with the Public Health Service Policy on Humane Care and Use of Laboratory Animals (PHS Policy). The PHS Policy can be accessed at: http://grants1.nih.gov/grants/olaw/references/phspol.htm
In addition, the research involving live vertebrate animals shall be conducted in accordance with the description set forth in the Vertebrate Animal Section (VAS) of the contractors technical proposal, as modified in the Final Proposal Revision (FPR), dated September 15, 2011, which is incorporated by reference.
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ARTICLE H.17. OPTION PROVISION
Unless the Government exercises its option pursuant to the Option Clause set forth in ARTICLE I.3., the contract will consist only of the Base Period of the Statement of Work as defined in Sections C and F of the contract. Pursuant to FAR Clause 52.217-6, Option for Increased Quantity set forth in ARTICLE I.3. of this contract, the Government may, by unilateral contract modification, require the Contractor to perform additional options set forth in the Statement of Work and also defined in Sections C and F of the contract. If the Government exercises this option, notice must be given at least 30 days prior to the expiration date of this contract, and the estimated cost plus fixed fee of the contract will be increased as set forth in the ESTIMATED COST PLUS FIXED FEE. See Article in SECTION B of this contract.
ARTICLE H.18. INSTITUTIONAL RESPONSIBILITY REGARDING CONFLICTING INTERESTS OF INVESTIGATORS
The Contractor shall comply with the requirements of 45 CFR Part 94, Responsible Prospective Contractors, which promotes objectivity in research by establishing standards to ensure that investigators (defined as the principal investigator and any other person who is responsible for the design, conduct, or reporting of research funded under NIH contracts) will not be biased by any conflicting financial interest. For the purposes of this part relating to financial interests, Investigator includes the Investigators spouse and dependent children. 45 CFR Part 94 is available at the following Web site:
http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?
c=ecfr;sid=9f130b6d2d48bb73803ca91ce943be3a;rgn=div5;view=text;node=45%3A1.0.1.1.53;idno=45;cc=ecfr
As required by 45 CFR Part 94, the Contractor shall, at a minimum:
a. | Maintain a written, enforceable policy on conflict of interest that complies with 45 CFR Part 94 and inform each investigator of the policy, the investigators reporting responsibilities, and the applicable regulations. The Contractor must take reasonable steps to ensure that investigators working as collaborators or subcontractors comply with the regulations. |
b. Designate an official(s) to solicit and review financial disclosure statements from each investigator participating in NIH-funded research. Based on established guidelines consistent with the regulations, the designated official(s) must determine whether a conflict of interest exists, and if so, determine what actions should be taken to manage, reduce, or eliminate such conflict. A conflict of interest exists when the designated official(s) reasonably determines that a Significant Financial Interest could directly and significantly affect the design, conduct, or reporting of the NIH-funded research. The Contractor may require the management of other conflicting financial interests in addition to those described in this paragraph, as it deems appropriate. Examples of conditions or restrictions that might be imposed to manage actual or potential conflicts of interests are included in 45 CFR Part 94, under Management of Conflicting Interests.
c. Require all financial disclosures to be updated during the period of the award, either on an annual basis or as new reportable Significant Financial Interests are obtained.
d. | Maintain records, identifiable to each award, of all financial disclosures and all actions taken by the Contractor with respect to each conflicting interest 3 years after final payment or, where applicable, for the other time periods specified in 48 CFR Part 4, subpart 4.7, Contract Records Retention. |
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e. | Establish adequate enforcement mechanisms and provide for sanctions where appropriate. |
If a conflict of interest is identified, the Contractor shall report to the Contracting Officer, the existence of the conflicting interest found. This report shall be made and the conflicting interest managed, reduced, or eliminated, at least on a temporary basis, within sixty (60) days of that identification.
If the failure of an investigator to comply with the conflict of interest policy has biased the design, conduct, or reporting of the NIH-funded research, the Contractor must promptly notify the Contracting Officer of the corrective action taken or to be taken. The Contracting Officer will take appropriate action or refer the matter to the Contractor for further action, which may include directions to the Contractor on how to maintain appropriate objectivity in the funded research.
The Contracting Officer may at any time inquire into the Contractors procedures and actions regarding conflicts of interests in NIH-funded research, including a review of all records pertinent to compliance with 45 CFR Part 94. The Contracting Officer may require submission of the records or review them on site. On the basis of this review, the Contracting Officer may decide that a particular conflict of interest will bias the objectivity of the NIH-funded research to such an extent that further corrective action is needed or that the Contractor has not managed, reduced, or eliminated the conflict of interest. The issuance of a Stop Work Order by the Contracting Officer may be necessary until the matter is resolved.
If the Contracting Officer determines that NIH-funded clinical research, whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment, has been designed, conducted, or reported by an investigator with a conflict of interest that was not disclosed or managed, the Contractor must require disclosure of the conflict of interest in each public presentation of the results of the research.
ARTICLE H.19. PUBLICATION AND PUBLICITY
In addition to the requirements set forth in HHSAR Clause 352.227-70, Publications and Publicity incorporated by reference in SECTION I of this contract, the Contractor shall acknowledge the support of the National Institutes of Health whenever publicizing the work under this contract in any media by including an acknowledgment substantially as follows:
This project has been funded in whole or in part with Federal funds from the National Institute of Allergy and Infectious Diseases, National Institutes of Health, Department of Health and Human Services, under Contract No. [to be provided upon award]
ARTICLE H.20. REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE
Anyone who becomes aware of the existence or apparent existence of fraud, waste and abuse in NIH funded programs is encouraged to report such matters to the HHS Inspector Generals Office in writing or on the Inspector Generals Hotline. The toll free number is 1-800-HHS-TIPS (1-800-447-8477). All telephone calls will be handled confidentially. The e-mail address is Htips@os.dhhs.gov and the mailing address is:
Office of Inspector General
Department of Health and Human Services
TIPS HOTLINE
P.O. Box 23489
Washington, D.C. 20026
ARTICLE H.21. SHARING RESEARCH DATA
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[The data sharing plan submitted by the Contractor is acceptable/The Contractors data sharing plan, dated is hereby incorporated by reference.] The Contractor agrees to adhere to its plan and shall request prior approval of the Contracting Officer for any changes in its plan.
The NIH endorses the sharing of final research data to serve health. this contract is expected to generate research data that must be shared with the public and other researchers. NIHs data sharing policy may be found at the following Web site:
http://grants.nih.gov/grants/guide/notice-files/NOT-OD-03-032.html.
NIH recognizes that data sharing may be complicated or limited, in some cases, by institutional policies, local IRB rules, as well as local, state and Federal laws and regulations, including the Privacy Rule (see HHS-published documentation on the Privacy Rule at http://www.hhs.gov/ocr/). The rights and privacy of people who participate in NIH-funded research must be protected at all times; thus, data intended for broader use should be free of identifiers that would permit linkages to individual research participants and variables that could lead to deductive disclosure of the identity of individual subjects.
ARTICLE H.22. POSSESSION USE AND TRANSFER OF SELECT BIOLOGICAL AGENTS OR TOXINS
The work being conducted under this contract may involve the possession, use, or transfer of a select agent or toxin. The contractor shall not conduct work involving a Select Agent or Toxin under this contract until it and any associated subcontractor(s) comply with the following:
For prime or subcontract awards to domestic institutions that possess, use, and/or transfer a Select Agent or Toxin under this contract, the institution must comply with the provisions of 42 CFR part 73, 7 CFR part 331, and/or 9 CFR part 121 ( http://www.selectagents.gov/Regulations.html) as required, before using NIH funds for work involving a Select Agent or Toxin . No NIH funds can be used for research involving a Select Agent or Toxin at a domestic institution without a valid registration certificate.
For prime or subcontract awards to foreign institutions that possess, use, and/or transfer a Select Agent or Toxin , before using NIH funds for any work directly involving a Select Agent or Toxin , the foreign institution must provide information satisfactory to the NIAID that safety, security, and training standards equivalent to those described in 42 CFR part 73, 7 CFR part 331, and/or 9 CFR part 121 are in place and will be administered on behalf of all Select Agent or Toxin work supported by these funds. The process for making this determination includes a site visit to the foreign laboratory facility by an NIAID representative. During this visit, the foreign institution must provide the following information: concise summaries of safety, security, and training plans; names of individuals at the foreign institution who will have access to the Select Agent or Toxin and procedures for ensuring that only approved and appropriate individuals, in accordance with institution procedures, will have access to the Select Agents or Toxins under the contract; and copies of or links to any applicable laws, regulations, policies, and procedures applicable to that institution for the safe and secure possession, use, and/or transfer of select agents. Site visits to foreign laboratories are conducted every three years after the initial review. No NIH funds can be used for work involving a Select Agent or Toxin at a foreign institution without written approval from the Contracting Officer.
Prior to conducting a restricted experiment with a Select Agent or Toxin under this contract or any associated subcontract, the contractor must discuss the experiment with the Contracting Officers Technical Representative (COTR) and request and obtain written approval from the Contracting Officer. Domestic institutions must submit to the Contracting Officer written approval from the CDC to perform the proposed restricted experiment. Foreign institutions require review by a NIAID representative. The prime contractor must contact the COTR and the NIAID Office of International Extramural Activities (OIEA) at mailto:niaidforeignawards@niaid.nih.gov for guidance on the process used by NIAID to
07822S1 Tetraphase Subcontract | 31 of 36 |
review proposed restricted experiments. The NIAID website provides an overview of the review process at http://funding.niaid.nih.gov/contract/saconproc.htm. The Contracting Officer will notify the prime contractor when the process is complete. No NIH funds can be used for a restricted experiment with a Select Agent or Toxin at either a domestic or foreign institution without written approval from the Contracting Officer.
Listings of HHS and USDA select agents and toxins, and overlap select agents or toxins as well as information about the registration process for domestic institutions, are available on the Select Agent Program Web site at:
http://www.selectagents.gov/ and
http://www.selectagents.gov/Select%20Agents%20and%20Toxins%20List.html.
For foreign institutions, see the NIAID Select Agent Award information:
( http://www.niaid.nih.gov/ncn/clinical/default_biodefense.htm).
ARTICLE H.23. HIGHLY PATHOGENIC AGENTS
The work being conducted under this contract may involve a Highly Pathogenic Agent (HPA). The NIAID defines an HPA as a pathogen that, under any circumstances, warrants a biocontainment safety level of BSL3 or higher according to either:
1. | The current edition of the CDC/NIH Biosafety in Microbiological and Biomedical Laboratories (BMBL)( http://www.cdc.gov/OD/ohs/biosfty/bmbl5/bmbl5toc.htm); |
2. | The Contractors Institutional Biosafety Committee (IBC) or equivalent body; or |
3. | The Contractors appropriate designated institutional biosafety official. |
If there is ambiguity in the BMBL guidelines and/or there is disagreement among the BMBL, an IBC or equivalent body, or institutional biosafety official, the highest recommended containment level must be used.
ARTICLE H.24. HOTEL AND MOTEL FIRE SAFETY ACT OF 1990 (P.L. 101-391)
Pursuant to Public Law 101-391, no Federal funds may be used to sponsor or fund in whole or in part a meeting, convention, conference or training seminar that is conducted in, or that otherwise uses the rooms, facilities, or services of a place of public accommodation that do not meet the requirements of the fire prevention and control guidelines as described in the Public Law. This restriction applies to public accommodations both foreign and domestic.
Public accommodations that meet the requirements can be accessed at:
http://www.usfa.fema.gov/hotel/index.htm.
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EXHIBIT D
GOVERNMENT PROPERTY
SUBCONTRACTOR INVENTORY STATEMENT
FOR THE PERIOD ENDING 30 SEPTEMBER
¨ INTERIM ¨ FINAL
Subcontractor Name |
________________________________ | Period of Performance: | ||||
Subcontract No. |
________________________________ | From: | ________________ | |||
Prime Contract No. |
________________________________ | To: | ________________ |
A physical inventory of all classes of accountable Government Property under the above referenced subcontract was completed, and
¨ | The official property records (attached) were found to be in agreement except for the discrepancies reported herein (please identify separately). |
¨ | No property was furnished or acquired in performance of the subcontract. |
If property has been furnished or acquired in performance of this subcontract, and this is a FINAL report, please check all that may apply below: |
¨ | We request property disposition instructions from CUBRC; |
¨ | Property has been approved, or is pending approval for utilization on a imminent follow-on subcontract. |
¨ | Property was returned to issuing Agency or provider as instructed by CUBRC; |
¨ | Property was consumed in performance of the subcontract; |
Note: This inventory statement reflects the accountability of all Government-furnished or Subcontractor-acquired property since inception of the referenced subcontract through the current report date.
_____________________________________ Signature of Subcontractor Property Official |
______________________ Date |
|
_________________________________
Name and Title of Official
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Please contact the CUBRC Administrative Point of Contact listed on the face page of this agreement for an electronic copy of this spreadsheet.
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EXHIBIT E
SUBCONTRACTORS ASSIGNMENT AND RELEASE
Pursuant to the terms of Subcontract No. for the period through (ending date) and in consideration of the sum of $ (cumulative expenses claimed/to be claimed) which has been paid under Subcontract No. to (hereinafter called the Subcontractor) or to its assignees, if any, the Subcontractor, upon payment of the said sum by CUBRC, Inc., Buffalo, New York, 14225 does remise, release, and discharge CUBRC, its officers, agents, and employees, of and from all liabilities, obligations, claims, and demands whatsoever under or arising from the said Subcontract.
IN WITNESS WHEREOF, this release has been executed this day of , 20 .
___________________________________
Signature of Authorizing Official
___________________________________
Name and Title of Authorizing Official
CERTIFICATE
(To be completed by an officer other than the one certifying above if Subcontractor is not a sole proprietorship)
I, (Name of Official), certify that I am (Official Title) of the organization named as Subcontractor in the foregoing release, that (Official Certifying Above) who signed said release on behalf of the Subcontractor was then (Official Title) of said organization; that said release was duly signed from and on behalf of said corporation/organization by authority of its governing body and is within the scope of its corporate powers.
________________________________ ______________________
Signature of Authorizing Official Date
_________________________________
Name and Title of Authorizing Official
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EXHIBIT F
HHS Government Property Guide
36 of 36
HHS Contracting Guide
HHS Contracting Guide for Contract of Government Property
Health & Human
Services
- 1 -
TABLE OF CONTENTS
HHS Contracting Guide for Contract of Government Property |
1 | |||
Health & Human |
1 | |||
Services |
1 | |||
TABLE OF CONTENTS |
2 | |||
Foreword |
8 | |||
Chapter I. Introduction |
8 | |||
Purpose and Scope of Guide |
8 | |||
Chapter II. Contractor Responsibility and Liability |
8 | |||
Contractor Responsibility |
8 | |||
Chapter III. Contract Start-Up |
8 | |||
Authorization |
8 | |||
Chapter IV. Contract Administration |
8 | |||
Reporting and Reimbursement for Acquisition |
8 | |||
Chapter V. Contract Close-Out |
8 | |||
Final Inventory and Certification |
8 | |||
Chapter VI. Special Considerations |
8 | |||
On-site Contractors |
8 | |||
Chapter VII. Forms and Instructions |
8 | |||
Standard Form 1428 Inventory Schedule |
8 | |||
Glossary |
8 | |||
Condition Codes (link pending) |
8 | |||
Contract Property Administrator Addresses |
8 | |||
Government Property to be Classified as Sensitive Equipment Regardless of Dollar Value |
8 | |||
FOREWORD |
9 | |||
Assistant Secretary for Management and Budget |
9 | |||
CHAPTER I: INTRODUCTION |
9 | |||
PURPOSE AND SCOPE OF THE GUIDE |
9 | |||
HOW TO USE THIS GUIDE |
9 | |||
Chapter II outlines your responsibilities and liability for government property |
10 | |||
Life Cycle Chapters |
10 | |||
Special Consideration Chapters |
10 | |||
KEY PLAYERS AT HHS |
10 | |||
CHAPTER II: CONTRACTOR RESPONSIBILITY AND LIABILITY |
11 | |||
CONTRACTOR RESPONSIBILITY |
11 | |||
Prime Contact |
11 | |||
Maintenance of Official Records |
11 | |||
Contract Requirements |
11 | |||
Property Control |
11 | |||
Acquisitions |
12 | |||
Decontamination |
12 | |||
Subcontractor Property |
12 | |||
CONTRACTOR LIABILITY |
12 | |||
CHAPTER III: CONTRACT START-UP |
12 | |||
Authorization |
12 | |||
Maintenance of Official Records |
13 | |||
Refer also to FAR Part 45.102 and 105 |
13 | |||
Residual Property |
13 | |||
Government-furnished property |
13 | |||
Contractor-Acquired Government Property |
13 | |||
Designation of Property Administrator |
13 | |||
Using Property Under More Than One Contract |
13 |
- 2 -
Start-Up Inventory |
13 | |||
Inventory Requirements |
14 | |||
HHS decal number |
14 | |||
Property Control System |
14 | |||
Elements |
14 | |||
Maintenance and calibration |
14 | |||
Acquisition |
15 | |||
Receiving |
15 | |||
Identification and Records |
15 | |||
Storage and Movement |
15 | |||
Property Consumption |
15 | |||
Utilization |
15 | |||
Maintenance and Calibration |
15 | |||
The goal is safe, efficient and economical operation of government equipment |
15 | |||
Records are kept of maintenance and calibration performed, including cost and date |
16 | |||
Maintenance and calibration are performed by technically qualified personnel |
16 | |||
Physical Inventory |
16 | |||
Inventories are conducted using the wall-to-wall approach |
16 | |||
Physical inventory results are promptly reconciled with property records |
16 | |||
Inventory results and discrepancies are promptly reported to the Contract Property Administrator |
16 | |||
Subcontract Administration |
16 | |||
Subcontractor is aware of contractual property provisions |
16 | |||
Reporting |
16 | |||
Any other reports specified in this Guide or in the contract |
17 | |||
Disposal |
17 | |||
Disposition instructions provided by the Contract Property Administrator are carried out as directed |
17 | |||
Disposal |
17 | |||
The quantity, condition code and location are reported accurately for property items requiring disposition |
17 | |||
Contract Completion or Termination |
17 | |||
HHS Review of System |
17 | |||
Disapproval of System |
17 | |||
CHAPTER IV: CONTRACT ADMINISTRATION |
18 | |||
ACQUIRING PROPERTY |
18 | |||
Authorization Required |
18 | |||
Unauthorized Property Acquisitions |
18 | |||
Government-Furnished Property |
18 | |||
Transfer Between Multiple Contracts |
18 | |||
Acquiring Excess Government Property |
18 | |||
Contract-Acquired Property |
19 | |||
GSA Supply Sources |
19 | |||
FEDSTRIP and Customer Supply Centers |
19 | |||
Reporting and Reimbursement for Acquisitions |
19 | |||
Receipt of Contractor-Acquired Property |
19 | |||
Discrepancies in Shipments |
19 | |||
Receipt of Government-Furnished Property |
20 | |||
Discrepancies in Shipments |
20 | |||
Leased Property |
20 | |||
Subcontractor Acquisitions |
20 | |||
Receipt of Component Parts |
20 | |||
Fabricating Equipment |
21 | |||
Records |
21 | |||
Installed Property |
21 | |||
Reimbursement for Acquisitions |
21 | |||
Attach Copy of Standard Form 1428 Inventory Schedule |
21 | |||
Invoice Preparation |
21 |
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Property Identification |
22 | |||
Decals |
22 | |||
Bar code decals identify accountable property |
22 | |||
Metal decals may be requested for property that is expose to the environment |
22 | |||
Items that Cannot be Decaled |
22 | |||
Sensitive Items |
22 | |||
Precious Metals |
23 | |||
Recovery of Precious Metals |
23 | |||
Special Test Equipment and Components |
23 | |||
Annual Inventory |
23 | |||
HHS decal number |
24 | |||
Associated HHS decal numbers |
24 | |||
Manufacturers name |
24 | |||
Item description |
24 | |||
Manufacturers model number |
24 | |||
Acquisition Date |
24 | |||
Manufacturers serial number |
24 | |||
Actual cost of item |
24 | |||
Subcontractor Inventory |
24 | |||
Certification |
24 | |||
Reconciliation of Inventory |
24 | |||
Overage Procedures |
24 | |||
Shortage Procedures |
24 | |||
Missing Stolen and Damaged Property |
24 | |||
HHS decal number (if applicable) |
25 | |||
Manufacturers name and model number |
25 | |||
Date the item was last inventoried |
25 | |||
Cost of item and projected cost of repairs, for damaged property |
25 | |||
The last time the item was physically seen |
25 | |||
The names of the individuals who used the item |
25 | |||
The names of individuals who had access to the item |
25 | |||
The name of the individual who discovered it was missing |
25 | |||
The date and time the item was first discovered missing |
25 | |||
The actions taken to try to locate the item |
25 | |||
Previous similar occurrences and measures taken to prevent future occurrences |
25 | |||
Records |
25 | |||
Personal Property |
25 | |||
Acquisition Maintenance and calibration |
25 | |||
Receiving Physical Inventory |
26 | |||
Identification/records Subcontract administration |
26 | |||
Storage and movement Reporting |
26 | |||
Property consumption Disposal |
26 | |||
Utilization Contract Completion |
26 | |||
Audit Records |
26 | |||
Basic Information |
26 | |||
Expendable Supplies and Materials Item Description |
26 | |||
Unit of Measure |
26 | |||
Unit Price Contract Number |
26 | |||
Quantity Received |
26 | |||
Location |
26 | |||
Quantity on Hand |
26 | |||
Posting Reference |
26 | |||
Nonexpendable Personal Property/Equipment Owned or Leased |
26 | |||
HHS Decal Number |
26 | |||
Item Description |
26 | |||
Manufacturers Serial Number |
26 |
- 4 -
Manufacturers Model Number |
26 | |||
Actual Cost of Item |
26 | |||
Monthly Cost |
27 | |||
Acquisition Date |
27 | |||
Installation Date |
27 | |||
Contract Number |
27 | |||
Credits Accrued |
27 | |||
Government-furnished or Contractor-accrued |
27 | |||
Contractors Current Order Number |
27 | |||
Associated HHS Decal |
27 | |||
Expiration Date Numbers |
27 | |||
Maintenance Cost |
27 | |||
Acquisition Price if Purchased |
27 | |||
Current Location |
27 | |||
Buy-Out Price |
27 | |||
Condition Code |
27 | |||
Requirements |
27 | |||
Capitalization |
27 | |||
STORAGE AND MOVEMENT |
27 | |||
Guidelines for the storage and movement of government property are covered in this section |
27 | |||
Storage |
27 | |||
Movement of Property |
28 | |||
TRADE-INS |
28 | |||
Request for Authorization |
28 | |||
EXCESS PROPERTY |
28 | |||
Report of Excess |
28 | |||
Disposal Instructions |
29 | |||
Abandonment and Destruction |
29 | |||
Letter from Organization |
29 | |||
CANNIBALIZATION |
29 | |||
CONTAMINATION |
30 | |||
Signature |
30 | |||
Title and Date |
30 | |||
Packing, Crafting, and Shipping |
30 | |||
CHAPTER V: CONTRACT CLOSE-OUT |
30 | |||
FINAL INVENTORY AND CERTIFICATION |
30 | |||
Inventory Requirements |
30 | |||
HHS decal number |
30 | |||
Item Description |
31 | |||
Acquisition Cost |
31 | |||
Manufacturers name |
31 | |||
Condition Code |
31 | |||
Manufacturers Model Number |
31 | |||
Quantity |
31 | |||
Manufacturers Serial Number |
31 | |||
Physical Location of Item |
31 | |||
Certification |
31 | |||
Follow-On Inventories |
31 | |||
Government Terminates Contract |
31 | |||
Subcontractor Inventories |
31 | |||
DISPOSITION OF PROPERTY |
32 | |||
Leased Property |
32 | |||
Disposal Options |
32 |
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CHAPTER VI: SPECIAL CONSIDERATIONS |
32 | |||
ON-SITE CONTRACTORS |
32 | |||
Suspected Theft Property |
32 | |||
FOREIGN GOVERNMENTS/INTERNAL ORGANIZATIONS |
33 | |||
NON-PROFIT/EDUCATION ORGANIZATIONS |
33 | |||
Acquisitions: Less than $5000/$1000 |
33 | |||
Acquisitions: More than $5000/$1000 |
33 | |||
Title Consideration |
34 | |||
VEHICLES |
34 | |||
Title/Certification of Origin |
34 | |||
How to Obtain License Tags |
34 | |||
Returning License Tags |
34 | |||
Identification of Government Vehicles |
35 | |||
Trailers |
35 | |||
Reporting Requirements |
35 | |||
Accident Reports |
35 | |||
Maintenance Records |
35 | |||
Vehicle Reports |
35 | |||
Vehicle Listing |
35 | |||
Type of vehicle (e.g..... sedan or station wagon) |
35 | |||
Model, make and year (e.g.... 1990 Chevrolet Blazer) |
35 | |||
License tag number |
35 | |||
Serial number |
35 | |||
Vehicle mileage |
35 | |||
Vehicle location |
35 | |||
Name and telephone number of your property contact |
36 | |||
Projected Vehicle Acquisitions |
36 | |||
Disposal |
36 | |||
GSA Vehicles |
36 | |||
CHAPTER VII: FORMS AND INSTRUCTIONS |
36 | |||
Standard Form 1428 Inventory Schedule |
36 | |||
Reporting Component Parts |
36 | |||
GLOSSARY |
36 | |||
Accountable Personal Property |
37 | |||
Cannibalization |
37 | |||
Component Part |
37 | |||
Condition Codes |
37 | |||
Contaminated Property |
37 | |||
Contract Modification |
37 | |||
Contracting Officers Authorization (COA) |
37 | |||
Contractor-Acquired Property |
37 | |||
Customer Supply Center |
37 | |||
Decals |
37 | |||
Disposition |
38 | |||
Excess Property |
38 | |||
Government property that is not required for immediate or foreseeable use |
38 | |||
Expendable Property |
38 | |||
Facilities |
38 | |||
Fedstrip |
38 | |||
Follow-On Contract |
38 | |||
A contract that is re-competed or renewed and awarded to the same or different contractor |
38 | |||
Government-Furnished Property |
38 | |||
Government Property |
38 | |||
Hazard-Free Certification |
38 | |||
Leased Property |
38 |
- 6 -
Property that is either acquired by the contractor or the Government under a lease agreement |
38 | |||
Liability |
38 | |||
The degree of a contractors obligation to the Government for contractor inventory |
38 | |||
Material |
39 | |||
Materiel |
39 | |||
Items that are generally referred to as supplies, material, apparatus, and equipment |
39 | |||
Modification |
39 | |||
Nonexpendable Property |
39 | |||
Non-Profit Organization |
39 | |||
Personal Property |
39 | |||
Physical Inventory |
39 | |||
Precious Metals |
39 | |||
Property |
39 | |||
Property Control System |
39 | |||
Property Management |
39 | |||
Real Property |
40 | |||
Salvage |
40 | |||
Scrap |
40 | |||
Screening |
40 | |||
Sensitive Items |
40 | |||
Special Test Equipment |
40 | |||
Start-Up Inventory |
40 | |||
Stock Record |
40 | |||
Subcontractor |
40 | |||
Supply Item |
41 | |||
Surplus Property |
41 | |||
Title |
41 | |||
The legal right to claim, control, and dispose of property as a result of a purchase |
41 | |||
Trade-In |
41 | |||
Unauthorized Property |
41 | |||
Unrequired Property |
41 | |||
Voucher |
41 | |||
Document prepared by the contractor for reimbursement of appropriate expenses incurred |
41 | |||
Disclaimer (New Window) * Federal Shortcuts (New Window) * Feedback |
41 | |||
HHS Contracting Guide for Contract of Government Property |
41 |
- 7 -
Foreword
Chapter I. Introduction
Purpose and Scope of Guide
How to Use the Guide
Key Players at HHS
Chapter II. Contractor Responsibility and Liability
Contractor Responsibility
Contractor Liability
Chapter III. Contract Start-Up
Authorization
Start-Up Inventory
Property Control System
Chapter IV. Contract Administration
Reporting and Reimbursement for Acquisition
Property Identification
Annual Inventory
Missing, Stolen and Damaged Property
Records
Personal Property
Storage and Movement
Trade-ins
Excess Property
Cannibalization Contamination
Chapter V. Contract Close-Out
Final Inventory and Certification
Disposition of Property
Chapter VI. Special Considerations
On-site Contractors
Foreign Governments/ International Organizations
Non-profit/ Educational Organizations
Vehicles
Chapter VII. Forms and Instructions
Standard Form 1428 Inventory Schedule
Glossary
Appendix
Condition Codes (link pending)
Contract Property Administrator Addresses
Government Property to be Classified as Sensitive Equipment Regardless of Dollar Value
- 8 -
FOREWORD
This guide conveys the policy of the Department of Health and Human Services (HHS) covering the management and control of Government property. This Guide will help you learn the basics of HHS property administration. It provides information needed by contractors to administer government property under a HHS contract or grant to for-profit organizations.
This publication replaces the 1974 edition Control of Property in the Possession of Contractors. It was prepared by the Office of Management and Acquisition, Office of Acquisition and Grants Management, Acquisition and Logistics Research Staff.
We hope this guide provides the information you need. If you have unanswered questions after reading it, please contact your Contract Property Administrator for further questions.
Assistant Secretary for Management and Budget
CHAPTER I: INTRODUCTION
PURPOSE AND SCOPE OF THE GUIDE
This Guide outlines the basic policies and procedures for both cost-reimbursement and fixed-price contractors to follow in the management, control and use of government property provided under a HHS contract.
This includes government-furnished property (GFP) as well as contractor-acquired property (CAP). The Guide applies to contract property administration for the management of supplies, materials and both real and personal property that is furnished by the Government or acquired by contractors, including rented or leased items.
When the generic term property is used in the For an Alternative Navigation Method. Use Text Links to Navigate. It refers to personal property, other types of property are specifically identified (e.g. buildings, real estate). The Guide complements the Federal Acquisition Regulation (FAR) and is not intended to supersede any FAR requirements as expressed in the contract. The FAR contains the official Federal policies on property used in contracts. Any differences between this guide and the FAR as expressed in the contract, the FAR will take precedence. It is a summary of HHS policies and procedures for contract property administration and therefore may not cover every question you have. If you need further assistance or additional information, contact your Contract Property Administrator.
HOW TO USE THIS GUIDE
To help you locate the information you need, this Guide is structured within a basic framework, as shown in the Table of Contents.
Chapter I contains an overview of the key players at HHS who will be involved in the property aspects of your contract.
- 9 -
Chapter II outlines your responsibilities and liability for government property.
Life Cycle Chapters
Chapters III, IV, V are organized by the life cycle of your contract, beginning with start-up and followed by contract administration and close-out.
Special Consideration Chapters
Chapter VI covers additional features which may or may not apply to your contract. If your contract falls under any of these categories, read the appropriate part of the chapter in addition to the standard life cycle chapters. These special considerations are: On-site contractors, non-profit or educational organizations, foreign governments or international organizations, and government vehicles.
In the remainder of the Guide, you will find forms and instructions, a glossary of property terms, an appendix with condition codes, HHS addresses, and an index. We suggest that you review the glossary to ensure that you understand exactly what is meant by terms such as personal property, nonexpendable property and accountable property.
Use of the index is encouraged as well. For example, if you want to locate information about excess property, the appropriate page numbers are listed under excess.
KEY PLAYERS AT HHS
The key players at HHS that you will deal with regarding your government property are: the Contract Property Administrator, Project Officer and Contracting Officer. Generally, the Contract Property Administrator monitors, coordinates and manages property requirements. The Project Officer provides technical direction and Interfaces with the Contract Property Administrator about your property requirements, and the Contracting Officer authorizes the transactions.
This section describes their overall roles in the authorization, administration and oversight of contract property.
The Contract Property Administration is the designated representative of the Contracting Officer and will be referenced in the contract. References in the FAR to the Plant Clearance Officer apply to the Contract Property Administrator at HHS. The Contract Property Administrator administers the contract requirements and obligations related to government property, and is responsible for all property administration functions from acquisition of the property to final disposition.
You should deal directly with the Contract Property Administrator in the administration of your government property. It is the Contract Property Administrators responsibility to coordinate property issues with the Project Officer and Contracting Officer. Within HHS the Contract Property Administrator is also assigned the responsibility of reviewing and approving property control systems and notifying you when your property control system does not meet HHS requirements; however, the Contract Property Administrator may not obligate government funds, or execute modifications to our contract, or otherwise make changes to your contract.
There are a number of Contract property Administration office locations at HHS: Use of the term Contract Property Administrator in this Guide refers to the Contract Property Administrator at the office designated in your contract, and is appointed pursuant to delegated authority.
- 10 -
The Project Officer is an Agency program official who is designated in the contract as the technical representative of the Contracting Officer. Project Officers are trained as required by HHS Acquisition Regulations (HHSAR) and are appointed to administer and monitor contract performance. They are not authorized to obligate government funds or to execute contract modifications. Your Project Officer cannot grant you approval to acquire property with contract funds, nor can the Project Officer authorize you to transfer or dispose of any items.
The Project Officer is responsible for providing a property requirements listing along with a justification to the contracting officer, who coordinates the review, approval and physical transfer of the property with the Contract Property Administrator.
The Contracting Officer is the only HHS official who can authorize you to use government property or acquire property under the contract. The Contracting Officers authorization will be stated in your contract, modification, or through the use of a Contracting Officer.
CHAPTER II: CONTRACTOR RESPONSIBILITY AND LIABILITY
CONTRACTOR RESPONSIBILITY
You must assure that your employees are knowledgeable of your contract and of the FAR, HHSAR, FPMR, and FIRMR provisions; they should have sufficient training in all areas of contract property administration. The General Services Administration (GSA) and several non-government training institutions offer three to five day courses in the administration of contractor-held property. These courses provide insight into government property administration. Your Contract Property Administrator can give you more specific information on these courses.
Prime Contact
It is your responsibility to designate an individual within your organization as the prime contact for the Contract Property Administrator. Provide the individuals name, address, telephone number and signature at the inception of the contract. In the event that any of this information changes, including your organizations address or the name of the contact person, notify your Contract Property Administrator.
Maintenance of Official Records
Contractors are responsible for maintaining the Governments official property records unless the contract cites the FAR clauses that relieve that responsibility.
Contract Requirements
It is the contractors responsibility to review the contract clauses and assure that the government property required to accomplish the scope of work is accurately reflected in the contract. The basic contract will include a detailed listing of accountable government property (both real and personal property with an acquisition cost of $1000 or more, with a life expectancy of more than two years and sensitive items regardless of acquisition value). If accountable property is provided without contract authorization, promptly notify your Contracting Officer with a copy to the Contract Property Administrator.
- 11 -
Property Control
The contractor is held accountable and responsible for government property, regardless of value, from the time of receipt until the disposal of each item as directed by the Contracting Officer. You are responsible for the control of all GFP and CAP upon delivery of the property into your custody.
Acquisitions
Acquisitions of accountable property must be authorized by the Contracting Officer before acquiring the items. Identification of the property will be stated in the basic contract, a subsequent modification or Contracting Officers Authorization (COA) letter. Accountable property that is listed in work assignments, delivery orders or task orders is not authorized for acquisition or use until it has been authorized.
Decontamination
The contractor is responsible for decontaminating government property which may have been contaminated while in the contractors possession. When government property is to be transferred, disposed of, or excessed, a certification that property is free from all hazards, including biological, chemical, radioactive, or other health hazardous agents must be sent to the Contract Property Administrator.
Subcontractor Property
It is the prime contractors responsibility to hold the subcontractor responsible for reporting any transactions involving government property. Subcontractors are governed by the same requirements as prime contractors for the control of government property.
CONTRACTOR LIABILITY
Contractors may be liable for government property in their possession, subject to the terms of the contract. You may be liable when government property is missing, damaged or stolen, or when there is evidence of improper or unreasonable consumption. If approval of your property control system was withheld or withdrawn, or if you fail to correct deficiencies identified by the Contract Property Administrator, the Contracting Officer may require you to accept a higher level of liability for loss of or damage to government property.
CHAPTER III: CONTRACT START-UP
Chapters 3, 4, 5 apply to all contractors (Contract Start-Up, Contract Administration, and Contract Close-Out). Portions of Chapter 6 Special Considerations, may also apply to you.
Authorization
Prior to the start of work, review your contract concerning the authorization of property. Property that is listed in work assignments or task orders is not authorized for acquisition or use until it has been authorized in the contract, modification, or the Contracting Officers Authorization (COA). If government property not listed in the contract is provided to you, notify your Contracting Officer.
- 12 -
Review the detailed listing of property in our contract to assure that the government property required to accomplish the scope of work is accurately reflected in the contract. Be sure to check your contract for the clauses described in this section of the Guide. If any of the clauses described below are included in your contract, refer to the FAR to determine your full requirements, responsibilities and liability for the property.
Maintenance of Official Records
You are responsible for maintaining the official property records unless the contract cites the FAR clauses that relieve you of that responsibility. The clauses are normally cited in Part II, Section I of the contract, and may be incorporated by reference.
Refer also to FAR Part 45.102 and 105.
Residual Property
The residual property clause authorizes use of property from a previous contract contains this clause, be sure that you know exactly what is included in the residual inventory, and that the inventory listing is correct.
Government-furnished property
All accountable government property provided under your contract will be described and/or listed in the contract, including the Contracting Officers Authorization (COA), and amendments/modification. The listing of accountable property items should include an item description (sometimes referred to as expanded nomenclature), manufacturers name, serial number, model number, and a HHS decal number.
Contractor-Acquired Government Property
If you are authorized to acquire accountable property from a vendor, your contract will include a clause or COA letter that authorizes the transactions. Accountable property that you acquire and change to the contract must be authorized on an individual line item basis in the contract.
Designation of Property Administrator
A reference or clause may be made to your contract to provide the name and office location of your Contract Property Administrator at HHS.
Using Property Under More Than One Contract
Government property is to be used only under the contract for which it is authorized, unless otherwise authorized by the Contracting Officer. If your organization has more than one contract with HHS, the Contracting Officer may authorize use of government property under more than one contract.
- 13 -
Start-Up Inventory
At the start of your contract, you are required to conduct a physical inventory of accountable government property provided to you or acquired with contract funds, as well as any property being leased or rented with contract funds. If your contract is a follow-on make every effort to conduct a joint inventory with the previous contractor. Your start-up inventory may be done concurrently with the transfer from the previous contractor.
Inventory Requirements
The start-up inventory will be a physical inventory. Any discrepancies with the government-furnished listing in the contract should be noted. The inventory must include the following information:
HHS decal number
Manufacturers name
Manufacturers model number
Manufacturers serial number
Record and reconcile your inventory results with the property clause in your contract, and submit the report to your Contract Property Administrator. For overages, shortages or damage, provide a statement of the condition and apparent cause. Include the name of your companys property contact for the Contract Property Administrator. Prime contractors must submit a consolidated inventory report of all government property, to include subcontractor inventory.
Property Control System
Shortly after contract award, the Contract Property Administrator will request a copy of the written procedures for your internal property control system unless HHS already has it. HHS reviews the property control system to determine if it is adequate to assure compliance with government regulations and contract terms, and to assure that the property is adequately protected, maintained, utilized and accounted for. The adequacy of your property control system helps to demonstrate your ability to manage government property.
A contractor with a few employees may not have a need for written procedures for effective management of Government property. In such cases, the Contracts Property Administrator will evaluate the adequacy of the contractors system on the basis of the contractors explanation of his controls and observation of the system.
Elements
An acceptable property control system must comply with the FAR. It identifies all types and classes of government property and addresses your policies on the following elements:
Maintenance and calibration
Physical inventory
Identification and records
Storage and movement
Property consumption
Contract completion or termination
The property control system must enable us to locate any item of government property within a reasonable time. Generally, this should not exceed two working days. The system should also provide a complete, current, auditable record of all transactions which the Government may review as frequently as conditions warrant.
- 14 -
The following section briefly outlines the major requirements for each element of your property control system.
Acquisition
Items are ordered in accordance with quantities stipulated in the contract. Existing equipment on-hand is screened before submitting requisitions. Correct source is identified (either government-furnished or contractor-acquired).
Receiving
Property received is inspected for discrepancies. Receiving report is prepared and distributed to appropriate offices. Discrepant items are segregated and documented (partial shipments, for example).
Identification and Records
Equipment received is promptly and properly classified and labeled with a HHS property decal. Inventory control and financial records are established and maintained for the property. Basic information is contained in the records, as outlined in the FAR.
Storage and Movement
An adequate system to control movement and location of property is maintained. Property in storage is protected, preserved and inspected to prevent loss, damage and deterioration. Adequate safeguards are provided for securing government property. A first in/first out system is established for stored items, subject to age deterioration and warranty expiration.
Property Consumption
Property is consumed only under contract performance. Stock record system of records is maintained for consumable items.
Utilization
Methods are established to ensure that government property is utilized only for purposes authorized by the contract. Contractual authorization is obtained to use property for other than its original authorized purpose. A system is established to review and identify government property to release when it is no longer required for contract performance. Criteria are established and retention of idle equipment is documented and justified by the program manager.
Maintenance and Calibration
A scheduled maintenance program is established, consisting of a systematic written procedure for servicing and inspecting equipment.
The goal is safe, efficient and economical operation of government equipment.
- 15 -
A program is implemented for the following categories of maintenance: preventive maintenance, routing repair and adjustment emergency repair, and calibration.
A calibration control system is designed for all measuring and test equipment to provide control of the evaluation, calibration, maintenance, repair and use of it.
Records are kept of maintenance and calibration performed, including cost and date.
Maintenance and calibration are performed by technically qualified personnel.
System is capable of identifying high maintenance costs for review; corrective action is taken by management and is documented.
Physical Inventory
Physical inventories are generally conducted at the start of the contract, annually on the anniversary of contract award, fiscal year end, on a special basis if directed by the Government, and within 90 days upon contract completion or termination as specified in the contract.
Inventories should be taken by personnel other than those having custody of the property or maintaining the records unless the contractors operation is too small to do otherwise.
Inventories are conducted using the wall-to-wall approach.
Physical inventory results are promptly reconciled with property records.
Inventory results and discrepancies are promptly reported to the Contract Property Administrator.
Subcontract Administration
Procedures and controls are established to assure that government property in a subcontractors possession is adequately protected.
Subcontractor is aware of contractual property provisions.
Subcontractor will report loss, damage or destruction of government property to the prime contractor for notification of the Contract Property Administrator.
Reporting
Annual inventory reports are to be provided to the Contract Property Administrator by October 31st each year.
Any loss of or damage to government property is immediately reported to the Contract Property Administrator.
Government property excess to contract requirements is promptly reported to Contract Property
Administrator.
Standard Form 1428 Inventory Schedule is submitted for all accountable contractor-acquired and leased property; receipt of GFP is reported to the Contract Property Administrator when the property is received.
- 16 -
Any other reports specified in this Guide or in the contract.
Disposal
Disposition instructions provided by the Contract Property Administrator are carried out as directed.
Disposal
Disposition instructions provided by the Contract Property Administrator are carried out as directed in accordance with instructions, the disposal of property is properly documented.
The quantity, condition code and location are reported accurately for property items requiring disposition.
A decontamination certification is included in the final inventory report at the conclusion of the contract, unless waived by the Contracting Officer.
Contract Completion or Termination
Residual property is reviewed for appropriate actions (such as decontamination or repair) before transfer or disposal of property.
A full accounting is effected for all government property in possession of the prime contractor and subcontractor. The final inventory report is submitted promptly unless the Contracting Officer specifically approves an extension of time.
Pending issues are resolved, such as inventory adjustments and determinations of liability, before contract closure.
The Contract Property Administrator is notified when all pending actions on property-related issues are completed.
HHS Review of System
Your written system of procedures for property control must be submitted to the Contract Property Administrator for review within 30 days from the date it is requested. The review and approval of a contractors property control system at a specific site by one agency is binding on all other government departments and agencies, under interagency agreements. However, HHS may impose special property administration requirements to meet Agency needs.
Disapproval of System
If your system does not comply with the FAR or contract requirements, corrections will be required after notification of deficiencies. If you do not correct the deficiencies within the schedule that was agreed upon, the Contract property Administrator will recommend disapproval of your system by the Contracting Officer. Your liability for loss of or damage to government property may increase if approval is withheld or withdrawn.
- 17 -
CHAPTER IV: CONTRACT ADMINISTRATION
ACQUIRING PROPERTY
There are several ways to acquire property. You may obtain GFP through a transfer of property from an HHS office or another contract, or by securing excess property (this requires a special contract authorization). You may be authorized to acquire property by purchasing it from GSA supply sources (requiring a special authorization in your contract) or from a private vendor, or you may be required to lease or rent the property.
Authorization Required
Regardless of how you acquire property, any use of accountable government property under a HHS contract must be authorized in writing by the Contracting Officer.
Unauthorized Property Acquisitions
If you possess accountable GFP or CAP which has been authorized by the Contracting Officer, immediately report details about your possession of the property to your Contracting Officer with a copy to the Contracts Property Administrator.
The Contracting Officer will determine if it is appropriate to allow you to retain any unauthorized property. If the Contracting Officer grants authorization, the acquisition will be ratified and reflected in a contract modification.
Government-Furnished Property
The furnishing of government property will be coordinated by your Contract Property Administrator. You must identify your needs to your contracting Officer who will coordinate with the Project Officer; the clear definition of your needs before property is provided will facilitate the authorization process. The transaction must be authorized before property is physically transferred to you. When you receive the property, examine it to see that it will meet your needs and that it is in the proper condition for work performance. If the property does not meet your needs, notify the Contracting Officer Immediately.
Transfer Between Multiple Contracts
If you have more than one contract with HHS and want to have property transferred from one contract to another, coordinate this through your Contracting Officer who will coordinate with the Contract Property Administrator. If the transfer is approved, the Contracting Officer will issue a modification to effect the transfer.
Acquiring Excess Government Property
If you are located near a government installation, you may be able to acquire excess property. This requires the approval of your Contracting Officer to issue a contractors identification card (GSA Form 2946). If authorized, your Contract Property Administrator will provide catalogs of excess property. Contact your Contract Property Administrator for details about obtaining excess property.
Also, surplus personal property may be donated through State agencies to non-profit tax-exempt activities such as medical institutions, hospitals, schools, universities etc. Refer to FAR Part 45.609 and FPMR 101-44.207
- 18 -
Contract-Acquired Property
Prior to authorizing the acquisition of CAP, there is a justification process and a determination of the method that is in the best interest of the Government. The documentation of this process and the analysis called a property justification, is coordinated by the Contracting Officer with the Project Officer.
Property justifications are required for all leased items, regardless of value. If accountable CAP has been authorized under your contract, the contract will specify whether the property is to be purchased, leased or rented. The FAR and FPMR contain detailed information about procurement requirements; they may assist you in developing adequate procedures.
GSA Supply Sources
GSA and Federal Supply Schedules should always be considered as a first source of supply. If you are authorized to acquire property from a GSA supply source; FEDSTRIP (Federal Standard Requisitioning and Issue Procedures) or Customer Supply Centers, contract clause, modification or letter of authorization from your Contracting Officer is required to authorize use of these supply sources.
FEDSTRIP and Customer Supply Centers
FEDSTRIP and Customer Supply Centers are operated by GSA to serve the retail needs of federal agencies. Cost-reimbursement contractors may also use these sources if authorized FEDSTRIP is used for ordering large quantities of items while Customer Supply Centers are intended for small quantity orders. If you are interested in using these first supply sources, contact your Contract Property Administrator for details.
Reporting and Reimbursement for Acquisitions
Prime contractors must submit consolidated reports that include subcontractor acquisitions. Subcontractor acquisitions are subject to the same reporting and justification requirements as prime contractors for acquiring property under the contract. The prime contractor coordinates subcontractor transactions, subcontractors do not deal directly with the Contract Property Administrator, except for subcontractors to the Small Business Administration.
Receipt of Contractor-Acquired Property
Immediately upon receipt of accountable property items, report the acquisitions on Standard Form 1428 Inventory Schedule. Submit the completed Standard Form 1428 Inventory Schedule to your Contract Property Administrator (a copy of the form must also be attached to your reimbursement voucher). Specific instructions for completion of Standard Form 1428 Inventory Schedule are located in Chapter VII of this Guide.
Accountable property is nonexpendable personal property with an acquisition cost of $1000 or more, and with a useful life of two years or more and sensitive items (regardless of acquisition value. All accountable property items acquired under your contract must be reported on Standard Form 1428 Inventory Schedule, including such commodities as components, accessories, improvements and add-ons that exceed the accountable threshold as well as leased or rented items. Be sure to report design, labor and/or transportation costs, if applicable. These costs are included in the acquisition cost of the item in the Agencys records.
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Discrepancies in Shipments
If you discover an overage, shortage or damage upon receipt of CAP, take whatever action are necessary directly with the vendor or the supplier.
Receipt of Government-Furnished Property
When you receive accountable GFP, notify your Contract Property Administrator by letter immediately upon receipt of the property; this applies to unauthorized as well as authorized government property. If an HHS Property Transfer document is forwarded to you for signature, sign it and return it to your Contract Property Administrator. If you send a letter, include the decal number, acquisition cost, item description, model number, serial number, condition code, and physical location of the property. Remember prime contractors report to the Contract Property Administrator all transfers to subcontractors.
If your Contract Property Administrator forwards an HHS Transfer Form for your signature, verify that all information recorded on the form is correct. Remember to check the condition of the property and ensure that it will meet the requirements of the work to be performed. If there are any discrepancies with the form, sign it where indicated and return it to your Contract Property Administrator.
Discrepancies in Shipments
If you discover an overage, shortage or damage upon receipt of GFP, or if property is unusable for any reason, provide a statement of the condition and apparent cause to the Contract Property Administrator. If necessary, file the appropriate claim forms with the shipping company.
Leased Property
The acquisition of leased property must also be reported on Standard Form 1428 Inventor Schedule if the acquisition cost of the leased item would exceed the accountable threshold (see Glossary) and if the lease term exceeds two months. Chapter VII in this Guide contains details about the specific information that is reported.
Notify your Contracting Officer with a copy to the Contract Property Administrator at least 45 days before termination of a lease arrangement, whether due to the expiration of the actual lease or the termination/expiration of your contract. Also advise the Contracting Officer of any credits toward purchase of the item. The advance notice to HHS will allow the Government to decide whether to purchase the item or return it upon lease expiration, or to buy out the lease if it has not expired.
Subcontractor Acquisitions
Accountable items acquired by a subcontractor are reported by the prime contractor to the Contract Property Administrator on Standard Form 1428 Inventory Schedule. Reimbursement to a subcontractor is coordinated and processed by the prime contractor; prime contractors are reimbursed by HHS for authorized subcontractor acquisitions. HHS communicates directly with the prime contractor only, except for contracts with the Small Business Administration under its 8(a) program.
Receipt of Component Parts
Component parts or other items acquired for addition to a piece of property that has already been reported and decaled, must be reported on Standard Form 1428 Inventory Schedule if the components price exceeds the accountable threshold. State the HHS decal number of the main unit and indicate that the components will be added to that piece of property. Also record any entry for such costs as design, labor and transportation, if applicable, these costs are added to the acquisition value of the item.
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Fabricating Equipment
If equipment, components or additional items are acquired individually and then assembled into one main unit, report the acquisition of accountable items individually as they are purchased. Include a statement on Standard Form 1428 Inventory Schedule that one major unit is being constructed. When the item has been completed, notify the Contract Property Administrator, and state this on your Standard Form 1428 Inventory Schedule.
Records
If the construction of prototype or special research equipment is authorized by the contract, report the costs for design and labor along with the value of the components to include equipment, material and supplies.
Special test equipment fabricated from materials that are government property are recorded as government-owned immediately upon fabrication. If equipment is fabricated from materials that are contractor-owned, the completed item is recorded as government property when title passes to the Government.
Installed Property
Before installing government equipment at your site, you must obtain authorization from your Contracting Officer, and a modification or authorizing letter must be issued. Before installing the property, consider how the property can be removed at contract completion. It is suggested that you discuss this with your Project Officer. Provide your Contracting Officer with a detailed report on the cost of removal and restoration, as well as a planned disposal method. Include labor costs for installation and/or set-up, and transportation costs in the total cost.
Reimbursement for Acquisitions
Contractors generally submit SF-1034 and/or SF-1035, Public Voucher for Purchases and Services Other than Personal (New Window), for reimbursement of costs incurred under contract performance. You must itemize acquisitions under the personal Property/Equipment category of your voucher and not simply list them as Other Direct Costs. The Contract Property Administrator receives a copy of your voucher from the HHS paying office and checks voucher entries to ensure that property acquisitions are reported under the proper category.
Attach Copy of Standard Form 1428 Inventory Schedule
The original Standard Form 1428 Inventory Schedule is submitted to your Contract Property Administrator. A copy of the form must be attached to your voucher to support reimbursement claims. If you submit a voucher including costs for accountable personal property items, but fail to attach a copy of the Standard Form 1428 Inventory Schedule payment for the personal property items may be suspended by the Contracting Officer.
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Invoice Preparation
If you have questions about voucher/invoice preparation and processing related to personal property, please contact your Contract Property Administrator. Any other questions about vouchers should be directed to the paying office designated in your contract.
Property Identification
This section describes requirements for decals, sensitive items, precious metals, and special test equipment.
Decals
Decals are identifying tags designed by HHS to identify Agency property and to display the specific number assigned to a particular item or to identify a specific class of property. HHS has a variety of decals to identify property classifications:
Bar code decals identify accountable property.
For other than accountable property, a decal that states Property if U.S. HHS may be furnished, if requested.
Blank paper decals maybe provided for components or other add-ons (the HHS decal number of the main unit is written on the decal and affixed to the component).
Decals may be furnished for leased items (the decal number is preceded by the letter L or R).
Metal decals may be requested for property that is expose to the environment.
If you are provided GFP without affixed decals, contact your Contract Property Administrator in writing to request the decals. Your Contract Property Administrator will furnish decals for accountable CAP. The HHS decal numbers should be referenced in your correspondence.
Items that Cannot be Decaled
Some property items cannot be decaled. These include submersible items and those subject to chemical exposure and weather conditions. You may request metal decals for property that is exposed to the environment. Other items cannot be decaled because the decal will not adhere to that particular type of surface (pumps, some typewriters, for example). In these cases, make every effort to indelibly mark the item by painting or etching the decal number on it. Items that cannot be decaled or otherwise marked with the decal number, such as platinum crucibles, are subject to additional controls. One option for recording the decal numbers is to attach the decal to your copy of Standard Form 1428 Inventory Schedule that shows receipt of the item Stock cards can also be used, recording detailed information about the item, and attaching the decal to the stock card.
Sensitive Items
Sensitive Items are property items that are highly desirable an easily converted to personal use. Special efforts must be made to control and protect sensitive items. Sensitive items classified as accountable property, and must be reported on Standard Form 1428 Inventory Schedule if you need assistance in identifying sensitive items, contact your Contract Property Administrator for more information. Sensitive items are listed in Appendix C. Signature receipts are required to establish individual accountability for all sensitive items regardless of value.
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Precious Metals
When authorized precious metals can be acquired directly or indirectly, as government-furnished or contractor-acquired personal property. Precious metals such as platinum, used in the composition of crucibles or evaporating dishes, for example, are commodities requiring sensitive item accountability as well as classification as precious metals. Keep records of the amount of precious metal comprising the commodity.
Some precious metals, such as gold and silver, may exist within the boards and wiring of computer and laboratory instruments. Maintain a record of this information to assure appropriate recovery if out-right disposal is considered.
Recovery of Precious Metals
The recovery of precious metals must be reported annually to your Contract Property Administrator, report the amount recovered and the methods of recovery. Contractors that consistently use photographic services, for example, must develop a program for the recovery of silver. Contractors should contact the Contract Property Administrator who will contact the regional GSA Federal Supply Service or the Defense Logistics Agency (DLA) serving the area for assistance. (NOTE: October 12, 2006 - the GSA Federal Supply Service (FSS) is being merged with the Federal Technology Service (FTS) into the Federal Acquisition Service (FAS). As more is known about the structure of the new FAS, the instruction found here will be updated).
The contracting Officer will approve a credit to the contract when the silver is properly disposed of at a profit.
Special Test Equipment and Components
Special test equipment authorized as GFP or CAP under the contract will be marked with a serial number and the HHS decal number. If it is not feasible to mark the equipment, report this to the Contract Property Administrator Special test equipment components valued as $1,000 or more and incorporated in a manner that makes removal and re-utilization feasible and economical, must also be marked. Property identification should be legible, permanent, conspicuous and temper-proof, consisting of serial number and decal number. Remember: off-the-shelf testing equipment is not classified as special test equipment (see Glossary).
Annual Inventory
A physical inventory of accountable government property must be conducted by September 30th and submitted by October 31st of each year. Your inventory must include accountable government property items acquired, furnished, rented and/or leased under the contract. Employees who conduct inventories should not be the same individuals who maintain the property records. Following the physical inventory, prepare an inventory report and submit it to your Contract Property Administrator and Contracting Officer.
Include all accountable government property in your possession, even if it has not been authorized by the Contracting Officer. Remember software (commercially leased) has been classified by HHS as sensitive; and is subject to reporting requirements.
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The minimum information that must be recorded follows:
HHS decal number
Associated HHS decal numbers
Manufacturers name
Item description
Manufacturers model number
Acquisition Date
Manufacturers serial number
Actual cost of item
Subcontractor Inventory
Prime contractors must submit a consolidated report of all accountable government property under the contract, to include subcontractor inventory. Subcontractors should report their inventories to the prime contractor.
Certification
Your final inventory report must include a certification that all items are required for continued contract performance and are free from contamination. Property that is no longer usable or required must be reported and identified as such.
Reconciliation of Inventory
Reconcile your inventory with your property records. If you discover overages or shortages, report them in your cover letter and submit back-up documentation, described in the following paragraphs to initiate the appropriate actions.
Overage Procedures
For overages your Contract Property Administrator will notify your Contracting Officer. You will be contacted and asked to provide information about how you acquired the property and to justify your continued need for it. Your Project Officer may initiate the property justification process if your retention of the item is approved by the Contracting Officer.
Shortage Procedures
First, attempt to locate the item. If you have property at more than one site, check your other locations. If you cannot find the item, submit a statement explaining all related circumstances, including the actions you have taken to try to locate the property. In your letter, you may request relief of accountability for the item. If you suspect the item was stolen, report this immediately to the local police. The Missing, Stolen and Damaged Property section of the Guide outlines the required content of your statement.
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Missing Stolen and Damaged Property
Promptly notify the Contract Property Administrator of any loss, damage to, or destruction of government property in your possession or control, or in the possession or control of a subcontractor. You are required to investigate the circumstances of each incident and ensure that measures are taken to prevent recurrence. You must respect all known facts and circumstances of the case to include the following information.
Description of item(s) missing, stolen, damaged, or unreasonably consumed to include condition of the item before it was missing/stolen:
HHS decal number (if applicable)
Manufacturers name and model number
Date the item was last inventoried
Cost of item and projected cost of repairs, for damaged property
The last time the item was physically seen
The names of the individuals who used the item
The names of individuals who had access to the item
The name of the individual who discovered it was missing
The date and time the item was first discovered missing
The actions taken to try to locate the item
Previous similar occurrences and measures taken to prevent future occurrences
Other facts or circumstances relevant to determination of liability and responsibility for repair or Replacement
Any loss due to theft or suspected theft must be reported immediately to the local police and the Federal Bureau of Investigation (FBI). Check the U. S. Government listings in your telephone directory for the phone number. Send a copy of the police report to the Contract Property Administrator. The Contracting Officer will determine your liability for losses.
Records
Your Property records must identify all types and classes of government property (expendable supplies, materials, nonexpendable personal property/equipment and real property). The records must be safeguarded from tampering and/or destruction. Separate property records should be maintained for each contract.
Personal Property
Your personal property records must ensure that the following areas of property administration are covered:
Acquisition Maintenance and calibration
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Receiving Physical Inventory
Identification/records Subcontract administration
Storage and movement Reporting
Property consumption Disposal
Utilization Contract Completion
Audit Records
Your records should provide a complete, current, auditable record of all transactions. They must be accessible to authorized government personnel; your records are subject to review by the Government as conditions warrant. Compliance reviews may take place at any reasonable time during contract performance, completion, termination, or any time during the period you are required to retain such records. Records must be retained for the time period specified in FAR.4.705 or for any longer period specified in your records.
Basic Information
Your inventory records must provide the following information for every item of government property in your possession:
Expendable Supplies and Materials Item Description
Unit of Measure
Unit Price Contract Number
Quantity Received
Location
Quantity Issued Disposition
Quantity on Hand
Posting Reference
Nonexpendable Personal Property/Equipment Owned or Leased
HHS Decal Number
Item Description
Manufacturers Serial Number
Manufacturers Model Number
Actual Cost of Item
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Monthly Cost
Acquisition Date
Installation Date
Contract Number
Credits Accrued
Government-furnished or Contractor-accrued
Contractors Current Order Number
Associated HHS Decal
Expiration Date Numbers
Maintenance Cost
Acquisition Price if Purchased
Current Location
Buy-Out Price
Condition Code
Requirements
Your property control records for all government real property, including alterations, construction work and sites, will include an itemized record of the description, location, acquisition cost and disposition. These records must include maps, drawings, plans, specifications, and supplementary data. They must be complete and include original cost of the property, and improvements, changes and additions.
Capitalization
If you incur any cost for new construction, assembly to the real property, expansions, extensions, conversions, additions, alterations and improvements, the cost will be capitalized. HHS must record the cost as a capitalized asset. To assist the Agency in carrying out its responsibility, report this information to HHS. The costs for real property involving destruction of the facility or costs for ordinary maintenance or repair of the property are not capitalized.
STORAGE AND MOVEMENT
Guidelines for the storage and movement of government property are covered in this section.
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Storage
Take measures to protect and preserve stored government property in order to prevent loss, damage and deterioration. The property should be clearly identified as government property and should not be intermingled with non-government property. Ensure that stored items requiring special handling (such as flammables or explosives) are stored safely and are adequately protected.
Movement of Property
Document the movement of government property when property is removed from any of your sites for return to the Department or delivery to another contractor or agency. In these instances the physical relocation of the government property must be documented in writing, with copies provided to the Contract Property Administrator and the Project Officer. Notify your Contract Property Administrator before the property is moved, and instructions will be provided.
TRADE-INS
Trade-Ins or exchanges may be authorized for outdated equipment in a contractors inventory, or in order to decrease the purchase cost of a new item. This type of transaction occurs rarely, and is authorized only when there is a definite advantage to the Government.
Request for Authorization
If you wish to trade in or exchange government property for identical items, or for newer state-of-the-art items that are similar, send a written request to your Contracting Officer with a copy to the Contract Property Administrator. Your Contract Property Administrator will coordinate with the Contracting Officer, who may grant approval for the trade-in or exchange.
If the trade-in is disallowed, and you have no further use for the time, it will be offered to HHS offices for use, or referred to other agencies through the routine excess process.
EXCESS PROPERTY
You must report to your Contract Property Administrator all government property that is excess to your needs. Property in your possession may be considered excess if it is no longer required for contract performance or no longer in working order and repair is considered impractical. Your Contract Property Administrator will coordinate with your Contracting Officer to determine if the item is required on another contract or by the sponsoring program. If the property cannot be used elsewhere in the Department, there is a series of steps that HHS must follow to dispose of excess property.
This sometimes a lengthy process, and you may be required to store the excess property while the procedures are being carried out. You are responsible for the property as long as it is in your possession.
Report of Excess
The Contract Property Administrator in conjunction with HHS property management will issue an SF-120 (Report of Excess Personal Property), and SF-126 (Report of Personal Property for Sale) or an SF-15 (Sale of Government Property) for government property, regardless of value, that is not required for further use by the Department. The appropriate form will be executed and an informational copy forwarded to your designated representative. This individuals name normally appears on the forms as the contact person for anyone requesting additional information on the excess property. The Contract Property Administrator will advise your representative of the steps that are involved and will issue final disposal instruction when release of the items is appropriate.
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Quite often, GSA forwards a form or a letter directly to the contractor. If you receive any of this material directly from GSA, please forward it to your Contract Property Administrator.
Information provided by GSA to your Contract Property Administrator will be sent to you as needed.
Disposal Instructions
You may not dispose of any item until you receive the Contracting Officers approval and complete written instructions from the Contract Property Administrator. Disposal options include transfer, donation, trade-in, sale, abandonment, cannibalization, scrapping or destruction of the property.
Once you have declared an item as excess with the concurrence of your Contracting Officer, the Contract Property Administrator will notify GSA of the excess item for transfer to another government agency/department or contractor. If the item cannot be transferred, it is offered to state agencies in the GSA region for donation. If the states are not interested in the item, it is then offered to the public for sale. If GSA is unable to dispose of the item, the Contract Property Administrator is notified by GSA that HHS is authorized to conduct a small lot sale or abandon the item.
Abandonment and Destruction
Excess property may be destroyed or abandoned by HHS only after every effort has been made to dispose of it by other authorized methods. With GSAs permission, HHS may elect to abandon property at a site under certain circumstances during the life of a contract or during close-out of the contract. Authorization for abandonment requires a written determination by the Contracting Officer.
If you are authorized to abandon an item, remove all government markings from the item. Prepare and submit to your Contract Property Administrator a certification that the item is disposed of, and that it is disposed of in a manner that does not endanger the health and safety of the public.
When the Contract Property Administrator informs you that an item cannot be disposed of through GSA, you may be asked to identify any non-profit organizations in your local community that are interested in the item. If you are a for-profit firm, the item must be donated to a third party, as previously described. Local organizations to consider include high schools, vocational schools, colleges or service organizations (such as Goodwill Industries, Salvation Army, or Volunteers of America).
Letter from Organization
If it is known that an organization is interested, request a letter from them stating that they are a non-profit organization, and stating how the item will be used. The letter should be forwarded directly to the Contracting Officer with a copy to the Contract Property Administrator by the organization. The property item must be from contamination; it is your responsibility to provide this certification.
CANNIBALIZATION
Cannibalization refers to either the alteration of a piece of government property that is generally obsolete due to age or technological advances, or reducing equipment to parts in order to obtain needed components. In other words, you are cannibalizing property when you remove serviceable parts from an item, rendering it unserviceable or reducing its value. You may not cannibalize government equipment unless you have received the Contracting Officers approval and written instructions from the Contract Property Administrator.
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CONTAMINATION
The descriptions of transfers and disposal actions contained in this Guide assume that the property involved is decontaminated. Any contamination of personal property/equipment must be immediately reported to both the Contract Property Hazard-Free Certification Administrator and the Contracting Officer along with a certification that items are hazard-free. The contractor is normally expected to decontaminate the item so that it may be used again.
The following certification, signed by the contractor or an authorized official, must accompany each copy of the excess declaration or final inventory when shipment from the contractors facility will be required.
I certify that the listed property is free of biological, chemical, radioactive, other health hazardous contamination and that the property is safe for shipment, except for the following line items:
*(Enter line item numbers or No Exceptions)
Signature
Title and Date
Packing, Crafting, and Shipping
When shipment of government property is required, the contractor is responsible for proper packing, crafting and handling to ensure it reaches its destination in good condition. Shipments shall be made pursuant to the directions of the Contracting Officer or Contract Property Administrator and the contractor must advise the Contract Property Administrator of the items shipped, date of shipment, number of crates or parcels, carriers name and the waybill number immediately after carriers pickup.
CHAPTER V: CONTRACT CLOSE-OUT
FINAL INVENTORY AND CERTIFICATION
At the end of your contract you must conduct a final inventory. Employees who conduct inventories should not be the same individuals who maintain the property records.
Inventory Requirements
The final inventory will cover all property items furnished or acquired under the terms of your contract, including nonexpendable/expendable property items regardless of cost, and supply items and material not consumed during contract performance. The amount of accrued lease credits for leased property will also be included on the final inventory. Advise the Contract Property Administrator of any and all unusual circumstances related to the inventory. Failure to provide the prescribed final inventory will delay contract close-out and final payment.
You are required to report the following information on your final inventory:
HHS decal number
Associated HHS decal numbers
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Item Description
Acquisition Cost
Manufacturers name
Condition Code
Manufacturers Model Number
Quantity
Manufacturers Serial Number
Physical Location of Item
Certification
Final inventories must include the following certifications:
I certify that except for items consumed in the performance of the contract, this inventory includes all materials, supplies and equipment furnished by the Government or acquired by the contractor for the account of the Government under contract number .
I further certify that all property is in a state free from contamination by any hazardous or toxic substances, and require no additional clean-up or decontamination efforts.
Contractors that have no government property in their possession must submit a certification to that effect.
Follow-On Inventories
When government property under your contract is being transferred to another contract, it is suggested that a joint inventory be conducted. This may effect the transfer of the property, relief or liability for the closing contractor and receipt by the follow-on contractor.
Government Terminates Contract
If the Government elects to terminate a contract for the convenience of the Government, the requirements for a termination inventory are the same as outlined for a final inventory. The termination inventory must be conducted primarily to disposal purposes.
Subcontractor Inventories
Prime contractors must submit a consolidated inventory report of all government property, to include subcontractor inventory. Subcontractors should report their inventories to the prime contractor. Subcontractor inventory is reported in the same detail as outlined for prime contractors, state the location of the subcontractor property being reported.
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DISPOSITION OF PROPERTY
Your Contract Property Administrator will provide written instructions for the disposition of your property. You may remove government property from your site only in accordance with those instructions. You are responsible for the property until final disposition has been completed.
Leased Property
Notify your Contract Property Administrator at least 45 days before a lease arrangement is terminated, and report the status of any purchase credits. This applies to leases due to expire when your contract ends, and to leases that continue after the completion or termination of your contract. If the lease is expiring, the Government may elect to purchase the item, or if the lease has not expired, the Government may choose to buy out the lease. Your advance notice to the Contract Property Administrator will permit sufficient time for a determination to be made.
Disposal Options
In disposing of the property, the Government may elect to exercise any of the options described below:
If a cost reimbursement-type contract allow the contractor to buy contractor-acquired items/inventory at 100% of acquisition value; return the items/inventory to the original supplier for credit, less any reasonable restocking charge. (Do not finalize the purchase or return any merchandize without written instructions from the Contract Property Administrator ); transfer all or part of the inventory to another contract; transfer the inventory to a licensee by means of a Revocable License Agreement for a loan; have the inventory returned to HHS; or report the inventory as excess.
Other options the Government may consider for the disposition of your property include sale to the public, donation, abandonment, scrapping destruction. Your Contract Property Administrator will provide specific written instructions for the disposal of your property.
CHAPTER VI: SPECIAL CONSIDERATIONS
Chapters 1, 2, 3, 4, 5 apply to all contractors. Portions of Chapter VI may also apply to you. If your contract falls in any of these categories, read the appropriate section of the chapter; On-site contractors, foreign governments or international organizations, non-profit or educational organizations, and government vehicles. The information that appears in Chapter VI is supplementary to the first five chapters, describing only additional information or special considerations.
ON-SITE CONTRACTORS
On-site contractors are organizations working under contract on HHS premises. Any use of government real and personal property must be authorized in the contract as GFP, or on an access to basis. In either instance, it will be itemized in the basic contract or in a subsequent contract modification.
Suspected Theft Property
The procedures for missing, stolen and damaged property vary slightly for on-site contractors when theft or suspected theft is involved. Notify HHS internal security office as well as your Contract Property Administrator.
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On-site contractors are guided by the instructions, procedures, and practices outlined in Chapters 1, 2, 3, 4, 5 of the Guide. In these chapters, the requirements for inventories, points of contact, acquisitions, transfers, disposition and other property administration areas are covered.
FOREIGN GOVERNMENTS/INTERNAL ORGANIZATIONS
This section pertains to contractors that are foreign governments or international organizations. Before awarding this type of contract, the Contracting Officer will determine whether costs will be recovered or rental charged for the use of government-furnished property. The contract will specify if property is provided on a rental or non-rental basis. The official property records will be maintained by HHS for all foreign governments and international organizations.
Foreign governments or international organizations performing cost-reimbursement contracts may be permitted to carry insurance for loss or damage to government property, and the cost of the insurance permitted as an allowable expense to the contract, or they may claim immunity from liability, as determined by the Contracting Officer.
Contractors that are foreign governments or international organizations are guided by the instructions, procedures, and practices outlined Chapters 1-5 of this Guide. In those chapters, The requirements for inventories, points of contact, acquisitions, transfers, disposition and other property administration areas are covered.
NON-PROFIT/EDUCATION ORGANIZATIONS
When contractor-acquired property is authorized for a non-profit or educational organization under a HHS contract with the primary purpose of research, there are special conditions for the vesting of title. Except as outlined in this section of the Guide, or in the contract, title to CAP ordinarily vests in the non-profit or educational organization working under a research contract. At the Governments discretion, however, in some instances title may vest in the Government, and the non-profit/educational organization will be subject to the requirements described in Chapters 1, 2, 3, 4, 5 of this Guide.
Acquisitions: Less than $5000/$1000
If you are classified in the basic contract or subsequent modifications as an educational or non-profit institution, and you obtain the Contracting Officers approval before acquisition of the property, you will automatically acquire and retain title for any items of personal property costing less than $5000 acquired on a reimbursable basis. Contracts awarded prior to the implementation of the Federal Acquisition Regulation (FAR) in April 1984 must use $1000 as the dollar figure for vesting title.
The Acquisition of all property items under the contract requires the prior approval of the Contracting Officer. Within ten days after the end of the calendar quarter during which you receive property, you must furnish the Contracting Officer and the Contract Property Administrator with a list of CAP valued at less than $5000/$1000 - refer to FAR Part 45 - Government Property for more information.
Acquisitions: More than $5000/$1000
If property costs $5000/$1000 or more, and the parties specifically agree in the contract, title may:
vest in the contractor upon acquisition;
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vest in the contractor, subject to the Governments right to direct transfer of the title to the Government or to a third party within 12 months after contract completion/termination; or
vest in the Government if the Contracting Officer determines that vesting of title in the contractor would not further the objectives of the Agencys research program.
All acquisitions of contractor-acquired property valued at $5000/$1000 or more must be reported on Standard Form 1428 Inventory Schedule to the Contract Property Administrator. A copy of the form must be attached to the reimbursement voucher.
Title Consideration
When title to CAP vests in a non-profit/educational institution, neither depreciation, amortization or use changes are allowable for those items under any existing or future government contracts or subcontracts. Title may not be transferred to the contractor if the contract is performed at a government installation (on-site) and there is a continuing need for the property following contract completion. The absence of an agreement covering title to property that cost $5000/$1000 or more and that was acquired by the contractor with government funds does not limit the Agencys right to act to vest title in a contractor. If there is no contract clause showing who has title, the Contract Property Administrator will record the vesting of title to the property in HHS.
Non-profit/educational organizations using property titled in HHS are guided by the instructions, procedures and practices outlined in Chapters 1-5 of this Guide. In these chapters, the requirements for inventories, points of contact, acquisitions, transfers, disposition and other property administration areas are covered.
VEHICLES
This section covers basic information about government vehicles authorized under your contract. If you need additional information, contact your Contract Property Administrator.
Title/Certification of Origin
If you are authorized to acquire vehicles under your contract, you must ensure that each vehicle is registered in HHS name on the title/certification of origin. Do not register government vehicles with the State: HHS will furnish license tags.
How to Obtain License Tags
You may request license tags in advance, upon receipt of the Notification of Shipment from the vendor. Complete a Standard Form 1428 Inventory Schedule (New Window) to request tags; be sure to attach a copy of the Notification of Shipment. The purpose of using Standard Form 1428 Inventory Schedule in this instance is to provide the information HHS needs for processing your license tags. Report the acquisition of the vehicle to Standard Form 1428 Inventory Schedule in the standard format (see Chapter 7 for details). After the vehicle is received, forward the title/certificate of origin to the Contract Property Administrator. Please furnish the name and telephone number of your contact point for government property.
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Returning License Tags
It is your responsibility to return the license tags to your Contract Property Administrator when the vehicle is taken out of service. If the vehicle is replaced, new tags must be issued for the replacement vehicles.
Identification of Government Vehicles
The Contract Property Administrator will provide license tags, legends and Agency decals to identify the vehicle as HHS-owned.
Trailers
If you receive a title/certificate of origin for a trailer you acquire under your contract, forward the title or certificate to your Contract Property Administrator.
Reporting Requirements
There are special reporting requirements for government vehicles; they are outlined in the following section:
Accident Reports
If a government vehicle is involved in an accident, complete a report of the incident. Forward two copies of the accident report to your Contract Property Administrator, and keep a copy for your files.
Maintenance Records
You must ensure that government vehicles authorized under your contract are maintained in safe, mechanically sound condition. Keep current records of the cost and type of maintenance performed, such as oil changes, tire rotations, and tune-ups. Your maintenance records must include back-up documentation; these records are subject to review by the Government.
Vehicle Reports
Submit a report to your Contract Property Administrator listing all vehicles under your contract, and identifying projected vehicle acquisition needs for the next one year period. Include a copy of your maintenance records/log for the current quarter, showing the type and cost of maintenance performed. You do not need to send copies of the supporting documentation.
Vehicle Listing
Include the following information in your vehicle listing:
Type of vehicle (e.g..... sedan or station wagon)
Model, make and year (e.g.... 1990 Chevrolet Blazer)
License tag number
Serial number
Vehicle mileage
Vehicle location
Name and telephone number of your property contact.
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Projected Vehicle Acquisitions
In your annual report, identify your projected vehicle acquisition needs for the next one year period, to include replacements and additional vehicles. The standard lead time for acquiring vehicles through GSA is 8-10 months. Thus, it is essential that you provide HHS sufficient time to process your request.
Disposal
If you have been authorized by the Contract Property Administrator to dispose of HHS vehicles through release to a state agency or buyer, you may not release the vehicle(s) until the Contract Property Administrator provides you with one of the following:
a transfer of title initiated by the Contract Property Administrator, or
SF-97, Certificate of Release of a Vehicle. This requires the signature of the buyer/receiver and provides written instructions about relief of accountability.
GSA Vehicles
A contractor may be authorized by the Contracting Officer to lease GSA vehicles. The Contract Property Administrator will assist in implementing this with GSAs Interagency Fleet Management System.
CHAPTER VII: FORMS AND INSTRUCTIONS
This chapter provides a sample form and specific instructions for the completion of Standard Form 1428 Inventory Schedule. Use of the form is discussed in Chapter 4 of this Guide. In the section entitled Reporting and Reimbursement for Acquisitions. If you need additional forms during the life of your contract, contact your Contract Property Administrator.
Standard Form 1428 Inventory Schedule
Standard Form 1428 Inventory Schedule (New Window) is used to report the receipt of accountable government-furnished/ contractor-acquired property that is purchased, leased or rented.
Reporting Component Parts
The acquisition of leased property must be reported on Standard Form 1428 Inventory Schedule if the acquisition value of the leased item exceeds the accountable threshold and if the lease term exceeds two months. The following information must be reported on the form: acquisition value, duration of lease, expiration date, monthly rental or lease cost, and buy-out value.
GLOSSARY
Abandonment - Leaving government-owned property in a non-federal location following expiration of a contract, or following a determination that the item is no longer recruited for use on the contract. Abandonment may be authorized by the Government if no other alternative is available for disposal due to the items low value or condition and as long as the property is free from contamination.
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Accountable Personal Property
Non-expendable personal property with an acquisition cost of $1000 or more, and sensitive items regardless of dollar value.
Cannibalization
The removal of serviceable components from otherwise unserviceable government property. Authorization is required before government property may be cannibalized.
Component Part
Nonexpendable property which is installed or affixed to an item of accountable property. It must be integral to the functioning of the main unit and not have the capacity to stand alone. Examples include, a memory board for a computer and a probe for a photo ionizer.
Condition Codes
Appraisals of the current condition of government accountable property through the assignment of designated codes. For example, condition code 1 refers to unused property in good condition. See appendix A for the list of condition codes.
Contaminated Property
Equipment/supplies that have been exposed to toxic or radioactive materials, chemicals or other waste products which render them unsafe for use.
Contract Modification
A negotiated or unilateral change in the basic contract that alters funding, scope of work, personnel, government property authorizations, or any other terms of the basic contract.
Contracting Officers Authorization (COA)
A document issued by a Contracting Officer to a Contractor to authorize the purchase of contractor acquired property.
Contractor-Acquired Property
Property purchased or otherwise provided by the contractor using contract funds and reportable as government property.
Customer Supply Center
A supply operation maintained by the General Services Administration (GSA) for the Government and its authorized contractors. The Customer Supply Center is used to procure small quantity orders of supply items. A contractor may be authorized by the Contracting Officer to use this source of supply.
Decals
Tags designed and used in HHS to identify Agency property. Decals are affixed to accountable property and display the specific numbers assigned to individual items of government property.
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Disposition
The sale, transfer (without the exchange of funds), donation, destruction, or abandonment of property.
Excess Property
Government property that is not required for immediate or foreseeable use.
Expendable Property
Supplies and materials that are consumed or expended routinely; that lose their identify under contract performance; such as pens, pencils and typewriter ribbons.
Facilities
Property used in accordance with terms of the contract for production, maintenance, research, development, or testing. The term does not include material, special test equipment, special tooling, or Agency-peculiar property, but it does include plant equipment and real property.
Fedstrip
An acronym (Federal Standard Requisitioning and Issue Procedures) referring to a procedure used by the Government and its authorized contractors to procure goods from the General Services Administration (GSA). A contractor may be authorized by the Contracting Officer to use this source of supply.
Follow-On Contract
A contract that is re-competed or renewed and awarded to the same or different contractor.
Government-Furnished Property
Property in the possession of or acquired directly by the Government, and subsequently delivered or otherwise made available to the contractor.
Government Property
All real and/or personal property owned by, or leased to the Government under the terms of a contract. Government property includes government-furnished and contractor-acquired property.
Hazard-Free Certification
A certification stating an item(s) is free from contamination. It is submitted when government property is no longer required at the contractors facility or upon conclusion of the contract.
Leased Property
Property that is either acquired by the contractor or the Government under a lease agreement.
Liability
The degree of a contractors obligation to the Government for contractor inventory.
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Material
All items not identified as equipment which are necessary for the equipping, maintenance, operating and support of government activities whether administrative or operational.
Materiel
Items that are generally referred to as supplies, material, apparatus, and equipment.
Modification
A negotiated or unilateral change in the basic contract that alters funding, scope of work, personnel, government property authorizations, or any other items of the basic contract.
Nonexpendable Property
Personal property which is durable with an expected useful life of two or more years, is complete in itself, and does not lose its identity or become a component part of another item.
Non-Profit Organization
Any corporation, foundation, trust, educational or other institution recognized by HHS and referenced in the contract as operated for scientific or educational purposes, not organized for profit, and no part of the net earnings of another corporation which inures to the profit of any private shareholder or individual.
Personal Property
All government property, excluding real property, which is either furnished by the Government or acquired with contract funds.
Physical Inventory
A wall-to-wall sighting and recording of all equipment items within a certain area. The types of inventories are start-up, annual, special and final.
Precious Metals
Uncommon and highly valuable metals characterized by their superior resistance to corrosion and oxidation, such as platinum and gold.
Property
Both real and personal. It includes facilities, supplies and material, special tooling, special test equipment, furniture, office equipment, ADP hardware and Agency-peculiar property.
Property Control System
Identifies a contractors internal management program encompassing the protection, preservation, accounting for, and control of government property from its acquisition through disposal.
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Property Management
The overall responsibility required for the management, acquisition, utilization and disposal of personal property.
Real Property
Buildings, grounds, improvements, structures, and features permanently installed in, or attached to, facilities.
Salvage
Property that has no reasonable prospect of sale or use as serviceable property without major repairs because of its worn, damaged, deteriorated, or incomplete condition or its specialized nature. While salvage has no reasonable prospect of sale or use without major repairs. It has some value in excess of its scrap value.
Scrap
Property that has no reasonable prospect of being sold except for the recovery value of its basic material content.
Screening
The examination of excess property by government or contractor employees to determine its usefulness. A screening pass is issued by the HHS Contract Property Administrator to contractor personnel, granting access to GSA holding areas.
Sensitive Items
Items of personal property (supplies and equipment) that are highly desirable and easily converted to person use; these items maybe subject to additional controls. (See Appendix C)
Special Test Equipment
Units that are engineered, designed, fabricated or modified to accomplish special purpose testing. Special test equipment consists of items or assemblies of equipment that are interconnected and interdependent, becoming a new functional entity for special testing purposes.
Start-Up Inventory
Physical inventory of GFP performed shortly after contract award and reported to the Control Property Administrator.
Stock Record
A perpetual inventory that is maintained for supply and materiel items, and shows by nomenclature the quantities of each item, issues, and balance on hand.
Subcontractor
An organization responsible directly to the prime contractor. Assists the contractor in carrying out the scope of work.
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Supply Item
A category of government property that is of a low dollar value and generally has a life expectancy of less than two years.
Surplus Property
Government-owned personal property classified previously as excess but not requested for transfer by any federal agency; thus, it is available for donation or sale.
Title
The legal right to claim, control, and dispose of property as a result of a purchase.
Trade-In
The exchange of an item of property for a similar replacement whereby the vendor agrees to apply the value of the replaced item toward the purchase price of the new item.
Unauthorized Property
Government-furnished or contractor-acquired property that is not authorized by an appropriate contract clause and/or modification and is in the possession of a contractor.
Unrequired Property
Government-furnished property or property acquired by the contractor during the life of the contract that is no longer needed to perform the scope of work under the contract for which it is authorized.
Voucher
Document prepared by the contractor for reimbursement of appropriate expenses incurred.
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HHS Contracting Guide for Contract of Government Property
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EXHIBIT 10.23
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (this Amendment ) is entered into this 20 th day of December, 2012, by and among (i) TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase ), TETRAPHASE SECURITIES CORPORATION , a Massachusetts corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase Securities ; Tetraphase and Tetraphase Securities are referred to herein, individually and collectively, jointly and severally, as Borrower ), (ii) SILICON VALLEY BANK , a California corporation with an office located at 275 Grove Street, Suite 2-200, Newton, MA 02466 ( SVB ), (iii) OXFORD FINANCE LLC , a Delaware limited liability company with an office located at 133 North Fairfax Street, Alexandria, Virginia 22314 ( Oxford ), (iv) each of the other Lenders, listed on Schedule 1.1 hereof or otherwise a party thereto from time to time, including SVB and Oxford in their capacities as Lenders, (each a Lender and collectively, the Lenders ), and (v) SVB, as agent (in such capacity, the Agent ) for the Lenders.
R ECITALS
A. Lenders and Borrower have entered into that certain Loan and Security Agreement dated as of May 16, 2011 (as the same may from time to time be further amended, modified, supplemented or restated, the Loan Agreement ).
B. Each Lender extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower has requested that Lenders amend the Loan Agreement to (i) provide a new 2012 Term Loan in an amount of Nine Million Two Hundred Thousand Dollars ($9,200,000.00), and (ii) make certain other revisions to the Loan Agreement as more fully set forth herein.
D. Each Lender has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
A GREEMENT
N OW , T HEREFORE , in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Amendments to Loan Agreement .
2.1 Section 2.1 (Promise to Pay) . Section 2.1 is amended in its entirety and replaced with the following:
2.1 Promise to Pay . Borrower hereby unconditionally promises to pay each Lender, the outstanding principal amount of all Term Loans and/or 2012 Term Loans advanced to Borrower by such Lender and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this Agreement.
2.2 Section 2.2.1 (2012 Term Loans) . The Loan Agreement is amended by inserting the following new Section to appear as Section 2.2.1 thereof:
2.2.1 2012 Term Loans .
(a) Availability . (i) Subject to the terms and conditions of this Agreement, the Lenders agree, severally and not jointly, during the 2012 First Draw Period, to make term loans to Borrower in an aggregate amount up to Six Million Two Hundred Thousand Dollars ($6,200,000) according to each Lenders 2012 Term A Loan Commitment as set forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly as a 2012 Term A Loan , and collectively as the 2012 Term A Loans ). After repayment, no 2012 Term A Loan may be re-borrowed.
(ii) Subject to the terms and conditions of this Agreement, the Lenders agree, severally and not jointly, during the 2012 Second Draw Period, to make term loans to Borrower in an aggregate amount up to Three Million Dollars ($3,000,000) according to each Lenders 2012 Term B Loan Commitment as set forth on Schedule 1.1 hereto (such term loans are hereinafter referred to singly as a 2012 Term B Loan , and collectively as the 2012 Term B Loans ; each 2012 Term A Loan or 2012 Term B Loan is hereinafter referred to singly as a 2012 Term Loan and the 2012 Term A Loans and the 2012 Term B Loans are hereinafter referred to collectively as the 2012 Term Loans ). After repayment, no 2012 Term B Loan may be re-borrowed.
(b) Repayment. (i) For the 2012 Term A Loans, Borrower shall make monthly payments of interest only commencing on the first (1st) Payment Date following the Funding Date of the 2012 Term A Loans, and continuing on the Payment Date of each successive month thereafter through and including the Payment Date immediately preceding the applicable 2012 Amortization Date. Commencing on the applicable 2012 Amortization Date, and continuing on the Payment Date of each month thereafter, Borrower shall make consecutive equal monthly payments of principal and interest, in arrears, to each Lender, as calculated by Agent (which calculations shall be deemed correct absent manifest error) based upon: (1) the amount of such Lenders 2012 Term A Loan, (2) the effective rate of interest, as determined in Section 2.3(a)(ii), and (3) a repayment schedule equal to thirty-three (33) months. All unpaid principal and accrued and unpaid interest with respect to the 2012 Term A Loans is due and payable in full on the applicable 2012 Maturity Date. The 2012 Term A Loans may only be prepaid in accordance with Sections 2.2.1(c) and 2.2.1(d).
(ii) For the 2012 Term B Loans, Borrower shall make monthly payments of interest only commencing on the first (1st) Payment Date following the Funding Date of the 2012 Term B Loans, and continuing on the Payment Date of each successive month thereafter through and including the Payment Date immediately preceding the applicable 2012 Amortization Date. Commencing on the applicable 2012 Amortization Date, and continuing on the Payment Date of each month thereafter, Borrower shall make consecutive equal monthly payments of principal and interest, in arrears, to each Lender, as calculated by Agent (which calculations shall be deemed correct absent manifest error) based upon: (1) the amount of such Lenders 2012 Term B Loan, (2) the effective rate of interest, as determined in Section 2.3(a)(ii), and (3) a repayment schedule equal to thirty-three (33) months. All unpaid principal and accrued interest with respect to the 2012 Term B Loans is due and payable in full on the 2012 Maturity Date. The 2012 Term B Loans may only be prepaid in accordance with Sections 2.2.1(c) and 2.2.1(d).
(c) Mandatory Prepayments . If the 2012 Term Loans are accelerated following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Lenders, payable to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of: (i) all outstanding principal of the 2012 Term Loans plus accrued interest thereon through the prepayment date, (ii) the Final Payment, (iii) the Prepayment Fee, plus (iv) all other sums, that shall have become due and payable, including Lenders Expenses and interest at the Default Rate with respect to any past due amounts. Notwithstanding (but without duplication with) the foregoing, on the 2012 Maturity Date, if the Final Payment has not previously been paid in full in connection with the prepayment of the 2012 Term Loans in full, Borrower shall pay to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, the unpaid amount of the Final Payment in respect of the 2012 Term Loan(s).
(d) Permitted Prepayment of 2012 Term Loans . Borrower shall have the option to prepay all, but not less than all, of the 2012 Term Loans advanced by the Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the 2012 Term Loans at least ten (10) days prior to such prepayment, and (ii) pays to the Lenders on the date of such prepayment, payable to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of (A) all outstanding principal of the 2012 Term Loans plus accrued interest thereon through the prepayment date, (B) the Final Payment, (C) the Prepayment Fee, plus (D) all other sums, that shall have become due and payable, including Lenders Expenses, if any, and interest at the Default Rate with respect to any past due amounts.
2.3 Section 2.3(a) (Interest Rate) . Section 2.3(a) is amended in its entirety and replaced with the following:
(a) Interest Rate .
(i) Term Loans . Subject to Section 2.3(b), the principal amount outstanding under the Term Loans shall accrue interest at a fixed per annum rate (which rate shall be fixed for the duration of the applicable Term Loan) equal to the Basic Rate, determined by Agent on the Funding Date of the applicable Term Loan, which interest shall be payable monthly in accordance with Sections 2.2(b) and 2.3(e). Interest shall accrue on each Term Loan commencing on, and including, the day on which the Term Loan is made, and shall accrue on a Term Loan, or any portion thereof, for the day on which the Term Loan or such portion is paid.
(ii) 2012 Term Loans . Subject to Section 2.3(b), the principal amount outstanding under the 2012 Term Loans shall accrue interest at a fixed per annum rate (which rate shall be fixed for the duration of the applicable 2012 Term Loan) equal to the Basic Rate, determined by Agent on the Funding Date of the applicable 2012 Term Loan, which interest shall be payable monthly in accordance with Sections 2.2.1(b) and 2.3(e). Interest shall accrue on each 2012 Term Loan commencing on, and including, the day on which the 2012 Term Loan is made, and shall accrue on a 2012 Term Loan, or any portion thereof, for the day on which the 2012 Term Loan or such portion is paid.
2.4 Section 2.4 (Secured Promissory Notes) . Section 2.4 is amended in its entirety and replaced with the following:
2.4 Secured Promissory Notes . Each Term Loan and/or 2012 Term Loan shall be evidenced by a Secured Promissory Note in the form attached as Exhibit D hereto (each a Secured Promissory Note ), and shall be repayable as set forth herein. Borrower irrevocably authorizes each Lender to make or cause to be made, on or about the Funding Date of any Term Loan and/or 2012 Term Loan or at the time of receipt of any payment of principal on such Lenders Secured Promissory Note, an appropriate notation on such Lenders Secured Promissory Note Record reflecting the making of such Term Loan and/or 2012 Term Loan or (as the case may be) the receipt of such payment. The outstanding amount of each Term Loan and/or 2012 Term Loan set forth on such Lenders Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lenders Secured Promissory Note Record shall not limit or otherwise affect the obligations of Borrower hereunder or under any Secured Promissory Note to make payments of principal of or interest on any Secured Promissory Note when due. Upon receipt of an affidavit (including a customary indemnity) of an officer of a Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.
2.5 Section 3.2 (Conditions Precedent to all Credit Extensions) . Section 3.2(c) is amended in its entirety and replaced with the following:
(c) in such Lenders reasonable discretion, there has not been any Material Adverse Change or any material adverse deviation in the consolidated financial condition of Borrower from the financial condition projected in the slides prepared for the November 13, 2012 due diligence discussions and provided to the Lenders on November 13, 2012; and
2.6 Section 3.2 (Conditions Precedent to all Credit Extensions) . Section 3.2(c) is amended by inserting the following new provisions to appear as subsections (d) and (e) thereof:
(d) in connection with the 2012 Term A Loan, a Warrant to Purchase Stock issued by Borrower to SVB, in form and substance acceptable to SVB;
(e) in connection with each 2012 Term Loan, a Warrant to Purchase Stock issued by Borrower to Oxford, in form and substance acceptable to Oxford; and
(f) duly executed original Secured Promissory Notes, in the aggregate principal amount of the applicable 2012 Term Loan, in favor of each Lender according to its Term Loan Commitments.
2.7 Section 3.4 (Procedures for Borrowing) . Section 3.4 is amended in its entirety and replaced with the following:
3.4 Procedures for Borrowing . Subject to the prior satisfaction of all other applicable conditions to the making of a Term Loan and/or 2012 Term Loan set forth in this Agreement, to obtain a Term Loan and/or 2012 Term Loan, Borrower shall notify Agent (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern time at least three (3) Business Days prior to the date the Term Loan and/or 2012 Term Loan is to be made. Together with any such electronic or facsimile notification, Borrower shall deliver to Agent by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee and each of the documents required pursuant to Section 3.2(d) and (e) hereof. Upon receipt of a Payment/Advance Form and each of the documents set forth in Section 3.2(d) and (e) hereof, Agent shall promptly provide a copy of the same to each Lender. Agent may rely on any telephone notice given by a person whom Agent reasonably believes is a Responsible Officer or designee. On the Funding Date, each Lender shall credit and/or transfer (as applicable) to Borrowers Designated Deposit Account, an amount equal to its Term Loan Commitment.
2.8 Section 5.4 (No Material Deterioration in Financial Condition; Financial Statements). Section 5.4 is amended in its entirety and replaced with the following:
5.4 No Material Deterioration in Financial Condition; Financial Statements . All consolidated financial statements for Borrower and its Subsidiaries delivered to Agent fairly present, in all material respects the consolidated financial condition of Borrower and its Subsidiaries and the consolidated results of operations of Borrower and its Subsidiaries. On and prior to December 31, 2011, there has not been any material adverse deviation in the consolidated financial condition of Borrower from the financial condition projected in the slides prepared for the April 27, 2011 meeting of Tetraphases Board of Directors and provided to the Lenders on April 25, 2011. After December 31, 2011 and prior to the 2012 Effective Date, there has not been any material adverse deviation in the consolidated financial condition of Borrower from the Annual Projections submitted to Agent pursuant to Section 6.2(a)(iii). After the 2012 Effective Date and prior to the delivery of the Annual Projections submitted to Agent pursuant to Section 6.2(a)(iii) for 2013, there has not been any material adverse deviation in the consolidated financial condition of Borrower from the financial condition projected in the slides prepared for the November 13, 2012 due diligence discussions and provided to the Lenders on November 13, 2012. From and after the delivery of the Annual Projections submitted to Agent pursuant to Section 6.2(a)(iii) for 2013, there has not been any material adverse deviation in the consolidated financial condition of Borrower from the Annual Projections submitted to Agent pursuant to Section 6.2(a)(iii).
2.9 Section 7.2 (Changes in Business, Management, Ownership, or Business Locations). Section 7.2(c)(i) is amended by deleting Term Loans therein and inserting in lieu thereof the following Term Loans and 2012 Term Loans.
2.10 Section 8.1 (Payment Default) . Section 8.1 is amended in its entirety and replaced with the following:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments due on the Maturity Date and/or the 2012 Maturity Date or the date of acceleration pursuant to Section 9.1 (a) hereof). During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);
2.11 Section 9.4 (Application of Payments and Proceeds) . Section 9.4 is amended in its entirety and replaced with the following:
9.4 Application of Payments and Proceeds . Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of Borrower of all or any part of the Obligations, and, as between Borrower on the one hand and Agent and Lenders on the other, Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent, and (b) the proceeds of any sale of, or other realization upon all or any part of the Collateral shall be applied: first, to the Lenders Expenses; second, to accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts); third, to the principal amount of the Obligations outstanding; and fourth, to any other indebtedness or obligations of Borrower owing to Agent or any Lender under the Loan Documents. Any balance remaining shall be delivered to Borrower or to whoever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. In carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category. Any reference in this Agreement to an allocation between or sharing by the Lenders of any right, interest or obligation ratably, proportionally or in similar terms shall refer to Pro Rata Share unless expressly provided otherwise. Agent, or if applicable, each Lender, shall promptly remit to the other Lenders such sums as may be necessary to ensure the ratable repayment of each Lenders portion of any Term Loan and/or 2012 Term Loan and the ratable distribution of interest, fees and reimbursements paid or made by Borrower. Notwithstanding the foregoing, a Lender receiving a scheduled payment shall not be responsible for determining whether the other Lenders also received their scheduled payment on such date; provided, however, if it is later determined that a Lender received more than its ratable share of scheduled payments made on any date or dates, then such Lender shall remit to Agent or other Lenders such sums as may be necessary to ensure the ratable payment of such scheduled payments, as instructed by Agent. If any payment or distribution of any kind or character, whether in cash, properties or securities, shall be received by a Lender in excess of its ratable share, then the portion of such payment or distribution in excess of such Lenders ratable share shall be received by such Lender in trust for and shall be promptly paid over to the other Lender for application to the payments of amounts due on the other Lenders claims. To the extent any payment for the account of Borrower is required to be returned as a voidable transfer or otherwise, the Lenders shall contribute to one another as is necessary to ensure that such return of payment is on a pro rata basis. If any Lender shall obtain possession of any Collateral, it shall hold such Collateral for itself and as agent and bailee for Agent and other Lenders for purposes of perfecting Agents security interest therein.
2.12 Section 12.6 (Amendments in Writing; Integration) . Section 12.6 is amended in its entirety and replaced with the following:
12.6 Amendments in Writing; Integration . (a) No amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, or any consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrower, Agent and the Required Lenders provided that
(i) no such amendment, waiver or other modification that would have the effect of increasing or reducing a Lenders Term Loan Commitment or Commitment Percentage shall be effective as to such Lender without such Lenders written consent;
(ii) no such amendment, waiver or modification that would affect the rights and duties of Agent shall be effective without Agents written consent or signature;
(iii) no such amendment, waiver or other modification shall, unless signed by all the Lenders directly affected thereby, (A) reduce the principal of, rate of interest on or any fees with respect to any Term Loan and/or 2012 Term Loan or forgive any principal, interest (other than default interest) or fees (other than late charges) with respect to any Term Loan and/or 2012 Term Loan (B) postpone the date fixed for, or waive, any payment of principal of any Term Loan and/or 2012 Term Loan or of interest on any Term Loan and/or 2012 Term Loan (other than default interest) or any fees provided for hereunder (other than late charges or for any termination of any commitment); (C) change the definition of the term Required Lenders or the percentage of Lenders which shall be required for Lenders to take any action hereunder; (D) release all or substantially all or any material portion of the Collateral, authorize Borrower to sell or otherwise dispose of all or substantially all or any material portion of the Collateral or release any guarantor of all or any portion of the Obligations or its guaranty obligations with respect thereto, except, in each case with respect to this clause (D), as otherwise may be expressly permitted under this Agreement or the other Loan Documents (including in connection with any disposition permitted hereunder); (E) amend, waive or otherwise modify this Section 12.6 or the definitions of the terms used in this Section 12.6 insofar as the definitions affect the substance of this Section 12.6; (F) consent to the assignment, delegation or other transfer by Borrower of any of its rights and obligations under any Loan Document or release Borrower of its payment obligations under any Loan Document, except, in each case with respect to this clause (F), pursuant to a merger or consolidation permitted pursuant to this Agreement; (G) amend any of the provisions of Section 9.4 or amend any of the definitions Pro Rata Share, Term Loan Commitment, Commitment Percentage or that provide for the Lenders to receive their Pro Rata Shares of any fees, payments, setoffs or proceeds of Collateral hereunder; (H) subordinate the Liens granted in favor of Agent securing the Obligations; or (I) amend any of the provisions of Section 12.10. It is hereby understood and agreed that all Lenders shall be deemed directly affected by an amendment, waiver or other modification of the type described in the preceding clauses (C), (D), (E), (F), (G) and (H) of the preceding sentence;
(iv) the provisions of the foregoing clauses (i), (ii) and (iii) are subject to the provisions of any interlender or agency agreement among the Lenders and Agent pursuant to which any Lender may agree to give its consent in connection with any amendment, waiver or modification of the Loan Documents only in the event of the unanimous agreement of all Lenders.
(b) Other than as expressly provided for in Section 12.6(a)(i)-(iii), Agent may, if requested by the Required Lenders, from time to time designate covenants in this Agreement less restrictive by notification to a representative of Borrower.
(c) This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.
2.13 Section 12.9 (Confidentiality) . Section 12.9 is amended in its entirety and replaced with the following:
12.9 Confidentiality . In handling any confidential information of Borrower, the Lenders and Agent shall exercise the same degree of care that it exercises for their own proprietary information, but disclosure of information may be made: (a) subject to the terms and conditions of this Agreement, to the Lenders and Agents Subsidiaries or Affiliates, or in connection with a Lenders own financing or securitization transactions and upon the occurrence of a default, event of default or similar occurrence with respect to such financing or securitization transaction; (b) to prospective transferees (other than those identified in (a) above) or purchasers of any interest in the Credit Extensions (provided, however, the Lenders and Agent shall, except upon the occurrence and during the continuance of an Event of Default, obtain such prospective transferees or purchasers agreement to the terms of this provision or to similar confidentiality terms); (c) as required by law, regulation, subpoena, or other order; (d) to Lenders or Agents regulators or as otherwise required in connection with an examination or audit; (e) as Agent reasonably considers appropriate in exercising remedies under the Loan Documents; and (f) to third party service providers of the Lenders and/or Agent so long as such service providers have executed a confidentiality agreement with the Lenders and Agent with terms no less restrictive than those contained herein. Confidential information does not include information that either: (i) is in the public domain or in the Lenders and/or Agents possession when disclosed to the Lenders and/or Agent, or becomes part of the public domain after disclosure to the Lenders and/or Agent; or (ii) is disclosed to the Lenders and/or Agent by a third party, if the Lenders and/or Agent does not know that the third party is prohibited from disclosing the information. Agent and the Lenders may use confidential information for any purpose, including, without limitation, for the development of client databases, reporting purposes, and market analysis. The provisions of the immediately preceding sentence shall survive the termination of this Agreement. The agreements provided under this Section 12.9 supersede all prior agreements, understanding, representations, warranties, and negotiations between the parties about the subject matter of this Section 12.9.
2.14 Section 13.1 (Cooperation of Borrower) . Section 13.1 is amended in its entirety and replaced with the following:
13.12 Cooperation of Borrower . If necessary, Borrower agrees to (i) execute any documents (including new Secured Promissory Notes) reasonably required to effectuate and acknowledge each assignment of a Term Loan Commitment or Loan to an assignee in accordance with Section 12.1, (ii) make Borrowers management available to meet with Agent and prospective participants and assignees of Term Loan Commitments or Credit Extensions (which meetings shall be conducted no more often than twice every twelve months unless an Event of Default has occurred and is continuing) and (iii) assist Agent or the Lenders in the preparation of information relating to the financial affairs of Borrower as any prospective participant or assignee of a Term Loan Commitment or Term Loan and/or 2012 Term Loan reasonably may request. Subject to the provisions of Section 12.9 Borrower authorizes each Lender to disclose to any prospective participant or assignee of a Term Loan Commitment, any and all information in such Lenders possession concerning Borrower and its financial affairs which has been delivered to such Lender by or on behalf of Borrower pursuant to this Agreement, or which has been delivered to such Lender by or on behalf of Borrower in connection with such Lenders credit evaluation of Borrower prior to entering into this Agreement.
2.15 Section 13 (Definitions) . The following terms and their respective definitions set forth in Section 13.1 are amended in their entirety and replaced with the following:
Basic Rate means with respect to: (a) Term Loans, the per annum rate of interest (based on a year of 360 days) equal to the greater of (i) 10.00% and (ii) the sum of (x) the Prime Rate three (3) Business Days prior to the Funding Date of such Term Loan, plus (y) 6.00%, and (b) 2012 Term Loans, the per annum rate of interest (based on a year of 360 days) equal to the greater of (i) 9.00% and (ii) the sum of (x) WSJ Prime Rate three (3) Business Days prior to the Funding Date of such 2012 Term Loan, plus (y) 5.75%.
Credit Extension is any Term Loan, 2012 Term Loan, or any other extension of credit by Agent or Lenders for Borrowers benefit.
Final Payment is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the earliest to occur of:
(A) with respect to Term Loans: (i) the Maturity Date, or (ii) the acceleration of any Term Loan, or (c) the prepayment of a Term Loan pursuant to Section 2.2(c) or (d), equal to the original principal amount of such Term Loan multiplied by the Final Payment Percentage, payable to Lenders in accordance with their respective Pro Rata Shares, and
(b) with respect to 2012 Term Loans: (i) the applicable 2012 Maturity Date, or (ii) the acceleration of any 2012 Term Loan, or (c) the prepayment of a 2012 Term Loan pursuant to Section 2.2.1(c) or (d), equal to the original principal amount of such 2012 Term Loan multiplied by the Final Payment Percentage, payable to Lenders in accordance with their respective Pro Rata Shares.
Final Payment Percentage is (a) for Term Loans, 2.75% and (b) for 2012 Term Loans, 2.90%.
Prepayment Fee means with respect to any:
(A) Term Loan subject to prepayment prior to the Maturity Date, whether by mandatory or voluntary prepayment, acceleration or otherwise, an additional fee payable to the Lenders in amount equal to:
(i) for a prepayment made on or after the Funding Date of such Term Loan through and including the first anniversary of the Funding Date of such Term Loan, four percent (4.00%) of the principal amount of such Term Loan prepaid;
(ii) for a prepayment made after the date which is after the first anniversary of the Funding Date of such Term Loan through and including the second anniversary of the Funding Date of such Term Loan, two percent (2.00%) of the principal amount of the Term Loans prepaid; and
(iii) for a prepayment made after the date which is after the second anniversary of the Funding Date of such Term Loan but prior to the Maturity Date, one percent (1.00%) of the principal amount of the Term Loans prepaid.
(B) 2012 Term Loan subject to prepayment prior to the applicable 2012 Maturity Date, whether by mandatory or voluntary prepayment, acceleration or otherwise, an additional fee payable to the Lenders in amount equal to:
(i) for a prepayment made on or after the Funding Date of such 2012 Term Loan through and including the first anniversary of the Funding Date of such 2012 Term Loan, four percent (4.00%) of the principal amount of such 2012 Term Loan prepaid;
(ii) for a prepayment made after the date which is after the first anniversary of the Funding Date of such 2012 Term Loan through and including the second anniversary of the Funding Date of such 2012 Term Loan, two percent (2.00%) of the principal amount of such 2012 Term Loan prepaid; and
(iii) for a prepayment made after the date which is after the second anniversary of the Funding Date of such 2012 Term Loan but prior to the applicable 2012 Maturity Date, one percent (1.00%) of the principal amount of such 2012 Term Loan prepaid.
Pro Rata Share means, as of any date of determination, with respect to each Lender, a percentage (expressed as a decimal, rounded to the ninth decimal place) determined by dividing the outstanding principal amount of Term Loans and 2012 Term Loans held by such Lender by the aggregate outstanding principal amount of all Term Loans and 2012 Term Loans.
Required Lenders means (i) for so long as all of the Persons that are Lenders on the Effective Date (each an Original Lender ) have not assigned or transferred any of their interests in their Term Loan and/or 2012 Term Loan, Lenders holding one hundred percent (100%) of the aggregate outstanding principal balance of the Term Loan and 2012 Term Loan, or (ii) at any time from and after any Original Lender has assigned or transferred any interest in its Term Loan and/or 2012 Term Loan, Lenders holding at least sixty six percent (66%) of the aggregate outstanding principal balance of the Term Loan and 2012 Term Loan and, in respect of this clause (ii), (A) each Original Lender that has not assigned or transferred any portion of its Term Loan and/or 2012 Term Loan, (B) each assignee or transferee of an Original Lenders interest in the Term Loan and/or 2012 Term Loan, but only to the extent that such assignee or transferee is an Affiliate or Approved Fund of such Original Lender, and (C) any Person providing financing to any Person described in clauses (A) and (B) above; provided, however, that this clause (C) shall only apply upon the occurrence of a default, event of default or similar occurrence with respect to such financing.
Term Loan Commitment means, for any Lender, the obligation of such Lender to make a Term Loan and/or 2012 Term Loan, up to the principal amount shown on Schedule 1.1 . Term Loan Commitments means the aggregate amount of such commitments of all Lenders.
2.16 Section 13.1 (Definitions) . The Loan Agreement is amended by inserting the following new definitions to appear alphabetically in Section 13.1 thereof:
2012 Amortization Date is for each 2012 Term Loan, the first Payment Date following the six (6) month anniversary of the Funding Date of such 2012 Term Loan, provided that if the Funding Date occurs on the first (1 st ) calendar day of the month, the Amortization Date for such 2012 Term Loan shall be the six (6) month anniversary of the Funding Date of such 2012 Term Loan.
2012 Effective Date is December 20, 2012 (date of this Amendment).
2012 First Draw Period means the period commencing on the 2012 Effective Date and ending on the earlier of (i) December 31, 2012 and (ii) the occurrence of an Event of Default.
2012 Maturity Date is, for each 2012 Term Loan, the Payment Date that is thirty-two (32) months after the applicable 2012 Amortization Date for such 2012 Term Loan.
2012 Second Draw Period means the period commencing upon the occurrence of the Milestone Event and ending on the earlier of (i) February 28, 2013 and (ii) the occurrence of an Event of Default.
2012 Term Loan is defined in Section 2.2.1(a)(ii) hereof.
2012 Term A Loan is defined in Section 2.2.1(a)(i) hereof.
2012 Term B Loan is defined in Section 2.2.1(a)(ii) hereof.
Board means Borrowers board of directors.
FDA means the United States Food and Drug Administration.
Milestone Event means: (i) Borrower has delivered to Agent and Lenders, certified Board minutes, in form and substance acceptable to Lenders in their good faith business judgment, evidencing the Boards decision, based upon a positive meeting with the FDA regarding the results of the phase II trials relating to intravenously-administered eravacycline, to proceed with a phase III trial relating to intravenously-administered eravacycline, and (ii) based on conversations with Borrowers management and Board, satisfactory to Lenders in their good faith business judgment, the financing strategy proposed by Borrower will enable Borrower to satisfy its Obligations as they become due and payable.
WSJ Prime Rate is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the prime rate then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Agent, the Prime Rate shall mean the rate of interest per annum announced by Agent as its prime rate in effect at its principal office in the State of California (such Agent announced Prime Rate not being intended to be the lowest rate of interest charged by Agent in connection with extensions of credit to debtors).
2.17 Schedule 1.1 (Lenders and Commitments) . Schedule 1.1 is amended in its entirety and replaced with Schedule 1.1 in the form of Exhibit A attached hereto.
2.18 Exhibit B (Loan Payment/Advance Request Form) . The Loan Payment/Advance Request From is amended in its entirety and replaced with the Loan Payment/Advance Form in the form of Exhibit B attached hereto.
2.19 Exhibit D (Promissory Note) . The Promissory Note is amended in its entirety and replaced with the Promissory Note in the form of Exhibit C attached hereto.
3. Limitation of Amendments .
3.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
4. Representations and Warranties . To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
4.3 The organizational documents of Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and
4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
5. Updated Perfection Certificate . Borrower has delivered an updated Perfection Certificate in connection with this Amendment (the Updated Perfection Certificate ) dated as of December 20, 2012, which Updated Perfection Certificate shall supersede in all respects that certain Perfection Certificate dated as of May 16, 2011. Borrower agrees that all references in the Loan Agreement to Perfection Certificate shall hereinafter be deemed to be a reference to the Updated Perfection Certificate.
6. Integration . This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
7. Counterparts . This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
8. Effectiveness . This Amendment shall be deemed effective upon (a) the due execution and delivery to Agent of (i) this Amendment by each party hereto and (ii) each of the closing deliverables set forth on the Document Agenda attached as Exhibit D hereto, and (b) Borrowers payment of (i) an amendment fee in an amount equal to Fifty Thousand Dollars ($50,000) to be shared between the Lenders pursuant to their respective Commitment Percentages, and (ii) Lenders Expenses.
[Signature page follows.]
I N W ITNESS W HEREOF , the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By |
/s/ David Lubner |
|
Name: |
David Lubner |
|
Title: |
Senior Vice Predisent and Chief Financial Officer |
|
TETRAPHASE SECURITIES CORPORATION | ||
By |
/s/ David Lubner |
|
Name: |
David Lubner |
|
Title: |
Senior Vice Predisent and Chief Financial Officer |
|
AGENT AND LENDERS: | ||
SILICON VALLEY BANK, as Agent and a Lender | ||
By |
/s/ Kathleen Walsh |
|
Name: |
Kathleen Walsh |
|
Title: |
Relationship Manager |
|
OXFORD FINANCE LLC, as a Lender | ||
By |
/s/ Timothy A. Lex |
|
Name: |
Timothy A. Lex |
|
Title: |
Chief Operating Officer |
|
OXFORD FINANCE FUNDING TRUST 2012-1 | ||
By: Oxford Finance LLC, as servicer | ||
By |
/s/ Timothy A. Lex |
|
Name: |
Timothy A. Lex |
|
Title: |
Chief Operating Officer |
Exhibit A
SCHEDULE 1.1
LENDERS AND COMMITMENTS
Term Loans
Term A Loans
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance Funding Trust 2012-1 |
$ | 750,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 750,000 | 50 | % | ||||
|
|
|
|
|||||
TOTAL |
$ | 1,500,000 | 100.00 | % | ||||
|
|
|
|
Term B Loans
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance Funding Trust 2012-1 |
$ | 3,250,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 3,250,000 | 50 | % | ||||
|
|
|
|
|||||
TOTAL |
$ | 6,500,000 | 100.00 | % | ||||
|
|
|
|
Aggregate (all Term Loans)
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance Funding Trust 2012-1 |
$ | 4,000,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 4,000,000 | 50 | % | ||||
|
|
|
|
|||||
TOTAL |
$ | 8,000,000 | 100.00 | % | ||||
|
|
|
|
2012 Term Loans
2012 Term A Loans
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance LLC |
$ | 3,100,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 3,100,000 | 50 | % | ||||
|
|
|
|
|||||
TOTAL |
$ | 6,200,000 | 100.00 | % | ||||
|
|
|
|
2012 Term B Loans
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance LLC |
$ | 1,500,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 1,500,000 | 50 | % | ||||
|
|
|
|
|||||
TOTAL |
$ | 3,000,000 | 100.00 | % | ||||
|
|
|
|
Aggregate (all 2012 Term Loans)
Lender |
Term Loan Commitment | Commitment Percentage | ||||||
Oxford Finance LLC |
$ | 4,600,000 | 50 | % | ||||
Silicon Valley Bank |
$ | 4,600,000 | 50 | % | ||||
|
|
|
|
|||||
TOTAL |
$ | 9,200,000 | 100.00 | % | ||||
|
|
|
|
Exhibit B
EXHIBIT B
Loan Payment/Advance Request Form
DISBURSEMENT LETTER
The undersigned, being the duly elected and acting of TETRAPHASE PHARMACEUTICALS, INC. , a Delaware corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase ) and TETRAPHASE SECURITIES CORPORATION , a Massachusetts corporation with offices located at 480 Arsenal Street, Suite 110, Watertown, Massachusetts 02472 ( Tetraphase Securities ; Tetraphase and Tetraphase Securities are referred to herein, individually and collectively, jointly and severally, as Borrower), does hereby certify in such capacity to SILICON VALLEY BANK , as Agent (the Agent ) in connection with that certain Loan and Security Agreement dated as of May 16, 2011 by and between Borrower, the Lenders party thereto and Agent, as amended by that certain First Amendment to Loan and Security Agreement dated as of December , 2012 by and between the Borrower, the Lenders party thereto and Agent (the Loan Agreement ; with other capitalized terms used below having the meanings ascribed thereto in the Loan Agreement) that:
1. The representations and warranties made by Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects as of the date hereof.
2. No event or condition has occurred that would constitute an Event of Default under the Loan Agreement or any other Loan Document.
3. Borrower is in compliance with the covenants and requirements contained in Sections 4, 6 and 7 of the Loan Agreement.
4. All conditions referred to in Section 3 of the Loan Agreement to the making of the 2012 Term Loan to be made on or about the date hereof have been satisfied or waived by Agent.
5. No Material Adverse Change has occurred.
6. The undersigned is a Responsible Officer.
7. Attached as Exhibit A is the amortization schedule for such 2012 Term Loan.
8. The proceeds for the 2012 Term Loan shall be disbursed as follows:
The aggregate net proceeds of the 2012 Term Loan in the amount of $ shall be transferred to Borrowers account as follows:
Account Name: | Tetraphase Securities Corporation | |
Bank Name: | Silicon Valley Bank | |
Bank Address: | 3003 Tasman Drive, Santa Clara, CA 96054 | |
Account Number: | 3300552835 | |
ABA Number: | 121140399 |
Dated: , 2012
BORROWER: | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By |
|
|
Name: |
|
|
Title: |
|
|
TETRAPHASE SECURITIES CORPORATION | ||
By |
|
|
Name: |
|
|
Title: |
|
|
AGENT AND LENDERS: | ||
SILICON VALLEY BANK, as Agent and a Lender | ||
By |
|
|
Name: |
|
|
Title: |
|
|
OXFORD FINANCE LLC, as a Lender | ||
By |
|
|
Name: |
|
|
Title: |
|
|
OXFORD FINANCE FUNDING TRUST 2012-1 | ||
By: Oxford Finance LLC, as servicer | ||
By |
|
|
Name: |
|
|
Title: |
|
Exhibit A to Disbursement Letter
Amortization Schedule attached hereto
Exhibit C
EXHIBIT D
SECURED PROMISSORY NOTE
$ | Dated: , 2012 |
FOR VALUE RECEIVED, the undersigned, , a corporation with offices located at ( Borrower ) HEREBY PROMISES TO PAY to the order of OXFORD FINANCE LLC/SILICON VALLEY BANK ( Lender ) the principal amount of [ ] MILLION DOLLARS [($ )] or such lesser amount as shall equal the outstanding principal balance of the 2012 Term Loan made to Borrower by Lender, plus interest on the aggregate unpaid principal amount of 2012 Term Loan, at the rates and in accordance with the terms of the Loan and Security Agreement dated May 16, 2011 by and among Borrower, Silicon Valley Bank, as Agent and as a Lender, and the Lenders from time to time party thereto, as amended by that certain First Amendment to Loan and Security Agreement dated as December , 2012 by and among Borrower, Silicon Valley Bank, as Agent and as a Lender, and the Lenders from time to time party thereto (as amended, restated, supplemented or otherwise modified from time to time, the Loan Agreement). If not sooner paid, the entire principal amount and all accrued and unpaid interest hereunder shall be due and payable on the applicable 2012 Maturity Date as set forth in the Loan Agreement. Any capitalized term not otherwise defined herein shall have the meaning attributed to such term in the Loan Agreement.
Borrower agrees to pay any initial partial monthly interest payment from the date the 2012 Term Loan is made to Borrower under this Secured Promissory Note (this Note) to the first Payment Date (Interim Interest) on the first Payment Date.
Principal, interest and all other amounts due with respect to the 2012 Term Loan, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement and this Note. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.
The Loan Agreement, among other things, (a) provides for the making of a secured 2012 Term Loan by Lender to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.
This Note may not be prepaid except as set forth in Section 2.2.1 (c) and Section 2.2.1(d) of the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal amount of the 2012 Term Loan, interest on the 2012 Term Loan and all other amounts due Lender under the Loan Agreement is secured under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys fees and costs, incurred by Lender in the enforcement or attempt to enforce any of Borrowers obligations hereunder not performed when due.
This Note shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York.
Note Register; Ownership of Note . The ownership of an interest in this Note shall be registered on a record of ownership maintained by Lender or its agent. Notwithstanding anything else in this Note to the contrary, the right to the principal of, and stated interest on, this Note may be transferred only if the transfer is registered on such record of ownership and the transferee is identified as the owner of an interest in the obligation. Borrower shall be entitled to treat the registered holder of this Note (as recorded on such record of ownership) as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in this Note on the part of any other person or entity.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.
BORROWER: | ||
TETRAPHASE PHARMACEUTICALS, INC . | ||
By |
|
|
Name: |
|
|
Title: |
|
|
TETRAPHASE SECURITIES CORPORATION | ||
By |
|
|
Name: |
|
|
Title: |
|
Exhibit D
SILICON VALLEY BANK
OXFORD FINANCE LLC
TERM LOAN FACILITY
WITH
TETRAPHASE PHARMACEUTICALS, INC.
Responsible
|
||
AUTHORITY DOCUMENTS | ||
I. Tetraphase Pharmaceuticals, Inc. (TPI) |
||
Certificate of Incorporation, as amended (certified by Delaware SOS within 30 days of the 2012 Effective Date) |
BC | |
By-Laws, as amended |
BC | |
Certificate of Good Standing (Long Form) Delaware |
BC | |
Certificate of Foreign Qualification Massachusetts |
BC | |
Secretarys Corporate Borrowing Certificate |
AC | |
Copy of Shareholder Consent |
BC | |
II. Tetraphase Securities Corporation (TSC) |
||
Articles of Organization, as amended (certified by Massachusetts SOC within 30 days of the 2012 Effective Date) |
BC | |
By-Laws, as amended |
BC | |
Certificate of Good Standing (Long Form) Massachusetts |
BC | |
Certificates of Foreign Qualification as applicable |
N/A | |
Secretarys Corporate Borrowing Certificate |
AC | |
Shareholder Consent, if necessary |
N/A |
1 |
AC = Agents Counsel - Riemer & Braunstein LLP |
BC = Borrowers Counsel Wilmer, Cutler, Pickering Hale & Dorr LLP |
Responsible Party 1 |
||
LOAN DOCUMENTS | ||
First Amendment to Loan and Security Agreement |
AC | |
Secured Promissory Notes (a) SVB (b) Oxford |
AC | |
Disbursement Letter |
AC | |
Payment Advance Form |
AC | |
Perfection Certificate (to be completed by Borrower and delivered to Lenders prior to closing) |
AC/BC | |
Post-Closing Letter, if necessary |
AC | |
Warrants
SVB
Oxford |
AC | |
MISCELLANEOUS |
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UCC and other Lien Searches for each Borrower |
AC | |
Intellectual Property Search Results |
AC | |
Legal Opinion of Borrowers counsel |
BC | |
Evidence of Insurance (On Acord 28 and Acord 25 Forms) |
BC | |
Insurance Policy Endorsements |
BC | |
Invoice for Loan Charges |
AC | |
Payment of Fees |
Borrower | |
Lenders Fees
Legal Fees and Expenses |
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Capitalization Table |
BC |
EXHIBIT 10.24
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
WARRANT TO PURCHASE STOCK
Company: Tetraphase Pharmaceuticals, Inc., a Delaware corporation Number of Shares: As set forth below. Class of Stock: Series C Convertible Participating Preferred Stock, $0.001 par value per share |
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Warrant Price: | $0.2571, subject to adjustment | |
Issue Date: | December 20, 2012 | |
Expiration Date: | December 20, 2022 | |
Credit Facility: | This Warrant is issued in connection with that certain First Amendment to Loan and Security Agreement of even date herewith among Silicon Valley Bank, Oxford Finance LLC, Tetraphase Securities Corporation, and the Company which amends that certain Loan and Security Agreement, dated May 16, 2011 among said parties (as amended, the Loan Agreement). |
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (Silicon Valley Bank, together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, is referred to hereinafter as Holder) is entitled to purchase the number of fully paid and nonassessable shares (the Shares) of the class of securities (the Class) of the above-named company (the Company) as set forth below at the above-stated Warrant Price, all as set herein and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
A. Number of Shares . This Warrant shall be exercisable for the Initial Shares, plus the Additional Shares (if any), and subject to adjustment from time to time in accordance with the provisions of this Warrant.
(i) Initial Shares . As used herein, Initial Shares means upon the draw of any portion of the 2012 Term A Loan (as defined in the Loan Agreement) made to the Company under the Loan Agreement, this Warrant automatically become exercisable for 482,303 shares of the Class, subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.
(ii) Additional Shares . Upon the draw of any portion of the 2012 Term B Loan (as defined in the Loan Agreement) made to the Company under the Loan Agreement, this Warrant automatically shall also become exercisable for an additional 233,372 shares of the Class at the Warrant Price in effect at such time, all subject to adjustment thereafter from time to time in accordance with the provisions of this Warrant. Cumulatively, the additional shares of the Class for which the Warrant becomes exercisable for pursuant to this paragraph A(ii) are referred to as the Additional Shares.
ARTICLE 1. EXERCISE .
1.1 Method of Exercise . Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a certified or bank check, wire transfer of immediately available funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right . In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time elect to convert this Warrant, in whole or in part, on a cashless basis by delivering the original of this Warrant together with a duly executed Notice of Exercise and by canceling a portion of this Warrant in payment of the Warrant Price payable in respect of the number of Shares purchased upon such exercise. In the event of an exercise pursuant to this Article 1.2, the number of Shares issued to the holder shall be determined by dividing (a) the aggregate fair market value of the Shares for which this Warrant is being exercised (which shall include both the number of Shares issued to the Holder and the number of Shares subject to the portion of the Warrant being cancelled) minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.
1.3 Fair Market Value. If the Companys common stock is then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a Trading Market) and the Class is common stock, the fair market value of a Share shall be the closing price or last sale price of a share of common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Companys common stock is then traded in a Trading Market and the Class is a series of the Companys convertible preferred stock, the fair market value of a Share shall be the closing price or last sale price of a share of the Companys common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company multiplied by the number of shares of the Companys common stock into which a Share is then convertible. If the Companys common stock is not traded in a Trading Market, the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.
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1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.
1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company .
1.6.1 Acquisition . For the purpose of this Warrant, Acquisition means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Companys securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.
1.6.2 Treatment of Warrant at Acquisition .
A) Holder agrees that, in the event of an Acquisition in which the consideration is solely cash, solely Marketable Securities, or a combination of cash and Marketable Securities, Holder shall either (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire or (b) elect not to exercise its conversion or purchase right under this Warrant, in which case this Warrant will expire upon the closing of such Acquisition. The Company shall provide the Holder with written notice of any Acquisition (together with such reasonable information as the Holder may request in connection with such Acquisition) not less than ten (10) days prior to the closing of the proposed Acquisition.
B) Holder agrees that, in the event of an Acquisition that is an arms length sale of all or substantially all of the Companys assets to a third party that is not an Affiliate (as defined below) of the Company (a True Asset Sale), Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire; provided, however, that if the Company continues as a going concern following the closing of any such True Asset Sale and Holder elects not to exercise the Warrant, this Warrant will continue to be exercisable until the Expiration Date. The Company shall provide the Holder with such reasonable information as the Holder may request in connection with such contemplated Acquisition, which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.
C) Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and
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property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.
As used herein Affiliate shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such persons or entitys officers, directors, joint venturers or partners, as applicable.
As used herein, Marketable Securities means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) following the closing of such Acquisition, Holder would not be restricted from publicly re-selling all of the issuers shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing of such Acquisition, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, and (y) does not extend beyond six (6) months from the closing of such Acquisition.
ARTICLE 2. ADJUSTMENTS TO THE SHARES .
2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend on the outstanding shares of the Class payable in Common Stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares as of the record date for the dividend. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of Common Stock into which the one share of the Class is convertible, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares of the Class, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.
2.2 Reclassification, Exchange, Combinations or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant (other than those transactions contemplated by Article 1.6 or Article 2.1), Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the
4
same class or series as the Shares to Common Stock pursuant to the terms of the Companys Amended and Restated Certificate of Incorporation, as amended from time to time (the Certificate of Incorporation). The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Diluting Issuances . The number of shares of Common Stock issuable upon conversion of the Shares shall be subject to adjustment, from time to time in the manner set forth in the Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Class in the Certificate of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of Class.
2.4 No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, 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 under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article against impairment.
2.5 Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Companys expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.
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ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .
3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows, as of the Issue Date:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the same class and series as the Shares were last issued in an arms-length transaction in which at least $500,000 of such shares were sold.
(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete as of the Issue Date.
3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the same class and series as the Shares, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the same class and series as the Shares any additional shares of any class or series of the Companys stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of any of its stock; (d) to effect an Acquisition or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the companys securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.
3.3 Intentionally Omitted.
3.4 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.
3.5 Certain Information . At all times prior to the earlier to occur of (i) the IPO, or (ii) the Acquisition of the Company by an entity subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the Company agrees to provide Holder at any time and from time to time with such information as Holder may reasonably request for purposes of Holders compliance
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with regulatory, accounting and reporting requirements applicable to Holder. Holder agrees to treat and hold all such information provided by the Company in confidence in accordance with the provisions of Section 12.9 of the Loan Agreement (regardless of whether the Loan Agreement is still then in force and effect).
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information. Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.
4.6 Lockup Agreements . The Holder, if the Company or the managing underwriter(s) so request in connection with the Companys initial underwritten public offering, will not, transfer or dispose of any equity securities of the Company, without the prior written consent of the Company or such underwriter(s) and provided that the officers and directors of the Company and all holders (other than, for
7
purposes of this determination, such Holder) of at least two percent (2%) of all of the issued and outstanding shares of capital stock of the Company (determined on an as-converted basis) also agree not to, transfer or dispose any equity securities of the Company, including any sale pursuant to Rule 144 of the Commission under the Securities Act, during the seven (7) days prior to, and during the one hundred eighty (180) day period commencing on the effective date of such initial underwritten public offering, subject to extension in order to ensure FINRA compliance, except in connection with such initial underwritten public offering. The Company may impose stop-transfer instructions with respect to the Shares or other securities subject to the foregoing restriction until the end of such 180-day period. Any discretionary waiver or termination of the foregoing restriction by the Company or the underwriters shall apply pro rata to all Holders, based on the number of Shares held by such Holders, and prompt written notice of such discretionary waiver or termination shall be given to all Holders of the Shares.
ARTICLE 5. MISCELLANEOUS .
5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.
5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO SILICON VALLEY BANK DATED AS OF DECEMBER 20, 2012, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Banks parent company) or any other affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act.
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5.4 Transfer Procedure. After receipt by Silicon Valley Bank (Bank) of the executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group, Holders parent company. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.
5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first Business Day after transmission by facsimile) be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HA 200
Santa Clara, CA 95054
Telephone: 408-654-7400
Facsimile: 408-496-2405
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Tetraphase Pharmaceuticals, Inc.
Attn: Chief Operating Officer
480 Arsenal Street, Suite 110
Watertown, MA 02462
Telephone: 617-715-3551
Facsimile: 617-715-3557
5.6 Amendment and Waiver . This Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.
5.7 Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
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5.8 Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Article 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Article 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.
5.9 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.
5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.
5.11 Business Days . Business Day is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.
COMPANY | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ David Lubner |
|
Name: |
David Lubner |
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(Print) | ||
Title: | Senior Vice President and Chief Financial Officer | |
HOLDER | ||
SILICON VALLEY BANK | ||
By: |
/s/ Kathleen Walsh |
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Name: |
Kathleen Walsh |
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(Print) | ||
Title: | Relationship Manager |
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APPENDIX 1
NOTICE OF EXERCISE
1. Holder elects to purchase shares of the Common/Series Preferred [strike one] Stock of pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.
[or]
1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing the shares in the name specified below:
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Holders Name |
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(Address) |
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.
HOLDER: | ||
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By: |
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Name: |
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Title: |
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(Date): |
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Appendix 1 - 1
SCHEDULE 1
Company Capitalization Table
Tetraphase Pharmaceuticals, Inc.
|
Number of Authorized
Shares |
Number of Outstanding
Shares |
||||||
Common Stock |
317,789,510 | 9,322,696 | ||||||
Series A-1 Convertible Participating Preferred Stock |
10,072,000 | 10,040,000 | ||||||
Series A-2 Convertible Participating Preferred Stock |
13,095,646 | 13,095,646 | ||||||
Series B Convertible Participating Preferred Stock |
57,471,225 | 57,471,225 | ||||||
Series C Convertible Participating Preferred Stock |
178,405,286 | 175,418,122 |
Schedule 1 - 1
EXHIBIT 10.25
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
WARRANT TO PURCHASE STOCK
Company: Tetraphase Pharmaceuticals, Inc., a Delaware corporation | ||
Number of Shares: 482,302, subject to adjustment | ||
Class of Stock: | Series C Convertible Participating Preferred Stock, $0.001 par value per share | |
Warrant Price: | $0.2571, subject to adjustment | |
Issue Date: | December 20, 2012 | |
Expiration Date: | December 20, 2022 | |
Credit Facility: | This Warrant is issued in connection with that certain First Amendment to Loan and Security Agreement of even date herewith among Silicon Valley Bank, Oxford Finance LLC, Tetraphase Securities Corporation, and the Company which amends that certain Loan and Security Agreement, dated May 16, 2011 among said parties (as amended, the Loan Agreement). |
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, OXFORD FINANCE LLC (Oxford and, together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, Holder ) is entitled to purchase the number of fully paid and non-assessable shares (the Shares ) of the above-stated Type/Series of Stock (the Class ) of the above-named company (the Company ) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE .
1.1 Method of Exercise . Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a certified or bank check, wire transfer of immediately available funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right . In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time elect to convert this Warrant, in whole or in part, on a cashless basis by delivering the original of this Warrant together with a duly executed Notice of Exercise and by canceling a portion of this Warrant in payment of the Warrant Price payable in respect of the number of Shares purchased upon such exercise. In the event of an exercise pursuant to this Article 1.2, the number of Shares issued to the holder shall be determined by dividing (a) the aggregate fair market value of the Shares for which this Warrant is being exercised (which shall include both the number of Shares issued to the Holder and the number of Shares subject to the portion of the Warrant being cancelled) minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.
1.3 Fair Market Value. If the Companys common stock is then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a Trading Market) and the Class is common stock, the fair market value of a Share shall be the closing price or last sale price of a share of common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Companys common stock is then traded in a Trading Market and the Class is a series of the Companys convertible preferred stock, the fair market value of a Share shall be the closing price or last sale price of a share of the Companys common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company multiplied by the number of shares of the Companys common stock into which a Share is then convertible. If the Companys common stock is not traded in a Trading Market, the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.
1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company .
1.6.1 Acquisition . For the purpose of this Warrant, Acquisition means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Companys securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.
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1.6.2 Treatment of Warrant at Acquisition .
A) Holder agrees that, in the event of an Acquisition in which the consideration is solely cash, solely Marketable Securities, or a combination of cash and Marketable Securities, Holder shall either (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire or (b) elect not to exercise its conversion or purchase right under this Warrant, in which case this Warrant will expire upon the closing of such Acquisition. The Company shall provide the Holder with written notice of any Acquisition (together with such reasonable information as the Holder may request in connection with such Acquisition) not less than ten (10) days prior to the closing of the proposed Acquisition.
B) Holder agrees that, in the event of an Acquisition that is an arms length sale of all or substantially all of the Companys assets to a third party that is not an Affiliate (as defined below) of the Company (a True Asset Sale), Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the closing of such Acquisition and any part of this Warrant not exercised by the closing of such Acquisition will expire; provided, however, that if the Company continues as a going concern following the closing of any such True Asset Sale and Holder elects not to exercise the Warrant, this Warrant will continue to be exercisable until the Expiration Date. The Company shall provide the Holder with such reasonable information as the Holder may request in connection with such contemplated Acquisition, which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.
C) Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.
As used herein Affiliate shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such persons or entitys officers, directors, joint venturers or partners, as applicable.
As used herein, Marketable Securities means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) following the closing of such Acquisition, Holder would not be restricted from publicly re-selling all of the issuers shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert
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this Warrant in full on or prior to the closing of such Acquisition, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, and (y) does not extend beyond six (6) months from the closing of such Acquisition.
ARTICLE 2. ADJUSTMENTS TO THE SHARES .
2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend on the outstanding shares of the Class payable in Common Stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares as of the record date for the dividend. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of Common Stock into which the one share of the Class is convertible, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares of the Class, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.
2.2 Reclassification, Exchange, Combinations or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant (other than those transactions contemplated by Article 1.6 or Article 2.1), Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to Common Stock pursuant to the terms of the Companys Amended and Restated Certificate of Incorporation, as amended from time to time (the Certificate of Incorporation). The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Diluting Issuances . The number of shares of Common Stock issuable upon conversion of the Shares shall be subject to adjustment, from time to time in the manner set forth in the Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Class in the Certificate of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment,
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modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of Class.
2.4 No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, 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 under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article against impairment.
2.5 Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Companys expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .
3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows, as of the Issue Date:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the same class and series as the Shares were last issued in an arms-length transaction in which at least $500,000 of such shares were sold.
(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete as of the Issue Date.
3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the same class and series as the Shares, whether in cash, property, stock, or other securities and
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whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the same class and series as the Shares any additional shares of any class or series of the Companys stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of any of its stock; (d) to effect an Acquisition or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the companys securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of shares of the same class and series as the Shares will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.
3.3 Intentionally Omitted.
3.4 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.
3.5 Certain Information . At all times prior to the earlier to occur of (i) the IPO, or (ii) the Acquisition of the Company by an entity subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the Company agrees to provide Holder at any time and from time to time with such information as Holder may reasonably request for purposes of Holders compliance with regulatory, accounting and reporting requirements applicable to Holder. Holder agrees to treat and hold all such information provided by the Company in confidence in accordance with the provisions of Section 12.9 of the Loan Agreement (regardless of whether the Loan Agreement is still then in force and effect).
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information. Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
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4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.
4.6 Lockup Agreements . The Holder, if the Company or the managing underwriter(s) so request in connection with the Companys initial underwritten public offering, will not, transfer or dispose of any equity securities of the Company, without the prior written consent of the Company or such underwriter(s) and provided that the officers and directors of the Company and all holders (other than, for purposes of this determination, such Holder) of at least two percent (2%) of all of the issued and outstanding shares of capital stock of the Company (determined on an as-converted basis) also agree not to, transfer or dispose any equity securities of the Company, including any sale pursuant to Rule 144 of the Commission under the Securities Act, during the seven (7) days prior to, and during the one hundred eighty (180) day period commencing on the effective date of such initial underwritten public offering, subject to extension in order to ensure FINRA compliance, except in connection with such initial underwritten public offering. The Company may impose stop-transfer instructions with respect to the Shares or other securities subject to the foregoing restriction until the end of such 180-day period. Any discretionary waiver or termination of the foregoing restriction by the Company or the underwriters shall apply pro rata to all Holders, based on the number of Shares held by such Holders, and prompt written notice of such discretionary waiver or termination shall be given to all Holders of the Shares.
ARTICLE 5. MISCELLANEOUS .
5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.
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5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO OXFORD FINANCE LLC DATED AS OF DECEMBER 20, 2012, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to any affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act.
5.4 Transfer Procedure. Following the issuance of this Warrant to Oxford, Oxford may transfer same in whole or in part to one or more affiliates of Oxford, and in connection with any such transfer Oxford and the affiliate transferee shall execute and deliver to the Company an Assignment substantially in the form of Appendix 2 hereto. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, such Oxford affiliate and any subsequent Holder may transfer all or part of this Warrant or the Shares issued upon exercise of this Warrant (or the securities issued upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, such Oxford affiliate or any subsequent Holder will give the Company notice of the portion of the Warrant and/or Shares (and/or securities issued upon conversion of the Shares, if any) being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Notwithstanding any contrary provision herein, at all times prior to the IPO, Holder may not, without the Companys prior written consent, transfer this Warrant or any portion hereof, or any Shares issued upon any exercise hereof, or any shares or other securities issued upon any conversion of any Shares issued upon any exercise hereof, to any person or entity who directly competes with the Company, except in connection with an Acquisition of the Company by such a direct competitor.
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5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first Business Day after transmission by facsimile) be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
Oxford Finance LLC
Attn: Ms. Maryam Zafar, Senior Counsel
133 North Fairfax Street
Alexandria, VA 22314
Facsimile: 703-519-6015
Email address: mzafar@oxfordfinance.com
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Tetraphase Pharmaceuticals, Inc.
Attn: Chief Operating Officer
480 Arsenal Street, Suite 110
Watertown, MA 02462
Telephone: 617-715-3551
Facsimile: 617-715-3557
5.6 Amendment and Waiver . This Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.
5.7 Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
5.8 Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Article 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Article 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.
5.9 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.
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5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law.
5.11 Business Days . Business Day is any day that is not a Saturday, Sunday or a day on which Oxford is closed.
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COMPANY | ||
TETRAPHASE PHARMACEUTICALS, INC. | ||
By: |
/s/ David Lubner |
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Name: |
David Lubner |
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(Print) | ||
Title: | Senior Vice President and Chief Financial Officer | |
HOLDER | ||
OXFORD FINANCE LLC | ||
By: |
/s/ Timothy A. Lex |
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Name: |
Timothy A. Lex |
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(Print) | ||
Title: | Chief Operating Officer |
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APPENDIX 1
NOTICE OF EXERCISE
1. Holder elects to purchase shares of the Common/Series Preferred [strike one] Stock of pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.
[or]
1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing the shares in the name specified below:
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Holders Name |
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(Address) |
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.
HOLDER: | ||
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By: |
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Name: |
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Title: |
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(Date): |
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Appendix 1 - 1
APPENDIX 2
FORM OF ASSIGNMENT
For value received, Oxford Finance LLC hereby sells, assigns and transfers unto
Name: [OXFORD TRANSFEREE] | ||||||
Address: |
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Tax ID: |
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that certain Warrant to Purchase Stock issued by [BORROWER] (the Company), on [ISSUE DATE] (the Warrant) together with all rights, title and interest therein.
OXFORD FINANCE LLC | ||
By: |
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Name: |
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Title: |
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Date: |
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By its execution below, and for the benefit of the Company, [OXFORD TRANSFEREE] hereby makes each of the representations and warranties set forth in Article 4 of the Warrant as of the date hereof and agrees to be bound by all provisions of the Warrant as the Holder thereof.
[OXFORD TRANSFEREE] | ||
By: |
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Name: |
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Title: |
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Appendix 2 - 1
SCHEDULE 1
Company Capitalization Table
Tetraphase Pharmaceuticals, Inc.
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Number of Authorized
Shares |
Number of Outstanding
Shares |
||||||
Common Stock |
317,789,510 | 9,322,696 | ||||||
Series A-1 Convertible Participating Preferred Stock |
10,072,000 | 10,040,000 | ||||||
Series A-2 Convertible Participating Preferred Stock |
13,095,646 | 13,095,646 | ||||||
Series B Convertible Participating Preferred Stock |
57,471,225 | 57,471,225 | ||||||
Series C Convertible Participating Preferred Stock |
178,405,286 | 175,418,122 |
Schedule 1 - 1
Exhibit 21.1
Subsidiaries of the Registrant
Name |
Jurisdiction |
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Tetraphase Securities Corporation |
Massachusetts |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated May 24, 2012, in the Registration Statement (Form S-1) and related Prospectus of Tetraphase Pharmaceuticals, Inc., for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 8, 2013